Three times in the last 35 years, the insurance industry has created liability insurance “crises” for doctors (and other businesses and professions). Each time this has happened, the insurance industry has tried to cover up its own mismanaged underwriting by blaming the legal system for its sudden, astronomical premium increases. Like clockwork, following these rate hikes have been frenetic calls for legislative limits on victims’ rights to sue, with state lawmakers viewing the “crisis” as an isolated problem rather than indicative of a broader national problem caused by the cyclical nature of the insurance business.
The first time this happened was the mid-1970s. On June 9, 1975, Newsweek ran a cover story, "Malpractice - Doctors in Revolt.” The "revolt" was against sudden malpractice premium hikes. Sound familiar? Insurers quickly blamed what they believed was occurring in the country – a “litigation explosion.” They demanded huge rate hikes from state regulators and convinced lawmakers that the only way to bring rates under control was to limit the legal rights of injured victims , i.e., insurer payouts. In fact, insurers learned during this period that state regulators would give away the store in rate increases. They also learned that they could easily take political advantage of the situation by asking state lawmakers to limit victims’ rights. And it was during this period California enacted the Medical Injury Compensation Reform Act, or MICRA, which placed a $250,000 cap on non-economic damages for malpractice victims.
Yet it turns out that there never was a “litigation explosion.” After insurers abandoned the medical and product manufacturer lines, the federal government decided to review the situation and not simply accept the insurer’s assertions that litigation was “exploding.” An inter agency working group was formed under then Federal Insurance Administrator J. Robert Hunter, to look into the crisis and to report back specifically as to whether a claimed “explosion” of medical malpractice claims was causing the huge and sudden jump in premiums that doctors were experiencing.
Hunter’s research immediately found that data was not available to answer this question. Insurers did not have such data. Therefore, working with the National Association of Insurance Commissioners (NAIC), they undertook a closed-claim study. The closed claim study revealed that there was no “explosion” of claims and that there was no justification for the insurer actions. (See more here.)
But it was too late for California. Incredibly, MICRA has remained on the books for 38 years. MICRA's $250,000 cap is worth about $65,000 today. This cap has never once been adjusted for inflation. Because medical malpractice cases are so expensive to bring and the cap is so low, it’s often impossible for an injured patient to even bring a case in California. It’s been a bonanza for the insurance industry. In fact, California’s medical malpractice insurance industry has become so bloated due to this cap, that “as little as 2 or 3 percent of premiums are used to pay claims” and “the state’s biggest medical malpractice insurer, Napa-based The Doctors Company, spent only 10 percent of the $179 million collected in premiums on claims in 2009.”
However, the political lessons learned by the insurance industry were clear: by blaming lawyers and litigation for a crisis that the industry itself had manufactured, the industry could obtain major changes in tort laws – basically, gravy to their bottom line. Their clients – businesses and doctors – were more than happy to go along. It is a political strategy that worked in the 1970s, and carried them through the next three decades.
To wit, in 1986, in the midst of this nation’s second liability insurance crisis, Missouri lawmakers were told by insurers the same thing - that the only way to reduce skyrocketing insurance rates was to enact a similar cap on non-economic damages. And they proceeded to enact a $350,000 cap. But when the third insurance crisis hit in the early 2000’s, guess what happened? Claims were down in Missouri, alright. “New medical malpractice claims dropped 14 percent in 2003 to what the [Missouri Department of Insurance] said was a record low, and total payouts to medical malpractice plaintiffs fell to $93.5 million in 2003, a drop of about 21 percent from the previous year.” And “[t]he National Practitioner Data Bank, a federally mandated database of malpractice claims against physicians, found that the number of paid claims in Missouri fell by about 30 percent since 1991. The insurance department’s database found that paid claims against physicians fell 42.3 percent during the same time period.”
Fast forward to 2013.
Today, Missouri’s cap is no longer on the books because the Missouri Supreme Court struck down the law as unconstitutional 26 years after it passed. Over the weekend, the St. Louis Post-Dispatch wrote a blistering editorial, strongly opposing the effort by some Missouri lawmakers to reinstate the unconstitutional cap, and referencing the recent case of Regina Turner, whose neurosurgeon operated on the wrong side of her brain leaving her severely disabled.
And just last week, a major new effort got underway in California to, if not repeal MICRA, at least properly adjust the 38-year-old $250,000 cap for inflation. Here’s some of what the campaign “38 Is Too Late” folks say:
MICRA has a disproportionate impact on people who have little or no income, including children, the elderly, stay-at-home parents and working class Californians.
- Victims of medical negligence can collect the estimated cost of actual economic damages, such as loss of income resulting from their injuries. On the surface, that may seem fair. But the law has a disproportionate impact on people who have little or no income, including children, the elderly, stay-at-home parents and working class Californians. The reason is that these citizens have little or no economic losses resulting from lost income.
- Despite having no impact on health care or insurance costs, non-economic damages caps have a tremendously negative impact on the permanently injured, especially, for example children who may live for 70 years with brain damage or other catastrophically debilitating injuries. California’s 1975 cap on non-economic damages is worth $61,525 in 2009 dollars. A patient would need to recover $1,018,201 in 2009 for the equivalent medical purchasing power of $250,000 in 1975.
It’s been over three decades since California went down a very cruel road. It's time to do something. Go here to help.