Insurance "Crisis" Means Insurance Co Bailout

by Molly Ivins

For those of you who have not previously paid attention to the routine insurance-crisis drill, we are in a familiar pattern. You may have read that doctors are going broke from high medical malpractice premiums. The poor doctors are being driven out of their profession; they're closing up their offices, leaving us without medical care; their ranks will be halved, we'll all die of untreated disease; the sky will fall, and the world will end. Unless, of course, we do what the insurance companies want. Same song, 65th verse.

What they want this time is to restrict the rights of injured patients to sue malpracticing doctors. In April, the Center for Justice and Democracy released the report, "Shakedown: How the Insurance Industry Exploits a Nation in Times of Crisis." This follows the center's equally useful 1999 study "Premium Deceit -- the Failure of 'Tort Reform' to cut Insurance Prices." Limiting the great American right to sue the bastards didn't work the last time, didn't work the time before and didn't work the time before that to reduce premiums -- so of course the insurance industry wants us to do it again.

Here's the deal: The reason malpractice rates are skyrocketing is on account of the insurance industry's own pricing errors and lost investment income. In a useful summary of the situation, The Wall Street Journal reported this week: "While malpractice litigation has a big effect on premiums, insurers' pricing and accounting practices have played an equally important role. Following a cycle that recurs in many parts of the business, a price war that began in the early 1990s led insurers to sell malpractice coverage to ob-gyns at rates that proved inadequate to cover claims.

"Some of these carriers had rushed into malpractice coverage because an accounting practice widely used in the industry made the area seem more profitable in the early '90s than it really was. A decade of short-sighted price-slashing led to industry losses of nearly $3 billion last year."

Incidentally, the Journal's report contains a stellar public service in its neat dissection of the holes in the database provided by Jury Verdict Research, an information service. This outfit's alarming accounts about the increase in the size of malpractice verdicts -- up 175 percent, according to it -- have been driving some of the hysterical media coverage on the impending disappearance of doctors. The journal found "gaps" in the outfit's database. Sounds like more gap than base to me.

In Texas, we have been through tort deform so many times it has become a tradition, like the UT-A&M football game. We're pretty well owned by the tort deformers here: They are the heaviest of heavy-hitter campaign contributors, not just to our statewide officeholders but to all nine of our elected Supreme Court justices, as well. You will not be amazed to learn that our premiums have not gone down, our problems with insurance companies are rife and the governor, who got $200,000 from insurance, vetoed the prompt-pay bill passed last session.

The insurance industry is accountable to no federal agency, subject to virtually no federal regulation and under only limited control by the states. Most states do a miserable job of regulation. State lawmakers tend to be easy to stampede, and the insurance companies regularly threaten to drive up the cost of doing business so much it will hurt the economy or even to pull out of a state entirely. Sometimes they even threaten to leave the entire United States.

Occasionally you will find an insurance commissioner who stands up to them, but it's rare. Texas Watch is a public interest group working to end abusive and unfair practices by insurance companies. It has a depressing litany of cases where Texans end up bankrupt, with no house, still owed money, sued for complaining, etc.

The industry's last "crisis" was post 9-11, you may recall, when it announced the economy would collapse without a federal insurance bailout by Dec. 31 of last year. They demanded a multibillion dollar "backstop," basically capping the liability of insurers in case of further terrorist attacks. The economy did not crumble and in fact there has been a capital flow to the industry, which is recovering nicely on higher premiums. Nevertheless, the Senate, with its usual impeccable timing -- and the usual campaign contributions -- approved a bailout bill last week. The House version is, of course, worse -- the government picks up 90 percent of the cost for at least a year -- and now the bills go to conference.

During one "insurance crisis" in the Texas Legislature, then-Rep. Bob Armstrong was moved to compose a country song on the subject: "As they thought on matters theoretical, All the malpractice wasn't medical."