Liability premiums stabilizing, but still painfully high-priced

The latest annual rate survey indicates the worst might be over, but doctors in crisis states still face expensive premiums.

By Mike Norbut — Posted Nov. 7, 2005

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Nearly 64% of medical liability insurers reported that rates dropped, held steady or increased no more than 10% in 2005, offering further evidence that rates seem to be leveling, according to results from the annual Medical Liability Monitor rate survey.

But the comprehensive survey, which looks at how much medical liability insurers are charging physicians, offers little solace to doctors who see their liability premiums holding at an extremely high level. For example, some Ohio obstetrician-gynecologists pay nearly $189,000 annually for coverage, while some in Minnesota pay less than $20,000 a year.

The survey "shows that the broken liability system has driven physicians' insurance premiums to an all-time high in many states," said AMA Chair Duane M. Cady, MD. "Physicians continue to be forced to limit patient services in response to the escalating and unsustainable insurance rates."

As in previous years, the 2005 survey asked liability insurers to report mature claims-made manual insurance rates with limits of $1 million/$3 million as of July 1 for internal medicine, general surgery and ob-gyn. The survey also looked at lower-limit policies offered in Florida and Texas. Florida doctors can buy policies with $250,000/$750,000 limits, while Texas doctors can purchase policies with $200,000/$600,000 limits.

The analysis showed that most rate changes for the common limits fell in the 0% to 14.8% range in 2005, compared with most increases being between 6.9% and 24.9% last year.

While those figures indicate the worst may be over, the results do not necessarily spell relief for physicians. For example, some Illinois doctors' premiums were highlighted among the nation's highest rate decreases, with some ob-gyn rates down 19.4% in 2005. Yet, Illinois doctors still pay some of the highest rates nationwide, the survey showed.

"It's really not that much of a cause for celebration," said Craig A. Backs, MD, Illinois State Medical Society president.

Meanwhile, some general surgeons in Dade County, Fla., saw their premiums increase by 8% in 2005 -- a considerable improvement over the 22.4% increase they saw in 2004. But the highest rate in the state for that specialty is a whopping $299,420, according to the survey.

"That's still 8% of a very large number," said Lawrence Smarr, president of the Physician Insurers Assn. of America, a group of doctor-owned and/or operated liability insurers. "That's still a sign that we need to control the spiraling costs. The stability we see now is likely temporary."

The AMA says 20 states are in a medical liability crisis, marked by unaffordable premiums that are forcing physicians to retire early, discontinue services for high-risk patients or move to a state with lower rates. The Association continues to push for a $250,000 federal cap on noneconomic damages as a way to stem the crisis.

Some success in tort reform states

For years, tort reform proponents have pointed to California as the shining example of the stability that can be achieved through tort reform. The state has had reforms, including a $250,000 cap on noneconomic damages, in place for decades.

California physicians continue to pay premiums at a fraction of the expense doctors experience in crisis states, according to the MLM survey. And physicians now can point to other states to show direct results of tort reform, most notably Texas.

Survey results show that states such as California and Texas "have maintained more reasonable medical liability rates," Dr. Cady said. "An ob-gyn will pay $63,000 in Los Angeles, or $57,000 in Dallas. But the same ob-gyn will pay $299,000 in Miami."

In 2003, Texas voters passed a constitutional amendment creating a $250,000 noneconomic damages cap. In turn, MLM data show that every liability insurer in the state cut rates or held them steady in 2005.

Other states with recently passed tort reforms did not see similar improvements. Nevada, which passed a $350,000 noneconomic damages cap in 2002 and strengthened the measure through a voter-approved referendum in 2004, saw two companies hold their rates steady. But one company boosted rates between 12.5% and 23.5%.

Meanwhile, most companies writing policies in Ohio and West Virginia, both of which passed caps in 2003, reported modest increases in their 2005 rates.

The difference between Texas and some other states with recently passed tort reform: By passing a constitutional amendment, Texas voters bypassed the typical court challenge that can result in tort reform being overturned. Other states may have to wait for supreme court rulings before their rates change.

"Companies are not recognizing tort reforms until they survive a constitutional challenge," said Sarah Dore, MLM's rate survey editor.

The MLM report revealed some reasons for doctor optimism. More than 81% of company executives responding to the survey said rates were leveling, compared with 67.5% who said that in 2004. More companies reported they were accepting new business, and the range of increases was tighter in 2005 as well.

Last year, companies decreased rates by as much as 16.8% and increased them by as much as 132.8%, according to the survey. This year, the extremes ranged from a 19.4% decrease to a 78% hike.

A second study released by Aon Corp. also has a positive outlook on the medical liability market. The 2005 Hospital Professional Liability and Physician Liability Benchmark Analysis says claim severity continues to rise, but claim frequency dropped by 1% last year. Aon analysts attributed the drop to tort reform measures taking effect in some states, as well as patients hearing physicians' access to care message.

