State opposes doctors refund

Malpractice insurer proposed dividend

October 06, 2007|By M. William Salganik | M. William Salganik,Sun reporter

The state's largest malpractice insurer must pay its entire $68.6 million dividend to the state or cut its premiums, but it can't distribute any of the money to doctors, the Maryland Insurance Administration argued yesterday.

With malpractice claim payouts declining, the insurer, Medical Mutual Liability Insurance Society of Maryland, declared the dividend last month but payment was blocked by state regulators who wanted to study the issue.

Med Mutual said it would pay about two-thirds of the dividend to the state, in partial return for nearly $80 million in state premium subsidies paid since 2005. But the company said it would distribute $24.4 million to doctors as a credit against next year's liability premiums.

Jeffrey M. Poole, Med Mutual's executive vice president and chief operating officer, testified at a hearing yesterday that insurance rules prevent the company from applying surplus funds to cut premiums. He said state law requires rates to be based on projected claims and expenses. A dividend distribution, he said, was the only way to hold down the amount doctors pay.

Insurance Commissioner Ralph S. Tyler, who presided over the hearing, will have to decide whether to uphold the interpretation of Med Mutual or that of his department. The agency's case was presented at yesterday's hearing by two associate commissioners and by its principal counsel.

At stake is how much the state's doctors will have to pay for insurance coverage next year. And, MedChi, the state's largest physician organization, argues that a sudden jump in liability insurance costs -- Med Mutual estimates a 22 percent increase without the dividend or subsidy -- could drive doctors away from the state, reducing access to care.

If Med Mutual's dividend plan is approved, the insurer said, doctors would pay the same next year as this year for coverage. If Med Mutual were to pay the whole dividend to the state, but accepted a state subsidy next year, doctors would pay 6.7 percent more than this year.

But Med Mutual has said it doesn't need -- and will decline -- $11 million in subsidy this year and a projected $16 million next year. "We're taking our hand out of the trough," Poole said at the hearing.

Dr. Martin Wasserman, MedChi's executive director, said after the hearing that Med Mutual should have consulted with the regulatory agency before declaring a dividend. And, he hopes that the parties, including MedChi, can meet soon to try to resolve the impasse rather than continue a legal fight that could have a negative impact on the state's physicians.

The latest dispute is fallout from a high-profile issue of a few years ago. With malpractice payouts escalating, Med Mutual increased premiums 28 percent in 2003 and 33 percent in 2004. The doctors turned to the state, and the General Assembly, meeting in a special session squeezed between the Christmas and New Year's holidays, approved a four-year subsidy program.

Since 2005, according to the insurance agency, the state has paid out $102 million in subsidies, most of which went to Med Mutual, which insures more than 70 percent of the state's doctors in private practice.

Meanwhile, dollars for claims payouts began to drop -- 28 percent in Maryland between 2003 and 2006, according to Gregory Larcher, an actuary in the Columbia office of Aon Global Risk Consulting, who conducts an annual study of medical liability claims.

Med Mutual kept its premiums flat last year, and cut them 8 percent this year, but still had money left over. Its surplus, the amount it keeps in reserve for future needs, nearly doubled, from $113.4 million in 2003 to a projected $230 million this year, even if the dividend is paid, according to an agency exhibit from the hearing.

Both Med Mutual and insurance regulators agree that the law creating the subsidy specified that if claims dropped and the insurer built up extra money, some would be returned to the state. They disagree, however, over how the payback should be calculated.

The agency's principal counsel, Kathleen A. Birrane, argued in a legal memorandum that the insurer must pay back to the state the full amount of subsidies it received before it can distribute any money to doctors.

Med Mutual's lawyer, David M. Funk, argued in a legal filing that the payback to the state should be based on a mathematical formula -- the ratio of state subsidy to total premiums. Funk wrote that giving a dividend to doctors fulfilled the same intent as the premium subsidy law by "mitigating the cost of medical malpractice insurance in Maryland."

Med Mutual filed for the dividend Sept. 12. As a mutual company, the insurer is owned by its doctor-policyholders, so they would get any dividend beyond what is owed to the state. Tyler froze the proposed distribution, saying he needed time to review the filing and the law and to conduct a public hearing.

Lawyers in the case have two weeks to file legal arguments. Tyler said he would try to decide the case as quickly as possible after that.

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