‘Material Misstatements’ Found In Wisconsin’s Malpractice Insurance Fund

‘Material Misstatements’ Found In Wisconsin’s Malpractice Insurance Fund
March 11, 2013

Ryan Ekvall

Ryan Ekvall writes for WisconsinReporter.com. (read full bio)

Wisconsin requires medical providers to buy supplementary malpractice insurance from the state, but an independent audit suggests the billion dollar insurance trust fund needs tighter financial controls.

The Legislative Audit Bureau found the state’s insurance commissioner “materially misstated” loss liabilities and underwriting expenses in its triennial audit of the Injured Patients and Families Compensation Fund, housed at the Office of the Commissioner of Insurance.

“OCI has not devoted sufficient attention and effort to addressing concerns with the Fund’s financial reporting process,” the auditors concluded.

Previous Problems Not Addressed

The audit bureau noted it has found financial reporting errors in previous audits that have not been addressed by the insurance commissioner.

“Loss liabilities and related underwriting expenses were materially misstated” in 2010 and 2011, auditors found. “We also found several amounts in the draft cash-flow statements misstated . . . . Although the Office of the Commissioner of Insurance indicated at that time that it would implement improvements to its financial reporting process, sufficient improvements were not made,” the audit states.

The loss liabilities and underwriting expenses were overstated by $63 million in 2010-2011 draft statements and understated by $79 million in 2011-2012, according to the bureau.

“The agency recognizes the seriousness of the financial reporting issues identified, and it is our intent to take the steps necessary to address these issues moving forward,” Ted Nickel, Commissioner of Insurance, wrote in a response to the audit bureau.

The trust fund has a little more than $1 billion in assets for the purpose of paying future medical malpractice claims, according to the audit. The Fund reported estimated loss liabilities, or the amount of malpractice claims projected, totaling $665.8 million as of June 30, 2012.

Payments to System Soar

Physicians’ medical fees, the money doctors and hospitals pay into the supplementary malpractice insurance system, have increased between 75 percent and 97 percent in the past seven years, averaging double-digit annual increases, according to the audit bureau. Depending on the physician risk class, assessment fees range from $1,534 to $10,125. Last fiscal year, the Fund collected nearly $35 million in assessment fees, according to the audit.

Medical providers are obligated to purchase malpractice insurance of $1 million per occurrence and $3 million for the year. The fund provides coverage beyond private primary malpractice insurance.

The 13-member Board of Governors for the compensation fund approved a decrease in assessments of 5 percent next year, which should bring down the more than $300 million balance of assets in excess of expected future claims.

The audit noted the Fund’s balance improved due largely to a $233 million payment from the state after the state Supreme Court found a previous $200 million transfer from the Fund to the state’s coffers for Medicaid expansion under Gov. Jim Doyle’s tenure was unconstitutional. The state was ordered to pay back the fund, and did so during Gov. Scott Walker’s first months in office.

Ryan Ekvall (rekvall@wisconsinreporter.com) writes for WisconsinReporter.com. Used with permission of Wisconsin Reporter.

Ryan Ekvall

Ryan Ekvall writes for WisconsinReporter.com. (read full bio)