As the policy debate over the medical malpractice insurance crisis continues dueling claims about its causes and suggestions for policy solutions have highlighted the need for better understanding of how medical malpractice insurance works, why premiums change and what can be done about it.
Medical malpractice is professional negligence by act or omission by a health care provider in which care provided deviates from accepted standards of practice in the medical community and causes injury or death to the patient.
Of course there is insurance to protect medic al professionals. In fact medical professionals are required to maintain professional liability insurance, in most states, to offset the risk and costs of lawsuits based on medical malpractice.
Most health care providers need to buy professional liability insurance. Nearly all states require that physicians have liability insurance. Even in states that don’t, physicians usually have to have insurance coverage in order to get privileges to see patients at a hospital. There are states, like Florida, where physicians can choose to “go bare” (i.e. carry no liability coverage). It is estimated that approximately 5% of physicians do not carry liability coverage.
Medical malpractice insurance is usually purchased from commercial or physician-owned mutual companies either individually or through a group practice. Typically, hospital and other health care facilities purchase their own insurance, and hospitals that directly employ physicians buy a policy that covers both the hospital and its medical staff. When a physician is employed by the federal government they don’t buy insurance; if they are sued the suit is brought against the federal government, which insures itself.
Insurance companies set premiums based on 1) their expected payouts for providers in a particular risk group; 2) the uncertainty surrounding this estimate; 3) their expected administrative expenses and future investment income; and 4) the profit rate they seek. They use information on past losses and expenses, combined with other information, to help them set rates.
A physician’s professional liability insurance does not work like auto insurance, which is generally experience rated. When a motorist has a claim, their insurance premiums will undoubtedly go up. Physician malpractice premiums, by contrast, are usually priced according to the physician’s specialty and geographic location only (note that some insurance companies also consider number of hours worked and types and setting of work within the specialty).
On average it takes four (4) to five (5) years to resolve a claim from the date of an incident. In most states plaintiffs (the injured party) can wait two (2) or three (3) years after discovery of an injury that allegedly resulted from malpractice to file a claim. This is unfortunate for the insurance company as it leaves a lot of uncertainty about what the insurance companies’ liability will ultimately be. The difficulty of estimating what their liability will be makes it hard for insurance companies to set premiums accurately.
Malpractice insurance is regulated by state commissioners to ensure rates are not excessive, inadequate or unfairly discriminatory. Stakeholder groups disagree about whether the current environment should be labeled a “crisis”, but there is general agreement that malpractice insurance has become less affordable and available.