Tort reform in the area of medical malpractice is a highly controversial topic. The most common method of tort reform is to limit the non-economic damages awarded to the plaintiff.1 This type of reform, often called a damage cap, is the oldest type of tort reform and was first enacted in the 19th century.2 Proponents of damage caps cite increasingly prohibitive malpractice insurance costs as evidence that reform is necessary. These supporters blame rising insurance costs on excessive damage awards and an increase in frivolous claims, and argue that damage caps would both reduce plaintiff windfalls and discourage frivolous lawsuits.3 Opponents to damage caps cite statistics that indicate that relatively few medical malpractice claims are filed, and that plaintiffs in such cases have a low probability of obtaining a favorable verdict.4 Those who oppose damage caps also claim that such caps impose the burden of the insurance problem on the most severely injured plaintiffs.5
The constitutionality of damage caps has been challenged in several states. Of the twenty states with damage caps, courts in seventeen of those states have specifically ruled such caps constitutional.6 However, of the thirty states that do not have caps, eight have ruled such damage caps unconstitutional,7 including both Texas and Illinois.8 Texas has recently circumvented the judicial strike on damage caps by passing Proposition 12, an amendment to the state constitution that specifically gives the legislature the power to limit non-economic damages.9 This paper discusses the reasons why a similar amendment is not the best solution to Illinois’ medical malpractice insurance crisis.
II. Illinois’ History of Tort Reform
In 1995, the Illinois legislature passed the Illinois Civil Justice Reform Amendments (hereinafter "the Amendments").10 Among other provisions, the Amendments limited non-economic damages in a variety of civil suits to $500,000, and limited punitive damages to three times the amount of compensatory damages.11 At the time, the Illinois Amendments were considered the most comprehensive tort reform to be enacted by a state legislature.12 However, in 1997, barely two years after the Amendments were passed, the Illinois Supreme Court declared substantial portions of the tort reform provisions of the Amendments unconstitutional in the case of Best v. Taylor Machine Works.13 The court based its decision on two state constitutional violations. First, it found that the Amendments violated the prohibition against "special legislation" because they conferred a benefit to some people and not to others similarly situated.14 Second, and more significantly, the court found that the Amendments violated the doctrine of separation of powers. Specifically, the court found that the legislative damage cap violated the doctrine of remittitur, which dictates that courts have the power to correct excessive jury awards.15 The court likened the legislative damage cap to a "legislative remittitur", which, unlike a judicial remittitur, does not allow the plaintiff the option of refusing the reduced award and choosing instead to go forward with a new trial.16
While the legislature could potentially overcome the "special legislation" problem, the separation of powers violation is a much larger obstacle, since any damage cap will necessarily limit the court’s power to adjust the jury’s award. In addition, because it was based exclusively on the Illinois constitution, the court’s decision in Best is virtually impervious to federal appeal.17 Thus, any future tort reform in Illinois must either follow the Texas example of passing a state constitutional amendment specifically granting the legislature the power to limit damages, or arise out of more innovative solutions that do not rely on damage caps.
Tort reform proponents view this prevention against damage cap legislation in Illinois as particularly problematic because Illinois is in marked need of some type of reform. Recently the American Medical Association identified Illinois as one of eighteen states in which problems relating to medical liability insurance had reached "crisis proportions".18 In 2003, only six of twenty medical malpractice insurance providers once operating in Illinois remained.19 This crisis may lead some to advocate an amendment, following Texas’ example, as the solution to the medical malpractice insurance crisis in Illinois.
