The Role of Cost Shifting in No-Fault Policy Reforms

The Citizens Research Council of Michigan recently released the report Medical Costs of No-fault Automobile Insurance, which identifies a number of reform options policymakers could use to address medical prices and usage rates associated with auto accidents in Michigan.  The reform options presented in the paper range in how they impact the current features of no-fault and whom will be most affected.  Several policy options would reduce the prices paid by auto insurers and, if prices are set at reasonable levels, should not impact auto accident victims’ access to medical benefits in addition to maintaining most, if not all, of the other major features of Michigan’s current no-fault system.

However, even though the major features of no-fault are not impacted by some of these reform options, there will still likely be repercussions elsewhere in the health care system.  Reductions in prices would reduce the revenues received by providers, including hospitals.  The majority of health care claims are not due to auto accidents and the portion of revenues provided by auto insurance reimbursement will vary considerably by provider type and other factors.  How providers respond to reduced revenues will vary by provider but may include several scenarios.

First, in response to lower revenues from auto insurers, providers could reduce capacity which may include layoffs of staff, service reductions, or reductions in staff wages.  The scale of these reductions will be determined by the degree to which providers’ revenues are affected by lower prices or other policy reforms.

Second, providers may attempt to replace lost revenues through other means.  Cost-shifting, the practice of charging some customers more in order to cover lower rates paid by other customers, is often borne by private health insurers.  Providers are often unable to collect higher prices from public health insurers, such as Medicare and Medicaid, and from other insurers that pay according to a fee schedule, such as workers’ compensation.  Therefore, they may look to private health insurers as an avenue for recouping lost revenues.  If costs are shifted to private health insurers then it is possible that private health insurers will in turn raise premiums resulting in increased costs for employers and employees.  Each health insurer will have a different response based on their unique circumstances.

Policymakers should be aware of these potential impacts should they consider reforms to Michigan’s no-fault insurance.

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One Response to The Role of Cost Shifting in No-Fault Policy Reforms

  1. Nancy Barbour says:

    I hope that Michigan lawmakers are very careful about how they change the medical coverage provided in our No-Fault auto insurance. In my former jobs, I had the opportunity to work with people with catastrophic injuries. In an outpatient setting, I knew a man who had an auto accident some 15 years earlier. It had left him with a sore and stiff leg, back injuries, and cognitive problems. He walked using a cane, and a few times a year he returned to physical therapy when his mobility deteriorated. After a couple months in therapy, he would be more mobile and have less pain and would be more active again. He had also spent a long time in an inpatient rehabilitation facility right after he recovered from his initial injuries. I don’t remember exact details, but he had been given months – perhaps even a year – at the facility to recover as much functioning as possible. He lived at home with his wife and their children and he was active with volunteer work in his community when he was feeling well. His cognitive problems were getting worse as he aged, though. Our doctor suggested testing to see what was going on in his brain and the tests were done. He then received therapy to deal with the new problems with his thinking.

    In contrast, I later worked providing services to people who lived in long-term care facilities – nursing homes. There I knew a number of younger people who had lived in the nursing homes for years and who never expected to leave. All were there because of accidents that did not occur in cars. One had suffered a fall, another had a diving accident. Both had the use of their hands. Neither could walk. For both of these men, life in the nursing home depended on how busy staff were, how willing or able they were to assist them to get up into their wheelchairs. Both spent many days in bed because the staff did not have time to get them up. That was not the “official” reason they were in bed, since, on paper, the staff had to get them up if the men wanted to get up that day. If a resident was insistent, they told me, they knew that their care would suffer in a different area, so it wasn’t worth it to insist on getting up too often. One fellow could only tolerate being in his chair for a couple of hours. If he got up, staff wanted to leave him up for several hours, and that would cause him pain. It was generally accepted that you could not ask the staff on one shift to get you up, then later put you back in bed. You had to stay up until the next shift came on, then wait for them to see each of their other residents and maybe serve a meal. For some residents, a home would figure out a schedule that worked for everybody. Other residents gave up and only got up out of bed a day or two a week.

    If these men had been injured in car accidents, their insurance would have paid for them to live in group homes in the community or at home with their families. There might be four or five residents in the group home. They could get up often enough to learn to tolerate being up in their wheelchairs because they were able to be put back to bed when they hurt. A wheelchair van would take them shopping and to appointments. In contrast, one of the nursing homes I visited did not allow residents to go out and sit on the spacious front veranda because they could not be bothered to keep track of who had the “right” to be independent outside, or who would be a flight risk. Instead, all residents had to go out to one of two other enclosed garden areas. Both were beautiful, but neither gave the resident a view of the traffic or people coming and going. Neither had shade, so were hot in the summer. Both felt just as “locked up” to residents as being inside the building.

    There was also an issue with physical therapy. With Medicare and Medicaid, you receive rehabilitation as long as you demonstrate that you are making progress. When you reach your “functional plateau” and your progress stops, your therapy stops. On the surface, this makes sense. What they usually do not tell you is that if you are having a bad day, or are ill and unable to attend therapy, it is considered a “refusal”. If you “refuse” to attend therapy three times, you can be dismissed from therapy altogether. You have “plateaued” because you are unable to cooperate and do your physical therapy exercises. Whatever level of functioning you achieve before hitting your “plateau” will be considered your maximum level of functioning – possibly for the rest of your life. So when you are most vulnerable, when your muscles and nervous system are healing from the initial injury, you must make your very best progress. Sometimes you can later get rehabilitation to try to make progress beyond this initial point, but not always. Years go by between periods of rehabilitation at some nursing homes for some residents. It depends on the attitude of the resident, the family and the staff. A poor attitude in any one of these three areas can doom a person’s chances at making improvement later in their recovery.

    I never met a person in a nursing home who lived there because of having had a car accident. People were there for years and years because of falls, diving accidents, drug overdoses, and chronic illness.

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