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Medical Malpractice Background Information
Nearly all health care providers, such as physicians and hospitals, purchase insurance that covers expenses related to medical malpractice claims, including payments to claimants and legal expenses. The most common physician policies provide $1 million of coverage per incident and $3 million of coverage per year. Today the primary sellers of physician medical malpractice insurance are the physician-owned and/or operated insurance companies that, according to the Physician Insurers Association of America, insure approximately 60 percent of all physicians in private practice in the United States.
Other health care providers may obtain coverage through commercial insurance companies, mutual coverage arrangements, or state-run insurance programs, or may self-insure (take responsibility for claims themselves). Most medical malpractice insurance policies offer claims-made coverage, which covers claims reported during the year in which the policy is in effect. A small and declining number of policies offer occurrence coverage, which covers all claims arising out of events that occurred during the year in which the policy was in effect.
Medical malpractice insurance operates much like other types of insurance, with insurers collecting premiums from policyholders in exchange for an agreement to defend and pay future claims within the limits set by the policy. Insurers invest the premiums they collect and use the income from those investments to reduce the amount of premium income that would have been required otherwise.
Claims against a policyholder are recorded as expenses, or incurred losses, which are equal to the amount paid on those claims as well as the insurer’s estimate of future losses on those same claims. The liability associated with the portion of these incurred losses that have not yet been paid by the insurer is collectively known as the insurer’s loss reserve. In order to maintain financial soundness, insurers must maintain assets in excess of total liabilities — including loss reserves and reserves for premiums received but not yet earned — to make up what is known as the insurer’s surplus.
State insurance departments monitor insurers’ solvency by tracking, among other measures, the ratio of total annual premiums to this surplus. Medical malpractice insurers generally attempt to keep their surplus approximately equal to their annual premium income.
Medical malpractice insurers establish premium base rates for particular medical specialties within a state and sometimes for particular geographic regions within a state. Insurers may also offer discounts or add surcharges for the particular characteristics of policyholders, such as claim histories or whether they participate in risk-management programs. The premium rates are based on anticipated losses on claims and related expenses, expected investment income, the need to build a surplus, and, for for-profit insurers, the desire to earn a reasonable profit for shareholders. In most states the insurance regulators have the authority to approve or deny proposed changes to premium rates.
For several reasons, accurately predicting losses on medical malpractice claims is difficult. First, according to a national insurer association we spoke with, most medical malpractice claims take an average of more than 5-years to resolve, including discovering the malpractice, filing a claim, determining (through settlement or trial) payment responsibilities, if any, and paying the claim. In addition, some claims may not be resolved for as long as 8 to 10 years. As a result, insurers often must estimate costs years in advance.
Second, the range of potential losses is wide. Actuaries we spoke with told us that individual claims with similar characteristics can result in very different losses for the insurer, making it difficult to predict the ultimate cost of any single claim.
Third, the predictive value of historical data is further limited by the often small pool of relevant policyholders. For example, a relevant pool of policyholders would be physicians practicing a particular specialty within a specific state and perhaps within a specific geographic area within that state. In smaller states, and for some of the less common but more risky specialties, this pool could be very small and provide only a limited amount of data that could be used to estimate future costs.
Medical malpractice insurance is regulated by state insurance departments and subject to state laws. That is, insurers selling medical malpractice insurance in a particular state are subject to that state’s regulations for their operations within that state, and all claims within that state are subject to that state’s tort laws. Insurance regulations can vary across states, creating differences in the way insurance rates are regulated. For example, one state insurance regulator we spoke with essentially let the insurance market determine appropriate rates, while another had an increased level of review, including approving specific company rates on a case-by-case basis. NAIC assists state insurance regulators in developing these regulations by providing guidance, model (or recommended) laws and guidelines, and information-sharing tools.
In response to concerns over rising premium rates, physicians, medical associations, and insurers have pushed for state and federal legislation that would, among other things, limit the amount of damages paid out on medical malpractice claims. A few states have passed legislation with such limitations over the past several years, and federal legislation is pending. The U.S. House of Representatives passed the Help Efficient, Accessible Low-Cost, Timely Health care (HEALTH) Act, which includes, among other things, a limit on certain types of damages in medical malpractice lawsuits.
The Purpose of Medical Malpractice Insurance - By Richard Romando
The purpose of medical malpractice insurance is to cover doctors and other health care professionals for potential liability claims from their treatment of patients.
If a doctor or health care provider is found guilty of medical malpractice, the damages awarded can be in the millions of dollars, and can be even larger if punitive damages are awarded. Malpractice insurance shields him or her from financial liability in the case of a malpractice court verdict.
However, just as your auto insurance rates go up with each ticket you receive, being found guilty of medical malpractice can drive a doctor's insurance rates up for many years. In addition, recent years have seen a steep rise in the cost of medical malpractice coverage. This has, in many cases, caused great hardship for those in the medical community, and some are pushing for limits on certain types of damages in order to defray costs.
Despite these concerns, many attorneys for malpractice victims disagree with such limits. Specifically, malpractice attorneys blame high premiums on poor investment choices while large plaintiff rewards simply reflect an unacceptable level of patient care and medical practice.
This crisis has been particularly prevalent in Pennsylvania. Physicians and hospitals are citing a lack of availability and afford ability for malpractice insurance, so much so that it is driving many practitioners right out of business.
High-risk specialty areas have been hit the hardest, as they face the greatest chance for malpractice claims, and therefore carry the highest rates. In general, malpractice payouts have been on the rise in recent years and the fallout for health care professionals has been severe.
Despite the difficulty some medical practitioners may be experiencing in regards to paying their malpractice insurance premiums, it's a problem that is not likely to go away. Since it is really the only shield doctors have from the financial ruin that might result from a huge damage award, health care professionals must cover these rates to stay in business.
Medical Malpractice Info provides detailed information about medical malpractice attorneys, laws, cases, insurance, statutes of limitation, and more. Medical Malpractice Info is affiliated with Business Plans by Growthink. - Article Source: EzineArticles.com & Richard Romando