Bad event today.

Lawsuit filed today.

Cap found unconstitutional in one or two years.

Malpractice lawsuit DOES NOT EVEN HIT THE COURTROOM for five years or more.

You’re telling me you can’t understand that????

So based on that REALITY (I say “reality” because this has happened in multiple states, including my own)… how are you going to price the malpractice policy next year? Pretend you’re the actuary for the insurance company. The malpractice event in question. Say the economic damages are nine hundred thousand dollars ($900K). Non-economic damages could be capped at, say, $500K.

Or maybe the tort reforms could vanish in two years and the damages could be unlimited. Maybe a sililar case in that state got $10 million non-economic damages before tort reform passed.

So how do you predict the payour in five or ten years?
Will it be $900K + $500K = $1.4 million?

Or will the insurance company be expected to pay $900K + $10 million = $10,900,000?

You are required by state insurance law to be responsible with your premium pricing to anticipate your expected losses.

How do you price the insurance?

Caps will be in effect for some (possibly limited, but some) time in states that have passed them. This means for definite period of time after caps are passed costs for malpractice will theoretically lower in those states that have them. Those savings, if they are real, should be reflected in some lowering of rates.

The only thing that has changed after the law passes is that the total potential liability of the company is lower, and this, if the rhetoric about caps is correct, should result in some degree of lower future costs which should in turn cause a lowering, perhaps small, but a lowering of rates.

Unless there is no savings at all from caps, rates should lower to some degree when they are passed, or they are not the panacea they are claimed to be.

I can tell you that they have had virtually no effect so far here in Nevada.

The actuaries can indeed calculate future loss as you say. They also have the common sense to know that the caps could vanish in a moment.

It happened in Illinois on multiple occasions. Tort reform gets passed, and promptly overturned in the courts. Multiple states have gone through that same process, though Illinois probably one of the worst.

So the actuaries are not going to make a strong recommendation to lower rates until they are SURE that the tort reforms will not vanish in a year.

The particular problem with malpractice insurance actuaries, versus other lines of insurance, is the time line and the uncertain nature of the loss.

A malpractice case could come up a decade or two after the event, depending on the state. Life insurance sees that as well, but with life, the loss is predictable. It’s the dollar value agreed to in the contract.

Malpractice, the loss could be one or two decades later, and the loss is fairly unpredictable because of the speculative nature of the noneconomic damages.

The rate is based on actuaries for future loss, and since future loss for P&S are now fixed, the rest of the actuarial should remain the same and the difference should be refunded.

That is, if insurance is a business with P & L based solely on their balance actuarials.

Certainly I understand the motivation and admire the professionalism of the trauma docs. Unfortunately, the lawyers and politicos count on our good nature when they screw us.

The tort reforms in those states are brand-new. It takes several years for the rates to go down. The insurance companies have to be sure that the tort reforms are not going to evaporate in a year from a legal challenge.

If an insurance company announces a rate drop right after passage of a tort reform like a damage cap, they are not basing their decision on any actuarial data…….they don’t have any yet.

Illinois has passed tort reforms on several occasions, only to have them promptly thrown out by the courts. I think Texas did as well, but not as familiar with that state.

If the malpractice insurers had dropped rates in those states when the ink was still dry on the tort reforms, they’d have gone bankrupt.

By the way, why are you comparing California with Texas and Florida, with brand-new tort reforms?

Why not compare with Indiana, with long-established tort reform?

Our rates are still pretty high. I think California might be a bit sui generis here.

Actually, a little price transparency might be a good idea. Look at the Nuffield hospitals in the UK, go to their Web site, look at their “prix fixe” for various procedures, the (private) insurances they work with, and if you don’t have any insurance at all, they will tell you the cash price for the procedure in advance (posted on their Web site)……with referral to their finance department if you desire.

If someone had zero insurance and needed a certain elective procedure, it might be nice to be able to find out the cost in advance……maybe even shop around. Try doing that in the USA.

Nuffield is private, by the way, I am not advocating the National Health Service by any means.

Though I certainly agree, a true free market would allow physicians to turn away undesirable “customers” and undesirable “business”, or charge an appropriate price for that work.

Although the state legislature passed a cap of $500,000 last year, Florida physicians did not feel this was enough, with the rates remaining high, and getting higher for some specialties. Only six carriers remained out of more than 60 that were doing business a decade ago.

So the FMA has come up with a constitutional amendment, due to be placed this November, that would reduce contingency fees for trial lawyers to 30% of the first $250,000 award, then to 10% above that amount. This measure, if passed, would give more of the payouts to malpractice victims and less to the lawyers. Physicians also expect a chilling effect on lawyers filing frivolous suits, which they can use to shake down physicians for settlements. Defending these suits nowadays, no matter how meritless, can cost up to over $40,000 per case.

Public opinion polls so far have been favorable for physicians, so favorable that trial lawyers, in retaliation, have come up with three admendments of their own to counteract the FMA’s measure. None of these amendments is viewed positively by the public.

This battle in Florida is indeed something to watch. If we are successful, this may be something other states may want to do.