ACA Side Effects: 5 Ways It May Impact Commercial Liability Insurance
We know that the Patient Protection and Affordable Care Act (ACA) is aimed at making personal health insurance more available and, well, affordable. But insurers may be wondering if and how it will impact the Auto, General Liability, Workers' Comp. and Medical Malpractice lines of business as well. What are the side effects of the new health care law?
The RAND Institute for Civil Justice (RAND), a leading research institution, is leading the charge to quantify the financial impact of the ACA on these liability lines. In its new report, RAND identifies these five distinct ways that the ACA may affect claim costs for liability insurers:
- Individual Substitution Effect - The number of liability claims may decrease if individuals with health insurance use it to treat unrelated health issues whereas uninsured individuals may continue to use liability coverage for untreated conditions unrelated to the accident giving rise to the claim.
- Collateral Source Effect - Liability payments may decrease in those states that allow liability awards to be reduced by health insurance paid.
- Provider Treatment Effect - Providers deliver more care to those with health insurance than those without because they have greater certainty of payment. In those states that do not limit liability awards by the amount of health care paid, we may see the cost of liability awards increase.
- Direct Fee Effect - Liability payments for direct medical care may fall as Medicare rates fall because some liability insurers use prevailing Medicare rates as a basis for determining reimbursement to providers.
- Medical Malpractice Volume Effect - Individuals with health insurance have more contact with the health care system and therefore may be more likely to make medical malpractice claims.
If the ACA reduces healthcare costs, will it similarly reduce claims for bodily injury paid by other commercial carriers? While we are very early in the ACA implementation and study process, RAND does anticipate a small cost reduction for Auto and Workers' Comp. writers. In some cases, the estimated reduction could be as much as 5% or more in certain states.
As for General Liability, Homeowners and other lines with a bodily injury component, RAND expects that the same mechanisms will operate to generate cost reductions. The one exception they note is Medical Malpractice, where RAND predicts an overall rise in costs.
The ultimate cost savings will be tied to how much of the population in any state or region has health insurance. As the number of uninsured adults rises, the favorable ACA benefit to other lines will decline. Right now there is a wide geographic gap in the share of uninsured adults, with the South housing the most uninsured in the coverage gap. Check the Kaiser Family Foundation map to get a sense of just how "local" the cost savings may be.
We will be looking for RAND updates and industry data to see how the ACA plays out – for all liability lines. If their predictions prove true, side effects like these are welcome.
For more on this topic, read "How Will the Patient Protection and Affordable Care Act Affect Liability Insurance Costs?" by the RAND Institute for Civil Justice.