Self-Made Mess

Via Kevin Drum comes this new study on the growth of physician malpractice payments. Doctors and the insurance industry would like you to believe that large jury verdicts have caused the recent spike in malpractice premiums, but this study reaches another conclusion. As Drum puts it:

The basic numbers are pretty simple: the number of total judgments per physician has gone gradually down, while the total value of payouts has gone gradually up. However, the increase has been small, and matches the overall growth in medical costs.

You can argue about whether malpractice costs should grow at the same rate as overall medical costs or not, but it's a tiny argument, not an excuse for crisis mongering. In fact, what's most striking about the numbers is that growth in payouts has been steady and slow. There haven't been any spikes, and certainly no excuse for sudden 100% increases in insurance premiums.

So what is responsible for the dramatic increase in the cost of malpractice insurance? I've said here before that the insurance industry itself seems to be in a mess of its own making, and this study tentatively supports the conclusion that premium increases are due to decreases in investment income. Many states allow insurance companies to structure premiums based on expected investment returns, not simply expected payouts, which seems to be a rather up-front regulatory acknowledgment of the real problem here.