Malpractice Claims and Insurance Rates
The Business Section of today's New York Times includes an article analyzing the relationship between malpractice insurance rates and damage awards -- not a very robust relationship, according to the article. The stronger more currently salient factor may be investment returns in the insurance business. The Times says insurers held rates fairly constant in the 1990's, when they were competing for funds to invest in the boom market, and were forced to jack up their rates when the stock market tumbled and their reserves dwindled.
The actual trend from 2003 to 2004, meanwhile, is that the number of malpractice suits and average damage awards both saw modest declines. Such is the putative crisis. Federal legislation to resolve it will be introduced within a month or so, the Times reports.
We all know to expect those damage caps -- the ones that the federal government urgently needs to enact, because they have been adopted through the normal democratic process in only 27 states so far, and voters in the remaining 23 states must be protected from themselves. Those damage caps will probably receive the most press coverage.
But we hope that this time around, the media (including the blogosphere) will also pay some attention to the other restrictive provisions (e.g., on expert testimony) with which the legislation is sure to be larded. The practical significance of the more recondite legislative provisions may be harder than damage caps for people outside the legal profession to understand. But if the press wanted to do its job, it would try to make them understandable, so that the polity could better judge whether the legislation as a whole is reasonably tailored to its ostensible purpose.
Update 2/23/05: Over at Overlawyered.com, Walter Olson has noticed the Times piece and promises a "closer analysis of the Times's reasoning" shortly. For "closer analysis," we read "rebuttal." That should be interesting -- not least because the Times piece is sourced largely to observers from within the insurance industry, so that their reasoning too is at issue.
Update II 2/23/05: A first installment of Olson's promised analysis of the Times story is now posted at Point of Law. It is a more modulated response than some might have anticipated. Maybe that's because Olson is a temperate soul. Or, to give him the benefit of the doubt, maybe it's because he has the flu. In any event, Olson says the Times reportage "wasn't a complete botch." The Times was "generally on target" in its discussion of insurance company investment returns, he says, and the article as a whole mostly practiced "'on the one hand, on the other hand' journalism."
But Olson isn't resting easy, because "[f]oes of malpractice-suit reform" (Olson's words) are "sure to seize" (Olson's words) on two statements from the Times article to the effect that "recent" (the NYT's word) increases in malpractice premiums do not appear to be associated with a corresponding increase in damage payouts. He's right, of course. We must rank ourselves among those who are suspicious of "malpractice reform." And in our original post, we reacted to the Times story just as Olson now prophesies that opponents of "reform" will generally do. The problem with that reaction, says Olson, is that the data in the chart forming what Olson calls the "centerpiece" of the Times story actually demonstrate the opposite of what the Times says. Over the long term, says Olson -- i.e., since 1975 -- both damage awards and malpractice premiums show a sharp general upward trend, in inflation-adjusted dollars, according to the Times chart itself.
For several reasons, this critique of the no-recent-correlation remarks in the Times story seems weak to us. First, the Times itself drew that conclusion only for what it called "recent" trends. It did not draw into question what would be the unsurprising existence of some longer-term relationship between premiums and payouts. This is an important qualification, because much of the political impetus behind the drive for malpractice "reform" depends on the notion that we are experiencing some current "crisis" in the form of runaway malpractice awards, which stand in some allegedly causal relationship to current premiums. Look at the Times graphic for some interval you consider current or "recent" -- say from 1995 or 2000 to date. Whatever those data imply, they do not suggest a current relationship of direct and contemporaneous causation.
We do not doubt that proponents of "reform" could develop hypothetical explanations, broadly consistent with both the data and their "reform" agenda, for the failure of the "recent" trends in damage awards and malpractice premiums to track each other more closely (or even to move in the same direction, for the most recent year reflected in the Times data). Indeed, the explanations tentatively floated by Olson seem plausible enough -- the existence of multiple causal factors affecting premium fluctuations, of which damage awards are only one important influence, and/or the likelihood of some temporal offset between premium adjustments and past (or anticipated future) awards. But absent some testing and empirical support for those hypotheses, they remain exactly that: hypotheses. And the hypotheses are sufficiently broad and ill-defined that it is difficult to imagine what data would tend to confirm or falsify them, let alone measure the relative importance of the multiple causal influences, or the likely effect of damage caps on the observed trends.
