President Obama’s health care  package will affect auto insurers—that much is certain, though no one is quite sure how much the new law will affect them, according to the Insurance Research Council (IRC).

An IRC report this year found a link between low Medicaid and Medicare reimbursement rates and the higher medical reimbursement rates paid by auto insurers.

The report—Hospital Cost Shifting and Auto Injury Insurance Claims -- examined more than 42,000 automobile bodily injury claims in 39 American jurisdictions during 2007 to see if there was cost shifting from medical providers to auto insurers. Auto insurers, the IRC found, were charged at least $1.2 billion in excess medical charges due to cost shifting in that year.

IRC Vice President David Corum appeared recently on The Heartland Institute’s Finance, Insurance & Real Estate News podcast to talk about the study, which was released this February, and its policy implications.

First Definitive Study

Corum said IRC had been hearing anecdotal evidence about cost shifting for years, but before this study no one had definitively shown the existence or scope of cost shifting from medical providers to auto insurers. Cost shifting leads to higher auto insurance premiums, he noted.

“What I think we have shown—this is one of the major benefits of this study—is that the auto insurance system is not totally separate from the health care insurance system,” Corum said. “What happens with health care, what happens with health care reform, can have a direct impact on auto insurance costs.”

Corum explained cost shifting between providers and auto insurers occurs because reimbursement rates for federal and federal/state programs such as Medicare and Medicaid are too low to cover providers’ expenses. Auto insurers—and, presumably, other reimbursers of medical services—are then charged higher rates than they otherwise would be, to make up for the government’s low reimbursement rates.

More Than $1.2 Billion in 2007

Corum said the $1.2 billion in cost shifting in 2007 represents just one part of the overall cost shifting from medical providers to auto insurers. The study examined only bodily injury claims, out of all the auto insurance claims that could reimburse medical providers, and examined claims in only 39 jurisdictions.

The $1.2 billion represents just the “‘tip of the iceberg’ of all medical cost shifting to property-casualty insurance companies,” the IRC study found, and if other costs and jurisdictions are studied, the overall shifting of costs from medical providers to auto insurers will likely be greater, though Corum said it would be impossible to say how much greater until further studies are conducted.

It’s impossible at this point to predict how last year’s health care reform package will affect auto insurers, Corum said, whether cost shifting will increase as the rolls of Medicaid and Medicare recipients are expanded and the other changes come into effect.

Auto, Health Insurance Link

In the meantime, Corum said, it’s important for auto insurers—and consumers of auto insurance—to be aware of the connection between health care and auto insurance and to be involved in health care policymaking.

“The property-casualty insurance system can’t be viewed as separate and unaffected by what goes on with health care and health care reform,” Corum said. “We weren’t really involved with the health care reform debate, but we are impacted by what happened in that debate. Some of the provisions of health care reform would indeed expand coverage to a lot more people, but using a program that traditionally under-reimburses.

“So we don’t know, we haven’t predicted, what the impact will be, but I think what we’ve demonstrated is that there will be an impact and we need to watch very closely. It’s something that folks in our industry really do need to pay attention to.”

Copyright © 2009 The Heartland Institute. All rights reserved.