A descriptive analysis of medical malpractice insurance premiums, 1974-1977.

The rapid increase in medical malpractice insurance claims and concomitant increases in premiums in the early 1970's concerned the medical and government communities. In 1974 alone, there was a 195 percent increase in malpractice suits filed in State courts (Federal Medical Malpractice Insurance Act, 1975). Major efforts to understand the nature of the “crisis” and its potential solutions included a lengthy report issued in 1975 by the Department of Health, Education and Welfare Secretary's Commission on Medical Malpractice (1975) and Congressional hearings held in 1973 (Federal Malpractice Insurance Act, 1975). By 1977, premium rates and the number of malpractice claims filed seemed to have stabilized. Robert Helms of the American Enterprise Institute for Public Policy Analysis asserts that one source of the “cooling down” stems from malpractice cases being more often decided by a jury rather than a judge as was previously done. It appears that in close cases, juries are now more often deciding in favor of the defendant, thus providing fewer incentives for plaintiffs to sue (Rottenberg, 1978). Data also show that the financial strength of many insurance companies was weak during the period of the early 1970's. The unpredicted increases in both claims filed and the size of the awards caused many companies to draw down their reserve funds. This occurrence, together with a sharp decline in companies' investment portfolios in 1974, caused many companies either to go bankrupt or to withdraw from the malpractice insurance market, creating a shortage in the availability of coverage in many states. For instance, although Massachusetts had relatively small increases in premiums in 1975, the State's two major malpractice insurers were trying to pull out of the market, and many physicians had difficulty in obtaining coverage. In many other states, insurers were either discontinuing coverage, limiting the amount that could be purchased, or not selling to newly-licensed physicians. As a reaction to this shortage, many state legislatures established joint underwriting associations (JUAs) which forced all companies selling personal liability insurance in the state to participate in a state-controlled plan to provide malpractice insurance coverage. This action eased the tight market situation. The period of calm in 1977 and 1978 should not suggest that all problems have been resolved, however. Data from one of the largest malpractice insurers show that in 1978 the number of new claims increased by 12 percent over the previous year and that the average value of each claim rose by 18 percent. The company plans to increase 1979 premiums in 20 of the 29 states in which it writes insurance (Malpractice Digest, May/June 1979). This will be the first substantive increase since 1976. The sudden rise in malpractice premiums caused them to be a more significant factor in physicians' practice costs. In order to adjust Medicare fee levels to take into account the effect of this increase in premiums, the Health Care Financing Administration (HCFA) initiated a survey of premiums. HCFA asked the insurance company with the largest percentage of policies written in a particular state to provide premium data for that state. The premium data gathered by state and by specialty for the years 1974 through 1977 follow. In addition, information on premium and coverage levels from surveys conducted for HCFA by Abt Associates and by the National Opinion Research Center (NORC) are also presented.1 Given the completeness of these data, it is hoped they will aid researchers in studies on malpractice rates, such as measuring the effect of malpractice rates on physicians' costs and fees.