Medical malpractice - what crisis?
While medical malpractice premiums were climbing dramatically from 2000 to 2004, claims did not increase at all. The finding from a study by the Center for Justice and Democracy reported in the New York Times, examined the premium and claim histories of the 15 largest med mal carriers and found that while premiums escalated 120%, claims were flat while the insurers' incurred loss ratios (ratio of claims to premiums collected) improved by almost 25% to 51.4%.
What gives? Does this mean the "med mal crisis" of a few months ago was a myth? Depends on who you listen to. The Times article notes:
"According to Connecticut Attorney General Richard Blumenthal (D), the results of the study "have the potential to alter the debate fundamentally from seeming to cast the rapacious personal injury lawyers as the complete culprits and the insurers as innocent bystanders with doctors as victims to the insurers as equally responsible, if not more so." He does like to turn a phrase...
A ‘diabolically opposite" (one of my bride's best malaprops) view.
Lawrence Smarr -- president of the Physicians Insurers Association of America, which represents insurers owned by physicians -- said, "It's a meaningless comparison that no respectable actuary would consider." He added that malpractice insurance premiums have increased because juries have issued higher awards in lawsuits and insurers have used those awards as justification for the settlement of more claims. Smarr said, "The real problem is claim severity. It means that juries are awarding higher amounts and jury verdicts drive the potential cost of the claim so that makes settlements rise."
My take - Smarr's riposte does nothing to dispute the central result of the study - although Smarr states that claims costs are rising, the data does not support his statement. Either he has not been quoted correctly, does not have a meaningful response, or he is claiming that severity is much more important than frequency. Giving him the benefit of the doubt, I assume he is claiming the latter is true. Smarr is off base, as frequency (the number of claims) is definitely critical to an analysis of any insurance block. If severity has increased, and the total cost of claims has remained flat, than frequency must have decreased. If that is the case, then the "med mal crisis" may have been a severity-driven way to boost premiums.
What does this mean to you?
Always question your assumptions - when someone claims a study indicates a problem or clear finding, delve into the detail to determine yourself if the claim is supported by the data and analysis. To quote Ayn Rand, "always question your assumptions."