If No-Fault Insurance Goes, Who Fares Best?

Jun 9, 2007

By Tom Zucco, St. Petersburg Times, Fla.

Jun. 10--It's not your typical Florida sunset.

Unless the Legislature decides otherwise, come Oct. 1, the portion of Florida's no-fault auto insurance law that requires drivers have a minimum of $10,000 in personal injury protection, or PIP, will expire after being the law for 36 years.

The insurance companies say eliminating PIP will slow the fraud and misuse of the program, eliminate duplicate coverage and lead to lower auto insurance rates. State Farm, Florida's largest auto insurer, has received state approval to lower its rates 16 percent, based largely on PIP going away.

But critics, most notably Florida's hospitals and trauma centers, argue that allowing PIP to sunset simply shifts the financial burden to them. And consumer advocates add that as responsible drivers tack on more coverage to protect themselves from uninsured motorists, they will end up paying more for auto or health insurance.

Who's right?

If there's a template for what will happen after Oct. 1, it's Colorado, which four years ago did the same thing Florida is poised to do.

Colorado's no-fault law was allowed to expire in 2003 after then-Gov. Bill Owens said he would not sign an extension unless it significantly reduced the costs of the system. But lawmakers could not resolve a dispute about the extent of coverage for medical procedures.

Regulators in Colorado say that since 2003, auto insurance rates have declined about 15 percent. They aren't sure if there is a corresponding rise in health insurance premiums that many had predicted.

But outside state government, the critics have no hesitation.

The Colorado Hospital Association estimates the state's acute trauma system has lost at least $80-million a year since the PIP requirement was ended.

An April 3 editorial in the Denver Post put it this way: "When the Legislature abandoned Colorado's no-fault auto insurance system in 2003 and returned the state to a lawsuit-based system, we expressed fears that ambulance services, hospitals and others providing trauma care might have to wait years for reimbursements for care provided to accident victims.

"Unfortunately, that's exactly what's happening."

Something else happened, say consumer and health care advocates, that no one foresaw.

Many people didn't realize their auto insurance no longer covered medical expenses unless they specifically selected and paid for it. "Immediately after PIP ended, a large number of people who got into accidents expected to be covered and weren't," said Sarah Blum-Barnett, a consultant for the Colorado Hospital Association. "It's still happening now, nearly four years later.

"And because Colorado law allows hospitals to place a lien against a patient, people lost their homes because they didn't have the coverage they thought they did."

But auto rates came down. In 2004, Colorado drivers paid an average of $83 less per year for auto insurance than the year before.

By contrast, Florida's auto rates went up by about $50 during the same period, and at $1,062 per year, were the sixth-highest rates in the country.

In calculating the effect in Florida, two statistics stand out:

--About 234,000 Florida drivers or passengers were injured in auto accidents in 2005, the last year for which figures are available.

--The Florida Hospital Association estimates that about 20 percent of Floridians younger than 65 have no health insurance, and that treating uninsured accident victims could cost hospitals up to $350-million a year.

Bayfront Medical Center, Pinellas County's only trauma center, treated 2,055 PIP patients in 2005. Of those, nearly half, or 948 patients, had no health insurance. But because of the PIP requirement, the hospital received $3.2-million.

Much of that money, Bayfront president and CEO Sue Brody said, would disappear if PIP is no longer mandatory.

"I'm sure it would add to our charity care numbers," Brody said.

A 502-bed nonprofit that receives no financial help from local or state government, Bayfront has provided $15-million in charity care in each of the past two years.

Not only would Brody have to find new ways to come up with the money, she's concerned about doctors on staff who depend on PIP coverage. "We have a wonderful medical community at Bayfront," Brody said, "but they're already caring for a number of trauma patients with no health insurance. There is building frustration of adding to that burden."

Howard Eagelfeld, chief auto actuary for the Florida Office of Insurance Regulation, said another consequence of allowing PIP to sunset is increased litigation.

"In the end, it will affect lawsuits because the part that sunsets is an immunity to lawsuits. So there will definitely be more lawsuits."

As for shifting the burden to hospitals, Eagelfeld cited a recent study that shows the amount of extra health insurance drivers typically pick up after PIP sunsets is not as much as was originally covered, thereby creating a health coverage gap.

Who makes up the difference when it comes time to pay the medical bill for an accident?

"Whether that is going to come out of the pocket of individuals who will pay for medical services, out of hospitals or as State Farm prefers to state, whether its fraud that drains the system," Eagelfeld said, "it's going to have to come from somewhere."

If PIP is allowed to sunset and no other health insurance requirements are added, Eagelfeld, said there will be an adjustment period and some drivers will be unhappy.

"On the other side," he said, "it does work that way in about 40 other states. It's the transition that's going to be painful until the new system stabilizes its winners and losers and sources of revenue."

WHAT WILL HAPPEN

When no-fault auto insurance ends Oct. 1, drivers will not be required to show proof of insurance at the time their vehicle registration is issued or renewed.

But after an accident, the state can suspend or cancel a driver's license if that person doesn't maintain insurance.

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