Liability Reform Data to Support Reform and Rebut Opponent Arguments

Liability Reform Facts

  • Between 1996 and 2001, the average liability award increased 107% (Jury Verdict Research, 2002)
  • The average jury award is $3.9 million. 54% of all awards were for $1 million or more (Jury Verdict Research, 2002)
  • On average, the cost of defending cases that physicians win is more than $90,000. (Physicians Insurers Association of America, 2003)
  • In 2002, medical liability insurers paid out more in claims than they received in premiums.  For every $1.00 received in premiums, they paid out $1.42 in claim costs. (AM Best Aggregates and Averages, 2003)
  • Median insurer premiums, adjusted for inflation, increased 55.86% between 1996-2002.  (NAIC)
  • Median insurer losses incurred increased 139% from 1996-2001 (NAIC)
  • 56% of Blue Cross/Blue Shield plans in crisis states report that physicians are leaving their practice, retiring or no longer performing higher risk procedures (Blue Cross/Blue Shield report, 2003)
  • 26% of health care facilities have reacted to the liability crisis by cutting back on services and/or eliminating some patient care units.  (American Hospital Association TrendWatch, 2002)
  • Medical liability costs add $60 to $108 billion to the cost of health care each year, diverting health care dollars away from direct patient care and research. (US Department of Health and Human Services, July 2002)
  • HHS also believes that excessive medical liability adds $47 billion annually to what the federal government pays for Medicare, Medicaid, SCHIP, VA health care and other government programs. (HHS Report: Confronting the New Health Care Crisis)
  • The current tort system is highly inefficient in compensating injured parties, returning less than 50 cents on the dollar to the people its designed to help. ("US Tort Costs" Tillinghast-Towers Perrin, December 2003)
  • A 2002 survey by Wirthlin Worldwide, Inc. showed that 72 percent of respondents, while favoring measures to allow full payment for lost wages and medical expenses in medical liability cases, support reasonable limits on "pain and suffering" awards. The same question has shown that 70% or more Americans have shared this view in 1992, 1995, 1999, and now 2000.
  • Approximately 80 percent of Americans favor a law to limit the percentage that a personal injury lawyer can receive as a fee from any settlement or award.
  • A study by Stephen Zuckerman et al. looked at several types of reforms and concluded that capping physician liability reduced premiums for general surgeons by 13% in the year following enactment of that reform and by 34% over the long term.  Premiums for general practitioners and OB/GYNs were impacted similarly. (Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums)
  • In a different study by Kessler and McClellan, those researchers found "that malpractice reforms that directly reduce provider liability pressure lead to reductions of 5 to 9 percent in medical expenditures without substantial effects on mortality or medical complications. (Do Doctors Practice Defensive Medicine)
  • The National Association of Insurance Commissioners states that while total premiums in the rest of the U.S. have risen 569%, California premiums have risen only 182% since 1976, after the passage of MICRA.
  • The Agency for Healthcare Research and Quality found that by 2000, states with damage caps averaged 12 percent more physicians per capita than states without damage caps.

AMA Report: Responding to the Arguments Advanced by Liability Reform Opponents

Argument: Physicians are victims of insurance companies that made bad business decisions and are now trying to make up their losses.

Response:  Professional liability carriers had actually been subsidizing their premiums.  Figures reported by A.M. Best representing 76% of the industry show that 80% of investments by PIAA companies between 1995 and 2001 were in high-grade bonds, with the remainder divided among stocks, mortgages, real estate and working cash.  However, with plunging interest rates, investment yields on these bonds have declined, and there are no longer profits with which insurers can subsidize premium rates the way they once did.  Increased losses on claims are the primary contributor to higher medical liability premium rates.  Insurers are not charging and profiting from excessively high premium rates.  None of the insurance companies studied experienced a net loss on investments. (U.S. GENERAL ACCOUNTING OFFICE, Medical Malpractice Insurance:  Multiple Factors Have Contributed to Increased Premium Rates, GAO-03-702 June 2003)

Argument: Insurance companies raise rates when they are seeking ways to make up for declining interest rates and market-based investment losses.

Response: Annual Statement data summarized in Best's Aggregates & Averages, Property-Casualty, 2002 edition, showed that the Investment Yields of medical malpractice insurers have been stable and positive since 1997.  Those returns have ranged from 5.0-5.5%, and include income from interest, dividends, and real estate income.  Medical malpractice insurers have approximately 80% of their investments in the bond market.  Therefore, their total returns on invested assets are strongly influenced by bond market performance, and less so by stock market performance.  Best's Aggregates and Averages indicates that insurers' total returns on invested assets has fallen by only 3.2 percentage points over that period.

Argument: The crisis was created by the "insurance cycle."  Reform should focus on preventing such insurers investment practices, not restricting claimants' rights.

Response: It is not the underwriting cycle that drives the problem but the growing size of jury awards.   The U.S. Department of Health and Human Services argues that if the insurance cycle were the cause of the current crisis, "then all states would be equally experiencing a crisis.  Insurers are not leaving other markets.  They are leaving the medical liability market because of the risk of unbounded payouts in that sector, particularly in non-reform states.

Argument: Tort reforms unfairly penalize patients and are ineffective in holding down premiums for physicians and hospitals.

Response: But do patients with a claim get the right amount of compensation?  Awards of non-economic damages that are given are out of scale with equity or need are not fair to anyone, given that economic compensatory damages are unlimited.  Thus, legislators must consider the needs of the greater public welfare to ensure access to care for all.  Tort reforms hold down premiums.  Compare California's premiums with those of the other large states.  For example, 2001 annual premiums for surgeons in California ranged from $14,000 to $42,000, while premiums for surgeons in Florida ranged from $63,000 to $159,000.

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