III. An Amendment is not the Answer to Reform in Illinois
Many supporters cheer the passing of Texas’ Proposition 12 as a triumph for tort reform, predicting continued instability and uncertainty regarding medical malpractice insurance rates for states that fail to pass similar constitutional amendments.20 However, limiting non-economic damage awards is a "quick-fix",21 not a long-term solution. Damage caps alone are insufficient to effect medical malpractice insurance stability.22 In a recent congressional hearing regarding a federal proposal to curb medical malpractice insurance premiums, evidence was presented that the fives states with the highest medical malpractice insurance rates also have damage caps, whereas the state with the lowest premiums, Oklahoma, does not.23 In addition, Weiss Ratings, an independent insurance-rating agency, recently concluded that damage caps are likely to increase rather than decrease medical malpractice insurance rates.24 In fact, between 1991 and 2002 the median annual medical malpractice insurance premiums rose 35.9% in states that did not cap damages, compared to a 48.2% increase in states where damages were capped.25 Only eight states exhibited static or declining medical malpractice insurance rates.26 Of those eight states, only two had damage caps, while the other six did not.27 Thus, according to Weiss Ratings, these statistics indicate that, "on average, doctors in states with caps actually suffered a significantly larger increase than doctors in states without caps."28 Overall, the Weiss Ratings study revealed that
"[i]nsurers in states with caps raised their premiums at a significantly faster pace than those in states without caps. Even with the imposition of caps, insurers in nearly nine out of ten states continued to raise rates, while insurers in states without caps were actually more likely to hold or cut their premium rates. In states with caps, insurers are more likely to charge [medical malpractice] premiums exceeding the national median than those in states without caps."29
Thus, caps on damages do not successfully stall rising medical malpractice premiums.30
One specific example of the insufficiency of damage caps to effect a reduction in medical malpractice insurance costs is seen in California. California was one of the pioneers in tort reform, passing the Medical Injury Compensation Reform Act (MICRA) in 1976, which included a non-economic damage cap of $250,000. 31 However, twelve years after the legislature passed MICRA, the medical malpractice insurance rates in California were 190% higher than before MICRA was enacted.32 A study by the U.S. General Accounting Office (GAO) found that malpractice premiums for physicians in California increased anywhere from 16% to 337% between 1980 and 1986.33 According to the GAO study, four other states reported that tort reform had had "little effect" on insurance premiums.34 After evaluating the failure of MICRA to reduce medical malpractice insurance premiums, the California State Assembly Committee on the Judiciary reported that Californian medical malpractice insurance companies had a 20.6% average rate of return, compared to 13% for property and casualty insurance and 6.8% for private automobile insurers.35 These return rates indicate that, in the absence of insurance reform, any economic benefit of damage caps goes to the insurance companies rather than to the policy holders. In 2003, the Weiss Ratings published a similar conclusion, reporting that the insurance providers were profiting from the damage caps and not lowering premiums, despite the reduced amount paid in claims.36
V. Insurance Reform as an Alternative Method of Reducing Medical Malpractice Insurance Premiums
The only type of legislation proven to lower medical malpractice insurance premiums is that which effects insurance reform. Twelve years after passing MICRA, California passed Proposition 103 to reform medical malpractice insurance.37 The insurance reform initially required a 20% reduction in premium rates, followed by stringent regulation of the industry.38 As a result of Proposition 103, the insurance industry in California issued $1.2 billion in rate refunds, of which $135 million went to physicians.39 Among other provisions, Proposition 103 fixed insurance rates for one year, and required the insurance providers to submit any subsequent rate increases to the California Department of Insurance for approval.40 In addition, Proposition 103 repealed the anti-competitive laws that had been in place favoring the insurance industry.41 It also gave banks and other financial institutions the ability to provide insurance policies, and consumers the right to join together to bargain for lower group policy rates.42 Thus, Proposition 103 encouraged competitive, market pricing in the insurance industry.
Unlike Texas’ Proposition 12, California’s Proposition 103 passed by a large majority.43 The popularity of Proposition 103 is particularly remarkable in light of the opposition it faced from the insurance industry, which spent $80 million opposing the proposal, more than six times the combined campaign costs for Texas’ Proposition 12. In addition, the California insurance industry proposed alternative legislation, to compete with Proposition 103, that would effect additional tort reform rather than insurance reform.44 However, voters recognized that tort reform had not resulted in the desired change in the medical malpractice insurance prices, and elected to support insurance reform instead.
Through insurance reform, Proposition 103 accomplished what MICRA was unable to do through tort reform. In the three years following the insurance reform, medical malpractice insurance premiums dropped in price by over 20%, which is nearly 31% after adjusting for inflation.45 In the years following the passage of Proposition 103, insurance rates have risen only in proportion to inflation.46
V. Other Reasons for Insurance Reform
In addition to rising, unstable premiums, several other characteristics of the medical malpractice insurance industry indicate that reform is necessary. For example, under the current system, a particular physician’s history as to medical malpractice claims has little effect on the malpractice rates that physician is charged.47 Approximately 5% of physicians account for 54% of medical malpractice judgements and settlements.48 However, rather than recapturing these payment costs from the doctors responsible for the claims, insurers spread the risk across all the physicians of similar specialties.49 This practice is detrimental to both physicians and patients. By spreading the high costs originating from a few policy holders across all policy holders, insurance companies force lower-risk physicians to pay higher premiums to sustain the costs incurred by a few high-risk physicians. If, instead, premiums were based on claim history and payments made to claimants on behalf of the individual policy owner, each physician’s premiums would more accurately reflect the liability risk assumed by the insurer in issuing a policy to that particular physician.
The practice of spreading payments originating from claims against a few doctors among all the policy holders is also detrimental to patients. When a few doctors are responsible for a disproportionate percentage of payments, there is cause for concern. On average, these doctors pose a higher risk to the patient than a doctor with no history of claims, or a history of claims settled in the doctor’s favor.
VI. Insurance Reform as an Alternative to Damage Caps in Illinois
California’s history of rising medical malpractice insurance premiums despite tort reform legislation indicates that damage caps alone cannot effect tort reform sufficient to address the medical malpractice insurance "crisis" in Illinois. However, with the addition of insurance reform, the malpractice insurance rates stabilized. Although the effect of the insurance reforms, absent the tort reform, is unknown, I propose that Illinois begin with insurance reform as a means of reducing medical malpractice insurance rates. Since any successful effort to reduce medical malpractice premiums is likely to require insurance reform, such reform is a reasonable legislative beginning. Once the insurance reform legislation is in place, the status of medical malpractice insurance can be re-evaluated to determine whether or not additional reform is still necessary. The current options for tort reform in Illinois will remain possible. In addition, there is a possibility that federal tort reform legislation will preempt any state action, or will provide alternative methods for effecting tort reform that are not currently being considered.
