How Rising Medical Costs Impact Auto Insurance Rates

Americans spend trillions on healthcare costs each year. This reflects the costs associated with chronic and long-term care, as well as the increased costs of new medicines and medical technologies.

Paying for healthcare is a huge concern, with 25% of American families reporting that they are more concerned about healthcare costs than household bills or unemployment worries.

With hospital stays costing $1,791-2,289 per night, doctor visits costing $130-325 per visit, and prescriptions costing the average American $1,370 per year, it is easy to see where these anxieties come from. One illness or accident can set a financially-stable family back $10,000 or more.

These increased healthcare costs also impact auto insurance premiums, especially after an at-fault accident. Many drivers view an increase in their premium as a punishment, but the increase is necessary for insurance carriers to continue to provide quality protection.

High Cost of Medical Care

Larry is usually a safe driver, but one morning, in a rush to get to the office, he doesn’t come to a complete stop at an intersection. Larry’s vehicle hits another vehicle. Although there is a lot of vehicular damage, both drivers, Larry and Greg, appear uninjured—at first.

The next day, Greg’s back is in so much pain that he cannot get out of bed. He chalks it up to whiplash and takes a sick day from work. When the pain does not improve the following day, Greg decides to call his doctor, who orders an x-ray. The x-ray reveals that he has a spinal fracture. He is told that the fracture should heal with regular physical therapy and his doctor recommends that he take three weeks’ disability leave from work. Greg is also prescribed strong pain medication for the first three weeks of recovery.

Even with the time off from work and physical therapy, Greg is in debilitating pain. A follow-up doctor’s appointment shows that the injury is becoming worse and a spinal fusion is recommended, which will take at least another month or two of recovery and physical therapy.

The costs related to a spinal fusion can be as high as $169,000, depending on the extent of the surgery and the duration of the hospital stay. This estimate does not include the costs of recovery time, doctor’s appointments, x-rays, pain medications, and physical therapy.

How Are Insurance Rates Affected?

Your insurance can help cover the cost of an accident. Where do the funds to cover that cost come from? When you and other policyholders pay your premiums, that money is pooled together and used to pay the claims of the policyholders who do suffer losses. Thus, because the accident was Larry’s fault, Larry’s insurer will use the premiums paid by Larry and other policyholders to cover Larry’s accident and Greg’s medical bills.

Keep in mind that although there’s a set price for Greg’s vehicle, there’s not set price for Greg’s medical bills. With bodily injuries, these costs can continue to add up weeks and months after an accident, especially if the injured person needs hospitalization, emergency services, surgery, and long-term care. And, with healthcare costs continuing to rise, insurers are paying out more and more for bodily injury claims.

What does that mean for your insurance premium? In order to pay for more expensive claims, insurers have to charge more expensive rates—not just for Larry, but for their other policyholders, too. It might seem unfair to pay for someone else’s accident, but remember that with an insurance pool, everyone is helping to cover everyone else. This means that if you are ever responsible for an accident, your fellow policyholders (including Larry) will help you pay for it.

Also, note that if you are in an accident and your premium increases, that extra cost probably won’t come close to the actual cost of the accident. If you cause $30,000 in property damage and $10,000 in bodily injury, even if your rates go up by $500 a year for the next three years, you’ll only have to pay an extra $1,500 in fees. This is minor considering how much you could have had to pay if you didn’t have insurance.

Do You Have Enough Coverage?

In life, you get what you pay for, so trying to lower your monthly auto insurance premium to the cheapest price possible may not be the right way to go. In the event of an accident, you want to have enough insurance to cover your needs. Saving $200 a year by selecting the least amount of coverage required might end up costing you several thousand dollars if you’re responsible for an accident.

Bodily Injury Coverage

Every state, except Florida* and New Hampshire, requires bodily injury liability insurance (BI), but each state differs in the minimum amount required. For example, in Arizona and California, drivers are required to carry at least $15,000 of bodily injury coverage per person, but as illustrated by our example, car accident injuries can cost upwards of $100,000 if they result in hospitalization and surgery. Consider carrying at least $100,000 of coverage per person and a total of $300,000 of coverage per accident.

MedPay

Even if your state doesn’t require medical payments coverage (MedPay), consider keeping it on your policy if it’s available. MedPay covers you and your passengers despite who’s at fault for the accident. For example, if you select a $2,000 MedPay limit and your teen driver accidentally drives over your foot backing out of the driveway, your doctor’s visit, x-rays, and treatment will be covered up to $2,000.

Uninsured/Underinsured Motorist Coverage

As if a car accidents isn’t bad enough, colliding with an uninsured or underinsured motorist can make matters even worse. Uninsured/Underinsured motorist coverage pays bodily injury or death expenses for you and your passengers if you are struck by an at-fault driver who is uninsured (i.e., a driver without insurance or a “hit-and-run”) or underinsured (i.e., a driver without enough insurance to cover the damages you are legally entitled to recover). It’s wise to set this coverage to the same limit as your BI. Protect yourself and your passengers, and don’t rely on other drivers to do the right thing.

How to Lower Your Insurance Rates

Having a higher BI limit, MedPay, and uninsured/underinsured motorist coverage can increase your monthly premiums. But these coverages are extremely important and should not be neglected. Yes, it is normal to want a lower monthly insurance premium, but there are other ways to do it. Take a look at your policy to make sure you are getting the best price possible. Are you getting credits for being a longstanding policyholder or good driver? You can also bundle your auto insurance with your home insurance, if offered, for an additional discount.

Don’t make the mistake that many drivers do by not appropriately planning for a car accident. Having the right car insurance can help put your mind at ease when you are on the road.

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*Florida does require $10,000 in property damage liability.