California Keeps Malpractice Rates in Check

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Strong competition among a handful of healthy carriers and a law limiting damages in medical malpractice cases have helped control insurance rate hikes in California and ensure there is adequate coverage for even the most risky specialties.


“Our insurance premiums are increasing but at a predictable and stable rate,” said Dr. Michael Sexton, a San Rafael emergency medical specialist who is president-elect of the California Medical Association. “At the moment we don’t see any significant coverage threats.”


The marketplace is dominated by a half-dozen carriers who have more than two-thirds of the market share, with 47 other licensed carriers divvying up the rest, according to state Department of Insurance figures.


The largest carriers include several physician-owned companies such as Norcal Mutual Insurance Co., publicly held Los Angeles-based SCPIE Holdings Inc. and CAP-MPT, a physician cooperative in which members assume personal responsibility for any liabilities.


By far the most dominant factor in the marketplace is the Medical Injury Compensation Reform Act, the state’s landmark medical malpractice tort reform law passed in 1975.


The law limits attorney fees and non-economic damages for pain and suffering in malpractice cases to $250,000, something carriers and other medical providers alike cite as a key factor in holding down premiums.


Consumer advocates and patient attorneys, meanwhile, say that the law’s financial impact is overblown even as it has limited patients’ access to the courts.


They contend another factor is more important in the marketplace: Proposition 103, which was passed in 1988 and allows the insurance commissioner and outside parties to challenge rate hikes proposed by insurers.



Rate regulation


“California is probably the most vibrant state for medical malpractice insurance in the country, and as much as insurers have to admit it, rate regulation provides the most stable marketplace,” said Doug Heller, an insurance specialist with the Foundation for Taxpayer & Consumer Rights, which has successfully challenged rate hikes by some carriers.


A.M. Best Co. has rated most of the state’s major companies in the A range, with the exception is SCPIE, but even that carrier’s problems are largely unrelated to the California marketplace.


SCPIE got into trouble over the last few years because of its forays in other states, as well as its decision to enter the re-insurance market, which cost it significant losses after the September 2001 terrorist attacks. It has begun to turn its finances around, reporting lower losses in the third quarter.


Norcal, the state’s largest carrier, covering some 15,000 doctors, reported a net profit of $6.3 million on $182 million in gross written premiums in 2003 after reporting small losses in 2001 and 2002.


Phil Hinderberger, Norcal’s general counsel, said the insurer is doing well. A big part of that is related to the state’s 1975 tort reform law.


“MICRA that is what brings the stability,” he said, noting that the industry pays out perhaps only 2,000 claims per year, with tens of thousands of doctors paying premiums. “All it takes is a couple of big losses to make one company substantially different from another.”


Average premiums in California have been rising about 12 to 14 percent over the last few years as carriers here, as well as elsewhere, weathered a tough national market for insurance. Hinderberger said it’s likely those increases will level off in the near term.


However, even with the increases, premium rates in California are lower than in other large states, which either do not have tort reform or only recently passed it, according to a recent survey by Medical Liability Monitor, a company that tracks premium rates across the country.


The survey found that premiums in several major metropolitan areas of Florida, Illinois, Texas and New York on average were more than twice that paid by internists, general surgeons and obstetricians in Los Angeles County. Rates were lower in less populated states such as Idaho, Minnesota, Nebraska and South Dakota.

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