Doctors want pre-tax accounts for tail coverage

Chicago -- The American Medical Association's House of Delegates wants the Internal Revenue Code to include pre-tax savings accounts to help physicians buy tail coverage so they can afford liability insurance at a time when premiums have risen to unaffordable levels.

Much of the insurance industry has discontinued selling open-ended "occurrence" policies in favor of "claims-made" policies, which cover only alleged negligent incidents that are reported during the policy period, according to an AMA Board of Trustees report presented at the Association's Annual Meeting in June. That's left doctors whose policies end with one insurance company in a position where they have to purchase tail coverage to protect them for claims made after a policy expires.

The tail coverage premiums have increased to between 150% to 200% more than the annual price of other general medical liability insurance, according to the board's report.

Delegates voted to have the AMA push for a change in the tax code that would let doctors set up pre-tax savings accounts to use toward the purchase of tail coverage. Under the current structure of the Internal Revenue Code, physicians may, in certain circumstances, deduct medical liability insurance premiums as business expenses, but only if they exceed 2% of their adjusted gross income. However, the code does not recognize the newly proposed ERE savings accounts.

"What we found is, whether doctors are retiring or moving from one practice to another, they often have to buy certain coverage wherever they go," said Edward L. Langston, MD, AMA Board of Trustees chair-elect. "This is one way to help physicians meet their responsibility when costs have gone up."

Although the AMA's priority remains MICRA-like medical liability reforms, the savings accounts "may be a promising addition ... because of their potential to make ERE premiums and other medical liability costs more affordable," the board report states.

AMA will study "loser pays" legislation

In other liability proposals, Missouri physicians at the AMA meeting in June said they have already seen "loser pays" legislation significantly reduce medical liability case filings in the state. They asked the AMA to prepare model legislation for other states to implement laws that would hold plaintiffs responsible for defendants' legal costs in some circumstances. But delegates voted to study the idea to determine whether it is appropriate for the Association to create model legislation.

Under Missouri's tort reform package, which took effect in August 2005, plaintiffs must file an affidavit of merit with the lawsuit, a legal document in which a medical expert attests that the defendant was negligent in treating the patient.

After a case is filed, the measure lets defendants petition the court to review the affidavit. If the case is dismissed without going to trial, the court can hold the plaintiff responsible for the defendant's legal expenses. "What this proposes to do is deter frivolous lawsuits -- for example, when trial attorneys go on fishing expeditions and involve anyone touching the patient, even those who had nothing to do with the alleged harm," said Missouri State Medical Assn. delegate Arthur Gale, MD, an internist.

Arkansas passed a similar measure in 2003, and "it seems to be the No. 1 thing that has reduced lawsuits in Arkansas by 50%," said Arkansas Medical Society delegate John P. Burge, MD, a general surgeon.

For states having trouble passing caps on noneconomic damages, or in states that have had the courts strike down caps as unconstitutional, "this could be a beneficial alternative," said Medical Society of the District of Columbia alternate delegate, Peter E. Lavine, MD, an orthopedic surgeon.

Other doctors, however, expressed concern that such a measure would not have the desired effect in their states or would detract from pursuing the gold standard $250,000 cap on noneconomic damages, which has proven to be successful in California since it passed under the Medical Injury Compensation Reform Act in 1975.

One possible side effect is that the certificate-of- merit statute "could have an adverse impact on the severity of damage awards," said family physician David K. Ross, MD, an alternate delegate for the Kansas Medical Society.

Richard Reiling, MD, a delegate for the American College of Surgeons, said MICRA-type reforms should remain the priority. "The AMA should look into seeing how [loser-pays legislation] works, but we do not want it to be the focus."

However, because reforms vary from state to state, Dr. Langston said the AMA will continue to study the issue before creating a broader policy.

Meanwhile, "we are in favor of whatever makes sense for individual states to address the out-of-control medical liability system," he said.