Increased Losses Spur Malpractice Rates: GAO

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By Steven Brostoff, Washington Editor

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NU Online News Service, July 30, 12:29 p.m. EDT,Washington?Increased losses appear to be the greatestcontributor to higher medical malpractice premium rates, althoughthere is a lack of comprehensive data, according to a new report bythe United States General Accounting Office.

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The report said that since 1998, insurers' losses on medicalmalpractice claims have increased rapidly in some states. Forexample, the report said, in Mississippi, after accounting forinflation, the amount insurers paid annually on medical malpracticeclaims increased by some 142 percent between 1998 and 2001.

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However, the report added, there is a lack of comprehensive dataat the national and state levels on insurers' medical malpracticeclaims and the associated losses that prevented GAO from fullyanalyzing the composition and causes of those losses.

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For example, the report said, data that would have allowed ananalysis of claim severity on a state-by-state basis or determinehow those losses were broken down between economic and non-economicdamages were unavailable.

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In addition to increased losses, a second factor leading toincreased medical malpractice costs is a decline in insurerinvestment income, the report said.

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While few insurers experienced net losses on their investmentportfolios between 1998 and 2001, the report said, a decrease ininvestment income meant that income from insurance premiums had tocover a larger share of insurers' costs.

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A third factor leading to increased costs was a decrease incompetition, the report said. Several companies in the medicalmalpractice market became insolvent or left the market between 1998and 2001, thus reducing downward competitive pressure on premiumrates.

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Finally, the report said, reinsurance rates for medicalmalpractice increased more rapidly beginning in 2001 than they hadin the past, thus raising overall insurance company costs.

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Insurance companies generally praised the GAO's report.

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"We are encouraged by the findings of the GAO report and we hopeit adds momentum to reform efforts already underway in Congress,"said Ken Schloman, Washington counsel for the Downers Grove,Ill.-based Alliance of American Insurers.

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The report, he said, debunks the widely disseminated myth thatinsurance companies caused the medical liability crisis.

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David M. Golden, director of commercial lines for the DesPlaines, Ill.-based National Association of Independent Insurers,added that the report reinforces insurers' contentions that losscosts, not poor investment performance, are the most significantcontributor to higher premiums.

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"The insurance industry has always made it clear that althoughother factors have a marginal impact, rates are driven by losses,plain and simple," Mr. Golden said.

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The GAO report was prepared at the behest of Congress, which isstill in the midst of debating the issue of medical malpracticereform.

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While a reform bill passed the House earlier this year, theissue is now stalled in the Senate.

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