Ill. Insurance Dept. Orders Med-Mal Rate Break for Some Physicians

March 16, 2006

Using a new law designed to lower doctors’ costs, state regulators on Tuesday ordered Illinois’ major malpractice insurer to start bringing down rates next year and open itself to more public scrutiny.

ISMIE Mutual Insurance Co. criticized the order as a bad precedent that will interfere with its day-to-day operations. But the Illinois Trial Lawyers Association said it suggests regulators have concerns about how the insurer sets rates.

The order comes as part of a new law meant to lower rapidly rising insurance rates that were forcing some Illinois doctors out of business. The law combines new limits on malpractice lawsuits with stronger state regulation of insurers and doctors.

The state Division of Insurance approved ISMIE’s proposal to keep its overall rates flat this year after large increases in recent years.
The medical malpractice reform legislation imposed a condition of openness on the rate filings of medical malpractice insurers, with the intention of fostering additional competition in Illinois, where ISMIE collects more than 65 percent of all written premiums from physicians and surgeons in the state.

ISMIE’s market share has interfered with other companies’ efforts to make good business decisions about risks and rates. The Order imposes on ISMIE the obligation to file rate-related information that conforms to industry standards, so that its rate filings are accessible and comprehensible for other companies, the Insurance Department written release said.

Medical malpractice reform legislation signed by Gov. Blagojevich last summer also made it possible for Illinois, for the first time, to deny, adjust, or limit medical malpractice rates.

The agency ordered the company to hold its rates steady next year, too, and aim to reduce them by 3.5 percent if that is financially feasible.

Insurance Director Michael McRaith also ordered ISMIE to give more money back to some doctors through dividends and education programs and to provide more information about how it devises its rates.

McRaith predicted the combination of changes should help doctors get affordable insurance.

“If tort reform works as the proponents expect, then ISMIE doctors will soon be paying lower premiums through either lower rates and prices or the dividend program,” McRaith said in a statement.

ISMIE gave the order a mixed reaction, praising the department’s in-depth work on the issue and its decision to approve the company’s current rates.

The company blasted regulators for setting an “arbitrary” goal of lowering rates next year and for changing the ratemaking information requirements.

“The order sets unwise precedent by allowing state regulators to intrude in a company’s day-to-day operational policies, separate and distinct from premium rates,” ISMIE Chairman Harold Jensen said in a statement.

The order is the first directing a malpractice insurer to change its practices because until last year regulators didn’t have that authority.

It comes after regulators heard hours of testimony in two public hearings last fall and pored over mountains of paperwork to see if ISMIE could justify the rates it charges the thousands of Illinois doctors it covers.

The department ordered the company to pay more than $4,000 in hearing and review fees, a cost that ISMIE promised would be passed on.

“According to law, ISMIE and our policyholders will bear the entire, rather considerable, cost of this process,” Jensen said.

The order requires ISMIE to give back dividends, or excess premiums it collects, and to give discounts to doctors for taking steps to lower the risk they will be sued for malpractice. It also attempts to end confusion over what are considered insurance claims and changes conflict of interest rules for the company’s top management officials.

Keith Hebeisen of the Illinois Trial Lawyers Association said the ruling seems to verify concerns that ISMIE’s ratemaking and administrative setup needs work.

“Business as usual where malpractice insurers can do anything they want because the division has no power is over as long as this is the law,” Hebeisen said.

Sources: Illinois Department of Insurance, ISMIE Mutual Insurance Company

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