How Health Reform Will Affect Workers’ Comp, Liability Insurance

The federal health reform enacted last year will bring short- and long-term challenges to employers and the property/casualty insurance industry.

According to Harry Shuford, chief economist for the insurance industry’s National Council on Compensation Insurance, the new law is “a totally new healthcare system that appears to have material implications for the future of healthcare delivery in the U.S.”

Shuford was one of the speakers addressing attendees at a recent Casualty Actuarial Society seminar in New Orleans on the effect of the Patient Protection and Affordable Care Act (PPACA) on the property/casualty industry.

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

Spending for medical benefits under workers’ compensation has, on average, followed the same dramatic growth pattern, he said, but total medical benefits under workers’ compensation 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 said. “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 said.

He said some aspects of the new law have the potential to positively affect property/casualty insurance. These include administrative simplification and standardization, with everyone using the same forms, which are handled electronically.

Also, Medicare fees are going to be adjusted a little less frequently, which should hold down costs.

Other changes, such as evidence-based medicine, pay per episode, pay for outcomes, reimbursement schedules and accountable care organizations, could also influence medical costs trends for property/casualty insurers, according to Shuford.

Medical Malpractice

John Mize, a consulting actuary with Towers Watson, said a decrease in the number of uninsureds promised under the new law 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 said other key provisions of the reform law could lower or raise malpractice liability, including provisions for $50 million for state malpractice reform pilot programs, improved healthcare information technology, and increased reporting on malpractice payments, which could make more information available to the public about malpractice claims and payments.

“Healthcare reform is the largest change in healthcare finance since the implementation of Medicare,” Mize said, “and is likely to lead to substantial changes in healthcare 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 Casualty Actuarial Society has 5,500 members, including experts in property/casualty insurance, reinsurance, finance, risk management, and enterprise risk management.