Where, moreover, do even these hypotheses leave us? They leave us with this considerably diluted rationale for "reform": Although the data do not show any obvious connection between "recent" malpractice awards and any current crisis in malpractice premiums, and although it is conceded that recent escalations in premiums are probably attributable in part to vicissitudes in the performance of insurance company investments, and although malpractice awards actually dropped in constant dollars by close to 10% for the most recent year studied, it is believed, on intuitively plausible conceptual grounds, that there is some longer term relationship between awards and premiums, and that current premiums are partly attributable in a larger sense to rapidly escalating malpractice awards over a period dating back to 1975.
Perhaps the problem is then portrayed as one that should have been fixed sometime in the Ford Administration, so that it's about time we fix it now, while we have the chance, with Republicans firmly in power. The problem with that explanation is that it tends to cast "reform" in a less sympathetic light -- i.e., as a proposal animated by general philosophical considerations that conservatives have been yearning to implement for decades, and which they now think they have the political opportunity to enact, the only particular urgency being that their window of opportunity may not last very long at the national level.
Or perhaps, as Hegel says somewhere, a quantitative change can eventually precipitate a qualitative change. Perhaps, that is, the story would go that the increase in damage awards has simply accreted over a long period, with matters only recently reaching a "crisis" stage where no play remains in the premium structures, and in which physicians are therefore fleeing their practices (a proposition, however, for which the evidence is both spotty and largely anecdotal).
Don't get us wrong. Wide-ranging federal legislation is frequently enacted on shakier empirical and policy foundations than these. And it does not necessarily refute a "reform" agenda that the arguments in its favor are uncertain, modulated, and complex. What this whole discussion does suggest, however, is that things are far more uncertain and complicated than the more alarmist political rhetoric offered in support of "malpractice reform" tends to acknowledge. And very arguably, the proponents of sweeping legal change should bear the burden of showing empirical evidence that the change (a) is necessary and (b) would have the desired effect. If they cannot do that, then at a minimum, they should follow Olson's lead in tempering their rhetorical claims and acknowledging the existence of some reality-based complexities. Karl Rove notwithstanding, mere lawyer-baiting is not a strong enough rationale for wholesale legal revolutions.
Second, although no one seriously doubts the proposition that malpractice premiums probably incorporate some actuarial component, very little is proved by displaying two curves that both head in a generally upward direction over a time period spanning three decades. Grant the proposition that some significant relationship probably exists, in the long term, between damage payouts and insurance premiums. The central debate might then be over whether the social burdens imposed by higher premiums more than offset the social benefits, if any, associated with the payouts. To answer that question, we would have to know something about the reasons for the increase in payouts. To what extent are they tied to changes in the health-care delivery system over time? (We remember the 1970's as the decade in which HMO's enjoyed their advent.) To what extent are they associated with demographic causes? To what extent, if any, are pain-and-suffering awards actually increasing in real terms over time? To what extent, if any, is the increase in payouts associated with higher real incomes among claimants? To what extent are the increased damage awards the product of a deteriorating quality of care, or higher standards of care? And by the way, to what extent, these days, do damage awards successfully deter negligent health care? All of these things are difficult to measure empirically, and mere uncertainty about them should not forestall reform, if the national welfare truly depends on it. But the world has changed greatly in the past thirty years. That two curves move in the same direction and have comparable slopes over a three-decade interval may be an interesting point of analytical departure, but says little or nothing about the factors that have shaped their direction -- and nothing, directly, about whether that direction is unequivocally the right one or the wrong one. It cannot really be said, then, that the Times data prove the opposite of what the Times article actually says. It can be said, at most, that the data reported by the Times would not necessarily support extrapolation of the article's no-current-correlation observations to a broader historical period.
Third, there actually are potential empirical investigations that might shed light on some of these issues. Rather than rush to nationwide judgment, maybe we should conduct those investigations. Olson noncomittally raises the possibility, for example, that the downward spike in last year's payouts might be attributable to newly passed "tort reform" legislation at the state level. This is a possibility that opponents of "tort reform" may sometimes be reluctant to discuss (because if true, it might suggest that tort reform "works"). But discussion of this issue should also make advocates of federal "reform" a little nervous. Do damage caps at the state level work to reduce premiums, or don't they? If they do, then perhaps any need to enact them at the federal level has been overtaken by events -- i.e., by legislative action in the 27 states that have adopted caps. If they don't, then there may be little reason to suppose that federal caps would work any better. What we do know is that malpractice premiums are rated geographically, so that empirical study should be possible. Are the rates lower in capped states than in uncapped states, or not? Perhaps someone has done this research. If so, we should be discussing the results. If not, or if insufficient time has elapsed to judge, then maybe we should should be good federalists, and await the outcome the grand experiment currently being conducted by the states.
