A proposal by Gov. Robert L. Ehrlich Jr.'s administration to shore up Maryland's medical malpractice insurers is so flawed that it could have a "potentially devastating impact" on the state's largest carrier, according to one of the company's attorneys.
David Funk, an attorney for the Medical Mutual Liability Insurance Society of Maryland, also warned of another unintended consequence in a letter this week to an Ehrlich aide: As currently written, he said, the governor's plan to create a reinsurance fund could drive smaller carriers out of Maryland.
"Competition in the Maryland insurance market will diminish or cease to exist altogether, and Medical Mutual will become the sole provider of physician medical malpractice insurance in the state," Funk wrote. Med Mutual already provides insurance to more than three-quarters of Maryland doctors who are in private practice.
Donald J. Hogan Jr., the aide to whom Funk's letter was addressed, played down its significance yesterday, suggesting that many of Med Mutual's concerns could be worked out. But Hogan acknowledged that differences over the fund's structure are yet another obstacle in the way of a special session of the General Assembly to curb doctor's insurance rates.
"I don't think the situation is as dire as they portray it," Hogan said. "If there is a special session, it's another issue we'd have to deal with in a very short time frame, though."
Doctors insured by Med Mutual face an average 33 percent increase in premiums that take effect next month, and some say they will leave the profession if there is no state intervention. Legislative leaders acknowledge that they are rapidly running out of time to hold a special session, which would mean putting the issue off until mid-January, the start of their regular session.
This summer, when Ehrlich (R) raised the prospect of a special session, Med Mutual was among those advocating a state reinsurance fund. The fund would be available to pay a portion of companies' malpractice claims if they agreed to hold down doctors' rates in coming years.
In Funk's letter, which was shared with The Washington Post by a legislative source, he argues that Ehrlich's version of the fund is not advantageous enough for companies to make that trade-off voluntarily. Unlike other carriers, however, Med Mutual would be required to participate under Ehrlich's proposed legislation.
Stuck with charging lower rates and hobbled by other provisions in Ehrlich's plan, Med Mutual would have to spend tens of millions from its reserves to meet its obligations, "eroding the financial stability of the company," Funk wrote.
At the same time, he wrote, doctors insured by other carriers would migrate to Med Mutual because its rates would be significantly lower than companies not participating in the fund. Funk would not comment yesterday.
Sen. Brian E. Frosh (D-Montgomery) said that Funk's concerns were part of the reason a Senate panel last week embraced an alternative to the reinsurance fund. Under that plan, insurance companies would not be asked to lower their rates. Instead, the state would provide subsidies to help doctors in high-risk specialties pay their premiums for the next four years. A state board would determine where to target the subsidies.
Frosh, who led the Senate panel, said that approach was far less likely to drive smaller carriers from the marketplace. "We have too little competition now in the state," he said. "The last thing we want to do is drive out the remaining competition."
Legislative leaders say the largest obstacle to a special session continues to be differences with Ehrlich over how to pay for a fund. Democratic lawmakers prefer imposing a 2 percent premium tax on HMOs and managed care companies, which would generate an estimated $80 million a year.
Ehrlich has rejected that approach. This week, he suggested taking surplus funds from the Maryland Health Insurance Plan, a fledgling state program designed to provide insurance to high-risk patients who cannot buy commercial policies. Administration officials say about $30 million could be tapped immediately. House Speaker Michael E. Busch (D-Anne Arundel) has called that idea "ridiculous."
