Liability premiums hold steady, but state disparities linger

For the sixth consecutive year, medical liability insurance premiums have eased across the country, with 55% of rates in 2011 holding steady.

While most rates remained stable, data from the annual Medical Liability Monitor survey show 30% of premiums dropped -- twice as many as in 2010. An additional 15% of premiums rose, about the same as last year.

"Right now it's a good time to be a doctor," said Michael Matray, Monitor editor. "If your cost of doing business is shrinking, obviously you have more room for profitability. But eventually costs have to go back up, if history is any indicator."

Despite a flat market, stark differences among premiums continue to linger, depending on where a doctor practices.

Florida retained its spot as having the highest premiums for physicians, according to Monitor data. Internists in Dade County paid $47,731 in 2011, and general surgeons paid $190,926. Obstetrician-gynecologists in Miami and Dade counties paid $201,808.

Minnesota remained on the low end of the premium spectrum. Internists in the state paid $3,375, and general surgeons and ob-gyns paid $11,306 and $16,449, respectively.

It's no surprise Florida continues to top the states in premiums, said Jeffery Scott, general counsel of the Florida Medical Assn. Tort reform measures enacted in 2003, including a $500,000 noneconomic damages cap, have worked to reduce rates, Scott said. But the small decreases have not been enough to impact the bigger picture of premiums, he said.

"Keep in mind, in the last decade we saw triple-digit increases," he said. "Now we're seeing small single-digit deceases, which still leaves us at the top of the heap. These small decreases are not making a sufficient dent in overall premiums. It's still unaffordable for many folks."

Regionally, the Northeast saw a 1.5% rise in rates, while rates in the West dropped by about 1%. The Midwest experienced a 1% decrease, while the South saw a 1.5% increase. Of the southern states, Mississippi showed one of the largest rate decreases (11%).

Strong tort reforms implemented nearly a decade earlier helped stabilize Mississippi's medical liability market, said family physician Thomas Joiner, MD, president of the Mississippi State Medical Assn. Not only have rates plummeted, but medical liability lawsuits are down significantly, he said. "It's a win-win all the way around," Dr. Joiner said. "As far as medicine is concerned, [tort reform] was a home run."

The Monitor survey, released in October, examined manual rates as of July 1 for mature claims-made policies with $1 million/$3 million limits for internists, general surgeons and ob-gyns.

Impact of rate discounts

Though the survey did not surprise most medical liability observers, one trend is having an impact. Nearly 30% of survey respondents reported an increase in schedule credits this year, and none reported a decrease. Schedule credits are rate discounts offered to doctors as incentives for such things as taking risk management classes. Offering credits is a way to retain and attract clients, said Chad C. Karls, a principal at Milliman in Milwaukee and guest editor for the Monitor's 2011 issue.

Because credits work to lower the actual "charged rates" reported by insurers to a state, credits may mask the full decline of premium rates. This means doctors could actually be paying less in premiums than reflected in the survey, Matray said. For example, a 0.2% rate decrease could, in fact, be a 2% to 4% decrease once credits are factored into the mix.

An increase in doctors becoming employees of hospitals or larger health systems is another trend. Challenges in office management, overhead costs and declining payments are accelerating the shift, said Robert Francis, chief operating officer of the Doctors Company, a Napa, Calif., physician-owned liability insurer.

Former clients obtaining medical liability coverage through larger employers could shrink the insurance market and impact competition, Karls said. Doctors who move to larger health care entities should "make sure medical liability insurance issues are addressed and accounted for and make sure there's not a lapse in their coverage," he said.

Rising legal costs

Experts say a primary driver of premium moderation has been the low frequency of lawsuits filed nationwide. But that could be changing. Claim frequency is edging up in some places, and defense costs are on the rise, Francis said.

"With this in mind and continuing severity increases, we expect pricing to begin to flatten and even rise modestly in some venues over the next year or two," he said in an email.

Large jury awards also have continued across the country, said Brian K. Atchinson, president and CEO of the Physician Insurers Assn. of America, a trade group for doctor-owned and operated liability companies.

"Given the historical patterns and cyclical nature of this industry, the key question on everyone's mind is: How much longer will the soft rate environment last? Nobody has the answer to this question," he said.

"While the lower frequency has helped offset the rise in defense costs, if frequency does increase, as some are suggesting, it will certainly impact premiums."

How health care reform will impact premiums is one of many issues insurers and others plan to watch closely in the months ahead, Atchinson said.

Francis added: "No change will occur quickly. Health care is a big ship, and it will take time to turn it."