A.M. Best Reports Med-Mal Crisis Adding to Health Insurer Woes

October 30, 2002

Rising medical-malpractice insurance premiums for doctors and hospitals are adding to already budget-busting medical-cost inflation, according to the special report, “The Impact of the Med-Mal Insurance Crisis on Health Insurers,” released by A.M. Best Co.

In Pennsylvania, doctors and hospitals are facing an availability and affordability crisis for medical-malpractice insurance coverage, with rates increasing approximately 70 percent during the past 12 months, driven by higher jury awards and competitive market conditions during the mid-to-late 1990s.

As well, Phico Insurance Co.’s insolvency contributed to the decrease in available coverage in the Pennsylvania market, and St. Paul Cos.’ market exit worsened the situation. Pennsylvania responded to the medical-malpractice crisis with legislation this year, including the Medical Care Availability and Reduction of Error (MCare) Act, effective March 20; the Fair Share Act, effective June 19, and legislation eliminating venue shopping, signed Oct. 17.

Highmark Inc. has felt the impact of the medical-malpractice crisis from both a provider’s and an insurer’s perspective. Employing 120 physicians through Alliance Ventures Inc., a series of primary-care centers throughout southwestern Pennsylvania, its medical-malpractice insurance premiums have increased 300 percent since 1997 for employed physicians, according to Anthony Cosentino, director of risk management, following years of underpricing in the late 1990s and 2000.

The crisis also is impacting the way physicians practice medicine, causing some to practice defensive medicine to stem their liability. Thus, physicians are offering more prescription drugs and ordering more diagnostic tests, which increases the utilization of health-care services and an insurer’s expenses, he said.

With the cost of health insurance increasing at an alarming rate, eventually, fewer subscribers will be able to afford health insurance under the current financing system.

However, A.M. Best believes some change in the financing of health-care services is on the horizon.

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