Is there evidence that Proposition 46 would increase malpractice claim costs for physicians and their insurers?

Yes. Evidence suggests that the passage of Proposition 46 might lead to about a 20 percent increase in average payments per claim, holding other factors equal. Increases may be larger in specialties such as obstetrics, gynecology, and pediatrics.

A recent RAND study estimated the effect of state malpractice reforms on the average payment for medical malpractice claims, overall and by physician specialty. The study drew on a large database of malpractice claims (220,653 claims) from the Physician Insurer’s Association of America (PIAA) and analyzed the effects of state malpractice reforms that imposed caps of either $250,000 or $500,000 on noneconomic damages from 1985 to 2010. During this time period as many as 16 states had damage caps of $250,001-$500,000 while as many as 7 had damage caps of under $250,000.

The figure below shows the results. Overall, adoption of noneconomic damage caps (including both levels) reduced average malpractice awards by $42,980 - about 15 percent. The largest reductions were for malpractice payments involving pediatricians ($116,662), obstetricians and gynecologists ($104,809), and cardiologists ($57,480).

Malpractice claim payments may rise by 20 percent

Findings suggest that noneconomic damage caps adoption would likely lower the average malpractice award by about 15 percent; the passage of Proposition 46 would lead to about a 20 percent increase in average payments per claim.

Change in average payment by dollars
Vertical bars represent change in average payment by dollars. Image by: RAND A10529-6

Researchers also compared the effects of a $250,000 cap to those of a $500,000 cap and found that the higher cap had no measurable effect on the cost of malpractice claims for any of the specialties. The lower cap, however, reduced the cost of a malpractice claim by an average of 20 percent (or $59,311) relative to no cap, with higher reductions in seven of the ten specialties examined.

These findings suggest that the passage of Proposition 46, which would raise the damage cap from $250,000 to around $1.1 million, might lead to a roughly 20 percent increase in average payments per claim, holding other factors equal. The experience of other states that adopted higher caps also suggests the increases may be larger in specialties such as obstetrics, gynecology, and pediatrics.

Would this increase insurance premiums for doctors? The relationship between claim payments - which represent costs for malpractice insurers - and the premiums doctors pay for insurance depends not only on claim costs, but also on factors such as the amount of funds insurance companies hold in reserve and the profit margin they seek. It seems likely that passage of Proposition 46 could ultimately lead to higher premiums for doctors, since their insurers will in some cases be paying more in compensation for the events the insurance premiums are protecting against. Just how much those premiums would rise, and when, remains uncertain.