The medical professional liability (MPL) industry experienced sustained profitability in 2013. Profits are likely to continue over the next several years. There are a few market uncertainties like healthcare reform and California’s Proposition 46 that will test insurers’ current business models though. In this article, Milliman consultants Richard Lord and Stephen Koca explain how these issues may affect the MPL industry moving forward.
This excerpt provides some perspective:
The huge influx of insured individuals, which is expected to top 30 million by the time ACA is fully implemented in 2016, could lead to a shortage of physicians, who may turn over some of their duties to nurse practitioners or physician assistants. Lacking the same expertise as a physician, these providers may fail to diagnose or misdiagnose some condition. On the other hand, they may form more personal relations with patients, and that has been shown to reduce the likelihood of a lawsuit.
Under collateral-source payment rules, the ACA may result in lower awards, since the cost of future medical care would no longer be included in awards, thereby limiting MPL insurers’ exposure to the cost to future health insurance payments in an award, or it might have only a negligible impact, depending on how it is administered and the courts’ decisions.
These scenarios are actually less than a handful of the dozens of possibilities that can arise from the ACA. Any one of the ACA’s provisions is unlikely to upend MPL insurers’ cost structure, but in tandem, the layers and layers of issues stated or implied in the ACA could tip costs in a direction that might prove difficult to absorb.
The ACA, however, is only one of the uncertainties facing MPL insurers.
The California question
In November, California voters will decide whether the state’s landmark statute, which caps non-economic MPL damages at $250,000, will remain intact, as written. Enacted nearly 40 years ago, California’s Medical Injury Compensation Reform Act (MICRA) has withstood a series of constitutional challenges, the last of which was in 1985.
…But MICRA is now being challenged in a ballot proposal [Proposition 46] that would raise the cap on non-economic damages to more than $1 million.
If enacted, the proposal would raise the cap on any claim that is outstanding as of January 1, 2015. MPL insurers and self-insured entities would see their liability increase for any unsettled claim on their books, as well as future claims. In all likelihood, claim severity would increase, but the frequency of claims would almost certainly rise if litigation were viewed as a more attractive means of compensation than it now is.
This development has far-ranging consequences, given the size of the California market, but it could also signal a change in sentiment if other states decide to follow California’s lead—since California has long been a state that’s a bellwether for social and economic change.
According to the National Conference of State Legislatures, 35 states have some type of cap on medical professional awards. How many states might again follow California’s lead and challenge reforms?
These two articles detail the influence that Proposition 46 will have on the future of MPL insurers and healthcare providers:
• CA Proposition 46: The end of an era for noneconomic caps?
• CA Proposition 46: Undoing tort reform?