Tort reform: The truth of the matter
■ As state legislatures and Congress get ready for another round of tort reform bills, doctors need to be ready to dispel incorrect facts bantered about in the debate.
Posted Feb. 20, 2006.
State legislatures are back in session and ready to tackle tort reforms ranging from caps on noneconomic damages awarded in medical liability lawsuits to requiring plaintiffs to obtain a certificate of merit before filing a case. Congress is expected to take up tort reform later this year as well.
As doctors in states such as Illinois, Missouri, Pennsylvania, Texas and others can attest, it takes moxie to win on tort reform. Chances are trial lawyers will outspend doctors in the legislative fights. But doctors have one huge edge in their capitol fights: The truth.
Tort reform that includes a $250,000 cap on noneconomic damages can stabilize soaring medical liability insurance rates. That, in turn, stops physicians from retiring early, abandoning high-risk procedures and moving out of state to keep practicing the profession they love.
Now, you may have seen recent studies that say otherwise. One study in particular has received a lot of attention from those on the wrong side of the tort reform debate.
It's a report from the Foundation for Taxpayer and Consumer Rights that claims insurance companies paid out 30% less than the initial estimated losses they reported to state regulators between 1986 and 1994. Those findings echoed those of a July 2005 study that former Missouri Insurance Commissioner Jay Angoff penned for the Center for Justice and Democracy, a group that opposes what they refer to as the "so-called 'tort reform' movement."
These findings are bunk.
The American Medical Association has compiled two reports that prove those studies are nonsense. They summarize what doctors need to know about studies from government agencies and actuaries that prove tort reform works.
Policy research white paper, "The 'Angoff Report' A Misrepresentation of the Medical Liability Insurance Industry," dispels claims that the insurance industry is posting big profits, overcharging doctors and increasing surpluses beyond what they need. The research shows that the Center for Justice and Democracy report is "incomplete, actuarially unsound and misleading."
Fact: The Angoff report cherry-picked which companies to study. The data it used relies solely on the 15 largest AM Best-ranked insurers and the companies' 2004 premiums. But a number of large carriers left the market, and these 15 insurers picked up their business. So, they only appear more profitable than the industry as a whole. In reality, their premium collections increased because they expanded business.
Fact: The Angoff report crunched the wrong numbers if the goal was to accurately reflect insurance companies' financial performances. It compared written premiums to paid losses. But that's incorrect because it takes so long for medical liability claims to close. That means losses paid in any year stem from policies and revenues written in earlier years. Instead, the study should have used incurred losses -- estimates of future losses that stem from current years' premiums.
The AMA's newest policy report perspective "The Impact of Caps on Damages. How are Markets for Medical Liability Insurance and Medical Services Affected?" provides a summary of research that shows tort reform works. Here's a sampling:
Fact: A 2005 study in the Journal of Risk Insurance found that between 1984 and 1991 insurers in states with caps on noneconomic damages had losses 17% lower than insurers in other states.
Fact: A 1998 Congressional Budget Office report concluded that noneconomic damages caps were one of two reforms "extremely effective in reducing the amount of claims paid and medical liability premiums."
Fact: A 2005 study published in the Journal of the American Medical Association found that direct tort reforms increased physician supply by 2.4% relative to non-reform states between 1985 and 2001.
The trial bar is throwing around a lot of numbers to take down tort reform. Fortunately, the ones cited by the medical community have the advantage of being true.