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State malpractice safety net nears big rate hike: IRMIA to start double-digit increases July 1

June 13, 2005

Many health care providers who use Indiana's safety-net malpractice insurance will find it less comfortable after a 36-percent rate increase kicks in July 1.

Poor investment returns and increased enrollment, among other factors, have teamed up to force the Indiana Residual Malpractice Insurance Authority into one of its largest premium rate increases in years, according to Cindy Donovan, deputy commissioner of financial services operations for the Indiana Department of Insurance.

Providers and insurers say the rate hike may push some doctors out of practice.

Doctors will see a 46-percent rate increase while rates overall will rise 36 percent.

Rates for institutions, partnerships and corporations-a category that includes doctor's offices and laboratories-will sink 65 percent. That's mostly due to a change in underwriting procedure, Donovan said. Individual providers will have to arrange for their own coverage, instead of obtaining it through a business like a doctor's office.

"It's changed to more accurately reflect the exposure for those corporations," Donovan said. "We just wanted to ensure we were collecting the appropriate premiums for IRMIA and the appropriate surcharges for the patient's compensation fund."

IRMIA underwrites policies for health care providers who fail to obtain coverage from the public market. Providers have to prove they've already been denied coverage by at least two insurance carriers before they can receive this safety-net coverage.

Its premium rates generally sit 10 percent above what the public market charges. It also collects a surcharge for the state's patient compensation fund.

Donovan said IRMIA, which is administered by GE Medical Protective for the Insurance Department, doesn't try to compete with other malpractice insurers.

"We want an incentive to these providers to clean up their act," she said.

Nevertheless, the program has proved popular in recent years. IRMIA collected $1.6 million in premiums in 2000 and $13 million last year. It counted 127 policies in 2000 and 664 by the end of last year.

Donovan said the public market has withdrawn coverage of certain providers. Emergency room doctors, for instance, have had more trouble finding coverage.

In addition to that, the fund had been receiving a 3.5-percent return on investment when number crunchers had figured on a 6-percent return.

Donovan emphasized that the safety-net program maintains adequate reserves to cover suppliers. Yet it ended last year with a $3.7 million deficit, and overseers needed to maintain the program's financial integrity.

Rate increases typically fall between 1 percent and 25 percent, said Lori Munroe, a malpractice specialist with Zionsville's Agency Associates.

"For a malpractice insurance company, this is a huge increase," she said.

Munroe has several policyholders with IRMIA, and she said they're already struggling to make payments.

"This increase is definitely making it more difficult for them to continue practicing," she said.

Dr. Bill Mohr worries about the effect the increase will have on the roughly 50 obstetrician/gynecologists covered by IRMIA. That specialty already pays some of the highest malpractice premiums in the market.

This increase might make some of those doctors stop delivering babies, said Mohr, a Kokomo doctor and president of the Indiana State Medical Association. Medicaid, which offers lower reimbursement than private insurance, covers about 40 percent of Indiana baby deliveries.

"It's just a business decision," he said. "They can no longer afford to keep delivering babies because the cost of insurance can't be covered by what they're being paid to deliver babies."

While the increase may prove steep, neither Mohr nor Munroe thinks it will cause more providers to "go bare" or drop malpractice insurance. Munroe said many doctors need proof of insurance and participation in the patient compensation fund to obtain hospital privileges or HMO contracts.
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