After a decade of stable medical malpractice premiums, many
health care providers are now experiencing substantial rate
increases, especially those in high-risk specialties. These
premium increases are a real problem that require an effective
solution. But the Bush Administration's response is to cap
non-economic damages, which would reduce compensation for
the most severely injured patients. The Republican plan would
unfairly provide relief to malpractice insurers at the expense of
individuals who have been injured by medical negligence without
ensuring that physicians would see any relief. The Republican
plan also would impose federal mandates in an area that is
traditionally under state jurisdiction.
Capping Awards for Damages is Unfair to Injured
Patients
While health care providers routinely perform medical miracles,
errors do occur - sometimes by physicians who have acted
negligently or have a history of providing poor medical care.
When patients are injured, they should have the right to seek
compensation for both economic and non-economic damages.
When an individual is left with a serious injury, the cost of that
injury is more than the sum of the direct medical costs and lost
wages. Individuals also may face the loss of a child or spouse,
the loss of limbs or sight, and pain and suffering associated with a
lifetime disability. A cap on non-economic damages would:
- Replace the judgment of juries with an inflexible federal standard. President
Bush has proposed, and the Republican-controlled House has approved, a
$250,000 limit on awards for non-economic damages. The Republican plan
would deprive injured patients of the right to have a jury of their peers make a
reasoned judgement about an appropriate award, based on the facts of an
individual case. Instead, compensation for non-economic damages would be
determined by a one-size-fits-all federal standard.
- Inflict the greatest harm to the most severely injured and those with the
lowest incomes. Capping non-economic damages would disproportionately
harm patients with the most severe injuries. The greater the pain and suffering
endured by patients, the more a cap would deprive them of compensation they
would otherwise be entitled to make a case for. Non-working individuals,
including women, children, and the elderly, would be especially affected by a cap
since they would not have lost wages or salary.
Fairness dictates that seriously injured patients - like those who have been paralyzed,
brain damaged, or have lost a child - do not have their rights limited. But capping
damages would have the opposite effect, making the legal system less able to redress
the harm inflicted upon these individuals, and forcing the most seriously injured to bear
the burden.
The Legal System is Not to Blame for Rising Malpractice Premiums
Calls for caps on damages and other tort reforms are usually accompanied by
denunciations of the legal system and juries. Proponents of these so-called reforms
like to talk about an out-of-control legal system where litigation is escalating, frivolous
suits are proliferating, and compensation is excessive. But a closer look at the facts
reveals a different picture.
- There is no evidence of a litigation explosion in recent years. An analysis of
14 states, published by the National Center for State Courts, found no increase in
the volume of medical malpractice cases between 1996 and 2000. In addition,
the number of malpractice payments by physicians, as reported to the National
Practitioner Data Bank, increased from only 14,608 in 1997 to 16,703 in 2001.
- Many injured patients are not compensated. While there are isolated
examples of large jury awards, the reality is that many seriously injured patients
never seek compensation. The chance that an injury caused by medical
negligence will lead to litigation is quite low (less than 2 percent), and the
frequency of malpractice claims is much smaller than instances of medical
negligence (only one malpractice claim is filed for every 7.6 adverse events
caused by medical negligence) (Localio et al., 1991)
- The legal system already has built-in protections. While more could be done
to deter frivolous suits, judges do have the authority to dismiss frivolous cases
and can reduce jury awards that they deem excessive.
The Primary Cause of Recent Premium Increases is the Insurance
Cycle
The recent rise in malpractice premiums is primarily caused by a predictable change in
the insurance cycle, not the legal system. During the mid- and late-1990s, insurers
kept premiums low (sometimes below the amount they paid out for malpractice claims)
in an effort to increase market share. Insurers were able to use relatively high
investment income from bonds and stocks to increase their earnings and keep
premiums down.
But now the cycle has turned. Insurers have begun to increase malpractice premiums
again to compensate for the price wars that kept premiums low in the 1990s and to
adjust to lower investment returns. This cycle of low premiums followed by high
premiums also occurred in the mid-1970s and mid-1980s.
