Medicaid coverage expansions and liability insurance

• Author: Paul Heaton,Caleb Flint
• DOI: http://doi.org/10.1111/jori.12306
• Date: 01 March 2021
• Published date: 01 March 2021

J Risk Insur. 2021;88:29–51. wileyonlinelibrary.com/journal/JORI

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DOI: 10.1111/jori.12306

ORIGINAL ARTICLE

Medicaid coverage expansions and liability

insurance

Paul Heaton

1

|Caleb Flint

2

1

University of Pennsylvania and RAND

2

University of Pennsylvania

Funding information

RAND Institute for Civil Justice

Abstract

Do changes in the population covered by health in-

surance affect liability insurers, who compensate billions

of dollars in medical claims each year? We examine this

question by exploiting the selective rollout across states

of Medicaid expansions under the Affordable Care Act.

Using data on insurer losses across a range of insurance

lines, and employing a triple‐difference research design

that contrasts states, years, and lines of insurance, we

demonstrate that coverage expansions reduce auto lia-

bility and workers’compensation outlays by 6–11 per-

cent, but do not measurably impact other lines of

insurance. Our analysis provides some of the first evi-

dence regarding the use of the tort system particularized

to the low‐income population and is the first to consider

the impacts of health insurance on medical professional

liability and commercial auto insurance claims.

KEYWORDS

Affordable Care Act, auto liability, medicaid, workers'

compensation

1|INTRODUCTION

Since its enactment in 2010, the Patient Protection and Affordable Care Act (ACA) has led to

expanded health insurance coverage for over 18 million working‐age U.S. adults, including over

6.9 million individuals who gained coverage through expanded Medicaid programs (U.S.

Census Bureau, 2017). More recently, the Tax Cuts and Jobs Act of 2017 repealed the ACA

individual mandate, which is projected to reduce Medicaid enrollments by four million by 2021

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© 2020 The American Risk and Insurance Association

(Congressional Budget Office [CBO], Joint Committee on Taxation [JCT], 2017). These changes

in Medicaid—which is expected to pay out $408.7B in total in 2018 (United States Department

of Health & Human Services [HHS], 2018)—have potentially far‐reaching effects for both health

insurance markets and other products and services connected to the U.S. Health Care System.

This article examines how the Medicaid coverage expansion affected tort compensation,

focusing on compensation for injuries connected with liability insurance, including auto

insurance (both private and commercial), medical professional liability (MPL) insurance,

workers’compensation (WC) insurance, and homeowners insurance. A large proportion of auto

insurance claim costs ($35B) and nearly half of WC costs ($31B) are attributable to medical

expenses (National Academy of Social Insurance [NASI], 2017).

Previous empirical and theoretical research suggests that changes to the health insurance en-

vironment might affect the tort system. Because auto insurance and WC can be used to compensate

medical expanses, health insurance might substitute for auto insurance and WC claims. In addition,

changes in health insurance coverage might affect the population’s usage and familiarity with the

health care system, potentially increasing the number of medical malpractice claims. Empirical

studies to date, most of which are very recent, have focused on auto and WC, and examined reforms

that expanded health insurance across a range of income levels. This article is the first to consider the

effects of the Medicaid expansion, which is targeted to low‐income beneficiaries and involves less

generous reimbursement to providers. It also examines a richer set of tort claims than prior work,

including providing the first causal estimates of the effects of health insurance coverage on MPL and

commercial auto injury payments.

We explore the relationship between Medicaid expansion and tort liability by exploiting state

differences in the timing of Medicaid expansion and by using insurance loss ratio data provided by the

National Association of Insurance Commissioners (NAIC). Using a triple‐differences research design,

we show a statistically significant 7.0 percentage point reduction in private auto insurance loss

payments and 9.8 percentage point reduction in WC loss payments, which is consistent with the

magnitude and direction of previous empirical studies. The effects on other lines of insurance were

smaller and not statistically significant: −0.6 percentage points for MPL insurance, 4.2 percentage

points for homeowners insurance, and −2.2 percentage points for commercial auto insurance. We

confirm the main impacts across a variety of robustness checks, including a dose‐response analysis

that limits attention to only states that expanded Medicaid, and address potential threats to identi-

fication with several placebo analyses.

These findings carry relevance for a variety of stakeholders, including insurers, health care

providers, policymakers, and researchers. First, by identifying health insurance coverage re-

forms as a driver of insurance losses, these findings could enable insurers to better anticipate

future claims outlays and set more precise reserve levels. More particularly, these results could

assist insurers in projecting the likely effects of proposed or enacted state‐level Medicaid rule

changes, which could improve underwriting. Second, the results demonstrate that there is some

substitution between health insurance and liability insurance, which holds implications for

both policymakers and health care providers. Because different forms of insurance reimburse

providers at different rates for the same services, providers have the incentive to seek re-

imbursement from the most generous party that is legally responsible for services. These results

suggest that providers may not be obtaining payment from the most remunerative payers. For

policymakers, this substitution also implies that Medicaid expansions entail a transfer of some

costs that were previously being borne by private actors to the public fisc. Presumably, the

presence of such unintended transfers should be a factor considered in the development of

state‐level Medicaid policy, including, for those states that have not yet chosen to expand

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HEATON AND FLINT