• Insurance companies reap benefits of medical negligence caps Thursday, December 10, 2009

    In the trickle-down theory of health care costs, here’s how it’s supposed to work:  Laws that set caps on the amount of damages that juries can award to victims of medical negligence result in less money being paid out by insurance companies, which in turn means those companies can reduce the premiums they charge physicians and hospitals, which in turn will result in lower health insurance premiums for all of us.

    Guess what?  It doesn’t actually work that way.  Medical malpractice insurance companies continue to raise premiums even as their payouts go down. At the same time, there is no correlation between the cost of malpractice premiums that physicians pay, and the cost of health care insurance for individuals.

    A report from the American Association for Justice, “Insurance Company Handout,” finds the only effect of caps on damages is higher insurance company profits.

    Despite rhetoric to the contrary, the average malpractice premiums for surgeons, internists and OB/GYNs is actually lower in states without caps than it is in the 30 states that have caps, as is shown in the chart below taken from the AAJ report.

    Malpractice premiums

    The chart below, also taken from the AAJ report, shows that while the amount insurance companies received in medical malpractice premiums more than doubled from 2000 to 2006, the amount they paid out to victims of negligence (including estimates for cases that had not yet closed) went down.

    Those rising premiums — not justified by rising payouts — are used as an excuse to reduce payouts even more by imposing more restrictions on damages that victims of medical negligence can receive.Premiums v losses

    Do damage caps make a difference?

    They sure do — for insurance companies.  (And of course, for victims, who aren’t able to receive fair compensation for their injuries when damages are restricted.)

    According to the AAJ report, medical negligence insurers took in twice what they paid out in states without caps in 2008.  But in states with caps, they took in more than three times what they paid out.  “Tort reform” allows insurers to keep more of what they take in.

    Of course, the argument that damage caps would result in doctors paying lower premiums matters to the consumer only if those lower malpractice premiums result in lower health insurance premiums.  The AAJ report says that doesn’t happen either.

    Take Minnesota, for instance.  It has the lowest malpractice premium cost to doctors in the country (without damage caps, it should be noted), but ranks 31st in lowest health insurance premiums paid by individuals.

    Nebraska has the second-lowest malpractice premiums but is 29th-lowest in health insurance premiums.  Wisconsin:  third-lowest malpractice premiums, 42nd-lowest health insurance premiums.

    Nor is there any correlation the other way.  Florida, which has the highest malpractice premiums (despite a cap on damages), has the 16th highest health insurance premiums.  Nevada has the ninth-highest malpractice premiums (again, despite a cap) but the fourth-lowest health insurance premiums.

    “There is absolutely no correlation or causation between malpractice premiums and health care premiums,” said AAJ communications director Ray De Lorenzi.  “Therefore it debunks the notion that tort reform would save money for patients.”

    California has the 33rd-highest medical malpractice premiums while having the 29th-highest health insurance premiums.

    Are higher insurance company profits really a reason to prevent the victims of medical negligence who have the most severe injuries from receiving just compensation thanks to a cap on damages?

    J.G. Preston

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