ANTICIPATED EFFECTS OF THE AFFORDABLE
CARE ACT UPON PROPERTY AND CASUALTY
INSURERS
KOELLER NEBEKER CARLSON & HALUCK LLP
PRESENTED BY:
WILLIAM A. NEBEKER, ESQ.
ZAHNIE L. SOE MYINT, ESQ.
KARL J. GRUSE, ESQ.
Universal Health Care
A Brief History
In 1918, the Soviet Union became the first country to promise “cradle to
grave” healthcare coverage, which was achieved through the socialization of
medicine.
Universal Health Care
A Brief History
•Small medical practices disappeared, and a network of large, factory-like
hospitals and outpatient clinics were established around the country. Patient
choice was removed, and the state took responsibility for centrally planning
each individual’s medical expenses and health care.
•All members of the medical profession were put on low, fixed, monthly
salaries and were mandated to examine and treat an overwhelmingly large
number of patients.
•Medical research became dependent upon inadequate annual budgetary
allocations from the government.
•Hospital wards were crowded, and anesthetics and basic painkillers were
frequently unavailable.
•By the mid 1980’s, relative to the United States, the Soviet Union had three
times the number of hospital beds and twice as many physicians per capita,
but it spent only one-eighth the amount that the United States spent on
health services.
Universal Health Care
A Brief History
•In all major health indicators, the Soviet Union lagged behind the United
States.
–Life expectancy was five years shorter at birth and two years shorter at
age sixty-five.
–Infant mortality was 25.1 deaths per 1,000 live births in the Soviet
Union, as compared with 10.4 in the United States.
–The Soviet maternal mortality rate was over six times the rate in the
United States.
–Soviet citizens were more likely to die from most major diseases than
their American counterparts, and were twice as likely to die from
infectious and circulatory diseases, as well as injuries and poisoning.
•These failings were likely attributable to the manner in which the Soviet
system was organized, as well as the Soviet socialist economic and communist
political systems.
Universal Health Care
A Brief History
Among other countries, from 1939 through the 1990’s, New Zealand, the
United Kingdom, Sweden, Japan, Canada, Australia, and France also adopt
their own versions of Universal Health Care.
Universal Health Care
A Brief History
The Canadian System
In the debate surrounding the Affordable Care Act, the Canadian Healthcare
system was often cited as a reason not to pass the Act. However, the Act is
significantly different from the Canadian system.
•The Canadian system is publicly financed.
•The Canadian system divides health care into hospital and physician services
for “medically necessary” services, and supplementary benefits like dental
care and prescription drug coverage.
•The division between supplementary and “medically necessary” services
means that 30 percent of health spending comes from private sources.
•A survey found that 59 percent of respondents reported waiting more than
four weeks for an appointment with a specialist, more than double the
number in the United States.
Universal Health Care
A Brief History
•However, Canada’s survival rates for colorectal cancer and breast cancer are
among the highest in developed countries.
•Canada also receives high marks for primary care, which helps reduce
hospital admissions due to conditions such as asthma and uncontrolled
diabetes.
•Additionally, an MRI that costs $1,200 in the United States can cost $824 in
Canada.
•85 percent of Canadians say that eliminating the public portion of their
healthcare plan would result in a fundamental change to “the nature of
Canada.”
•57 percent of Canadians report feeling “satisfied” or “very satisfied” with
their access to health care services, as opposed to 25 percent in the United
States.
Universal Health Care
A Brief History
Development of universal health care in the United States can generally be
traced through three laws. In 1965, US President Lyndon Johnson signed into
law the bill that created Medicare and Medicaid. Nearly thirty years later, in
1993, the Health Security Act was proposed, but it was defeated in Congress.
Universal Health Care
A Brief History
Georgia Senator Richard Russell and Chairman of the Senate Foreign Relations
Committee and Theodore Green receiving “The Johnson Treatment” from LBJ.
