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September 24, 2004

Reviewing The Issues Rather Than Nitpicking

By Ron Chusid

Ted acknowledges that his entry entitled Some Corrections is essentially nitpicking. He questions a few of the facts but, even if he were correct in his objections to all of the facts he discussed, he has neither refuted the bulk of my argument or proven his. The fact remains that caps have not proven to be effective in reducing malpractice premiums or reducing malpractice suits. Rather than worrying about every minor disagreement on evidence, I'll limit to commenting on the main issues.

With regards to caps, the bulk of the data I provided is unchallenged, and there is far more evidence that caps have not been successful in resolving the malpractice crisis. According to Medical Liability Monitor, the average malpractice premium in states without caps was $35,016 in 2003 while the average premium in states with caps was $40,381. (Medical Liability Monitor, 10/03) According to Weiss Ratings, the median annual premium between 1991 and 2002 increased more in states with caps (48.2%) than in states without caps (35.9%) The report stated: "Doctors in states with caps actually suffered a significantly larger increase in insurance costs than doctors in states without caps." (Weiss Report, 6/3/03).

Disappointment with caps has been seen in many states. For example the director of the Ohio Department of Insurance said that despite caps on damages, the malpractice premium crisis is worse than ever. (Cleveland Plain Dealer, 2/20/04).

Consideration of both actual increases in rates and requests from malpractice carriers for rate increases are both meaningful. The size of requests requested shows that the situation would be far worse without restrictions on rate increases by mechanisms other than caps, something advocated by John Kerry but opposed by George Bush. Caps are primarily supported by the insurance industry as they clearly benefit from limitations on what they have to pay out. When caps have been implemented, insurance companies do not pass on their savings.

The 2003 Weiss Report found that despite caps on economic damages in 19 states, "most insurers continued to increase premiums [for doctors] at a rapid pace, regardless of caps." The report found that caps only slowed the increase in the size of awards insurers paid, and that insurers failed to pass along any savings to those physicians in states with caps by refusing to lower physicians` insurance premiums. Malpractice insurance carriers raise premiums all the traffic will bear, independent of their actual expenses. Often premiums increased to compensate for investment losses in recent years.

The data supporting caps remains ambiguous and often contradictory, but the data on the limited impact of caps on health insurance premiums is much clearer, with different studies yielding comparable results. With health insurance premiums increasing by double digits annually, it would take an error in these studies of a magnitude of 100 before President Bush's proposals would have any meaningful impact on health insurance prices. An error of this magnitude is highly unlikely. Caps are now present in several states. Besides not being sufficient to resolve the malpractice crisis, this has not solved their problems of rising health care premiums or of people without health insurance.

The other major area of disagreement is over the compensation for loses such as loss of a child or loss of vision due to negligence. Of course I realize that Ted does not liken the death of a child with the death of a pet, but the policies he advocates do not. The loss of a child is a devastating loss, and any difficulties in assigning a monetary value does not mean that we should not try, or that we should set an arbitrary value of zero. To expand upon Ted's example, we would both agree that if negligence on Kramer's part resulted in the destruction of Jerry's car, Jerry would be entitled to seek compensation. However, if Jerry had a daughter who was killed during the same act, Ted would not believe Jerry is entitled to any additional compensation. What if Jerry had some valuable artwork in the trunk of his car (or being Jerry, a valuable collection of Superman comics) which was also destroyed? Would Jerry's ability to obtain any compensation terminate should anyone complain that the value of his collectables is open to question?

Returning to caps, another problem is that they do not resolve the problem of frivolous suits, while this problem is specifically addressed by two aspects of John Kerry's proposals for malpractice reform. I will discuss this further in my next entry.

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Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.