Medical Liability Insurance Coverage: The Future
Commissioner Koken and distinguished members of the Mcare Commission, thank you for allowing me to testify at today’s public hearing. I am Mark Piasio, MD, MBA, president of the Pennsylvania Medical Society (PMS). With me are Ken Jones, our general counsel, and Scot Chadwick, our director of governmental affairs.
As we meet today the environment for Pennsylvania physicians and patients can best be described as “stable.” Primary liability insurance premiums, though at historic highs, have leveled off, and Mcare abatements and the associated Physician Retention Program have temporarily slowed physician flight.
Mcare Fund payouts are down, likely as a result of the Fund’s gradually reduced exposure pursuant to Act 135 of 1996, and there is cautious optimism that further benefits will soon be realized from the reforms contained in Act 13 of 2002 and from the subsequent procedural rules changes decreed by the Supreme Court.
And yet, serious problems lurk just below the surface. Act 13 has set in motion the ultimate demise of the Mcare Fund, and estimates of the resultant increase in primary premiums range as high as 40 percent for physicians who must purchase $1 million of coverage in the private market. No one believes that the Mcare abatement program will last forever, and its abrupt end will cause a sudden and massive increase in physician liability costs, especially for the high-risk physicians like OB-GYNs and neurosurgeons who are so vital to the stability of our health care system.
The end of the Mcare Fund, coupled with the end of the abatement program, will signal the onset of a multi-year period when physicians will purchase $1 million of liability insurance in the private market and pay a surcharge for Mcare coverage they no longer receive. This heavy burden will continue to be borne by the state’s physicians and hospitals until the Mcare Fund’s $2.3 billion unfunded liability is retired.
It takes little imagination to foresee the result. Physicians will leave Pennsylvania at a time when our aging population needs them more than ever. The recruitment of young physicians, always difficult, will become nearly impossible. Asking a young physician to pay Mcare surcharges for coverage he never received is akin to asking someone to assume a mortgage on a house he doesn’t own. Indeed, the Fund’s unfunded liability, currently little known or understood by most physicians, will quickly become universally known as the main reason physicians choose to live and practice elsewhere. This can only hurt a patient’s access to care in Pennsylvania.
Finally, while this is clearly a discussion best saved for another day, it is worth noting that all of this will occur in a state where reimbursements for the services physicians provide are among the lowest in the nation, a situation that shows no promise of improving in the foreseeable future.
It is against this backdrop that the Mcare Commission was created, and the facts I have recited are well known to each of you. The Pennsylvania Medical Society is grateful to Governor Rendell and the General Assembly for creating this Commission to explore options for dealing with this looming crisis.
Fortunately, you have two advantages as you work to craft a solution. First, you have a bit of breathing space, thanks to Mcare abatements and the fact that the Mcare Fund is not scheduled to expire until 2011. Second, there is a dedicated revenue stream that can be applied to the retirement of the Fund’s unfunded liability.
As you know, the Pennsylvania Medical Society, in conjunction with the Hospital and Healthsystem Association of Pennsylvania (HAP) and several physician specialty societies, has offered a proposal for accomplishing both a smooth transition to the purchase of $1 million of liability insurance in the private market and the retirement of the Mcare Fund’s unfunded liability.
I know that you have spent a great deal of time reviewing our proposal, so I will not describe it here in great detail. However, I would like to briefly discuss what I believe to be the key elements of the Medical Society/HAP plan.
As I mentioned, the Commonwealth has a dedicated revenue stream that can be used to retire the unfunded liability over a period of years. That revenue stream comes from three sources: (1) the 25-cents-per-pack cigarette tax currently being used to fund Mcare abatements, and generating approximately $180 million annually; (2) approximately $40 million per year in moving violation surcharges formerly allocated to the Auto CAT Fund, but currently applied to the Mcare Fund pursuant to Act 13; and (3) an estimated $9 million annually in increased 2 percent premium tax revenues resulting from the additional private market liability insurance to be purchased by physicians and hospitals when the Mcare Fund expires.
Over time these revenues will clearly be sufficient to retire the Mcare Fund’s unfunded liability. However, two challenges remain in designing a successful plan – holding the liability insurance cost increases incurred by physicians during the transition to $1 million in private market coverage to manageable levels, and managing the Fund’s cash flow during the runoff period.
The Medical Society/HAP proposal envisions addressing the former concern by means of a premium stabilization fund. Utilizing a portion of the revenues outlined above, the premium stabilization fund would operate somewhat like the abatement program to smooth the transition to full private market liability coverage as the Mcare Fund is phased out. Unlike the abatement program, premium relief would be reduced each year, ending after five years. We believe that under this proposal annual premium increases faced by physicians would be painful but manageable.
The second concern, that of managing the Fund’s cash flow during the runoff period, can be addressed through a financing mechanism such as a bond, though we would be happy to explore other alternatives the Commission or others might put forth.
Indeed, the Medical Society wishes to emphasize our flexibility and willingness to work with the Commission, the General Assembly, and the Governor to craft a solution that assures continued access to quality health care for the citizens of our great Commonwealth. The Pennsylvania Medical Society heartily embraces the statement of principles adopted by the Commission, and we want to thank you again for your efforts and for the opportunity to testify at today’s public hearing.
Last Updated: 8/13/2008