Tort reforms are the best proven instrument for reducing medical liability insurance premium growth, according to a new study conducted by Stanford University Professor Daniel P. Kessler, who also serves as a research associate for the National Bureau of Economic Research in its Health Care and Law and Economics programs. The new study was funded by the Physician Insurers Association of America (PIAA).
In the study, Kessler investigated the determinants of malpractice premiums by reviewing existing literature and performing original calculations with data from the National Association of Insurance Commissioners (NAIC) and the Texas Department of Insurance.
Kessler’s research led to three main findings.
- Increased claims costs are the primary driver of premium rate increases.
- Tort reforms decrease claims costs and, in turn, premiums for physicians.
- There is no evidence that anticompetitive behavior, weak regulation, insurer investment decisions, or other features of capital markets are important contributors to rising premiums.
Studies that seem to demonstrate otherwise, upon further investigation, actually do not disprove the fact that growing claims costs drive increases in premiums, according to the study.
One of the three such reports evaluated by Kessler is “Stability, Not Crisis: Medical Malpractice Claims Outcomes in Texas, 1988-2002,” by Bernard Black, Charles Silver, David Hyman, and William M. Sage (BSHS). In the report, which garnered several news articles after its release, BSHS concluded that the number of paid claims and the amount paid per claim in Texas were roughly stable over the 1988-2002 period. Kessler shows how econometric modeling assumptions and data limitations led BSHS to understate the true growth in costs.
Kessler also pointed out that the Government Accountability Office, U.S. Department of Health and Human Services, and the NAIC “have all concluded that increases in losses and other claims costs are the primary reason why premiums have risen.”
“Even as trial-lawyer supported groups continue to simultaneously deny that an affordability crisis exists and that the nonexistent crisis was caused by insurers, this new report clearly shows that rising premiums are the direct result of medical malpractice claims costs,” said Lawrence Smarr, president of the PIAA.
Kessler’s report, titled “The Determinants of the Cost of Medical Liability Insurance,” may be found at: www.piaa.us.
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