Malpractice Insurance Costs Don’t Add

S.Q. Lapius was thrilled with his new pocket computer.  He fussed with the buttons and marveled when the green dots lit up to enumerate the sums and multiples he had put into the machine.   

“Do you think it will replace television?” I asked. 

“I think you could program it to be at least as interesting,” he replied. 

Then I noticed that in conjunction with the calculator, he was busily engaged in copying figures from stock market reports and other numerical material he had somehow gotten his hands on. 

“Don’t tell me that you are going into the market?” I said. 

“Why not?” 

“You can’t outguess anybody with the computer.  Every broker in the county and every fund manager has one,” I said. 

“Perhaps they have, but they didn’t use it properly,” he said smugly.

“What makes you so sure?” I asked. 

“Because of the malpractice crisis.” 

That one took me by surprise.  As often as Lapius turned quick conversational corners, I was usually able to predict the area into which he would wander, but this was a shocker.  I couldn’t follow the logic. 

“The malpractice crisis is due to the number of large awards that juries make.  Recently a girl settled for $165,000 when the jury was set to hand her $900,000.  With awards of that size, it is no wonder there is a crisis,” I said. 

“Well, that’s not the whole of it,” Lapius said, continuing to punch figures into the computer. 

“Do you realize, Simon that the physicians next year will pay more than $1 billion in malpractice insurance.  The cost to the public will approximate 10 billion, or 10 percent of the national bill for health care?” 

“Yes.”  Then silence. 

“Look, Simon, you started the subject.  You can’t just ignore the details.”  I continued my monologue.  “How about the lawyer’s contingent fee.  The higher the judgment, the more money the lawyer clears.  If he wins $1 million for his client, he gets a third of it.  No wonder they push for higher awards.  I sure would like to get a contingency fee every time I save someone’s life.” 

“Has little to do with the crisis,” Lapius mumbled, without looking up.  

“Something has to do with the crisis, Simon.  If not the matters I’ve listed, what then?” I asked. 

Lapius stopped what he was doing, packed the small black-magic medicine into its black plastic case, zippered it carefully shut and turned to face me. 

“What I have been computing, Harry, is the most probably average loss to the insurers that they suffered in the last stock market decline.  Whether or not you were aware of it, the insurers had their surplus funds tied up in securities.  When the market collapsed, some companies lost more than half their surplus, the funds remaining after claim losses are paid.  That’s the reason for the malpractice crisis.  The stock market took more away from the insurers than all the malpractice claims together.  Now malpractice insurance rates have to multiply to make up this surplus that the insurers lost in the stock market.  Whoever gave them the right to gamble with my money?  The surplus should have been tied up in the government equities convertible to cash.  Where do they get the never to play the market with the hard earned funds of the doctors, and then charge the doctor for their losses?  One thing I am certain of, they do not share with the doctors their gains.  I never saw my malpractice insurance rate go down in a bull market,” Lapius said. 

“Maybe they go up more slowly though,” I offered lamely.