As a one-year mandatory medical malpractice rate freeze is set to expire at the end of June, interested stakeholders wait to see if state leaders will come up with a plan to address the state's worsening market.

For the few remaining medical malpractice writers in the state, the problem remains a challenging legal environment coupled with rates that have been kept artificially low by regulators.

For medical professionals in the state, medical malpractice insurance is too expensive, even with rates at their current suppressed levels.

In an editorial board meeting with National Underwriter in 2007, State Insurance Department Superintendent Eric Dinallo mentioned medical malpractice as an area he was ready and willing to address.

On July 2, 2007, the department announced it was approving a 14 percent rate increase, which was lower than what insurance companies had sought, but much closer to the companies' requests than in years past going back to 2002-2003.

The department said the increase was "necessary to avoid further financial deterioration of the companies and perhaps an irreversible crisis in an already severely distressed market."

In the same announcement, the department said then-Governor Eliot Spitzer had formed a new task force, headed by Superintendent Dinallo, to "confront the fundamental drivers of high medical malpractice costs." The task force consisted of interested stakeholders from physician and hospital associations, the insurance industry, consumer groups, health plans, trial lawyers and the legislature.

It was to report back to the governor by the end of 2007.

Describing the issues that faced the task force, and the issues that have plagued New York's medical malpractice arena, Edward Amsler, vice president of Medical Liability Mutual Insurance Company (MLMIC), which writes over half of New York's medical malpractice liability coverage, said carriers face diminished surplus because of increasing claim severity coupled with inadequate rates.

Additionally, he said all medical malpractice insurers must participate in the Medical Malpractice Insurance Pool (MMIP), which insures risks the private sector will not.

According to the department, as of March 31, 2007 MMIP accumulated a deficit of approximately $525 million, "a sum that, by law, must be shouldered by the few companies selling malpractice insurance in the state, exerting further pressure on insurance rates."

Mr. Amsler noted the irony with MMIP, stating that primary carriers choose not to write certain risks and then are required to write those risks anyway through MMIP.

He said years ago, the state used the Medical Malpractice Insurance Association (MMIA) as the insurer of last resort, which required the participation of the entire property-casualty industry, rather than strictly medical malpractice insurers. The MMIA, Mr. Amsler said, had a surplus in it, but the state appropriated that surplus.

The department, demonstrating an understanding of the problem at the time the task force was formed, explained, "Between 1992 and 1997, the state appropriated $691 million from the reserves of the Medical Malpractice Insurance Association...to close gaps in the state's operating budget. Had MMIA's reserves been preserved and allowed to grow by collecting interest over the years instead of being so severely depleted, New York's medical malpractice insurers would be in a much stronger financial position today, and the problem confronting New York would be far less serious," the department said in the July 2007 announcement.

Showing that it also understood the causes and severity of the medical malpractice problems facing the state, the department said further in 2007, "As a result of artificially low rates, combined with the failure to effectuate needed reforms to address the root causes of high medical liability costs, insurance companies now face the real prospect of insolvency while physicians simultaneously face the reality of soaring insurance costs."

However, despite an understanding of the problem and a willingness to address the root causes, the task force stopped meeting in 2008 with no report issued.

The departure of Mr. Spitzer as governor played a role, Mr. Amsler said. The task force did a great deal of work over many months, he said, but with Mr. Spitzer leaving, "the whole thing lost focus and never resulted in a report from the task force."

Gary Henning, assistant vice president, Northeast for the American Insurance Association, said the department, to its credit, raised the main issues facing the market, but he added that two influential interest groups with different views--trial lawyers and doctors--could not agree on a reform agenda.

Paul Magaril, regional manager and counsel for the Property Casualty Insurers Association of America, went a step further, stating he had been told medical professionals and the trial bar were not only unable to agree on an agenda, but were still moving in opposite directions when the task force stopped meeting. Medical professionals, he said, were looking to limit liability costs, while lawyers were looking to expand liability.

