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How Obamacare could lower your car insurance premiums

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Here’s something the White House probably didn’t see coming: It turns out the Affordable Care Act, President Obama’s big health-reform effort, could affect the cost of other types of insurance. And unlike several unwelcome surprises that have undermined support for the ACA, this development might save consumers a few bucks.

The biggest open question about Obamacare, as the ACA is known, is how it will change the market for medical care and the health of people newly covered by insurance. But Obamacare is also likely to change the market for other types of insurance as well, with researchers just beginning to probe how that might play out.

A new study by the nonprofit Rand Corp. finds Obamacare is likely to lower the cost of auto insurance and worker’s compensation plans, while raising the cost of medical malpractice coverage for doctors and other healthcare providers. The connection between Obamacare and other types of insurance might not seem obvious, but it’s intuitive once you think about how insurance works.

A meaningful drop

Most auto insurance, for instance, includes coverage for medical costs when people are injured in a crash — including the person paying for the policy and unknown third parties who might be injured as well. With Obamacare, however, more people will have regular health insurance, leading to fewer claims against auto insurers for medical costs. On top of that, healthcare insurers typically negotiate the lowest costs for medical care, since they effectively buy in bulk. Auto insurers don’t, and are more likely to pay “list price” for medical services. So fewer medical claims could lead to a meaningful drop in costs for auto insurers.

In some states — mostly those with the lowest Obamacare participation rates — the drop might be too small to notice. But Rand estimates that in states such as Florida, Colorado, Montana, Oregon and several others, costs could decline by somewhere between 3% and 5% by 2016, which would surely be a welcome savings to insurers. If they were to pass on the savings to customers through lower premiums, a driver with a $1,000 annual premium would save $30 to $50, with higher savings for people with costlier policies, such as families with teenage drivers.

The cost of workers' compensation coverage could fall for similar reasons — it sometimes pays for medical bills that may now be covered by private health insurance. Cost savings could hit 1% to 2% in many states, with insurers passing on some of that saving to businesses that pay for coverage.

A different dynamic is likely to affect the market for medical malpractice coverage. With more people insured, there are likely to be more medical procedures, more problems and more malpractice claims. Rand estimates overall malpractice claims — which have been declining during the last decade — could increase by 5% or so under Obamacare. More claims will boost payouts by insurers and therefore raise the cost of coverage, by an average of about 3.4% in Rand’s diagnosis.

Longer-term changes?

Obamacare could change the insurance industry in other ways that are harder to predict and might take longer to play out. Many states require no-fault auto insurance, so coverage is available no matter what in accidents that cause costly injuries. But as more people have health insurance, states may decide no-fault auto coverage is no longer needed. Since no-fault tends to be more expensive than traditional coverage, that could be another source of savings.

The same could go for workers' comp, with states possibly deciding it’s less important to include medical coverage in such policies, and maybe even questioning the need for workers' comp altogether. “If most of the population has private health insurance that can provide treatment immediately following an injury,” the Rand study theorizes, “this rationale for the existence of [workers' comp] is undermined.”

It also stands to reason that, if more people have health insurance, then more people will get needed medical care and the overall health of the U.S. population will improve. There’s no guarantee that will happen, but if it does, then healthcare costs could decline overall, pushing insurance costs lower, while Americans also enjoy the less measurable benefits of better health. President Obama can only wish.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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