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'Obamacare' Raises the Stakes for Medical Malpractice Carriers

Posted by Sam Friedman, Insurance research leader, Deloitte Services LP, on October 1, 2013 

With millions of newly insured patients expected to flood doctor’s offices as health care reform is fully implemented in just a few months, medical malpractice insurers are likely hoping for the best but bracing for the worst in terms of the law’s impact on liability trends.

Most of the attention surrounding the Patient Protection and Affordable Care Act (PPACA) — better known as “Obamacare” — has focused on the controversial mandate requiring all individuals to have health insurance starting in 2014, or pay a penalty on their federal income tax forms.

Those who want coverage but are unable to afford it will be steered into the Medicaid program, or given subsidies to purchase a policy in the private market. Public and private exchanges are being created to help consumers shop for coverage.

In my last blog, I examined the possible spillover effect of the law on non-health insurance policies with medical care components — particularly workers’ compensation. But there are potentially game-changing implications for professional liability carriers as well, implications both positive and negative.

Optimists will point out that thanks to Obamacare, there will be a greater emphasis on preventative care, which should mean better outcomes and fewer dissatisfied patients tempted to blame the doctor for their ailments and sue for damages.

Indeed, getting health coverage to those currently without insurance should prompt more people to set up regular checkups, address minor ailments before they become major ones, or seek treatment for chronic medical conditions – when in the past they might not have been able to afford to do so. To drive home the point of being more proactive, the law provides incentives for employers to form wellness programs and for employees to participate in them.

In addition, PPACA provides research funds to study the comparative effectiveness of various treatment options. Medical malpractice insurers could benefit if the insights gained from such studies actually improve patient care, resulting in lower claims, filed with less frequency and severity.

PPACA also includes incentives for providers to computerize medical records. Having an automated system in place might improve patient care — for example, by more reliably red-flagging a prescription for a drug that would induce an allergic reaction in a particular patient. Keeping online records might also lead to more effective coordination of care among providers, again producing better outcomes and thus avoiding malpractice claims.

That’s all for the good, but pessimists have reasons for concern.

For one, if hordes of new patients end up storming medical offices waving freshly-minted insurance cards, overwhelming an already shrinking primary care community, doctors might spend less time on each case and rush through exams. Many currently insured patients might have to wait longer to see a doctor or get a diagnostic test. The result could be more frequent mistakes and delays in care, prompting additional medical malpractice suits.

Another element to consider is the likelihood that increased demand for medical care will accelerate the use of physician assistants, nurse practitioners and telemedicine to cope with the overflow. In my prior blog, I credited this as a positive factor for time-sensitive workers’ comp carriers, in that the additional manpower might help alleviate delays in seeing patients. But the flip side of this coin is the potential negative impact on the frequency of medical malpractice claims, if critical symptoms are overlooked or misread by less-qualified providers or by doctors examining patients virtually.

Computerization of records and studies into standards of care may also create problems. Mistakes in data input — perhaps inevitable given the large influx of new patients to be processed and old records to be converted — could increase treatment errors, while providing plaintiff lawyers with a rich source of malpractice evidence. And doctors who stray from any newly established best practice, no matter what the justification, could find themselves more vulnerable legally.

These risks are neither theoretical nor far off in the future. Obamacare is being implemented as you read this blog. The spotlight has understandably been shining on the fallout for health insurers, but property and casualty carriers will feel the impact soon enough.

Medical malpractice carriers should look to facilitate potentially positive effects — for example, by providing data to help those responsible for studying treatment options to establish best practices. There is also a potential cross-selling opportunity to offer cyber-liability coverage to practitioners who are computerizing their paper records for the first time.

However, med mal insurers also need to project how the stress put on the health care system as a result of the new law can be factored into underwriting, pricing and claims systems, while paying close attention to frequency and severity trends as Obamacare is fully implemented over the next couple of years.

Sam Friedman is insurance research leader with Deloitte’s Center for Financial Services in New York. He may be reached at samfriedman@deloitte.com.

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