Day four of our personal injury lawyers‘ discussion of “Five Myths of Medical Malpractice.” Here’s Myth #4:
Medical Malpractice Myth #4: Medical Malpractice Claims Drive Up Doctors’ Premiums
This myth continues to be spread by the health insurance lobby, despite being continuously debunked by empirical evidence. The argument works as follows: to protect against large payouts from medical malpractice verdicts or settlements, insurance companies must raise premiums on doctors’ malpractice insurance, which doctors are required to pay under state law regulations regarding the carrying of malpractice insurance. Makes sense, right?
However, the actual facts present a different picture. The Americans for Insurance Reform (AIR), a national coalition of public interest organizations, conducted a study that found no correlation between malpractice lawsuits and high premiums paid by doctors. In other words, malpractice lawsuits brought by personal injury lawyers do not provide any justification for high premiums.
Instead, the study found that doctors’ increasing insurance premiums relate to the insurance industry’s bad investments and the downturn in the economy — what the authors call the “economic cycle of the insurance industry.” The AAJ report explains insurance companies are heavily reliant on two sources of income: (1) underwriting income and (2) investment income. Underwriting income is the amount of premiums the insurance companies do not “give back” in payouts, whereas investment income is the money the insurance companies make investing the premiums — in the stock market, real estate and other investments.
If investment income is strong, then insurance companies lower premiums “to attract more policyholders and increase their market share.” More policies holders paying smaller premiums gives them more investment money while also increasing the number of people who will inevitably have to pay higher premiums, which deepens the pockets of the insurance company even further.
However, if investment income is weak — and the steep economic downturn and stock market collapse the past few years have made insurance companies’ investment income weak — insurance companies raise premiums to allow their underwriting income to make up for their loss in investment income.
None of this has anything to do with medical malpractice claims, despite what insurance companies argue. This point is made clear in a separate AAJ report about the 10 largest malpractice insurance companies. That report found that “malpractice insurance companies have underestimated profits and overestimated losses in part to justify new legislation to restrict the rights of those injured by medical negligence.”
As the health care debate now moves to the Senate, the hope is that new health care reform will take into account this new information and set new health insurance regulations accordingly so that cost savings are not made at the expense of patient rights and safety. To speak with one of our experienced Chicago injury and malpractice attorneys, call Passen Law Group at (312) 527-4500 for a Free Consultation.