Insight

Healthcare Liability Costs Increasing in California

By Philip Reischman, Alliant

Due to skyrocketing medical malpractice claims costs and the limited availability, and affordability, of healthcare professional liability (HCL) insurance, in 1975 the California legislature passed and the governor signed into law the Medical Compensation Reform Act (MICRA). This groundbreaking tort reform sought to curtail HCL claims costs and make HCL insurance available to providers at a reasonable cost. MICRA has multiple elements including:

  • Caps on plaintiff attorneys’ contingency fees
  • Collateral source rules that can reduce settlements and judgments
  • Caps on non-economic (pain and suffering) damages
  • Clear and reasonable statute of limitations for HCL claims
  • Periodic payments allowed on amounts of $50,000 or more


MICRA withstood multiple appellate and California Supreme Court challenges, as well as many attempts to modify its key provisions via legislative action or ballot proposition. In short, for almost 50 years it has been a key part of California tort environment that has keep HCL claims cost and insurance premiums reasonable relative to most other states.


Current Status
A coalition of trial lawyers successfully qualified a ballot initiative for the November 8, 2022 election that would have effectively eliminated caps on non-economic damages for California HCL claims. A separate coalition of medical/healthcare associations and HCL insurance companies emerged to oppose any changes to MICRA. Rather than incur substantial costs and risk an “all-or-nothing” election outcome, these opposing parties agreed to a compromise. Recently signed into law by Governor Newsom, this law (AB 35) modifies MICRA in four critical ways:

1. Caps on non-economic damages are increased over the next 10 years, effective 1/1/2023, as follows:

  • Wrongful death cases: cap goes from $250,000 to $500,000, increasing at $50,000 per year until it reaches $1,000,000.
  • All other cases: cap goes from $250,000 to $350,000, increasing at $40,000 per year until it reaches $750,000.

 

2. Beginning January 1, 2034, these amounts increase by 2% per year. Of note, these caps apply separately to “providers” (think physicians, osteopaths, podiatrists, chiropractors, and the like) and institutions (hospitals, skilled nursing facilities and various outpatient treatment centers). The law allows up to three caps to apply in some cases.

3. “Statements, writings or benevolent gestures expressing sympathy, regret, a general sense of benevolence, or suggesting, reflecting or accepting fault related to the pain, suffering or death of a person” are not admissible or subject to disclosure in HCL civil proceedings.

4. Threshold for periodic payments is increased to $250,000.

5. Contingency fees for plaintiff counsel, which now step down as the case value goes up, are set at two levels:

  • 25% if a case is settled prior to the filing of a civil complaint or arbitration proceeding.
  • 33% if settled after the filing of a civil complaint or arbitration proceeding.
    In addition, AB 35 allows plaintiffs to petition the court for a higher contingency fee if the case is tried in a civil court or arbitrated.

Impact on Healthcare Providers and Organizations
AB 35 will increase the average cost of many HCL claims filed after January 1, 2023, ultimately raising the cost of insurance premiums for most buyers of HCL insurance. These increases will continue over several years as premiums always lag changes in claim trends. Projecting the amount of such increases is fraught uncertainty and assumptions. However, it is not unreasonable to conclude that rates step up by high single or low double digits and the effect of such rise will compound over time. In addition, the MICRA changes may cause many carriers to limit the amount of business they write in the state until underwriters conclude the rates are adequate for the new risk environment. Less competition usually translates to higher rates. In short, financing healthcare liability risk will become more expensive in California. There could be other unforeseen consequences as the full impact of this new law plays out over the next five to ten years.

 

For More Information, Contact:

Philip Reischman
Managing Director
Email