Universal Health Care
A Brief History
In 2010, Congress passed the Patient Protection and Affordable Care Act,
colloquially referred to as “Obamacare.” The Act is the most sweeping reform
of the American health care system since Medicare and Medicaid were
created. Unlike many other countries’ systems, under the Patient Protection
and Affordable Care Act, a large burden is placed on private business, rather
than government funding care itself.
The Affordable Care Act (ACA)
A Brief Explanation
• All residents of the United States are required to obtain health insurance,
either through their employer or through the “Health Insurance
Marketplace.” (www.healthcare.gov).
– Individuals who do not obtain insurance in 2015 will be required to
pay 2 percent of their yearly income or $325, whichever is higher.
• Parents who do not purchase health insurance for their children
will be required to pay $162.50 per child under 18.
– There are exemptions for low income individuals and families.
– Insurers cannot deny coverage for pre-existing conditions or if you
have been denied coverage.
– The Act is premised on the theory is that having additional clients in
an insurance plan means that insurance companies can collect more
money through insurance premiums, which will offset the increase in
payments to physicians.
The Affordable Care Act (ACA)
A Brief Explanation
– Healthier individuals who do not rely on their insurance coverage
offset those who have a greater reliance on insurance.
•Employers of 50 employees or more must offer health insurance to
employees.
•Each state has the option to either establish a “Health Insurance Marketplace” or
allow the Federal Government to operate its marketplace.
–If a state establishes a marketplace, then the state may designate a
government agency to administer it, or delegate such duties to a nonprofit
organization.
–The organization administering the exchange is charged with ensuring that
plans offered to members of the exchange adhere to federal requirements.
•Arizona has elected to allow the Federal Government to operate its
exchange.
•The exchange offers four levels of plans to its members, described as platinum,
gold, silver, and bronze.
Anticipated Impact Of The
Affordable Care Act On
Property And Casualty
Insurers
Insurance Research Council
The Affordable Care Act may cause the following actions, which will affect property and casualty
insurers:
• COST SHIFTING: Health care providers may look to property and casualty insurers in order to
offset revenue reductions attributable to the ACA’s cost containment measures.
• CLAIM SHIFTING: People may feel that the claims procedure under the ACA is prohibitively
expensive or difficult. Thus, injured individuals may file a property or casualty-based claim rather
than a claim with their health insurer.
• CLAIMS REDUCTIONS: A greater number of insureds could lead to fewer property and casualty
claims.
• PERSONAL INJURY DAMAGES REDUCTIONS: Lower future medical damages.
•HEALTHIER POPULATIONS: Healthier populations could lead to quicker recoveries from injuries.
•MEDICAL PROFESSIONAL LIABILITY: Possible increase in claims due to provider shortages and
increased patient volume.
•WORKER’S COMPENSATION: Impact of uncovered services, taxes, and provider shortages.
•AUTOMOBILE INSURERS: Impact upon treatment costs.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Cost Shifting
• The Affordable Care Act will attempt to contain Medicare and Medicaid
costs by implementing the following measures:
– Payments to hospitals for treatment of indigent patients will be reduced by 75 percent.
– Payments to Medicare Advantage plans will be revised and joined with fee for service
reimbursement levels.
– Future payments to hospitals will be reduced for readmission of Medicare patients and
for conditions that patients acquire while in hospital care.
– Affordable care organizations will be created to reduce the cost of medical care.
– Creation of a Payment Advisory Board to recommend ways
to reduce Medicare spending.
– Medicare may implement a bundled payment approach for
reimbursement, replacing fee-for-service reimbursements.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
• These measures may cause medical providers to lose income. In order to
recover that lost revenue, medical providers may look to property and
casualty insurers.
– Medical providers may refuse to compromise their liens for services,
or they may increase the cost of their services.
– Medical providers may raise revenues by increasing the volume of
patients.
