Friday, August 24, 2012

Enjoying the Ride? Get Ready for the Next Med Mal Storm

 Jeff Herschler

The cyclical nature of the medical malpractice insurance industry is well documented. Check out this excerpt from the digital archive at CBS Life & Health Library, just nine years ago, when we were on the other end of the wave:

"Medical malpractice claims have held steady, yet insurance premiums have skyrocketed. This pattern can be attributed to the cyclical nature of the commercial insurance business. We are in the midst of a classic hard insurance cycle. The first such crisis, which was particularly acute in the product liability and medical liability sectors, occurred in the mid-'70s. The second crisis, dramatically detailed in the 1986 Time magazine cover story entitled Sorry, Your Policy Is Cancelled was more..."

According to Matt Gracey, President of Danna-Gracey, a medical malpractice brokerage firm with offices in Delray Beach and Orlando, the current soft market in medical malpractice is characterized by the following:
  • Low rates: Up to 60% lower than 2005;
  • More choices of insurers; much more competitive climate due to the favorable claims cycle;
  • Loose underwriting; claims are more often overlooked by insurers.  
  • Expanded coverage; lots of bells and whistles on standard policies!
Sounds good! Let the good time roll, right? Not so fast, says Gracey. With a hard market ahead, it makes sense to get ready for the inevitable. And the market might be turning sooner rather than later.  

There are already some ominous signs. For example:
  • Loss ratios are increasing as pricing decreases; many insurers are over or approaching a "combined loss ratio" of over 100%. 
  • Reserve takedowns dwindling; insurers have been using claims reserves to bolster their losses, thus allowing them to keep their pricing as low as possible.   
  • Market shrinking as doctors retire, sell out to hospitals, or go bare.
Meanwhile the 2003 Tort Reform law is being challenged in Florida's Supreme Court and there are serious concerns that the law will be struck down. But they are working on Tort Reform at the national level (see House proposal would reform medical liability), so why worry? Says Gracey, "For years the House has passes great versions of Tort Reform, which all fail to get the 60 votes needed in the Senate. This one will go the same way. This is just election year posturing to show doctors that Republicans are trying and it's the Democrats' fault."
To get ready for the next medical malpractice storm, Gracey recommends the following:
  • Move to high ground! Insure with highly rated, financially solid companies that have a track record of being committed to Florida's doctors in more difficult market conditions. 
  • Plan now to avoid being uninsurable, or not able to afford coverage;
  • Examine coverage options; get an independent expert to review your coverage for gaps. 
  • Examine bare options and reexamine your asset protection plan. 
In closing, Gracey has one last piece of advice: "Enjoy the party while it lasts!"

Friday, August 10, 2012

Is SCOTUS Decision on ACA a Victory for Progressives?

Although Progressive's are lauding the decision as a huge victory for Obama and America, the SCOTUS endorsement of the ACA is actually, exceptionally weak. The Individual Mandate is now labeled a tax and will cost the President hugely in political capital. Meanwhile the Medicaid expansion will no longer be (effectively) mandatory. I predict many states will opt out. Another factor often overlooked is the exception to the Individual Mandate whereby many citizens can, without penalty, choose to be uninsured because health plans available do not meet the affordability requirement. Thus the number of insured will not increase in any significant way. And therefore, the other provisions of the ACA cannot be funded.

My prediction is that within a few months or years we will realize we have made no meaningful progress on Healthcare Reform. We will still have huge swaths of the population uninsured and seeking healthcare only when there is an acute episode and then going to a high cost provider (a hospital ED). We will have expanding government programs that can only pay for themselves with borrowed money. We will continue to have healthcare inflation (perhaps blunted by a weak economy and/or payment reforms, i.e. pay for performance, bundled payments, modernized capitation models etc.). Health insurance will still be a lousy value. We will continue to see American companies at a competitive disadvantage in the global marketplace due to the cost of employee health benefits.

For true Healthcare Reform, we need to activate the capitalists and the entrepreneurs. We also need bi-partisan support for any new federal laws. Government policy has been successful in creating the environment for innovation and change in other industries and there is no reason healthcare is any different. Hat's off to the Democrats for coming up with a plan. Unfortunately, I don't think this one (the ACA) is going to be the solution.

-Tara Pihn