Managing medical in Auto insurance – quick primer

Of late there’s been a resurgence of interest in managing the medical component of auto liability claims.  This happens every few years as insurers, entrepreneurs, and regulators look for ways to reduce costs and premiums.

The quick take – there’s not much opportunity here, and it doesn’t look like that’s going to change.

The details

With the exception of Michigan, which has no limit on medical benefits, almost all states have low minimum coverage requirements, often $5,000 – $10,000.  Some states – NJ, ND, MN, NY – have somewhat higher limits, and other state limits – e.g. UT – are lower.

If there’s an accident with bodily injury in a low-limit state, claims adjusters tend to set the reserve at the limit and do very little to “manage” the medical expense.  There are several reasons for this.

First, once the patient is transported to an ER, the bills pile up rapidly – diagnostics, specialists, medications, facility fees. (Mitchell’s latest report provides interesting detail on cost drivers; link opens pdf)

Second, most states don’t have fee schedules for auto medical care, so providers charge at or close to chargemaster rates – which are much higher than those for commercial health patients.

Third, this all happens before the auto insurance company is notified of and has accepted the claim.

Fourth, with rare exceptions, the insurer can’t direct the injured party to a specific provider or panel of providers.  Without that direction, providers are loath to offer any preferential pricing or other accommodations to the insurer or insured.

That’s not to say auto insurers don’t employ any medical management techniques. Independent Medical Exams, utilization review, medical bill audit, and nurse case management are tools that are occasionally used by payers seeking to ensure the care provided is appropriate.

Going forward, I don’t expect this to change.  While costs are up in some states, in my view that’s a temporary phenomenon.  Much more significant will be a massive reduction in injuries that is sure to follow widespread adoption of automated driving aids.

What does this mean for you?

Outside of Michigan and a couple other states, there’s not a lot of opportunity here.

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