Both sides of the political spectrum are abuzz this week with the latest findings of Rand Corp. The broad strokes of the recent report from Rand indicate that more people have health insurance today as a result of the Affordable Care Act than did prior to its implementation. But broad strokes were not what Rick Newman of Yahoo! Finance had in mind when recently combing over the report.
Newman points out a smaller nugget of information hiding in the details of Rand’s findings. That nugget: other forms of insurance could see a price reduction as a result of ACA. Whether that is the case or not, the reasoning does make sense.
As Newman points out, “Obamacare [ACA] is … likely to change the market for other types of insurance as well, with researchers just beginning to probe how that might play out.” He adds that the law “is likely to lower the cost of auto insurance and worker’s compensation plans, while raising the cost of medical malpractice coverage for doctors and other healthcare providers.”
How The Price Drop Might Work
Auto insurance typically has built-in coverage for medical expenses whenever people are injured as the result of an auto accident. This coverage includes the person footing the bill for the policy as well as unknown third parties who might have been victimized by the crash.
“With Obamacare,” Newman notes, “more people will have regular health insurance, leading to fewer claims against auto insurers for medical costs. On top of that, healthcare insurers typically negotiate the lowest costs for medical care, since they effectively buy in bulk. Auto insurers don’t, and are more likely to pay ‘list price’ for medical services. So fewer medical claims could lead to a meaningful drop in costs for auto insurers.”
To illustrate how these savings might play out, Rand observes that states with low ACA participation rates will probably experience savings “too small to notice.” However, in states with heavier participation rates — Florida, Montana, Oregon, Colorado, etc. — auto insurance costs could drop between three and five percent in the next two years. “If they were to pass on the savings to customers through lower premiums, a driver with a $1,000 annual premium would save $30 to $50, with higher savings for people with costlier policies, such as families with teenage drivers,” Newman observed.
As for workers’ comp coverage, those rates might fall for the same reasons at a drop of one to two percent, “with insurers passing on some of that saving to businesses that pay for coverage,” Newman added.
The Long Run
Rand believes that ACA will probably change the insurance industry in ways that are difficult to predict. “Many states require no-fault auto insurance, so coverage is available no matter what in accidents that cause costly injuries,” Newman said. “But as more people have health insurance, states may decide no-fault auto coverage is no longer needed. Since no-fault tends to be more expensive than traditional coverage, that could be another source of savings.”
