P&C Insurance: Technology, Innovation, Regulatory & Strategic Business Issues & Developments

Blogs Home >> P&C Insurance: Technology, Innovation, Regulatory & Strategic Business Issues & Developments >> 'Healthcare Providers Are Infecting Auto Insurers'

Healthcare Providers Are Infecting Auto Insurers

It is well understood that the U.S. healthcare system is under tremendous pressure from all directions. Government fee reductions, declining private-sector program enrollments, provider and supplier cost and price increases, and uncertainties of impending regulatory change are simultaneously impacting healthcare economics. What is not so well understood are the repercussions of this pressure beyond the healthcare system. One relevant and glaring case in point is the significant and growing practice of cost shifting — charging the nation’s property and casualty (P&C) insurance companies, specifically the automobile insurance segment, for medical-provider services. This leakage has been masked until now by lower-than-usual auto claim frequencies, which offset a roughly equal rise in severity in Personal Injury Protection (PIP), Bodily Injury (BI), and Physical Damage (PD) lines of coverage. The Insurance Research Council has been reporting these trends for years, and stated in April 2010 that “cost shifting in 2007 resulted in US$1.2 billion in excess hospital charges. The full impact of hospital cost shifting, including that occurring in other insurance coverage, is likely much greater.” Moreover, the yet-to-be-defined Patient Protection and Affordable Care Act is likely to increase cost shifting from the healthcare system to insurers of workers’ compensation and automobile liability. With U.S. 2011 catastrophe losses helping to drive the first-half 2011 industry-combined ratio to a decade-high 110.5% and insurance-company share values falling accordingly, P&C carriers will no longer be allowed to ignore this leakage. Not even planned rate increases will be enough to cover it. While plenty of healthcare fraud is being perpetrated these days, nobody is accusing healthcare industry-hospitals in this case of malicious intent. The factors that brought all of us to this point are complicated and insidious. Medicare and Medicaid have been using tightened billing and payment controls to cut back reimbursement rates for medical providers. These same providers have seen their billings further reduced as more employers provide less coverage to a dwindling employee pool. Hospitals have recruited skilled administrators and implemented sophisticated medical-record and billing systems focused on revenue enhancement over efficiency, diagnostic upcoding being one major result. Although hospitals are focused primarily on the largest payer segment — government and private health plans — these billing practices also affect P&C carriers (representing only 10% of hospital revenue) that lack the resources, experience, and general awareness of the much larger payers. Traditional insurance industry solutions for medical cost containment include medical bill repricing and automated bodily injury evaluation; these solutions are effective in many ways, but are not designed to identify diagnostic upcoding. There are third-party-service firms that possess the expertise and technology to address and prevent this leakage in a mostly manual fashion, yet the industry has been slow to utilize these services. Eventually, with enough industry usage and support, these experts will no doubt combine forces with established or entrepreneurial information technology providers to automate and scale the process. There is a well-known and successful self-help program in which the first of the 12 steps to recovery is “admitting you have a problem.” This probably applies well here. In the end, I suppose we consumers pay the bills, but overpaying for car insurance because insurance companies aren’t paying attention is just wrong.

Posted on Friday, Oct 14, 2011 11:14:15 CDT by StephenApplebaum