What s Next for Medical Professional Liability Writers? Prepared for: Prepared by: Location: Date: Casualty Loss Reserve Seminar Susan J. Forray, FCAS, MAAA Principal and Consulting Actuary Milliman susan.forray@milliman.com (262) 796-3328 San Diego, CA September 16, 2014
Overview of Presentation Claim Frequency Indemnity Severity ALAE Severity Tort Reform Where Are We Headed? Additional Concerns Closing Thoughts 2
Claim Frequency 3
Claim Frequency 1.20 Closed Claim Frequency per Physician Countrywide, Base Year 2001 1.20 1.00 1.00 0.80 0.80 0.60 0.60 0.40 0.40 0.20 0.20 0.00 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0.00 Sources: Milliman analysis of AMA Physician Characteristics and Distribution in the U.S.; multiple editions Milliman analysis of National Practitioner Data Bank Public Use Data File, December 31, 2013 4
Claim Frequency 1.20 Change in Closed Claim Frequency by State 2013 Level Relative to 2001 Level 1.00 0.80 0.60 0.40 0.20 Countrywide 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 Sources: Milliman analysis of AMA Physician Characteristics and Distribution in the U.S.; multiple editions Milliman analysis of National Practitioner Data Bank Public Use Data File, December 31, 2013 5
Claim Frequency Reported Claim Frequency Claims-Made Business, Per $1M Gross Earned Premium 10.0 9.0 Reported Claim Frequency Indicated Range 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 Source: Milliman analysis of P&C insurance statutory data as provided by SNL Financial Chart represents results of 40 MPL specialty companies 6
Indemnity Severity 7
Indemnity Severity $400,000 Paid Indemnity Severity by Closed Year, Countrywide 3% Increase $400,000 $350,000 29% Increase $350,000 $300,000 $300,000 $250,000 $250,000 $200,000 $200,000 $150,000 $150,000 $100,000 $100,000 $50,000 $50,000 $0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 $0 Source: Milliman analysis of National Practitioner Data Bank Public Use Data File, December 31, 2013 8
Indemnity Severity 3.00 Change in Paid Severity by State 2013 Level Relative to 2001 Level 2.50 2.00 Countrywide 1.50 1.00 0.50 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 Sources: Milliman analysis of National Practitioner Data Bank Public Use Data File, December 31, 2013 9
ALAE Severity 10
ALAE Severity Paid Indemnity and ALAE Severities by Closed Year, Relative to 2000 2.00 1.80 1.60 2000-2012 = 4.6% ALAE Trend 2005-2012 = 7.6% ALAE Trend 1.40 1.20 1.00 0.80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Indemnity Severity Total ALAE Severity ALAE Trend 00-12 ALAE Trend 05-12 Source: Milliman analysis of PIAA Claim Trend Analysis; 2012 Edition Milliman analysis of PIAA Closed Claim Comparative; 2013 Edition 11
ALAE Severity Paid ALAE Severity by Claim Type by Closed Year, Relative to 2000 2.00 1.80 1.60 1.40 1.20 1.00 0.80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ALAE Severity on Indemnity Claims ALAE Severity on Expense Only Claims Source: Milliman analysis of PIAA Claim Trend Analysis; 2012 Edition Milliman analysis of PIAA Closed Claim Comparative; 2013 Edition 12
ALAE Severity ALAE Cost Distribution 2012 by Category Plantiff Verdict Dropped / Withdrawn / Dismissed Defendant Verdict ADR or Contract Agreement Settlement Source: Milliman analysis of PIAA Closed Claim Comparative; 2013 Edition 13
ALAE Severity 2.00 1.80 1.60 Plantiff Verdict Defendant Verdict ADR or Contract Agreement Settlement Paid ALAE Severity by Category by Closed Year, Relative to 2003 Dropped / Withdrawn / Dismissed 1.40 1.20 1.00 0.80 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Milliman analysis of PIAA Closed Claim Comparative; 2013 Edition 14
ALAE Severity 10% Annual Trend Rate for Paid ALAE Severity by Category, Relative to 2003 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Plantiff Verdict Defendant Verdict ADR or Contract Agreement Settlement Dropped / Withdrawn / Dismissed Overall Source: Milliman analysis of PIAA Closed Claim Comparative; 2013 Edition 15
Tort Reform Where Are We Headed? 16
Tort Reform Damage Caps 1974 17
Tort Reform Damage Caps 1979 18
Tort Reform Damage Caps 1984 19
Tort Reform Damage Caps 1988 20
Tort Reform Damage Caps 1991 21
