Estimating the Effect
Of Tort Reform
On Medical
Malpractice Costs
Kevin M. Bingham – Deloitte.
kbingham@deloitte.com
Casualty Actuarial Society Spring Meeting
May 16, 2005
1:30 PM – 3:00 PM
Phoenix, Arizona
INTRODUCTION
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Cap on Non-economic Damages
Effective Date and Phase In
Reporting Speed up
Changes in the Statute of Limitations/Repose
Joint & Several Liability
Understanding Closed Claim Databases
Cap on Non-economic Damages
Cap on Non-Economic Damages
• Economic damages
° Lost wages
° Medical expense
° Funeral expense
Quantifiable from a ratemaking
and reserving perspective.
• Non-economic damages (a/k/a pain and suffering)
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Loss of consortium
Loss of companionship
Disfigurement
Mental anguish
Highly subjective and difficult
to quantify from a ratemaking
and reserving perspective.
Cap on Non-Economic Damages
• Free email alerts at www.verdictsearch.com
° Medical Malpractice cases
• Facts (case information, venue, judge, insurer, etc.)
• Plaintiff and Defense
- Attorneys
- Experts
• Verdict information
- Economic (e.g., funeral costs, loss of earnings, etc.)
- Non-Economic
Great
• Top 100 verdicts of 2004
Learning
- Numerous Medical Malpractice cases
Tool
Cap on Non-economic Damages
• Type of cap and reserving impact
° Hard cap (e.g., $250,000 MICRA cap)
° Soft cap
• Florida
• Texas
° “Cap busters”
• Florida
• Massachusetts
• Emergency room vs non-emergency room
• Practitioner vs non-practitioner
• Per defendant caps
• Per claimant caps
• Piercing
• Disfigurement
• Death
• Vegetative state
• Unanimous verdict
Cap on Non-economic Damages
• Type of cap and reserving impact (continued)
° Massachusetts
• McCullough, Campbell & Lane - Damage Caps
(www.mcandl.com/massachusetts.html)
“In a medical malpractice case, the jury is instructed that if it finds the
defendant liable, it is not to award the plaintiff more than $500,000 for pain
and suffering, loss of companionship, embarrassment, and other items of
general damages, unless it determines that there is:
a substantial or permanent loss or impairment of a bodily function or
substantial disfigurement, or other special circumstances in the case
which warrant a finding that imposition of such a limitation would
deprive the plaintiff of just compensation for the injuries sustained.
Mass. Ann. Laws ch. 231, § 60H (Law. Co-op. Supp. 1997). Since this
standard can often be met, the cap should not be relied on.”
Makes reserving assumptions easier (i.e., little impact)
Cap on Non-economic Damages
• “The Big Picture”
Policy
Limits
Reserving
Impact
Impact of
Doctors
Going Bare?
Economic
Damages
Non
economic
Damages
ALAE
Included?
Excluded?
Cap on Non-economic Damages
• Shift towards lower policy limits
Cap on Non-economic Damages
• Ratio of NE/[NE + E] = 50%
Cap on Non-economic Damages
• Ratio of NE/[NE + E] = 98.8%
Cap on Non-economic Damages
• Pricing and Reserving Considerations
° Constitutionality
• Texas – Passed Proposition 12, Nevada - ballot initiative passed
• Oregon and Wyoming – Constitutional amendments defeated
• Florida – TBD
Issues:
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Policy limits
Number of claimants/defendants
Severity of injuries faced by company
ALAE
Issues:
Phase-in effect
• Is the data captured?
• If captured, is it accurate?
• Are more co-defendants going bare?
• Credibility for use in pricing/reserving?
• Chiropractor vs. OBGYN?
• Credibility for use in pricing/reserving?
• Impact of other law changes (e.g., limit on
attorney fees)
Effective Date and Phase In
Effective Date and Phase-In
• Does the law apply on an accident date or report
date basis?
