Inflation’s Next Wave: Medical Care and Its Impact on Auto Casualty Billing
One of the biggest casualty trends in 2023 is medical care inflation and its impact on auto casualty billing.
Inflation has been top-of-mind for most of us since early 2021, The impacts have been inescapable – from the grocery store to the gas pump to the car dealership. This current period of inflation is the highest we’ve seen in 40 years, and medical care costs are certainly not exempt. In fact, medical bill inflation, which typically lags other sectors, is accelerating, with the real impact expected to be felt in the next one to two years.
To help understand what’s ahead, let’s look at how medical care inflation has reacted during periods of high inflation in the past.
For historical perspective, we need to go all the way back to recessionary periods from the mid-1970’s and early 1980’s. Though the specific economic conditions may have been different, we can still draw a few key insights: In general, overall Consumer Price Index inflation spikes were followed by similar medical inflation spikes within a 1–2-year period (Figure 1), and while delayed, important to note that the increases stayed elevated for longer periods than overall inflation.
Once again, we see medical care inflation slow to react compared to volatile items like food and energy. That’s largely due to provider–payee contracting cycles, but make no mistake, it is catching up (Figure 2). As of September 2022, U.S. medical care inflation was 6.0% with a steeply increasing trajectory.
For the P&C insurance industry, price increases often land heaviest on auto casualty billing since casualty pricing and reimbursement are not tied to major payer contracts. This is evident in the recent auto casualty billing severity acceleration we observed from our 1st and 3rd party medical bill review data with 1st party average bill severity up 4.2% and 3rd party average bill severity up 11% compared to Q3 2021. (Figures 3 and 4).
Given these inflationary challenges, it’s more important than ever for auto insurers to leverage benchmarks when evaluating the reasonableness of charges, and to have them readily accessible to the adjuster. Benchmarks such as Medicare reimbursement schedules and Fair Health pricing can be easily integrated within a bill review application for this purpose.
Medical inflation is here, escalating quickly, and likely to persist for an extended period based on historical indicators. Insurers who have integrated a comprehensive, consistent, easy-to-use benchmarking strategy into their workflow will be best equipped to indemnify their casualty claims.
For more information on CCC or medical severity impacts, visit our website at CCCIS.com, or contact a member of our support team today.