Over the past several years, legislation introducing a patient compensation system (PCS) has been proposed in several states. Proponents claim a PCS would eliminate the stigma associated with medical professional liability (MPL) claims for healthcare providers. Without the stigma, they believe physicians would not defend themselves as often, resulting in lower legal defense costs than the current tort system produces.
However, some do not agree that the stigma would be less under the PCS system. Additionally, several factors present under current PCS proposals indicate that there will be more reported and indemnified claims, leading to higher MPL costs. In this article, Milliman consultants Susan Forray and Eric Wunder discuss aspects of some states’ PCS proposals that MPL carriers and healthcare providers need to consider.
Financial results for 2013 are strong for specialty writers of lawyers professional liability (LPL), with operating ratios at the lowest levels in more than 10 years, insurers returning 30% of their net income to policyholders in the form of dividends, and an all-time high in industry surplus, among other measures.
This issue of P&C Perspectives, authored by Susan Forray and Andy Kline, analyzes the financial results of a composite of 14 specialty writers of LPL coverage for solo practitioners and small firms. The article examines operating results, reserve releases, claim frequency, capitalization, and net retentions.
California’s Medical Injury Compensation Reform Act (MICRA) has been the blueprint used by states to reform their medical professional liability (MPL) markets since its enactment in 1976. In part, the landmark legislation helps reduce MPL premiums and increase the availability of coverage for physicians by capping noneconomic damages at $250,000.
A pending ballot initiative in California now aims to increase the cap. In this Best’s Review article by Milliman’s Susan Forray and Stephen Koca, the consultants examine the financial effects an increased cap can have on the state’s MPL industry. They also consider how other states with similar tort reforms may come into the crosshairs.
Here is an excerpt:
Three dozen states have adopted some form of a cap on damages over the years, although in 12 of these states the cap has been overturned or otherwise invalidated, and remains overturned in most of these cases. And while these caps are often less effective than California’s, either because of higher limits or exceptions, they followed MICRA’s lead and reduced costs in many MPL markets.
Texas is perhaps the best example of a state whose MPL premium has been reduced by the effects of a cap on noneconomic damages. MPL premiums in Texas had been in close step with national trends until 2003, the year reforms were enacted in the state. Premiums declined relative to national levels a year after reforms were enacted, and continued to moderate for several years.
While nationwide premium per physician is approximately 25% less than in 2003, MPL premiums in Texas have fallen by more than 60% since that time—a clear demonstration of the impact that reforms have had on the MPL costs in the state, and a warning sign of potential increases that could be seen in California if the cap is increased.
For more perspective on the impact a higher cap would have on MPL claims, read Stephen’s article “The end of an era for noneconomic caps?”
In recent legislative proposals in Florida and Georgia, lawmakers have sought to establish a patient compensation system (PCS) as an alternative to litigation for compensating patients with injuries that could have been avoided under alternative healthcare (referred to as “medical injuries” within the legislation).
Proponents say offering a PCS as an alternative to litigation could lead to faster outcomes with claims. Advocates claim that faster claim resolutions and less attorney involvement would ultimately reduce overall costs, while providing access to compensation for more patients. They also argue that this system would benefit claimants with minor injuries, who are frequently excluded under the current system, because their claims generally do not result in the kind of large monetary awards that make taking a medical professional liability (MPL) case cost-effective for plaintiff attorneys.
Can PCSs really provide the many benefits, in cost savings, fairness, greater access, and efficiencies, that their proponents claim? This article by Christine Fleming, Eric Wunder, and Susan Forray offers some perspective.
This article was originally published in Inside Medical Liability, First Quarter 2014.
For more than 30 years, reserve adequacy for the property and casualty (P&C) insurance industry has been highly cyclical, alternating between periods of adverse and favorable reserve development. No one knows for certain what factor or factors cause these swings. It’s commonly thought that internal industry influences—such as claims department practices, changes in pricing, or management decisions—are potential sources. Although we expect these elements do play a role, there’s no evidence to suggest they are the primary reason for the reserving cycle.
What few have considered, on the other hand, is the possibility that common methods used by actuaries to determine appropriate reserves may themselves be an important contributing factor to movements in the reserving cycle. In their article “Actuaries and reserve adequacy,” Milliman’s Susan Forray and Zachary Ballweg assess the potentially cyclical behavior of various actuarial reserving methods.
This article originally appeared in the March/April 2014 issue of Contingencies.
It is well-known that the carried reserve adequacy of the property and casualty industry, as a whole, varies significantly across the market cycle. Much less understood is the extent to which this may stem, in part, from actuarial reserving methods. If a material relation exists, any cyclicality in actuarial reserving methods could lead to overestimated or underestimated reserves, thus exacerbating the market cycle.
This paper authored by Susan Forray and Zachary Ballweg assesses the potentially cyclical behavior of various actuarial reserving methods. These include the paid and incurred (i.e., paid plus case) chain ladder, Berquist-Sherman, and Munich Chain Ladder methods.
Originally published in the Casualty Actuarial Society E-Forum, Fall 2013.