Liability insurance rates steadying amid hopeful signs on tort reform

After significant spikes in medical liability premiums in the past five years, some insurers in states with recent tort reforms are reporting no increases in premiums, and others are reporting reductions for physicians in 2006.

Overall, insurers say the stabilization is due to the continued decline in the number of medical liability lawsuits filed. Also, after years of raising rates to keep up with the severity of claims, they now have adjusted premiums to an adequate level to manage litigation costs and jury awards. In addition, insurers partially credit tort reforms for the moderation, but say it is too early to tell whether the efforts have taken root.

Insurance executives warn that high jury awards continue to plague the legal system, and they remain wary that the courts could undo the recently passed legislation that insurers and doctors say is needed to stabilize rates. While trial lawyers say the rate trend is due to the natural insurance cycle, doctors and insurers say more reforms are still crucial for most states to continue the trend of ameliorating high premiums.

"When states grab the bull by the horns and truly legislate meaningful reform, you will see a direct impact on the cost of doing business," said Corbette Doyle, National Healthcare Practice chair for Aon Corp., a nationwide insurance brokerage firm.

Until then, insurers are taking a "wait and see" approach as they slowly adjust rates in states that have passed reforms, she said.

In April, ISMIE Mutual Insurance Co. in Illinois cut its average premiums by 5.2% for 2006. Company executives said they were able to cut premiums mainly because of an 8% decrease in the number of claims filed in 2005.

"We are optimistic about an imminent return to a thriving, competitive marketplace, but that is premature," said Harold L. Jensen, MD, ISMIE chair. New insurers have yet to enter the market, he said, and are biding time to see if the state's $500,000 cap on noneconomic damages passed in 2005 will survive anticipated constitutional challenges.

"The [Illinois] Supreme Court has yet to rule on this, and they've knocked it down before. But this time it should pass muster," Dr. Jensen said.

In Georgia, MAG Mutual Insurance Co. kept rates flat for its 2006 policy year and does not expect changes for 2007. In December 2005, the company announced that it would roll back rates 10% if the state Supreme Court ultimately upheld a $350,000 cap on noneconomic damages that the Legislature passed earlier that year.

Even though the national market appears to be steadying, doctors say patient access-to-care problems persist and that not all states have passed meaningful reforms. That, they say, leaves tort reform work to be done at the national level.

"Even a freeze in premiums is reduced resources available for patient care," because doctors are still laying out so much money to cover insurance costs and other practice expenses, said American Medical Association Trustee Rebecca J. Patchin, MD, chair of the board's Medical Liability Task Force.

The AMA continues to push federal legislation for a $250,000 cap on noneconomic damages and anticipates that the Senate will address the issue this year. The House already passed a bill that would cap noneconomic damages at $250,000, and President Bush supports a cap.

Rates easing, but at costly levels

Physicians say the temporary relief offers little comfort because their premiums are still painfully high.

In Ohio, Medical Protective Co. reduced its average premiums by 5% in the beginning of the year and became the first medical liability insurer in the state to do so in six years, according to the Ohio Dept. of Insurance. But that drop is just a fraction of the 20% to 30% increases doctors faced between 2002 and 2004.

"While the trend line is moving in the right direction, the fact is insurance is still very expensive," even with the passage of 20 different liability reforms, including a $250,000 cap, said Tim Maglione, senior director of government relations for the Ohio State Medical Assn.

Ohio doctors still pay some of the highest rates in the nation, according to the 2005 Medical Liability Monitor, an independent national newsletter that tracks premiums. Ohio also is one of 21 states that the AMA lists as being in crisis as premiums force physicians to retire early, move out of state or stop performing high-risk procedures.

Doctors and insurers in some states say that even with reforms and a downturn in claims, the severity of damage awards continues to climb. The median jury award in medical liability cases in 2003 was up to $1.2 million after holding steady at about $750,000 since 1997, according to a 2005 study by Jury Verdict Research, a national data tracking agency for personal injury claims.

In Florida, First Professionals Insurance Co. kept rates flat for some of its policyholders beginning in March. But the rate announcement was followed by a $28 million jury verdict in April.

Florida Medical Assn. President Troy M. Tippett, MD, said the state's $500,000 cap passed in 2003, which has "more holes in it than a piece of Swiss cheese," remains ineffective.

Pennsylvania doctors are in a similar predicament. "We are seeing a reflection of [reforms] taking effect, but payouts are way up, and we are still waiting to see what will happen next year," said Daniel J. Glunk, MD, Pennsylvania Medical Society board of trustees chair.

Pennsylvania passed a number of reforms in 2002, including a venue rule that requires plaintiffs to file lawsuits in the county where the alleged negligence occurred. But it has not passed a noneconomic damages cap. A constitutional amendment would be needed for that to happen.

After four years of double-digit increases including a 54% spike in 2003, the state's largest physician insurer, PMSLIC, did not raise rates for 2006. Nor did two other major carriers.

A report released in April by the PMS credited a 34% reduction in lawsuits filed in 2004 to a venue rule and a certificate-of-merit requirement enacted in 2002 for that rate stabilization. But total payouts jumped from $180 million in 1990 to $450 million in 2004, a nearly 150% increase, the report stated.

Pursuing reforms

California has had meaningful tort reform since 1975, and doctors there have not experienced the sharp increases physicians in other states have in this decade. Doctors and insurers also point to Texas as an example of meaningful reforms. The state's three largest insurers implemented significant cuts for 2006, three years after the passage of a $250,000 cap on noneconomic damages. Unlike in other states, Texas voters passed a constitutional amendment that makes it highly unlikely for the state's high court to overturn the cap.

The Doctors Company in April dropped its rates in Texas by an average of 18.5% for this year, on top of a nearly 11% decrease in 2005. "This is exactly what we predicted would happen" with effective reforms, said Richard E. Anderson, MD, Doctors Company chair and CEO.

Nationally, the overall market is now a better environment for insurers to take new business, Aon's Doyle said. But in general, competition has yet to expand, said Frank B. O'Neil, a spokesman for ProAssurance Corp.

Given the three-year average for claims to wind through the legal system, insurers will begin to see effects of 2003 tort reforms, he said. As for whether the stabilization trend will continue, he said, "it's hard to know until we've got '06 under our belt."