Posted on 06/15/2003 5:41:19 AM PDT by Archangelsk
Caps won't solve 'insurance crisis'
By STEVE SANDS
COMMUNITY VOICES
15 June 2003
We are in an insurance crisis. This crisis affects doctors, who have seen their medical malpractice insurance rates skyrocket during the last two years. It affects businesses that now pay nearly twice the premium for the same comprehensive loss coverage purchased two years ago. It also affects homeowners. Recently, one insurance agency announced a plan to raise its homeowner rates in Florida by as much as 85 percent over the next two years.
Insurance policyholders are being price-gouged across the board. Because the insurance companies are exempt from anti-trust laws, they are free to organize outrageous rate hikes or orchestrate walkouts without punishment. As a result, if health-care organizations wants to affect substantial and lasting reduction in their premiums, they must first admit that the insurance industry, not their patients, is the cause of this crisis.
Insurance companies make their money during years of economic growth. When the economy is good, insurance companies fiercely compete for premium dollars to invest. During the good economic times of the 1990s, insurers cut their rates in order to attract new business. In fact, doctors actually experienced a reduction in their medical malpractice premiums as more and more insurers flooded the state to compete for these premium dollars.
In their quest for the all-mighty dollar, the insurers engaged in severe under-pricing and questionable business practices by insuring doctors they knew had multiple prior claims. In 2000, when the economy turned with a vengeance, many of these fly-by-night insurance companies realized too late that they had charged too little and insured some of the worst doctors in Florida. As a result, their losses began to escalate. As the economy worsened in 2001, the insurance industry responded as it always has, by raising rates.
And then, Sept. 11, 2001 occurred. This tragedy was followed by revelations of fraud and corruption at Enron, WorldCom, ImClone and many others. How did the insurance industry respond to these events? Lloyd's of London, in a newsletter to its members just after Sept. 11, stated that those terrorist attacks were a "historic opportunity" to make money, adding that premiums "had shot up to a level where very large profits are possible." In response to Enron, insurers increased their rates for reputable companies by 50 percent to 300 percent. Tragedy, it seems, is just an insurer's word for "opportunity."
And so now we find ourselves in the midst of this debate on medical malpractice. Insurance insists that there is a "crisis" caused by an explosion in litigation. It argues that the only way to keep medical malpractice premiums down is to impose restrictions on the damages that can be recovered by someone injured through medical carelessness. This is the same argument we have heard each time we have suffered an economic downturn, such as in the mid 1970s and 1980s. Each time, insurance companies have taken advantage of the problem they created by asking for (and receiving) restrictions on the ability to bring a claim for medical carelessness. However, there is no litigation explosion. And there never has been.
According to the Florida Department of Insurance's "closed claims" database, the number of medical malpractice claims per capita has gone down since 1991. The reality is that attorneys who specialize in medical malpractice claims do not pursue frivolous claims. These cases are extremely complex, challenging, time-consuming and extraordinarily expensive.
In Florida, before being able to file a medical negligence suit, you must have a sworn affidavit from a doctor that the case has merit. Thereafter, it will cost you $25,000 to $100,000 or more in costs to bring that case to trial. Even when a claim has merit, juries are typically inclined to side with the medical professionals and rule in their favor 75 percent of the time. When the jury does rule in the patient's favor, the Florida Department of Insurance reports that the average pay-out to victims of medical carelessness has gone down by more than 14 percent since 1991 when adjusted for inflation.
And yet, in spite of all of this evidence from the Department of Insurance, insurers are still campaigning for a restriction on patients' rights. The centerpiece of the insurance industry's proposed legislation is a $250,000 cap on non-economic damages, otherwise known as pain and suffering or "loss of quality of life."
California passed a $250,000 cap on these damages in 1975, and it has never been increased. In 1975, $250,000 was worth $877,000 in 2002 dollars. With each successive year, the $250,000 is worth less and less due to inflation. This fact, standing alone, demonstrates the unreasonableness of an absolute cap on damages.
