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Auto Insurance Cost Shifting

Auto insurance cost shifting is a practice that has become more common in the medical industry. Cost shifting is something hospitals do to recover their losses on public health insurance programs. They tend to try to recover these costs from auto insurance companies. A new study released by the Insurance Research Council suggests that these shifts have resulted in rising auto injury claim costs and higher expenses taken on by insurers.

Low reimbursements from Medicaid and Medicare have caused hospitals to seek other ways to make up their losses. Shifting their costs onto auto insurers has been the solution, according to the IRC report. This trend has prompted many of the nation's major insurance providers to take a closer look at hospital bills and negotiate fees prior to payment, making it harder to find a cheap auto insurance rate.

Cost Shifting in Bodily Injury Claims

The report issued by the Insurance Research Council estimates that in 2007 alone, cost shifting in the 38 tort and add on states resulted in as much as $1.2 billion in excess charges tacked on to fees paid out by insurers in auto insurance injury claims [1]. The entire financial impact of cost shifting across the board, including that which might be found in other insurance claim types and in the no fault states, is unknown but is likely to be much greater. According to the IRC, there has long been a feeling in the insurance industry that hospitals routinely use this tactic to recover losses incurred by payment shortages from public health programs. This report is the first to address the scope of the impact of that tactic and to try to measure its financial cost to the industry.

With the release of this report, the IRC is calling for supportive laws at the state level to better police hospitals and hold them accountable for their billing practices. Ultimately, the excess costs paid out by insurance providers end up coming back to policy subscribers, so the issue is certainly one of public interest as well. Having something in place to safeguard these payments and to ensure that excessive billing is eradicated would seemingly help auto insurance consumers save a great deal of money over the long run.

According to the IRC, the practice of hospital cost shifting to auto injury claims underscores the complexity of the sometimes tenuous relationship between the property casualty industry and the overall health insurance and health care system. Researchers are only now beginning to come up with some numbers to estimate the scope of the practice by hospitals. Its full impact may not be known for years.

Hospital Reimbursement in Maryland

In order to provide the framework for their study, the IRC developed a statistical model to denote average hospital charges for auto injury claims in various states. Some of the key cost predictors uncovered by the model are the state's percentage of residents with no health insurance and the percentage of that state's population covered by Medicaid. In order to come up with an estimate for hospital cost shifting to auto injury claims, the study compared average charges hospitals came up with for bodily injury claims in the state of Maryland with those in 38 other states.

Maryland was ideally suited for the study since it has regulated hospital reimbursement rates for all hospital purchases since the 1970s. Ever since this regulation has been in place, the practice of cost shifting has virtually been nonexistent. Maryland's approach and the resulting changes in these average costs uniquely position it for comparison with other states in the study.

In every area it studied, the IRC found average costs in the state of Maryland to be much lower than those in the other states. Significantly, the study also noted that the average costs of expensive diagnostic procedures performed in Maryland hospitals were much lower than the averages in other states, but when those same procedures were performed outside of hospitals, the average costs came much closer together [1].

IRC Cost Shift Study Implications

The study by the Insurance Research Council was based on a substantial sample of cases, with insurers representing over half of the domestic private passenger market participating. The implications of the study are markedly clear. With a regulated state like Maryland serving as a foil for unregulated states, the results of the report represent a strong case for state level regulation of hospital insurance billing practices across the country.

Whether any major changes ever come out as a result of the study are unclear. The IRC itself doubts that any other states will adopt measures like those taken by the state of Maryland. However, the study does confirm for a lot of industry leaders what they had long suspected about hospital billing practices that impact the price of auto insurance.

[1] http://www.ircweb.org/News/IRCHospitalCostShifting_042210.pdf Retrieved 2010-06-10.

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