This Is What Journalism Looks Like

A round of applause for the WaPo and its even-handed story about health insurance industry claims (which are then echoed by the BushCo administration and conservative legislators) that malpractice claims are the single biggest factor in elevating health insurance premiums:

The insurance industry has long argued that huge losses from malpractice suits -- now running more than $7 billion a year -- have forced it to hike malpractice premiums, which more than doubled last year in some cities and for some specialties.

But a new study by a consumer group shows that losses reported to state regulators -- the figures often cited by the industry -- were much larger than losses actually paid during a nine-year period.

The study, by the Foundation for Taxpayer and Consumer Rights, a Santa Monica, Calif., advocacy group, found that from 1986 to 1994 the industry reported to regulators losses of $39.6 billion but actually paid only $26.7 billion, 31 percent less. The losses were overstated in each of the nine years.

[...]

What insurers initially report to regulators as "losses" actually are only estimates of what claims will cost once they are settled. Insurers don't pay every claim or loss they report, since some turn out to have no merit and others are more or less expensive than first believed. That is particularly true for claims involving litigation, which can take a long time and be hard to predict. But insurers use those estimates to help set premiums for the coming year. So prices can go up, even if the losses eventually turn out to be smaller.

The study's authors say it demonstrates that losses used to justify big premium hikes have been overstated. The Foundation for Taxpayer and Consumer Rights is funded in part by tort lawyers who sue doctors and hospitals in malpractice cases, as well as sue corporations in product liability cases.

[...]

President Bush is urging Congress to pass a sweeping medical malpractice bill, approved by the House but defeated in the Senate last year, that would cap noneconomic damages and provide an alternative system of dispute resolution.

The debate hinges on the murky question of how insurance prices are set. In theory, rates are set by state regulators based on insurers' past losses, actuarial estimates for the future and a reasonable rate of return. In practice, prices vary most according to the number of insurers scrambling for business. When profits are high -- for example, when bond and stock markets are thriving and insurers are making money on investments -- premiums tend to fall as new competitors rush in and compete for premiums to have money to invest. When investment returns dwindle or big losses hit, insurers exit the market and prices rise, a point conceded even by insurance representatives.

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What is certainly up in the air: the outcome of the current malpractice crisis, which has triggered new calls for tort reform and protests by doctors. In recent years, insurers have reported another big jump in incurred losses to $7.1 billion in 2004, up 43 percent from 2000. The figures since 2000 are still too new to know how much will actually be paid.

But premiums jumped again. According to the Medical Liability Monitor, the highest premium for a Miami general surgeon more than doubled from 2001 to 2004, to $277,000 a year.