The R.I. Department of Business Regulation has approved a 10-percent rate hike for Rhode Island’s largest medical malpractice insurer and a separate, two-part hike for the state’s malpractice insurer of last resort that will increase rates by 70 percent.
The smaller hike, for NORCAL Mutual Insurance Co. policyholders, is effective Jan. 1 and will affect more than 1,500 local doctors and medical practices. It comes on top of a 19-percent rate increase last Jan. 1, a 42.8-percent hike in 2004, and a 20-percent hike in 2003.
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The bottom line for doctors will be base premiums of nearly $16,000 for family practitioners and almost $117,000 for the riskiest specialties, neurosurgery and obstetrics.
The bigger hike, for the Medical Malpractice Joint Underwriting Association of Rhode Island, will affect four hospitals, 92 nursing homes and 38 other non-hospital facilities now covered by the MMJUA, plus any future additions to the last-resort carrier’s roster.
It’s the MMJUA’s first rate increase in this line of business since 1995, though the hospitals already saw their premiums jump substantially due to an experience rating system change approved by the DBR earlier this year.
Originally, the carrier had sought a 99.8-percent rate hike, but after negotiations with the attorney general’s office, which serves as a consumer advocate in insurance matters, both sides agreed to recommend a 70-percent hike instead.
The DBR, for its part, took things one step further, approving only a 35-percent rate increase this year, effective Nov. 1, plus another 25.9-percent hike on Nov. 1, 2006, for a cumulative increase of 70 percent over two years.
The standard for approving rate hikes is that they not be “excessive, inadequate or unfairly discriminatory,” and after reviewing the MMJUA’s actuarial calculations, the DBR found that a 70-percent hike would pass that test.
But co-hearing officers Elizabeth Kelleher Dwyer and Paula M. Pallozzi took issue with the long time that the MMJUA had allowed to elapse before seeking a rate increase. The reason given for that delay was that the MMJUA didn’t have enough data to support a rate filing until now – its facilities membership had dropped to 23 insureds, with no hospitals, by 1999, and has only slowly bounced back. Dwyer and Pallozzi, however, argued that this long a wait wasn’t necessary, especially because the current filing didn’t just rely on recent claims data.
“As the residual market, the MMJUA is required to accept all comers when market forces change,” they wrote. “MMJUA has no control over this change and it would be almost impossible to predict with certainty when the change will occur. Proper operation of a residual market, therefore, requires MMJUA to keep all of its rates current.”
Outdated, unduly low rates could in fact harm the market, Dwyer and Pallozzi argued, drawing subscribers away from competitive carriers into the residual market. (In fact, to some extent, that has happened, brokers say, as the MMJUA has become the cheapest option for some providers.)
The MMJUA had also argued that it would’ve been too expensive to file for a rate hike before, because another recent filing, in 2003, cost it $153,000, without a full hearing. Dwyer and Pallozzi countered that while they are also “concerned with the cost of these litigated hearings … cost cannot be an excuse for the residual market failing to keep rates current.”
The DBR’s single biggest reason for rejecting a one-time 70-percent rate hike, however, was the potential “rate shock.” The MMJUA had wanted the hike to go into effect Oct. 1, when three of its four hospital clients’ policies renewed, and calculations provided by the carrier showed all three would see their premiums jump dramatically.
One hospital’s rates would go from $540,472 to $1,010,766, for example; another’s would go from $1,548,843 to $2,679,777. Hospital officials testified, in writing and at a public hearing, that they had not budgeted “for an increase of this magnitude,” the decision notes.
And for other types of facilities, which unlike the hospitals, are not subject to experience rating, the jump would be even more dramatic, Dwyer and Pallozzi wrote, with premiums rising from a range of $1,230 to $24,600, to a range of $2,091 to $41,834.
Nothing in the law says that just because a rate hike is actuarially justified, the DBR has to accept the requested timing and “not take into account how that timing affects the insureds,” they wrote. Thus, to dull the impact of the hike, they postponed half of it.
The NORCAL decision, also by Dwyer and Pallozzi, stuck much closer to precedent, despite extended discussions during the public hearing last month that had hinted at a desire by the DBR to revisit key issues and set firmer standards for medical malpractice rates.
In a ruling issued Monday, they generally reaffirmed the guidelines set by their 2003 decision on another NORCAL rate filing (the one that resulted in the 42.8-percent hike), which the carrier had closely followed in its new filing, accepting only a few revisions made by the attorney general, who had accepted the 10-percent hike as reasonable.
The DBR rejected a slew of arguments made by Jay Angoff, a national critic of the medical malpractice insurance industry brought in by the Rhode Island Trial Lawyers Association, such as that Rhode Island shouldn’t accept any charges above what NORCAL has sought in California, or that the 7.5-percent commission NORCAL pays to the Rhode Island Medical Society Insurance Brokerage gives it an undue advantage in this market.
Dwyer and Pallozzi did note, however, that while in this case it made no difference – like the attorney general, the DBR found that a rate hike much higher than 10 percent would’ve been actuarially justified – NORCAL would not, in the future, be allowed to budget as much as it was allowed two years ago for costs in excess of policy limits and contractual obligations.
In the 2003 decision, NORCAL was allowed a 4-percent “load” due to a 1999 state Supreme Court ruling that made insurers liable for jury awards even beyond policy caps if, acting against the policyholder’s wishes, they refused an offer to settle below the cap.
Last month, in a decision regarding ProSelect Insurance Co., a smaller malpractice carrier, the DBR found that since no carrier has ever been forced to make a payout under that ruling, the credibility of arguments for such a “load” had decreased, and it would continue to do so.
In the ProSelect case, Dwyer and Pallozzi found a 2-percent “load” would be reasonable, and in the NORCAL decision, they noted that the same would apply to that carrier.
