There are certain important changes in the liability insurance markets that have affected the premium amounts payable by the healthcare providers. (Mello, M. 2004) Some of the factors are: (1) The physician owned and operated companies (mutuals) offered lower rates than the commercial insurance companies and also provided more control over the premium rates. However some mutuals due lack of underwriting experience have failed during hard times. (2) The phenomenal losses the reinsurance business suffered after the 9/11 incident has made the reinsurance premiums expensive.
When the reinsurance rates are high they eat away the profits of the primary insurers and they tend to pass on the additional cost to the customers to maintain their profit levels. (3) With a view to have more control over the rates and also to have a higher-risk facilities the hospitals have formed captive and other self insurance arrangements that have thus affected the insurance premiums on professional liability. However the self insured hospitals face more risk when they have problems in getting affordable reinsurance.
The prices in the commercial insurance market will show an increasing tendency when some of the low risk members leave the pool of the hospitals. (4) The shift from the occurrence policies which used to cover the risks for all incidents in the policy irrespective of the time of filing the claim, to ‘claims-made’ policies that cover the risk in respect of the claims made during the period the policy is active. The coverage under the claims made policy is very meager and this also leaves a long ‘tail-exposure’ for incidents that may turn out to be claims.
This has made the physicians purchase expensive tail-policies to cover such incidents which may become claims in addition to paying for the claims-made policy. (5) Some physicians have affiliated them with hospitals and thereby have found a relatively less expensive source of insurance. This has affected the insurance rates in respect of those practitioners who practice independently or in smaller groups and this in turn has increased the overhead cost for the physicians.
(6) The contributions to the losses of Joint Underwriting Associations and Patient Compensation Funds which are meant to protect the physicians’ liability as they exceed the coverage has created an additional burden on the physicians and hospitals to pay a surcharge on the primary layer policies. At times of crisis this amount poses an extra burden to the physicians and hospitals alike. (7) The low income levels from the investments of the insurance companies have also resulted in an increase in the insurance premiums.
(Nordman et al 2004) For instance the median investment income in the case of insurance companies who have more than 50 percent of their business as malpractice insurance had come down by 52. 7 percent in the year 2002 than what it was in the year 2000. The dollar values of the drop are from $ 4. 5 million to $ 2. 1 million which constitutes a drop in the yield from 5. 2 percent to 4. 3 percent. (Nordman et al 2004) Cost of Medical Malpractice Insurance The cost of medical malpractice insurance includes direct and indirect costs of the malpractice system.
The direct costs of malpractice litigation cover the settlements made on claims including the attorney fees and costs, legal costs incurred in defending the legal suit for the claim, underwriting costs, and other costs involved in administering the liability insurance. The estimates as of the year 2002 reported that the claims cost alone amounted to $ 4. 4 billion in the year 2001 and the legal defense costs were in the order of $ 1. 4 billion whereas the insurance administration costs were in the region of $ 700 million. This has resulted in a total direct cost of $ 6.
5 billion in 2001 amounting to0. 46 percent of the total healthcare spending. (Anderson et al 2005) But even these estimates are only rough estimates with no means of verifying the correctness of the amount involved. Indirect costs arise when the physicians are made to supply additional health care services to protect themselves against any malpractice liability. Such instances are defined as defensive medicine where the services are provided just to protect the physicians rather than for the medical benefit of the patients.
The defensive medicine costs are included in the indirect costs under the medical malpractice system while the appropriate service costs are not included in the indirect costs. (Anderson et al 2005) It appears that there are no estimates which can be relied upon as accurate cost of total national cost of defensive medicine. While there have been attempts by the analysts to estimate these costs, there were serious shortcomings in all the available methodologies. (Bovbjerg et al, 1996; Klingman et al., 1996).
For instance there were some attempts to figure out the national estimates on the basis of the incremental costs associated with any two or three medical procedures or diagnoses. But this method had a serious lapse in that it was not possible to extrapolate the results to several other procedures because of their varying qualities for getting subjected to defensive medicines. (Bovbjerg et al, 1996; Klingman et al. , 1996) The office of the Technology assessment concluded that there were no reliable estimates of the defensive medicine cost.
This conclusion was arrived at on the basis of a study conducted in the year 194 to make a comprehensive review of the evidence available to estimate the cost of defensive medicine. (Office of Technology Assessment) Despite the additional researches made in this direction there was no change in the conclusion that no reliable estimation of the indirect cost of the medical malpractice system could be arrived at. The malpractice litigation costs and the health care spending are found to have a direct association with each other.
However it was not possible to precisely define or quantify this relationship empirically. It can be proved that there would be an increase in the malpractice awards in relation to the treatment of injured patients in direct proportion to health care spending. This is due to the fact that the cost of medical care for injured patients constitutes a large proportion of the malpractice awards. The statistics show that there had been an increase in both the per-capita health care spending and the average paid claims to the extent of 52 percent during the period from 1991 to 2003. (Chandra et al. 2005).