SlowpokeBlog

Excellent article in the NY Times today explaining what's really driving medical malpractice insurance rates so high. It ain't frivolous lawsuits, as the Bushies would like you to believe.

But for all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent, to a nationwide total of $4.6 billion, according to data compiled by the Health and Human Services Department.

The main reason? A price war in the '90s followed by the recession which left companies without enough cash, followed by September 11:

In 2000, about the same time that under-pricing and other market conditions began to push up prices in medical malpractice, the much larger world of commercial insurance was also going through a cycle of higher prices. The Sept. 11 terrorist attacks cost insurers $40 billion and accelerated the upward pressure of the latest premium cycle.

Martin D. Weiss, the chairman of Weiss Ratings Inc., an independent financial rating agency, said the cyclical nature of the insurance business and a drop in insurers' investment earnings when markets fell had been among the strongest forces behind the rise in medical malpractice premiums.

And what about states that have price caps on pain and suffering awards?

some researchers are skeptical that caps ultimately reduce costs for doctors. Mr. Weiss of Weiss Ratings and researchers at Dartmouth College, who separately studied data on premiums and payouts for medical mistakes in the 1990's and early 2000's, said they were unable to find a meaningful link between claims payments by insurers and the prices they charged doctors.

"We didn't see it," said Amitabh Chandra, an assistant professor of economics at Dartmouth. "Surprisingly, there appears to be a fairly weak relationship."