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September 24, 2004

Reviewing the Evidence on Caps

By Ron Chusid

The insurance industry has a huge stake in caps. Whether or not they help physicians, insurance companies clearly benefit from lower payouts, Therefore the insurance companies, aided by conservative think tanks, have worked hard to discredit any evidence against them. The criticism of the Weiss Report, not surprisingly, originated from an insurance trade organization.

Others are not so quick to question their findings. For example, when the Knight Ridder newspapers reviewed their findings, they found them corroborated by facts such as that, although Kansas adopted a $250,000 cap in 1991, "Annual insurance premiums, however, have jumped a whopping 59.1 percent, from $14,669 in 1991 to $23,335 in 2002." (Witchita Eagle, 6/21/03)

This could easily go back and forth with opposing opinions as I'm sure that Ted and I both have many more quotes on either side of the issue. This just reinforces the fact that any evidence in support of caps remains murky and controversial.

Ted inadvertently points out another argument against caps. There is considerable fear that caps will be overturn in court, making them less effective. Caps are unlikely to change the behavior of insurance companies (with regards to increasing rates) or of doctors (in practicing defensive medicine) if nobody has confidence they will hold up in court.

Ted is both distorting the counter arguments and again mixing apples and oranges when claiming that his evidence "rebuts the Kerry-Edwards urban legends that the stock market, rather than increased liability awards, are responsible for the crisis." We do not claim that the malpractice crisis is due to the stock market. What is true, and was argued by others well before Kerry and Edwards began campaigning, is the correlation between rate increases (as opposed to an entire malpractice crisis) and declining investment income. It is no secret that insurance companies historically have made a substantial profit from investing money received in premiums. Increased premiums represented one way to offset the loss of this income source following the market crash. The loss of such stock market earnings does not account for problems such as frivolous suits, but has been one of the factors which have driven premium rate increases.

Hopefully we can now dispense with the nit picking and I can continue work on the more important issue of how Kerry's plan addresses a major failing of President Bush's plan with regards to directly addressing the problem of frivolous suits.

Posted at 10:42 AM | TrackBack (0)




Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.