You asked for the impact of the medical malpractice liability limits imposed by Texas HB 4 (2003 Regular Session) on: (1) the number of companies writing the insurance in Texas, (2) Texas medical malpractice insurance rates, and (3) the number of physicians practicing in Texas.

SUMMARY

Medical malpractice liability limits became effective in Texas on September 1, 2003 and were part of a comprehensive tort law overhaul. Since that time, there have been 15 new entrants to the medical malpractice insurance market, general rate stabilization, a 5% increase in the number of physicians overall, and increases in key physician specialties, according to the Texas Department of Insurance.

TEXAS LIABILITY LIMITS

The limit on non-economic damages for medical malpractice cases varies based on whether the defendant is a health care provider, including a physician, or a health care institution. If final judgment is rendered against a health care provider, a $250,000 per claimant cap applies to non-economic damages, regardless of the number of defendant providers (Tex. Civ. Prac. & Rem. Code Ann. § 74.301(a)). The cap is not indexed for inflation.

If final judgment is against a single health care institution, a $250,000 per claimant cap applies to non-economic damages. If the judgment is against more than one institution, a $250,000 per claimant cap applies to non-economic damages per defendant. Total non-economic damages awarded are further capped at $500,000 per claimant (Tex. Civ. Prac. & Rem. Code Ann. § 74.301(b) & (c)). The caps are not indexed for inflation.

In a medical malpractice wrongful death or survival claim, if final judgment is rendered against a health care provider, a $500,000 per claimant cap applies to all damages, regardless of the number of defendant providers. This cap is indexed for inflation. It does not apply to necessary medical, hospital, or custodial care received before judgment or required in the future (Tex. Civ. Prac. & Rem. Code Ann. § 74.303(a), (b), & (c)).

A wrongful death claim is a statutory cause of action that may be brought on behalf of a surviving spouse, children, and parents of the deceased to compensate them for the losses sustained as a result of the wrongful death of their family member (Tex. Civ. Prac. & Rem. Code Ann. § 71.002). A survival claim is a statutory cause of action brought to recover damages sustained by the decedent for personal injury. The claim survives death in favor of the heirs, legal representatives, and estate of the injured person. The claim also survives the death of the person liable for the injury (Tex. Civ. Prac. & Rem. Code Ann. § 71.021).

The liability of any insurer under the common law theory of recovery is limited to the liability of the insured (Tex. Civ. Prac. & Rem. Code Ann. § 74.303(d)).

MARKET CONDITIONS WITH LIABILITY LIMITS

New Entrants to Medical Malpractice Insurance Market

In 1999, 17 companies wrote medical malpractice insurance in Texas. By 2002, the number dropped to four. Since liability limits were imposed in September 2003, 15 new companies have emerged and four companies have expanded or plan to expand upon their current medical malpractice writing in the state, according to the Texas Department of Insurance

The 15 new entrants include 11 registered risk retention groups (RRGs), one admitted insurer, one company that has filed a name reservation and will soon file as an admitted insurer, and two eligible surplus lines insurers.

An RRG is formed under the provisions of the federal Liability Risk Retention Act of 1986. It must be chartered (i.e., licensed) in a U.S. state, which regulates it as a captive insurance company. For more information on RRGs, see OLR Report 2004-R-0408 (copy enclosed).

An admitted insurer is an insurer licensed and regulated by the state insurance department. Texas insureds purchasing malpractice insurance from an admitted insurer are protected by the state's Guaranty Fund in the event the insurer becomes insolvent.

When insurance is not available through an admitted insurer, coverage may be obtained from a surplus lines insurer, which must be licensed in their home state or country and on the Texas insurance department's list of eligible companies to conduct insurance business in Texas. Surplus lines insurers are not regulated by the state and there is no Guaranty Fund protection in case of insolvency.

Medical Malpractice Rate Stabilization

Since Texas liability caps became effective, the state has seen some rate stabilization, according to the Texas Department of Insurance.

Texas Medical Liability Trust (TMLT) is the largest writer of medical malpractice insurance in Texas with $189,000,000 in written premiums. After the liability caps became effective, TMLT reduced its medical malpractice rates by 12% effective January 1, 2004. It has announced that it will further reduce rates by 5% effective January 1, 2005.

TMLT was established pursuant to legislation enacted in 1977 that permits a statewide physicians' association to create a self-insured trust. The insurance department is not authorized to regulate TMLT. However, TMLT files its rates and forms with the department for informational purposes. The Guaranty Fund does not provide protection to those receiving coverage through the trust.

Health Care Indemnity, the largest writer of hospital liability insurance in Texas with $129,500,000 in written premiums, reduced its rates by 15% effective January 1, 2004.

Continental Casualty Company, a smaller writer with $800,000 in written premiums, reduced its medical malpractice rates by 11.5% effective February 1, 2004.

The majority of companies either eliminated proposed rate increases or made no rate change. The Texas Department of Insurance disapproved several rate increases requested by carriers. For example, it disapproved the Texas Medical Liability Insurance Underwriting Association's request for a 35.8% increase in November 2003. The underwriting association was formed in 1975 to provide insurance to eligible health care providers who are unable to obtain insurance in the commercial market. All insurers authorized to conduct liability insurance business in Texas are members of the association. Members and policyholders may be assessed to maintain the association's solvency. The association has $58,000,000 in written premiums.

Physician Ranks

Since the passage of Texas HB 4, including the medical malpractice liability limits, physician ranks have increased. From May 2003 to September 2004, the total number of physicians in Texas increased by 5%, including a 62% increase in obstetricians. This compares to a 1% increase from May 2002 to May 2003, including a 13% decrease in obstetricians.

Since September 2003, fewer doctors are leaving remote areas, the state is experiencing an increase in key specialties (e.g., obstetrics, gynecology), and hospitals are having an easier time recruiting new doctors, according to the Texas Department of Insurance.

Table 1 provides a comparison of Texas physician count, including certain specialties, between May 2003 and September 2004. Table 2 compares May 2002 and May 2003.

Table 1: Texas Physician Count (May 2003 to September 2004)

Source: Texas State Board of Medical Examiners

Table 2: Texas Physician Count (May 2002 to May 2003)

Source: Texas State Board of Medical Examiners

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