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Scholarship Abstract We study the factors that predict medical malpractice (“med mal”) insurance premia, using national data from Medical Liability Monitor over 1990 to 2017. A . . .
We study the factors that predict medical malpractice (“med mal”) insurance premia, using national data from Medical Liability Monitor over 1990 to 2017. A number of core findings are not easily explained by standard economic theory. First, we estimate long run elasticities of premia to insurers’ direct cost (payouts plus defense costs), allowing for lags of up to four years, of only around +0.40, when one might expect elasticities near one. Second, state caps on malpractice damages predict a roughly 50% higher ratio of premia to direct costs even though, in competitive markets, a damages cap should affect premia primarily through effect on cost. A difference-in-differences analysis of the “new cap” states that adopted caps during the early 2000’s provides evidence supporting a causal link between cap adoption and the ratio of premium to direct cost. Third, the premium-to-cost ratio, which one might expect to be fairly constant over time, instead varies widely both across states at a given time and within states across time. Our results suggest that insurance companies do not fully adjust revenues to changes in direct costs even over long time periods. Insurers in new-cap states have been able to charge apparently supra-competitive prices for a sustained period.
Scholarship Abstract Using hazard analysis, we study whether various physician characteristics, including prior paid claim history, gender, specialty, years of experience, type of degree (M.D. versus . . .
Using hazard analysis, we study whether various physician characteristics, including prior paid claim history, gender, specialty, years of experience, type of degree (M.D. versus D.O.), country of medical school attendance (U.S. versus non-U.S.), and gender) predict future paid medical malpractice (“med mal”) claims, using detailed data on all licensed physicians and all paid claims in Illinois over a 25-year period. This level of granularity is not available using national data. After controlling for other factors, physicians with a single prior paid claim have a four-fold higher risk of future claims than physicians with zero prior paid claims. Male gender, attending a non-U.S. medical school, and practicing in a high-malpractice-risk specialty all predict higher paid claim risk. Paid claim risk is also higher for physicians with 6-15 prior years of experience than for those who are either earlier or later in their careers. We find having an M.D. (rather than a D.O.) is associated with higher paid claim risk, but only in our multiple-failure models.
Scholarship Abstract Medical devices are increasingly connected, both to cyber networks and to sensors collecting data from physical stimuli. These cyber-physical systems pose a new host . . .
Medical devices are increasingly connected, both to cyber networks and to sensors collecting data from physical stimuli. These cyber-physical systems pose a new host of deadly security risks that traditional notions of cybersecurity struggle to take into account. Previously, we could predict how algorithms would function as they drew on defined inputs. But cyber-physical systems draw on unbounded inputs from the real world. Moreover, with wide networks of cyber-physical medical devices, a single cybersecurity breach could pose lethal dangers to masses of patients.
The U.S. Food and Drug Administration (FDA) is tasked with regulating medical devices to ensure safety and effectiveness, but its regulatory approach—designed decades ago to regulate traditional medical hardware—is ill-suited to the unique problems of cybersecurity. Because perfect cybersecurity is impossible and every cybersecurity improvement entails costs to affordability and health, designers need standards that balance costs and benefits to inform the optimal level of risk. FDA, however, conducts limited cost-benefit analyses, believing that its authorizing statute forbids consideration of economic costs.
We draw on statutory text and case law to show that this belief is mistaken and that FDA can and should conduct cost-benefit analyses to ensure safety and effectiveness, especially in the context of cybersecurity. We describe three approaches FDA could take to implement this analysis as a practical matter. Of these three, we recommend an approach modeled after the Federal Trade Commission’s cost-benefit test. Regardless of the specific approach FDA chooses, however, the critical point is that the agency must weigh costs and benefits to ensure the right level of cybersecurity. Until then, medical device designers will face continued uncertainty as cybersecurity threats become increasingly dangerous.
Written Testimonies & Filings Opening Statement of R.J. Lehmann Editor-in-Chief and Senior Fellow International Center for Law & Economics “Roundtable on Pandemic Risk” Hosted by Ranking Member French Smith . . .
Congressman Smith, and Members of the Committee and Subcommittee,
My name is R.J. Lehmann, and I am editor-in-chief and senior fellow with the International Center for Law & Economics. ICLE is a nonprofit, nonpartisan research center that works to develop and disseminate academic output in the law & economics tradition, in order to build the intellectual foundation for rigorous, economically grounded public policy.
Two years into the COVID-19 pandemic, it is appropriate that Congress explore whether a more targeted and potentially permanent approach would be preferable to the ad hoc pandemic assistance programs like Paycheck Protection Program, which have directed trillions of dollars of federal relief to affected employers and employees. It is also reasonable to inquire what role, if any, should be played by the insurance industry, the sector traditionally tasked with responding to disaster.
There are almost certainly lessons to be learned from COVID, and there may well be a role to play for insurance companies, agents, and claims adjusters in any future pandemic program Congress might devise. But I want to raise a note of skepticism that insurance products generally—and business-interruption insurance, in particular—are really the best means to respond to the macroeconomic challenges raised by pandemics.
First, the capital that the global insurance and reinsurance industry would ever be willing to devote to the risk of pandemics would never come close to approaching the scale of the problem. Unlike governments, insurers and reinsurers cannot print money. To respond to a loss event like a pandemic, they would need to have those assets on hand. Any world in which the insurance industry had the resources to replace half of global GDP is a world in which people are buying far too much insurance.
