State readies 'Essential Insurance Association' to cover doctors

Emergency regulations allowing Nevada Insurance Commissioner Alice Molasky-Arman to create a state-controlled association to provide medical malpractice insurance are on Gov. Kenny Guinn's desk.

"That's required by law and I could not wait for the period of time we normally have to develop a regulation," she said Friday.

Molasky-Arman said Guinn wants the Nevada Essential Insurance Association up and running by April 15 at the latest. The group will issue policies for physicians left without malpractice coverage or coverage they say is impossible to afford.

Many Nevada doctors were left without insurance when the St. Paul Companies withdrew from the market. Others are reportedly facing increases of 50 percent and more to keep malpractice coverage, especially in Southern Nevada.

Doctors have said they are trying to organize their own company to provide coverage, but Guinn said last week he doubts they can get it put together in time to provide uninterrupted insurance for many doctors in the Las Vegas area.

"I don't think they can get it going fast enough," he said. "We can."

He said the state would step in and create NEIA to "get us across a deadly crevice" -- which he explained means providing coverage, at least until the 2003 Legislature can act.

Not acting while the doctors themselves find a solution could result in hundreds of them leaving the state and produce a crisis for people in need of medical care, Guinn said. But forming a Joint Underwriting Association -- essentially requiring insurers who want to do business in Nevada to cover doctors -- might force insurance companies to leave the state and cause far broader insurance problems.

Guinn said association is the best option because, unlike a doctor-owned mutual company, it doesn't have to raise a huge lump of cash or find a reinsurance contract to cover major settlements. If necessary, the association could fall back on its policy holders -- hitting each doctor in the association for part of the tab -- or assess the other insurance companies in the state.

In addition, the state-created group has significant protection in state law from lawsuits other insurance companies are exposed to.

And unlike the Joint Underwriting Association, Guinn said association doesn't have to insure every doctor who applies.

"We're not going to take everybody," he said, adding the company hired to manage the association will rate doctors for risk and "sort out the bad actors."

The difference is, he said, doctors won't be denied coverage simply because of their specialty. Many companies, for example, refuse to insure obstetricians, gynecologists, anesthesiologists and other risky specialties.

Molasky-Arman said the next step will be to select members of the board to operate the association. The law allows five to nine members, but she said she's hoping for seven highly qualified people. That, she said, will also make it easier to attract a top-notch service company to manage the association and convince major insurers to provide "reinsurance" -- a policy to protect the association from major claims.

Molasky-Arman said the idea is to collect premiums from Nevada doctors to build up a fund to handle almost any claim. She said starting with a clean slate, there probably won't be any payouts for the first year or two because it takes that long before final judgment in most malpractice cases.

"What we're hoping is that once we start operating we will be receiving premiums and be able to set those premiums aside to develop and invest," she said.

Under the law, the association would be established as "a nonprofit, unincorporated legal entity" controlled by its appointed board and watched closely by the Insurance Division.

Guinn said the idea is to start every doctor at a base of $32,310 a year for malpractice insurance. That, he pointed out, is far less than the $95,550 Southern Nevada OB/GYNs were offered for this coming year.

But he said it doesn't include what's called the "tail" coverage existing doctors must buy. The "tail" covers potential lawsuits from patients who have already been treated but haven't yet filed malpractice claims. St. Paul and other existing companies will provide that coverage, Guinn said, for $105,000, which he said they have agreed tentatively to spread over several years of payments.

He said the nonprofit association would have to begin assessing for potential "tail" suits after its first year.

"If it goes a second year, the $32,000 will go up to about $50,000 because now we're starting to cover the tail," he said.

But Guinn said that's up to the underwriters and actuaries who figure out what doctors should pay for coverage.

Molasky-Arman said she expects to have a board for the association and other pieces of the puzzle in place quickly.

And Guinn said the plan will get the medical community and the state through the crisis until the 2003 Legislature opens. By then, he said, lawmakers and the industry should have some ideas on what to do for the long term.