|Posted on Monday, May 17, 2004|
We Mean Business. Illinois Business.
Medical malpractice crisis drives a dozen insurance carriers out of Illinois
The governor, Illinois trial lawyers and victims' rights groups all point to the insurance industry as the primary cause for Illinois' medical malpractice insurance crisis.
Dr. Harold Jensen disagrees. He is chairman of nonprofit Illinois State Medical Inter-insurance Exchange, the largest provider of medical malpractice insurance in the state.
Mutually owned by more than 8,000 Illinois physicians, ISMIE provides malpractice insurance to more than one-half of the state's doctors.
The crisis has driven 12 other carriers out of the state since 2001. Only five remain.
Victims and Families United - a local nonprofit organization created in February to weigh in on the malpractice debate - points to the fact that the current crisis is not the first.
ISMIE was born out of a related medical provider insurance crisis of the early and mid-1970s. Another similar crisis occurred in the 1980s, according to Doug Wojcieszak, spokesman for VFU.
In the 1990s, when the stock market was booming, he said, malpractice insurers flocked here, trying to write every policy they could, banging on doors and knocking each other down on price.
"They just wanted any premium dollars to invest those dollars in the stock market," Wojcieszak said. "When everything was going great and the stock market was up, that was fine. But once that all went bust, a lot of the (insurance) companies didn't have the wherewithal to stay in the market, and they had to back out. That was when premiums went through the roof."
Jensen says that assessment is inaccurate.
"Our company's reserves are invested 97 percent in bonds and 3 percent in stocks," he said. "There was a slight loss because that 3 percent collapsed. The bond market went down a little bit, too. We lost some $3 million on bonds in 2003. But to put it in perspective, we lost $115 million from (med mal) verdicts."
The huge increase in number of verdicts and in settlement amounts, Jensen said, impacted the reserves and the surplus. "In 2002, our three sets of actuaries said, 'You can expect $80 million in losses this year, therefore you must pitch your premium at this level.' The number they predicted for 2002 was $115 million off."
To stop this downward spiral, insurers raise rates to fund their reserves, Jensen said.
Michael Schostok, president of the Illinois Trial Lawyers Association, said lack of competition is the problem - and ISMIE is responsible for that.
"There is certain underwriting data ISMIE has and claims is proprietary and on file with the Illinois Department of Insurance, and no other insurance company can gain access to it," Schostok said.
But more importantly, he said, having access to alleged proprietary information allows other insurance companies to correctly price their product - as opposed to undercutting the market - lowering the price of the premiums unreasonably.
"That's one of the reasons some of these companies have left," Schostok said. "They didn't have enough knowledge to adequately price their product."
Jensen disagrees that ISMIE is at fault.
"The lack of competition we face is because the environment is so bad that companies have left or gone bankrupt," he said. "In 2001, we had 16 insurance companies in business in the line of writing general malpractice, and we lost five that year. It would be suicide for a company to release its proprietary information."
ISMIE has spent 27 years acquiring knowledge of medical malpractice statistics in Illinois, Jensen said.
"For us to just give it away as they came in the door would in the long run destroy us or make us just a marginal player," he said.
Schostok said there should also be a reduction of medical malpractice liability premium rating categories according to physician type.
"ISMIE has 13 different rating categories," he said. "We're proposing to insurance experts a mandatory compression of those ratings categories to no more than eight."
Compressing the rating categories, Schostok said, would immediately lower the premiums of the highest-risk specialties by anywhere from 25 percent to 40 percent.
"Physicians who are in the high-demand areas such as the Metro East, Southern Illinois and Will County could stay and continue to practice there because their premiums would be significantly lower," he said. "The increased cost would be spread among the other physicians insured in the state, which vastly outnumber those in high-risk specialties."
Schostok said as an example, a physician paying $180,000 annually could likely see that premium reduced to $120,000 or $130,000 instantaneously.
"The other physicians in the state might be charged $500 to $1,000 more, spreading that risk among a greater number of physicians," he added. "It's been done in other states. It can provide immediate relief and relief that would last a lot longer than just this one cycle. Of course, ISMIE's dead set against it."
Jensen said this is just a bad idea.
"ISMIE was set up by physicians for physicians, and fairness underlies everything we do," he said. "For us to revert and say, 'I know there's a problem out there and the neurosurgeons and the obstetricians are paying way too much; therefore, you guys ought to cough up some more money so that they can pay less' is not going to fly and it's wrong. It's basically a flawed concept."