The key changes in federal health care reform remain months away, but property/casualty actuaries are already trying to determine what impact they will have on their own lines of business as new rules and regulations emerge.
Elements of the Affordable Care Act have been phased in since the law's 2010 passage, but many key reforms begin January 1, 2014. The expected impact on health insurance is direct and widely studied - the law will expand access to affordable health care and attempt to rein in rising medical costs. Less obvious - but still important - are the indirect effects on other insurance lines, such as workers' compensation and medical malpractice. Property/casualty actuaries need to consider the potential impact of these effects so they can adjust rates and reserves when changes occur.
At the Casualty Actuarial Society's (CAS) Ratemaking and Product Management Seminar held March 12-13, two Fellows of the CAS led a discussion of the health care law's major changes and how the reforms may affect property-casualty lines.
Many of the law's measures have already been enacted, said Laura N. Cali, FCAS, MAAA, chief actuary and manager of product regulation for the Oregon Insurance Division. But the biggest changes remain, including requiring everyone to buy insurance and eliminating health insurers' ability to deny coverage.
Key questions include:
- How effective will the individual mandate be?
- Will the uninsured population entering the market be healthier or less healthy than current insureds?
- How much pressure will fall upon primary care givers like physicians, as millions of new insureds seek treatment? Will more treatment be handled by non-physicians, such as nurse practitioners, and what impact will that have?
- How will medical specialists be affected? They may not face an instant influx of patients, the way primary care physicians will, but demand for specialists' services will increase as new insureds work their way through the system.
The law is creating "a lot of new regulations," Cali said, "and it's happening quickly."
The changes could significantly affect property/casualty insurance, said Anne M. Petrides, FCAS, MAAA, a director and consulting actuary with Towers Watson. As of now, it is hard to tell what impact the reforms will have on liability and costs, she added.
Petrides led a discussion of major changes and how those changes could either increase or decrease liability and costs in two lines most likely to be affected - medical malpractice and workers' compensation. She noted that the impact will differ by state as both lines are sensitive to state laws and regulations.
Health care reform will increase the number of people who have health insurance. This could reduce medical malpractice liabilities if new insureds are able to visit doctors earlier than they would have without insurance and receive earlier treatment.
Early treatment could lead to better medical outcomes and thus help prevent the adverse outcomes that can trigger malpractice lawsuits.
But the increase in the insured population could raise liabilities, as more patients per unit exposure would imply more potential risk. Also a physician shortage could impact the frequency of medical errors.
The same change could lower costs in workers' compensation if greater access to health care created a healthier workplace. But it could increase costs if a doctor shortage delayed treatment and a return to work.
Also for workers' compensation, costs could go down if research created greater agreement on what are now questionable treatments. But costs would go up if the research indicated more treatment, or more expensive treatment, is warranted.
Reform's attempt to create financial incentives for improved care and patient safety could lower medical malpractice liability if the incentives work as intended. But liability could increase if failure to qualify for an incentive becomes considered as evidence of negligence.
Other lines will be affected, too. If reform triggers a wave of mergers and acquisitions, directors and officers coverage could be at risk. Auto liability could be affected by any changes in how medical care is provided. For both workers' compensation and auto liability coverages, uncertainty exists if decreases to provider fees in the health care system will require the providers to shift shortfalls to third party payors so as to remain financially sound.
Cali and Petrides agreed that it's impossible to know right now how this will all shake out. But property/casualty actuaries can act now to help the industry understand the potential exposure and begin gathering and analyzing data that will help them respond when changes do occur.
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