The study was undertaken as part of a client inquiry by the Florida Hospital Association, which asked for background data on the effect of caps on losses.

“What surprised me most about the study was that the results were so consistent as far as the relationship of losses to damage caps,” said study author Richard S. Biondi, a Milliman principal and consulting actuary in Garden City, N.Y.

“The data indicate that caps on non-economic damages reduce the cost of insuring medical malpractice for physicians in the states in our study that have instituted this element of tort reform,” Mr. Biondi noted. “The study implies that caps on non-economic damages would significantly reduce total losses for both physicians and hospitals.”

According to the study, the following states, which have implemented caps, are enjoying below average loss costs. The dollar figure in parentheses is the amount of the cap and the percentage indicates the extent to which the state is below the country-wide loss costs average (with 100 percent being average).

California ($250,000; 52 percent)
Colorado ($250,000; 69 percent)
Indiana ($1,250,000; 86 percent)
Massachusetts ($500,000; 69 percent)
Maryland ($500,000; 64 percent)
Michigan ($345,000; 79 percent)

The Indiana cap applies to all damages, not just pain-and-suffering.

Compare the above to the higher loss-cost states that do not have caps:
District of Columbia (144 percent)
Florida (136 percent)
Illinois (144 percent)
Kansas (106 percent)
New Jersey (131 percent)
New York (156 percent)
Ohio (117 percent)
Pennsylvania (171 percent)
Texas (111 percent)

For purposes of the study, “loss costs are losses as reported by the National Practitioners' Data Base for each state, divided by the number of doctors in that state,” Mr Biondi noted. He also said that the losses were not adjusted to account for inflation as inflation was generally the same for all states.

Mr. Biondi points out that there are other variables besides caps that affect loss costs in these states, and that it is very difficult to prove cause and effect.

“However, the pattern in this particular study is still very clear in showing that caps on non-economic damages are highly correlated to medical malpractice costs,” he said.

Consumer groups, however, remained unimpressed with and critical of the linking of damage caps with lower insurance costs.

“This study disregards all significant arguments on the other side,” said Jamie Court, executive director of the Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights. “The study is not credible because it fails to address the role of insurance regulation in bringing down costs,” he added.

“Milliman's clients are the large hospitals and HMOs. It appears that the purpose of the study was to get a medical malpractice damages cap passed in Florida.”

The study received a much warmer reception from medical malpractice inurers. Frank O'Neil, senior vice president of ProAssurance in Birmingham, Ala., said the study confirms what people in the health care industry have been saying for years.

“The study reinforces the idea of the benefit of caps,” Mr. O'Neil noted. “People are in favor of reasonable limits on non-economic damages. If you look at California and other states that have enacted caps, the overall effect is positive.”

Reproduced from National Underwriter Edition, April 28, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.