When lawmakers passed a bill reinstating Florida's motor vehicle no-fault law last year, it was one of the hollowest outcomes handed to carriers in recent memory, only to be eclipsed by the changes to the property market won by Governor Charlie Crist. After lawmakers inserted a provision into the insurance code calling for the mandatory coverage to sunset as of Oct. 2007, it became clear with each passing year that the deadline was arbitrary. It functioned to sideline the issue, while workers' compensation, medical malpractice, and homeowners' reforms were addressed.

Yet, even as carriers such as State Farm eventually failed to convince lawmakers to jettison the PIP system and other trade groups fell short of securing comprehensive reforms, it has had no noticeable effects on the market. "In my 33 years in the industry, this is most competitive market I've ever seen," said Scott Johnson, vice president of the Florida Association of Insurance Agents.

Just how competitive is the market? Currently, there are more than 350 carriers writing coverage in the state, representing some $12 billion in direct written premiums. Of that amount, $2.5 billion is attributed to the direct written premiums for PIP coverage. The Department of Highway Safety and Motor Vehicles estimates that there are more than 12 million private passenger autos registered in the state, 94 percent of which have the mandatory PIP coverage, leaving just six percent uninsured. Experts say that those individuals are uninsured by choice, not because they are lacking places to secure coverage.

Another marker of just how competitive the market has become is the population of the Florida Automobile Joint Underwriting Association. Johnson, who serves on the FAJUA board of governors, noted that the residual market's personal lines coverage only has a population of 22 policyholders, all of which are motorcycle owners. Statistically speaking, the market is as close to being 100 percent compliant as possible.

Given the large numbers of them writing coverage, insurers are scrambling for ways to entice consumers. Besides the usual methods of lowering rates and offering deductibles, some insurers are going so far as to cover pets that may be hurt in an accident.

The Silent Majority

One of the primary reasons lawmakers were unwilling to spend their political capital on the PIP issue is because of a lack of complaints from their constituents. By temperament, the legislature is conservative and therefore reluctant to make changes without an outcry from consumers. With rates down and the market competitive, consumers had no stake in the issues. Additionally, representatives of the industry, the trial bar, and health-care providers all acknowledged the lack of pressure from consumers, which undercut many of their arguments over the PIP issue.

"This was an unusual issue," said Paul Jess, general counsel for the Florida Justice Association, which successfully fought off changes in attorneys' fees. "The average citizen didn't know the issues, didn't care about them, and paid no attention."

That is not to say that the industry doesn't have its own set of statistics. According to the latest data, the National Association of Insurance Commissioners found that Florida drivers paid the eighth highest auto insurance premiums in the country. The 2004 combined average premium for primary coverage is $1,150.64, which is 20 percent greater that the national average of $959.76. Some of that difference can be attributed to the state's traffic density. Florida has the ninth highest automobile density in the country, which results in more accidents and injuries. Eight out of every 10 miles in the state are traveled on urban roadways.

William Stander, representing the Property Casualty Insurers Association, said that even though the industry fell well short of its goals, the market is still thriving. "Obviously, we had a difference of opinion when it comes to the legislature," he said. "But there are plenty of insurers in the market, and hopefully the few reforms will be productive."

Who Pays and Who Loses?

The industry pushed hard for PIP reforms because it has become a cross between an entitlement and a free giveaway. 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 arguments against the PIP system are well documented. The PIP coverage limits were tailored to take care of most physical injuries sustained in auto accidents. Insurers, however, have maintained that without medical fee schedules or utilization controls, the $10,000 limit has become a gratuity that supports a cottage industry of clinics, doctors, and attorneys that serve as a revolving door for PIP cases. Let us not forget the staged accident rings and other criminal schemes that have produced a rather impressive Department of Financial Services' Division of Insurance Fraud crime blotter.

That is why insurers argue that too often the $10,000 benefit ends up in the wrong pockets. However, PIP's role in the state's overall health-care scheme cannot be discounted. The money does provide citizens who are injured in an accident a much-needed form of financial protection. It also guarantees that emergency rooms and other health-care providers will receive some compensation for their services. In light of the fact that nearly one-third of the state's citizens lacks any form of private or public health insurance, that $10,000 looms large.

The Florida Hospital Association was a major force in convincing the legislature to retain the PIP system. Rich Rasmussen, vice president of state communications for the Florida Hospital Association, said the association calculated that repealing PIP would cost hospitals millions. "The hospitals would see $140 million in uncompensated care, " he said. This huge cost shift would likely come off the backs of doctors, especially specialists."

Rasmussen went on to add that if PIP were repealed, the cost shift would not only apply to direct medical treatment but also to the litigation costs incurred by health-care providers trying to recover payments. "If there is no insurer responsibility, then physicians and doctors would be left with no choice but to sue to get paid," he said.

In mapping out a legislative strategy to reform PIP, many turned to the workers' compensation system. Under the workers' comp law, a three-member panel, which consists of the insurance commissioner, an employee, and an employer representative, is charged with setting fee schedules. Separate schedules are established for physicians, hospitals, and ambulatory surgical centers. The law also ties physicians' reimbursements to the federal Medicare fee schedules. Currently, general physicians received 110 percent of Medicare, while surgeons and specialists receive 140 percent. Hospitals also receive per diem amounts except in cases where charges reach a certain level. Workers' compensation also has utilization guidelines that control the delivery of certain medical services. All of those things are currently absent in the PIP system.

In the PIP bill enacted by the legislature, lawmakers took the first step to introduce some price controls on medical services. For example, ambulatory care and the treatment provided by emergency medical technicians will be reimbursed at 200 percent of Medicare. Emergency services provided by hospitals will receive 75 percent of the hospital's usual and customary charge, and emergency service and care rendered by a physician will receive the usual and customary fees in the community. The law also requires that $5,000 of the $10,000 PIP benefit be reserved for emergency room care. It doesn't take a rocket scientist, much less someone familiar with emergency room costs, to figure out that hospitals will see all $5,000 the minute an accident victim walks in or is wheeled into an emergency room.

From the FHA's perspective, the $5,000 set aside is only fair. "Forty percent of all auto crash victims treated in emergency rooms and trauma centers have no other medical coverage besides PIP to pay for treatment," said Rasmussen.

The insurance industry supports many of the medical changes put forth in the bill, especially those that limit the type of clinics that may treat accident victims. However, many are less than impressed with the fee schedules and the inability to manage claim costs.

Another area that insurers failed to gain legislative support in was a cap on attorneys' fees, which is likewise included in workers' compensation. The trial bar, however, more than made a case against the move, once again pointing to market competitiveness and the perceived lack of need to change attorneys' fees.

The reforms only contained two small tort changes. First, under the new law, a claimant attorney must consolidate all claims when suing an insurer for benefits provided by the same health-care provider to an accident victim. Secondly, the law extends the period for an insurer to respond to a demand letter from 15 days to 30 days. Claimants must provide insurers with a demand letter stating their intent to sue. If the insurer agrees to pay the claim within 30 days, the insurer is not liable for paying any attorney fees.

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