Medical Malpractice Insurance Rate Regulation

Proponents of caps on medical malpractice awards frequently cite California's Medical Injury Compensation Reform Act of 1975 as evidence that caps hold down insurance rates. In fact, the state's rate increases were the same as the national average until 1988 when voters passed Proposition 103, which requires insurance companies to open their books and justify rate increases. In 2003, the California Insurance Commissioner directed the state's second largest malpractice insurer to cut its proposed 15.6 percent increase to 9.9 percent. Physicians saved millions on additional premiums, and the insurance company remained profitable.

Other states require the state insurance department to give prior approval to rate increases on medical malpractice and other types of policies. Wyoming's insurance code, for example, provides for state regulation of rates in noncompetitive markets. Not all state laws are equal in their protection against unreasonable rate increases, however. There is no minimum rate increase for a review to be triggered under Wyoming law, and state review in California is triggered by an increase of 15 percent or more. But Georgia's state legislature is considering a bill that would cap medical malpractice damage awards and would permit annual premium increases of up to 25 percent annually without review. (The proposed amendment is available from the Georgia General Assembly.)