Milliman: Repeal of Med-Mal Caps Will Hike Claim Costs in Illinois

Consulting and actuarial firm Milliman Inc. says a study it conducted in response to the Illinois Supreme Court’s overturn of caps on non-economic damages in medical liability cases will increase overall claim severity in such cases by an average of 18 percent.

The state Supreme Court in early February ruled unconstitutional the state law that limited awards for a plaintiff’s pain and suffering at $500,000 against doctors and $1 million against hospitals.

Milliman expects the change in the tort law to cause indemnity claim severities to increase by approximately 23 percent and the average cost that insurers expend defending claims to increase by 10 percent, relative to what these costs would have been had the cap held.

“The magnitude of the estimated increase is largely a reflection of the tort environment in Illinois,” said Chad C. Karls, principal and consulting actuary for Milliman, in a statement released by the company. Karls specializes in medical professional liability coverage.

“The overturn of a $500,000 cap on non-economic damages would have less impact in almost any other state,” Karls said. “In Illinois, claim severities have been among the highest in the country. In addition, experience in other states suggests that the overturn of a cap like this can result in significant increases in the number of reported claims going forward. This would result in additional increases in costs for insurers.”

The impact on medical professional liability rates, however, is not as clear. Insurer groups have said the decision will add to rising health care costs and stymie the economic climate in the state.

“Medical professional liability insurers were skeptical from the beginning that the legal reforms in Illinois would hold,” says Susan J. Forray, consulting actuary for Milliman. “In addition, it is likely that claim settlements have been delayed pending the Court’s ruling. Consequently, we don’t expect the full impact on claim costs to be felt on rates. On the other hand, had the Court stayed the reforms, we believe that skepticism would have dissipated and been reflected in possible rate decreases in the state.”

Milliman’s analysis relied on a simulation-based model incorporating correlated distributions of economic loss, non-economic loss, and allocated loss adjustment expense. The assumptions underlying the model were based on publicly available data from Illinois and countrywide sources.

Source: Milliman Inc., http://www.milliman.com