One of the popular catch phrases of the tort reform effort is "caps on damages," with promises that caps would be the panacea to cure our supposedly ailing civil justice system. Large increases in malpractice insurance premiums dominate the tort reform debate. Supporters of caps argue that they will lower insurance premiums. The evidence strongly demonstrates that this is not true. Indeed, some states with caps on damages have some of the highest malpractice premiums.
For example, in Texas, a state with caps, researchers analyzed 15 years of closed-claims data from the state Department of Insurance and found "remarkable stability" in medical malpractice litigation and concluded that massive premium increases were driven by insurance industry dynamics, not claims. [Bernard Black et al., Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, 1988-2002 (March 2005).] The study found that:
- Adjusting for population growth, the number of large claims (over $25,000) remained constant between 1991 and 2002, as did payouts and jury awards per claim
- Adjusting for the amount of health care spending or the number of doctors, the number of large claims dropped and the number of small claims dropped sharply.
- The rate of claims per 100 Texas doctors dropped from 6.4 (1990-92) to 4.6 (2000-02).
- In 2002, the total medical malpractice payouts were only 0.6% of the total Texas health care spending.
The researchers also found little, if any, connection between insurance premiums and claims. Premiums increased dramatically, while claims remained stable. Thus, the researchers concluded that tort "reform" is "unlikely to prevent future insurance crises."
If lawsuits are not the cause of increased insurance premiums and health care costs, what is? Two possibilities include insurers' declining investment income and little market competition. Insurers make most of their profits from investment income, not premiums. They can offer lower rates when the market is up, but when interest rates are low or the stock market is struggling (as they have been in the recent years), insurers must make up for this lost income through higher premiums. As to market competition, malpractice insurance is offered by a much fewer number of insurers than in most industries. If one company has decreased investment income, it will pull out of the market, leaving fewer options available for doctors needing insurance, resulting in higher premiums.
Capping damages does not lower insurance premiums, improve access to health care, or control costs. Instead, caps on damages increase insurance company profits while thwarting worthwhile cases from obtaining a fair, just resolution.
If you have any questions about personal injury/accident law please contact Rowley Chapman Barney & Buntrock and ask for Kevin J. Chapman at (480) 833-1113.