The positive messages, however, did not provide comfort for North Carolina physicians. The state was listed as having the highest rate increase -- 78% -- for each of the three specialties the MLM survey covered.

It's just further indication of the need for tort reform in the state, which the AMA lists as one of its crisis states, said Steve Keene, general counsel for the North Carolina Medical Society. The state's insurance market has very little competition for physician business, and state legislators "have done nothing" to address the crisis, he said.

Consistency also was an issue in several states, including Michigan. While some internists and surgeons there saw the highest rate decreases in the country, other doctors in Michigan saw double-digit increases. Many doctors in Wayne County, which includes Detroit, are still paying some of the highest liability rates in the country, according to the survey.

"There's a bigger bulls-eye on the back of physicians in Wayne County," said Michigan State Medical Society President Alan Mindlin, MD. "Someone's got to pay. Attorneys have to sue somebody to stay in business."

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Reaching a plateau?

For the second year in a row, an increasing number of liability insurers reported slower growth in premiums. In 2005, 8% of increases were 25% or higher; 25% hit that level in 2004, while in 2003, 33% of increases were higher than 25%.

Rate changes in range
2004 2005
100% or more 2% 0%
70% to 99.9% 4% 1%
50% to 69.9% 4% 1%
25% to 49.9% 15% 6%
10% to 24.9% 35% 28%
0.1% to 9.9% 22% 29%
No change 13% 24%
Rate decreases 5% 11%

Note: Numbers may not equal 100% due to rounding.

Source: Medical Liability Monitor, 2005 and 2004 rate surveys

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Premium highs and lows

Insurance costs continue to vary by geography and specialty. These rankings are by state (or county), based on the highest or lowest rates reported for each specialty. It is not an average for all of the rates reported for that specialty in that state; rates within a state may vary. Insurers reported their manual rates for specific mature claims-made policies with limits of $1 million/$3 million, as of July 1. The premiums do not reflect credits, debits or dividends.

Highest rates

2004 2005 Change
Florida (Dade County) $69,310 $74,855 8.0%
Illinois (Cook) $58,514 $65,887 12.6%
Michigan (Wayne) $63,898 $52,754 -17.4%
Ohio (Cuyahoga, Lorain) $34,985 $43,416 24.1%
Pennsylvania (Philadelphia) $36,873 $36,207 -1.8%
General surgeons
Florida (Dade) $277,241 $299,420 8.0%
Illinois (Cook) $183,560 $212,176 15.6%
Michigan (Wayne) $144,188 $162,623 12.8%
Ohio (Cuyahoga, Lorain) $130,813 $158,634 21.3%
Pennsylvania (Philadelphia) $132,798 $147,967 11.4%
Florida (Dade) $277,241 $299,420 8.0%
Illinois (Cook) $230,428 $266,349 15.6%
Ohio (Cuyahoga, Lorain) $152,109 $187,858 23.5%
Connecticut $148,164 $170,389 15.0%
Pennsylvania (Philadelphia) $172,178 $170,048 -1.2%

Lowest rates

2004 2005 Change
Minnesota $3,375 $3,375 0%
Nebraska $3,311 $3,572 7.9%
South Dakota $3,697 $3,697 0%
Idaho $3,770 $3,770 0%
Wisconsin $5,147 $5,147 0%
General surgeons
Minnesota $11,306 $11,306 0%
Nebraska $10,976 $12,144 10.6%
South Dakota $12,569 $12,569 0%
Idaho $14,514 $14,514 0%
Wisconsin $18,015 $18,015 0%
Nebraska $19,865 $17,144 -13.7%
Idaho $19,320 $19,320 0%
Minnesota $19,630 $19,643 0.1%
South Dakota $21,072 $21,072 0%
Wisconsin $23,677 $23,677 0%

Source: Medical Liability Monitor 2005 rate survey

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Premium increase range narrows

One sign of a leveling insurance market is a tighter range of increases and decreases. While the highest increase an individual insurer reported in 2004 was 132.8%, it was 78% in 2005. Here is a look at the states that experienced the highest reported rate increases and decreases by specialty. The numbers reflect figures reported by insurers, and are not a state average.

Largest Increases

2004 2005 Change
Internal medicine North Carolina $12,593 $22,418 78%
General surgery North Carolina $53,100 $94,526 78%
Ob-gyn North Carolina $53,100 $94,526 78%

Largest decreases

2004 2005 Change
Internal medicine Michigan $53,438 $43,164 19.3%
General surgery Michigan $162,096 $130,932 19.3%
Ob-gyn Illinois $162,935 $131,284 19.4%

Source: Medical Liability Monitor 2005 rate survey

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