Tort Reform Damage Caps 1995 22
Tort Reform Damage Caps 2005 23
Tort Reform Damage Caps Current 24
The Challenge to MICRA 25
Proposition 46 Cap on Non-Economic Damages $1.1M Random drug testing of physicians CURES database Requires physicians to query Gives DOJ access to the database patients do not have a reasonable expectation of privacy in their prescription records DOJ argument in Alwin Lewis, M.D. v. Superior Court of the State of California 26
No On 46 Campaign Costs One public estimate: 33% to 77% increase Access Physicians may choose to practice elsewhere Privacy patients do not have a reasonable expectation of privacy in their prescription records DOJ argument in Alwin Lewis, M.D. v. Superior Court of the State of California 27
Additional Concerns 28
Physician Employment Movement Toward Hospital-based Employment 800,000 700,000 600,000 500,000 400,000 57% 49% 43% 300,000 33% 200,000 100,000 0 2000 2005 2009 2013 Total Physicians Truly Independent Source: Accenture Outlook Adapting to a new model of physician employment ; August 2011 29
Increased Utilization 60 Uninsured Persons by Year (Countrywide) 18.0% 50 16.0% 14.0% 40 12.0% 30 10.0% 8.0% 20 6.0% 10 4.0% 2.0% 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Persons Not Covered (Millions) Percentage Not Covered 0.0% Source: Milliman analysis of health insurance data from www.census.gov 30
Increased Utilization Percentage of Persons not Covered by State (through 2012) 25.0% 25.0% 20.0% 15.0% Countrywide Average = 15.4% 20.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% Massachusetts Vermont Hawaii District of Columbia Connecticut Minnesota Maine Wisconsin Iowa Delaware Michigan New York North Dakota Pennsylvania New Hampshire Ohio Rhode Island Maryland Virginia Kansas Nebraska Missouri Indiana Washington Illinois Colorado Tennessee New Jersey South Carolina South Dakota Utah West Virginia Alabama Mississippi Wyoming Oregon Kentucky Idaho North Carolina Oklahoma California Arizona Montana Louisiana Arkansas Alaska Georgia Florida New Mexico Nevada Texas 0.0% Source: Milliman analysis of health insurance data from www.census.gov 31
Increased Utilization Estimated Changes in MPL Claim Costs by State due to the Patient Protection and Affordable Care Act 8.0% 7.0% % Change in MPL Costs 6.0% 5.0% 4.0% 3.0% 2.0% Countrywide Average 1.0% 0.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% % Uninsured Sources: Milliman analysis of health insurance data from www.census.gov RAND Corporation How Will the Patient Protection and Affordable Care Act Affect Liability Insurance Costs? ; 2014 32
Physician Education Debt Median Medical School Education Debt $200,000 20% $180,000 18% $160,000 16% $140,000 14% $120,000 12% $100,000 10% $80,000 8% $60,000 6% $40,000 4% $20,000 2% $0 1992 1996 2000 2004 2008 2012 0% Median Education Debt of Indebted Graduates Percent without Education Debt Source: Association of American Medical Colleges, Physician Education Debt and the Cost to Attend Medical School; 2012 Update 33
Closing Thoughts Frequency: no where to go but up? ALAE How to manage a cost that now exceeds indemnity Indemnity when will severity rise again? Physician employment continuing trend ACA will impact health care availability 34
Other Considerations 35
Other Considerations Accompanying Oral Discussion This document is not complete without the accompanying oral discussion and explanation of the underlying information and concepts as well as any interpretational limitations. Limited Distribution This document should not be distributed, disclosed or otherwise furnished, in whole or in part, without the express written consent of Milliman. Data Reliance We have relied upon data and other background information prepared by others, as documented throughout this presentation. We have performed a limited review of the data for reasonableness and consistency and have not found material defects in the data. If there are material defects in the data, it is possible that they would be uncovered by a detailed, systematic review and comparison of the data to search for data values that are questionable or relationships that are materially inconsistent. Such a review was beyond the scope of our assignment. 36