Insurance Premiums Decline in States Capping Malpractice Payouts, Alabama University Study Finds

Researchers at the Lister Hill Center for Health Policy at the University of Alabama at Birmingham examined state medical malpractice reform legislation from 1975 to 2004 to evaluate the effects of:

  • Malpractice reforms on physician malpractice insurance premiums.
  • General economic conditions on malpractice insurance premiums.
  • Malpractice reforms on employer-sponsored health insurance premiums.

This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO).

Key Findings

  • In states that introduced caps on noneconomic damages (i.e., compensation for physical pain, mental distress or other nonmonetary losses) malpractice insurance premiums decreased for:
    • Internal medicine by 17.3 percent.
    • General surgery by 20.7 percent.
    • Obstetrics/gynecology by 25.5 percent.
  • If a cap of $250,000 on noneconomic damages were introduced in all states that did not have a cap as of 2005 (13 states and the District of Columbia) and reduced to $250,000 in states that had higher caps, there could be an annual savings of $1.4 billion, or 8 percent of total malpractice premium costs.
  • Malpractice premiums vary, in part, on the performance of investments made by insurance companies. When investment returns were higher for stocks in the Dow Jones Industrial Average, growth in malpractice insurance premiums was reduced.
  • Implementation of "statutes of repose," which establish an absolute time period in which to file a malpractice suit, have some effect on reducing growth in malpractice premiums.
  • The growing empirical literature has now established that damage caps have reduced medical malpractice premiums, but the evidence with respect to defensive medicine and physician location decisions is less clear cut.
  • In deciding the constitutionality of malpractice reform statutes, state supreme courts do use the findings of empirical health services research but have difficulty distinguishing strong studies from weaker ones.
  • Malpractice reforms over 1991–2004 had no effect on the health insurance premiums paid by employers.

Key Conclusions

  • Of the many types of malpractice reforms, only caps on noneconomic damages have had a meaningful effect on reducing the growth of malpractice premiums.

  • Since financial investments by malpractice insurance companies affect premium rates, the state of the economy must be considered when examining a medical malpractice "crisis."