Sharon J. Arkin, President

TO:  Members of the California State Legislature

FR:  Consumer Attorneys of California

DATE: February 23, 2005

RE:  “Behind Those Medical Malpractice Rates”- New York Times - February 22, 2005

‘Behind Those Medical Malpractice Rates’ is an article that ran in Tuesday’s [February 22, 2005] New York Times.  The article demonstrates there is little correlation between legal costs and medical malpractice rates and that medical malpractice insurance premiums are, in fact, more closely tied to the investment earnings of the insurance industry.  For example:

“But for all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent….”

“Lately, the more important factors appear to be the declining investment earnings of insurance companies and the changing nature of competition in the industry.  The recent spike in premiums - which is now showing signs of steadying - says more about the insurance business than it does about the judicial system.”

“Over most of that period, premiums for doctors rose modestly and sometimes even dropped as the insurance companies battled for market share in a scramble to collect more money to invest in strong bond and stock markets. But when the markets turned sour and the reserves of insurers shriveled, companies began to double and triple the costs for doctors.”

“Martin D. Weiss, the chairman of Weiss Ratings Inc., an independent financial rating agency, said the cyclical nature of the insurance business and a drop in insurers' investment earnings when markets fell had been among the strongest forces behind the rise in medical malpractice premiums.”

“…Mr. Weiss of Weiss Ratings and researchers at Dartmouth College, who separately studied data on premiums and payouts for medical mistakes in the 1990's and early 2000's, said they were unable to find a meaningful link between claims payments by insurers and the prices they charged doctors.”

Meaningful insurance reform is the solution to lowering medical malpractice insurance rates.   California’s MICRA should not be used as a model for the nation.  In fact, the MICRA cap should be eliminated, particularly in cases resulting in death or serious injury.  At a minimum, in other cases the cap must be increased to reflect years of inflation which has eroded the value of the cap to less than $83,000.  To adjust for inflation alone since 1975, the cap should be increased to $888,676. 

For additional information about eliminating or raising the MICRA cap, feel free to contact the Consumer Attorneys of California office at (916) 442-6902.