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Medical Malpractice Insurance and the situation in Michigan 2005

FACTSHEET:
Medical Malpractice Insurance and the situation in
Michigan 2005

Doctors are up in arms in many parts of the country, including Michigan, surprised and outraged by medical malpractice premiums that have risen sharply.

Meanwhile the insurance industry is attempting to scapegoat the civil justice system by alleging that the victims of medical malpractice, their legal advocates, and the American justice system itself, are somehow responsible for sharp increases in insurance premiums and the cost of health care.

But the facts don't support these allegations. The facts indicate that the dire need for insurance reform is being concealed by this latest attempt to favor politically powerful insurance corporations at the expense of victims of medical malpractice.

1) Distraction: looking for the wrong "crises."

No crisis in malpractice premiums

  • Even those prices spike for a couple of years, doctors pay less for their malpractice premiums than if their premiums had risen with inflation over time. Artificially flat insurance premium rates –held flat during the 1990s as part of a risky ‘turf war' among insurers to increase market share—have ended. According to a Tillinghast-Towers Perrin report, last year's increases were lower than the annual average increase since 1975 and far below the annual increase in the cost of medical care . (see item #3)
  • Risky insurance industry financing schemes caused the recent spike in premiums costs. As long ago as 1999 insurance industry insiders were blaming “irresponsible” artificially low rates maintained at the cost of depleting cash reserves for what they predicted would be “drastic” malpractice insurance rate increases for doctors. Other studies have shown the same .
  • Medical malpractice insurance rates have risen much less rapidly than medical inflation. Medical costs have gone up 113% since 1987, the total amount spent on medical malpractice insurance has gone up only 52% --less than half the cost of medical inflation . In context, the cost of insuring against medical errors is going down.
  • “ Most physicians are minimally affected,” according to a six-week study conducted by USA Today. They also found that “insurance companies are boosting rates partly to make up for price wars in the 1990s. ”
  • Real costs are still low. Medical malpractice insurance represents about ½ of one percent of health care costs in this country . These premiums represent about 3.2% of the average physician's revenue. The cost of making victims of medical malpractice whole though the tort system is less than what we spend on pet food each year .
  • Malpractice insurance is a good deal . Medical errors cost victims much more than they cost doctors who pay for malpractice insurance.
  • Medical errors that kill and injure cost Americans between $17 billion and $29 billion each year. Medical malpractice insurance costs our entire medical system only $6.4 billion per year –about ¼ of what medical errors costs.

No crisis in amount of civil litigation

  • Payouts to victims of medical errors are down . The Michigan Insurance Federation itself reports that medical malpractice payouts in Michigan are down from an already low 1200 per year in 1994 to only about 300 per year in 2000.
  • Civil litigation is down 42% overall according to a study conducted by the U.S. Justice Department. Further, business litigation is the largest single and largest growing segment of civil litigation, making the comparative drop in individual suits even more extreme.
  • Filings are flat. The National Center For State Courts did a survey of medical malpractice filings in 14 states that keep such records and found that rates are flat. They are not increasing . That in the face of an epidemic of medial errors, now the nation's 8 th leading cause of death.
  • Claims are down . The National Association of Insurance Commissioners found that new medical malpractice claims dropped about 4 percent between 1995 and the last year of the comparison, 2000.
  • Most victims do not act. One out of 50 hospitalized patients is injured due to negligence, and yet only one in 10 of those files a lawsuit and, among this minority that file suits, only one in 20 receives compensation.