Finally, independent studies have shown that caps on non-economic damages in medical malpractice claims do not prevent premium increases. On June 3, 2003, Martin Weiss, chairman of Weiss Ratings, Inc. (www.weissratings.com), an independent agency that rates insurance carriers, concluded that although caps slow the increases in amounts paid out by the insurance carriers, most insurers have not passed on those savings to the physicians due to other pressures, such as the decline in investment income. The report concludes that caps have been ineffective in reducing medical malpractice premiums for medical professionals.
What is the solution to the insurance crisis? First, we must insist that insurance companies open their books for inspection and prove that they are losing money and if so, the cause of that loss. In this age of accounting fraud and scandal, it's absurd to simply take the insurance industry at its word without demanding some proof.
Second, unless legislation is passed mandating rate roll backs, the doctors must create self-owned mutual insurance companies, in which the doctors are members-owners. Any profit earned by the mutual company is returned to the doctors as premium reimbursement. Chiropractors and lawyers have successfully used the mutual insurance companies for years.
Third, the medical profession must stop their attempts to extort patients and the Legislature by orchestrating walkouts. Instead, the medical profession must assume more responsibility for policing itself and removing the multiple offenders from its ranks.
I agree with the author, if we're going to have tax cuts, let's have insurance cuts too.
Gee, is it extortion when other folks go out on strike..? Interesting use of the language there.
Doctors need to get a collective spine and stand up to this en masse.
This has become the fault of the doctors for not demanding an end to their being kicked to the curb by every ambulance-chasing shyster in America.
I agree with the author, if we're going to have tax cuts, let's have insurance cuts too.
Oh, man! I don't know how much you pay in insurance premiums, and how much you pay in taxes. I guessing that I pay at least triple for taxes, counting my medical insurance which I do not pay directly, but not counting government frauds like FICA as insurance.
It's not as if I were a friend of insurance companies or insurance in general. If I were king, I would outlaw insurance. It eventually ruins the markets for everything it touches. But all insurance companies do is pool all the payouts associated what they are insuring and add some percentage for all their paper pushers and their stockholders. (And of course they lie when they tell you they want to keep costs down, because their income is a percentage of those costs, and if costs were really low no one would insure those costs.)
The author of the article you provide doesn't provide one fact to back up his claim that caps on negligence suits wouldn't stem the flow of ridiculous liability suits. And ridiculous they are. You know I could go on forever about things like being burned by hot coffee. I'll just offer one.
I fly little airplanes, or I used to. Cessna and Piper used to make thousands of these plane every year. But then some woman and her lawyer sued Cessna when her husband flew his plane into a mountain and died. Cessna was found liable because the plane didn't have a little sticker on the instrument panel warning the pilot to wear his shoulder harness. They tried to pass the cost of their increased insurance on to new plane buyers, but the insurance got to be about half of their cost to manufacture. So now they don't make those planes anymore. I suggest that if caps for this sort of suit were in place at the time, that Cessna and Piper's business would have continued on more or less as it always had.
ML/NJ
Can insurers legally flout anti trust laws and conspire to set prices? Years ago, they could. Today, they can if they want to end up in jail.
Do caps on liabiliity reduce premiums? It depends on whether premiums in the marketplace are sufficient pay the cost of loss. If not, caps may not reduce premiums, but they may make insurers more interested in writing the coverage.
Do doctors' mutual insurance companies solve the problem? Sometimes they help, but doctor owned insurers are not exempt from the reality of losses or the liability environment in general. For example, the hospital mutual in Pennsylvania, PHICO, recently failed in Pennsylvania's very difficult medical malpractice environment.
Finally, should insurance companies open their books to see whether they really are losing money on medical malpractice? Actually, insurer's books are more open by law than other corporations. Anyone can visit their state Department of Insurance and pick up more data on insurers' finances than they will ever find time to review.
