New York Insurers Say No-Fault Claims are Driving Up Costs

No-fault payments for medical claims by auto accident victims in New York have seen a dramatic increase over the last several years, one industry group says, and the state and insurance companies need to redouble efforts to root out fraud, abuse and other waste to put downward pressure on those costs.

According to the Insurance Information Institute (III), New York’s auto insurers saw their typical no-fault payment for the medical care of accident victims rise by 56 percent to $8,748 per claim in the second quarter of 2009. In late 2004, the average no-fault payment stood at $5,615 per claim.

In a speech to the New York Insurance Association (NYIA) this week, Robert Hartwig, the group’s president, said the insurance industry, the New York State Insurance Department, National Insurance Crime Bureau and law enforcement agencies continue to investigate suspicious claims vigorously, but loopholes in the no-fault system make it particularly vulnerable to what he described as “fraud and abuse by a ‘no-fault industry’ of corrupt medical professionals, attorneys, and street-level criminals who work on their behalf.”

“The costs of fraud and abuse of the state’s no-fault system ultimately are borne by New York’s honest policyholders,” Hartwig said. “New York’s no-fault claim costs are now the second highest in the country and are 111 percent higher than the U.S. average of $4,152.”

Ellen Melchionni, president of the NYIA, a trade group for insurers in the state, called on state lawmakers to reform the New York’s no-fault auto insurance system. “There are external forces which drive up the cost of auto insurance in this state which can and must be contained.”

No-fault auto insurance denotes any auto insurance program that allows policyholders to recover financial losses from their own insurance company, regardless of fault in an auto accident. The policyholder’s no-fault benefit coverage is listed under the personal injury protection (PIP) provision of their policy.

Hartwig said that several proposals have been advanced to combat costs in New York’s no-fault insurance system.

One would be to implement medical treatment guidelines for specific auto accident-related injuries to reduce instances of over-treatment or unnecessary treatments. New York’s no-fault system is one of the few in the U.S. that allows for insurer payment of medical treatment providers while requiring neither mandatory protocols nor utilization reviews. Hartwig called it a “virtual blank check” that drives up system costs dramatically because the PIP payment ceiling is $50,000.

Another would be to require disputes be resolved via arbitration, he said, which eliminate trial costs for all parties while also expediting claims resolution. No-fault systems were created to avert courtroom battles, Hartwig said, but no-fault cases are clogging New York’s judicial system — especially in New York City

Other solutions include streamlining claims processes, requiring proof of injuries and strengthening anti-runner laws, which would increase penalties for those who facilitate fraudulent insurance claims.

Source: Insurance Information Institute