In any event, following Olson's example, we should modulate our own recital of the issues. We originally said, when we first posted on the Times article, that the primary factor driving malpractice premiums may be the return on insurance company investments. At a minimum, we should have added the qualifier "recent." And it might have been wise of us to give more of a conceptual nod to the likely role of other influences -- actuarial influences. No doubt it is the plaintiffs' lawyer in us that originally balked at taking that more balanced view.
The larger problem with balanced views, of course, is that they generally fail to supply sufficiently gratifying support for ideological jihads. But we guess we could live with that.
Update III 2/24/05: Walter Olson has now delivered the second installment of his critique of the Times article, focusing on the research about the efficacy of damage caps in reducing malpractice premiums. As noted above, we aren't familiar with that research. Olson says it shows that caps do reduce premiums significantly, although not dollar-for-dollar. Assuming without deciding that Olson is correct about that research, two observations seem warranted.
First, what problem would then remain for federal caps to address? That some states have set the caps too high? That 23 states have yet to adopt caps at all? What arguments exist that federal law should displace state policy choices on this issue? Indeed, aren't "tort reform" proponents the ones who told the state legislatures that they should make the policy choices and set the caps in the first place? And isn't the political process in the states already working pretty well for the "tort reform" contingent? Should "tort reformers" not content themselves with that success, rather than opening a federal Pandora's Box? What will they think about the federalism question, after all, in twenty years, when woolly-headed lefties hold power in Washington and have the votes to enact national legislation subjecting malpractice-committing physicians to treble damages and public floggings?
Second, the research to which Olson refers (or other research) may incorporate (or provide a method for developing) estimates of the premium savings that caps would effect. That sounds like something policymakers (state or federal) might want to know about, before acting. Yet we haven't noticed any such estimates in the political debate as reported in the press. Why not?
The actual trend from 2003 to 2004, meanwhile, is that the number of malpractice suits and average damage awards both saw modest declines. Such is the putative crisis. Federal legislation to resolve it will be introduced within a month or so, the Times reports.
We all know to expect those damage caps -- the ones that the federal government urgently needs to enact, because they have been adopted through the normal democratic process in only 27 states so far, and voters in the remaining 23 states must be protected from themselves. Those damage caps will probably receive the most press coverage.
But we hope that this time around, the media (including the blogosphere) will also pay some attention to the other restrictive provisions (e.g., on expert testimony) with which the legislation is sure to be larded. The practical significance of the more recondite legislative provisions may be harder than damage caps for people outside the legal profession to understand. But if the press wanted to do its job, it would try to make them understandable, so that the polity could better judge whether the legislation as a whole is reasonably tailored to its ostensible purpose.
Update 2/23/05: Over at Overlawyered.com, Walter Olson has noticed the Times piece and promises a "closer analysis of the Times's reasoning" shortly. For "closer analysis," we read "rebuttal." That should be interesting -- not least because the Times piece is sourced largely to observers from within the insurance industry, so that their reasoning too is at issue.
Update II 2/23/05: A first installment of Olson's promised analysis of the Times story is now posted at Point of Law. It is a more modulated response than some might have anticipated. Maybe that's because Olson is a temperate soul. Or, to give him the benefit of the doubt, maybe it's because he has the flu. In any event, Olson says the Times reportage "wasn't a complete botch." The Times was "generally on target" in its discussion of insurance company investment returns, he says, and the article as a whole mostly practiced "'on the one hand, on the other hand' journalism."
