Hospital Cost Shifting Hits Auto Insurers

There’s been a lot of talk about how the property/casualty insurance sector may be affected by landmark healthcare legislation enacted by Congress last month. One of the concerns among p/c insurers is cost shifting. A new study from the Insurance Research Council (IRC) shows that hospitals have been shifting costs to auto insurers for some time because of low reimbursements from public health insurance programs, such as Medicare and Medicaid. This raises auto injury claim costs and forces auto insurers to more closely scrutinize and negotiate hospital bills prior to payment.

According to IRC estimates, in 38 tort and add-on states, cost shifting for bodily injury claims in 2007 resulted in $1.2 billion in excess hospital charges. However, the full impact of hospital cost shifting, including that occurring in other insurance coverages and in other states, may be much greater. Over to Elizabeth Sprinkel, senior vice president of the IRC:

The conventional wisdom is that hospitals aggressively seek to shift costs from public insurance programs to private payers such as auto insurance companies. With this study, we now have information on the magnitude of cost shifting and a better understanding of the need for supportive state laws and effective tools that will enable auto insurers to pay hospitals appropriately and help control auto injury claim costs.†

Hospital cost shifting to auto injury claims also illustrates the complex relationship between p/c insurance and the broader healthcare and insurance system, according to Sprinkel:

Healthcare legislation enacted by Congress last month underscores the complexity of this relationship. It will take months, if not years, to understand the full impact of the reforms on hospital cost shifting and the auto insurance system.†

To explore the relationship between key health system features and auto injury hospital costs, IRC developed a statistical model of average hospital charges for auto injury claims in different states. Key predictors of average hospital charges confirmed by the model are the percentage of a state’s population without health insurance coverage and the percentage of the population covered by Medicaid. To estimate excess hospital charges due to hospital cost shifting, IRC compared average hospital charges for BI liability claims in Maryland with average charges in 38 other tort and add-on states. Some 22 insurers, representing 58 percent of the private passenger auto insurance market in the United States in 2006, participated in the study. Check out I.I.I. facts and stats on auto insurance.

†¢ On a separate note, we’re honored to have been named a top 50 hospital administration blog by Hospitalicious in the “Health Insurance and Disease Management† category.

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