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The End of No-Fault: Legislators Will Have to Rescue Program, but Should They?

Jun 9, 2007

By Randy Diamond, The Palm Beach Post, Fla.

Jun. 10--Who could argue with a major auto-insurance price reduction?

State Farm, Florida's largest auto insurer with more than 20 percent of the market, plans to cut rates by 16 percent on Oct 1. Other companies are expected to announce their reductions soon.

But there's a catch. The price decrease comes with the elimination of Florida's no-fault auto-insurance system, which is set to expire Oct. 1. That likely will prompt price increases elsewhere. Without mandatory no-fault medical coverage, known as personal injury protection, or PIP, motorists and their passengers will no longer automatically have $10,000 worth of insurance per person to pay their medical bills and lost wages from auto accidents.

Health insurance will step in for those who have it. But rate increases for health coverage are already in the works to account for the change.

Meanwhile, some 2.8 million Floridians don't have health coverage. That's a significant number, given that some 94 percent to 96 percent of all drivers are currently insured with the mandatory PIP coverage, according to the Florida Department of Highway Safety and Motor Vehicles.

Ending no-fault may end mandatory insurance requirements in Florida to register a car and increase the number of uninsured driving in the road, according to a department official. The lapse of no-fault also is expected to bring additional auto accident-related pain-and-suffering lawsuits to the courts because such actions are barred under the current no-fault law.

State legislators could grant a last-minute reprieve to the no-fault system, or revise it, during a special session on property tax set to begin Tuesday or during another special session.

But legislators are divided over whether to save it or reform it, and Gov. Charlie Crist won't schedule the matter unless there is agreement. It was disagreements by lawmakers over what to do with no-fault that led to a stalemate during the regular session to begin with.

Hospitals say that scrapping no-fault will eat into their bottom line because they will end up treating a higher number of uninsured patients in their emergency rooms. A hospital association study showed a $350 million combined loss for 91 hospitals if PIP was ended, something disputed by auto insurers.

As time runs out, insurers who have lobbied against the system move closer to a victory. But the victory really will be for the consumers, insists State Farm's chief spokesman, Chris Neal.

''The only thing the vast majority of customers will notice is that their rates will go down,'' he said. Neal argues that if you have health insurance you don't need auto-insurance medical coverage.

But with auto insurers paying more than $1 billion a year to drivers and passengers injured in accidents, there will be a cost shift.

Officials from the state's largest health insurer, Blue Cross Blue Shield of Florida, say its actuaries have concluded rates will need to go up for one of its groups of subscribers: state workers. The insurer estimates an increase of $5 to $7 per month for them.

It is still determining how much more the bulk of its 4.1 million policyholders will have to pay to cover the added costs of paying auto accident claims.

Rates have to go up because the insurer's costs will be going up substantially to pay hospital and outpatient bills for its customers injured in auto accidents, according to Steven Smith, Blue Cross' director of governmental affairs.

"We're talking about real money here," he said.

In Colorado, which repealed its no-fault system in 2003, health plans increased annual premiums between 1 percent and 3 percent, according to the Colorado Association of Health Plans.

But many motorists have seen large savings in their auto insurance coverage. State Farm says its rates have dropped by an average of 30 percent in Colorado since no-fault was eliminated.

If no-fault ends in Florida, motorists will need to study their health insurance policy to see what treatments are covered. Some health insurers cap the number of physical therapy or chiropractic treatments, for example.

Auto insurers will sell optional medical coverage for those who want it, but buying that coverage could eliminate any savings realized by ending PIP coverage. About 25 percent of Colorado motorists buy the coverage.

A bigger unknown is what will happen if insurance isn't a requirement to register a car in Florida.

The only two coverages currently required in Florida to drive legally are PIP and property damage, which covers an at-fault driver for damage to another car or other personal property.

Property damage is not being phased out, but the mandatory requirements to purchase it are tied to purchasing PIP, said Dave Westberry, deputy executive director of the Department of Highway Safety and Motor Vehicles. Without PIP there is no mandate to show proof of property-damage coverage when you register a car, he said.

