Capped malpractice awards lead to lower premiums

Medical malpractice insurance premiums are 17.1% lower in states that have capped court awards, although the lack of such tort reform measures in other states does not fully explain recent jumps in what physicians pay to cover the cost of malpractice suits, says Kenneth E. Thorpe, PhD, chairman of the health policy and management department at the Emory University Rollins School of Public Health in Atlanta.

Thorpe analyzes the rise in malpractice costs, and efforts to combat it, in a new analysis by Health Affairs, a health policy analysis web site (www.healthaffairs.org). In the study, he examines the effects of recent sharp increases in malpractice premiums in many states and states’ efforts to keep malpractice premiums down. Malpractice premiums increased by 23.2% in 2002, although the increases varied by state and specialty.

Awards caps exist in 24 states, and Thorpe notes that they are the only malpractice reform efforts that affected physicians’ premiums, reducing them 17.1%. While he says such measures extended to other states or nationally through a federal law "would ultimately result in lower premiums," Thorpe questions whether taking that step would accomplish the goals of the liability system.

"At issue is whether we should adopt short-term, stopgap solutions to slow the growth in premiums, or use the recent experience to more fundamentally evaluate and perhaps reform the liability system," Thorpe says. "The results suggest that capping awards may improve the profitability of malpractice carriers and reduce premiums. Whether this is socially desirable or improves the goals of deterrence and compensation remains an open question."

He says three factors have been the principal drivers of malpractice premiums: growing awards and settlements, increased frequency of lawsuits, and declines in investment income. By 2002, every premium dollar collected resulted in $1.29 in total expenses, awards, and settlements, up from 95 cents of total expenses in 1995, Thorpe wrote.

To view the article, go to http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w4.20.