Sitting on comfortable surpluses, Maryland's largest medical malpractice insurer intends to end its participation in the state's premium subsidy program two years early and is proposing to return $32.5 million of the $72.4 million in subsidies it has received so far.
In effect, Medical Mutual Liability Insurance Society of Maryland is saying that, with the cost of claims declining, it no longer needs a subsidy to keep premiums stable for doctors in the short term.
The insurer's proposal -- part of a plan to pay a $68.6 million dividend -- marks a stark reversal of the situation of a few years ago, when rising claims payouts led Med Mutual to impose back-to-back rate increases of 28 percent and 33 percent. Doctors, in turn, marched on Annapolis, saying they wouldn't be able to practice in the state. The General Assembly convened in an emergency session over Christmas week in 2004, enacting the four-year subsidy program to keep premiums in check.
Med Mutual filed its plan last week with the Maryland Insurance Administration, which released details yesterday in response to a public records request by The Sun. The refund is required under the law that created the subsidy; the amount is still being reviewed by insurance regulators.
Dr. Martin Wasserman, executive director of MedChi, the professional society for the state's doctors, cautioned yesterday that malpractice issues remained.
"While we have a current reprieve from the crises of 2003-2004, the need to address all of the problems associated with medical liability costs has not gone away," he said.
"There will be another crisis," he said. "The concerns I have are that this can lead people into complacency and to the arguments that there never was a crisis."
He said the state's doctors still favor tort reform, changes in the laws governing how medical liability claims are judged and paid out, to avoid cyclical crises in the future. But he conceded that this year, with Med Mutual returning money to the state, "It's awfully hard for people to build that case."
Sen. Brian E. Frosh, chairman of the Judicial Proceedings Committee, said the latest trends show lawmakers were right not to enact strong tort reform along with the subsidy.
"We acted prudently in not jumping at what they were asking for, what [then-Gov. Robert L.] Ehrlich was demanding, or else the crisis would never end," Frosh said. He said the spike in claims in 2002 and 2003 didn't come from inadequate laws covering liability cases.
"It appears now it was a cyclical movement in the insurance industry. We had a couple of bad years in a row," he said.
Maryland's trend -- a spike in claims in 2003, followed by an easing -- has also been seen nationally, said Gregory Larcher, an actuary in the Columbia office of Aon Consulting who conducts an annual study of medical liability claims. The amount paid in claims against doctors in Maryland dropped 28 percent in the past three years, he said, compared with a national decline of 18 percent.
He said the reasons for the decline, and for the spike in 2002 and 2003, are not clear. He said one factor driving the moderation was recent efforts by doctors and hospitals to analyze medical errors and take steps to prevent them -- such as setting clear procedures, buying better equipment and offering more training.
Med Mutual's plans for a payout first surfaced last week, when Maryland Insurance Commissioner Ralph S. Tyler ordered that the insurer not proceed until he had a chance to review it. But neither Tyler nor Med Mutual would say last week how much of the $68.6 million Med Mutual planned to return to the state and how much to physicians. Nor was it disclosed that Med Mutual would decline state help for the rest of this year and for next year, the last of the planned four-year subsidy. Med Mutual spokesman John Franklin declined to comment on its plans yesterday. The insurer has said Tyler's cease-and-desist order precludes it from discussing the issue.
Karen Barrow, a spokeswoman for the Maryland Insurance Administration, said Tyler and the administration's staff are still reviewing Med Mutual's proposal to see if its calculations comply with state law. Tyler has scheduled a hearing on the plan for Oct. 5.
In its filing, Med Mutual said it calculated the amount due to the state based on the ratio of the subsidy to premiums and the amount left over after paying claims in 2005 and 2006. By its math, it proposes to return almost $21.5 million of about $61.4 million it received in those years.
It also said it would turn back the almost $11.1 million paid so far this year and would decline further subsidies. The four-year subsidy program is scheduled to conclude at the end of 2008.
Med Mutual said it collected $139.7 million in premiums and had expenses of $96 million in 2005, leaving a surplus of $43.7 million. In 2006, it said, premiums were $141.4 million and expenses $95.5 million, leaving $45.9 million. The insurer retains some surplus to cover future claims.
Any dividend to the doctors -- as a mutual company, the insurer is owned by its policyholders -- would be in the form of a credit against premiums. The filing with the state does not indicate how much doctors would get. Med Mutual has not yet filed for approval of premiums in 2008.
Wasserman said that he did not know the details of the dividend plan but that he understood Med Mutual's goal to be keeping doctors' payments level.
Three other insurers have participated in the subsidy program as well, but Med Mutual, as the largest insurer, has received about three-quarters of the money paid out.