At the crux of the no-fault pay structure is a simple issue: who pays and how much. When Florida became just the second state in the country to enact a no-fault auto insurance program in 1972, it was designed to transfer a tort-based system into a self-executing system. Under the state's no-fault law, all auto policyholders must carry at least $10,000 in PIP coverage, which has a 20 percent deductible. The coverage pays up to 80 percent of medical expenses, 60 percent of lost income, and a $5,000-per-person death benefit.

The PIP coverage limits were initially tailored to cover the majority of physical injuries resulting from an accident with the benefits paid irrespective of who is at fault. The law also prevents lawsuits against at-fault drivers for non-economic damages, such as pain and suffering, except in cases of a permanent injury. Known as the “verbal threshold,” a policyholder can only file a suit if an injury caused significant and permanent scaring or disfigurement that resulted in the significant loss of an important bodily function or resulted in a fatality. The law also allows policyholders to sue in cases where there is no scarring or disfigurement but the injury is determined to be permanent with a reasonable degree of medical probability.

Insurers have argued that the PIP system is rife with fraud and too often enriches health-care providers and lawyers at the expense of policyholders and carriers. Among other things, proponents of the no-fault sunset said that with the guarantee of $10,000, without cost controls, has created a cottage industry of clinics and doctors that serve as a revolving door for PIP cases. That is why more than one insurer says the PIP system is already a tort system. Doctors and lawyers rack up the $10,000 in medical costs, then sue anyway.

“This is a perfect legal abuse of the system that allows over billing and price gouging,” said Allison North Jones, spokesperson for Floridians for Lower Insurance Costs, which represents 8,000 consumers and insurers such as State Farm, Allstate, AIG, and Progressive. She said that this is a primary reason that no-fault should be consigned to other failed programs. “Florida has made many attempts to reform the system, but the attempts to reform the system have failed,” continued Jones. “The primary reason is that the doctors, lawyers, chiropractors, and clinics want access to the $10,000 with no restrictions.”

What critics such as Jones want are similar to the state's workers' compensation system. Both PIP and workers' compensation are mandated coverages that provide policyholders with benefits in exchange for placing limits on their rights to sue. And both insurance plans involve the same interested parties, including carriers, healthcare providers, attorneys, and policyholders.

What makes the state's workers' compensation system an appealing model to those supporting PIP reform is that workers' comp has a high degree of certainty that allows carriers to project losses. Among other things, workers' comp has detailed criteria that workers must meet to collect various benefits, especially in the area of permanent disability benefits. Workers' comp also has provider reimbursement manuals for doctors, hospitals, and other health-care services, which are calculated using Medicare fees plus a percentage.

Cost Shifting

Absent an acceptable PIP reform agreement, the question still remains about where the dollars are going to come from. State Farm has already thrown down its gauntlet by saying it could reduce its auto rates by an average 16 percent if no-fault sunsets. With 15 percent of the auto no-fault market, the insurer says the rate cut could amount to around $360 for a two-car family, although that figure would vary based on income, driving records, and other factors. “With the state's blessing, our customers are now on track to see immediate and real auto insurance savings once no-fault ends,” said company spokesperson Janet Fernandez.

Be that as it may, the Florida Hospital Association maintains that at the end of the day, somebody is going to have to pick up the tab for injured patients. The auto industry's answer is that an individual's health insurance, workers' compensation, or Medicare coverage would cover the cost. FHA Senior Vice President Ralph Gladfelter said that line of thought ignores the facts on the ground. “A survey of our members found that 20 percent of all auto patients have no health insurance of any kind,” he said. “Someone's going to have to pay. There is no free lunch.”

Florida Justice Association General Council Paul Jess echoed Gladfelter's thoughts, saying that the end of no-fault would just result in cost shifting. For that reason, he said that lawmakers would likely have to make bodily injury coverage mandatory and increase the limits of other coverages, such as uninsured motorist. He also noted that insurers would likely develop other policy endorsements that would result in the same protections as PIP, but at a higher price. Jess also questioned why the sunset was needed now given the profitability of the auto market. For that reason, he supported SB 1880 and is against a special session.

“There is no crisis here except the one the legislature has created for itself,” he said. “It would have been better to extend the sunset by one year and take next year to review the issue when the process could be more deliberative.”

Punt or Pass

In 2007, the Insurance Research Council – a division of the American Institute for Chartered Property Casualty Underwriters and the Insurance Institute of America – released its latest study of Florida's automobile market. Entitled, Florida Auto Injury Insurance Claim Environment, the study examined 4,162 insurance claims that had been resolved in 2005. The study included the following information:

The average total claimed PIP economic loss, consisting primarily of medical expenses, increased 18 percent in three years. Specifically, the cost rose from $8,289 in 2002 to $9,769 in 2005. The general rate of inflation based on the Consumer Price Index increased by nine percent during this same period while at the same time medical care inflation rose by 13 percent.

The average total PIP claim in 2005 increased by 24 percent from $5,712 as compared to the $4,606 level reported in 2002.

Chiropractors were the most common medical providers submitting charges for treatment of PIP claimant injuries. The percentage of PIP claims with chiropractor charges reached 44 percent, an increase from 33 percent in 2002. Additionally, the average total amount charged by chiropractors increased by more than 35 percent over three years. In 2002, the average chiropractor bill was $4,837, compared to the $6,510 in 2005.

Another major finding is that the number of PIP claims involving attorneys has risen dramatically. Researchers found that four out of 10 PIP claimants hired attorneys in 2005, which equaled 45 percent of all claims. By comparison, only 35 percent of PIP claimants secured the use of an attorney in 2002.

Given the increase of attorney involvement, the percentage of PIP claimants who qualified for a tort claim steadily increased from 1997 to 2005. In 2005, 50 percent of all PIP claimants qualified for a bodily injury tort recovery under Florida's no-fault regulation, as compared to the 42 percent in 2002 and 34 percent in 1997.

Looking at medical treatment, the number of PIP claimants who underwent a magnetic resonance imaging test increased from 26 percent of all PIP claimants in 2002 to 33 percent in 2005. Another key cost driver is the rapid use of computerized tomography services. The average CT charge for PIP claimants grew 31 percent between 2002 and 2005. Specifically, the CT cost per patient jumped from $2,755 to $3,601.

Along with the rising cost of PIP claims, there is still plenty of evidence that fraud remains a large problem. Chief Financial Officer Alex Sink recently announced that 24 individuals had been arrested in a major staged-accident ring that resulted in auto insurers being bilked out of $300,000 in fraudulent PIP claims. The investigation began when an individual contacted the Department of Financial Services Division of Insurance Fraud and outlined the fraudulent scheme. Investigators were able to infiltrate the group between December 2006 and April 2007. Among those arrested included Martin Triana, owner of MTG Diagnostic Center, Gisela Casuso, manager of MTG Diagnostic, Jimmy Suros-Corzo, owner of T & A Diagnostic and manager Aramys Lopez. Gerardo Melenez was also taken into custody. A paralegal, he often passed himself off as an attorney named Victor Careaga, and coached participants on how to lie to insurance companies.

These individuals are charged with conspiracy to commit racketeering, a first-degree felony punishable by up to 30 years in prison. “We do not take insurance fraud lightly, especially when so many people are conspiring to rip off Floridians,” said Sink. “I commend all of the investigators for their hard work and thank the individual who provided the tip for having the courage to stand up for what is right.”