HD33 - Alternative Premium Distribution Methods for Medical Malpractice Insurance

  • Published: 1989
  • Author: State Corporation Commission
  • Enabling Authority: House Joint Resolution 186 (Regular Session, 1988)

Executive Summary:
The State Corporation Commission's Bureau of Insurance was requested by the 1988 Session of the General Assembly to study medical malpractice insurance and the feasibility and desirability of establishing a method of distribution of premiums among the various medical malpractice rate categories. The primary purpose of the study was to find a fair method of allocating medical malpractice insurance costs among physicians. One solution offered in the study resolution was the distribution of insurance costs attributable to high risk specialists among some of the lower risk specialties.

The Bureau's findings can be summarized as follows:

1. Wisconsin is the only state that has adopted a method of cost allocation among medical malpractice rate categories. Until 1986, the Wisconsin Patients' Compensation Fund had a nine class provider classification system. This was amended to reduce the number of classes to no more than four separate rate categories. The compression of the nine class system into a four class system resulted in a redistribution of insurance costs among the high and low risk specialists.

2. In its 1987 report, an academic task force established by the State of Florida rejected the idea of establishing a "risk class compression plan" as a means of reducing premiums charged to the high risk specialists. Allowing lower risk specialists to share the insurance costs of the high risk specialists was rejected on the grounds that it was inequitable, costly, and would require increased state intervention.

3. Most physicians and surgeons are opposed to spreading or sharing the costs of malpractice premiums; the insurance industry is also opposed to this idea. Remedies to alleviate the medical malpractice insurance crisis have been suggested by members of both the insurance industry and the medical profession.

4. Spreading insurance costs may be of benefit to a small number of specialists in the high risk categories but may create an affordability problem for a larger number of practitioners in the low risk categories. Ultimately, increased insurance costs could be passed along to the consumers at the primary care level.

5. Although physicians' and surgeons' medical malpractice premiums have increased significantly over the past several years, the rates charged for medical malpractice insurance in Virginia, as compared to other states, is relatively low.

6. Analysis of the medical malpractice closed claim reports submitted to the Bureau of Insurance over the past three years indicates that there was an increase in both the frequency and severity of claims closed between 1985 and 1987. Based on the Bureau's findings, the State Corporation Commission concluded that no change in the current filed premium distribution system is warranted.

The State Corporation Commission makes the following recommendations:

1. Revise Section 38.2-2228 of the Code of Virginia by requiring the following additional information on medical malpractice claims to be reported to the Bureau of Insurance:

(a) the date the loss occurred;
(b) the date the claim was reported to the company;
(c) the date and the amount of the initial reserve;
(d) the reserve valued at the end of the current calendar year;
(e) a differentiation between the amount of settlement or judgment and the amount actually paid by the insurer (for cases where the settlement or judgment exceeds the insurer's limits of liability);
(f) a breakdown between the amounts paid and the amounts reserved for attorney's fees and other expenses to the extent these amounts are known;
(g) data on all opened and closed claims (current law only requires closed claim data to be reported); and
(h) the date the claim was closed.

2. Establish a system of revising the individual claim reports required by Section 38.2-2228 so that up-to-date information can be maintained without creating duplicate reports.

3. Encourage the Department of Health Regulatory Boards to require all physicians and surgeons to report their medical specialty at the time their license is renewed.