MEDICAL MALPRACTICE INSURANCE; STATISTICAL INFORMATION;

INSURANCE - MALPRACTICE;

You asked for information about medical malpractice rates in Connecticut.

SUMMARY

The Legislative Program Review and Investigations Committee (LPRIC) is studying the circumstances underlying the costs of medical malpractice insurance in Connecticut and, analyzing which factors are responsible for rising premiums. Its final report, which is due in December, will include recommendations for remedies that would be most effective in dealing with the situation.

In an interim report dated September 16, 2003, LPRIC found that depending or the insurance company, over the past 6 years (1998 through 2003), medical malpractice insurance premiums in Connecticut increased between 37% and 241% for internal medicine, 35% and 185% for general surgery, and 45% and 128% for obstetrics/gynecology. During that same period, the cumulative consumer price index (CPI) and medical CPI increased 13% and 24% respectively.

Rate increases in the 1990s were much smaller. For example, The Connecticut Medical Insurance Company’s (CMIC) cumulative rate increases from 1993 through 1997 were about 12% for these specialties, not including discounts or dividends. From 1997 through 1999 CMIC’s doctors, on average, experienced either no rate charge or a premium reduction, excluding dividends.

Other Connecticut medical malpractice carries that have recently filed for rate increases include: 1) ProSelect, (30% overall rate increase effective November 1, 2003), 2) the Medical Protective Company (29. 1 percent effective 8/11/03), and 3) Truck Insurance Exchange (57. 3% effective 12/1/03). CMIC has indicated that its overall rate increase for 2004 will probably be about 30%. This will become effective January 1, 2003.

LPRIC STUDY

The LPRIC study will assess the actual circumstances underlying the cost of medical malpractice insurance and analyze which factors are responsible for rising premiums, in order to determiner what remedies would be most effective. LPRIC study will:

1. analyze medical malpractice insurance costs over a certain period of time (e. g. , 10 years) in Connecticut and elsewhere, and compare increase to other relevant types of insurance.

2. describe the medical malpractice insurance market, including number of companies involved.

3. analyze how insurance companies determine what premiums to charge doctors, reviewing the changeability of each factor over a certain period of time, including but not limited to investment earnings and loss assumptions.

4. evaluate whether the state insurance department’s role in monitoring medical malpractice rates, including insurance market competitiveness, is effective

5. analyze outcomes of Connecticut medical malpractice lawsuits in terms of damages over a certain period of time (e. g. , five years) (cognizant of possible difficulties in data availability and analysis)

6. assess impact of Connecticut tort reform efforts in late 1980s (Tort Reform I, Tort Reform II) on medical malpractice suits (e. g. case certification, limits on attorney fees)

7. examine experience in other states and review array of initiatives to address insurance cost issue, such are guaranty funds and alternative dispute resolutions mechanisms.

CONNECTICUT MEDICAL MALPRACTICE PREMIUMS

The following information is taken virtually verbatim from the September 16, 2003, LPRIC interim report. The full report (in . pdf format) is available on LPRIC’s web site. LPRIC concluded that Connecticut medical malpractice rates have increased recently, and the extent of the increase varies both by medical specialty and by insurance company.

The LPRIC interim report contains several figures to demonstrate these increases.

Figures V1 and V2 illustrate changes in base premiums charged by carriers of medial malpractice insurance in Connecticut for internal medicine, general surgery, and obstetrics/gynecology. Premium rates are based on annual rates for claims-made policies with a cap of $ 1 million per incident and $ 4 million per year except The Doctor’s Company, which provides a $ 1 million per incident and $ 3 million per year policy. (These three specialties are selected because they generally represent low-, medium-, and high-risk specialties. ) These figures are based on annual surveys conducted by the publication Medical Liability Monitor (MLM) for the years 1996 through 2002 and data provided by the Connecticut Insurance Department for 2003.

LPRIC noted that a few qualifications of the data are necessary.

• MLM data are not a complete survey of all insurance carriers offering medical malpractice insurance each year.

