Health Affairs published Prof. Ken Thorpe's 2004 paper examining the impact of tort reforms on the current medical malpractice "crisis." Based on his review of data, he attributes rising insurance premiums to increasing claims severity and concludes that premiums in states capping tort awards are lower than in states that do not cap.
His analysis takes into consideration the influence of recently formed physician-owned mutuals and the exit of companies from the market voluntarily (e.g. St. Paul) and because of insolvency. He notes that in some states with the most acute "crisis" in medmal insurance price/availability, "carriers exiting the market accounted for a substantial (up to 40 percent) share of premiums written."
The author notes the expansion of two physician-owned companies, PHICO (Pennsylvania) and PIE Mutual (Ohio) outside of their home states, generating substantial large operating losses in such expansion markets. PIE Mutual was declared insolvent in 1998 and PHICO insolvent in 2002. Their sudden exit from their home and expansion markets, with St. Paul's exit at the end of 2001, contributed to the hardening of the medmal market generally demonstrated in data in the author's paper. The author characterizes these exits as "new, and it is hoped, transitory events" that "may not signal long-term problems of competition or capacity."
His short paper does not address the question whether or not such boom/bust behavior is (in different guises) in itself a long-term condition of competition or capacity that regularly contributes to perceived "crises." He acknowledges the potential contributory role of the insurance cycle to insurance price/availability crunches, but highlights rising claims severity as the principal contributor to the crisis observed at the time of his paper.
Such analyses may be profitably revisited as we observe signs that the medmal market may now be softening as new capacity enters and existing capacity reorganizes (e.g. Berkshire's acquisition of Medical Protective from GE Insurance Services).
Posted by dougsimpson at May 14, 2005 06:05 AM