Alex Tabarrok of Marginal Revolution fame is studying the causes of rising medical malpractice premiums, which is a subject explored in the recent book that he co-authored with Eric Helland, Judge and Jury: American Tort Law on Trial (Independent Institute, 2006).
In this excellent Wall Street Journal ($) op-ed, Professor Tabarrok takes on the canard that rising medical malpractice premiums are primarily the result of price-gouging by greedy insurance companies:
On its face, price gouging is a peculiar explanation for recent increases in insurance premiums. Is greed new to the world? Were insurance companies followers of Mother Teresa just a few years ago? If greed and gouging are the explanations for rising premiums, why did the St. Paul group — one of the nation’s largest suppliers of medical malpractice insurance — pull out of the market in 2001? Were the profits from all that gouging just too much for St. Paul’s guilty conscience? And consider that almost half of doctors are insured through mutual, i.e., doctor-owned, insurance companies. Are the doctors gouging themselves?
Professor Tabarrok then cogently explains the primary element in how insurance companies establish medical malpractice premiums — i.e., attempting to predict the future: