This Ft. Worth Star-Telegram article from about a month ago reports that, since enactment of the Texas Medical Malpractice and Tort Reform Act of 2003, medical malpractice lawsuits in Tarrant and Dallas Counties have been reduced by as much as 60%. A couple of weeks later, this Austin Business Journal article and this PIAA press release report that Texas doctors are enjoying one of the steepest declines in malpractice insurance premiums rates in recent history — almost 30% over the past four years.
Pretty hard to argue that the parallel reduction in lawsuits and insurance premiums are a coincidence.
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Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities.
Actually, Tom, it’s not hard at all to argue that the parallel reduction in lawsuits and insurance premiums are a coincidence. You of all people know that correlation is not causation, and that to infer from the fact that med mal premiums have declined after tort reform that tort reform caused the decline is nothing other than the post hoc, ergo propter hoc fallacy.
There is a great deal of empirical evidence demonstrating that premiums track the typical boom and bust of the insurance market, and that it is the investment performance of the insurers that to a large extent produces changes in premiums.
Now, of course, such data is vehemently contested by insurers and proponents of tort reform. I am not contending that there is no room for debate here — but that is exactly why I disagree with your assessment that it is “pretty hard” to argue that the apparent correlation is not causal. I think it is quite easy to argue, though whether you or anyone else is convinced by it is a different question.
Perhaps Mr. Goldberg would effort to explain why this “correlation” is not an effect of tort reform, then?
Daniel, I think you make a good point that insurance premiums are market-driven. But I think that buttresses my point.
Over the long run, insurance companies attempt to set premiums so that they will cover their costs. Accordingly, increases in premiums tend to track increases in tort awards. Inasmuch as tort awards are difficult to predict because past awards are not much of a guide as to future awards, it’s no surprise that insurers can make mistakes by pricing premiums that are based upon a projection of future awards that turn out to be too low.
For example, we know now that premium prices in the 1990’s were not high enough to cover the increase in tort awards. The run-up in premiums during the late 1990’s and early part of this decade was simply a belated recognition of the higher higher medical malpractice awards. Inasmuch as the insurance cycle is a function of the uncertainty of the tort awards, it appears to me that the main benefit of tort reform has been to make tort awards more predictable and, thus, to lessen premium variation. That’s why I believe that the parallel reduction in the number of lawsuits and premiums is not a coincidence.
Thanks for reading Clear Thinkers.
Tom,
Sorry, but I think we’re pretty far apart on this issue. I do not agree that jury awards have anything other than a negligble effect on insurance premiums. In fact, there are multiple instances of insurance industry representatives admitting as much under oath when testifying before state legislatures.
Insurance is an investment, at it’s most basic level, and most people simply do not understand this (not numbering you among them). When insurers invest poorly, their margin reduces significantly, and to protect against insolvency, the insurer passes those costs onto their subscribers. Sometimes, when insurers invest wisely, the market experiences a downturn, their margin reduces, and the insurer passes those costs onto those subscribers, as well.
There is virtually no valid empirical evidence, with multiple regression analyses to control for variables, that establishes any kind of statistically significant relationship between caps on damages and insurance premiums. There is, however, a veritable mountain of empirical evidence, much of which has been released in the last 2-5 years, that shows a negligble relationship between damage awards and insurance premiums.
In short, I am extremely dubious of your suggestion that med mal premiums track damage awards — don’t forget that even before tort reform only 17% of med mal cases in Texas even made it to a verdict, let alone survived appellate review.
Med mal premiums track the market. The investment cycle is what determines premiums, not lawsuits.
Don,
I hope the above gives you some insight into my own perspective on the matter. There are a wealth of internet resources on this. Start with Americans for Insurance Reform (www.insurance-reform.org), which is NOT an organization run by trial lawyers, but is rather headed by a former Texas Insurance Commissioner.
Mr. Goldberg is incorrect up and down the board.
1) “Americans for Insurance Reform” is a program of the “Center for Justice & Democracy,” which is run by trial lawyers.
2) AIR data is, as Martin Grace and I have documented, consistently misleading and inaccurate.
3) Multiple studies have demonstrated the link between caps, damages, and insurance rates.
Dan, Walter Olsen wrote a comprehensive refutation of the “no relationship between insurance and malpractice costs” theory on the PointofLaw.com a year or so ago, and Martin Grace and Ted Frank did a similar piece for the American Enterprise Institute earlier this year. You can access those pieces here, here and here.
Investment cycles certainly is a component in determining insurance premiums, but my sense is that projection of tort awards is also an important component of that process.
Tom,
I am familiar with Walter Olsen’s work (and Martin Grace’s and Ted Frank’s, too). I do not buy their arguments for a wide variety of reasons (but which were amply covered by other bloggers).
As I noted in my initial comment, this issue is hotly debated, and it’s plain that you and I have somewhat divergent positions on this, which is all well and good. What prompted my reaction was your assessment that it is pretty hard to argue that the reduction in premiums is not tied to caps on damages. As the existence and degree of the debate demonstrates, I think it is not at all hard to contest that point. Which aspect of the debate you are ultimately swayed by is a different question, but I wanted to note the existence of the debate.
I see no bloggers who have refuted Olson’s work, and none who criticize my work with Grace’s. Perhaps Goldberg could care to share the links I haven’t been able to find where bloggers “amply” cover the reasons why our work supposedly isn’t determinative?
It’s not hard to contest that the earth is round; several have done so, but it hardly means that it’s a legitimate debate.
Ted,
Part of the reason I have always refrained from engaging you in debate on this topic (on Legal Underground, or anywhere else in the blogosphere) is because I do not care for the incivility of your style (essentially comparing me to a flat-earther for daring to dissent from your views is an excellent case in point).
I have neither the time nor the inclination to canvass the blogosphere searching for bloggers who disagree with your and Mr. Olson’s perspectives on tort reform, but I respectfully maintain you are mistaken if you think they are not out there (the briefest of glances at Evan Schaeffer’s blog and any comment thread regarding a tort reform post illustrates this).
That said, it was never my intention in this comment to rehash the tort reform debate, which I believe even you or Mr. Olson would not deny is bitterly contested (no matter how right on the merits you believe you are). My point, which I think was much less ambitious than to seek to convince anyone, let alone you (Tom) or you (Ted) of my own views on the matter, is simply that it is not the case that it is difficult to contest a link between premiums and caps on damages. It is, in fact, quite easy to contest the correlation, as proved by the fact that many have indeed done so.
Whether those who contest such a link are correct, of course, is another matter, and I have zero interest in trying to disabuse anyone of their opinions on the matter, least of all you (Ted).
Daniel, the incivility is yours: you dismissed a comprehensive argument with a wave of your hand without any basis to do so by referring to wholly fictional refutations.
I did not compare you to a flat-earther. To recap, you claimed that if something is contested, it must be contestable. The flat-earth example shows that that simply is not so. That you turn a legitimate refutation into a claim of “incivility” is rather incivil.
There are a number of legitimate arguments against caps where there are differences of opinion: do caps hurt or help medical quality? are caps more unfair than unbounded damages? But the idea that malpractice insurers (most of which are mutual companies consisting of self-insuring doctors) economically irrationally randomly charge rates without regard to the costs they face simply isn’t one of them, regardless of whether CJD dishonestly says otherwise. These are facts, not opinions.
tort reform for medical malpractice?there is absolutely no need for such.what is needed is to stop the practice of credentialing people without the proper level of intellectual and academic capacity as medical professionals as social engineering projects ie Goals 2000 project.if a medical student needs the second two years of medical school (clinical studies)in order to raise a grade point average to “C” due to poor performance in the first two (academic studies)this person should NOT receive a medical degree. A “C” average may be sufficient for some professions, but not for any medical profession and absolutely not to receice an M.D.this simple correction in practices with show a huge drop in medical malpractice cases over time as the credentialed professionals are phased out by attrition
you also might consider that other forms of suits such as product liability and such would decrease if corporations were more interested in what their products will do once disseminated,rather than if they will make more off of the sales than they project they will pay in awards, so if you remove these awards or limit them it will be easier for these companies to figure this into their products and have even less consideration of the harm they do as even if the number of suits goes up they will still be able to maintain profitability, so look at who wants this reform and their hidden agendas
never answer an unanswered question with an unquestioned answer