No crisis in awards

  • Payments are low. The size of medical malpractice compensation payments to victims is not ‘out of control.' Michigan's payments to victims of medical errors are lowest in the nation . The average medical malpractice payout to a victim in the U.S. is only $28,524. This figure includes all jury verdicts, settlements and other costs used by insurers to fight claims in court (see attached chart) .
  • Most claims go unpaid. Medical malpractice insurers are paying nothing in 77 percent of all claims filed; in the 23 percent of cases where insurers pay anything, the average claim is only $107,587.
  • Most victims suffer in silence. A recent USA Today survey of insurance industry data revealed that only “2% of malpractice claims result in a winning verdict .” According to the Harvard Medical Practice Study, only one in eight malpractice victims ever file a claim for compensation.
  • Awards are not increasing. There has been no significant increase in average awards, adjusted for inflation, in decades . Richard Turbin, of the American Bar Association's Tort and Insurance Practice section, a group that includes plaintiff and defense lawyers, publicly stated that the rate of federal lawsuits per capita has not changed since 1790.  Mr. Turbin also noted that plaintiffs have steadily won only 30 to 40 percent of cases and that the size of awards has increased due to natural inflation only.

2) Changing the legal system has never affected premiums .

  • Premiums have no correlation with litigation.
    • Price manipulation. Insurance companies play games with premium costs in order to profit from strong bond markets, and then recoup their losses. A comprehensive study of premiums over the last 30 years by Americans for Insurance Reform and well-respected actuary J. Robert Hunter –“ Medical Malpractice: Stable Losses/Unstable Rates ”-- proves that medical malpractice premiums are directly related to market performance and show no correlation with the numbers of medical malpractice lawsuits. ”
    • Insurance industry claims debunked. USA Today , Business Week, The New York Times, The Atlanta Journal-Constitution, the Florida Capital News and dozens of other major papers have investigated the claims of the insurance lobby and discovered that they are without substance: compensation victims of medical errors is not causing doctors a crisis. Period.
  • Restricting the right to civil jury trial does not lower premiums
    • “ Bogus” claims. The Wall Street Journal referred to the push for restriction on legal rights masquerading behind the labels “tort reform” and “caps,” and the arguments used to support them, “bogus .'
    • “Tort reform” hurts, doesn't help . Doctors and lawmakers in states that have been fooled into adopting ‘caps' on victims' rights have discovered that they only make the problem worse . Michigan has some of the most stringent ‘tort reforms' [restrictions on the rights of medical malpractice victims to recover] that insurance lobbyists are begging for in other states, has the lowest compensation paid to victims of medical errors in the county , yet malpractice premiums are rising here, also . In California, the first state to ‘cap' the rights of victims, medical malpractice premiums increased by 190% during the 12 years after those limits were imposed. It was not until voters approved Proposition 103 –limiting insurance companies' ability to randomly raise premiums—that rates began to level off . In medical ‘crisis' poster-child state, West Virginia, a joint, bi-partisan interim committee conducted a study and issued a report blaming the insurance industry for its own problems .
    • In some cases the states with the most tort reform have higher premiums (i.e.: California –see attached chart)
    • They admit it doesn't work. The insurance industry admits that tort ‘reform' is not designed to lower premiums, and makes no promises that premiums will be lowered if tort ‘reforms' are enacted: it is all smoke and mirrors .

3) Insurance corporations control the health care system and premium prices. They create these phony “crises.

The under-regulated, powerful, international insurance industry has seized control of America's health care system and is driving up prices for everyone, everywhere, not just for doctors.

Insurance reform is what we really need .

