Insurance Law

Christ Robinette points to this Concord Monitor (NH) op/ed by the president of the NH Association for Justice. The op ed says that insurers are to blame for med mal premiums --not lawyers. Prof. Robinette mentions the author might be biased, but the op/ed does seem to have some data to support his position.

Now lets look at the data purportedly provided by the NHAJ.

Two recent studies reported in the March 2008 Journal of Empirical Legal Studies found that "the supply of OB/GYNs in a state has no relationship to either a doctor's malpractice premiums or a state's liability laws."

The cites are not provided and I could only find one on point.  But here is the table of contents.  There are two papers on med mal in the March 2008 edition of the JLS--one on physician supply linked above and the other on med mal claiming behavior within the State of New York. 

• The paper on point on tort reform and physician supply does not find an effect as the op/ed suggests. (I think the paper is thorough and that it covers a number of possible avenues for tort reform influencing physician supply).  I acknowledge that it is difficult to find peer reviewed level quality statistical links between physician location choices and the level of medical malpractice premiums.  In fact, there are few papers that find such a relationship (See e.g., Klick and Stratman 2007 Journal of Legal Studies  Here is the non-gated version ).
  
• The "second" paper on claiming behavior is a within state analysis and it does not account for physicians moving among the counties in the state.  While the endogenous claiming behavior is different in each part of the state,  the tort law presumably is the same across the state.  Thus, this paper can not say much about how tort law influences physician supply. (And, I do not think the authors meant it to do so.)
• While the authors of teh claiming behavior paper found no relationship between physicians per capita and claims, they did find a significant relationship between lawyers per capita and claims (Table 5).  I won't go so far as to suggest that lawyers cause claims (because there could be many confounding effects), this result seems to undermine the op-ed's position that it is insurers and not lawyers which cause med mal problems.

The op/ed's second point was that

A July 2005 study by Jay Angoff, former Missouri insurance commissioner, found that the payout on malpractice claims over the preceding five years was essentially flat, but that the U.S. malpractice insurance carriers raised doctors' premiums 120.2 percent over the same period.

• This is not a peer reviewed result.  The starting and ending points were cherry picked. Ted Frank and I have a short critique of this "report" and others like it.  Our critique is also not peer reviewed, but it gives a flavor of the debate.  [To be fair, I have been critical of Mr. Angoff's reports before, see, e.g. this post and this one] .

Next, we have the issue of reserving...

During this same period, 12 of the larger malpractice carriers collectively increased their reserves up to a staggering $3.81 billion, which the National Association of Insurance Commissioners reported as excessive. While the industry told the regulators that they needed to increase their reserves to cover "possible future claims" the footnotes in their filings stated that "their projected claims losses are likely materially inaccurate and in the past have also been materially inaccurate." You have to question where all this surplus money is then going.

Three points are important here...

• The NAIC never says reserves are excessive.  There job is to develop statistics for  solvency regulation and a firm can never be too solvent as far as they are concerned.   This is a new take on the story that med mal insurers are increasing their reserves and that they are excessive. The NAIC has a risk based capital formula that tells regulators that they have to intervene if the reserves are too low.  If the formula suggests that the insurer has enough capital, the regulator need not intervene in the insurer's affairs.  Having capital is prudent.  Having reserves is prudent.  [Here's a link to a  discussion of another Mr. Angoff's reports attacking an insurer for having too much in reserve.]
• Many insurers in med mal are doctor owned mutual insurance companies or reciprocal insurers.  This means that when insurers collect premiums they put them in reserve for their customer/owners.  If surplus grows to the point that a dividend is given, the customers get their money back.  The residual claimant in a mutual or a reciprocal is the customer.  To the extent that stock companies offer medical malpractice, they have to compete against doctor owned companies.   
• Med mal insurance is notoriously hard to price and to set proper reserves. Prices are high if their is legal uncertainty regarding future claims. Insurers are being honest when they say they believe their estimates to be materially inaccurate.  This reserve uncertainty is not caused by doctors, but the state's legal environment.

The trial bar repeatedly makes the same factual errors about insurers.  If this was such a good business to be in, the AAJ should start their own med mal carrier and make boatloads of cash --or --if they were truly interested in justice, they could cut prices so that doctors can afford their med mal cover.  Seriously, we do not see many insurers clamoring to get into the business.  Does this suggest there is a gold mine here?