Doctor insurer seeks rate cut

Medical Mutual plans 2% reduction in premiums

August 01, 2008|By Paul Adams | Paul Adams,SUN REPORTER

Maryland's biggest medical malpractice insurer yesterday proposed a 2 percent cut in premiums, continuing a gradual drawdown in rates that doctors said was needed for them to avoid financial disaster.

The proposed change comes as payouts for medical claims are holding steady after spiking unexpectedly more than four years ago, igniting a furor that led to a special legislative session in late 2004.

The reduction proposed by the Medical Mutual Liability Insurance Society of Maryland comes on top of an 8 percent rate cut the insurer agreed to in December. As part of that agreement, Maryland Insurance Commissioner Ralph S. Tyler ordered Medical Mutual to file a new rate schedule by yesterday.

Doctors welcomed news of a further reduction but said reform is still needed to bring malpractice costs down to where they were prior to the earlier increases.

"I think the physicians are still going to be concerned," said Steve Johnson, acting director of MedChi, the professional organization for the state's doctors. "Rates went up 70 percent or so in 2003-2004. I don't think people can say that things are good until rates go back down to at least that level."

A spokesman for Med Mutual declined to comment on yesterday's filing, saying the company wanted to give Tyler an opportunity to review it first. Med Mutual insures the majority of doctors in the state. Other insurers tend to follow its lead when setting their own malpractice rates.

The modest decline in rates contrasts with the leap in premiums that started in 2003. Talk of a malpractice crisis led to a fierce debate between lawmakers and then Gov. Robert L. Ehrlich Jr., who said the double-digit increases in malpractice premiums were proof the state needed "tort reform" to lower lawsuit awards.

For reasons that were never fully explained, Med Mutual saw claims payments climb from $47 million in 2000 to $93 million in 2003. The insurer raised premiums for doctors by 28 percent for 2004 and 33 percent for 2005. The General Assembly subsequently rejected Ehrlich's proposals for tort reform, saying the claims increase was cyclical. Lawmakers instead voted for a four-year premium subsidy.

Since that deal was struck, claims payouts have fallen sharply, sparking debate over whether a malpractice crisis ever existed. Med Mutual's claims payouts dropped to $54 million in 2005 and $65 million in 2006. The trend allowed the insurer to keep premiums flat in 2006 and cut them 8 percent last year. The trend held steady in 2007, when the insurer paid out about $64.6 million, according to yesterday's filing. As of June 30, it had paid $32.3 million this year.

The decline in payouts allowed Med Mutual to build up a substantial reserve. Under pressure from Tyler, the insurer agreed in December to reduce this year's rates, use some of its reserve to return $84 million to the state and pay member doctors $13.8 million in dividends against this year's premiums. The company also pulled out of the subsidy program.

Med Mutual agreed to the givebacks after Tyler blocked its plans for a nearly $69 million dividend, a smaller payback to the state and no cut in premiums. The commissioner ruled that the insurer had to fully repay the state before giving a large dividend to doctors. Med Mutual is owned by the doctors it insures.

The $84 million payback equals the amount Maryland paid out in subsidies over the past three years, plus the amount it was due to pay this year.

A spokeswoman for the Maryland Insurance Administration said the agency will review Med Mutual's rate filing and make a recommendation to Tyler, who will decide whether to approve the new rates.

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