The United States appears to be in a new medical malpractice “crisis” after years of relative stability. Physicians, attorneys, policy-makers and other interested parties are debating what to do about recent substantial rises in malpractice premiums. This paper estimates the effects of tort law and insurer investment returns on physician malpractice insurance premiums over the 1991–2004 period. The authors took advantage of variations in tort law reform among the states to estimate the effects of different provisions on physician malpractice premiums. The firmest conclusion reported was that caps on noneconomic damages can significantly constrain the growth of medical malpractice premiums. Results from the study also indicate that premium growth is constrained when investment returns are higher, particularly for the high quality stocks represented in the Dow Jones industrial average. Tort provisions other than damage caps seem to have had less impact on premiums. While statutes imposing a firm time limit for bringing a claim can reduce premiums by as much as 25 percent, such statutes of repose have been found unconstitutional in some states.
In conclusion, the authors note that imposing additional or stricter caps would save $1.4 billion annually, or about 8 percent of the total cost of premiums, but policy-makers must determine whether the savings imposed justify the cost to plaintiffs.