I wrote at some length yesterday about the prerequisites for a medical group to self-insure. What I didn’t go into in detail was the why — the benefits and the risks. I’m going to tackle that a bit today.
Potential Benefits to self-insurance
Those who have been around a few years can testify that the medical malpractice insurance market is highly cyclic. It seems that about once a decade a crisis hits. Whether this is a rational market is another question entirely. Some have attributed these crises to macroeconomic factors, like the market crash of 2002, after which insurers had to recoup investment losses, or hurricanes and natural disasters in which insurers cost shifted onto other product lines. Other obervers cite skyrocketing medical malpractice losses as the driver of these intermittent price spikes. I don’t pretend to know the reason, but it’s a reality that prices go up, and sometimes rapidly so, for no apparent reason. Additionally, during these times of market disruption, it’s common for carriers to drop clients, leave states they perceive as too risky, or leave the med mal market altogether.
One big advantage of self-insurance is that you can control your own destiny and insulate yourself from these market forces. You set your own premium and it only has to go up if you deem it necessary and prudent. You have a carrier that is guaranteed to issue a policy, and that will never leave the market. These are not small considerations.
I know a group that liquidated because their insurer dropped them and they could not find insurance; a contract management chain picked up the contract. I know several groups whose insurer stopped writing med mal and they were left high and dry. They had to purchase a group tail at an exorbitant mark-up and scramble on very short notice to find a new carrier, whcih was excruciatingly stressful. So to have carrier permanence, guaranteed issue, and premium stability is a huge benefit of self-insurance. Read more »
*This blog post was originally published at Movin' Meat*