Fair Share?

Although the property-casualty insurance industry is not directly targeted by the Affordable Care Act (ACA), it is not immune to its effects. Increased cost-shifting could have significant and long-lasting consequences for p-c insurance.

The ACA will likely prompt significant changes in the behavior of medical providers as new cost containment efforts and initiatives by public and private health insurers begin to affect providers financially. To offset anticipated reductions in revenues from health insurance systems, medical providers may seek to increase revenues from other payers, such as p-c insurers, by seeking higher reimbursements from other payers and by increasing the volume and mix of services provided to patients covered by other payers.

Private passenger auto insurers are already prime targets for such cost-shifting behaviors, as reported in a 2010 Insurance Research Council report examining hospital charges and diagnostic imaging costs for auto injury claims. IRC estimated that hospital cost shifting for auto liability claims in states with tort-based auto injury insurance systems resulted in $1.2 billion in excess charges in 2007. The total of cost-shifting in all p-c claims with medical expense is likely much higher.

The fragmented nature of health care markets and the uncoordinated manner in which prices for medical services are determined leaves some payers particularly vulnerable to cost-shifting efforts.

Large health insurers are able to negotiate or impose lower prices or substantial discounts for medical services provided to plan participants. At the other extreme, individual, uninsured purchasers of health care services typically pay the highest prices because of relatively weak bargaining positions.

P-C insurers are somewhere in the middle. Their authority and ability to negotiate reimbursement levels varies significantly across states. Medical fee schedules specifying prices for medical services have been adopted by 37 states for workers comp and seven states for private passenger auto, but even among the states with medical fee schedules, reimbursement levels vary greatly.

To the extent the cost containment provisions of the ACA negatively affect medical provider revenue, expect providers to increase revenue from other sources.

Excerpted from “The Affordable Care Act and Property-Casualty Insurance,” produced by the Insurance Research Council, a business unit of The Institutes.

SIDEBAR: More Services, Bigger Bills

Medical providers may also raise revenues by increasing the volume and number of services provided to patients. Insurance systems and programs with relatively weak utilization controls are especially vulnerable to such efforts.

P-C insurance often lacks the kind of precertification and concurrent utilization review controls that are frequently applied in public and private health insurance programs. This is especially true of auto insurance, which typically relies on the application of “reasonable and necessary” standards to review and, if possible, question the appropriateness of treatment.

Reasonable and necessary standards are often based more on historical practice styles in local medical communities than what clinical research indicates is appropriate treatment.