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The Truth About...

The Truth About Insurance Companies:

"I hope you are as astonished as I am at the lengths to which a wealthy insurance company like the defendant will go to take money from a low income family, and then keep it, by denying a legitimate claim. It's no wonder they spend so much money on their lawyers, and their lobbyists, and their public relations machine to convince us we need tort reform, that we need to put an end to punitive damages." (Rainmaker (1997))

How do insurance companies make money?
Do Plaintiff lawsuits hurt the economy by creating a so-called tort tax on products and services?
What about the so-called Medical Malpractice Crisis during 2000-2004?
Is there a simple way to explain tort reform?
Who benefits from perpetuating this myth of a medical malpractice and healthcare crisis?
Who is hurt because of tort deform and insurance companies' greed?

How do insurance companies make money? 

Contrary to what many people believe, the profit of an insurance company is not simply based upon a comparison of the premiums received vs. the amount of claims paid out. The main source of profitability for a company is through its ability to invest the premium payments from the time they are received until they need to be paid out on claims. Premiums are used for payment of the expenses of running the company, and paying claims, and any profit is invested. In the strong market of the 90s, insurance companies were able to sell insurance at a bargain, collect premiums, invest, and make out like a bandit.

So, what happens when insurance companies make bad investments in companies like Enron or the economy turns south? Simply, insurance companies' profit margins decrease and they raise rates, not because of an increase in claims paid, as those have remained consistent, but because they have experienced a low rate of return on their investments.

Unfortunately, insurance executives also do something else. Instead of taking personal responsibility for their poor investment decisions, they try to make up their losses through an aggressive fear campaign that targets their own consumers and an easy scape-goat, those who protect consumers, trial lawyers. "Like many investors, the insurance industry lost its shirt on Wall Street and now it's turning to policyholders to make up losses," said Doug Heller, senior consumer advocate at the Foundation for Taxpayer and Consumer Rights. The Southern California-based group monitors insurance rates. "Insurance companies are hiking rates because the economic downturn has caused them to lose money on investments, not because of jury awards."

Nothing makes this more clear than the fact that although the number of accidents per 100,000 people dropped from 2,525 in 1998 to 2,473 in 2001, insurers in the state of Arizona still filed for 98 rate changes with the Department of Insurance to take effect from July 2002 through March 2003. Of those, 94 were for rate increases with the average increase of 8.59 percent.

Do Plaintiff lawsuits hurt the economy by creating a so-called tort tax on products and services? 

"Tort Reform" is simply a clever marketing slogan used by insurance companies in an effort to let corporations off the hook for wrongdoing and to take away the Constitutional rights of American citizens to a trial by jury and to recover their full damages for injuries caused by others. "Tort Reformers" is actually a misnomer, as those who want to tilt the legal system towards the special interest groups really want to distort the system, or perhaps destroy it.

The fact is that if wrongdoers are not held personally responsible for their conduct, the insurance industry receives a windfall at all our expense. Instead of the wrongdoer and his insurer, who collects premiums to protect us from exactly such conduct, being held accountable for these expenses, the burden of these costs for healthcare are shifted to the rest of us in increased healthcare costs and health insurance premiums.

What about the so-called Medical Malpractice Crisis during 2000-2004? 

J. Robert Hunter, an actuary and the Consumer Federation of America's director of insurance, as well as the federal insurance administrator who advised President Ford during the first perceived medical malpractice crisis in the mid-1970's, attempted to educate President Bush on this issue.

