Medical Indemnity Insurance - Compensation Claims

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The Australian government has been helping negligent doctors pay for compensation claims against them since 2003-2004. In Australia, it is compulsory for doctors to carry professional indemnity insurance. Under the High Cost Claims Scheme, the federal government reimburses medical indemnity insurers, for each claim, 50% of the insurance payout over $300,000 up to the limit of the doctor's cover. The government (tax payers) subsidises the doctor's legal costs and compensation awarded to victims of their negligent acts/incompetence.

Furthermore, if a medical negligence compensation claim exceeds $20 million against a doctor, the government will pick-up the entire tab under the Exceptional Claims Scheme. These claims can be either a single very large claim or multiple claims against the one doctor that together exceed a threshold for the insurance contract's limit. 

The rationale behind these schemes was to help medical indemnity insurers by lowering the amounts they have to pay out for compensation and therefore put downward pressure on the insurance premiums that doctors pay. The schemes are fully funded by the government with no direct contribution by doctors.

Insurance Companies Profit

According to http://www.ncoa.gov.au/report/appendix-vol-2/10-16-medical-indemnity.html a report of the National Commission of Audit (Australian Government), average medical indemnity premiums have fallen since 2003-04 and medical indemnity insurers are making "healthy profits". Avant, the largest player in the Australian market (approx. 50% share) “made a pre-tax profit of $159 million from total revenues of $207 million in 2012-13. It also has an asset to liability ratio of 1.89.”

This has occurred in the context of heavy tort reform in the last decade that has limited the amount of compensation that victims of medical negligence are awarded, with smaller claims largely eliminated with the introduction of minimum thresholds for non-economic loss, and extremely large cases being unheard of with the abolishment of punitive and exemplary damages.

Government to cut back subsidies

In December 2016, the government announced changes to the High Cost Claims Scheme commencing from 1 July 2018. The government will pay 50% of the cost of a claim in excess of $500,000 instead of existing threshold of $300,000. The government's "Mid Year Economic and Fiscal Outlook 2016-2017" report states that the government expects to save $35.9 million over 3 years by raising the threshold.

Insurance companies are probably unhappy about having to fork out more money for negligence claims in an environment where they are making healthy profits. The cost will inevitably be pushed onto doctors by increasing their premiums. According to http://www.avant.org.au/news/higher-medical-indemnity-premiums-for-doctors/ (link now removed by Avant) Avant's senior medical officer Dr Browne, "The announcement in the MYEFO that the eligibility threshold in the HCCS would increase from $300,000 to $500,000 means an estimated average increase to doctors’ premiums of 5%."

Update: 29.12.2016

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