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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