Written by Sarah Lim Lic# 0M52397
California’s New MICRA and How It Will Impact California Physicians
Since 1975, MICRA (Medical Injury Compensation Reform Act) has been used to try and stabilize access to healthcare in California by reducing medical injury-related claims and stabilizing premiums for medical professional liability policies. Since the beginning of MICRA, California has had a cap of $250,000 for pain and suffering, but a recent change has resulted in the following adjustments:
Increases the cap to $350,000 for non-economic damages NOT involving a patient’s death, and this amount will gradually increase over 10 years to $750,000 and increase by 2% annually thereafter;
The cap on non-economic damages involving a patient’s death increases to $500,000 and will increase to $1 Million over the next 10 years. After the next decade, the cap will be adjusted annually by a 2% cost of living increase.
These changes to MICRA were made as a response to the removal of FIPA (Fairness for Injured Patients Act), which was an initiative designed to alter MICRA more dramatically. These changes will likely negatively affect medical malpractice pricing in the state of California, but other modifications can magnify this negative impact to a whole new level. David Huss at ETHOS Insurance Partners points out the following important factors:
Previously, MICRA allowed for periodic recovery payments by insurance companies on any judgment exceeding $50,000. The modifications to MICRA bump that minimum to $250,000. This means insurance companies will be required to make much larger lump sum payments up front in many claim situations rather than pay the recoverable over time.
Three categories for non-economic damages caps will be created when the changes to MICRA go into effect on 1/1/23. This will allow for as many as three of the now higher and increasingly larger-cap limits to be applied in each case.
Contingent attorney fees, previously allowed under an increasingly restrictive “stair-step” approach applicable to the amount recovered, are now allowed on a flat percentage basis. This way, attorneys will make more money on any claim resulting in a recovery of $650,000 or more. The larger a recovery is above that amount, the more attorneys will collect.
The cap limit applied to a claim is no longer the limit in place when a claim is initiated but rather the cap limit in place when it is adjudicated or otherwise settled. This means the longer it takes a claim to close out the larger the applicable cap (or caps) could be.
Even though these new MICRA changes don’t take effect until 01/01/2023, these changes will impact policies that are currently in force, as well as those policies that have already been paid for. It would be so easy if insurance companies can just increase their rates as needed to stabilize their books of business but unfortunately it just doesn’t work that way, especially for admitted carriers whose premiums are regulated by CA department of insurance and they have historically not been a supporter of increasing malpractice rates.
All things considered, it does look like a significant increase is coming in the frequency and severity of medical malpractice claims so it is likely a good idea to expect rises in premiums as well.
