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State Insurance Regulation Lowered Doctors' Premiums, Data Show

Santa Monica, CA -- Insurance reforms passed by California voters in 1988 dramatically lowered doctors' medical malpractice premiums and led to more stable rates, according to data released by the nonprofit, nonpartisan Foundation for Taxpayer and Consumer Rights (FTCR). The data contradicts contentions by President Bush today that restrictions on victims' legal recovery lowers physicians' malpractice premiums.

The FTCR analysis compares the impact of the 1988 insurance reform (Proposition 103) on malpractice premiums, on the one hand, and the effect of 1975 restrictions on victims' recovery of non-economic damages (the Medical Injury Compensation Reform Act, or MICRA), on the other. Data show that:

  • Medical malpractice premiums remained extremely volatile after MICRA and did not stabilize until Prop. 103 imposed rate regulation on the insurance industry.
  • Overall, California malpractice premiums increased 175% during the first decade with MICRA and substantially decreased during the first decade of Prop. 103.
  • California medical malpractice premiums closely tracked national trends until Proposition 103 set California apart, by statutorily requiring lower insurance rates.
  • Between 1988 and 2000, California medical malpractice premiums were down by 8%, while, nationally, premiums were up by 25%.
  • After adjusting for inflation California medical malpractice premiums are down by 35% since the enactment of regulation.

      "Strong insurance regulation, not arbitrary caps on injured patients' recovery, is the only way to bring medical malpractice insurance rates down," said Douglas Heller, senior consumer advocate for FTCR. "Blaming victims of malpractice simply leads to more victimization by doctors, hospitals and HMOs, while regulating insurance companies would actually lower doctors' premiums."

      In response to soaring insurance rates during the mid-nineteen eighties, California voters passed Proposition 103 in 1988, enacting the nation's toughest insurance regulation of many lines of insurance, including medical malpractice. The initiative imposed a temporary rate freeze on insurance rates, required a rate rollback and established ordered insurers to seek prior approval of future rate hikes from the insurance commissioner.

      Victim of Medical Malpractice Says President Bush Should Be Ashamed

      At a press conference today, San Diego, California resident Kathy Olsen told the story of her twelve-year old son Steven who is blind and brain damaged because he was denied an $800 CAT scan when he was two years old. A jury awarded $7.1 million for Steven's lifetime of pain and suffering after determining that had the boy received the CAT scan he would be healthy today. However, the verdict, unbeknownst to the jury, was reduced to $250,000 by California's cap on malpractice verdicts.

      "President Bush should be ashamed that he is recommending a national policy that limits my son to $250,000 for a lifetime of pain and suffering, regardless of a jury's judgment, while allowing insurance company CEOs to make millions annually without any accountability," said Kathy Olsen, who is also an FTCR board member.

      Striking Doctors and the Insurance Cycle: History Repeats Itself

      Just as doctors are refusing to care for patients in West Virginia, striking doctors in California 26 years ago declared a similar "crisis" in order to enact severe legal restrictions on innocent malpractice victims, including the $250,000 cap on the amount of damages they can receive no matter how egregious the negligence or serious the injury. Former California Governor Jerry Brown, who signed the law, stated seventeen years later that he would not recommend it for the nation because in the interlude he "witnessed yet another insurance crisis and found that insurance company avarice, not utilization of the legal system by injured consumers was responsible for excessive premiums." (Governor Brown's complete comments from 1993 are available at http://www.consumerwatchdog.org/healthcare/rp/rp003007.pdf)

      Insurance premiums follow a cycle known as the insurance cycle in which rates are low when investment returns and interest rates are high, but when investments decline, insurers drive prices up and subject policyholders to an insurance crisis. The insurance cycle led to another crisis during the mid-nineteen eighties, when California doctors faced average annual medical malpractice premium increases of 26% per year (1983-1986), despite the state's legal caps on damages. In fact, California premiums increased slightly faster than doctors' premiums nationwide, which rose 25% per year at the time.

      The premium volatility during the seventies and eighties period made it impossible for doctors to assess their premiums from year to year, and left doctors facing massive premium increases during the years after the legal restrictions were imposed but before the state enacted insurance regulation.

      "The promise that limits on legal damages will lower the cost of insurance for doctors is a myth promoted by insurance companies in an effort to limit victims' recoveries and increase corporate profits," said Heller.