New Report Again Undercuts Arguments for "Tort Reform"

Yesterday, Americans for Insurance Reform released an important report on the insurance industry entitled “Repeat Offenders: How the Insurance Industry Manufactures Crises and Harms America.”  The lengthy report, based on a study of permissive regulatory environments, decades of industry financial data, and candid quotations from industry and public officials, offers another strong refutation of "tort reform" talking points by shedding much-needed light on the true reasons for the rise and fall of insurance rates.

Industry lobbyists rarely fail to blame liability insurance “crises” for periodic premium rate increases, and almost invariably proceed to lobby Congress and state legislatures to enact “tort reform” measures, which would make it more difficult for everyday Americans to obtain compensation when injured.  This new report convincingly refutes that argument, and instead demonstrates that the particularities of the insurance industry and the lax regulatory environment contribute to this cycle of “hard” and “soft” insurance markets.

As the report lays out in great detail, the property/casualty insurance industry does not generally make its profits as one might expect – from charging more in premiums than it pays out in compensation.  Rather, profits stem largely from using the money paid in premiums and investing it in securities.  Indeed, insurance companies almost always pay out more in compensation than they take in through premiums, because they can make up the difference in the interim through investment.  Profit is made, therefore, primarily by getting more premium dollars to invest.  For this reason, during “soft” market periods, which are typical, insurance companies compete heavily for premiums to invest, often comparatively underpricing policies to obtain money to invest.

But when a “hard” market arrives, when investments underperform, or when price competition on premium rates cuts into investment profits, insurance companies point not to their own mismanagement, but to the lack of “tort reform” as the core problem.  Insurance companies, who are statutorily exempt from federal antitrust laws, then collude in hiking prices and cutting coverage, and can point to their “underwriting losses” to impel legislative action.

This report comes at a time when the insurance market is poised to enter a “hard” phase, and we can expect insurance companies to press for laws that restrict consumer rights.  It is important to be ready to answer these spurious claims, and Americans for Insurance Reform has done the public a great service in issuing this report.

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Medical-Malpractice Narrative Undercut by Simple Reality

Are "skyrocketing" medical malpractice insurance premiums making it impossible for health-care practitioners to keep delivering quality care to patients? That's the current narrative in support of so-called tort reform legislation, but an important article published in Medscape Today (subscription required) undercuts that narrative with simple facts.

Medical groups, including the AMA, have constructed this narrative as part of their push for a legislative "fix" for the so-called problem, and have recently asked the Congressional deficit "supercommittee" to include medical malpractice caps in any deficit-reduction proposal. They've been working to convince patients and politicians that insurance claims are driving up medical costs, and that Washington can rein in health-care costs by enacting a national cap on medical malpractice damage awards for patients who are injured as a result of their medical treatment.

The Medscape Today article notes that despite the rhetoric, medical malpractice insurance premiums have actually been declining.

Although there was a time when the insurance premiums were increasing, the article notes:

[I]n 2011, they declined for the fourth straight year for 3 representative medical specialties, according to a publication called Medical Liability Monitor (MLM). Its annual rate survey, highly regarded in the field, was published this week.

Rates for obstetrician/gynecologists, general internists, and general surgeons decreased on average by a miniscule 0.2% this year after a 0.5% decrease in 2010. Rate decreases of 2.5% in 2009 and 4% in 2008 were more substantial. . . .

[A] downward trend is a downward trend, even though it is leveling out, and another upward trend is not imminent, said Chad Karls, a consulting actuary from a company called Milliman, who edits the MLM rate survey.

"Rates will remain flat in the foreseeable future," Karls told Medscape Medical News.

Medscape acknowledges that it is possible that caps in some states may have contributed to the national decline of insurance rates, but points out that this possibility falls far short of the claims made by supporters of a national cap. Those supporters claim that statewide caps have:

[L]ed to fewer malpractice claims being filed, which in turn has lowered premiums — a pattern attested to by a number of academic articles. However, premiums also have decreased in states, such as Oregon, that do not cap noneconomic damages.

"So caps can't be the only reason," Karls said. "I think the push for patient safety and risk management also has played a role" in reducing claims and premiums.

The article notes that even the American Medical Association seems to acknowledge that the so-called “crisis” in premium rates is no longer a crisis, referring merely to “rising,” rather than “soaring” or “skyrocketing” costs of premiums in a recent letter to the Joint Select Committee on Deficit Reduction which urges the Committee to include medical malpractice caps and tort reform as part of its savings plan for the federal budget.

Alliance for Justice, along with twenty other consumer and patient-safety groups, sent an open letter to the deficit supercommittee refuting the claims of malpractice cap supporters. The letter urges the committee not to include caps in their plan, and lists the many ways in which such caps would actually increase government costs (for example, by making it difficult or impossible to recoup Medicare expenses lost to fraud) while severely compromising patient safety.

For more information on AFJ's efforts to ensure that patients don't lose their rights to seek justice in court, see our Civil Justice webpage.

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