Wednesday, June 01, 2005

Tort Reform, No Solution

THANK YOU to Craig Rhodes from the SIDemocrat YAHOO! Discussion Group for this little gem:

Tort reform won't solve medical malpractice insurance problem

For months now, much of the local corporate media have essentially taken the side of the medical malpractice insurance industry in the debate over how to solve the malpractice insur ance problem. The industry is pushing hard for caps on non-economic damages and these media voices have gone right along with the program, equating such caps as being the only "real, meaningful reform" - as The Southern Illinoisan did in its editorial o f May 18th.

The trouble is, experience shows that caps will not solve the problem, because they don't address the real causes of the problem. Their only certain result is to further line the po ckets of a heavily monopolized and unregulated insurance industry, while undermining the people's right to have compensation for their injuries determined by a jury of their peers.

The main causes of the rise in medical malpractice insurance rates are a) the medical malpractice insurance industry is heavily monopolized, b) the insurers lost money on their inve stments when the stock market went bust, and c) they are not regulated in Illinois. Thus when insurers lost money on the stock market, they were able to price-gouge doctors to recover their losses. The insurance industry in Illinois is exempt from the S tate's anti-trust laws. One company, ISMIE Mutual, controls nearly 60 percent of the market. That firm turned a $19 million profit in 2003, doled out pay raises to most of its officers and over $773,000 to its board of directors.

Thus, medical malpractice premiums have little to do with increases or decreases in payouts. The inflation-adjusted amount paid out by insurers per doctor for medical malpractice cl aims in Illinois peaked in 1991 and has declined since then. Yet while claims have declined, the total amount of premiums collected by ISMIE has been increasing rapidly. In 2004, the same year it jacked up rates through the roof, ISMIE paid out 10 perce nt less in total claims than it did in 2003. The difference between the amount of premium dollars it took in and the amount paid out in claims in 2004 was about $270 million.

Insurance companies make most of their profits by investing premium dollars, not by charging premiums in excess of payouts. When interest rates are high and the stock market is boom ing, insurers lower their premiums to get more dollars to invest. When interest rates drop or the stock market declines, insurers sharply raise their premiums and reduce coverage in order to recoup their losses. This is called the "insurance cycle" and it is simply a normal part of the business.

What is unusual about the current situation is that the heavily monopolized and unregulated industry in Illinois reacted to the "down" phase of the cycle by price-gouging like never before. In his recent testimony before the House Committee considering the malpractice insurance legislation, Jay Angoff, national expert on insurance reform and former director of Workers' Compensation for the State of Missouri, remarked: "Companies a re supposed to lose a little money on their underwriting, on their insurance business because they make so much money on investment income. . . . Well, last year for the first time in 25 years, the industry actually made money on insurance, on underwrit ing before investment income." Angoff added that now "the industry is swimming in money," and that surpluses have roughly doubled in the last couple of years.

Because "excessive" payouts on malpractice claims is not the real cause of the problem, damage caps are not the answer: They do not bring down insurance rates. In the first 12 years after California enacted a $250,000 damage cap in malpractice cases, malpractice premiums rose 190 percent. According to Weiss Ratings, an independent insurance ratings agency, between 1991 and 2002, states that had adopted damage caps experienced prem ium increases of 48 percent - a greater increase than in states without caps.

Thus, the real impact of caps is that they will rob the real victims of medical malpractice of an opportunity to receive full, fair compensation for their injuries. It will also dis criminate against the poor, the elderly, children and stay-at-home parents, since these victims will not have lost wages or other significant economic damages - and if their total damages are capped at $250,000 or even $500,000, they will have great dif ficulty finding an attorney willing to take on expensive, risky and complex litigation.

When truly serious wrongs are committed - whether by a doctor, a careless or drunk driver, or a greedy corporation that markets an unsafe product - jury awards play an important rol e in our society by creating a strong deterrent against negligent and inhumane conduct. In other words, they provide a vital incentive for physicians to use extreme care when treating patients, drivers to drive carefully and businesses to operate respon sibly. Damage caps will undermine this incentive.

The notion that there can be a "one-size-fits-all" limitation on pain, suffering and other intangible damages offends basic concepts of social justice and common sense. Are we the p eople really willing to say that someone who loses their sight, or a limb, or who is paralyzed for life, has only suffered $250,000 worth of damages (less attorney's fees and any uncovered costs)? Then don't let our representatives take away your right to have a jury of your peers determine the appropriate measure of damages. Don't let them weaken the jury system, one of the proud hallmarks of American democracy.

We do need meaningful reform to contain the medical malpractice insurance problem. But a real solution would attack the real cause: The monopoly control of the industry and the lack of regulation by our toothless Department of Insurance. Let's remove the insurance exemption from our anti-trust laws. Let's force real competition by creating a public insurer, as many states do for workers' compensation. Let's police insurance compan y investments better. And, if we really want to do something about the volume of malpractice claims, and the volume of medical errors that kill 131,000 people annually, making it the fourth leading cause of death in the United States, then let's turn ou r attention to the 5 percent of doctors who are responsible for 54 percent of malpractice payouts and the inadequate system of medical regulation that allows this small minority of physicians to keep inflicting harm.

Let's not impose a phony "solution" that will line the pockets of the insurance industry - at the expense of physicians and malpractice victims alike.

Rich Whitney

The author, Rich Whitney, is a Carbondale lawyer and ran for Illinois state senator under the Green Party. He's a progressive, intelligent political activist with integrity.

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