CAT phases out slowly to increase private coverage

Unclear how transition
affects employees
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Because of a name change, the state’s Medical Professional Liability Catastrophe Loss Fund, or CAT Fund, will cease to exist in the fall.
The process of getting the state out of the medical-malpractice business, however, is going to take much longer, observers said.
On March 20, Gov. Mark Schweiker signed the Medical Care Availability and Reduction of Error Act. The privatization and eventual phase-out of the CAT Fund is one of several reforms included in the act.
The CAT Fund will be replaced by the similarly functioning Medical Care Availability and Reduction of Error Fund, or MCARE Fund, in October. The Pennsylvania Department of Insurance will administer the fund, but the department is required to hire an outside company to handle claims processing.
Insurance Department representatives are meeting with CAT Fund staff members to discuss the fund’s transition and reorganization, said Roseanne Placey, a department spokeswoman. It is too early to tell how the transition will proceed or what effect it will have on the fund’s employees, she said. The department will hold a meeting April 19 to gather stakeholders’ advice on the fund’s future, Placey added.
CAT Fund Director John Reed could not be reached for comment. His office referred calls to the Insurance Department.
The process of moving doctors and health care organizations from the MCARE Fund to private insurance will begin next year, said Chuck Moran, spokesman for the Pennsylvania Medical Society, Lower Paxton Township, Dauphin County.
The CAT Fund provides $700,000 in malpractice coverage to each health care provider, and private insurers provide the rest. In 2003, the amount of MCARE Fund coverage will be reduced from $700,000 to $500,000.
Following a review from the Insurance commissioner, the fund’s coverage will be reduced to $250,000 in 2006 and eliminated in 2009. As the amount of MCARE coverage decreases, the amount of private coverage will increase.
There will also be a cap on annual surcharges the fund collects in 2002, 2003 and 2004, Moran said.
However, he added, surcharges will not disappear when the fund’s coverage ends.
It is estimated that surcharges will be needed for about 20 years to pay off the fund’s estimated $2 billion unfunded liability.
Funds moving from the state’s Catastrophic Loss Benefits Continuation Fund, or Auto CAT Fund, will also help to pay for the MCARE Fund, Moran said. The Auto CAT Fund is financed through surcharges on speeding tickets and other motor-vehicle violations.
The medical society is one of many groups that has campaigned for the CAT Fund’s demise. This support is somewhat ironic, Moran said, because the fund was created in the mid-1970s to make malpractice insurance more accessible to doctors and hospitals.
However, the fund was meant to be a temporary relief mechanism, not a long-term solution, said James Redmond, senior vice president of legislative services for the Hospital & Healthsystem Association of Pennsylvania in Swatara Township, Dauphin County.
Because the fund operates on a pay-as-you-go basis and does not put funds into reserves, the fund could not keep up with claims as malpractice costs climbed, Moran said.
The fund’s unfunded liability has become a burden for doctors and hospitals, he said.
The state’s involvement in the malpractice-insurance business has also dissuaded private insurers from entering the Pennsylvania market, Redmond said.
“The fund is viewed as an impediment to the normal functioning of
the marketplace,” he said. “It becomes another decision-maker in the
process.”
Yet, the private insurance market has been damaged by the same problems plaguing the CAT Fund. Many insurers have exited or have limited operations in Pennsylvania and have raised rates considerably.
Moran said the medical society had some initial concerns about how doctors were going to be shifted from the state fund into the private marketplace.
That is why it is important that the Insurance commissioner review
the marketplace in 2006 and 2009
before proceeding with further
MCARE Fund phase-outs, Moran
said.
“It creates a safety net,” he said.
Moran and Redmond said other provisions of the MCARE Act, such
as patient safety initiatives and tort reform, should help stabilize the insurance market before the MCARE Fund is eliminated.
However, Moran said, if the provisions don’t work, the medical society might ask the General Assembly to consider stronger measures, especially tort reforms.
“If we don’t have a stable market, then we will have to look at other options,” Redmond said.