  1. "The total cost of all malpractice premiums a year is only $6.4 billion. Studies show that the cost to the health care system of defensive medicine, in which doctors order unneeded tests and procedures to avoid malpractice lawsuits, is probably negligible." "The idea that a cap on lawsuits could save $60 to $100 billion is pure rubbish" Hunter went on to state that such a figure must have been pulled "out of thin air."
    The American Insurance Association (AIA), the leading insurance industry trade group, told lawmakers NOT to expect insurance rates to drop if tort reform is enacted in a March 13, 2002, press release. In fact, AIA says that the insurance industry NEVER promised that tort reform would achieve specific premium savings.
    The President of the American Tort Reform Association (ATRA) said in a July 19, 1999 issue of Liability Week: " We wouldn't tell you or anyone that the reason to pass tort reform would be to reduce insurance rates." Victor Schwartz, ATRA's General Counsel, told Business Insurance (July 19, 1999) that "Many tort reform advocates do not contend that restricting litigation will lower insurance rates, and I've never said that in 30 years."
  2. "Insurance premiums are determined by overall costs, of which litigation is a small amount. Premiums are greatly influenced by costs other than claims that are paid out, such as loss adjustment expense and underwriting costs, interest rates, and investment results." St. Paul Insurance Co., one of the major medical malpractice insurers who pulled out of this policy line, lost over $108 million when Enron collapsed.
  3. "The average malpractice closed claim from 1991 to 2000 was $27,823.52, according to A.M. Best statistics for the entire malpractice insurance industry. Closed claims include those that are paid out because of a jury award, those that are paid out in a settlement without a trial, and the vast majority of claims that result in no payout at all." This is hardly the "litigation explosion" that insurance industry propaganda uses as a scare tactic.
  4. Medical malpractice premiums have not increased rapidly over the last several years. "In fact, when adjusted for inflation, malpractice premiums dropped by nearly a third from 1991 to 2000. It would take a hike of 50 percent to bring rates back to their 1991 level. Insurer pricing practices, under-pricing in a soft insurance market followed by sharp increases as the market becomes more competitive - are the key culprit in the severe rate increases that are now occurring."
    According to the 2000 Statistical Abstract of the United States, page 125, the Average Physician Salary has increased from $112,200 in 1985 to $199,600 in 1997. Average Malpractice Premiums increased from $10,500 to $14,200 in this same period of time. Thus, the percent of doctor's salary for malpractice premiums decreased from 9.4% to 7.1%.
    According to the Health Care Financing Administration, doctor's salaries went up 41.7% from 1988 to 1998 while medical malpractice costs only went up 5.7% during this same period of time. Health care costs went up 74.7%.
  5. There is not a "substantial difference between malpractice premiums in states that cap jury awards, like California, and states that do not do so." Malpractice premiums per doctor averaged $7,844 nationwide and $7,201 in California; an eight percent difference. Between 1991 and 2000, premiums (not adjusted for inflation) rose at virtually the same rate, by just 0.2 percent nationally and by 0.4 percent in California."
    According to Health Care State Rankings 2000, Morgan Quitn Press, there were 28.7 physicians in obstetrics & gynecology per 100,000 women in states without caps on damages and 26.7 physicians in obstetrics & gynecology per 100,000 women in states with caps on damages. There were 32.6 as compared to 31.7 general practitioners per 100,000 respectively.
    California's medical malpractice liability premiums actually increased by 190% in the twelve years following enactment of the Medical Injury Compensation Reform Act. California's healthcare costs grew by 343%.
Is there a simple way to explain tort reform? 

Picture taking away David's sling and giving it to Goliath. David is the average American. Goliath is the insurance industry. Now you understand tort reform.

Read the following Do-It-Yourself Tort Reform Release:



Dear Doctor (patient to fill-in doctor name),

My child, (fill-in child's legal name), age __________, is in your medical office today.

You will perform the following medical procedure(s) on my child:
(Check all that apply)
[ ] surgery
[ ] anesthesia
[ ] important medical exam
[ ] emergency medical treatment

I am worried about the high cost of health care and have been told your malpractice insurance is too expensive for you to maintain your normal lifestyle and business profit.

Because of my concern for the profit margin of the medical profession and the insurance industry, if you do any of the following:
(Check all that apply)
[ ] break the rules all doctors should follow
[ ] kill my child by mistake or inattention
[ ] forget to give the right medications resulting in injury or death
[ ] misdiagnose or mistreat a disease
[ ] accidentally burn my child over his/her body
[ ] mistakenly amputate an arm or a leg
[ ] fall asleep on the job

I hereby give up my right and my child's right to hold you responsible for a lifetime of pain and injury to my child by agreeing to:
(Check all that apply)
[ ] never sue you for your mistakes (emergency room treatment only)
[ ] limit the compensation for my child's lifetime of pain and suffering to only $250,000 of your insurance policy.

Example: My child is now 3 years old, so that would be about $3,300 a year for the rest of her life, if she is burned beyond recognition by your mistake.