1 Robert S. Peck & Ned Miltenberg, Challenging the Constitutionality of Tort "Reform", in ATLA’s Litigating Tort Cases § 29:20 (Roxanne Barton Conlin & Gregory S. Cusimano, eds. 2004).
3 Kevin J. Gfell, Note, The Constitutional and Economic Implications of a National Cap on Economic Damages in Medical Malpractice Actions, 37 Ind. L. Rev. 773, 778-79 (2004).
4 Id. at 779-80.
5 Id. at 775.
8 See Best v. Taylor Machine Works, 689 N.E. 2d 1057 (Ill. 1997); Lucas v. United States, 757 S.W.2d 687 (Tex. 1988).
9 Tex. Const. art. III, § 66.
10 1995 Ill. Laws 7.
12 Edward G. Lance, IV, Tort Reform Hits Supreme Snag in Illinois. 10 Loy. Consumer L. Rev. 10, 10 (1998).
13 689 N.E. 2d 1057 (Ill. 1997).
14 Id. at 1069; See also Anthony Viorst & Jim Leventhal, Constitutional Challenges to Damage-Cap Statutes, Ass’n Trial Law. Am. Winter Convention Reference Materials (2004), WL Winter2004 ATLA-CLE 515; Samuel Jan Brakel, "Besting" Tort Reform in Illinois (and other Misnomers): A Reform Supporter’s Lament. 28 Cap. U.L. Rev. 823, 824 (2000).
15 Best, 689 N.E.2d at 1080.
17 Brakel supra note 14, at 823.
18 Professional Issues: 18 States now in Deep Liability Crisis, American Medical News, March 17, 2003, http://www.ama-assn.org/amednews/2003/03/17/prca0317.htm.
19 William P. Gunnar, Is There an Acceptable Answer to Rising Medical Malpractice Premiums?, 13 Annals Health L. 465, 471 (2004).
20 See Michael J. Cetra, Damage Control: Statutory Caps on Medical Malpractice Claims, State Constitutional Challenges, and Texas’ Proposition 12. 42 Duq. L. Rev. 537 (2004).
21 Id. at 555.
22 See e.g. Franklin D. Cleckley & Govind Hariharan, A Free Market Analysis of the Effects of Medical Malpractice Damage Cap Statutes: Can We Afford to Live with Inefficient Doctors?, 94 W. Va. L. Rev. 11, 30 (1991).
23 Assessing the Need to Enact Medical Liability Reform: Hearing Before the Subcomm. on Health of the House Comm. on Energy and Commerce, 108th Cong. 13, 133 (2003), http://energycommerce.house.gov/108/action/108-2.pdf.
24 Weiss Ratings, Inc., The Impact of Non-Economic Damage Caps on Physician Premiums, Claims Payout Levels, and Availability of Coverage, http://www.weissratings.com/malpractics.asp (June 3, 2003).
30 Weiss Ratings, Inc., supra note 24.
31 Cal. Civ. Code § 3333.2(b) (Deering 2004).
32 The Medical Insurance Crisis: A Review of the Situation in Pennsylvania: Hearing Before the Subcomm. on Oversight and Investigations of the House Comm. on Energy and Commerce, 108th Cong. 130, 130 (2003), available at http://energycommerce.house.gov/108/action/108-4.pdf [hereinafter Hearing on Medical Insurance Crisis] (testimony of Harvey Rosenfield, President, Foundation for Consumer and Taxpayer Rights).
33 U.S. General Accounting Office, Medical Malpractice: Six Case Studies Show Claims and Insurance Costs Still Rise Despite Reforms, 25 (1986).
34 Id. at 26.
35 See Jonathan J. Lewis, Putting MICRA Under the Microscope: The Case for Repealing California Civil Code Section 3333.1(a), 29 W. St. U. L. Rev. 173, 187 (2001).
36 Weiss Ratings, Inc., supra note 24.
37 Hearing on Medical Insurance Crisis, supra note 31, at 131.
40 Id. at 133-34.
41 Id. at 134.
42 Hearing on Medical Insurance Crisis, supra note 31, at 134.
45 Id. at 136.
46 Id. at 139.
47 Gunnar, supra note 19, at 471.
48 Dissenting Views to H.R. 5, The House Comm. on the Judiciary, 108th Cong. at 2, http://www.house.gov/judiciary_democrats/hr5dissenting108cong.pdf.
49 Gunnar, supra note 19, at 472.
Carrie Lynn Vine is a second year law school at Northern Illinois Univeristy. She is a member of Law Review and the Alternative Dispute Resolution Society.