  • Risky financial games. The insurance industry underpriced rates in the 1990s by selling policies at a loss and started telling doctors as early as 1999 that rates were overdue for a drastic hike. Rates were called ‘irresponsibly low' and the blame was placed on ‘fierce competition for market share.' Now the scapegoats are the victims whose lives have been ruined by medical errors.
  • The Industry knows this. Time after time, insurance industry analysts, lobbyists and spokespersons admit that “tort reform” will do nothing to affect premiums. Florida CFO and Republican ally of Governor Jeb Bush, Tom Gallagher, agrees that underpriced rates caused the current premium increases. Gallagher said on Feb 25, 2003 that “In hindsight, rates probably should have gone up about 10 percent a year over the past seven or eight years, and they didn't. And when that doesn't happen and should have, you're left with a very large hole, which means we allowed rates over those years to be lower than they should have and created a crisis at this point.”
  • We pay for their mistakes. Premiums are going up everywhere as they always do during a bear market. Premiums are going up in states with less medical malpractice cases as well as states with more, with no ‘tort reform' and with very restrictive ‘tort reform,' with large and with small populations, urban states and rural states. Prices are going up b/c insurance industry profits are down due to the bear market and they want victims to pick up the tab.
  • Fraud is rampant. Beyond the well-publicized scandals being uncovered by New York's Attorney General, there is more. The Medical Liability Monitor claims the current downturn in the insurance cycle was set off when two huge Pennsylvania insurance carriers went down—PIC was placed in receivership and Cleveland based PIE became insolvent. Both fell out amid charges of fraud and corruption . The Wall Street Journal reported that fraud took out another of the biggest medical malpractice underwriters, Pennsylvania based PHILCO, in August of 2001 .
  • Enron fallout. St Paul, up till a few months earlier the nation's largest underwriter of medical malpractice insurance, abruptly left the market in December of 2001. Analysts blamed St Paul's problems on the huge losses it took from the Enron debacle, possibly as much as $600 million. In 2001, Enron losses cost State Farm Mutual Auto $13.5 million, Farmers $9 million, Fireman's Fund $6.2 million, Northern California Auto Club $4.4 million, Southern California Auto Club $1 million, United Services Automobile Association $4.3 million and Allstate $3.6 million. Fireman's Fund continues to hold $5 million dollars in Enron bonds .
  • Multinational insurance industry is spreading its losses. Even France and Germany –where there is no real jury or tort system and where civil medical malpractice litigation is not allowed-- are also undergoing a so-called medical malpractice ‘crisis .' The same is true in Australian and New Zealand. But there is no justice system to blame.
  • What “losses?” Medical malpractice is one of the most profitable lines of insurance and profits last year where at a 19 year high. Insurance executives are on record as having predicted ‘a strong recovery in 2003' when speaking with business and trade media (instead of staging ‘walkouts and other publicity stunts for the popular press). “We have turned the corner” said John Byers, president and CEO of FPIC Insurance Group to Wall Street stock analysts, explaining that he could continue to make money with or without caps . Compensation to insurance executive is soaring . At least 26 insurance top dogs received more than $10 million each in compensation in 2000 . The top 16 publicly traded health insurers saw their net income increase 75% in 2001-2002.

Insurance reform works. In California, the first state to ‘cap' the rights of victims, medical malpractice premiums increased by 190% during the 12 years after those limits were imposed. It was not until voters approved Proposition 103 –removing the insurance companies' anti-trust exemptions—that rates began to level off.

Insurance reform solved the real crisis in California and can do so in Michigan.

“Hype Outraces Fact In Malpractice Debate.” USA Today, March 5, 2003.

Liability Rates Hint at Future Increases,” American Medical News, October 18, 1999. 

“ Liability Rates Hint at Future Increases,” American Medical News, October 18, 1999.; “Despite Industry Fuss, Malpractice Crisis Doesn't Exist,” Florida Capitol News, March 1, 2003

“Despite Industry Fuss, Malpractice Crisis Doesn't Exist,” Florida Capitol News, March 1, 2003

“Medical Misdiagnosis: Challenging the Malpractice Claims of the Doctors' Lobby.” Public Citizen.

‘Medical Malpractice Insurance,' J. Robert Hunter, 1999

‘Medicare Payment Advisory Commission figures, cited in “Medical Misdiagnosis: Challenging the Malpractice Claims of the Doctors' Lobby.” Public Citizen and Medical Malpractice: Stable Losses/Unstable Rates,' Americans for Insurance Reform. http://www.insurance-reform.org/StableLosses.pdf ; http://www.insurance-reform.org/pr/AIRWVRatesRel.pdf

Pet Food Institute national figures for 2000.

