There is so much misinformation and just plain false information regarding the reasons for rising medical malpractice insurance premiums that have been offered as the basis for the need for so-called medical malpractice “reforms” that we wanted to address two of these myths, especially since the so-called “reforms” hurt the innocent victims of medical malpractice and their families, undeservedly benefit the negligent health care providers who cause painful and permanent life-changing injuries to their victims, and result in outlandish profits enjoyed by medical malpractice insurance carriers.
Myth: Medical Malpractice Reforms Are Needed So That Medical Malpractice Insurance Premiums Are Reasonable
For many years, the medical malpractice insurance companies and their well-paid lobbyists have convinced many state legislatures that they must restrict medical malpractice victims from being fairly compensated for their injuries and losses due to substandard medical care provided by their health care providers because allowing medical malpractice victims to obtain full justice would result in medical malpractice premiums that are too costly for their insureds. Many state legislatures bought into the Chicken Little hysteria that physicians in their state would leave for other states if medical malpractice restrictions were not implemented that supposedly would lead to the reduction in current and future medical malpractice premiums paid by physicians in their state. These same state legislatures failed to investigate the actual facts and failed to competently and carefully analyze the insurance data that would have opened their eyes to the fact that the high medical malpractice insurance premiums being charged to their physicians (and the supposed need for the premiums to increase every year) were unjustified and malevolent.
Medical malpractice insurance companies enjoy massive, increasing profits every year from medical malpractice “tort reforms”:
The average profit margin for the top 10 medical malpractice insurance companies was two times as high as the average profit margin of the 50 most profitable Fortune 500 companies (only one Fortune 500 company had a profit margin that matched the top 10 medical malpractice insurance companies).
In 2010, ProAssurance, one of the country’s largest medical malpractice insurance providers, enjoyed a profit margin (defined as profit as a percentage of revenue) of over 100% — the average profit margin for the top ten medical malpractice insurance companies was a whopping 44.6% in 2010.
How do the medical malpractice insurance companies achieve such enormous profits? By charging their insureds way too much for their medical malpractice insurance policies and by vastly over-estimating their losses (the amounts that they have to pay out in medical malpractice claims) so that the medical malpractice insurance companies could pocket the enormous excess as their enormous profits.
Doctors were also the victims of their own medical malpractice insurance companies because they were forced to pay medical malpractice insurance premiums that were much higher than the actual facts would have supported. However, medical malpractice insurance companies were able to sit back and enjoy the benefits of unnecessary restrictions on the amounts that medical malpractice victims could receive from them as fair compensation for their injuries and losses because the doctors who were paying too much for their medical malpractice insurance coverages jumped on the band-wagon and championed the need for medical malpractice reforms because of their own financial interests, which brings us to another myth regarding medical malpractice reforms.
Myth: Medical Malpractice Insurance Companies Have Incurred Huge Losses
The definition of a “loss” for an insurance company differs, depending on what is being discussed. An “incurred loss” is not an actual amount paid out but rather is an accounting method of predicting future losses based upon new claims opened and the history of previous claims (incurred losses are losses that have happened and will cause claims to be made) — a “paid loss” is actual money that is paid out.
Over a matter of years, the incurred losses (the best-guess, estimated losses) are updated based on claims that are closed, with or without a payment having been made. As actual paid losses become known, the incurred losses for the previous years are revised. After about four years, most of the claims have concluded one way or another and therefore the incurred losses and the paid losses will converge.
When medical malpractice insurance companies report their profits for a given year, they are based on incurred losses and not on the actual amounts that they paid out for the year. The incurred losses that are not paid out during the year are set aside in “reserves” that collect interest and may never be paid out in actual losses. Due to the differences between incurred losses and paid losses, and the reserves that may never be paid out, insurance companies can report that they are losing money when in fact they have large reserves earning interest that may never be paid out but increase the medical malpractice insurance company’s net worth.
For the six-year period ending in 2009, the top ten medical malpractice insurance companies have revised downward their incurred losses by an average of 14.95%, which means that they were grossly over-estimating what their losses would be and then revising the losses downward in later years. Additionally, projected payouts have decreased substantially as evidenced by “positive reserve developments” (that is, increases in the amounts of reserves) experienced by nine out of ten of the largest medical malpractice insurance companies (eight of them had double-digit positive reserve developments).
For example, The Doctors Company, which is one of the nation’s largest medical malpractice insurance companies that keeps swallowing up smaller medical malpractice insurance companies, reported that it had a 50% profit margin in 2006. However, in 2010, when The Doctors Company reviewed its actual losses during the prior four year period, The Doctors Company determined that its original estimate of losses in the amount of $286 million was too high and lowered its estimated losses by 34%, to $188 million. Therefore, for 2006, The Doctors Company did not have a profit margin of 50% but rather a profit margin of almost 70%.
If you or a loved one may have been injured or suffered other losses as a result of the medical malpractice wrongdoing committed by a health care provider, you should promptly contact a local medical malpractice attorney to investigate your possible medical malpractice claim for you and represent you in a medical malpractice case, if appropriate.
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