Proposals like the Pandemic Risk Insurance Act (PRIA) tacitly acknowledge this limitation, which is why they would have the industry retain only de minimis risk of 5%. Obviously, that risk-share contribution would not significantly offset costs to the taxpayer, but it might be a worthy idea if the goal is to leverage the industry’s expertise and capacity in other ways.
Most frequently cited among these is that insurers know how to price risk. That is true and, in many contexts, assigning risk-weighted premia performs a valuable social function. In the context of the pandemic, for example, it is crucial that businesses’ liability and workers’ compensation insurance rates reflect risk, because that produces the price signals that offer incentives for businesses to adopt safer practices and avoid spreading infection to their customers or their employees. But it is not as clear that assigning pandemic-risk insurance rates according to risk would achieve a socially desirable goal. Indeed, if businesses like bars and restaurants, which are most exposed the risk of closure in the event of a pandemic, had to pay insurance rates that reflected their risk, they would, at the margin, be less likely to buy the coverage. It would undermine the entire purpose of the program if those businesses that need the protection the most would be least likely to afford it.
This question of take-up is particularly important when you remember that only about a third of businesses currently have business-interruption insurance, and that’s with a product that does not cover risks like pandemic. While adding pandemic coverage might make the product more attractive, it will certainly be more expensive, even if it’s subsidized. It would not be ideal to attach a relief program to aid businesses with the risk of pandemic to an insurance product that most businesses do not have.
It’s also notable that, unlike the terrorism insurance crisis in 2002, in which lenders were canceling financing of projects that weren’t insured for terrorism risk, by and large, we are not seeing something similar today—at least, not with business-interruption insurance, which has never covered pandemic risk. There are other insurance products, like events cancellation and production insurance for films and television shows, where there’s more evidence of some degree of market dislocation, and those might be areas more ripe for a targeted solution.
Finally, I would caution Congress to be humble in what it can project about future public-health emergencies. The next crisis may look nothing like the current one, and even the current one continues to surprise us. Early in 2020, I consulted with the major insurance trades on the proposal that ultimately became the Business Continuity Protection Plan (BCPP). At the time, we debated whether a program that offered three months of assistance would be exceedingly generous. When I testified before the Subcommittee on this topic in November 2020, vaccines were about to start rolling out and it seemed this all was coming to a close. There are good reasons to want a transparent and predictable set of rules, but it may be that ad hoc solutions designed in the moment to address the problem immediately before us, are the best that we can do.
With that, I look forward to your questions.
Read the full written testimony here.
Popular Media May 31 is World No Tobacco Day and the World Health Organization wants smokers to “commit to quit.” Unfortunately, as with so many issues recently, . . .
May 31 is World No Tobacco Day and the World Health Organization wants smokers to “commit to quit.” Unfortunately, as with so many issues recently, the WHO misunderstands the problem—and its solution is both patronizing and ineffective. Worse, other WHO policies, such as its opposition to less harmful nicotine products, actually make it more difficult for smokers to quit.
Read the full piece here.
Popular Media Just 10 days after issuing it, the U.S. Food and Drug Administration and the U.S. Centers for Disease Control and Prevention lifted their “pause” on the use . . .
Just 10 days after issuing it, the U.S. Food and Drug Administration and the U.S. Centers for Disease Control and Prevention lifted their “pause” on the use of the Johnson & Johnson COVID-19 vaccine. Initially sparked by six reported cases of a rare blood clot, out of more than 6.8 million doses administered, the decision also came amid a pandemic that continues to infect 50,000 more Americans every day.
ICLE Issue Brief The COVID-19 pandemic has highlighted the resilience of U.S. broadband infrastructure, the extent to which we rely on that infrastructure, and the geographies and communities . . .
The COVID-19 pandemic has highlighted the resilience of U.S. broadband infrastructure, the extent to which we rely on that infrastructure, and the geographies and communities where broadband build-out lags behind. As the extent and impact of the digital divide has been made clearer, there is renewed interest in the best ways to expand broadband access to better serve all Americans.
At ICLE, we would caution policymakers to eschew calls to address the digital divide simply by throwing vast sums of money at the problem. They should, instead, pursue a principled approach designed to encourage entry in new regions, while avoiding poorly managed subsidies and harmful price controls that would discourage investment and innovation by incumbent internet service providers (ISPs). Here is how to do that.
Read the full brief here.
Popular Media The government’s roadmap for ending Covid restrictions in England commits it to steps that may increase the rate at which the virus spreads. Some of that . . .
The government’s roadmap for ending Covid restrictions in England commits it to steps that may increase the rate at which the virus spreads. Some of that is unavoidable. But even as we reopen, there is more that we could do to mitigate the risk, and get us to the summer – and normality – without a resurgence.
Popular Media The biggest threat now facing the country is from new variants of Covid that are resistant to our vaccines. It is already clear that this . . .
The biggest threat now facing the country is from new variants of Covid that are resistant to our vaccines. It is already clear that this is possible: Novavax’s vaccine efficacy is 95.6% against the original Covid variant, 86% against the current UK variant, and only 60% against the South African variant, for example. If one emerges that is even more resistant, we could be back to square one.
