The property/casualty insurance industry is likely to face cost shifting by hospitals, physicians and other medical providers due to the Patient Protection and Affordable Care Act (ACA), according to an insurance industry white paper.
In addition, property/casualty insurers may potentially see an overall increase in claims and in some types of fraud, the white paper by the Insurance Research Council (IRC) predicts.
However, the industry could also benefit from there being fewer uninsured Americans, which could result in lower medical damages in liability claims and reductions in fraudulent workers’ compensation and auto claims, the white paper suggests.
In the white paper, “The Affordable Care Act and Property/Casualty Insurance,” the IRC suggests several ways that the property/casualty industry could potentially be affected by the ACA. However, the IRC analysis makes no specific estimates of the cost implications for the industry.
The shifting of costs and claims to property/casualty could have the most impact. The claims hike could come if individuals look to the first-dollar coverage provided by property/casualty insurance coverage as an alternative to the higher deductibles and other cost-sharing requirements of many health insurance plans.
The report also says that there could be an increase in fraud due to the diversion of career criminals to the property/casualty business.
On the other hand, the ACA could bring about a decrease in fraud due to fewer uninsured and a decrease in future medical damages. The fraud reduction is likely to have a minor impact and the medical damages, an uncertain impact, according to IRC.
The report also identifies a healthier population and more appropriate utilization of medical services as possibly affecting property/casualty but ventures no estimate of their cost impacts.
The industry analysis says cost shifting will occur in response to “increased cost containment efforts by public and private health insurers” and will show up in higher charges and a higher volume of billed services. It will be “particularly severe” in states with the greatest differences between public and private health insurance reimbursement levels and property/casualty reimbursement levels.
Medical providers will be tempted to shift costs to replace lost revenues from health insurance providers, according to the IRC, which says this is already happening in the private passenger auto insurance market. A 2010 IRC report estimated that hospital cost shifting for auto liability claims resulted in $1.2 billion in excess charges in 2007. The total of cost-shifting in all property/casualty claims with medical expense is likely much higher, says this latest white paper.
The IRC recommends that P/C insurers consider ways such as market-based fee schedules and bill review to ensure that the prices they pay are consistent with prices paid by public and private health insurers. They should also make sure that only medically necessary treatment is provided to property/casualty claimants by employing tools such as utilization review authority and evidence-based treatment guidelines.
The IRC also addresses whether some uninsured individuals without health insurance now file fraudulent workers’ compensation or automobile insurance claims in order to secure medical treatment and if this might change as the healthcare law goes into effect. According to the IRC, there is “substantial evidence that fraudulent claims of this nature are fairly common.” In a 2008 study, the IRC found suspicion of fraud in approximately one in 10 first-party no-fault auto insurance claims. In 29 percent of these claims, the claimed injury was unrelated to the accident reported in the claim.
By reducing the number of uninsured, the ACA could potentially reduce the number of fraudulent claims previously submitted under these circumstances. However, the IRC said it could not estimate the magnitude of this effect.
If the ACA significantly reduces the the uninsured population, then property/casualty claims frequency could benefit significantly as well. A RAND Institute for Civil Justice study in 2012 on the impact of health insurance reforms in Massachusetts similar to ACA found a 40 percent decrease in the number of uninsureds visiting emergency rooms, which translated into a 5 to 7 percent reduction in workers compensation emergency room bill volume.
Finally, the white paper finds that the ACA may potentially reduce future medical costs included in the calculation of damages in third-party liability claims.
“With this analysis, we hope to highlight the fact that property/casualty insurers are in a changed environment, where the medical providers with whom they engage and the claimants they serve are themselves confronted by major changes as a result of the ACA,” said David Corum, IRC vice president. “By exploring how providers and potential claimants are affected by the ACA, we can begin to anticipate how the act will ultimately affect the property/casualty industry.”
The white paper is available as a free download from the IRC website at www.insurance-research.org.
The Casualty Actuarial Society addressed the impact of the healthcare law on the property/casualty industry in a March, 2013 seminar. The actuaries noted that some of the biggest changes in the law have not gone into effect, including the individual mandate but that the P/C industry will be affected.
The changes could significantly affect property/casualty insurance, Anne M. Petrides, a director and consulting actuary with Towers Watson, said during the CAS seminar, although what impact the reforms will have on liability and costs is difficult to know at this stage.
The changes could either increase or decrease liability and costs in medical malpractice and workers’ compensation but the impact will differ by state as both lines are sensitive to state laws and regulations, Petrides said.
An increase in the number of people who have health insurance could reduce medical malpractice liabilities if new insureds get care earlier. Early treatment could lead to better medical outcomes and help prevent the adverse outcomes that can trigger malpractice lawsuits, Petrides said.
But the increase in the insured population could raise liabilities, as more patients per unit exposure would imply more potential risk.
Other lines could be affected, too. If reform triggers a wave of mergers and acquisitions, directors and officers (D&O) coverage could be at risk, according to actuaries and a December, 2013 report by insurance broker Marsh. March reported that that health care organizations paid significantly more for their D&O liability insurance in the third quarter of 2013 amid growing concerns over antitrust issues arising from implementation of the ACA.
The ACA’s Anticipated Effect on P/C and Workers Comp Lines