A recent study by the Rand Corporation on how ObamaCare might affect liability insurers led to some surprising conclusions. Among their findings was that ObamaCare is likely to produce a drop in auto insurance premiums when fully implemented in 2016.
Several articles followed, claiming that ObamaCare could lower car insurance premiums. As with most Affordable Care Act discussions, the reaction was similar to tossing a squirrel into a dog kennel. ObamaCare critics dismissed the study as propaganda (although the RAND Corporation is generally thought of as centrist) and backers held it up as another ObamaCare triumph. Both are probably wrong.
Skeptics point out that ObamaCare addresses health insurance, not car insurance. Health and car insurance are generally sold by different insurers as completely different insurance products. Why would you expect ObamaCare to lower your car insurance any more than you would expect it to lower your car payments?
The connection is through the medical components of auto coverage – the intersection between those systems is when people are injured in an auto accident. How are these medical claims (and any subsequent lawsuits) paid – through auto insurance, health insurance, or combinations thereof?
Generally, auto insurers are the primary payers – through either MedPay or PIP (Personal Injury Protection) coverage for injuries in your vehicle, or liability (otherwise known as Bodily Injury or BI) for injuries in other vehicles that were caused by your actions. So-called no-fault states require you to carry either PIP or MedPay. Liability is required in virtually all states.
To lower car insurance rates, the ACA would have to reduce claims against these coverages.
Like all studies, the RAND study has a significant amount of uncertainty, and RAND is upfront about that, discussing it in great detail in the report. However, the conclusions people are drawing from the study seem to be based on a few arguable, if not outright faulty, premises.
First, consider the highly dubious premise that cost savings to insurers will be passed on to customers as lower rates. Let's be charitable and assume they will, and consider the study results instead – which focus on liability claims and costs, not auto insurance rates.
RAND claims several mechanisms, with these two mainly affecting the auto insurance component.
- Substitution – Reduction in unrelated medical claims covered by auto insurance, under the premise that these would be covered by health insurance instead, either beforehand or afterward. In other words, less of “Hey, Doc, while you're in there, would you please fix ___."
- Collateral Sources – Through potential state limits and laws that cap these awards, the BI awards can be reduced by whatever health insurance has paid. So, damage awards are lowered, resulting in savings. That's possible, but speculative.
Some dubious arguments have been extrapolated from this study. For example, the claim that more prevalent health insurance will result in fewer auto insurance medical claims is just plain wrong. Health insurance does not substitute for auto insurance; the auto companies pay first before health insurance kicks in – at least that is the current practice. Eventually, health insurance could shoulder more of the burden, mostly through liability claims – but is that good news?
Similarly, the claim that the bulk purchasing power of health care providers beats that of auto insurers is not directly relevant (if not outright false) – it fails to take state auto insurance payment regulations and fee schedules into account.
From our perspective, it seems more likely that if there is any effect, it will be negligible. By itself, the assumption that all cost savings will be passed on to consumers should be enough to raise the skeptical eyebrow.
But let the arguments rage on! In several years we will find out who was right… and then we will probably all argue about how the effect was measured. The only truly predictable thing is that an argument will follow.