– They may also increase the services that they provide to those
patients.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Claim Shifting
Due to the ACA, many employers have replaced previous health insurance
plans with plans containing higher deductibles and co-insurance provisions
that will increase out-of-pocket costs for insureds.
Additionally, health insurers may refuse to provide coverage for procedures
not recommended by the Patient-Centered Outcomes Research Institute.
As a result, injured individuals may seek to have their injuries cared for under
property or casualty providers rather than their own health care insurer.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Additional Calculated Fraud
In 2013, the National Insurance Crime Bureau predicted that as a result of increased fraud
investigation measures included in the ACA, career insurance defrauders and unscrupulous
medical providers could shift their focus to property and casualty insurers. Thus, property and
casualty insurers should take preventative measures to detect such claims, including:
•Monitoring and evaluating orders for durable medical equipment and confirm the provider’s
eligibility for such equipment.
•Adopt provider claim reimbursement standards similar to those of the ACA.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Reduction In Claims Based Upon Fewer Uninsureds
Prior to the ACA, uninsured individuals who were injured or ill could file
worker’s compensation claims or automobile claims in order to receive
treatment for conditions that would otherwise be too expensive to treat.
–In an Insurance Research Council study, suspected fraud was found in
approximately one in ten first-party, no-fault auto insurance claims. In
29 percent of those claims, the claimed injury was unrelated to the
accident reported in the claim.
With health insurance coverage under the ACA, there could be a significant
decrease in such fraudulent claims.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
It is unclear how many individuals will no longer be insured as a result of the
ACA. However, during the first three months that the ACA’s insurance
marketplace was active, 2.2 million individuals enrolled in coverage.
A 2012 RAND Institute study that examined Massachusetts health insurance
reforms that are similar to those of the ACA, found that the reforms
significantly reduced the number of individuals without health insurance. The
report noted a 5-7 percent reduction in workers compensation emergency
room bill volume to a 40 percent decrease in the number of uninsureds
reporting to Massachusetts emergency rooms.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Reduction In Personal Injury Damages For Future
Medical Care
Life care plans, and other estimates of the cost of future medical care for
injured parties are currently based on estimates of future billed charges for
future medical care. Considering that the ACA provides guaranteed coverage
with no exclusions for preexisting conditions, and no lifetime limits on
benefits paid, plaintiffs will have access to medical treatment in which
reimbursement is based on lower, negotiated reimbursement rates. As a
result, the anticipated cost of future medical care could be significantly lower
than current estimates.
Some commentators have suggested that with the ACA,
future medical costs should only be limited to the cost
of premiums for coverage plus anticipated out of pocket
costs.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Of all the anticipated effects of the ACA, this one seems to have the most
direct and consequential impact on Property and Casualty Insurers. However,
it is not likely to ever occur, due to the following:
•Most states have adopted some form of the “collateral source rule”, which
prohibits jurors from considering payments to a plaintiff from sources other
than a defendant. Insurance payments are one such “collateral source.”
•The ACA does not grant private, non-employer based insurers a right of
subrogation.
•Any change to the collateral source rule would need to be based in statutory
revisions or changes to the common law.
•Considering that such changes would significantly reduce the value of a
personal injury case, it can be anticipated that plaintiff’s groups such as The
American Association for Justice will vociferously oppose any statutory
changes or legal challenges to existing common law.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Healthier Populations
Under the ACA, preventative services must be provided to those participating
in a plan. Additionally, the ACA provides financial incentives to encourage
employers to provide wellness programs for their employees.
•Employees may earn a discount on their health insurance premium if they
participate in an employer-sponsored wellness program.
–50 percent of premium for programs designed to prevent or reduce tobacco use.
–30 percent of premium for all other health-contingent wellness programs.
Healthier people will not only be less prone to injury, but they also will
recover from injuries faster, which will reduce the cost of medical treatment
received.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Medical Professional Liability
The increase in coverage for health care could lead to an increased volume of
patients seeking health care, possibly as much as 15 percent. It is currently
unknown whether there is a sufficient number of physicians to handle a
dramatic increase in numbers of patients. With tens of millions of people who
were previously uninsured now having insurance, waiting rooms could be
overwhelmed with patients seeking treatment. This increased volume could
also cause physicians to allow treatment of relatively minor conditions by
non-physician providers.
