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(June 2005) Three years ago, Pennsylvania lawmakers approved several significant changes to the state’s failing medical liability system. Chief among them was the Medical Care Availability and Reduction of Error Fund (MCARE) to replace the state’s CAT fund. The MCARE Fund is a government-controlled pool to supplement traditional medical malpractice insurance using assessments on doctors, as well as a percentage from punitive damage awards. How has MCARE fared in Pennsylvania? IssuesPA investigated.

What are the trends in MCARE claims and assessments?

According to the Pennsylvania Department of Insurance, which administers the Fund, MCARE payouts were lower in 2004 than in 2002 and 2003 - $318.9 million in 2004 compared to $348.1 million in 2002 and $376.8 million in 2003. However, payouts in 2004 were near the 2001 level. The assessment fees charged to doctors to support the fund are expected to be lower this year.

Here are some statistics from the state Insurance Department:

• The total number of MCARE paid claims decreased 13% from 2003 to 2004.
• The total number of cases in which MCARE made a payment decreased 14% - from 542 in 2003 to 475 in 2004.
• The average MCARE per-claim payout decreased from $539,045 in 2003 to $515,250 in 2004.
• The average MCARE per-case payout decreased from $695,189 in 2003 to $671,452 in 2004.

Most of the drop in payouts is likely due to the decreased number of claims. Although total MCARE payouts have decreased 18%, the average per-claim payout has decreased only 4% and the average per-case payout has decreased only 5%.

Although a decrease in claims is good news, there’s no guarantee claims won’t go up next year - or that there will be an overall decrease in the number of medical liability claims or in the amount of awards. And there are other factors to consider.

A decrease in MCARE payouts doesn’t necessarily mean the frequency or severity of claims is lower overall because different rules govern MCARE claims. The decrease in claims may be driven by changes in MCARE requirements. Given the higher threshold for a claim to reach the MCARE excess limits, it would be expected the number of claims paid by MCARE would decrease over time.

Are premiums for primary medical liability insurance under control?

Despite the recent good news from the MCARE Fund regarding lower claims payouts and assessment levels, the real question is whether total costs - both primary insurance premiums and MCARE assessments - are under control. In 2005, total costs for most physicians won’t significantly decrease. In fact, for many physicians, costs will be about the same or more due to substantial increases in primary premium levels that offset any MCARE reduction.

• For example: PMSLIC - one of few remaining medical malpractice insurers in Pennsylvania - recently requested an 8% increase in its base rate that, combined with specialty/relativity changes, will result in a 10.8% increase.
• The JUA (Joint Underwriting Authority) - the liability insurance provider-of-last-resort - obtained approval of rate changes that decrease its based rate 7.4% - but also incorporated specialty/relativity changes that will result in a 0.6% overall increase.
• Medical Protective, one of the state’s larger insurance providers, obtained approval for rate changes that increased its base rate, and incorporated specialty/relativity changes that will result in a 25% overall increase.

Is availability of primary insurance a problem?

Large numbers of physicians are now insured by new carriers formed by health care providers out of necessity. To obtain coverage, the physicians often have to make investments and/or other commitments beyond their premium payments.

Many of the new carriers are risk-retention groups. They’re exempt from state rate setting and other important market controls, as well as solvency protections that may expose those insured to personal risk for the insurer’s liabilities in the event of insolvency. Aside from the new risk-retention groups, there’s little new private insurance available to Pennsylvania’s physicians. None of the major carriers that left the state has returned, and very few private carriers are willing to cover significant numbers of physicians.

The insurers who remain have continued to reduce their business in Pennsylvania through non-renewals and limitations on new business they will cover. Because of the unstable market, many physicians have had to find a new insurer two or more times in the last several years, and over 1,900 physicians now are forced to obtain coverage from the JUA.

What’s the bottom line?

On one hand, the results since the passage of reforms three years ago are encouraging, especially from the perspective of the MCARE Fund itself. However, the MCARE Fund is only one of several reforms put in place by Act 13 and subsequent rule changes. By providing excess insurance coverage, it takes some pressure off the private insurance market to foster growth in availability of private insurance and lower premium prices for medical professionals.

On the other hand, relief through lower insurance premiums and greater competition hasn’t happened. How will the MCARE Act reforms impact future MCARE claims? And will the climate for medical liability insurance improve? Only time will tell.