Institute of Medicine Study, cited in “Medical Misdiagnosis: Challenging the Malpractice Claims of the Doctors' Lobby.” Public Citizen

A study done by the Harvard Medical Practice Study Group determined that for every 8 instances of medical malpractice, only 1 claim was actually filed. ‘Harvard Medical Practice Study Group, Patients, Doctors, and Lawyers: Medical Injury, Malpractice Litigation, and Patient Compensation in New York ‘(Harvard University, 1990). And these lawsuits are the most difficult to win: the Bureau of Justice Statistics reports in a study published August 2000 that only 26% of malpractice cases tried result in an award for the plaintiff. That's the lowest “win” rate of any tort or personal injury claim, and that “win” rate has fallen since the Bureau of Justice Statistics last issued a study on the subject in 1996. Department of Justice, Bureau of Justice Statistics, Tort Trials and Verdicts in Large Counties, 1996 (Published Aug. 2000.)

Notes,” Michigan Insurance Federation, March 2002.

National Center For State Courts, Courts Statistics Project, 2002 http//www.ncsconline.org/

“Top 10 Myths of Medical Malpractice,” Dr. Richard G. Roberts, chairman of the American Academy of Family Physicians and professor of Family Medicine at the University of Wisconsin Medical School.

“Malpractice Insurance: No Clear Or Easy Answers.” New York Times, March 5, 2003, quoting American Medical Association statistics

Medical Malpractice: Stable Losses/Unstable Rates, Americans for Insurance Reform. http://www.insurance-reform.org/StableLosses.pdf ; http://www.insurance-reform.org/pr/AIRWVRatesRel.pdf

“Hype Outraces Fact In Malpractice Debate.” USA Today, March 5, 2003.

http://www.insurance-reform.org/StableLosses.pdf

‘Medical Malpractice: Stable Losses/Unstable Rates,' Americans for Insurance Reform. http://www.insurance-reform.org/StableLosses.pdf ; http://www.insurance-reform.org/pr/AIRWVRatesRel.pdf

‘ Premium Deceit -- the Failure of "Tort Reform" to Cut Insurance Pri ces'. Joanne Doroshow and J. Robert Hunter. http://www.centerjd.org/PremiumDeceit%20.pdf

“Hype Outraces Fact In Malpractice Debate.” USA Today, March 5, 2003.

“Despite Industry Fuss, Malpractice Crisis Doesn't Exist,” Florida Capitol News, March 1, 2003

“The Bogus Tort-Reform Case,” Wall Street Journal, March 6, 2003

“ Complete Medical Reform is Needed,” Dr. Daniel Mongiardo. Dr. Mongiardo is also a Kentucky State lawmaker. (see attached letter)

“ Malpractice Insurance: No Clear Or Easy Answers.” New York Times, March 5, 2003, quoting American Medical Association statistics .

Malpractice Crisis, Is capping jury awards the best medicine?” Times Leader , Dec. 15, 2002

Medical Malpractice: Stable Losses/Unstable Rates, Americans for Insurance Reform. http://www.insurance-reform.org/StableLosses.pdf ; http://www.insurance-reform.org/pr/AIRWVRatesRel.pdf

“ Final Report To The Joint Committee On Government and Finance,” January 7, 2003, West Virginia Legislature, Insurance Availability and Medical Malpractice Industry Committee.

“Ohio pols ride, docs bet on, lame horse,” Dayton Daily News Editorial, Monday, November 4, 2002;

Medical Malpractice: Stable Losses/Unstable Rates,' Americans for Insurance Reform. http://www.insurance-reform.org/StableLosses.pdf ; http://www.insurance-reform.org/pr/AIRWVRatesRel.pdf ; In 1999, ATRA President Sherman Joyce told Liability Week (July 19, 1999), “We wouldn't tell you or anyone that the reason to pass tort reform would be to reduce insurance rates;” Even if caps were enacted, “there is no way we can voluntarily cut our rates, said Bob White of Florida's largest malpractice insurer, “Despite Industry Fuss, Malpractice Crisis Doesn't Exist,” Florida Capitol News, March 1, 2003; Victor Schwartz, ATRA's General Counsel, told Business Insurance (July 19, 1999) that “[M]any tort reform advocates do not contend that restricting litigation will lower insurance rates, and ‘I've never said that in 30 years.'” See also, “Tort-reform legislation: Did state get ‘suckered?' Seattle Times, Tuesday, July 1, 1986.

