The Effects of Tort Reform On Medical Malpractice Insurers' Ultimate Losses

Summary

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Since the 1970s, the medical malpractice insurance industry has experienced several periods in which profits have declined rapidly, premiums have risen, and medical providers have reported problems with availability and affordability. To reduce the costs of insurance, many states have enacted a variety of tort reform measures that will reduce award and settlement amounts. There have been three distinct rounds of tort reform - the mid-1970s, the mid-1980s, and the late 1990s. The influence of such reforms on the medical malpractice insurance industry is of renewed interest because there are increased pressures for additional reform efforts. Medical malpractice reform headed the Bush administration's tort reform agenda, though no national reform legislation has been enacted. The focus of the reform efforts has been on various measures that will reduce the amount of losses incurred by the insured. In this article, we use a combination of ordinary least squares (OLS) and quantile regression models to assess the relationships between various tort reform measures and insurer losses.

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The Effects of Tort Reform On Medical Malpractice Insurers' Ultimate Losses

INTRODUCTION

Since the 1970s, the medical malpractice insurance industry has experienced several periods in which profits have declined rapidly, premiums have risen, and medical providers have reported problems with availability and affordability. To reduce the costs of insurance, many states have enacted a variety of tort reform measures that will reduce award and settlement amounts. There have been three distinct "rounds" of tort reform - the mid-1970s, the mid-1980s, and the late 1990s. The influence of such reforms on the medical malpractice insurance industry is of renewed interest because there are increased pressures for additional reform efforts. Medical malpractice reform headed the Bush administration's tort reform agenda, though no national reform legislation has been enacted.

The focus of the reform efforts has been on various measures that will reduce the amount of losses incurred by the insured. Whether such reforms are desirable from a social policy standpoint is beyond the scope of this study. We should note that a decrease in the amount of losses borne by the insurer typically implies that less money will be paid to injured parties. Tort reform is generally not strictly a zero sum game, as reduced medical malpractice losses will affect insurance premiums, the costs of care, and physician behavior. However, it is important to recognize that the "savings" from decreased losses are not necessarily efficiency gains as they may largely reflect reduced transfers to injured patients. This article does not address the overall social desirability of specific tort reforms but is concerned with the more narrowly framed empirical issue of whether the reforms did ultimately reduce losses, which was their primary intent.

The empirical novelty of our analysis is that it is the first study to assess the longerterm effects of the reform...

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