One question we are often asked by new and potential clients is: “how much does medical malpractice insurance cost?” That question is usually followed by: “why is it so expensive?” The media, lawyers, and politicians are claiming that one of the main reasons for the high cost of healthcare is the rising and outrageous cost of medical malpractice insurance. This is simply not true. With the exception of New York, parts of Illinois and New Jersey, Florida and a few other anomalies, medical malpractice claims are at all-time lows and the cost of medical malpractice insurance is less than you think. In fact, for most practices, malpractice insurance premiums are insignificant compared to their other rapidly increasing expenses.
Over the past decade malpractice claims have dropped more than 40% nationwide. Again, there are exceptions to this trend such as New York, but most states have seen a steady drop in claim frequency and severity. This trend is good news for hospitals and physicians because it has also meant a steady drop in malpractice insurance premiums. And the market shows no sign that it has hit the bottom yet.
*These are average rates for a claims-free physician with a mature policy. In some states physicians were unable to get insurance at all due to high claims frequency, fewer insurance companies, and strict underwriting guidelines.
**These are average annual rates across all companies and all rating territories and cannot be guaranteed. Visit eQuoteMD’s quote page to get a specific quote and apply for coverage.
The sampling of a few rates in the table represents the significant drop in rates from 2002 to 2015; rates are a fraction of what they once were. So what happened to cause this positive downward trend?
5 Reasons Medical Malpractice Insurance Costs are Low
- Claim frequency and severity is down in most areas of the U.S. This means the insurance companies are profitable and their cash reserves are growing. The reaction has been to lower rates for physicians and hospitals. Many of the mutual companies are paying dividends in the form of renewal credits.
- Medical Malpractice Tort Reform in the form of caps on non-economic damages, among other reforms, has helped protect physicians and insurance companies from the big multimillion dollar payouts they were previously experiencing. Not all states have enacted tort reforms, but those that did have seen the benefits. California was the first and has the longest standing tort reform in the Nation. Tort reform has changed the malpractice climate in states such as Texas, Missouri, Illinois, Tennessee, Georgia, Wisconsin, and many other states as they followed California’s example. Some of these laws have been challenged and overturned, some more than once, but the overall national trend has been to create reforms that protect physicians and hospitals, which seems to be working.
- Competition has helped to push rates down in most states. Back in the late 1990s through the mid-2000s there were very few companies willing to offer coverage for medical malpractice insurance because it wasn’t a profitable market. That meant the few companies in the space made all the rules. Rates were high, underwriting guidelines were stringent, and one claim, frivolous or not, meant nonrenewal. Now that the line is profitable, companies have been quick to jump back in to try to get a piece of the market share. For the last 6 years, medical malpractice insurance companies have been fighting for new business and drastically lowering rates to keep the business on the books. Even in states that have traditionally been unfavorable to insurance companies like New York, there are new companies arriving every year.
- New insurance alternatives were formed in reaction to the lack of options in the medical malpractice insurance marketplace. In addition to traditional stock companies many states created state mutual or physician-owned mutual companies, and Risk Retention Groups (RRG), which require less capital to form and are not as highly regulated as the traditional insurance company models. Physicians were willing to take on a little more risk to be insured with these alternatives because they were tired of the skyrocketing premiums from the established carriers. The mutuals and RRGs were very successful in attracting physicians and putting downward pressure on premiums in the market.
- Risk Management programs through hospitals, insurance companies, and third parties are helping to improve the quality of care. Physicians and hospitals are practicing better medicine. It’s not that doctors were not practicing good medicine 15 years ago, but there is an increased awareness and focus on patient safety, better bedside manners, improved practice-to-patient communication, and an influx of new technologies that have all created better outcomes and patient satisfaction. In turn, many malpractice insurance companies reward their insured physicians and hospitals with discounts and lower rates.
Anyone in healthcare for 10 years or longer knows that the medical malpractice insurance market is cyclical and has had its ups and downs since the mid-1970s. Of course no one can predict the future, but insurance analysts agree that cycle of low claims and low rates will continue for the next few years at least. In fact, many in the insurance industry believe this cycle may be different than others that only lasted a few years.
What’s known in the industry as a Soft Market began around 2008 and has lasted longer than any recent previous cycle. Changes in healthcare such as hospital employment models, Accountable Care Organizations, and parts of the Affordable Care Act may help prolong the soft market for a long time. While most physicians and hospitals are enjoying low cost medical malpractice insurance, that’s not what is heard in the media. Politicians and lawyers have continued to promote the myth that medical malpractice insurance rates are driving up the cost of healthcare in the U.S. as a way of advancing their own agendas, but the facts and statistics simply do not back up that claim.
Physicians, practice managers, and hospitals that are not seeing lower malpractice insurance premiums need to do a coverage and price comparison. Don’t continue to pay high rates to renew with the same company without first shopping around. Inquire with a qualified broker or agent who can access multiple quotes. Do some research online and discover how easy it is to get comparison quotes from eQuoteMD. Our experienced representatives know the market better than anyone else and can provide coverage for any specialty in any state.