[Congressional Record Volume 151, Number 105 (Thursday, July 28, 2005)]
[Senate]
[Pages S9290-S9292]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEAHY (for himself, Mr. Kennedy, Mr. Durbin, Mr. 
        Rockefeller, Mrs. Boxer, Mr. Feingold, Mr. Corzine, Mr. 
        Salazar, Mr. Obama, and Ms. Mikulski):
  S. 1525. A bill to ensure that commercial insurers cannot engage in 
price fixing, bid rigging, or market allocations to the detriment of 
competition and consumers; to the Committee on the Judiciary.
  Mr. LEAHY. Mr. President, I am pleased to introduce the ``Medical 
Malpractice Insurance Antitrust Act of 2005.'' In the ongoing debate 
about health care costs, this legislation is a targeted and responsible 
move toward fixing one significant part of the system that is broken 
the skyrocketing insurance premiums for medical malpractice.
  For too long, doctors and hospitals have endured dramatic increases 
in the cost of their malpractice insurance. I doubt there is a single 
Senator who has not heard repeatedly from beleaguered physicians back 
home. Rising insurance rates are reportedly forcing some doctors to 
abandon their practices.
  Some of my colleagues in the other body seem content to echo the 
refrains of the insurance industry and heap blame for the problem of 
rising insurance premiums rates on trial lawyers and the victims of 
medical malpractice themselves. I have opposed arbitrary caps on 
damages because they will inflict additional harm on the most 
vulnerable victims of medical malpractice.
  Many of us have questioned the insurance industry's claim that 
lawsuits are causing the rise in premium costs since doctors in States 
that have imposed damages caps have not seen a reduction in their 
medical malpractice insurance premiums.
  A newly released report provides shows that our questions were well-
founded. This report provides real evidence rather than anecdotal 
stories routinely trotted out by the insurance industry advocates. This 
study was prepared by a former State Insurance Commissioner and uses 
the insurance industry's own numbers to debunk the myths being advanced 
by the insurance industry.
  The study entitled, ``Falling Claims and Rising Premiums in the 
Medical Malpractice Insurance Industry,'' suggests that malpractice 
insurers have been overcharging, even gouging, physicians 
unconscionably. I expect a number of Senators will be surprised to 
learn that the malpractice claims payments actually went down, in real

[[Page S9291]]

terms, over the past five years. In addition, even the insurers' own 
projections of future losses are declining. Despite these downward 
trends, year in and year out, these insurers are burdening doctors with 
increased premium costs and shifting the blame for their increases on 
to lawyers and victims.
  In the past five years, premiums have more than doubled even though 
claims payments have been stable. In 2004, malpractice insurers' total 
premiums were three times higher than their payouts. During the years 
2000 to 2004, net premiums increased by 120 percent, while net claims 
payments increased by less than 6 percent.
  I urge Senators to read this report. It is based entirely on data 
from annual statements filed under oath with State insurance 
departments by the Nation's 15 largest malpractice insurers. The 
statements contain each insurer's estimate of how much it will pay out 
in malpractice claims, as well as data showing how much it actually 
paid out in claims and took in premiums. Claims and projected losses 
are down. It is only premiums that are rising, not claims.
  What this boils down to is an insurance industry problem, not a 
problem with the legal system. No wonder that the State attorneys 
general of Connecticut and Missouri have reacted to the study by 
attacking industry practices and calling for an aggressive regulatory 
response.
  As this study makes clear, high malpractice insurance premiums are 
not the result of malpractice lawsuit verdicts. They are the result of 
investment decisions by the insurance companies and of business models 
geared toward ever-increasing profits. I hope that this study once and 
for all shines light on the real culprit in rising malpractice 
insurance rates and informs the Senate with solid evidence of the best 
way to assist the good doctors who commit their professional lives to 
caring for others. I ask unanimous consent that the executive summary 
of the study be printed in the Record.
  To be sure, different States have different experiences with medical 
malpractice insurance, and insurance remains a largely State-regulated 
industry. Each State should endeavor to develop its own solution to 
rising medical malpractice rates because each state has its own unique 
problems. Some States--such as my own, Vermont--while experiencing 
problems, do not face as great a crisis as others.
  But another fact of the insurance industry's business model requires 
a Federal legislative correction its blanket exemption from federal 
anti-trust laws. Insurers have for years enjoyed a special benefit in 
our marketplace. The McCarran-Ferguson Act permits insurance companies 
to operate without being subject to most of the Federal antitrust laws, 
and our Nation's physicians and their patients are suffering from this 
special treatment. Using their exemption, insurers can collude to set 
rates, resulting in higher premiums than true competition would achieve 
and because of this exemption, enforcement officials cannot investigate 
any such collusion. If Congress is serious about controlling rising 
premiums, we must revoke this blanket exemption created in the 
McCarran-Ferguson Act.
  That is why today I introduce the ``Medical Malpractice Insurance 
Antitrust Act of 2005.'' I want to thank Senators Kennedy, Boxer, 
Corzine, Durbin, Feingold, Mikulski, Obama, Rockefeller, and Salazar 
for cosponsoring this essential legislation. Our bill modifies the 
McCarran-Ferguson Act for the most pernicious anti-trust offenses: 
price fixing, bid rigging, and market allocations. I am hard-pressed to 
imagine that anyone could object to a prohibition on insurance 
carriers' fixing prices or dividing territories for anticompetitive 
purposes. After all, the rest of our Nation's industries manage either 
to abide by these laws or pay the consequences.
  Many State insurance commissioners police the industry well within 
the power they are accorded in their own laws, and some States have 
antitrust laws of their own that could cover some anticompetitive 
activities in the insurance industry. Our legislation would not affect 
regulation of insurance by State insurance commissioners and other 
State regulators. There is no reason to continue a system in which the 
Federal enforcers are precluded from prosecuting the most harmful 
antitrust violations just because they are committed by insurance 
companies.
  This legislation is a carefully tailored solution to one critical 
aspect of the problem of excessive medical malpractice insurance 
premiums. I hope that quick action by the Judiciary Committee and then 
by the full Senate, will ensure that this real solution is adopted 
before more damage is done to the physicians of this country and to the 
patients that they serve.
  Only professional baseball has enjoyed an anti-trust exemption 
comparable to that created for the insurance industry by the McCarran-
Ferguson Act. Senator Hatch and I have joined forces several times in 
recent years to scale back that exemption for baseball, and in the Curt 
Flood Act of 1998 we successfully eliminated the exemption as it 
applied to employment relations. I hope we can work together again to 
create more competition in the insurance industry, just as we did with 
baseball.
  If Congress is serious about helping to control rising medical 
malpractice insurance premiums, then we must limit the insurance 
industry's broad exemption to Federal antitrust law and promote real 
competition in the insurance marketplace.
  There being no objection, the executive summary was ordered to be 
printed in the Record, as follows:

