No More No-Fault?

REVIEW SUMMARY
Issue. Fraud is killing Florida's no-fault insurance program and costing insurance companies and Floridians $1 billion a year.
Industry. Auto insurance
Key. Fix the costly fraud loopholes this session or kill the program.

Florida's no-fault law continues to be a tangle of bureaucracy, fraud and ever rising prices for insurers and consumers.

Even though car crashes and injuries from those crashes decreased in Florida between 2007 and 2010, no-fault claims through the state's personal injury protection law soared. Between 2006 and 2010, PIP payments increased 66%.

Insurers are responding. In the past two years, State Farm's PIP rates have risen 50%, GEICO's are up 72% and Progressive's are up 63%. In 2010, insurers paid out $1.04 for each $1 in premiums they collected. That doesn't work.

The system, which everyone who drives must buy into by law, is busted for insurance companies and consumers, and it's one of the elements that make the state less attractive.

But those ever-rising costs flow into the pockets of lawyers and some in the medical community, an unusual alliance that has fought to keep any attempts to reform the personal injury protection law. The two groups, which often oppose each other, managed to kill reform last year in committee by one vote.

“It's really tough passing anything because doctors, lawyers, clinics, chiropractors, message therapists and others make a lot of money off PIP,” says Sam Miller, executive vice president of the Florida Insurance Council.

But the Legislature is back at it. Maybe for the last time.

Rep. Jim Boyd, R-Bradenton, is sponsoring deep changes that would eliminate PIP as the state's no-fault law and replace it with something called the Emergency Care Coverage law, which is designed to fix the PIP fraud problems.

“We can't kick the can down the road any longer,” Boyd told the House Subcommittee on Insurance and Banking recently. “It's going to cost Floridians another 30% in insurance premiums.”

The subcommittee passed the bill on a 10-5 vote, but it has several other committees to go through and does not have a strong companion bill yet in the Senate. But Boyd is adamant about change.

“We're not going to tolerate it any longer,” he says. “We need to fix this system once and for all.”

Gov. Rick Scott is more than a little onboard. It is one of his top priorities. Seeing it as a necessary component to driving economic growth in the state, he made it part of his State of the State address. He said to fight the cost of living in Florida, the state needs to be “cracking down on the fraud and abuse that some people have brought to our auto insurance system.”

Scott told the Business Review he thinks the Legislature will pass serious reforms this year: “I'm not letting up until we fix it.”

But if the new legislation is passed and signed into law — which is far from a certainty at this point -- it has the potential to raise a new realm of bureaucracy and state costs, and it could shift extra burdens onto law enforcement at a time when local agencies are being forced to cut back on resources. Like so many well-intentioned government programs, it may fix one problem and create two more.

All of which raises the question: Should Florida continue to have a no-fault law? This is the sixth attempt to “fix” the law since 2000, but the problem seems to keep getting worse. If it is not fixable, perhaps Florida will need to join 40 other states that do not have no-fault laws.

History of failure
Legislators have been wrestling with this issue for decades.

Florida originally passed no-fault auto coverage in 1971 to provide immediate coverage and health care to people in a car accident. The goal of the law was to provide for medical, surgical, funeral and disability insurance benefits without first having to determine fault — which can take months or even years. In return for assuring payment of these benefits within 30 days, the law limits the ability to sue insurance companies. But those limits have been manipulated in court, costing insurers millions.

By 2000, a statewide grand jury found rampant fraud in the system and made recommendations, many of which were enacted by the Legislature in 2001. Problems remained and more reforms were introduced in 2003. Still no good, and more changes were made in 2006. During a special session in 2008, the law had to be reinstated because it had lapsed as the Legislature tried yet again to fix problems but was set back by Gov. Charlie Crist's veto after he was lobbied by lawyers and doctors groups. Last year, reform died in committee by one vote.

And that is where we are now; still trying to fix a system that is looking increasingly impervious to fixing.

“What has gone on is an awful lot of fraud and abuse,” Miller says. The insurance expert says some are planned ahead through staging minor accidents — an act for which Tampa has been ground zero -- whereas others are a result of people being directed to the PIP clinics after a fender-bender. Once at the clinics, many accident-related injuries are discovered, tests are done — sometimes up to 10 MRIs are charged — and loopholes are used to sue insurance companies for many times the policy maximum.

