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Cyrus Dugger

Report Shows Malpractice Insurers Price-Gouging Doctors and Driving Up Cost of Care

From the Pennsylvania Trial Lawyers Association

Report Shows Malpractice Insurers Price-Gouging Doctors and Driving Up Cost of Care

Prompting Call for Doctors to Ask their Insurers, “Show Me the Money”

PHILADELPHIA -- Reports continue to come out showing that the alarms sounded about a medical malpractice litigation crisis in Pennsylvania and the nation are myths, the latest released by the American Association for Justice and the Pennsylvania Trial Lawyers Association showing that insurance companies have been gouging our doctors in their professional liability insurance premiums while, at the same time, their payouts have been cut in half even as they push the medical profession to continue to fight for anti-consumer legislation at the state level.

Today, a report conducted by the former Insurance Commissioner of Missouri, Jay Angoff, shows that insurance company malpractice losses have fallen by nearly 50 percent as insurance premiums for doctors remain high. In 2003, the top 15 malpractice companies projected they would pay out $2.6 billion in claims (“incurred losses”). In 2006, they projected payouts of $1.35 billion; this is a 48% decrease. The report also shows that insurance companies are paying out just 39 cents in claims for every dollar a doctor pays in premiums. Where does the remaining 61 cents go? “Executive salaries, marketing and advertising, and lawyers and lobbyists—and profit,”according to the Angoff study.

“The doctors should be demanding their insurers to ‘show me the money,’ ” said Anthony Green, executive director of the Pennsylvania Trial Lawyers Association. “You don’t have to be smarter than a fifth grader to figure out the mathematics on this one. The insurance companies are receiving record profits while the claims against them are falling, while doctors continue to pay high premiums and while the cost of medicine continues to rise.

“Rather than seeking laws to close courthouse doors against people who need judges and juries as a last resort when they are injured, we should be seeking ways to control the profits of big insurance and insure there is a rationale relationship between premiums billed and claims paid out. If there ever was a crisis, it was a health insurance crisis and given the gouging and the windfall profits, that crisis still rages.”

The American Association of Justice placed advertisements in USA Today, including the Philadelphia edition, urging doctors to ask their insurer a simple question: “Why do my rates keep going up while your claims payments keep going down?”

The Angoff report, which was funded by the American Association for Justice, comes on the heels of two recent studies showing that there is no doctor shortage in Pennsylvania and that medical malpractice cases have fallen dramatically here.

• According to a scholarly report in the publication Health Affairs, the total number of doctors practicing across all specialties in Pennsylvania increased by nearly 6 percent between 1993 and 2002 from 181 to 191 per 100,000 residents. The total number of high-risk specialists grew by 3.3 percent over the same period, from 138 to 142 per 100,000 residents.

• The Pennsylvania Supreme Court released their latest figures for medical malpractice filings. In Pennsylvania, there was a 38 percent decline in med mal filings from the base years 2000-2002. In Philadelphia, the state’s largest judicial district, the decline has been over 50 percent. 2006 saw the fewest number of jury verdicts resulting in plaintiff awards. In 2003, the Court set rules requiring attorneys to file a certificate of merit, backed by an expert’s finding, that a lawsuit is valid and making rules on where lawsuits are filed more restrictive.

For the full report, click here.

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Posted at 10:00 AM, May 25, 2007 in
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Comments

Insurance 101: Mutual insurers cannot earn excess profit. In fact, they can't earn profit at all--it is distributed back to their customers. So far as I know, med mal rates have not fallen more at Pennsylvania mutuals than at for profit insurers. I feel the above point has been made in the comments of this site before. For credibility's sake, I'd recommend pulling this post.

Posted by: Drew Drytellar | May 25, 2007 11:36 AM

Hi Drew,

Thanks for your recommendation. Taking your characterization as fully accurate, it doesn't do much to rebut the primary point made in the above press statement. Let’s take a look at the press release again shall we?

"The report…shows that insurance companies are paying out just 39 cents in claims for every dollar a doctor pays in premiums. Where does the remaining 61 cents go? “Executive salaries, marketing and advertising, and lawyers and lobbyists—and profit,”according to the Angoff study."

Only one of the things mentioned in the previous sentence is traditional “profit.” Therefore it follows that “executive salaries, marketing, advertising, and lawyers and lobbyists” are where the additional money from this price-gouging goes.

The one that pops out the most at me is the “executive salaries.” If profits are delivered back to policy holders those running the company still have an incentive to price-gouge because it allows them to inflate their own salaries...salaries that are not given back to policyholders as "profit."

Posted by: Cyrus Dugger | May 25, 2007 4:25 PM

Whenever you read a study that "finds" that insurance companies are charging too much, you can be sure of three things: it will be funded by trial lawyers, it will cite Jay Angoff, and it won't make any economic sense.

The question "where does the money go" is nonsensical. It doesn't "go" anywhere. Insurance companies hold it in reserve. And mutual companies return the amounts not held in reserve ("surplus") to their policyholders.

Of course they pay executives. But there's no evidence cited that any med-mal insurance company is spending excessive amounts on “Executive salaries, marketing and advertising, and lawyers and lobbyists." To the extent that the PTLA press release says that money was spent on these things "according to the Angoff study," it either misunderstands or is dishonest. He did not study the issue at all. That's not the result of a study; it's just a mathematical statement that money not spent on payouts must be spent elsewhere. Which is false, because the money can simply be held and not spent on anything at this time.

Posted by: David Nieporent | May 26, 2007 6:45 PM

David, any time a study "finds" that insurers aren't charging too much, you can be sure it was paid for by the insurance industry. Perhaps we should just ignore all studies funded by interested parties.

Posted by: Justinian Lane | May 29, 2007 3:29 PM

Justinian, I agree. You know what we should do? We should let doctors shop around for the cheapest rates. If no company -- including mutual insurance companies for which "profit" is simply returned to the doctor-policyholders -- is willing to sell insurance policies below a certain price, we ought to conclude that this price is the lowest price which makes economic sense.

Posted by: David Nieporent | May 29, 2007 9:41 PM

"...we ought to conclude that this price is the lowest price which makes economic sense."

Fine by me, but rather than accept the "economic sense" theory, I bet a lot of doctors will decide lawyers are to blame.

Posted by: Justinian Lane | May 30, 2007 11:04 AM