Posted on 08 Aug 03
A new report from the General Accounting Office (GAO) concluding that medical liability losses are the primary drivers of insurance rates corroborates data provided to the GAO last December by the National Association of Independent Insurers (NAII). "The GAO report reinforces insurers' contention that loss costs, not poor investment performance, are the most significant contributor to higher premiums," said David M. Golden, director of commercial lines for the NAII. "The insurance industry has always made it clear that although other factors have a marginal impact, rates are driven by losses, plain and simple. The leading cause of current market conditions was the massive increase in losses in the mid- to late 1990s. When the median judgment doubles from $500,000 to more than $1 million in just five years, this is bound to have an impact on premiums."
The GAO prepared the report at the request of Congress and released the results yesterday. The primary finding states that "multiple factors have combined to increase medical malpractice premium rates over the past several years, but losses on medical malpractice claims appear to be the primary driver of increased premium rates in the long term. Such losses are by far the largest component of insurer costs, and in the long run, premium rates are set at a level designed to cover anticipated costs." Other major factors for the medical liability crisis cited in the report include: · A decrease in investment income on bonds; · Vigorous competition among insurers during the 1990s; and · Increases in reinsurance rates beginning in 2001.
NAII representatives met with two GAO staffers last December, providing them with information illustrating how losses drive rates and how a number of different factors converged over time to make the current hard market more pronounced than prior hard markets. "We hope this report is a wake-up call to legislators to the urgent need for significant civil justice reform, patterned after the MICRA law in California. A federal proposal containing many MICRA provisions has passed the House but is stalled in the Senate," Golden said.
"One of the greatest challenges we have faced during Congressional consideration of the medical liability crisis has been the flagrantly false information provided by the trial bar and their front groups to those who oppose effective federal health liability reform," says PIAA President Larry Smarr.
"For example, we constantly hear that stock market losses are responsible for the large increases in premiums doctors have to pay. But, like many other reputable sources, the GAO has correctly determined that insurers are 80% invested in bonds, and that declining interest rates explain premium increases of only 7.2% during 2000 - 2002, when insurance rates increased by double and even triple digit amounts across the nation. The GAO has undertaken a comprehensive review of the status of the industry, and has correctly documented the long-term rise in medical liability costs, fueled by ever-increasing jury awards and settlements," he added.
The GAO compared data collected from physician owned/operated insurers operating in seven states around the country, and found that the ratio of losses to premium income for 2001 exceeded 100% in all states except California, the only state in the group to have effective tort reforms as supported by President Bush and passed by the House of Representatives. In an ironic paradox, the only Senator to request the GAO report, Senator Richard Durbin (D-IL), apparently had access to the report as early as its publication date of June 27, but failed to provide this accurate and timely information in early July during his leadership of the opposition floor debate of S11, the tort reform bill already passed by the House. The report was finally released to the public yesterday by the GAO according to e