A new report by the General Accounting Office concludes that claims payouts are the "primary driver" of rising insurance premiums, lending support to efforts to limit rising jury awards. But the July 28 report stops short of advocating a cap on noneconomic damages, saying that lack of claims data makes it impossible to know whether caps keep premiums in check.
The 67-page document, "Medical Malpractice Insurance: Multiple factors have contributed to increased premium rates," also lists carriers' investment losses, rising reinsurance rates and unpredictable future losses as factors driving premiums up.
The GAO, which advises Congress, makes no recommendations in this report for lawmakers, who passed a bill to cap noneconomic damages in the House this year but have failed to do so in the Senate.
Donald Palmisano, M.D., president of the AMA, which supports the cap, says the report "confirms what we have long held."
The study dismisses the contention by the opponents of tort reform that insurers are profiting from rate increases and that they made bad investment decisions that forced them to raise rates.
While the report says insurers saw investment income plummet in this decade, it says almost 80% of their reserves were invested in conservative bonds, not riskier stocks.
The GAO reviewed malpractice data from the largest insurers in seven states--California, Florida, Minnesota, Mississippi, Nevada, Pennsylvania and Texas--and consulted with the National Association of Insurance Commissioners.
The GAO notes that the carriers' average annual increase in paid losses, including malpractice payouts and litigation costs, was 8.2% from 1998 to 2001.
The study also reviewed insurers' "incurred losses," which the GAO considers a more up-to-date measurement of current claims, and found an even bigger increase. While paid losses are for claims in past years, the study says incurred losses measure the amount the insurer expects to lose on claims reported in the current year. The study finds incurred losses rose on average 18.7% per year from 1998 to 2001.
But GAO researchers say there is inadequate data to understand how or why these losses are rising. They say they do not know the size of claims and the relationship of economic to noneconomic damages.
They also say they do not know why payouts are rising, suggesting the cause could be a more litigious society, an older and sicker population, higher expectations due to medical breakthroughs, or a breakdown in doctor-patient relationship due to the intercession of managed care.
Opponents of tort reform, such as Americans for Insurance Reform, are dismissing the report. The group's spokesman, J. Robert Hunter, a former Texas insurance commissioner, contends the GAO's calculations are "seriously flawed."
For example, he writes that that the GAO adjusted for inflation by using the general consumer price index instead of the health component of the CPI, which grew at more than twice the rate of the general CPI. Hunter also concludes that the GAO calculated growth in carriers' losses without factoring in a rising number of insured physicians, even though their ranks more than doubled from 1975 to 2001.
Why premiums are risingA new General Accounting Office report cites several factors in rising malpractice premiums:
- Claims payouts are the "primary driver" of premium hikes
- Investment losses for carriers' reserves
- Strong competition in the 1990s pushed rates down artificially and led to increases later
- Big rate increases by reinsurers
- Carriers' difficulties in predicting future losses