Doctors and lawyers have traditionally argued about better medical practices versus capping lawsuits as the way to solve soaring medical malpractice rates, Mr. Henning said.

AIA, he noted, supports caps on non-economic damages, but he said something needs to be done weeding out bad doctors as well. He said it should be easier to pull the license of a doctor who shows a pattern of malpractice, so that bad doctors are not driving up rates for good doctors.

That said, Mr. Henning stated that medical malpractice lawsuits should not be "a lottery for malpractice victims." Victims should be compensated, he said, but non-economic damages in the multimillions hurt the system.

Mr. Amsler said he disagrees with the idea of increasing patient safety through the legal system. He noted that claim frequency has stabilized but severity is not diminishing at all. That statistic, he indicated, suggests the tort system is not the way to control malpractice.

Standard of care is an issue in every state, according to Mr. Magaril, but he said that does not explain why New York's liability system is more challenging than other states.

On Aug. 22, 2008, Governor David Paterson, recognizing the reality of soaring premiums and no solution to the state's medical malpractice liability crisis, signed legislation to freeze rates until June 30, 2009.

An agreement was reached on the rate freeze during a special session of the legislature, Gov. Paterson said in a press release. "The bill will hold rates stable as the legislature and Governor Paterson continue to work toward reforms that would provide significant and long-term premium relief for physicians, enhance patient safety and stabilize the medical malpractice insurance market," the release stated. "The state is hopeful that these reforms can be finalized during the next regular legislative session."

Since the rate freeze announcement, though, experts who spoke with National Underwriter said they have heard very little regarding possible long-term solutions.

Mr. Magaril said he has not heard a word about medical malpractice in months.

Mr. Amsler said the governor indicated in the press release announcing the freeze that he would be addressing the issue this year, but there is no new information beyond that.

Superintendent Dinallo is "re-energized on this issue" and wants to do something in the way of reform, Mr. Henning said, but he didn't have any specific information.

The Insurance Department responded with a statement: "The governor is committed to working with the legislature to find a long-term, meaningful solution to this very complex issue. Last year, in partnership with the legislature, the governor imposed a moratorium on medical malpractice rates for physicians. Since then, the state has been working on creative ways to come up with a comprehensive reform package that will deliver real and long-term premium relief for physicians, stabilize the medical malpractice insurance market and enhance patient safety."

Spokespeople for the governor did not return calls.

As for what insurers believe is necessary, both Mr. Magaril and Mr. Henning said they would favor some form of tort reform, with Mr. Henning specifically mentioning capping non-economic damages.

Mr. Amsler, too, said there needs to be some sort of predictability and limit on damages.

Highlighting the current condition of the medical malpractice market in the state, Mr. Amsler noted that major writers include MLMIC, with over 50 percent of the market; Physicians' Reciprocal Insurers, with around 20 percent; and no other carrier with more than single-digit percentage.

For the companies writing coverage, Kenneth Quintilian, chief actuary of MLMIC, said they predominantly follow MLMIC's model--companies owned by their insureds. The market is difficult for commercial carriers, he added, and Mr. Amsler said the commercial insurance industry has essentially abandoned New York State.

Mr. Henning supported that point, noting AIA-member market share in New York is "miniscule."

All who spoke with National Underwriter agreed a continuation of the rate freeze or a continued suppression of rates would further worsen the market.

Mr. Amsler said suppressing rates further would be like putting a lid on a pot of boiling water.

Mr. Henning said freezing rates further would only hurt insurers that already do not have enough capital and are essentially insolvent except for a statute stating they are solvent.

Mr. Amsler explained the statute, noting that in New York, if an insurance carrier writes the majority of its business as professional liability, the superintendent does not have the power to liquidate the carrier under traditional standards. He noted MLMIC has $300 million in surplus, but other companies continue to write business despite not having enough capital to pay claims.

Special Reports /

As N.Y. Med Mal Rate Freeze Approaches Expiration, Carriers Wonder What's Next

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