On behalf of my child, living or dead, I accept your apology for your mistake as enough compensation for my child.

____________________________ (Parent's Signature)

I now knowingly sign away my child's legal right to enforce competent medical care.



Doctor, I think you should be held to the same laws as every other person in the country and should be responsible for all of the consequences of your mistakes, just like I would be held accountable if I made a mistake driving my car or on my job.

Parent's Signature ________________________________________
(I don't want to sign away my child's legal rights)

If you are unwilling to sign the above release, then you now understand the TRUTH ABOUT TORT "DEFORM."

Who benefits from perpetuating this myth of a medical malpractice and healthcare crisis? 

Over the last decade, medical malpractice insurance was the most profitable line of insurance in California. In 1997, California's medical malpractice insurers earned more than $763 million and only paid out less than $300 million to claimants. Medical malpractice insurance profits were ten times greater than the profits of other lines of insurance in California The average profit was 25.40% of the collected premium. Nationally, medical malpractice insurance profits over the last 10 years were 65% higher than profits for the rest of the property/casualty business.

Despite medical injury caps passed by the Florida and Texas legislatures in 2003, physician's insurance rates continue to rise in those two states. In Florida, the state's Office of Insurance Regulation announced an increase of 7.8% for 19 different insurers. In Texas, a physician-owned insurer that covered a third of all Texas doctors asked for a 35.2% insurance rate increase for doctors, and a 67.9% increase for hospitals and other institutional healthcare providers.

In Arizona, HMO quarterly profits skyrocketed to $87 million for the third quarter of 2002. William McGuire, CEO of United Health Group, earned compensation (salary and bonus) of approximately $9,457,397 in 2002. This compensation does not include the fact that Mr. McGuire's stock options for the same period of time are in the range of $500,000,000 according to the Business Journal (4/9/2003)!

Families USA issued the following report on insurance companies' profits in 2000 when Senators McCain, John Edwards and Edward Kennedy introduced the patients' rights bill:

Washington, DC - A new report issued by a consumer health organization shows that top HMO executives are receiving huge compensation packages. The report, issued by Families USA, documents that the top HMO executive received more than $54 million in compensation in 2000 and had $358 million in unexercised stock options.

The report comes at a time when the managed care industry is fighting patient protection legislation with claims that the costs of such protections are too expensive. The report was released to coincide with the beginning of Senate debate on a patients' rights bill introduced by Senators John McCain, John Edwards, and Edward Kennedy.

The highest paid executive in the industry in 2000 was William W. McGuire, CEO of UnitedHealth Group Corporation. According to the Families USA report, top-level executives of major managed care companies - including Aetna, CIGNA, Oxford Health, and WellPoint Health Networks - received multi-million dollar compensation packages and held unexercised stock options in the dozens of millions of dollars.

"While the managed care industry decries the pennies needed for important patient protections, it is glad-handing many millions of dollars into the pockets of its top executives," said Ron Pollack, Families USA's executive director. "Clearly, the industry has a double standard about costs - a very generous standard for its executives and a miserly one for America's consumers and patients."

The report shows that the top-five managed care executives received the following compensation in 2000, exclusive of unexercised stock options:

William McGuire (CEO of UnitedHealth Group): $54.1 million
Wilson Taylor (Retired Chairman, CIGNA): $24.7 million
Ronald Williams (Executive Vice President, WellPoint): $13.2 million
William Donaldson (Chairman, Aetna): $12.7 million
Leonard Schaeffer (Chairman and CEO, WellPoint): $11.1 million

According to the Families USA report, the five executives with the highest amount of unexercised stock options at the end of 2000 were:

William McGuire (CEO, UnitedHealth Group): $357.9 million
Stephen Hemsley (President and COO, UnitedHealth Group): $144.9 million
Norman Payson (Chairman and CEO, Oxford Health Plans): $115.4 million
Wilson Taylor (Retired Chairman, CIGNA): $66.1 million
Leonard Schaeffer (Chairman and CEO, WellPoint): $64.6 million

"The managed care industry is increasing premiums at 10, 12, 15 and even higher percentages per year and is lavishing large compensation packages on its top executives," said Pollack. "If the industry believes that the sky would fall if low-cost patient protections were established to protect America's families, they should be no less concerned about double-digit premium increases and huge compensation packages to their top executives."

