Herb Denenberg Column for April 28, 2003


Here are ways to cut auto insurance premiums by 50 percent, ways to start cutting rates for all other coverage, and ways to start solving the medical malpractice crisis. We’ll take them in order.


CUTTING AUTO RATES. Auto premiums are prohibitive for some areas of Pennsylvania, and for some groups of policyholders all across the state. As a result, the owners of vehicles often don’t buy insurance at all or settle for inadequate limits.


There’s a simple solution. Give all policyholders a third tort option. Now they have two: full-tort or limited tort. Under full-tort, there is recovery for all damages, without any limitation on pain and suffering. Under limited-tort, there is full recovery for economic damage, but recovery for pain and suffering or other non-economic damage only in the event of the most serious kinds of injuries, as defined by law. Of course, the injured party would still get no-fault benefits, regardless of any legal action that might be brought. By taking the limited-tort option, policyholders can cut their premium by about 15 percent.


The third option proposed here would be to totally waive the right to pain and suffering. If this option was elected, the policyholder would get a discount of 50 percent on his auto insurance, but could still collect for all medical bills, wage loss, and other out-of-pocket expenses.


I proposed this to the President of the Insurance Federation of Pennsylvania, Sam Marshall. He said he could endorse the idea. His estimate of the savings was more modest than 50 percent. His guestimate was about 30 percent. But that’s nothing to sneeze at, either. Bob Hunter, an actuary who served as Texas Insurance Commissioner, estimated the savings at 50 percent.


Auto insurance has become so expensive that many can’t afford the luxury of insuring for all damages, including pain and suffering. So this is a logical option.


But even those who can afford auto insurance, might want to take the savings brought about by the third option, and spend them on disability, life, and medical insurance that pay off much more efficiently and promptly than a lawsuit against some alleged wrongdoer.


LOWER ALL PREMIUMS. Another way to lower premiums would be to get an insurance commissioner who would protect policyholders as efficiently as commissioners have historically protected insurance companies. But that isn’t going to happen for now in Pennsylvania. Governor Ed Rendell has disappointed and betrayed all policyholders by appointing the same do-nothing commissioner that was carried over from the Ridge-Schweiker administration. She will have the unusual opportunity to be a failure under three different governors.

ANOTHER PREMIUM-LOWERING OPTION. Still another way to lower premiums would be to establish an office of insurance consumer advocate at the state level, to represent all policyholders in insurance matters before the commissioner. Now the lobbyists and insurance company representatives swarm through Harrisburg like locusts, while the policyholders have no voice, and certainly no voice strong enough to serve as real countervailing power against the trillion-dollar insurance industry.


SOLVING MEDICAL MALPRACTICE PROBLEM. A way to lower medical malpractice premiums is to introduce choice to the health delivery system. Stuart Bowie, a Delaware County patent attorney, who is now in the process of translating the idea into a statute to be proposed for enactment by the Pennsylvania legislature, has proposed this concept.


You’ll recall that physicians and many others think the solution to the medical malpractice crisis is a cap of $250,000 on pain and suffering and other non-economic damage. So Bowie’s plan would offer a choice to all patients for malpractice lawsuits: take full-tort (the present system), or a form of limited-tort, under which recovery for pain and suffering would be limited to $250,000. This election would be made on a form to be signed in connection with their visits to any doctor.


If enough patients are willing to go limited tort, that should drastically reduce medical malpractice premiums paid by providers. But what would the patient get in return? Bowie will propose various benefits to patients, such as reducing their co-pays and deductibles.


I suggested to Bowie a slightly different approach. Abolish pain and suffering altogether for those who take limited tort, to achieve even greater savings. Then either grant a discount to all limited tort patients on all bills or require a surcharge for those wanting full-tort. This would be an alternative to adjusting co-pays and deductibles.


Bowie proposes one other measure to help eliminate the root cause of medical malpractice premium inflation, which is substandard medicine. In order to get the medical malpractice premium reductions, the doctor would have to adopt a computerized system to keep track of the patient’s medical history. This medical history would be maintained on the World Wide Web and also stored in a Smart Card (credit-card size) to be carried by each patient.


This computerized system would make medical histories immediately available, and could also provide warnings when drugs are prescribed in wrong doses, or along with other drugs that would generate interactions, or that are unsuitable for the patient due to allergy or other medical problems. This would eliminate many malpractice claims, especially those that are drug-related.


This “choice” approach gets around the constitutional problem of imposing caps, but can deliver the savings of caps, or the even greater savings of limited-tort that provides no pain and suffering. Right now doctors are betting everything on a constitutional amendment to legalize the $250,000 cap. But going for a constitutional amendment is often pie in the sky. So this approach to getting the benefit of caps requires no constitutional amendment, leaves the issue of caps to the choice of the patient, and can be implemented swiftly enough to get the malpractice problem solved. This approach should be given priority consideration by the legislature, which is in search of solutions but doesn’t seem to have any right now.


(Herb Denenberg is a former Pennsylvania Insurance Commissioner and consumer advocate.)

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