Decline in medical malpractice insurance rates on the horizon

Doctors, nurses, and other health care providers could enjoy cheaper malpractice insurance in the coming year.

State Insurance Commissioner Dave Jones urged a half dozen of California’s top  medical malpractice insurers to lower their rates, a move that caught some in the industry by surprise.

The ripple effects of the potential cut were uncertain. Joel Loucher, Jones’ top aide for rate reductions, said that while lowering rates could potentially affect health care costs, it would be small.

“It’s an auxiliary to health rates in general. Presumably, it’s a component of health costs, not a driving factor,” Loucher said.

“But it is one of the underlying costs. Medical malpractice insurance is a cost that clinics or hospitals have and to the degree that you lower any of their expenses, they’re able to control costs wherever they can,” Loucher said.  

But since California has limits in place that prevents medical malpractice insurers from hiking their rates beyond a certain point, medical malpractice has taken to the shadows of the more contemporary debate on health insurance rates.

Prior to the insurance cap, malpractice insurance rates arguably were exorbitant – so exorbitant, that many health care providers who have been in the business since before the cap consider the current rates to be perfectly reasonable, Loucher said.

“But it doesn’t mean that the companies aren’t doing well and there isn’t room for lower rates … we still want to make sure the rates aren’t excessive,” Loucher said.

Due to the landmark Proposition 103, which was approved by voters in 1988, the insurance commissioner is authorized to force medical malpractice insurers to lower their rates if they are considered excessive.

While the commissioner regulates the entire insurance industry in California, he does not have the authority to force lower health insurance rates.  

“This issue (regarding medical malpractice insurance rates) was brought to his attention from contacts he made from his time in the legislature,” Loucher said.

The call for lower malpractice insurance rates follows a 2009 analysis of annual company reports by the Department of Insurance. New reports for 2010 were released earlier this week and will be part of the lengthy investigative process that will determine whether DOI will require the six insurers to lower their rates.

The DOI is not releasing the names of the six companies targeted by the request.

“We’re not going to single anyone out,” said Jones spokesman Ioannis Kazanis.

“The reason we put out this call to them was because we went over 2009 data and there were some red flags where it looked like these insurers would have to re-file at a lower rate,” Kazanis said.  

Those red flags came in the way of loss ratios, or the percentage of every premium dollar an insurer spends on claims.

“We noted that some of the loss ratios for some of the larger medical malpractice insurers are quite low,” noted Loucher.

But low loss ratios aren’t the best way to judge rate levels, Loucher said, so DOI has requested additional information from the six companies in order to better determine whether or not rates need to be lowered.    

And that process could take a while.

DOI still has to analyze the companies’ most recent annual reports for 2010 before taking a look at a heap of other factors that could more accurately indicate current rate levels.
In the meantime, Jones’ call for lowered rates is more like a casual heads-up to insurers.

“Essentially, we’ve made an informal contact telling them that rough indicators show that their rates may be excessive,” Loucher said.

While the request may only be semi-official, it is somewhat out of the ordinary for DOI to request filings from insurers outside of the existing filing schedule.

“More common is for the department to wait for companies to make filings as opposed to going out and seeking them,” Loucher said.  

If all the number crunching proves the rates are excessive it could be July before each of the six insurers are able to complete a new filing, Loucher said.  

From there, the new filing, with adjusted rates, would have to be properly vetted by DOI, a process that could take several months. Assuming things go smoothly and the files are approved, the insurers are then allotted 90 days to implement lower rates.

Insurers who refuse to lower their rates could end up in court.

“But we’re hoping for a civil process so things don’t have to get too formal,” Loucher said.