For the third time in less than thirty years, Congress and state legislators across the country are grappling with the problem of fast-rising medical malpractice rates. Insurers insist that a sharp increase in large, unwarranted jury verdicts is to blame for the crisis. As a result, the Senate is now considering this amendment to place further limits on the legal rights of Americans who have been harmed or killed by medical malpractice.

The Consumer Federation of America urges you to reject this amendment because it limits patients’ rights without attacking the root causes of the malpractice insurance crisis. Research by actuary and CFA Director of Insurance J. Robert Hunter shows that insurers are pointing fingers when they should be looking in the mirror. It is the “hard” insurance market and the insurance industry’s own business practices that are largely to blame for the rate shock that physicians have experienced in recent months. CFA has found that:

• Medical malpractice rates are not rising in a vacuum. Commercial insurance rates are rising overall.
• The rate problem is caused by the classic turn in the economic cycle of the industry, sped up by–but not caused by-the terrorist attacks. There have been three medical malpractice crises, in the mid-1970s, the mid-1980s and currently. These crises have coincided precisely with the bottom of the insurance cycle during this period, in which the operating income of the industry declined below the amount of premium written. According to the National Association of Insurance Commissioners, the three major causes of sharp underwriting cycles are large “loss shocks,” changes in interest rates, and underpricing in soft markets. Lower interest rates and under-pricing have been in place for quite some time and September 11th provided the shock loss in an achingly painful way. But the cycle had turned before September 11th–in late 2000.
• Insurers have under-priced malpractice premiums over the last decade. Inflation-adjusted malpractice premiums declined by 32.5 percent from 1991 to 2000. It would take a rate hike of nearly 50 percent to increase rates to the same level as existed ten years ago. Insurer pricing practices (e.g. under-pricing during a soft market followed by a sharp increase in premiums as the market has hardened) are the key culprit in the severe rate increases that are now occurring.
• Further limiting patients’ rights to sue for medical injuries would have virtually no impact on lowering overall health care costs. Over the last decade, for every $100 of national health care costs in the United States, medical malpractice insurance cost 66 cents. In the latest reported year (2000,) the cost is just 56 cents. Medical malpractice insurance is actually an amazing value as it covers all medical injuries for about one-half of one percent of all health costs.
• Insurer losses for medical malpractice have risen slowly in the last decade, by just over the rate of inflation. Incurred losses, including loss adjustment expense, have risen by one-half of one percent over the last decade on a per-capita basis more than medical inflation. In other words, losses have increased on a fairly regular, predictable basis, like most goods and services subject to inflation. The problem is that premiums have not kept up with losses.
• Malpractice claims have not “exploded” in the last decade. Only about one in four persons who bring a claim (24.6%) get any payment at all. Each closed claim in America-which includes all million-dollar verdicts-averaged only $27,824 for the decade ending December 31, 2000. This includes costs for insurer defense and claims adjustment. The figures over the decade showed no growth in average paid claim. If one looks at average payout just for claims with payments (as opposed to all closed claims) the average loss was $112,987. This includes costs for defense of claims settled, adjudicated or otherwise closed with no payment, thereby overstating the cost per claim paid.
• Medical Malpractice profitability over the last decade has been excellent, at just over 12 percent, despite a decline in profits in the last two years.

Each time the insurance cycle turns, the response by insurers is predictable: they shift from inadequate under-pricing to unconscionable over pricing, cut back on coverage and blame large jury verdicts for the problem. It is particularly appalling to see a crisis caused by insurer action being blamed, by the very insurers that caused the problem, on others. Insurers seem to expect legislators and the American public to swallow the dubious line that trial lawyers have managed to time their million-dollar jury verdicts to coincide precisely with the bottom of the insurance cycle three times in the last thirty years.

Before the Senate rushes through this amendment, I urge you to get the facts. As the evidence above shows, insurers have largely themselves to blame for the predicament they-and physicians and patients throughout the country-face.

Sincerely,

Travis B. Plunkett

Legislative Director