Should the Government be standing behind UMP? Surely desperate disease require desperate remedies

by Des Moore

AFR 4 May

Although (eventually) welcoming the Federal Government’s guarantee that doctors insured through the potentially insolvent United Medical Protection (UMP) society will be covered for valid claims relating to "incidents" occurring between 29 April and 30 June, the Australian Medical Association has continued to press the crisis button that lobby groups use to try plucking government (taxpayer) feathers. Today’s crisis is the threat that doctors will stop practicing unless the Government ensures coverage for claims arising from incidents before 29 April and after 30 June.

But should the Government financially rescue a doctors’ group that formed a mutual protection arrangement to provide insurance against medical treatments that go wrong?

Although the Government regulates the insurance industry, that does not imply any guarantee against an organisation’s financial failure. The contributors and/or shareholders share that responsibility.

Of course, government intervention may be justified if the market — in this case for medical indemnity - cannot handle a financial failure and there would be widely spread, possibly even systemic, adverse consequences. With UMP, the wide spread criterion seems met as it is the country’s biggest insurer of doctors, covering over 30,000. If those doctors became unable to practice due to market failure, that would obviously have significant adverse community consequences.

However, why can’t UMP members themselves handle their own insurance problem? Most have a strong self-interest in continuing to be able to practice and, as the doctors’ quasi-union, the AMA itself has some responsibility for organising adequate insurance for members.

Assuming the financial situation of the UMP’s insurance subsidiary is serious (notwithstanding it’s chairman’s recent advice to members that it "has never functioned better"!), existing UMP members should be able to obtain cover for post 30 June incidents through other societies. True, there is the potential problem of the "tail" claims that could arise in respect of the pre-29 April period. But if (as some reports suggest) these are around $500 million over 20 years, that would average only $16,000 per UMP doctor over the period. Existing UMP members were recently subjected to both a levy and an additional premium but they have presumably been paying much lower-than-market charges up to now. In short, the taxpayer should not have to pay for past mistakes by a doctors’ mutual protection society.

The thinness of the medical indemnity market and its focus on not-for-profit mutual organizations do make it relatively unattractive for commercial insurers. But, while the Government might help improve the structure of this market, the primary responsibility for doing so rests with doctors and their union.

What about suggestions that the increasingly high payouts by insurers could be limited by capping in order to counter the increasingly high damages awarded in the courts? Lawyers deny that litigation has increased and point out that losing claimants have to bear costs. However, actuarial analysis shows that, over the past ten years, medical indemnity claims have increased 2.5 times and payments by insurers are up three-fold. Insurers will not take defensive court actions if, as is perceived, the judicial decision-making process has developed Santa Claus components.

But the Government should not succumb to further intervention in health through capping, let alone by contributing to pooled arrangements or no fault insurance for medical indemnity. The predominant needs are to develop a medical insurance market with a sound prudential basis and to require (preferably via legislation) that courts give greater recognition in their decision-making processes to the cost of awards to the community. Those awards, not insurance profits, are the main source of higher premiums being borne by doctors, users of their services and taxpayers.