Malpractice...

According to a story in the Los Angeles Times today, two different studies have concluded that the two major reasons insurance companies give for their insanely skyrocketing rates are false. We've all heard them, over and over. Let's repeat them together:

• More malpractice suits are being filed.
• Malpractice awards are going through the roof.

These two studies indicate that the number of malpractice suits has risen slightly, but the increase is far outstripped by the increase in number of practicing doctors, such that the actual number of filed suits per doctor (the important statistic) has actually FALLEN significantly.

Let's go over this carefully, in case it isn't clear. Let's imagine you're an insurance company, and you have 100 doctors who insure with you. These doctors pay $50,000/year for coverage, and on any given year ten of them are hit with a suit costing an average of $300,000. At the end of the year, you've taken in $5 million dollars, paid out $3 million and are left with net profit of $2 million.

Now, over the course of 10 years, the number of doctors increases to 150 (a 50% rise) and the number of claims rises to 13 (a 30% rise). If all other numbers remain equal, you now take in $7.5 million per year, pay out $3.9 million, and end up with net profit of $3.6 million (an increase of 80%).

In this scenario, it is disingenuous at best to cry "We have to pay out 30% more claims now, so we're going to increase rates". Their percentage of profit for each doctor has actually INCREASED, but by focusing only on ONE number, they try to argue that an increase is not merely justified, it is necessary.

Now, the actual numbers are clearly quite different, but the story is the same. A greater increase (percentage-wise) in the number of doctors than in the number of suits filed.

So, that leaves us with the second argument. These same studies found that the average malpractice award has risen by less than 4% per year from 1991 to 2003, and by less than 2% per year from 2001 to 2003. Yes, there are extreme awards cases (just a few), but... it's like telling your boss you need a huge raise because the cost of food is skyrocketing, and basing this argument on the one time last year that you went to one particular store which charged 70% more, when in fact your year-on-year total expenditure has only risen by about 4%.

Think about that, the next time you notice how much you (or your company, if you're one of the extremely lucky) is paying each month for medical insurance, and you look at how much medical treatment costs these days. Even assuming we're not being gouged by the medical insurance companies in the same fashion as the doctors are by the malpractice ones, when the yearly rate for malpractice insurance has risen in some cases to more than a quarter of a million dollars per year, where do you think that money is going to come from?

We don't need to cap malpractice awards, we need to climb up the financial butt of the insurance industry with a microscope and figure out what they're doing with all this extra profit. Then we'll know where the true rise in medical care costs is coming from.

Copyright © June 1, 2005 by Liam Johnson. http://www.liamjohnson.net