Malpractice Premiums Trail Inflation for Some Physicians

December 16, 2016

Medical malpractice litigation has been a traditional bogeyman for physicians, and the high cost of liability insurance figures into the litany of complaints.

However, premium rates on average have been creeping down since 2008. And in 23 states, many physicians — although probably not most — are paying less on an inflation-adjusted basis for malpractice insurance than they did in 2001, according to a Medscape Medical News analysis of premium rates published by Medical Liability Monitor (MLM). Experts attribute the trend in large measure to physicians getting sued less for malpractice, which in turn reflects tort reforms that discourage such suits.

For example, an insurer called The Doctors Company set the annual premium for standard malpractice coverage for an obstetrician-gynecologist in Colorado at $38,578 in 2000, according to MLM. In 2016, the company's rate was $46,155, a 20% increase. In contrast, the consumer price index rose by roughly 36% from 2001 to 2016.

Rates went up even less in other states. In Iowa, the annual premium for an internist covered by a carrier called MMIC in 2001 was $5,472 (all MLM rates cited in this story are those filed with state regulators, not those necessarily charged to physicians). In 2016, MMIC's rate for Iowa internists was $5,953, or 9% higher than in 2001.

Some physicians appear to be paying even less for coverage now than they did 15 years ago, without adjusting for inflation. In 2001, MMIC filed a rate of $15,980 for general surgeons in Wisconsin. The rate in 2016 was 32% lower, at $10,868.

The overall malpractice insurance picture isn't as pretty as these premiums suggest. Not every physician can find rates that lag behind inflation. In New Hampshire, the $15,021 rate filed by Medical Mutual Insurance of Maine for internists is 171% higher than it was in 2001. In Oregon, the rate for general surgeons from Physicians Insurance A Mutual more than doubled. And plenty of insurers are setting their rates for obstetrician-gynecologists at a staggering $100,000 or more.

That said, the cost of malpractice coverage, judging by MLM rate data, isn't as onerous as many physicians might believe.

"Nobody is denying that this is a significant cost of doing business," said MLM editor Mike Matray in an interview with Medscape Medical News. "If I had to write a check for $100,000 for malpractice insurance, I'd be screaming from the rooftop, too."

"But from a medical liability insurance standpoint, it's a good time to be a physician. It's the best it's ever been since the turn of the century."

"Claims Frequency Is at Historic Lows"

Except for 2015, MLM has reported a year-to-year decline in malpractice premium rates on average for three bellwether specialties — internal medicine, general surgery, and obstetrics-gynecology — from 2008 through 2016. For all practical purposes, a 0.3% average increase for the three specialties in 2015 meant that premiums remained flat.

Flatness also applies to 2016, when rates decreased on average by 0.1%, according to MLM. They fell by 0.2% for internists and 0.1% for obstetrician-gynecologists while plateauing for general surgeons (their slight decrease rounded to 0.0%).

MLM surveys insurers for their filed, or so-called manual, rates for malpractice policies with the most common coverage limits — $1 million for an individual claim and $3 million in any given year for all claims. The companies surveyed comprise 65% to 75% of the medical liability market.

The rate filed with state regulators is the starting point for what the insurance carrier charges an individual physician, which is usually lower, said Howard Friedman, senior vice president of ProAssurance, which insures 78,000 clinicians in all 50 states. Factors adjusting the filed rate up or down include the type of procedures performed by the physician, his or her malpractice track record, any disciplinary action taken by a state medical board, and participation in risk management activities such as a class on physician-patient communications, which would lower the rate.

Aside from physician-centered criteria, "competitive pressures" come into play for rate setting, Friedman told Medscape Medical News. In other words, an insurer can knock down its rates simply to gain market share.

At the core of rate setting, though, is an insurer's "loss experience," which reflects claim frequency and claim severity. The more lawsuits it has to defend (claims frequency), and the more it pays plaintiffs in the form of settlements and court-awarded damages (claim severity), the higher the company sets its rates. As it is, malpractice carriers are enjoying sunny weather when it comes to their loss experience.

"Claims frequency is at historic lows," said medical liability consultant Paul Greve, executive vice president of Willis Health Care Practice, in an interview with Medscape Medical News. "I am astounded that it is not moving. The environment today is probably the best in the last 40 [years]."

Claim severity also is stable, Greve said, despite a recent uptick in jumbo jury verdicts, which might exceed $100 million, but which comprise less than 1% of all verdicts and settlements.

In an analysis of rate trends published in MLM in October, Greve explains why business has been so good for malpractice carriers. Patient safety initiatives have yielded better clinical outcomes, reducing the frequency of lawsuits and the size of payouts. Tort reforms such as caps on noneconomic damages enacted in many states have given plaintiffs and their lawyers less of an incentive to sue. And juries sympathize more with sued physicians, thanks to advocacy efforts by organized medicine, insurers, and other tort reform champions who warn that medical liability costs hurt patient access to care.

"This attitude shift has resulted in a drop in claims frequency and fewer multi-million dollar jury verdicts," Greve writes.

ProAssurance's Howard Friedman has a similar assessment.

"Things have been stable over the last 10 years," he said. "Frequency has been pretty flat. Increases in claims costs have been moderate."

Physician Perception Darker Than the Facts?

Comparing malpractice insurance premiums in 2001 and 2016 requires understanding what happened in between.

As evidenced by MLM surveys, rates shot up dramatically in the early 2000s, with increases hitting 20% in both 2003 and 2004. The increases slacked off for the next 3 years — 9% in 2005, 1% in 2006, and .2% in 2007 — and then gave way to 7 straight years of decreases.