But Olson isn't resting easy, because "[f]oes of malpractice-suit reform" (Olson's words) are "sure to seize" (Olson's words) on two statements from the Times article to the effect that "recent" (the NYT's word) increases in malpractice premiums do not appear to be associated with a corresponding increase in damage payouts. He's right, of course. We must rank ourselves among those who are suspicious of "malpractice reform." And in our original post, we reacted to the Times story just as Olson now prophesies that opponents of "reform" will generally do. The problem with that reaction, says Olson, is that the data in the chart forming what Olson calls the "centerpiece" of the Times story actually demonstrate the opposite of what the Times says. Over the long term, says Olson -- i.e., since 1975 -- both damage awards and malpractice premiums show a sharp general upward trend, in inflation-adjusted dollars, according to the Times chart itself.
For several reasons, this critique of the no-recent-correlation remarks in the Times story seems weak to us. First, the Times itself drew that conclusion only for what it called "recent" trends. It did not draw into question what would be the unsurprising existence of some longer-term relationship between premiums and payouts. This is an important qualification, because much of the political impetus behind the drive for malpractice "reform" depends on the notion that we are experiencing some current "crisis" in the form of runaway malpractice awards, which stand in some allegedly causal relationship to current premiums. Look at the Times graphic for some interval you consider current or "recent" -- say from 1995 or 2000 to date. Whatever those data imply, they do not suggest a current relationship of direct and contemporaneous causation.
We do not doubt that proponents of "reform" could develop hypothetical explanations, broadly consistent with both the data and their "reform" agenda, for the failure of the "recent" trends in damage awards and malpractice premiums to track each other more closely (or even to move in the same direction, for the most recent year reflected in the Times data). Indeed, the explanations tentatively floated by Olson seem plausible enough -- the existence of multiple causal factors affecting premium fluctuations, of which damage awards are only one important influence, and/or the likelihood of some temporal offset between premium adjustments and past (or anticipated future) awards. But absent some testing and empirical support for those hypotheses, they remain exactly that: hypotheses. And the hypotheses are sufficiently broad and ill-defined that it is difficult to imagine what data would tend to confirm or falsify them, let alone measure the relative importance of the multiple causal influences, or the likely effect of damage caps on the observed trends.
Where, moreover, do even these hypotheses leave us? They leave us with this considerably diluted rationale for "reform": Although the data do not show any obvious connection between "recent" malpractice awards and any current crisis in malpractice premiums, and although it is conceded that recent escalations in premiums are probably attributable in part to vicissitudes in the performance of insurance company investments, and although malpractice awards actually dropped in constant dollars by close to 10% for the most recent year studied, it is believed, on intuitively plausible conceptual grounds, that there is some longer term relationship between awards and premiums, and that current premiums are partly attributable in a larger sense to rapidly escalating malpractice awards over a period dating back to 1975.
Perhaps the problem is then portrayed as one that should have been fixed sometime in the Ford Administration, so that it's about time we fix it now, while we have the chance, with Republicans firmly in power. The problem with that explanation is that it tends to cast "reform" in a less sympathetic light -- i.e., as a proposal animated by general philosophical considerations that conservatives have been yearning to implement for decades, and which they now think they have the political opportunity to enact, the only particular urgency being that their window of opportunity may not last very long at the national level.
Or perhaps, as Hegel says somewhere, a quantitative change can eventually precipitate a qualitative change. Perhaps, that is, the story would go that the increase in damage awards has simply accreted over a long period, with matters only recently reaching a "crisis" stage where no play remains in the premium structures, and in which physicians are therefore fleeing their practices (a proposition, however, for which the evidence is both spotty and largely anecdotal).
Don't get us wrong. Wide-ranging federal legislation is frequently enacted on shakier empirical and policy foundations than these. And it does not necessarily refute a "reform" agenda that the arguments in its favor are uncertain, modulated, and complex. What this whole discussion does suggest, however, is that things are far more uncertain and complicated than the more alarmist political rhetoric offered in support of "malpractice reform" tends to acknowledge. And very arguably, the proponents of sweeping legal change should bear the burden of showing empirical evidence that the change (a) is necessary and (b) would have the desired effect. If they cannot do that, then at a minimum, they should follow Olson's lead in tempering their rhetorical claims and acknowledging the existence of some reality-based complexities. Karl Rove notwithstanding, mere lawyer-baiting is not a strong enough rationale for wholesale legal revolutions.
