When it comes to car insurance claims, people often think of vehicle repairs following an accident, but your liability insurance also covers medical bills for others you injure in a car accident — which can add up quickly and often exceed the cost of even a totaled vehicle. From emergency room visits to physical therapy, costs associated with medical care after car accidents are on the rise, and insurers are adjusting rates accordingly.
As the cost of wages, medication and medical equipment and supplies increases, so does the price insurance carriers have to pay out for personal injury protection, medical payments and bodily injury claims. Bankrate’s True Cost of Auto Insurance report found that the average cost of full coverage car insurance has increased over 30 percent since 2023.
Healthcare costs are on the rise
Inflation and fallout from product shortages and shipping delays from the pandemic significantly impacted the cost of many medical-related goods and services. According to the U.S. Bureau of Labor Statistics, the two main components of medical care are medical care services and medical care commodities. From January 2019 to January 2025, the Consumer Price Index (CPI) showed the cost of medical care services and commodities increased by 18 percent and 10 percent, respectively.
However, these numbers don’t tell the whole story. Some items that fall under both major medical care components don’t necessarily influence auto insurance rates, such as the cost of private health insurance or nursing home care. When we break out the cost of hospital services, which accounts for services like emergency room visits and urgent care centers, those costs increased by 26 percent.
Ongoing staffing shortages increase medical care costs
Insurance industry costs often lag behind contributing factors, and the healthcare industry is still dealing with fallout from the pandemic and related challenges. Guy Fraker, an insurance consultant specializing in financial predictive modeling, says factors contributing to rising healthcare costs include “continuous and relentless technological advancements, foreign-sourced pharmaceuticals and personnel shortages during high demand, particularly in specialized nursing.” The pandemic amplified workforce shortages in both the healthcare and auto tech industries, which are still affecting the sectors today.
About 100,000 registered nurses (RNs) left the healthcare profession within two years of the pandemic due to burnout, stress and retirement, according to a National Council of State Boards of Nursing report. The Health Resources and Services Administration projects that by 2027, there will be a shortage of over 300,000 RNs and 146,000 licensed nurse practitioners across the country. A shortage of physicians is also anticipated, with an estimated deficit of 124,000 physicians by 2027, and over 187,000 by 2037.
When hospitals can’t hire enough permanent staff, they turn to contract labor. According to an American Hospital Association (AHA) report, New Jersey hospitals paid an additional $670 million in 2021 for contract labor, which was three times the amount spent the year before. These higher costs are reflected in hospital bills, which mean higher claim payouts and, eventually, higher car insurance rates.
How do healthcare costs impact auto insurance?
Bodily injury liability pays for the medical expenses of people you injure in a car accident. According to CCC Intelligent Solutions (CCC), average bodily injury claim payouts increased by 35 percent from Q3 2023 to Q1 2025, averaging $27.6K per injured party. States with the largest increases are:
- Arizona: 13.5 percent
- Virginia: 10.6 percent
- California: 8.7 percent
- Washington: 5.7 percent
Depending on the state, personal injury protection (PIP) or medical expense coverage (MedPay) may also be a part of your policy by choice or by law. These coverage types pay for the medical costs for you and your passengers, regardless of fault. Nationally, average PIP claim payouts increased by 4 percent between Q3 2023 and Q1 2025.
CCC data shows that first-party bill line severity (the per-service dollar amount) increased by 7-8 percent for all states from Q4 2023 to Q4 2024, whether PIP is required or not. Notable increases are being seen specifically in radiology, surgical, and evaluation and management procedures. States showing the biggest jump in individual line item severity are:
- Massachusetts: 24.2 percent
- New Jersey: 18.2 percent
- Ohio: 17.5 percent
- Washington: 14.1 percent
- Kentucky: 13.4 percent
- North Carolina: 12.6 percent
- Michigan: 11.7 percent
In no-fault states like New York and Florida, drivers are required to carry PIP coverage to pay for injuries to themselves and their passengers in an accident, regardless of fault. When you’ve exhausted your PIP coverage limits, your personal health insurance (if you have it) kicks in to cover your remaining costs.
In working the healthcare industry from a risk perspective and underwriting views, the cost of healthcare has increased for the same reason everything else has, because it can. The two main reasons for healthcare increases are because there are no real regulations of the insurance companies, which are supposed to pay for care in accordance with policy, and the repricing of bills has changed.
— Richard Weaver, Senior healthcare claims supervisor
Weaver, who specializes in medical malpractice and risk management, is referring to some of the other aspects that increase the cost of health insurance and auto insurance that aren’t as apparent to consumers, including third-party litigation.
While auto insurance and health insurance companies work together to coordinate claims, third-party litigation and legal system abuse can muddy the waters. “No-fault states experience significantly lower litigation rates involving claimants suing an insurer of other parties to a crash,” says Fraker. “However, even in no-fault states, 47-62 percent of accident victims seek legal representation prior to filing a claim with their own insurer.”
Legal system abuse doesn’t happen in a vacuum. Bad actors, from lawyers to doctors to hedge fund managers, can profit from taking advantage of the system put in place to make filing claims easier for policyholders. Doctors or lawyers looking to increase their profits through litigation funding can send accident victims to multiple healthcare providers within a loosely formed network, especially for neck, back and soft tissue injuries, such as whiplash. These medical treatments are billed based on a fee schedule set by the providers, but they will often accept much lower payments as a final settlement. The difference between what is billed and what is paid is called ‘phantom billing’ and, according to Fraker, “has become a lucrative business model for investors.”
Are healthcare costs to blame for my high rates?
Increases in medical care expenses directly impact auto insurance rates, but this is only one of several factors that are responsible for higher car insurance rates.
While bodily injury and PIP payments have higher claim payout amounts, collision and comprehensive claims occur about five times more frequently. This means that changes in costs related to vehicle parts and repairs may have a more significant impact on your auto insurance rates.
However, this could change as we see how President Trump’s new tariff plans impact car insurance.
For the sake of argument, let us assume significant tariffs do come to pass and are applicable to specific sectors imported from China, India, Canada and Mexico. The volume of technological components built into medical equipment imported into the U.S. from China and India, on a relative basis, exceeds the volume of “computer” components imported for vehicles.
— Guy Fraker, Principal, BAF Advisory Services
Not only is medical equipment likely to become more expensive in the near future, but so may medication. “The vast majority of pharmaceuticals for chronic physical and mental health conditions are imported from China,” says Fraker.
Bottom line
As a consumer, much of what is increasing the cost of medical care in America is beyond our control. “If healthcare were regulated like it should, costs would significantly decrease,” says Weaver. “Those who are in positions to regulate insurance companies aren’t experienced enough to know the business from a perspective other than sales.”
However, there are steps drivers can take to use their car insurance to their advantage. If you have selected a high-deductible healthcare plan to save money on your health insurance, talk to your agent to see how your car insurance will cover your injuries in the event of a car accident. MedPay and PIP in most states have a low or zero car insurance deductible, which may be more manageable for you to pay at the time of the loss. Additionally, your PIP or MedPay claim payout could help you meet your health insurance deductible if your injuries exceed your auto insurance coverage amount. But keep in mind, any PIP or MedPay claims can increase your auto rates.
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