The state Department of Business Regulation has approved a change in a major malpractice insurer’s experience rating system that will immediately boost three hospitals’ premiums by 25 percent, and cost a fourth hospital an extra 19.8 percent as of July 1.
The Medical Malpractice Joint Underwriting Association of Rhode Island, the state’s malpractice insurer of last resort, had been waiting since September to change its experience rating formula, which hadn’t been updated since 1989. The MMJUA is also using 10-year-old rates, though the group has said it will probably seek an increase as soon as this spring.
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First, however, the MMJUA asked the state to allow it to adopt fellow malpractice insurer ProSelect’s experience rating plan, effective last Oct. 1.
The MMJUA’s old plan was “balanced,” meaning each year, the MMJUA calculated the total premium it would collect from all the hospitals if they paid the base rate, then adjusted each hospital’s share to reflect their risk quality relative to one another.
Last year, that resulted in Women & Infants’ Hospital paying an extra 22 percent over its base rate, while St. Joseph Hospital and Roger Williams Medical Center got substantial discounts. Memorial Hospital of Rhode Island, which just signed on in July, paid the base rate.
ProSelect, however, like most insurers, calculates each subscriber’s experience adjustment separately. If, based on a hospital’s loss history, ProSelect figures charging it the base (or “manual”) rate would not produce enough money to cover losses, it imposes a surcharge. If the hospital has an especially good loss record, however, it would get a discount.
For ProSelect’s subscribers, whose rates have been updated over the last few years, the net effect isn’t that different. But for the MMJUA, whose 10-year-old rates couldn’t match losses even for the best-performing hospital, the impact on premiums would be huge.
Assistant Attorney General Genevieve M. Martin, who acts as the consumer advocate in insurance matters, estimated the MMJUA’s proposal would jack up rates by an average of 73 percent, “an extraordinary and inappropriate increase.”
Martin didn’t dispute the MMJUA’s need to collect more premiums, but she questioned the insurer’s choice to hike premiums through a formula change, which is subject to far less scrutiny by the DBR than a normal rate increase request.
To resolve the matter, Martin offered a compromise that would keep the hike to an average of 38.1 percent, also accepting the insurer’s offer to cap the first-year hike at 25 percent.
Under Martin’s plan, three of the four hospitals would be still hit with an experience surcharge – 82.7 percent for Women & Infants’. The fourth hospital would see its experience-based discount drop from 26.4 percent to 3.2 percent.
The DBR ruling, signed by acting director Michael Marques on Jan. 28, is effective retroactively to Oct. 1.
The MMJUA has only recently begun to cover hospitals again, after losing the business to lower-priced competitors in the 1990s. NORCAL and ProSelect, have been hiking hospitals’ rates and refusing to renew some policies.
