Excessively High Insurance Costs Stalk Health Care Industry

Article excerpt

These are not the best of times for hospitals and members of the health care establishment. Competitive influences exact a toll. When benefits are reduced or lost through unemployment, some hospitals and some providers of care may see revenues and personal incomes slashed.

In many industries, the forces of competition and lost income represent the most severe threats to economic survival. In the health care system, however, yet another marauder stalks the land: excessively high insurance costs for liability coverage, exacerbated further by big jury awards in malpractice cases.

Last year the reinsurance industry, which absorbs the lion's share of the risks for medical malpractice, had its worst year ever. Even Lloyds of London, the giant of the industry, took a big bath along with about 80 American-based companies.

For the industry as a whole, informed sources say, the companies paid $1.27 in claims for every premium dollar collected.

Now the piper has to be paid and insurance costs are zooming through ceilings everywhere. The heaviest impact is being felt in the most volatile areas - malpractice coverage is at or near the top of the list - and hospitals and medical practitioners must bear the pain. Some of that pain, inevitably, will pass through the system to consumers.

Perhaps the lone bright spot, if one can be perceived, is the transient nature of the problem.

"The reinsurance market is cyclical," observes Bill Howard of C.L. Frates and Co., an Oklahoma City insurer. "One very important factor in what has been happening is that we have gone through a period of extreme competition."

In the race for premiums, the insurers sold coverage at rates well below their break-even costs. A downturn in the economy, coupled with rising interest rates, only made matters worse. The result: big losses.

"Companies now are raising rates sharply," said Howard. "Every line of insurance will be affected - especially malpractice and certain products."

That may be a classic understatement.

John Coffey, director of the Oklahoma Hospital Association, said reinsurance costs have risen by as much as 300 percent in one year. …