The medical malpractice insurance market is inherently complex and made even more so by the growing number of state efforts to regulate it. Complexities aside, however, standard economic theory should, in the main, explain, to some degree, med mal premia trends. Findings from a recent paper, How Do Insurers Price Medical Malpractice Insurance?, by Bernie Black et al. (Northwestern), however, "are not easily explained by standard economic theory."
Prof. Black et al.'s paper analyzes almost three decades worth of med mal premia data (gathered by the Medical Liability Monitor). Core findings include:
- Med mal premia are only loosely connected to insurer costs, even over long periods;
- Premia are much higher in states with damage caps, even after controlling for costs; and
- The Premium/Cost Ratio varies widely both across states at a given time and within states across time.
Taken together, the paper's findings imply that med mal insurance companies do not fully adjust premia to changes in direct costs even over long time periods as standard economic theory might predict.
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