Hunter Fires Blanks With 'Smoking Gun'

However, thats pretty much the end of Mr. Hunters legitimate comments. Beyond that, his analysis and allegations against the insurance industry fall apart. In fact, if it wasnt such a serious topic, it would be laughable. Parts of his article baffle those of us in the business.

For example, he displays a chart that clearly shows that premiums are exactly where they should be. Yet, in the same AIR press release, Mr. Hunter's associate and AIR co-founder Joanne Doroshow is quoted as saying: "For far too long, the insurance industry has been engaged in a pricing scheme designed to gouge the American people"

So, Mr. Hunter, which one is it? Do the premiums track with the medical cost index, as you stated, or are they part of some "scheme," and not based in fact?

Mr. Hunter offers a variety of incredibly simplistic explanations for a complicated issue. He blandly dismisses other factors, such as excessive jury awards (which he apparently believes dont exist), the tremendous rise in the costs of settlements, and the escalating costs of defending claims. Rather, he continues to plead his tired case that its all the fault of insurance company mismanagement.

Its the old "rope-a-dope"–the classic misdirection play. He uses the medical cost index to make his case that there has been no increase in verdicts. Yet, he ignores it to blame insurers for the cost rise. Meanwhile, according to Jury Verdict Research in Horsham, Pa., jury awards against doctors and hospitals average nearly $3.5 million. From 1997-to-1998, the percentage of jury awards of $1 million or more rose 39 percent. In 1999, it rose another 45 percent.

In 1991, awards of more than $1 million for medical malpractice suits made up 2 percent of the field. By 2001, it was up to 8 percent–a fourfold increase.

Its become a lottery mentality. I call it the "Michael Jordan Syndrome." Suddenly, $20 million doesnt sound like such a huge amount of money and anyone can be as rich as Michael.

It is not surprising that states with caps on non-economic awards–such as California, Indiana and Wisconsin–are not having problems with medical malpractice insurance. Tort reform is needed, and it is needed badly. Non-economic damages must be contained.

Along with the aforementioned waffling on the premium rates, here are some of the misrepresentations asserted by Mr. Hunter.

Mr. Hunters 30-year timeline for tracking costs ignores the lowering of medical cost inflation that occurred in the late 1980s due to advances in risk management techniques and enactment of tort reforms in various states.

Risk management responded to the crisis in the mid-1980s and effectively reduced the frequency of claims due to malpractice. Mr. Hunters timeline ignores the improvements that have been made in medicine.

What he fails to show is how the dramatic rise in costs over the last five years wiped out all the prior benefits and brought the 30-year average up to its current and unacceptable level.

According to Mr. Hunter, medical costs have been climbing at a rate of 10 percent annually for the past 25 years. Over that span, medical malpractice insurance premiums tracked that increase. If the insurance industry is tracking the inflation rate of the healthcare industry, how can we be accused of making up rates?

Insurance rates move up and down with economic forces.

Mr. Hunter states that "insurers relied on high [investment] market returns on the float of medical malpractice premiums during the 1990s." However, Mr. Hunters own chart shows that rates climbed during economic booms and declined during a downward shift in the market. Insurance company results actually got worse as the economy was growing in the mid-1990s.

Furthermore, he fails to make a case that medical malpractice rates have any connection with the economy. His study looked at all lines of insurance on a macro-industry basis.

Insurers are raising rates to make up for losses in the stock market.

Insurance is a highly regulated industry and companies are restricted from holding too much in equities. No more than about 10-to-15 percent of a medical liability companys portfolio is in equities. Investment income is still positive for most companies and averaging about a 4-to-5 percent yield. Investment income is actually enabling insurers to keep rates 15-to-20 percent below the market price.

Mr. Hunter blames insurers for pushing tort reform. The truth is, its doctors and hospitals that are pushing for tort reform because they are paying higher insurance costs.

Once again, Mr. Hunter goes back to the "rope-a-dope." He knows its a lot safer to rally the masses against insurers than it is to take on the real issue. Insurers support tort reform because they recognize that doctors and hospitals wont be able to afford to pay these costs unless they are brought under control.

In medical liability, there is no big, bad wolf.

Mr. Hunter ignores the fact that small companies–those with fewer than 250 employees–provide 80 percent of the insurance for doctors and hospitals. The overwhelming majority of these companies are mutuals, owned by their policyholders. These companies not only have mission statements requiring them to make just enough money to survive, but they also have policies in place to return excess profits to their policyholders.

Mr. Hunter is trying to fool legislators and the public with his tired old blame-it-on-the-insurance-company line.

Mr. Hunter wants to maintain the status quo because its a windfall for trial lawyers. Having no limit on contingency fees for trial lawyers favors those with big damage or high-profile cases.

The current system enables trial lawyers to make 50 percent or more of the settlement, another tidy fact that Mr. Hunter ignores. In todays system, only the highest profile cases get the attention of attorneys. They cherry pick the cases where they can make the biggest fee, ignoring everyone with lesser cases.

Recently, OHIC settled a legitimate case of medical negligence. We agreed on the damages of approximately $3 million to the injured party. However, we were forced to settle for $6 million to cover the 50 percent contingency fee demanded by the plaintiffs lawyer. Would a jury find it fair that the attorney took the same compensation as a grief-stricken family who has lost their father, husband and breadwinner? I doubt it.

Mr. Hunter fails to address the fact that physicians and hospitals have no mechanism to pass on higher operating costs. If Mr. Hunter wont support caps on non-economic damages or contingency fees, then perhaps he would support the federal government allowing physicians and hospitals to have the same right to unrestricted compensation. Again, I doubt it.

Perhaps the biggest flaw in Mr. Hunters conclusion is that medical care will always be available, even if malpractice awards and premiums continue to escalate, and the government keeps a lid on what physicians and hospitals can charge for their services. If Mr. Hunter wants to lobby against caps on damages and caps on attorney fees, then shouldnt physicians and hospitals charge what they want to cover those costs?

Let the physicians and hospitals charge what they want. Then, when the American people have had enough, someone will have to step up bring everything back in balance.

Thats exactly where we are today, trying to put balance and fairness back into the system. After going through Mr. Hunters entire report, you find yourself right back at the beginning.

The fact that malpractice rates track with the medical cost inflation index isnt the point. Mr. Hunter would have you believe that if insurers had just raised their prices at the medical cost inflation index for the last 30 years, no one would be upset today.

That conclusion, like his analysis, is fatally flawed. It reminds me of the story about the frog and boiling water. If you throw a frog into a pot of boiling water, it will immediately hop out. But, if you put a frog in a pot of water at room temperature and slowly turn up the heat until its boiling, it will sit there and cook in the boiling water.

It doesnt seem to bother Mr. Hunter that rates are at their current levels. Hes just unhappy that they climbed so quickly. That, more than anything, shows his naivet? to the industry and the harsh facts of the business world. Had medical malpractice companies taken Mr. Hunters advice, they all would be out of business today.

In his AIR press release, he said his data constitute a "smoking gun." Yes, Mr. Hunter, you certainly found a smoking gun with your article. It was the one you used to shoot yourself in the foot.

Raymond R. Mazzotta is president and chief operating officer of OHIC Insurance Company in Columbus, Ohio.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 11, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.