ROBERT L. EHRLICH, JR., Governor                               H.B. 2

As proposed in House Bill 2, the Medical Professional Liability Insurance Rate
Stabilization Fund ("the Fund") contains a multitude of technical drafting errors and
is virtually impossible to implement. Nor will the Fund, as drafted, serve the
purposes it is supposed to, as the 2% HMO tax will not provide the amount of funds
the bill requires. This tax will not generate the $80 Million projected, but will be
closer to $65 Million (assuming that 100% of the tax may be implemented for
Medicaid HMOs and MCOs). Thus, the shortfall to the medical professional liability
insurers will be even greater than anticipated.

It should be pointed out that even if one uses the figures in the Fiscal and Policy
Note (with the exception of the incorrect figure on page 15 of the note that leads to the
erroneous conclusion that the Fund is fully funded), the HMO tax does not fully fund
the Rate Stabilization Fund. In fiscal year 2007, there will be a deficit of more than
$2 million in the Fund. This does not include the nearly $3 million that will be lost to
the General Fund and the Transportation Trust Fund. If the goal of the bill was to be
fully funded, it clearly has failed in this regard.

Further, it should be noted that the medical professional liability insurers
writing in Maryland, aside from Medical Mutual, consider this Fund unworkable and
may not participate. Two of the three of these carriers have expressed serious
reservations about the bill, one of which, The Doctor's Company, has expressly urged
a veto. If the bill becomes effective, these insurers will then have to evaluate whether
they will continue to issue policies in the State. Rather than attracting medical
professional liability insurers to the State, which would encourage competition in rate
setting, this bill may have the effect of driving insurers to leave the State.

Impact on Medical Mutual Liability Insurance Society of Maryland

This Bill threatens the solvency of The Medical Mutual Liability Insurance
Society of Maryland (Medical Mutual). As written, the Bill requires the company to
absorb a large portion of the approved rate increase from its surplus (25.5%).
Additionally, the funds available to it under the Fund are limited with the shortfall to
again come from Medical Mutual's surplus. Further, the Bill requires rate increases
to be reviewed with an eye toward the company's financial resources (i.e., surplus)
before rate increases are granted. This approach is fiscally irresponsible and could
result in making the company insolvent in a short period of time due to the very
volatile nature of this line of insurance, medical professional liability. MIA did
projections and determined that for Medical Mutual to fund a portion of its rate
increases through the use of its surplus, the company would be below the required
risk based capital (RBC) within two years. This would require the MIA to take
immediate action, up to taking control of the company because of its potential
insolvency.

The solvency of Medical Mutual is further threatened by the fact that the other
commercial carriers have expressed concern about House Bill 2 and the impact it will
have on their ability to generate profitable business in the State. Should the other
three carriers insuring physicians withdraw from the Maryland marketplace, then
Medical Mutual will be the only company available to Maryland physicians and this
will further threaten Medical Mutual's surplus. The company, in all likelihood, could
not sustain the additional risks it would be asked to absorb. The end result could be

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