There are no easy answers to the malpractice insurance crisis. But it would help if the kind of misinformation in this article is recognized for what it is: propaganda.
What you said may be all well and true, but I'm not naive enough to believe that insurance companies, with their influence and ability to dictate premium rates, aren't trying to recover from bad business decisions that they made prior to 911. If you really dig into the casino, hotel and development game you'll find an insurance company backing many of these ventures. A more telling data point is the amount of money they spend on advertising trying to appear benevolent and magnanimous while fleecing, with government approval, their "customers". No, you'll get no sympathy for them from me.
Relative to the amount I pay for insurance and the services I receive from the companies that I pay to, I pay next to nothing on taxes (remember, I use government services all the time, I imagine you do to). As far as the little planes, yes, you're correct, however the instrument failure you speak of was the result of a failed vacuum pump, which kills the DG and AI and reduces the instrumentation down to partial panel. For anyone who is instrument rated and current, this is not a problem. However, since most instrument-rated pilots refuse to keep up their proficiency through recurrent training (or heed that small voice in their head that tells them to hire a CFII and do some approaches, holds and intercepts) you get that litigation situation you speak of.
Do I mourn the fact that Cessna and Piper don't churn out 172s and 28s like they used to? Yes. But at the same time the big two have competition from Cirrus and Diamond Star for their business.
I forgot to add this. I don't know how Cessna could possibly be liable for this since FAR 91.107 specifically states that the shoulder harness must be strapped, if the plane is equipped with one, during takeoff and landing for anyone operating an airplane. It is the responsibility of the PIC and SIC to know the FARs, not Cessna or Piper.
Perhaps not. The insurance industry is undergoing an unseen crisis at the moment, in that most of the investments they have their money tied up in, have been reduced to practically no yield, or have soured completely and gone south, actually decreasing in net value. They have always counted on the growth in the value of their purchased equities to cover insurance claims, while leaving the principal untouched or maintaining a steady growth, apart from receipt of premium payments, which are used to create new pools of principal for further investment. But the steady sure income has dried up, and now new premium money must be used to subsidize the deficits from payouts on claims. Therefore, premium payments are increased to compensate. Even if no more new claims are being made against the insurance company, they are a static or declining position in relation to the pool of capital available for income generation. This is one of the primary reasons that tax reform as a means of encouraging investment has been pushed so strongly by the Bush Administration. A vigorous and growing investment in the engines of economic development is the key to maintaining low insurance rates.
You know I could go on forever about things like being burned by hot coffee.
The insurance companies and defense bar have done a great job spinning the famous McDonald's spilled coffee case. But do a little research sometime and you will learn that: (1) McDonald's knew that its coffee was way too hot to come into contact with human skin without causing burning, but chose to make it hotter to squeeze more coffee from the same amount of grounds, (2) McD's knew that many people use its drive-throughs and the first place they place their coffee is their laps, (3) McD's employee wa snegligent in affixing the lid to the coffee cup (the main purpose of which is to protect against spilling hot coffee onto people), (4) the woman received "serious" injuries and had to have several follow up medical procedures to address her injuries, (5) the jury award was equal to one day's coffee profits for McD's, and (6) McD's could have settled the case much more cleaply and chose not to do so.
The rare, humongous jury verdicts are not driving up the "costs" of insurance. Rather, the insurance companies' successful exploitation of a few publicized cases just lets them charge more and make more. Ask yourself: How many insurance companies have gone out of business because of these high awards? Answer: Zero.
His "frivolous lawsuit" involved his claims for physical and emotional injuries arising from being kidnapped in June 2001, tortured and held hostage for ransom for eleven days by his ex-brother-in-law and others. $1.5 million for compensatory damages, and $5.5 million in punitives. My client will probably see very little of it, as the "bad guys" are in jail and had little in the way of assets. I did not charge him anything.
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