Washington State Medical Association and Insurance lobbyist Mr. Cliff Webster told the Washington State House Judiciary Committee this on February 21, 2003: "The cap (on non-economic damages of $250,000) will not lower premiums. One of the reasons premiums won't go down is that even if non-economic damages are capped, the loss for economic losses-medical costs for example-are still in this current environment escalating at medical inflation that is running in the double digits- I forget exactly what it was last year. So, even if you were to cap non-economic damages, the economic damages would still cause acceleration in the premiums- so, in fact they will not go down. I want to clarify: I misspoke, and said we thought premiums would go down."

“ Final Report To The Joint Committee On Government and Finance,” January 7, 2003, West Virginia Legislature, Insurance Availability and Medical Malpractice Industry Committee; “Malpractice crisis manufactured by insurers, consumer group says” Kansas City Star, January 4, 2003; “Blaming the victims,” Miami Herald, Monday, December 20, 2002; “To find a real cure, stop putting the blame on lawyers, juries,” Charlotte Observer, Saturady, December 14, 2002;”Here's a solution: Let's make the crippled guy pay!” Cleveland Scene, December 11, 2002.

For one such proposal for insurance reform, please see Americans for Insurance Reform

Liability Rates Hint at Future Increases,” American Medical News, October 18, 1999. 

State CFO Enters Malpractice Debate,” Tampa Tribune, February 26, 2003 

Medical Liability Monitor, August 2002

Insurer's Price Wars Contributed To Doctors Facing Soaring Costs; Lawsuits Alone Didn't Inflate Malpractice Premiums ,' Wall Street Journal, June 24, 2002

Risky Business: Insurers' Increasingly Risky Investments in Corporate

America Cause Insurance Premiums to Skyrocket, Foundation for Taxpayer and Consumer rights.

"Auch Ärzte sind fehlbar," Der Speigel, January 5, 2003, , “ French obstetricians stop work amid boom in births ,” Jon Henley The Guardian, Thursday January 2, 2003

In 1999, the most recent year for which data is available, malpractice lines garnered 14.2% profit, while property/casualty lines made 8.2% . National Association of Insurance Commissioners, Profitability By Line By State in 1999 (Published 2001).

“Hype Outraces Fact In Malpractice Debate.” USA Today, March 5, 2003.

“Despite Industry Fuss, Malpractice Crisis Doesn't Exist,” Florida Capitol News, March 1, 2003

The Insurance Forum, Vol 28, No. 7 (July 2001).

Journalists! For more information on these issues, including an the most recently updated version of this Factsheet, the cites and sources for the above information, charts, studies graphs and other materials, please contact Jesse Green at the Michigan Trial Lawyers Association --jessegreen@mtla.net -517.321.3073

See also--
Americans for Insurance Reform http://www.insurance-reform.org

The fallout --victims of medical malpractice
http://centerjd.org/stories/index.html

'Medical Malpractice-Stable Losses/Unstable Rates' http://www.insurance-reform.org/StableLosses.pdf

'Premium Deceit -- the Failure of "Tort Reform" to Cut Insurance Prices. http://www.centerjd.org/PremiumDeceit%20.pdf

The Foundation for Taxpayer and Consumer Rights http://www.consumerwatchdog.org/healthcare/fs/fs003112.php3

Public Citizen takes a look http://www.citizen.org/congress/civjus/medmal/index.cfm

Covering Medical Errors --information for journalists http://www.ahcj.umn.edu/qualityguide/chapter2.html

Georgia Civil Justice Foundation 'Quick Facts' http://www.civiljustice.org/medical.html

German Medical Malpractice: crises in a country with no tort system.

Disciplined Doctors
(Now including Michigan)