The candidates are starting to talk about the economy again. Thank you very much! I was starting to wonder if I might have to start writing about the psychology of lying and the therapeutic benefits of lipstick.

 

The big news is the collapse of three large companies – two investment firms and one very large insurer, AIG. As I write this, the Federal government is in the process of bailing AIG out. When insurers lose money (and here we’re talking boatloads of cash), they find a way to raise money from their customers through higher premiums and reduced payouts.

 

Today’s insurance company is not your father’s insurance company. Since Congress passed the Financial Services Modernization Act of 1999, insurance companies have been able to get into the investment business – they get to play the stock market with the other big boys. Instead of the stodgy business of insuring, our insurance companies get to throw the dice along with the rest of Wall Street. They’ll even pass on the profits to their policy holders, if claims are low and profits are high. The problem arises when there are losses. Since 1999, we’ve now experienced not one, but two stock market busts.

 

After the Dot-Com bust, insurance companies raised rates wherever they could. In states where there are minimal regulatory mechanisms, malpractice rates doubled and tripled over a very short period of time (in the absence of increased lawsuits or large payouts). The impact is chilling – physicians move out of these states or simply stop practicing medicine altogether. In Nevada, orthopedic surgeons refused to be on call for Las Vegas’ emergency rooms because of these liability issues. Here in California, we have both a cap on jury awards and an insurance commissioner to review insurance rate changes, so some of these effects are blunted. But across the nation, the potential for significant rate increases may have a chilling effect on the practice of medicine. Patients do not need another reason for their doctors to be unavailable.