DRAFT 0 Medical Malpractice: Is the Crisis Over? CAS Spring Meeting 2006 Puerto Rico Carl Ashenbrenner, F.C.A.S., M.A.A.A. Principal and Consulting Actuary Milliman, Inc.

1 Milliman Medical Malpractice Liability Overview of Session  Carl Ashenbrenner, FCAS, MAAA  AMA Crisis States  National Industry Results  Texas Case Study  Kevin Bingham, ACAS, MAAA  From Who’s Perspective  The Future: Challenges and Opportunities  Robert J. Walling, FCAS, MAAA  From Where’s Perspective  A Call for Efficiency

2 Milliman The AMA’s Crisis States  In June, 2002, the American Medical Association (AMA) released the results of a survey of its members, intended to evaluate the impact of the Professional Liability market on Access to Healthcare.  The Survey focused on whether the Professional Liability market was causing physicians to:  Leave their current state of practice;  Retire early; or  Abandon high risk services  Based on survey results, AMA classified:  12 states as in a crisis  30 states as showing problem signs  8 states currently ok

3 Milliman The AMA’s Crisis States  In March, 2003, the AMA updated its survey results:  18 states in crisis  26 states showing problem signs  6 states currently ok  In January, 2006, the AMA again updated it survey results:  21 states in crisis  22 states showing problem signs  6 states currently OK  Texas – effective reforms halting crisis

4 Milliman The AMA Crisis States

5 Milliman Recent Events  February 27, 2006 – Americans for Insurance Reform (AIR) released study “New Report Confirms: Medical Malpractice Insurance Crisis is Over”  February 27, 2006 – The Council of Insurance Agents and Brokers issue statement challenging AIR report.  Senate Bill 22 (The Medical Care Access Protection Act of 2006) may be discussed during first week of May.

6 Milliman Industry Results Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics.

7 Milliman Industry Results Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics. Note: 2005 Estimated

8 Milliman Industry Results

9 Milliman Industry Results

10 Milliman Industry Results  Comparing calendar year changes in loss and/or premium provides incomplete picture  Country-wide industry information does not show problems by state or region

11 Milliman Industry Results

12 Milliman State Example - Texas

13 Milliman Texas History of Reform  Tort reform laws passed effective 9/1/95.  Texas Department of Insurance established across- the-board reduction in rates (of all liability lines) and estimated savings of $2.9 billion between  Order rate reductions for medical malpractice (doctors and other health care providers) between 11.5% and 21% during

14 Milliman State Example - Texas

15 Milliman Texas History of Reform  Proposition 12 passes (narrowly) in September  Texas legislature passes House Bill 4 which places a $250,000 cap on non-economic damages for all physicians named in an occurrence effective September 1, 2003.

16 Milliman Texas History of Reform  “A Year After Prop 12, Just One Texas Malpractice Writer Seeks to Cut Rates” – Best Wire 9/22/04  Company A reduces rates 13% - 2/17/06  Company B reduces rates nearly 33% - 3/23/06

17 Milliman Texas History of Reform  In 1999, seventeen companies were writing new policies in Texas; number slid to 4 in (AMA)  Fifteen new companies started selling malpractice insurance in Texas (Montemayor 2/22/05).  More doctors providing high-risk services since reforms passed. (Texas Medical Association - 8/23/04).