DRAFT 1

Medical Malpractice:Is the Crisis Over?

CAS Spring Meeting 2006Puerto Rico

Carl Ashenbrenner, F.C.A.S., M.A.A.A.

Principal and Consulting Actuary

Milliman, Inc.

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Medical Malpractice Liability

Overview of Session Carl Ashenbrenner, FCAS, MAAA

AMA Crisis States National Industry Results Texas Case Study

Kevin Bingham, ACAS, MAAA From Who’s Perspective The Future: Challenges and Opportunities

Robert J. Walling, FCAS, MAAA From Where’s Perspective A Call for Efficiency

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The AMA’s Crisis States

In June, 2002, the American Medical Association (AMA) released the results of a survey of its members, intended to evaluate the impact of the Professional Liability market on Access to Healthcare.

The Survey focused on whether the Professional Liability market was causing physicians to: Leave their current state of practice; Retire early; or Abandon high risk services

Based on survey results, AMA classified: 12 states as in a crisis 30 states as showing problem signs 8 states currently ok

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The AMA’s Crisis States

In March, 2003, the AMA updated its survey results: 18 states in crisis 26 states showing problem signs 6 states currently ok

In January, 2006, the AMA again updated it survey results: 21 states in crisis 22 states showing problem signs 6 states currently OK Texas – effective reforms halting crisis

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The AMA Crisis States

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Recent Events

February 27, 2006 – Americans for Insurance Reform (AIR) released study “New Report Confirms: Medical Malpractice Insurance Crisis is Over”

February 27, 2006 – The Council of Insurance Agents and Brokers issue statement challenging AIR report.

Senate Bill 22 (The Medical Care Access Protection Act of 2006) may be discussed during first week of May.

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Industry Results

National Health Expenditures

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

1960

1970

1980

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Hea

lth

care

Sp

end

ing

in $

Bill

ion

s

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Sh

are

of G

DP

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics.

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Industry Results

National Health Expenditures

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Ave

rage

Cos

t P

er C

apit

a

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics.

Note: 2005 Estimated

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Industry Results

Medical MalpracticeCountrywide Premium and Loss

0.00

0.50

1.00

1.50

2.00

2.50

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Ind

ex

Net Earned Premium Net Ultimate LLAE

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Industry Results

Medical MalpracticeCountrywide Loss and LAE Ratio

0.500.600.700.800.901.001.101.201.301.401.50

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

LL

AE

Rat

io

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Industry Results

Comparing calendar year changes in loss and/or premium provides incomplete picture

Country-wide industry information does not show problems by state or region

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Industry Results

Medical Malpractice Premium Compared to Retail Gas Prices and Health Care Per Capita Costs

0.00

0.50

1.00

1.50

2.00

2.50

3.00Ja

n-95

Jul-

95

Jan-

96

Jul-

96

Jan-

97

Jul-

97

Jan-

98

Jul-

98

Jan-

99

Jul-

99

Jan-

00

Jul-

00

Jan-

01

Jul-

01

Jan-

02

Jul-

02

Jan-

03

Jul-

03

Jan-

04

Jul-

04

Jan-

05

Jul-

05

Jan-

06

Ind

ex

Retail Gas Prices Medical Malpractice Premium HealthCare Cost Per Capita

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State Example - Texas

Medical MalpracticeTexas Premium and Loss

0.00

0.50

1.00

1.50

2.00

2.50

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Ind

ex

Manual Premium Average Paid Indemnity (NPDB)

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Texas History of Reform

Tort reform laws passed effective 9/1/95.

Texas Department of Insurance established across-the-board reduction in rates (of all liability lines) and estimated savings of $2.9 billion between 1996-2000.

Order rate reductions for medical malpractice (doctors and other health care providers) between 11.5% and 21% during 1996-2000.

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State Example - Texas

Texas Medical MalpracticeCalendar Year Loss & DCC Ratio

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Calendar Year

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Texas History of Reform

Proposition 12 passes (narrowly) in September 2003.

Texas legislature passes House Bill 4 which places a $250,000 cap on non-economic damages for all physicians named in an occurrence effective September 1, 2003.

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Texas History of Reform

“A Year After Prop 12, Just One Texas Malpractice Writer Seeks to Cut Rates” – Best Wire 9/22/04

Company A reduces rates 13% - 2/17/06

Company B reduces rates nearly 33% - 3/23/06

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Texas History of Reform

In 1999, seventeen companies were writing new policies in Texas; number slid to 4 in 2002. (AMA)

Fifteen new companies started selling malpractice insurance in Texas (Montemayor 2/22/05).

More doctors providing high-risk services since reforms passed. (Texas Medical Association - 8/23/04).