• Base premium rates will vary from what an individual doctor is charged based upon potential discounts or surcharges for which the doctor is eligible or liable.

• It is difficult to convey the magnitude of price changes in premiums because the data do not fully capture how many doctors are affected in particular specialties. For example, the highest rate quoted in 2003 in Connecticut for OB/GYN malpractice insurance is more than $ 120,000, but that company insures fewer than 20 OB/GYNS. On the other hand, one of the largest OB/GYN group practices in Connecticut, with about 150 doctors, has experienced a rate increase of about 73 percent -- from about $ 55,000 per physician in 2002 to about $ 95,000 in 2003. In addition, the survey does not include doctors that are insured by captives or alternative providers.

PRI staff reviewed the MLM survey data and in combination with data available at the insurance department, despite its limitations; found the information provides an indication of the direction of change that has occurred in the traditional medical malpractice insurance market.

Figure V1 presents the percentage increase in the base premium of the largest medical malpractice insurers in Connecticut for the years 1998 through 2003 for three specialties and provides a comparison to the consumer price index (CPI) and the index for medical costs (Med CPI). LPRIC noted in summary, the figure depicts that:

• Over the last six years (1998 through 2003), premiums increased between 37 and 241 percent for internal medicine, 35 and 185 percent for general surgery, and 45 and 128 percent for obstetrics/gynecology depending on the company.

• Over the same time period, the cumulative CPI and Medical CPI have increased 13 and 24 percent respectively.

• In comparison, rate increases in the 1990s were considerably smaller. For example, CMIC’s cumulative rate increase from 1993 through 1997 was about 12 percent for these three specialties, not including discounts or dividends. From 1997 through 1999, CMIC insureds on average experienced either no rate change or a reduction in their premium, not including dividend payments.

•

The premiums do not include the most recent rate filing by the carrier ProSelect, which is requesting a 30 percent overall increase in rates effective November 1, 2003. Other Connecticut carriers that have recently filed for rate increases include: The Medical Protective Company (29. 1 percent overall increase effective 8/1/03), and Truck Insurance Exchange (57. 3 percent overall increase effective 12/1/03).

Figure V 2 shows high and low premiums for selected specialties from 1996 through 2003. It illustrates the variability among different insurers, among different specialties, as well as the year-to-year variability in premium. As expected, rates vary greatly across specialties. Based on the survey data, the highest rate for an internist in 2003 is about $ 21,000; an obstetrician’s highest rate is about $ 120,000. The differences in rates, according to insurers, mirror the costs associated with each specialty’s malpractice claims. It also shows the general premium trend for all specialties begins to increase noticeably in about 2001 and 2002. It can be noted between 1996 and 2003:

1. The lowest rate paid by internists increased 133 percent, while the highest rate increased 150 percent.

2. The lowest rate paid by a general surgeon increased 69 percent, while the highest rate increased 172 percent.

3. The lowest rate paid by obstetrician/gynecologists increased 87 percent, while the highest increased 119 percent.



LPRIC also examined the annual average rate increases, across all specialties, submitted by CMIC to the Connecticut Insurance Department from 1993 through 2003 as a way to measure change in premium. Figure V-3 presents the high, midpoint, and low rate changes recommended by CMIC’s actuaries and the actual rate changes selected by CMIC. From 1993 through 2000, there are very little differences between the three rates.

1. In five out of the seven years from 1993 through 1999, CMIC submitted either no increase or a decrease in the average rate. In 1994, the average increase was 6. 5 percent and in 1996, it was 5 percent.

2. In five of the eight years from 1993 through 2000, CMIC selected the recommended mid-point change for each year. The exceptions were: 1993 --the range was from about a 4 percent increase to a 7 percent decline and it selected no (zero) change; 1997 -- the range was from a high of a 5 percent increase to no (zero) change and it selected no change; and 1999 -- it did not file for a rate change.

