March 17, 2005

Causes of the Medical Malpractice Crisis?

“Behind Those Medical Malpractice Rates” (New York Times, 2/22/05) included a statement that “legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums.” Testing this assertion requires examination of the complex dynamics of the insurance network and is complicated by a lack of appropriately segmented data and contradictory assertions. Alternative views can be found in a review of selected literature that is attached as a RTF file. TypeKey verified comments are welcome.

(Abstract follows -- Read more)

Abstract: A review of selected studies of the causes of insurance cost crises in medical malpractice liability.

  • A 2003 GAO study examines the effects of incurred and paid losses, the insurance cycle and the withdrawal of insurers voluntarily or due to insolvency.
  • In 2003-2004, Pennsylvania studies funded by the Pew Charitable Trusts examined the role of waxing and waning competitive initiatives, periods of “disequilibrium,” and the role of insurers of last resort including Joint Underwriting Associations (JUAs) and Patient Compensation Funds (PCFs).
  • The 2003 Senate testimony of the Physician Insurers Association of America (PIAA) points to operating ratios and premium/surplus ratios as constraining capacity of physician-owned insurers.
  • A 2004 national quantitative study at Dartmouth College found a “fairly weak” relationship between medical malpractice payments and premiums.
  • A 2004 report from the National Association of Insurance Commissioners (NAIC) reported correlations between number of insurers writing and premium levels and concluded that insurer losses have driven premium increases in recent years.
  • A 2005 study of the Texas Closed Claim Database (TCCD) using data for the period 1998-2002 found no significant relation between premium levels and changes in claim outcomes and expenses after controlling for population growth and per capita usage of medical services.
  • The literature agreed on the need for improved data with segmentation appropriate for research in this field.

    The author adds a perspective on the insurance cycle, comparing the participants’ situation to an iterated prisoner’s dilemma complicated by non-commercial risk bearers that provide explicit or implicit subsidies. The author suggests study of insurance market crises using tools of network theory including “phase transitions” and “cascade effects.” He also suggests consideration of an “imputed premium cost,” being the differential between real aggregate premiums and the aggregate premium that would apply in the absence of subsidized market makers offering insurance below actuarial cost.

    Link to "Causes of the Medical Malpractice Crisis?" (working paper) in Rich Text Format (RTF).

    Posted by dougsimpson at March 17, 2005 09:22 AM
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