Legislative efforts at no-fault change dealt a setback

Efforts to repeal or modify Minnesota’s automobile no-fault insurance system were dealt a setback March 2 after a hearing in the Senate Commerce Committee. A bill sponsored by Sen. Geoff Michel, R-Edina, to repeal the no-fault system was defeated on a 10-6 vote, and a bill to modify the no-fault system sponsored by Commerce Committee Chair Sen. Linda Scheid, DFL-Brooklyn Park, was defeated on an 8-8 tie vote.

Many believe the heavily lobbied issue is not yet over this legislative session.

Scheid initiated a subcommittee over the last legislative interim to look at Minnesota’s no-fault insurance system, under which damages from an auto accident are paid by a driver’s own insurance company, regardless of fault.

“There is an increasing number of uninsured motorists in our state. We mandate auto insurance, yet one out of every six motorists is uninsured. How does that happen?” she asked.

“More people in Minnesota have health insurance than no-fault insurance,” Scheid told the committee. “More people in Wisconsin have auto insurance than in Minnesota, and Wisconsin doesn’t mandate it. It appears that the high cost of auto insurance in Minnesota is driving the problem.”

Michel agreed. “If you go to Wisconsin, the annual auto insurance rates drop by about $200 (from $800 to $609). Minnesota is a high-cost, high-premium state surrounded by low-premium neighbors. While our rates are going through the roof, other states are finding that the no-fault system is not working anymore.”

Michel noted that in the 1970s 16 states adopted the no-fault auto system in a “wave” of no-fault legislation. Since then six states have repealed their laws. “We are now one of only 10 states that retains the no-fault system,” said Michel. “In the most recent example of Colorado, rates for some consumers dropped between 19-27 percent when they repealed their no-fault law in favor of a tort-based system.”

The original no-fault law, said Michel, was to provide faster processing of claims, less litigation and lower costs.

“This hasn’t happened. Instead there are more uninsureds, more fraud in the system and higher premiums. Minnesotans are paying for both a traditional tort system and for mandatory no-fault coverage. Does this sound like a good deal for Minnesotans?” he asked.

Michel’s bill, S.F. 970, repeals Minnesota’s no-fault system effective Jan. 1, 2006. His bill also requires insurers to provide a premium reduction of at least 20 percent on auto insurance policies issued or renewed after that date.

Scheid says her bill, S. F. 1094, is intended to reform the no-fault system, not repeal it. Her bill places new limits on damage recovery and lawsuits that can be filed.

“I think there is merit to keeping the no-fault system in place,” she said. “When drivers are in an accident, they should know that their emergency room visit, their doctor visit and even their therapy afterwards will be paid, with no questions asked about who is at fault. Insurance companies write the check up to $20,000 for medical costs, and then health insurance kicks in. That won’t change under my bill.”

But in looking at the 20 percent lower rates in Wisconsin, with everything else being similar to Minnesota, “the only thing that stands out is the higher medical costs. I think we need to address that,” said Scheid.

As a medical cost containment measure, Scheid’s bill incorporates the medical fee schedule and treatment standards adopted in 1992 for Minnesota’s workers’ compensation system, using the federal Resource Based Relative Value System to determine “allowed charged amounts.” In addition, Scheid’s bill removes the current tort thresholds to sue for noneconomic damages and adopts a stronger “verbal” threshold, requiring an individual to have a “serious impairment of an important bodily function.” “Permanent disfigurement” or “permanent injury” would no longer meet the threshold for a plaintiff to sue for noneconomic damages such as pain and suffering.

Under Scheid’s bill, consumers would see an increase in the maximum weekly wage loss benefits from $250 to $400 and in the funeral benefit from $2,000 to $5,000, although maximum benefits for economic loss would remain capped at $20,000, as in current law.

According to Scheid, the modified system would result in a significant increase in the number of insureds in Minnesota.

Bob Johnson of the Insurance Federation of Minnesota supported Scheid’s “reform” bill, with the caveat that the federation will support repeal “if we can’t get no-fault back on track.” Johnson pointed out that wherever there has been a visible crisis regarding auto insurance premiums, it has been in a no-fault state. “Don’t be fooled — we are routinely litigating minor sprains,” he said.

A number of medical groups testified against one or both bills. They pointed out that according to the National Association of Insurance Commissioners, medical costs constituted less than 10 percent of premium dollars, while 37 percent of premiums go for general administration and legal defense against consumer claims. They also pointed out that nothing requires insurance companies to pass savings on to consumers.

Jack Davis, chair of The Minnesota Provider Coalition, consisting of medical provider groups, provided the committee a letter urging rejection of both bills in that they would: (1) dramatically alter citizen’s access to care in the event of a car crash; (2) increase the probability of litigation; (3) cost-shift injury care to already challenged health-insurance and taxpayer-funded programs; and (4) financially hurt small hospitals, emergency medical services and other providers.

Attorney Peter Riley, representing the Minnesota Trial Lawyers Association, testified that “the current system is not broken” and that both bills were “ill-advised” and would make a “very substantive change in Minnesota law.” He said claims of increased litigation over recent years were not true, pointing out that personal injury court filings in Minnesota were down 14 percent between 1999 and 2004. Concerning rates he added, “You won’t get a 10 percent reduction in auto insurance costs when only 8 percent of the premium is due to medical costs.” He said that the tort threshold changes, including the removal of “permanent disfigurement,” would mean that “a whole class of people will not be compensated.”

He urged instead that tougher measures be implemented to require drivers to show evidence of auto insurance in Minnesota.

Phil Riveness, representing the Minnesota Medical Group Management Association, said the real problem was the inefficiency of the system.

“We need to focus on administrative reform,” he said. “There is no electronic billing or electronic payment. The system is antique. We need to look more broadly at the cost drivers. There is no evidence connecting the high number of uninsureds with high health care costs.”

To prove his point, Riveness distributed his own auto insurance premium summary to the committee. He pointed out that of his $674.50 premium, only $45, or less than 7 percent of the premium, was designated for Personal Injury Protection (medical expense and economic loss).

House companion bills have not yet been set for hearing. For more information on the status of these bills and others at the statehouse, go to www.leg.state.mn.us.

Former Senate Judiciary Committee Chair Ember Reichgott Junge is legislative correspondent for Minnesota Lawyer She is an attorney with The General Counsel, Ltd., serving businesses and nonprofit entities.