Miller says most people with serious injuries go to the hospital or their doctor, not a clinic in an office building that specializes in handling PIP cases and has a billing department up to 10 times larger than the medical staff.

Florida CFO Jeff Atwater has increased investigations and raids on PIP clinics, but it has not made a dent in the problem. He is urging the Florida Bar Association to ban lawyers from dealing with referral services — about 70 of which now operate in Florida to direct people in car accidents to lawyers who specialize in PIP lawsuits.

The Florida Office of Insurance Regulation reported in April that the number of Florida drivers had remained stable for five years while the number of accidents had actually decreased. But the frequency of severity of PIP claims had increased by double-digit percentages each year.

For instance, from 2008 to 2010, PIP benefits paid out increased from $1.43 billion to $2.37 billion, or 70%. From 2006-2010, the number of PIP lawsuits increased an astounding 387%. These numbers are why PIP insurance premiums are predicted to rise 29% this year.

The National Insurance Crime Bureau estimates that no-fault fraud costs auto policyholders nearly $1 billion in premiums — about $100 per two-car household.

These numbers will continue unless there is a complete overhaul or the elimination of the program. The Senate's proposal to tinker at the margins will do little good.

What to do?
One tack, of course, is to attempt yet another overhaul of the current system, which is what Boyd's bill does.

The gist of Boyd's bill is to restrict attorney fees and channel accident victims to hospital emergency rooms or urgent care facilities connected to ERs to eliminate the abuse of PIP clinics. A patient would have to show up within four days in an ER, rather than 14 days in any clinic, which is current law.

The bill requires that law enforcement use the long-form for all accidents. In minor accidents, officers often use a short-form, which does not require listing all the passengers in a car. In fraud cases, there often said to have been five or six people in a vehicle and no police report to counter it.

The Florida Consumer Action Network (FCAN) worries that the bill goes overboard and restricts consumer access to care. But the same care is available within a four-day frame and the restrictions are as much on trial lawyers, who are the real losers in the bill.

More politics come from some of those who voted against the bill in committee.

Rep. Evan Jenne, D-Dania Beach, wondered why lawmakers want to restrict people's choice of medical professionals. “It seems a little Romneyish,” he added, a dig at Republican Mitt Romney.

A more serious concern came from Rep. Ritch Workman, R-Melbourne, who worries that hospitals will be tempted to game the new system: “How long is it before hospitals figure out that PIP equals $10,000?”

The staff analysis of the House bill says there is no cost impact on state or local governments. But that is not altogether accurate. Requiring full reports on each auto accident, instead of the short-form now for minor ones, will require more time for law enforcement officers of cities and counties. Plus, increased licensing requirements in the bill would require increased monitoring by the state. That will mean increased bureaucracy, and that costs money.

Whether the House bill can get through the House and Senate without being diluted is unlikely. And if it does, there is no guarantee it will really fix the system.

A different tack was taken last year in Tampa, where the Hillsborough County Sheriff's Department began aggressively targeting staged accidents by increasing patrols and surveillance. The department also was on the offensive in getting drivers to report suspicious accidents. The result is that in the last 15 months, the Sheriff's department has made 123 arrests resulting in 50 criminal charges related to staged accidents.

But again, it takes a lot of manpower and other resources that could be used to fight other crimes.

The end of no-fault?
The nuclear option probably needs to be on the table — if not this year, then next. And that is: The elimination of no-fault insurance in Florida.

Gov. Scott told the Business Review that will not happen during this session. “The Legislature is not going to do that.”

Such a move is seen as too draconian, and draconian often means difficult politics. But if six “fixes” over 12 years do not fix the system, lawmakers may have to conclude for the good of the state that it is not fixable.

Of course the trial lawyers, PIP clinics, massage therapists and others making money off PIP, plus probably FCAN, will battle any such attempt on the grounds of hurting consumers. But the system rips off a lot more consumers than it helps.

The most compelling opposition to such a step comes from the Florida Medical Association, which has argued that eliminating no-fault insurance coverage would drive up health care costs. In many cases with poorer people, no-fault is the only insurance they have to cover medical expenses in an accident, because it is mandatory. Without it, these people will show up in hospital emergency rooms with no health care coverage, meaning hospitals might raise prices on paying patients to cover the others.

The point is taken. But if no-fault cannot be fixed to drive out the fraud and soaring costs for all driving Floridians, eliminating it may be the only option left.