Sherri votes...
and so should you!
November 2005:
This measure would change laws governing claims for negligent healthcare, including restricting non-economic damages to $350,000 (with exception), shortening time limits for filing cases, limiting repayments to insurers and limiting claimants’ attorney fees.
I recommend a NO vote on I-330.
The proponents of I-330 are framing this initiative as a battle between doctors and lawyers, but there’s another player in this game that’s hidden behind the curtain in that story. Trial lawyers don’t set malpractice premiums; insurers do.
This isn’t the first "malpractice crisis." Both the 70’s and 80’s saw periods of sharply rising malpractice premiums. The last several years have seen a return of steep premium increases. The question is, what drives these crises?
There are three main components that drive the setting of malpractice insurance premiums: size of claims, frequency of claims, and changes in investment income. Insurance companies take the money they receive from premiums and invest it; the better their investments do, the less money they have to collect in premiums in order to cover the claims filed against them. Competition also plays a part in setting of premium rates; the more insurers in the market, the lower the premiums.
In the 90’s, when the stock market was booming and investment income
was high, there were more malpractice insurers in the market, keeping
premiums lower. The investment income enabled insurers to keep their
reserves high and still make a profit. As the stock market declined,
investment income declined, and premiums began to rise, both to cover
costs and because of insurers leaving the market as it became harder to
turn a profit. This is a natural cycle of the insurance market. This
paper looks at the various factors and their relative influences on
malpractice premiums.
The New York Times in an article earlier this year included the chart at right that demonstrates this cycle very well. You can see the previous crises in the mid-70s and the mid-80s, where the top curve rises steeply, but the bottom curve doesn’t track it. If payments for malpractice claims were the major factor driving premiums, then you’d expect to see those spike up along with the premiums.
Insurance companies, naturally, are in favor of caps on awards, because then that allows them to both control their costs better and predict their costs better. But that doesn’t mean that malpractice awards are what’s driving doctors out of the state.
The New York Times article reported that overall in the US, from 1993-2003, the size of awards increased about 3.1 percent annually, after adjusting for inflation. However, the rate of large claims (>$1 million) grew more rapidly; in 1993, 2.9% of payments exceeded $1 million, but by 2003, that rate had climbed to 8.5%.Looking at Washington specifically, according to a study done by the Office of the Insurance Commissioner in Washington, over a 10 year period from 1994-2004, the amount of award to claimants increased by about 4.1% annually, while the number of awards paid to claimants increased by about 4.9%. In other words, the number of claims paid increased slightly faster than the size of the awards. Awards over $1 million represented 1.6% of paid claims, a rate which remained steady throughout the study period.
Capping awards probably would have a short-term effect on malpractice premiums, but in the long term, awards just don’t appear to drive premiums that strongly. A Weiss Ratings study in 2003 found that even in states with award caps, doctors were seeing sharp increases in premiums. California has been pointed to as an example of a state where award caps are limiting premium increases, but perhaps a bigger factor is that California law requires insurers to hold public hearings before raising rates more than 15%.
There may or may not be a crisis in malpractice premiums. If you’re a doctor facing share increases, it probably feels like a crisis. But tort-reform isn’t going to fix it.