Med-mal caps in two states don't reduce insurance rates.

Newly codified damages caps in Florida and Texas--which proponents touted as a solution to rising medical malpractice insurance rates--will have little or no immediate effect on premiums after all, according to regulatory agencies in those states.

Trial lawyers and others who opposed the caps--arguing that similar measures in other states had produced no rate reductions--said they are not surprised that lower premiums have not materialized, and they predict that rates will continue to rise or, at best, stabilize in the foresecable future.

Gov. Jeb Bush signed the Florida cap, which limits noneconomic damages in medical malpractice cases to $500,000, in August. While state legislators debated the cap, its supporters argued that limiting malpractice damages would reduce costs to insurance companies that paid those damages and that the insurers could pass the savings on to doctors by lowering premiums. This, "reformers" argued, would ease the financial burden on doctors who had seen rates rise as much as 50 percent in recent years, forcing some to either drop coverage or quit practicing medicine.

On the basis of those claims, legislators included a provision requiring the state's Office of Insurance Regulation to calculate a "presumed factor" based on estimates of the savings insurers could expect as a result of the cap. Insurers would then have 60 days to file rate requests that reflected the calculated savings.

In November the insurance agency announced a presumed factor of 7.8 percent. This meant that many doctors will still see rate increases in 2004, the agency's director, Kevin McCarty, said in a statement. For example, an insurance company that was planning to increase premiums by 30 percent can still request a rate increase of 22.2 percent.

"We don't anticipate filings with net negative effect on rates. Even after application of the presumed Factor, we anticipate insurers will file for rate increases. This is primarily due to the rate need of the industry, which has continued to develop over the last year," McCarty said.

Neal Roth, a lawyer in Coconut Grove, Florida, who lobbied against the cap, said he is not surprised the factor is so low. Contrary to "reform" arguments, "there never was an explosion of malpractice claims or any substantial increase in the amount of settlements and judgments. Even the chief lobbyist for First Professionals Insurance Co. [the state's largest medical malpractice insurance company] testified at a Senate Banking and Insurance Committee meeting that, at best, they could expect a 7 percent reduction. What happened is we didn't get any real insurance reform, and in the absence of real insurance reform, you don't get rate reductions," Roth said.

A noneconomic damages cap was incorporated into the Texas constitution in September when voters passed Proposition 12, which amended the constitution to include a cap that the state legislature had passed last summer. It provided for a $750,000 overall limit on noneconomic damages in health care lawsuits and a $250,000 cap on awards against doctors. As in Florida, proponents claimed that caps would stem the rapid increases in the state's malpractice premiums.

Two months after Proposition 12 passed by a slim margin, the state's insurance commissioner; Jose Montemeyer, announced that a physician-owned insurer that covers about one-third of the state's doctors had requested rate hikes of 35.2 percent for doctors and 67.9 percent for hospitals and other institutional health care providers.

Rejecting the requests, Montemeyer said, "I am very troubled that any carrier of medical malpractice insurance would consider raising rates for Texas physicians. This rate filing ... flies in the face of sound data that demonstrates fixture rates should be dropping as a result of passage of Proposition 12."

Dan Lambe, director of Texas Watch Foundation, a consumer watchdog organization that lobbied against Proposition 12, said other insurers have asked for increases too.

"Another major carrier, GE Medical Protective, filed for a rate increase of 19 percent in November; and another, the American Physicians Insurance Exchange, asked for all increase of 16.6 percent in September. That was before Proposition 12, but after passage of the tort 'reform' bill," Lambe said.

The Texas Medical Liability. Trust, which insures another one-third of Texas doctors, announced that its rates will drop by 12 percent next year. Jim Hurley, an insurance commission spokesman, said that announcement is evidence that Proposition 12 is doing what its supporters claimed it would. "You have the largest insurer of Texas physicians reducing rates across the board 12 percent as a result of Proposition 12. That's a pretty big impact."

But Lambe disagrees, noting that reduced rates can be neutralized by changes in coverage or deductibles. "We're starting to hear anecdotal evidence that some doctors are being forced to take reduced coverage limits and assume higher deductibles. Instead of getting the million-dollar policy, a doctor may be forced to take a $250,000 policy. If you team that with a 12 percent rate reduction, it's really not a rate reduction," Lambe said.

Florida and Texas are the latest in a string of states that have seen malpractice insurance rates rise despite caps on noneconomic damages, said Ed Lazarus, ATLA's senior director of State Affairs. Two studies last year by independent groups concluded that caps on malpractice damages awards do not result in lower insurance premiums.

In June, Weiss Ratings, Inc., an insurance-rating agency based in Palm Beach Gardens, Florida, found that between 1991 and 2002, doctors in states that capped noneconomic damages experienced a median increase in their malpractice premiums of 48 percent. States without caps had median increases of 36 percent.

In July, the U.S. General Accounting Office (GAO) released a study with similar results. Researchers reported that "multiple factors" contributed to recent increases in medical malpractice premium rates, including lower investment income for insurers, lack of competition in the insurance market, and rapidly rising reinsurance rates. Of the seven states the GAP studied, the one with the lowest premium increases--Minnesota--had no damages cap.

"Caps were not necessarry are not necessary, and have a minimal impact on rates," Roth said.

Lambe agrees. "The Texas cap will have an impact on the number of cases being filed, but until there are controls put on rising health care costs and stronger insurance reforms passed to make sure insurance companies are charging fair rates, I don't think caps will have a dramatic impact on rates at all. In fact, it would not be surprising to see more rate increases within the next year or two, depending on the economy and other factors."

Roth predicts rates will stabilize in his state if the economy continues to improve. "This will soften up the market, mad that will bring additional carriers back into the market," he said.

"Also, the legislature allowed for the creation of a self-insurance trust fund, which was the single piece of legislation that solved the 'insurance crisis' back in the 1970s. It allows groups of doctors to organize and self-insure, and that allows them more control and greater ability to compete with the big commercial carriers."

The Weiss Ratings report, The Impact of Non Economic Damage Caps on Physician Premiums, Claims Levels, and Availability of Coverage, is available online at www.weissratings/malpractice, asp. The GAP study, Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates, is available at www.gpoaccess.gov/gaoreports/index.html. (Enter the report number, GAO-03-702, in the search box.)