The increase in patient volume, combined with a
shortage of physicians, and treatment administered by
non-physician providers, creates conditions that
increase exposure to possible malpractice claims.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Workers’ Compensation
•Increased taxes on the pharmaceutical industry are likely to be passed on to
workers’ compensation payors.
•Black Lung presumptions
–Any miner or surviving spouse with 15 or more years of underground
coal (or substantially similar) mine employment and a totally disabling
respiratory or pulmonary impairment is presumed to be disabled due to
pneumoconiosis and is eligible for Black Lung benefits.
•Most medical devices will be subject to a 2.3 percent excise tax collected at
the time of purchase.
•An insufficient number of doctors to meet the sudden influx of patients,
combined with the fact that more patients will have access to specialists
could cause medical costs to rise.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
•A massive increase in patients could also lead medical care providers to raise
prices for their services, especially to workers’ compensation insurers, which
generally have less market leverage than their counterparts in government or
other health insurance.
•However, individuals who have health insurance coverage may be less likely
to fraudulently seek workers’ compensation coverage for non-work related
injuries.
•Also, earlier intervention and encouraging individuals to take better care of
themselves, could lower rates of obesity, diabetes, and high blood pressure,
all of which have been blamed for fueling job-related injury claims.
•The law provides research funds to study the effectiveness of treatments,
which will establish best practices, thus saving money for payers.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
•Healthier workers could return to work after an injury faster, thus reducing
the duration of workers’ compensation benefits.
•The ACA will increase competition for access to physicians. This could lead
to longer wait times for treatment, and less timely treatment for workplace
injuries.
•However, a decline in utilization of workers’ compensation may actually
lower costs.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
Automobile Insurers
Auto insurers may be victims of cost shifting. In fact, hospital cost shifting for
automobile liability claims in states with tort-based auto injury insurance
systems resulted in $1.2 billion in excess charges in 2007, prior to the Act
becoming law.
Auto insurers rely upon a “reasonable and necessary” standard to review
medical services and treatment. However, insurers often do not have the
review controls that are in place with public insurance programs. Thus, auto
insurers could be vulnerable to a health care provider that increases the
volume and number of services provided to patients in order to offset losses
caused by the ACA.
However, fraudulent claims could decrease. Currently, uninsured individuals
may seek treatment for health problems by filing false claims with auto
insurers.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers
If those individuals receive health insurance under the ACA, they may be
more likely to seek treatment, rather than proceed with a fraudulent claim.
Additionally, healthy individuals are more likely to recover from injuries faster
than unhealthy individuals. Thus, the cost of medical treatment for an
injured, but insured healthy person is expected to be less than that for an
injured, uninsured, unhealthy person.
However, increased costs could lead healthcare carriers to become more
aggressive in collecting money spent for treatment from property/casualty
insurers.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers:
Initial Assessment
Anticipated Impact Of The Affordable Care Act
On Property And Casualty Insurers:
Initial Assessment
Many analysts believed that the existing system of employer-provided health
insurance would be severely weakened if not altogether destroyed.
•Thus far, the ACA has actually had the opposite effect, strengthening the current
system.
–A 2011, survey indicated that as many as 50% of employers with a great awareness of the ACA
anticipated no longer offering health insurance after the ACA took primary effect in 2014.
–However, a recent survey of employers found that 95% of companies report that offering
subsidized healthcare coverage to workers will be a key part of their employment compensation
packages for the foreseeable future.
•Premiums for employer related health care have risen only 3%.
•In 2014, deductibles for employees rose only slightly from 2013 levels.
•Co-pays and other out of pocket costs remained roughly the same as 2013.