According to the Philadelphia Inquirer, "cash-rich insurers sit on billions in surplus." The HMO industry posted $503 million in profits during the first half of 2001. HMOs in Pennsylvania had profits of $108 million, Minnesota had profits of $47 million, and Massachusetts had profits of $16 million.

Yet, we still do not have a protection for patients or insurance reform in America!

Who is hurt because of tort deform and insurance companies greed?

Caps on non-economic damages unfairly impact women, the poor, and the elderly. By treating economic and non-economic damages differently, tort deformers have left us with a two-tiered legal system which discriminates against woman, children, the elderly, and low wage earners who traditionally do not experience high economic losses.

This is actually a simple concept. Tort deformers want to limit non-economic losses to $250,000. In wrongful death claims, for instance, the value of the life for a child, the elderly, or even a housewife, is often underestimated because they do not generally have income that can be used to measure their economic worth.

Even worse, according to data collected by the National Practitioner Data Bank, the rate of malpractice has actually increased in California by 45% since 1991. Tort deform affects all of us adversely!


The only current crisis with medical malpractice is that it happens too often. It is the eighth, and rising, leading cause of death in America, killing more people than AIDS, breast cancer, guns, or automobile crashes. Is this the innocent patient's fault? So why are some of our political leaders allowing insurance companies to get away with punishing the patients and the patients' families?

The Institute of Medicine's 1999 report, To Err Is Human: Building a Safer Health System, reported that up to 98,000 patients die - many more are injured - in U.S. hospitals each year as a result of preventable medical errors. The most recent figures for the years of 2001 and 2002 show that it is actually closer to 200,000 needless deaths because of avoidable medical errors.

In the worst terrorist attack of American history, we lost nearly 3,000 fellow Americans. We lose between 98,000 and 200,000 Americans EVERY YEAR due to avoidable medical errors. Our political leaders have spent billions fighting the war on terror. Shouldn't they spend at least as much fighting a crisis which is more likely to have a tragic impact on so many more Americans, rather than looking for ways to help insurance companies increase their billion dollar profits even more?

Law Offices of Shane L. Harward PLC
Phoenix Personal Injury Attorney
Arizona Wrongful Death Lawyer
10575 North 114th Street, Suite 103
Scottsdale, Arizona 85259

Phone: 480-874-2918
Facsimile: 480-588-5063

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10575 North 114th Street
Suite 103
Scottsdale, Arizona 85259
Telephone 480-874-2918
Facsimile 480-588-5063
By Appointment Only:
4809 East Thistle Landing Drive
Suite 100
Phoenix, Arizona 85044
Telephone 602-384-4638
Mailing Address:
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Scottsdale, Arizona 85267

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The Arizona personal injury, accident, and insurance bad faith dispute lawyers at the Law Offices of Shane L. Harward PLC represent insurance, personal injury and accident victims throughout the state of Arizona (AZ) including, but not limited to, Phoenix, Scottsdale, Mesa, Tempe, Chandler, Glendale, Gilbert, Sun West, Sun City, Tucson, Flagstaff, Kingman, Bullhead City, Yuma, Lake Havasu, Fountain Hills, Anthem, Ahwatukee, Carefree, Cave Creek, Gold Canyon, Bisbee, Sierra Vista, Cochise, Paradise Valley, East Valley, Maricopa, Pima, Pinal, Gila, White Mountain, Heber, Payson, Prescott, Forest Lakes, Apache Junction, Avondale, Queen Creek, Benson, Black Canyon City, New River, Buckeye, Casa Grande, Coolidge, Cottonwood, Douglas, Florence, Gila Bend, Goodyear, Greer, Glendale, Lakeside, Guadalupe, Holbrook, Huachuca City, Oro Valley, Overgaard, Avra Valley, Parker, Peoria, Pinetop, Pine, Prescott Valley, Quartzite, Strawberry, Safford, Show Low, Sun City West, Sun Lakes, Superior, Surprise, Snowflake, Tombstone, Wickenburg, Winslow, Wilcox, Williams, Young, Youngtown, and surrounding areas.