Medical Liability Premiums Trending Upward as 'Hard Market' Forms

After more than a decade of relatively stable medical liability premiums, rates are increasing significantly, a new report from the American Medical Association says.

Over the past three years, there has been a surge in the percentage of medical liability premiums with year-to-year increases, a new report from the American Medical Association says.

The last time there was a spike in medical liability premiums year-to-year was in the early 2000s, according to the new report. Medical liability premiums were largely stable through 2018, the report says.

The new report is based on data collected from annual rate surveys conducted by the Medical Liability Monitor (MLM), including the latest annual rate survey from October 2021. The data features "manual" premiums, which do not reflect credits, debits, dividends, or other factors that may affect the actual premiums that physicians pay for coverage.

The increases in medical liability premiums from 2019 to 2021 have added to the financial strain that physicians have experienced during the coronavirus pandemic, Gerald Harmon, MD, president of the American Medical Association, said in a prepared statement. "The medical liability insurance cycle is in a period of increasing premiums, compounding the economic woes for medical practices that struggled during the past two years of the pandemic. The increase in premiums can force physicians to close their practices or drop vital services. This is detrimental to patients as higher medical costs can lead to reduced access to care."

The new report has several key data points.

• Premium decreases have become more rare over time and are now less likely than premium increases. In 2012, the percentage of premiums that decreased was 25.7%. In 2021, only 6.5% of premiums decreased.
   
• The percentage of premiums that increased spiked after 2018, when 13.7% of premiums increased. In 2019, 26.5% of premiums increased. In 2020, 31.1% of premiums increased, which was higher than any year since 2005.
   
• The number of large premium increases has also risen. In 2018, 3.9% of all premiums increased by at least 10%. In 2019, 3.6% of all premiums increased by at least 10%. In 2021, 7.5% of all premiums increased by at least 10%.
   
• Twelve states experienced double-digit premium increases in 2021. Illinois led all states with the largest proportion (58.9%) of premiums that increased 10% or more, followed by West Virginia (41.7%), Missouri (29.6%), Oregon (20%), South Carolina (16.7%), Idaho (11.1%), Kentucky (7.4%), Delaware (6.7%), Washington (6.7%), Michigan (5.4%), Texas (4.9%), and Georgia (3.7%). The size of the largest premium increase in these states ranged from 35.3% in Illinois to 10% in Idaho and Washington.
   
• There were substantial geographic variations in premiums. For example, in 2021, manual premiums for general surgeons in Los Angeles County, California, were $41,775, compared to $215,649 for general surgeons in Miami-Dade County Florida.
   
• There also were substantial premium variations by specialty. For example, in Nassau County, New York, premiums were $32,159 for internists, $146,353 for general surgeons and $165,824 for OB/GYNs.

Interpreting the data

The upward trend in premiums is not as severe as the last "hard market," according to the new report.

"The last hard market—also referred to as the liability 'crisis'—took place about 20 years ago, in the early 2000s. It was characterized by dramatic increases in premiums. In 2003 and 2004, respectively, 77.4% and 82.1% of premiums increased from their levels in the previous ears. Some general surgeons in Miami-Dade County, Florida, faced manual premiums that increased from $110,068 in 2000 to $277,241 in 2004," the report says.

However, premiums are trending toward a hard market, the report says. "In 2019 for the first time since the last hard market, the share of premiums that increased year-to-year went up significantly. Then in 2020, an even higher proportion increased, when 31.1% of premiums went up from the previous year. In fact, this was the highest proportion observed since 2005. Once again in 2021 and despite a small dip, almost 30% of premiums increased from the previous year—the highest proportion observed since 2006."

State data indicates a hard market is forming, the report says. "According to some actuaries, we were already in the early stages of a hard market in 2020, as insurers started raising premiums in response to deteriorating underwriting results, lower loss reserve margins, and lower returns on investment. Thus, it was expected that insurers would sustain or even push for higher premiums in 2021. The 2021 MLM data suggests that this is coming to fruition. Although large increases were concentrated in certain states, small increases in premiums were more widespread. In 2020, premium increases were observed in 33 states and in 2021, they were reported in 32 states. Twenty-four states saw increases in both of those years."

For now, the ultimate direction of the medical liability market remains to be seen, the report says. "It is not atypical for there to be hard and soft markets, for premiums to go up and down, as this is part of the insurance cycle. How severe and widespread the current hard market will become—how many premiums will increase, how high they will go and whether other states will follow suit in seeing their premiums go up—is still uncertain."

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