Nebraska is one of six states that has a medical malpractice cap in place and one of just a few states that has a Fund in place to cover judgements or settlements for those that participate in the Fund. Since inception, the Nebraska Medical Association (NMA) has been a strong advocate for the Nebraska Hospital-Medical Liability Act, which created the “Fund”, and led efforts to ensure that the Fund is effective and sustainable. As the NMA approaches the 2023 legislative session, there is a focus on continuing this very important work so that the Fund is just as strong for another 46 years.
To participate in the Fund, a health care provider must submit proof of financial responsibility in the form on an underlying professional liability policy with specific coverage limits and pay a premium, or surcharge, to the Fund. The underlying limits are expressed in two amounts with the first applying under a provider’s policy per occurrence and the second is an annual aggregate limit for two or more occurrences. The Nebraska Hospital-Medical Liability Act also established a cap on the damages any single plaintiff can recover from all qualified health care providers. The Legislature has updated this Act including the underlying policy limit requirements and the damages cap over the years.
When the Fund was established in 1976 limits were set at $100,000/300,000 for physician and nurse anesthetists and $100,000/1,000,000 for hospitals, with a $500,000 cap on the amount a plaintiff could recover from all qualified health care providers. In 1984, LB 692 was passed that raised the cap to $1,000,000 for incidents occurring after January 1, 1985. Shortly after LB 1005 was passed in 1986 that increased the amount of required underlying insurance to $200,000/600,000 for physicians and nurse anesthetists and $200,000/1,000,000 for hospitals effective January 1, 1987.
In 1992, the Legislature passed LB 1006 that raised the cap to $1,250,000 for incidents occurring after January 1, 1993. The cap was then raised to $1,750,000 in 2003 with the passing of LB 146 for incidents occurring after January 1, 2004. The underlying coverage requirements were raised just one year later to $500,000/1,000,000 for all providers other than hospitals, and to $500,000/$3,000,000 for hospitals.
The most recent change to the Fund took place in 2014 with the passing of LB 961 that raised the cap to $2,250,000 for any occurrence after December 31, 2014.
Not only did the Act establish underlying limits and a cap for damages, but it also established a surcharge rate, which represents the amount a health care provider pays into the Fund to participate. The surcharge rate is based on their underlying malpractice insurance premium and has been adjusted over the years to properly reflect the amount needed to maintain the Fund. The Act sets the surcharge rate to be no greater than 50%. Throughout the life of the Fund, the surcharge rate has fluctuated based on Fund assets. In January 2020, the surcharge rate increased from 45% to 50% and has maintained since.
When the Fund was established the surcharge rate was set at 50% to build capacity. The Act originally placed a statutory cap of $5 million on the Fund’s assets and the surcharge rate was reduced in 1980 when that asset limit was achieved. The surcharge rate was then reduced to its lowest point of 1% in 1982. In 1984, the Fund paid its first six claims and in turn increased the surcharge rate for the next year. Over the life of the Fund, the surcharge rates were 50% in 1976, 1985-1987, 2003-2005, and 2020 to current.
Over the last couple of years, the Fund’s costs are consistently exceeding revenue. According to the 2021 Surcharge Rate Hearing, since June 2015, the Fund’s operating balance is down $17.6 million, assets are up $3.6 million, and liabilities doubled from $20.5 million to $41.8 million. Actuarially projected costs have exceeded the statutory maximum surcharge rate for five straight years. The Fund’s financial strength needs to be restored to reverse the trend to have net gains on revenue over expenses. Maintaining the 50% surcharge rate for the year 2022 will generate approximately $9,5 million revenue, which is about 25% less than expected $12.69 million net costs, for an expected 2022 operating deficit of $3.19 million.
The NMA maintains relationships with stakeholder groups to discuss the stability of the Fund so that it remains sustainable. We want to continue to be one of the best states to practice medicine and raise families, and we know that the health of the Fund is a key component in ensuring that healthcare is accessible and affordable. The Nebraska Hospital-Medical Liability Act has served Nebraska patients and healthcare providers by reducing the cost of professional liability insurance premiums and through that, reducing the cost to the patient. The Act has also attracted physicians into the state and made it more attractive to recruit physicians into rural areas by keeping professional liability insurance premiums low.
