Let the Market Work: TMA Opposes Mandatory Liability Rate Rollbacks

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Law Feature -- April 2005  


By  Erin Prather
Associate Editor  

Texas physicians who expected professional liability insurance premiums to nosedive after the 2003 health care tort reforms have likely been disappointed by the slow declines -- and some increases -- in their insurance bills. But that doesn't mean their professional association is asking the legislature to require all liability carriers to roll back their rates.

Since voters approved Proposition 12, a 2003 constitutional amendment that ratified the legislature's authority to cap noneconomic damages against physicians at $250,000, insurance carriers have either reduced, increased, or maintained current liability rates, while new carriers enter the Texas market.

Texas Medical Association Director of Public Affairs Darren Whitehurst is not surprised that tort reform has not had a more immediate impact on rates. TMA has always maintained that it may take several years for physicians' economic stress to be eased, as payouts in medical liability lawsuits are completed and premiums decline.

"The insurance market is fragile," Mr. Whitehurst said. "The problems associated with tort reform were not created in a day; they won't be solved in a day. Before they set their future rates, TMA encourages carriers to look at the results from HB 4 and Proposition 12."

Some carriers did react quickly to tort reform.

Last September, the Texas Medical Liability Trust (TMLT) announced a 5-percent reduction. That cut, which took effect Jan. 1, was in addition to a 12-percent decrease TMLT enacted immediately after Proposition 12 passed. TMLT is the largest insurer to reduce rates. TMLT President Tom Cotten called the reduction "indicative of the triumph of medical liability reform in Texas."

The Texas Medical Liability Insurance Underwriting Association (also known as the Joint Underwriting Association, or JUA) dropped its request for a 35-percent increase in premiums.

In February, the American Physicians Insurance Exchange said it will cut rates on about 2,200 physicians by an average of 5 percent. Additionally, the Doctors Company, a physician-owned liability insurer, promised to reduce its rates by an average of 9 percent, company officials said. Both attributed the cuts to the 2003 legislation. The cuts take effect May 1. 

Mandatory Rollbacks Opposed  

Lawmakers nearly approved a rate rollback during the 2003 session, but chose not to after insurance companies promised reductions. Although some legislators suggest they might consider future mandatory rollbacks, TMA does not support this action.

At TexMed 2004 last May, TMA President Bohn Allen, MD, said the association prefers to let the marketplace bring down premiums. "This means letting new carriers in the state so competition will drive rates down," he said.

Texas Department of Insurance (TDI) spokesperson Jim Hurley agrees. "The market is responding to the reforms that were passed in 2003. TMLT led the way by reducing its rates. Other insurers have withdrawn planned increases, others have lowered their rates. A rollback now would be unnecessary and destabilizing."

He says 15 new medical liability insurers have come to Texas since Proposition 12 passed.

Spencer Berthelsen, MD, chair of TMA's Council on Legislation, said competition "is the key because it is a true reflection of market forces, were as mandatory rate rollbacks has the high risk of causing premiums deficiencies that ultimately result in rate hikes in future years."

He said rollbacks in the 1990s "resulted in substantial losses for professional liability carriers and exuberant increases in premiums as those rate rollbacks were relaxed. Carriers left the state and those that remained had to regain their losses with big rate increases to recover." 

MedPro Rate on the Rise  

Not every carrier followed TMLT's lead. In 2004, GE Medical Protective Co. (MedPro) requested a 39-percent premium increase from Insurance Commissioner José Montemayor. It was denied, as was a second request for a 19-percent increase. Commissioner Montemayor and his staff at TDI considered both requests unwarranted. As a result, MedPro placed its policyholders in an unregulated pool with a 10-percent premium increase.

In an April 2004 letter to physicians, Commissioner Montemayor said he was disappointed by MedPro's decision and he believed it to be premature. "If the company would have waited four to six months and relied on the reforms of Proposition 12, it would have reached a different conclusion and not felt the need to move its policyholders to a purchasing group," he said.

TDI tried to block the rate increase, and the dispute eventually wound up in an Austin courtroom. Last November, a state administrative law judge ruled MedPro could set its own rates because there's now enough competition among liability insurers. TDI disagrees with the ruling and has filed for the judge to reconsider his findings.

MedPro's increase also troubled Mr. Whitehurst. "From all indicators, there is no reason for MedPro to be raising its rates. That is a major concern, and TMA is very supportive of Commissioner Montemayor's efforts."

The ruling caused critics of tort reform to question the effectiveness of the tort reform legislation. However, the Houston Chronicle reported in November that MedPro would have raised its premiums by 40 percent had Proposition 12 not passed. 

What TMA Wants  

Medicine's agenda for the current legislative session includes protecting the 2003 reforms, revisiting some of the liability reforms the legislature did not pass in 2003, and expanding the Texas State Board of Medical Examiners' jurisdiction to include physicians' testimony in liability cases regarding appropriate standards of medical care.

A TMA survey shows that Texas physicians have slowed the rush to cut back services since 2003. Some have begun to reinstate some services, and many have found it easier to recruit physicians to their communities.

"Those reforms have led to an increase in the number of doctors with high-risk practices, and they have affected the willingness of doctors to treat high-risk patients," said John Durand, MD, chair of the TMA Committee on Professional Liability. "Physicians are now reinvesting in their practices." 

Erin Prather can be reached at (800) 880-1300, ext. 1385, or (512) 370-1385; by fax at (512) 370-1629; or by email at Erin Prather.  

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