Trial Lawyers

If you've watched the news in the last two weeks you have undoubtedly heard Republican operatives refer to Vice-presidential candidate Senator John Edwards as a "trial lawyer." Republicans often assert that high malpratice awards and greedy trial lawyers are the driving force behind the increasing cost of Medicare.  Ergo...John Edwards is partially responsible for this occurrence.  The consumer advice group Weiss Rating Inc.  drafted a comprehensive report in early June that may shed a bit of light on this subject.  Here is the executive summary, 
 

"Soaring premiums on medical malpractice insurance ("med mal") are a national crisis, invading the practice of medicine, threatening the availability of care, and prompting widespread public outcry. Physicians and the insurance industry place the blame on out-of-control jury awards, and, in response, 19 states have implemented caps on non-economic damages -- a key measure now included in various congressional proposals. However, the actual experience of the states with caps does not support these proposals. It shows that:

Caps did reduce the burden on insurers...

In states with caps, the median payout between 1991 and 2002 was 15.7% lower than the median in states without caps, despite the fact that many states did not impose the caps until late in the 12-year period.

Moreover, in states with caps, the payouts increased by 83.3% from 1991 to 2002, while the rate of increase in states without caps was 127.9%.
But most insurers continued to increase premiums at a rapid pace, regardless of caps...

In states with caps, the median annual premium went up by 48.2%, but, surprisingly, in states without caps, the median annual premium increased at a slower clip--by 35.9%.

Among the states with caps, only 10.5% experienced flat or declining med mal premiums. In contrast, among the states without caps, the record was actually better: 18.7% experienced flat or declining premiums.

These counter-intuitive findings can lead to only one conclusion: There are other, far more important factors driving the rise in med mal premiums than caps or med mal payouts. These include:

The medical inflation rate. In the 12-year period through 2002, medical costs rose 75%.
The insurance business cycle. The property and casualty industry as a whole suffered an unusually long 12-year "soft"period in the insurance business cycle through 1999, resulting in loose underwriting practices--not enough money in premiums collected to cover anticipated claims. At the end of the cycle, in an attempt to catch up, insurers began to tighten underwriting standards and raise premium rates.

The need to shore up reserves. Med mal insurers have been consistently under-reserving since 1997--to the tune of $4.6 billion through December 31, 2001. The only way to shore up reserves is to increase premiums.

A decline in investment income. With falling stock prices and declining interest rates, investment income for the entire property/casualty industry fell 23% in 2001 compared to 2000, and then another 2.5% in 2002. Moreover, investment income is particularly critical for lines of business like med mal where the duration of claims payouts typically spans several years.
Financial safety. Based on the Weiss Safety Ratings, we find that 34.4% of the nation's med mal insurers are vulnerable to financial difficulties (those with a rating of D+ or lower), as compared to 23.9% of the property and casualty industry as a whole. In order to restore their financial health, many med mal insurers will remain under pressure to increase premiums despite new laws to cap payouts.

Supply and demand. The number of med mal carriers increased until 1997, but has since fallen from 274 in that year to 247 in 2002. Moreover, in certain regions and medical specialties, there is evidence that some med mal insurers have pulled out or discontinued coverage.
Recommendations:

Legislators should put proposals involving non-economic damage caps on hold until convincing evidence can be produced to demonstrate a true benefit to doctors in the form of reduced med mal costs. Regulators must review and revise their parameters for approving rate increases. Insurance companies must never again allow marketing to divert or pervert prudent actuarial analysis and planning. The medical profession must assume more responsibility for policing itself, while states must be more pro-active in reviewing the licenses of individual practitioners. And consumers must not relinquish their right to sue for non-economic damages until the medical profession and/or state and federal governments provide more adequate supervision and regulation of doctors, hospitals, and other health care providers."

Here is the whole report.