° Apply to accidents that occur on or after the effective
date of the law
• Impacts future claims only (reserving and pricing)
° Apply to occurrences that are reported after the
effective date of the law
• Impacts current reserving for IBNR claims (i.e., tail claims)
• Impacts future reserving considerations
• Immediately impacts pricing (i.e., no phase-in)
See the September/October 2003 Contingencies Magazine article titled “Measuring the Impact
of Medical Liability Tort Reform” for a detailed illustration of the “phase-in” effect
Reporting Speed-Up
Reporting Speed-Up
• Often times observed immediately before the passage of
tort reform bills
° Uncertainty regarding constitutionality
° Uncertainty regarding “phase-in”
° Precautionary measure by plaintiff attorneys
• Pricing/Reserving considerations
° Adjusting actuarial methods for “speed up” in reporting
° Monitoring of results going forward (e.g., adjustment may be
required if constitutional issues emerge)
° Proper application of the cap based on the effective date
Changes in the Statute of
Limitations/Repose
Changes in the Statute of
Limitations/Repose
• Statute of Limitation
° A statute of limitations is a law which places a time
limit on pursuing a legal remedy in relation to wrongful
conduct. After the expiration of the statutory period,
unless a legal exception applies, the injured person
loses the right to file a lawsuit seeking money damages
or other relief.
• Statute of Repose
° A statute of repose is a law which defines when, in no
event, can a claim ever be made after a pre-defined
time limit from the date of the alleged malpractice.
Changes in the Statute of
Limitations/Repose
• Statute of Limitation Examples
° Medical malpractice actions must be filed
• within X (e.g., one, two, three, etc.) years of the date of the act or
omission resulting in injury
• X years from the date the injury was or reasonably should have been
discovered
• tolls the statute of limitations for individuals who are minors or who
are mentally incapacitated
• a wrongful death action must be brought within X years (e.g., two,
three, etc.) after the decedent's death
• etc.
• Pricing/Reserving considerations
° Impact on filing of future claims
° Requires legal expertise
www.mcandl.com/states.html
Information by state
Joint & Several Liability
Joint & Several Liability
• The theory of Joint and Several Liability allows that each
defendant in a legal action is responsible for the entire
amount of damages that a plaintiff is seeking, regardless of
their relative degree of responsibility for the damages
involved.
• Reform
° “Severally” liable (i.e., proportional liability)
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All damages (economic and non-economic)
Non-economic damages only
% at fault criteria (e.g., def < 51% at fault)
Defendant uncollectible - reapportion after 1 yr
Defendant pays their
fair share of damages
° Reduces the search for “deep pockets” (e.g., hospital 1% at fault
pays 100% of a $10 million award)
Joint & Several Liability
• Pricing/Reserving considerations
° Impact on filing of future claims when J&S abolished
° Impact on plaintiff attorney strategies going forward
• Spread “comparative fault” to maximize recovery
• Consider impact of caps (spread versus telescope)
Requires
Legal
Expertise
• National Association of Mutual Insurance Companies
(www.namic.org/reports/tortReform/JointAndSeveralLiabi
lity.asp)
° Information on 37 states with J&S liability reform
• Brief description of current law
• Statutory link
• Other provisions (e.g., may impact non-economic damages only, no
impact if plaintiff not at fault, etc.)
• American Tort Reform Association (www.atra.org)
Understanding Closed Claim
Databases
Understanding Closed Claim
Databases
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AAA Comment Letter (www.actuary.org/pdf/casualty/medmal_042005.pdf )
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Exclusion of Claims Closed Without Indemnity Payment
Exclusion of Open Claims
Relationship of Closed Claim Data and Ratemaking
Impacts of Tort Reform
Changes in The Structure of the CCD Over Time
Changes in The Entities Reporting to the CCD
Time Period Considered For Analysis
Integrity of CCDs
Handling of Policy Attributes
CCD versus Company Trends
Consideration of Policy Limits Purchased by Insureds
Adjustments to CCD Data