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Finance 431 Medical Malpractice Insurance: A System in Crisis


Finance 431 Medical Malpractice Insurance: A System in Crisis Medical Malpractice Insurance Crisis: Round Three Current developments Rounds one and two Tort reform ... – PowerPoint PPT presentation

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Title: Finance 431 Medical Malpractice Insurance: A System in Crisis

Finance 431 Medical Malpractice Insurance A
System in Crisis
Medical Malpractice Insurance Crisis Round Three
  • Current developments
  • Rounds one and two
  • Tort reform proposals
  • Impact of interest rates on cost of insurance
  • Why round three is occurring now
  • Who are the major players in Illinois on this
  • What are their positions?

Current Developments
  • Rapidly rising premiums for medical care
  • Inability to pass along the costs
  • Restricted market for coverage
  • President Bushs State of the Union address
    called for tort reform for medical liability
    Jan. 2003
  • Doctor strikes around the country
  • Indications that crisis conditions exist in many

Round One Mid 1970s
  • Availability crisis
  • Commercial insurers withdrew from market
  • Solutions
  • State level tort reform
  • Medical provider owned insurance companies, known
    as bedpan mutuals
  • Claims made policies introduced

Round Two Mid 1980s
  • Affordability crisis
  • Causes
  • State courts overturned tort reforms
  • Resurgence of claim costs
  • Adverse loss reserve development
  • Interest rate declines
  • Reinsurance market failures

Round Two Solutions
  • More state tort reform
  • Leveling of claim costs
  • Stabilization of interest rates
  • Recovery of reinsurance markets

Tort Reform Specifics
  • Modification in statute of limitations
  • Elimination of ad damnum clause
  • Pretrial screening panels
  • Contingency fee limitations
  • Modify collateral source rule
  • Caps on liability awards
  • Require periodic payments of damages
  • Require itemization of awards
  • Eliminate special damage needs in countersuits
  • Eliminate punitive damages
  • Apply expert witness standards
  • Require affidavit in support of claim

Impact of Interest Rates
  • Medical malpractice claims are paid out over more
    than twenty years
  • Assume average claim is paid 6 years after policy
  • At 7 interest rate, present value of 1 million
    in losses is 666,342
  • At 3 interest rate, the present value is
  • Decline in interest rates from 7 to 3 increases
    the present value of losses by 26
  • Conversely, if interest rates increase from 3 to
    7, then the present value of losses declines by

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Why Round Three is Occurring Now
  • Impact of 9/11 on insurers
  • Reduced capital led to a tightened insurance
  • Insurers are leaving less profitable markets
  • Companies leaving medical malpractice market
  • St. Paul stopped writing medical malpractice
  • Previously was the largest writer with 20 of the
  • Other medical malpractice insurers in financial
  • Remaining companies restricting new business
  • Interest rates have declined again

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Physicians and Surgeons Medical Liability
  • How bad is the problem?

Who are the Major Players in Illinois?
  • Health care providers
  • Doctors
  • Hospitals
  • Nursing Homes
  • Plaintiffs Attorneys
  • Consumer Advocates
  • Insurance Companies
  • Illinois State Medical Inter-Insurance Exchange
  • Illinois Providers Trust (insures hospitals)
  • American Insurance Association
  • Regulators
  • Legislators

What are their Positions?
  • Health care providers want lower premiums
  • State tort reform has been unsuccessful
  • Caps on damages declared unconstitutional 3 times
    in Illinois
  • Federal tort reform
  • Caps on non economic damages
  • Proportionate liability
  • Three year statute of limitations
  • Limitations on legal fees
  • Plaintiffs attorneys oppose tort reforms
  • Argue caps would hurt seriously injured
  • Seek to eliminate confidential investigations of
    medical errors

What are their Positions? (2)
  • Consumer advocates want
  • To reduce medical errors
  • Investigate problem doctors
  • Take away licenses of incompetent doctors
  • To prevent insurers from gouging policyholders
  • Regulate insurance company rates
  • Restrict insurers from leaving state
  • Insurance companies want predictable losses
  • Reduce level of uncertainty in lawsuits
  • Continue to allow rate freedom

What are their Positions? (3)
  • Regulators want to focus on key responsibilities
  • Solvency
  • Market conduct
  • Competition
  • Legislators want to solve the problem
  • Difficult issue to deal with
  • Competing interests
  • No easy solution

Caps on Noneconomic Damages
  • Many states have caps on noneconomic damages
  • 5 states in the 1970s (CA, IN, LA, MN, VA)
  • 15 states in 1986-87
  • Recent developments
  • Ohio and Texas adopted in 2003
  • Viscusi and Born study
  • Caps reduce losses by 16-17
  • Caps were passed in Illinois during 2005
  • 250,000 for physicians, 500,000 for hospitals
  • Are caps constitutional?
  • Illinois experience no
  • Workers Compensation comparison

  • Medical malpractice crisis will affect the public
  • Reduced access to non routine care
  • Specialists in rural areas
  • High risk treatments
  • Higher cost of medical care
  • Legislation is likely
  • Federal level
  • State level
  • Caps are currently in effect
  • Legislation may be overturned in court
  • Debate over medical malpractice is a precursor to
    liability reform in general