Falling Claims and Rising Premiums in the Medical Malpractice Insurance 
                                Industry

                            (By Jay Angoff)


                           Executive Summary

       This Report analyzes the 2000-2004 performance of each of 
     the 15 largest medical malpractice insurers in the United 
     States rated by A.M. Best, the principal rating service for 
     the insurance industry. The Report is based primarily on data 
     from the carriers' 2004 Annual Statements filed with state 
     insurance departments.
       The Report finds the following:
       Over the last five years the amount the major medical 
     malpractice insurers have collected in premiums has more than 
     doubled, while their claims payouts have remained essentially 
     flat.
       Some malpractice insurers substantially increased their 
     premiums while both their claims payments and their projected 
     future claims payments were decreasing.
       Malpractice insurers accumulated record amounts of surplus 
     over the last three years.
       Taken together, the malpractice carriers analyzed increased 
     their net premiums by 120.2% during the period 2000-2004, 
     although their net claims payments rose by only 5.7%. Thus, 
     they increased their premiums by 21 times (120.2/5.7 = 21.09) 
     the increase in their claims payments.
       As a result of these two dramatically different trends, the 
     ratio between these insurers' claims payments and premiums 
     fell by more than half between 2000 and 2004: it declined 
     from 69.9% to 33.6% on a net basis, and from 68.8% to 32.1% 
     on a gross basis. Put another way, in 2004 the leading 
     medical malpractice insurers took in approximately three 
     times as much in premiums as they paid out in claims.
       Moreover, several insurers substantially increased their 
     premiums even though their claims payments actually fell--and 
     fell substantially. For example:
       Healthcare Indemnity, Inc. (HCI), an affiliate of HCA 
     corporation, increased its premiums by $173 million, or 88%, 
     while its claims payments fell by $74 million, or 32%. As a 
     result, in 2004 it paid out only 43 cents in claims for each 
     premium dollar it collected.
       ProNational, an affiliate of ProAssurance Corporation, 
     increased its premiums by $87 million, or 79%, while its 
     claims payments fell by $43 million, or 63%. As a result, in 
     2004 it paid out only 13 cents in claims for each premium 
     dollar it collected.
       Medical Assurance, another ProAssurance affiliate, 
     increased its premiums by $151 million, or 89%, while its 
     claims payments fell by a third. As a result, in 2004 it paid 
     out only 10 cents in claims for each premium dollar it 
     collected.
       In addition, Lexington Insurance Company, an affiliate of 
     AIG, reported that its net written premiums increased from 
     $21.1 million in 2000 to 483.0 million in 2004--an increase 
     of $461.9 million, or 2200%--while its net paid losses 
     increased by only $52.9 million. As a result, in 2004 it paid 
     out only 14 cents in claims for each premium dollar it 
     collected.
       Finally, even the ratio between the amount the leading 
     malpractice insurers estimated they would pay out in the 
     future and the premiums they earn--what insurers somewhat 
     counter-intuitively call their ``incurred loss'' ratio--
     declined by almost 25% between 2000 and 2004. Due to this 
     decline--which is in addition to the decline in the amounts 
     these insurers have actually been paying out--they estimated 
     in 2004 that they would ultimately pay out in claims only 
     51.4 cents of each premium dollar they earned. Perhaps most 
     striking, in 2004 these 15 insurers taken together increased 
     their earned

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     premium by 9.3%, even though their incurred losses--the 
     amount they estimated they would pay out in the future--
     declined by 21.1%.
       Because of the overall surge in malpractice premiums with 
     no corresponding surge in claims payments during the last 
     five years, the leading malpractice insurers have increased 
     their surplus by more than a third in only three years, and 
     they are now charging more for malpractice insurance than * * 
     *
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