Wednesday, March 09, 2005

Should doctors and lawyers be on the same side?

Sherry, a reader, brings up an interesting point:

Ca was the first to institute cap laws in the 70's. ( *250k ) However, the med mal insurance rates continued (a proved cycle) until they passed Prop. 103.

Insurance reform.It is insurance reform that works, not tort reform.


Are the insurance companies getting a free ride here?

46 comments:

DDL said...

Nobody likes to defend evil insurance companies. So let me play devil's advocate here. Don't kill me please.

Here's an excerpt from my other blog

In defense of the “evil” insurance companies I would like to point out
1. Insurance is a business, not a charity. Its SOLE PURPOSE FOR EXISTING is to MAKE MONEY. Some people think it is evil to make money. They also think that AROD should play for the Tampa Bay devil rays for minimum wage instead of the $252 million the Rangers offered him. Companies in capitalist societies shouldn’t have to apologize for pursuing that goal. It has an inalienable American right to make as much money as it can. Does Starbucks apologize for charging you 5 bucks for a cup of coffee, when they bought it from third world farmers for pennies? Some people think Starbucks is evil too. If you have something someone is willing to pay two dollars for, should you be required by law to sell it for one? The only thing stopping you from charging a hundred dollars for something is there is someone else ready and willing to sell it for 99. If you accept the proposition that liability insurance companies are rolling in dough, you have to ask yourself why there are not more and more insurance companies entering this area. Why they are not lining up applying to the states to sell liability insurance. And why are they leaving this line of business? Why have they stopped writing new policies. Why are they going bankrupt? Are they all mismanaged? At the same time? Are there hundreds of insurance companies out there sitting on the sideline to let a few companies dig on this gold mine called medical liability? If trial lawyers think insurance is so profitable. How many of them own shares of insurance companies? Why aren’t there more physicians starting liability companies.
2. Contrary to what Average Joe thinks, Insurance companies don’t care about high payouts. Doctors care about high payouts. Insurers can just raise the rates and if you don’t want to buy for that price good luck trying to find someone else willing to take your business. THEY EVEN SECRETLY WANT PAYOUTS TO BE HIGH. So less people go bare, they’ll get more customers. Ask them if they could get a law passed saying all liability suits should be capped at the insanely low $10,000. They would not support it. They wouldn’t have any customers. Imagine selling a $10 life insurance policy. No one would buy it. Insurers care about PREDICTABLE losses. They don’t care that much about caps on economic losses. Those are relatively predictable. Pain and suffering aren’t. Insurers deal with the unpredictable like anyone else would, they build a bigger cushion.
3. Insurers don’t lose money in the market. They buy mostly fixed income securities. US Treasury Bonds. Local government and state bonds. These things are relatively safe. They also have corporate bonds and unless there are a large number of bankruptcies, they will make money in their investments. You can only accuse them of not making enough money in low interest rate environments to offset the lowered premiums they charge to compete for business. Insurers don’t gamble (that much) with your premiums .Laws wouldn’t allow it. I challenge anyone to show one insurance company that has negative investment return. Even the ones that become insolvent made money with their investments. Imagine if your insurance company wants to put all their money in a random internet stock. No government interested in protecting its citizens would allow that. And so if insurers think investment income is high they can charge discounted premiums and offset their costs. If investment income is low they offset their premiums less. What’s wrong with that? You’d do the same thing. People who want to demonize insurance companies want to make it look like they lost all their money on internet stocks after the bubble burst and are now charging more to get their money back.
If an insurer has to spend $10 on claims $10 on legal fees $9 on taxes and expenses. And make $1 profit, its going to charge you $30. When they can make 25% on their investments. They can charge you $24. When they can only make 5% on their investments they will have to raise their rates to $28.57. Sure it’s an increase in premium but they haven’t made one extra dime. I am sure someone who wants to skew the information will point out that they took in 28 dollars and the injured only get 10. Very evil indeed:)
To say that insurers should have predicted that their investment income would be low and therefore raise their rates sooner is to say that the current rates should be more acceptable.
That is to say that if it weren't for the high returns in the 90's. they should have charged doctors 250k per year then AND now.
put another way they are saying
"Insurance rates shouldn't be increasing, it should have been high to begin with."

Ted said...

There's a very easy way for doctors and lawyers to be on the same side against the insurance companies.

DDL said...

Ted, that's a beautiful idea. I cried after reading it. Seriously.

Anonymous said...

Yeah Ted, great idea. Of course, one could just as easily say that if medical malpractice jackpots are so easy to come by, why don't more people become med mal lawyers? That's supposedly supposed to be extremely profitable. You don't even have to have a meritorious case to get obscenely rich. Right?

DDL said...

I must admit I agree with Anonymous. I read many articles in alot of places that law schools are having a hard time finding applicants. and medical liability insurance companies are poping up like crazy, especially in Florida. But for some reason I can't seem to find it. Must be a conspiracy to cover the truth.

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