Due to skyrocketing medical malpractice claims costs and the limited availability and affordability of healthcare professional liability (HCL) insurance, in 1975 the California legislature passed, and the governor signed into law the Medical Compensation Reform Act (MICRA). This groundbreaking tort reform sought to curtail HCL claims costs and thereby make HCL insurance available to providers at a reasonable cost. MICRA multiple elements, including:
MICRA withstood multiple appellate and CA Supreme Court challenges as well as many attempts to modify its key provisions via legislative action or ballot proposition. In short, for almost 50 years it has been a key part of the CA tort environment that has keep HCL claims cost and insurance premiums reasonable relative to most other states.
Current Status
A coalition of trial lawyers successfully qualified a ballot initiative for the November 8, 2022, election that would have effectively eliminated caps on non-economic damages for CA HCL claims. A separate coalition of medical / healthcare associations and HCL insurance companies emerged to oppose any changes to MICRA. Rather than incur substantial costs and risk an “all-or-nothing” election outcome, these opposing parties agreed to a compromise. Subject to adoption by the legislature and being signed in to law by Governor Newsom, this pending law (AB 35) modifies MICRA in four critical ways:
Beginning January 1, 2034, these amounts increase by 2% per year. Of note, these caps apply separately to “providers” (think physicians, osteopaths, podiatrists, chiropractors, and the like) and institutions (hospitals, skilled nursing facilities and various outpatient treatment centers). As currently structured, the Bill allows up to three caps to apply in some cases.
At this time, AB 35 is expected to be passed by the CA legislature and signed into law by Governor Newson by June 28, 2022 – the deadline to withdraw the proposition on the November 8, 2022, ballot.
Impact on Healthcare Providers and Organizations
AB 35 will increase the average cost of many HCL claims filed after January 1, 2023, ultimately raising the cost of insurance premiums for most buyers of HCL insurance. These increases will continue over several years as premiums always lag changes in claim trends. Projecting the amount of such increases is fraught uncertainty and assumptions. However, it is not unreasonable to conclude that rates step up by high single or low double digits and the effect of such rise will compound over time. In addition, the MICRA changes may cause many carriers to limit the amount of business they write in the state until underwriters conclude the rates are adequate for the new risk environment. Less competition usually translates to higher rates. In short, financing healthcare liability risk will become more expensive in CA. There could be other unforeseen consequences as the full impact of this pending new law plays out over the next five to ten years.