A recent study by the Americans for Insurance Reform confirmed the cyclical nature of
medical malpractice premiums and concluded that malpractice premiums charged by
insurance companies "do not correspond to increases or decreases in payouts, which
have been steady for 30 years. Rather, premiums rise and fall in concert with the state
of the economy." (October 2002)
Proponents of tort reform like to cite recent increases in medical malpractice premiums
to justify caps on non-economic damages. While some of these premium increases
are steep, they were preceded by a decade of relatively stable premiums. When one
examines premiums over a longer time period - not just the last year or two after the
insurance cycle turned - the premium increases are less dramatic. According to the
annual survey conducted by Medical Liability Monitor:
- The median premium for internists increased from $6,074 to $9,580 between
1992 and 2002 (an overall increase of 58 percent over the past decade).
- The median premium for a general surgeon increased from $22,758 to $33,009
between 1992 and 2002 (an overall increase of 45 percent over the past decade).
- The median premium for an ob/gyn increased from $40,068 to $50,361 between
1992 and 2002 (an overall increase of 26 percent over the past decade).
Caps on Damages Won't Provide the Relief Doctors Are Seeking
The connection between caps on damages and lower malpractice premiums is more
tenuous than doctors may realize. While caps may reduce the amount insurance
companies have to pay out to some injured patients, other factors also affect premiums
and there is no guarantee that insurers will pass along savings to doctors in the form of
lower premiums.
- According to a new study by Weiss Ratings, while caps on non-economic
damages reduced the amount medical malpractice insurers had to pay out
between 1991 and 2002, these payout reductions did not lead to lower premiums.
In fact, the median annual premium during this period increased more in states
with caps (48.2 percent) than in states without caps (35.9 percent). (June 2003)
- An analysis by Business Week found that premiums increased at a slower rate in
states with caps during the past two years than states without caps. But in 1999
and 2000, the opposite was true: states without caps had slower premium
increases than states with caps. (March 3, 2003)
- Capping damages does not necessarily mean low premiums. Detroit has some
of the highest malpractice premiums for internists, general surgeons, and ob/gyns
in the nation, even though Michigan already caps non-economic damages at
$280,000 for most injuries (and a $500,000 cap for certain serious injuries).
(Medical Liability Monitor, October 2002)
- Some states with no cap on non-economic damages - such as New York and
Alabama - are experiencing only modest increases in malpractice premiums.
Premiums only increased between zero and five percent in 2002 for doctors in
New York. Doctors in Alabama experienced either no increase or a decrease in
premiums in 2002. (Medical Liability Monitor, October 2002)
- Enacting caps may not cause insurers to decrease premiums. In the 1980s,
when Florida approved a $450,000 cap on non-economic damages and several
other malpractice changes, the insurance commissioner required malpractice
insurers to refile their rates. Aetna Casualty and Surety and St. Paul Fire and
Marine Insurance Company said the new law would have little or no affect on
their claims costs. (Jay Angoff, joint Senate Judiciary and HELP Committee
Hearing, February 11, 2003)
Capping Damages is Not the Answer to Reducing Health Care Costs
The President claims that medical malpractice suits are "one of the prime causes" of
higher health care costs. (State of the Union address, January 28, 2003) But capping
damages will have virtually no effect on overall health care spending because
malpractice premiums account for less than one percent of national health care
expenditures. Capping damages also would have almost no affect on health insurance
premiums.
- When the Congressional Budget Office (CBO) analyzed the malpractice
legislation approved by House Republicans this year, they found that health
insurance premiums would decrease by less than half of one percent. (March 10,
2003)
- While tort reform proponents like to assume large savings from a reduction in
"defensive" medicine, the CBO has said "there is little empirical evidence on the
effect of medical malpractice tort controls on spending for defensive medicine
and, more generally, on overall health care spending." (March 10, 2003) The
congressional Office of Technology Assessment found that the effects of tort
reforms on defensive medicine "are largely unknown and are likely to be small."
(July 1994)
