How Will the Patient Protection and Affordable Care Act Affect Liability Insurance Costs?

The Patient Protection and Affordable Care Act (ACA) will greatly expand private coverage and Medicaid while making major changes to payment rates and the health care delivery system. These changes will affect traditional health insurers, individuals, and government payers. In addition, a considerable amount of health care is paid for directly by or is indirectly paid for via legal settlements after the care occurs, by liability insurers. This report identifies potential mechanisms through which the ACA might affect claim costs for several major types of liability coverage, especially auto insurance, workers' compensation coverage, and medical malpractice. The authors discuss the conceptual basis for each mechanism, review existing scholarly evidence regarding its importance, and, where possible, develop rough estimates of the size and direction of expected impacts as of 2016. They examine how each mechanism might operate across different liability lines and discuss how variation across states in legal rules, demographics, and other factors might moderate each mechanism's operation. Overall, expected short-term effects of the ACA appear likely to be small relative to aggregate liability insurer payouts in the markets in question. However, under reasonable assumptions, some mechanisms can generate potential cost changes as high as 5 percent or more in particular states and insurance lines. The authors also discuss longer-run changes that could be fostered by the ACA that might exert more significant effects on insurance claim costs, including shifts in tort law, changes in physician supply, new pricing approaches under the accountable care organization model, and changes in population health.