10/10/2013

Health Care Reform's Impact on Claims Management

How the Patient Protection and Affordable Care Act could affect P&C insurers' operations.

By Sam Friedman

The nickname “Obamacare” has been employed as a point of pride by supporters of the president’s health insurance reform program and as a term of derision by its opponents. How should property and casualty insurers feel about the changes ahead—positive or negative—given the law’s potential impact on their claims management operations?

Frankly, this could go either way. Indeed, Obamacare may end up being both a plus and a minus for P&C insurance carriers. While designed specifically to transform the health insurance system, Obamacare—referring to the Patient Protection and Affordable Care Act—will prompt widespread changes in the medical community that are likely to reverberate throughout the P&C insurance business as well.

Elements of the law have been in effect for some time now. But the biggest change is yet to come—the mandate starting in 2014 dictating that just about everyone must show proof of health insurance or pay a penalty on their income tax forms if failing to comply.

Those wanting coverage but unable to afford it may be eligible to receive government subsidies to purchase insurance or, depending on the state, may be able to join the Medicaid program. Those with pre-existing conditions cannot be turned away. Public and private exchanges are being set up to place coverage for the massive influx of new insureds.

The mandate alone likely will send shock waves throughout the health care market, particularly when it comes to availability at first and perhaps the cost of care later on. It’s Economics 101 in terms of supply and demand. With tens of millions who are currently uninsured expected to have coverage next year, we could see waiting rooms overwhelmed with new patients for primary care doctors, specialists, diagnostic facilities, hospitals, and rehabilitation centers.

At a minimum, many could have a much harder time getting an appointment to see a doctor, arrange for tests, or schedule physical therapy in a timely fashion. While this would be inconvenient for those paying with standard health insurance, it could be a major cost driver for workers’ comp carriers, which depend on providing fast and intensified treatments to get people back on the job and off wage indemnity payments as quickly as possible.

The same supply and demand pressures could lead medical care providers to raise their prices, particularly those charged to workers’ comp insurers, which generally have far less market leverage than either the government (in Medicare and Medicaid) or most health insurers.

Thus, the profitability of workers’ comp could be challenged if Obamacare causes a bottleneck in access to medical care. That’s because, while job-related medical claims account for a relatively tiny slice of the overall health care cost pie, they take up at least half of the payments made by workers’ comp insurers.

On the other hand, there are a number of positive outcomes that Obamacare’s coverage mandate might promote to the benefit of workers’ comp carriers.

For one, if millions more get health coverage, there likely will be less temptation among those currently uninsured who are hurt away from work to falsely say they were injured on the job just so they can file a fake workers’ comp claim to cover their medical bills. Such temptations won’t disappear entirely (since workers’ comp does not impose deductibles or co-payments on patients, which can be costly), but with far fewer people lacking basic health insurance, this should theoretically relieve the pressure on many to hand in fraudulent claims.

Meanwhile, the spread of health insurance hopefully will spur more people to get regular checkups, address minor ailments before they become major ones, and seek treatment for chronic medical conditions. In addition, the law provides incentives for employers to establish wellness programs and for workers to participate in them. Earlier intervention and encouraging more people to take better care of themselves could eventually lower rates of obesity, diabetes, and high blood pressure—societal challenges that have been blamed recently for fueling more job-related injury claims.

The law also provides research funds to study the comparative effectiveness of various treatment options, with the goal of establishing best practices for providers and saving money for payers. Workers’ comp and even auto liability carriers could benefit from the insights gained in such studies by altering their treatment protocols accordingly.

In this “glass half full” outlook, once all the pieces of Obamacare are in place emphasizing prevention, earlier detection, and quicker treatment of sudden and chronic illnesses, we might eventually see a far healthier workforce less likely to be injured on the job—and, if hurt, to perhaps recover more quickly—resulting in fewer and less severe comp claims.

Another major property and casualty line that might be affected by Obamacare—in both a positive and negative way—is professional liability for providers.

On the downside, if a horde of new patients storm medical offices waiving freshly minted insurance cards, overwhelming the healthcare community, doctors might spend less time on each case and perhaps even rush through examinations. The result may be more frequent mistakes and additional medical malpractice suits.

On the upside, however, if more patients can afford to seek care when medical problems arise because they now have health insurance, fewer may delay seeing a doctor until their condition becomes acute, thereby reducing the likelihood of a bad outcome and a malpractice claim from a dissatisfied patient.

There are flip sides to another part of the law as well—the push for providers to computerize medical records. Having an automated system in place could, for example, red-flag a prescription for a drug that would induce an allergic reaction in a particular patient. Better record-keeping might also lead to more effective coordination of care among providers, producing better outcomes and thus avoiding a malpractice claim.

On the other hand, mistakes in data input—perhaps inevitable given the large influx of new patients to be processed, while transitioning the mountains of existing paper records to bytes—could end up increasing the prevalence of treatment errors, while providing plaintiff lawyers with a rich source of malpractice evidence. Computerizing records also creates data privacy and cyber-security exposures for practitioners (and a new sales opportunity for insurers of such liability risks).

Another element to consider is the likelihood that a potential flood of newly insured patients will accelerate the already growing use of physician assistants, nurse practitioners, and perhaps even telemedicine to cope with the overflow. Delegating routine care and seeing more patients virtually might mitigate any anticipated rise in wait times and perhaps alleviate indemnity cost concerns for workers’ comp insurers. But malpractice claims could just as well multiply if critical symptoms are overlooked by less-qualified providers or by doctors not examining patients in person.

There are other potential areas of fallout for property and casualty insurers to contemplate, but I fear I’ve raised your blood pressure high enough for the moment. While I am not a doctor (nor do I play one on TV), my advice would be that, to avoid stress as Obamacare is fully implemented, property and casualty insurers with medical care considerations impacting their balance sheets should hope for the best but be prepared for the worst.  



Sam Friedman is insurance research leader with Deloitte’s Center for Financial Services in New York. He has been a Fellow with CLM since 2011, and can be reached at samfriedman@deloitte.com.

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