Do caps on non-economic damages decrease medical malpractice insurance premiums?

This paper examines whether tort reform, like caps on non-economic damages for medical malpractice claims, actually lower insurance premiums for physicians. Proponents of tort reform argue that large jury awards against physicians have driven up physician insurance premiums, and as a result, overall health care costs. Tort reform is backed by conservative pro-business groups like the Chamber of Commerce, while the opposition consists of Democrats and the American Trial Lawyers Association. This paper endeavors to show that medical malpractice insurance premiums rise in response to other factors, independent of litigation, contrary to the arguments made by conservative politicians and associations. Premiums change in response to determinants such as under reserved insurance companies or, most importantly, in response to losses incurred in the investment market by insurance companies. Under reserved insurance companies and losses incurred in the investment market affect medical malpractice premiums because premiums rise in response to changes in capital reserve requirements and declines in investment income. This paper shows that litigation is not the cause of increasing medical malpractice insurance rates, but instead increases in medical malpractice insurance rates respond to changes in the insurance underwriting cycle due to fluctuations in the investment market. Conservative backed tort reform is a misguided attempt to control medical malpractice insurance premiums and overall health care spending.