That means Florida's uninsured rate is bound to go up, according to Arnie Vasquez, president of Specialty Agents of Florida, a trade group representing agents who work primarily in low-income areas.

''A lot of people see insurance as a financial burden,'' he said. "They don't see it as a needed coverage." A jump in the uninsured would mean drivers with collision coverage would have to file claims with their own insurer instead of the at-fault driver's company, causing a spike in collision-claim rates, Vasquez said.

Insurers have hired their own lawyers, who dispute the state finding that insurance wouldn't be necessary for registering a car.

''We don't want the Wild West out there,'' said Allison North Jones, a spokeswoman for Floridians for Lower Insurance Costs, a coalition started by auto insurers to push for the end of no-fault.

No-fault was introduced in Florida in the early 1970s as a quick way to compensate people injured in auto accidents regardless of fault for their injuries and lost wages. Injured parties obtain benefits from their own insurance company in exchange for agreeing that they won't file an auto-accident lawsuit for pain and suffering unless they suffer a permanent injury.

The dollars insurers would normally pay in resolving lawsuits are supposed to be redirected toward paying the medical bills and lost wages of the injured.

But the system isn't working well, said Robert Hunter, the insurance director of the Consumer Federation of America, a trade group. The $10,000-per-person maximum in medical coverage is inadequate for major injuries, leaving the seriously injured without coverage they need, he said. Further, accident-related lawsuits aren't being kept out of the court system in large numbers as the no-fault system envisioned, because the threshold to sue is an easy obstacle to hurdle, Hunter said.

A 2000 state grand jury found rampant fraud in the Florida no-fault system, concluding that phony and exaggerated accident claims were being fueled by corrupt medical professionals and trial lawyers.

Since then legislators have tinkered with the system but have resisted comprehensive solutions recommended by state fraud officials, such as fee schedules to control costs for medical treatment and reviews to ensure that such treatment is not excessive.

State officials say fraud remains a major problem in the no-fault system. Florida's average auto-insurance premiums are sixth-highest in the nation: an average of $1,150 for a motorist with full coverage in 2004, the latest year for which statistics are available from the National Association of Insurance Commissioners. The PIP coverage can account for up to a third of that coverage.

Average PIP payouts by insurers in Florida increased from $6,053 in 2002 to $6,737 in 2005, according the Property Casualty Insurers Association of America. But last year average payouts actually dropped to $6,293, the association said. In turn, some auto insurers have cut rates as their costs have been reduced.

It is unclear what triggered the drop in medical payments, but better-made cars and increased enforcement of seat belt laws have led to reduced auto insurance costs in other areas of the country.

William Stander, regional vice president of the Property Casualty Insurers Association of America, insists the drop in PIP payments doesn't alter the basic problem of fraud in the system.

Others say, however, that for every fraudulent case there are plenty of legitimately injured people who are helped by Florida's no-fault system. In many cases, it is their only source of medical insurance.

Seth Goldstein said he is thankful he had PIP coverage in April 2006, when he was involved in a serious accident in Lake Worth. Goldstein did not have health coverage when his Mazda was hit from behind at 40 miles per hour by an uninsured drunken driver in a stolen car.

Goldstein was diagnosed with several bulging and herniated discs and was in constant pain for months, he said. Six months of chiropractic care and other rehabilitation in a local clinic paid by his auto insurer ended the severe back pain, he said.

Goldstein said that without no-fault, he would not have been able to afford treatment.

''Eliminating no-fault would be criminal,'' he said.

Whatever its problems, auto insurers make money selling PIP. Combined, auto insurers paid out $1.6 billion in PIP benefits in 2006 but took in $2.5 billion in premiums for the coverage, according to figures from the state Office of Insurance Regulation.

Stander of the Property Casualty Insurers Association said scrapping no-fault is about principle.

''We shouldn't be selling people a product that they don't need and is full of fraud,'' he said.

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