Actuaries Examine the Impact of Health Care Reform on P&C Insurers

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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.

“The changes could significantly affect property/casualty insurance,” said Anne Petrides, FCAS, MAAA, a director and consulting actuary with Towers Watson. “But as of now, it is hard to tell what impact the reforms will have on liability and costs.”

While changes in federal health care reform remain months away—elements of the Affordable Care Act (ACA) have been phased in since the law’s passage in 2010, but many key reforms begin Jan. 1, 2014—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.

Petrides led a discussion on how those changes could increase or decrease liability and costs in medical malpractice and workers’ compensation, two lines most likely to be affected by the ACA. The impact will differ by state, she said, as both lines are sensitive to state laws and regulations, but actuaries need to consider the potential impact of these effects so they can adjust rates and reserves when changes occur.

The conversation featured lots of back-and-forth on factors that haven’t yet been clarified. In terms of medical malpractice, early treatment could lead to better outcomes and help prevent adverse circumstances 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.

Also, the 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.

Some of the same changes 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.

Other lines will be affected if, for example, reform triggers a wave of mergers and acquisitions, in which case directors and officers coverage could be at risk. Also, the group points out that 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 payers so as to remain financially sound.

In the end, Cali and Petrides agreed that it’s impossible to know right now how this will all shake out. But they urged P&C actuaries to act now to help the industry understand the potential exposure and to begin gathering and analyzing data that will help them respond when changes do occur.

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