•Companies with 50 or more full-time workers can choose to pay an annual
penalty of $2,000 per worker if they do not wish to offer health insurance. Their
employees can then obtain coverage through the government-run public
exchanges. However, not many employers have elected to cancel their insurance
offerings. Why? There are several factors:
Anticipated Impact Of The Affordable Care Act
On Property And Casualty Insurers:
Initial Assessment
–A robust economy that has been adding approximately 250,000 jobs each month.
–Corporate profits have been strong, which provides companies with more flexibility when
dealing with costs, such as insurance premiums.
–A recent survey indicated that 77% of companies say that they are not confident in public
health exchanges. The rocky rollout of the ACA may have strengthened the appeal of
employer-based plans to both employees and employers.
–Cancelling workers’ current insurance would result in a pay cut for employees as they
would have to obtain insurance through the insurance exchange. This would unquestionably
lower morale, and possibly cause an exodus in the workforce.
–The tax penalties for individuals who do not have insurance appears to be pushing
individuals to enroll in their health care plans offered by their employers.
•For 2014, the penalty is the greater of either:
–1% of your household income above $10,000 up to a maximum of $2,448 per
person or
–$95 per adult and $47.50 per child, up to a family maximum of $285.
•In 2015, penalty is the greater of
–2% of your household income or
–$325 per adult and $162.50 per child up to a family maximum of $975.
Anticipated Impact Of The Affordable Care Act
On Property And Casualty Insurers:
Initial Assessment
•Health care spending is growing at the slowest rate on record.
–Since the ACA was signed in 2010, spending has grown at an annual rate of
just 1.3 percent.
–This is less than one-third of the long-term historical average since 1965.
•Health care price inflation is at its lowest rate in 50 years.
–Measured using personal consumption, expenditure price indices, inflation
for health care goods and service is 1 percent on an year-over-year basis,
which is the lowest level since January 1962.
•Slow growth in health care prices and spending may be attributable at least in
part to the ACA.
–Provisions that reduce Medicare overpayments to private insurers and
medical providers are contributing to the slow growth in prices and spending.
–ACA provisions are reducing hospital readmission rates, and increasing
provider participation in payment models designed to promote high-quality,
efficient care.
Anticipated Impact Of The Affordable Care Act
On Property And Casualty Insurers:
Initial Assessment
Arizona
•According to the U.S. Department of Health and Human Services, as of
January 9th, more than 160,000 Arizonans signed up for new coverage or reenrolled in existing plans through the federal marketplace.
–This is a 34 percent increase over last year’s enrollment of 120,000.
•Insurers and brokers report a significant increase in consumers purchasing
plans directly from insurers or through brokers.
•A Gallup poll in August 2014 found that Arizona’s uninsured rate dropped
17.2 percent, down from 20.4 percent in 2013.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers:
Conclusion
There are provisions of the Affordable Care Act that have not yet taken effect
and which may yet affect its overall impact. For instance, in 2017, large
employers may be eligible to purchase insurance through the Health
Insurance Marketplace, and in 2018, a Federal tax on high-value benefits
packages takes effect.
However, the preliminary results indicate that largest impact of the ACA, if
any, will be on employers and health care providers. Although there may be
indirect consequences to Property and Casualty Insurers, considering the
initial figures, it does not appear that the impact will be as significant as
originally anticipated. Additionally, some anticipated effects seem to rely
upon a great deal of consumer sophistication and a desire to defraud. These
may be difficult to track, but the preliminary results do not indicate a
significant increase in such activity.
Anticipated Impact Of The Affordable Care
Act On Property And Casualty Insurers:
Conclusion
Although it has not yet taken full effect, legal and legislative efforts to repeal
the Affordable Care Act are underway. Therefore, the law may end up having
zero effect on Property and Casualty Insurers. Yet, even if the Affordable Care
Act remains unaffected and is unaltered, it appears that the impact upon
Property and Casualty Insurers may be minimal.
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