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Health Care Reform's Potential Impact to Pose Challenges for Workers Compensation and Medical Liability Insurers

04/11/2011 —

NEW ORLEANS, LA., April 1 – While it’s still too early to quantify the exact impact of health care reform, implementation of the measure enacted last year will bring short- and long-term challenges to employers and the property/casualty insurance industry, attendees at the Casualty Actuarial Society’s annual Ratemaking and Product Management Seminar were told.

Harry Shuford, chief economist for the National Council on Compensation Insurance, described the new law as “a totally new health care system that appears to have material implications for the future of health care delivery in the U.S.”

Workers compensation insurance shares a lot in common with the country’s health care system, the NCCI economist said, because medical claims are such a big part of workers compensation costs.

Spending for medical benefits under workers comp has, on average, followed the same dramatic growth pattern, he said, but total medical benefits under workers comp are modest compared to U.S. medical care spending, going from $10 billion in 1987 to $26 billion in 2005, contrasted against private sector medical care spending rising from $225 billion to $788 billion during the same period.

“The workers compensation share of medical costs is small and shrinking,” he pointed out.

“It’s only 3 percent of all health care spending in the U.S. We, as a system, are tiny and the thought that we can actually have significant influence over our health care costs as an industry are not realistic. What we see going on in workers comp is actually a reflection of what’s going on in the system as a whole,” he concluded.

Shuford outlined for seminar attendees the key provisions of the Patient Protection and Affordable Care Act (PPACA), including the individual mandate that requires most U.S. citizens and legal residents to have “qualifying” health insurance, affordability and access, as well as its potential impact on property/casualty insurance medical cost trends.

He said the aspects that have the potential for impacting property/casualty insurance in a positive way are administrative simplification and standardization, with everyone using the same forms, which are handled electronically. He also noted that Medicare fees are going to be adjusted a little less frequently, which should hold down costs.

PPACA provides a lot of potential for actuarial work, Shuford said, including program design and pricing, regulatory rate reviews, and managing the loss ratio cap. The potential impact of health care reform on medical cost trends in property/casualty insurance include changes to the health care delivery system, such as evidence-based medicine, pay per episode, pay for outcomes, reimbursement schedules and accountable care organizations.

Speaking on the PPACA’s “Strategic Implications for Hospital and Physician Medical Malpractice,” John Mize, a consulting actuary with Towers Watson, said a decrease in the number of uninsureds could lower malpractice liability because more access could cause less delay in diagnosis, earlier treatment leading to better outcomes, and earlier prenatal care, which will lower pregnancy risks.

But he said it could raise malpractice liability because more units of service mean more potential risk, and in the short term the additional demand could exacerbate the shortage of primary care physicians.

Mize outlined for the actuaries other key provisions of the health care reform law with possible ways they could lower or raise malpractice liability, including a provision for $50 million for state malpractice reform pilot programs, the adoption of improved health care information technology, and increased reporting on malpractice payments that could make more information available to the public about malpractice claims and payments.

“Health care reform is the largest change in health care finance since the implementation of Medicare,” Mize emphasized, “and is likely to lead to substantial changes in health care delivery. And while many of its elements have the potential to decrease patient harm, which could lower malpractice liability, these same elements could paradoxically lead to increased malpractice payouts under some circumstances.”

“The most effective health care delivery organizations and malpractice insurers will develop and implement effective programs to mitigate this risk,” he concluded.

The Ratemaking and Product Management Seminar was held March 20-22, 2011 and drew over 550 insurance professionals.

The Casualty Actuarial Society fulfills its mission to advance actuarial science through a focus on research and education. Among its 5,500 members are experts in property-casualty insurance, reinsurance, finance, risk management, and enterprise risk management.

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