Some physicians on this rate rollercoaster are apparently paying less on an inflation-adjusted basis for coverage in 2016 than they did in 2001. The MLM survey data suggests this good fortune when one singles out insurance carriers that were operating in particular state and regional markets in both of those years. The mix of carriers in a given market changes over time, with companies coming and going, and folding, for that matter. Companies that stayed put in a market from 2001 to 2016 provide an apples-to-apples comparison, although they represent only a slice of the medical liability insurance industry.

For most physicians, premiums have risen faster than the consumer price index during this period, in the estimation of ProAssurance's Howard Friedman. He puts the overall increase somewhere between the general inflation rate of 36% and the inflation rate for medical costs, which has been nearly 70% since 2001. Friedman said the medical cost inflation rate is a better comparison point for premium growth because premiums reflect insurance company losses in the form of court-awarded damages and settlements, much of which go toward the medical care of injured plaintiffs.

That malpractice insurance premiums have increased more slowly for some physicians than others over the past 15 years can come across as cold comfort, given that 2001 was the beginning of a rate spike. To many physicians, premiums back then were too high to begin with, and they can't come down fast enough.

And despite the current stability of insurance costs, malpractice suits still are high on the list of professional aggravations for physicians, according to a 2016 survey of some 17,000 practitioners by the recruiting firm Merritt Hawkins on behalf of the Physicians Foundation. When the firm asked physicians to identify the two factors that they find the least satisfying about medicine, professional liability concerns (23.5%) came in fourth, behind inefficient electronic health record design and interoperability (26.8%), erosion of clinical autonomy (31.8%), and regulatory and paperwork burdens (58.3%).

A study published in Health Affairs in 2010 reported that physicians' fears of getting sued for malpractice — which can lead to defensive medicine — were almost as high in states with cheaper insurance premiums and other measurable proxies for low litigation risk as they were in high-risk states. "The level of liability concern reported by physicians is arguably out of step with the actual risk of experiencing a malpractice claim," the authors wrote.

Medical liability consultant Paul Greve agrees. The physician outlook about malpractice suits "is darker than the facts," he said. However, he sympathizes with the fear factor at play.

"They're always at the risk of being second-guessed. Let's face it, they're always vulnerable, and that perception — I don't know what would change that perception."

States Where Some Malpractice Insurers' Premiums Have Trailed 40% Inflation Rate from 2001 through 2016

State (and Region) Insurer Percentage Change for Internists Percentage Change for General Surgeons Percentage Change for Obstetrician-Gynecologists Cap on Noneconomic Damages?
Alabama ProAssurance Indemnity 10% 10% 7% No
Alaska Medical Insurance Exchange of California 19% 19% -0.1% Yes
Alaska Norcal Mutual Insurance Co. -12% -1% -11% Yes
Arizona Mutual Insurance Co. of Arizona 16% 8% 6% No
California (Northern) Medical Insurance Exchange of California 22% 22% 2% Yes
California (Northern) Cooperative of American Physicians Mutual Protection Trust -23% 0% 38% Yes
Colorado The Doctors Company 34% 35% 20% Yes
Florida (Dade and Broward counties)2 ProAssurance Casualty 39% 33% 11% Yes1
Hawaii Medical Insurance Exchange of California 38% 38% 15% Yes
Idaho Medical Insurance Exchange of California 21% 22% 1% Yes
Iowa MMIC 9% 9% -18% No
Kansas Kansas Medical Mutual Co. 36% 31% 22% Yes
Maine Medical Mutual Insurance of Maine 39% 62% 24% Yes
Massachusetts Medical Professional Mutual Insurance Co.3 75% 64% 27% Yes
Michigan (Wayne and Oakland counties)4 ProAssurance Casualty -13% 15% -13% Yes
Mississippi Medical Assurance Co. of Mississippi -15% 41% -7% Yes
New Jersey Princeton 36% 60% 35% No5
North Dakota MMIC 9% 22% 9% Yes
Ohio (Outstate)6 ProAssurance Indemnity 24% 24% 24% Yes
Tennessee State Volunteer Mutual Insurance Co. 16% 7% -8% Yes
Texas (Dallas County)7 ProAssurance Indemnity 94% 45% 7% Yes
Washington Physicians Insurance A Mutual8 28% 25% 25% No
West Virginia ProAssurance Indemnity Co. 22% 21% 21% Yes
Wisconsin MMIC -40% -32% -40% Yes
Wyoming Utah Medical Insurance Association -3% 46% 43% No


Source: Medical Liability Monitor rate surveys. Analysis by Medscape Medical News.

Percentage changes reflect premium rates filed with state regulators for mature, claims-made coverage of $1 million/$3 million. Premium rates quoted to physicians may be higher or lower. In most states, more than one medical liability insurer is marketing policies to physicians. Percentage changes are increases except where preceded by a minus sign.

1 The Florida Supreme Court is weighingwhether the state's limit on noneconomic damages is constitutional.

2 The 2001 rate was just for Dade County.

3 Rates in 2016 were for occurrence coverage. An occurrence policy provides permament coverage for medical incidents occurring during the policy period. Rates in 2001 were for mature, claims-made coverage. Claims-made policies cover claims when the alleged incident and the subsequent claim occur while the policy is in force.

4 The geographic region in 2001 was called the "Detroit area." Metro Detroit includes Wayne and Oakland counties.

5 New Jersey, however, caps punitive damages at the greater of $350,000 or five times compensatory damages.

6 Predominantly rural counties.

7 The rate for 2001 applied to other Texas counties as well.

8 Coverage for 2016 was $1 million/$5 million compared with $1 million/$3 million in 2001.


Follow Robert Lowes on Twitter @LowesRobert


Comments on Medscape are moderated and should be professional in tone and on topic. You must declare any conflicts of interest related to your comments and responses. Please see our Commenting Guide for further information. We reserve the right to remove posts at our sole discretion.