3. For each of the three years, from 2001 through 2003, CMIC selected an average rate increase that was less than the lowest one recommended by its actuaries. CMIC reduced or eliminated discount programs to compensate for the difference.

Traditional Market.

The number of insurers who provide medical malpractice insurance in Connecticut has fluctuated over the last decade from a low of 32 to a high of 52. The latest figures from the Connecticut Insurance

Department indicate there were 41 insurers licensed and providing some form of medical malpractice coverage in 2002. But, the top five insurers covered 79 percent of the market.

This apparently large number of insurers is misleading and some qualifications are necessary. As discussed further below, the majority of providers comprise a very small percentage of total market share. In addition, some insurers have restrictive underwriting guidelines, including not offering coverage to new clients. As discussed earlier, several medical professions other than traditional (osteopathic) physicians are required to maintain malpractice insurance, such as chiropractors, naturopaths, podiatrists, and dental hygienists, and some insurers solely or primarily provide coverage to a particular specialty. Thus, the actual range of choices for any particular physician may be quite small. Currently, the Insurance Department states that five companies are actively writing malpractice insurance (that is accepting new clients) for physicians in Connecticut (Connecticut Medical Insurance Company, ProSelect, The Doctor’s Company, Medical Protective, and Truck Insurance)

Table I-1. Top Five Medical Malpractice Insurance Companies and

% Market Share in Connecticut

As Table I-1 shows, the top five insurers over the last decade have written between 71 and 93 percent of the total medical malpractice premium in Connecticut. The top two have written over 50 percent of total premium and one company alone has consistently written over one-third of the coverage. This does not appear to be unusual. One national study suggests the average market share for the largest single medical malpractice writer in each state is about 36 percent and the top two writers in each state average a total market share of about 56 percent.

Alternative Markets

Historically, most businesses have handled risk by transferring risk to an insurance company by purchasing an insurance policy. More unconventional mechanisms for handling risk began to grow during the liability crisis in the 1970s and 1980s, when businesses had difficulty obtaining some types of overages. Recently, growth in the use of alternative mechanisms has been reported in managing malpractice risk. Broadly speaking, these mechanisms include:

• Self-insurance, where a firm or group of firms assumes all or much of its own risk exposure. In many cases some form of insurance is purchased to cover catastrophic losses.

• Captives are companies set up (and wholly-owned) by one or more entities to finance and administer their insurance risk. The assets of a captive are owned by its insureds. Large numbers of captive companies are domiciled in Bermuda, the Cayman Islands, and Vermont. There are about 300 captive for U. S. health care providers according to the actuarial firm Tillinghast-Towers Perrin; and

• Risk-retention groups consist of a number of firms or individuals that come together to form a limited purpose insurer. It must be chartered and licensed as a liability insurance company under the laws of at least one state, but the group can write insurance in all other states. Risk-retention groups are organized under federal law – the Liability Risk Retention Act of 1986 –, which preempts certain state laws that regulate the activities of these groups.

There are various tax and risk advantages and disadvantages to establishing one of the above alternatives. Generally, these alternatives to traditional insurance are created in part to save money because insureds recoup the investment income that would typically accrue to the insurer’s bottom line, but at the same time providing a stable form of coverage. Disadvantages to insurance alternatives include the amount of funding needed to initially establish and operate a captive or risk-retention group. Further, these alternative ventures still require the purchase of reinsurance to protect them from unusually high claims.

In Connecticut, many hospitals have been using alternatives to traditional insurance for some years. According to the Connecticut Hospital Association (CHA), of the 31 acute care hospitals in Connecticut, 13 self-insure or are part of a risk retention group, 12 are part of a captive, and six maintain commercial insurance. In addition, 13 members of CHA are exploring the feasibility of creating or joining a captive.

Moreover, the Women’s Health Connecticut, a group practice of OB-GYNS with about 150 physicians, is in the process of forming a captive after receiving notice of a 70 percent premium increase.

LPRIC staff intends to explore the experience of medical-based captive and risk retention groups in the staff findings and recommendations report.

GC: ro