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medpundit |
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Friday, July 25, 2003When an insurance company cannot accurately predict a risk they overprice the premiums. That is what is happening today. The new element in this area is that law firms are now very rich and very powerful. Before they would only take a case if they were pretty sure they could win. Now they will file 50 lawsuits with the hopes of only winning one. It takes about $5,000 to $10,000 to investigate and defend even a frivolous lawsuit. Your annual premium will pay for the defense of one or two frivolous lawsuits. The insurance companies are panicking about this situation and you are feeling their pain. If tort reform was passed predictability would come back to the medical malpractice area and premiums would drop like a rock. Insurance companies cannot make excessive profits for very long because the market is very competitive when the risk is predictable. But even proponents of tort reform say they don't expect rates to decline once it's passed, although they do expect them to hold steady. I can't help but wonder if they're price gouging now so they can enjoy high premiums for some time to come, even after the passage of tort reform. Although these questions from another reader point out that tort reform is still for the greater good: I read your post on the insurance hikes and agree that it seems rather outlandish that the rates are going up that quickly. So my questions to you are: (1) Is your insurance company using lawsuits as the justification for their hikes? Yes, they are. They've now lumped my county in with the county north of us, a county with a large population of aggressive trial lawyers. My county used to be considered alone when they made their risk calcuations. That's actually a justifiable move since the trial lawyers from up north advertise down here. Maybe part of tort reform should include requiring attorneys to live and practice in the county in which they file suit. (2) If they are proving their critics right, citing lawsuits and then padding the financial effects to line their pockets (which, given fluctuations in lawsuits, would be enormously easy to do), wouldn't tort reform deny them that rationale? Or, based on your history with the insurance companies, would you say they are likely to keep the rates as high as they are and find another rationale? I think they'll keep them high, although they probably won't raise them at the accelerated rate and frequency which they're now doing. As the first reader pointed out, competition is likely to keep the rates steady once tort reform passes: (3) Could the fact that there are so few insurance companies be related to fears of anyone else offering it due to said lawsuits, and is it possible that tort reform would then clear the way for increased competition, lower rates, and better client services? Or is there another reason that there are so few good companies out there? Tort reform would probably encourage more new companies to enter the market - and old ones to re-enter markets they left. Perhaps that would help bring down premiums after all, especially since doctors are now getting used to the idea of shopping around for new malpractice insurance. Often, when a physician changes insurance companies, he has to spend a lot of money for a "tail" to cover any suit that could arise in the future from the years he was covered by the first company. That makes it expensive to switch insurance companies. But, in the current environment, doctors have been forced to find new coverage because their insurance carriers either went bankrupt or left their area. As a result, more doctors are purchasing the more expensive policies that don't require tail coverage if terminated. So, maybe competition would bring the prices down. Tort reform is still a cause worth supporting. Even if you think the malpractice insurance companies are milking the current crisis. posted by Sydney on 7/25/2003 07:18:00 AM 0 comments 0 Comments: |
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