Second, although no one seriously doubts the proposition that malpractice premiums probably incorporate some actuarial component, very little is proved by displaying two curves that both head in a generally upward direction over a time period spanning three decades. Grant the proposition that some significant relationship probably exists, in the long term, between damage payouts and insurance premiums. The central debate might then be over whether the social burdens imposed by higher premiums more than offset the social benefits, if any, associated with the payouts. To answer that question, we would have to know something about the reasons for the increase in payouts. To what extent are they tied to changes in the health-care delivery system over time? (We remember the 1970's as the decade in which HMO's enjoyed their advent.) To what extent are they associated with demographic causes? To what extent, if any, are pain-and-suffering awards actually increasing in real terms over time? To what extent, if any, is the increase in payouts associated with higher real incomes among claimants? To what extent are the increased damage awards the product of a deteriorating quality of care, or higher standards of care? And by the way, to what extent, these days, do damage awards successfully deter negligent health care? All of these things are difficult to measure empirically, and mere uncertainty about them should not forestall reform, if the national welfare truly depends on it. But the world has changed greatly in the past thirty years. That two curves move in the same direction and have comparable slopes over a three-decade interval may be an interesting point of analytical departure, but says little or nothing about the factors that have shaped their direction -- and nothing, directly, about whether that direction is unequivocally the right one or the wrong one. It cannot really be said, then, that the Times data prove the opposite of what the Times article actually says. It can be said, at most, that the data reported by the Times would not necessarily support extrapolation of the article's no-current-correlation observations to a broader historical period.
Third, there actually are potential empirical investigations that might shed light on some of these issues. Rather than rush to nationwide judgment, maybe we should conduct those investigations. Olson noncomittally raises the possibility, for example, that the downward spike in last year's payouts might be attributable to newly passed "tort reform" legislation at the state level. This is a possibility that opponents of "tort reform" may sometimes be reluctant to discuss (because if true, it might suggest that tort reform "works"). But discussion of this issue should also make advocates of federal "reform" a little nervous. Do damage caps at the state level work to reduce premiums, or don't they? If they do, then perhaps any need to enact them at the federal level has been overtaken by events -- i.e., by legislative action in the 27 states that have adopted caps. If they don't, then there may be little reason to suppose that federal caps would work any better. What we do know is that malpractice premiums are rated geographically, so that empirical study should be possible. Are the rates lower in capped states than in uncapped states, or not? Perhaps someone has done this research. If so, we should be discussing the results. If not, or if insufficient time has elapsed to judge, then maybe we should should be good federalists, and await the outcome the grand experiment currently being conducted by the states.
In any event, following Olson's example, we should modulate our own recital of the issues. We originally said, when we first posted on the Times article, that the primary factor driving malpractice premiums may be the return on insurance company investments. At a minimum, we should have added the qualifier "recent." And it might have been wise of us to give more of a conceptual nod to the likely role of other influences -- actuarial influences. No doubt it is the plaintiffs' lawyer in us that originally balked at taking that more balanced view.
The larger problem with balanced views, of course, is that they generally fail to supply sufficiently gratifying support for ideological jihads. But we guess we could live with that.
Update III 2/24/05: Walter Olson has now delivered the second installment of his critique of the Times article, focusing on the research about the efficacy of damage caps in reducing malpractice premiums. As noted above, we aren't familiar with that research. Olson says it shows that caps do reduce premiums significantly, although not dollar-for-dollar. Assuming without deciding that Olson is correct about that research, two observations seem warranted.
First, what problem would then remain for federal caps to address? That some states have set the caps too high? That 23 states have yet to adopt caps at all? What arguments exist that federal law should displace state policy choices on this issue? Indeed, aren't "tort reform" proponents the ones who told the state legislatures that they should make the policy choices and set the caps in the first place? And isn't the political process in the states already working pretty well for the "tort reform" contingent? Should "tort reformers" not content themselves with that success, rather than opening a federal Pandora's Box? What will they think about the federalism question, after all, in twenty years, when woolly-headed lefties hold power in Washington and have the votes to enact national legislation subjecting malpractice-committing physicians to treble damages and public floggings?
Second, the research to which Olson refers (or other research) may incorporate (or provide a method for developing) estimates of the premium savings that caps would effect. That sounds like something policymakers (state or federal) might want to know about, before acting. Yet we haven't noticed any such estimates in the political debate as reported in the press. Why not?
1 Comments:
Here is a timely link to malpracice articles:
http://badpractice.blogspot.com
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