Minnesota is among fewer than a dozen states with a no-fault auto insurance system — one in which drivers' own insurance companies pay their medical bills after a crash, regardless of who is at fault.
Some state lawmakers say it's time to follow other states and either get rid of no-fault or alter it substantially to reduce costs. The Senate Committee on Commerce and Consumer Protection on Tuesday will hear several bills on the issue.
“... costs have risen to the point where reform is being seriously considered in Minnesota.”David Snyder, American Insurance Association.
It isn't the first attempt to change the no-fault law since it took effect in 1975. But the insurance companies backing changes to the system hope the issue will gain more traction in the new Republican-controlled Legislature, where new committee chairs might be more likely to let bills move forward.
On the Senate Commerce Committee, backers also have a new advocate in Sen. Paul Gazelka, R-Brainerd, who is an insurance agent.
In a no-fault system, drivers must purchase "personal injury protection" as part of their auto insurance policies, and there are limits on when someone can sue over a crash. No-fault contrasts with "fault" or "tort" systems in which insurance companies pay according to the degree of fault. Lawsuits can result when the parties involved in the crash don't agree.
Lawsuits will play a role in accident disputes whether or not lawmakers decide to change Minnesota's auto insurance system. Those on opposite sides of the issue disagree over what role they should play and under what circumstances people should have the right to sue.
THE FAULTS OF 'NO-FAULT'
Minnesota and many other states adopted the no-fault system in an effort to limit lawsuits and bring down the cost of insurance premiums. But even the auto insurance companies that originally backed no-fault laws say the system has problems.
"Over time, with the increase in health care costs and with the inability to keep out enough litigation, costs have risen to the point where reform is being seriously considered in Minnesota," said David Snyder, vice president and associate general counsel for the American Insurance Association.
The American Insurance Association and the Insurance Federation of Minnesota are backing efforts that they say will bring auto insurance premiums down to levels seen in neighboring states. The average cost of a six-month premium in Minnesota is $721. In Wisconsin, Iowa and the Dakotas, a six-month premium costs between $500 and $600.
Several other states, such as Colorado, have repealed their no-fault systems, concluding that the limitations lawmakers had placed on the laws watered them down and actually made costs go up, Snyder said.
Insurance companies say there are still plenty of lawsuits in Minnesota, because crash victims can sue for pain and suffering damages anytime their medical bills exceed $4,000 — not a very high threshold in today's dollars. The insurance companies also say health care referral services that send crash victims to doctors and chiropractors are abusing Minnesota's no-fault system and driving up costs.
"Most of it has to do with chiropractic claims and the fact that no-fault insurance in Minnesota really has no definition of what should be covered or not covered. So basically you can charge just about anything you want and the auto insurance policy has to pay it," Gazelka said. "That's really what I'm trying to get after — how do we allow good chiropractors to help people and try to eliminate some of those who are misusing the system."
Gazelka's bill being heard Tuesday would limit the non-emergency care an accident victim could get through their auto insurance. Another bill being heard Tuesday, sponsored by Sen. Linda Scheid, DFL-Brooklyn Park, would place limits on when victims could sue for things like pain, suffering and inconvenience. A third bill, sponsored by Sen. Geoff Michel, R-Edina, would repeal Minnesota's no-fault system entirely.
Some members of the Insurance Federation of Minnesota were in favor of repealing no-fault, but a greater numbers wanted to make changes to improve no-fault, said Mark Kulda, the group's spokesman. The federation backs Gazelka and Scheid's bills.
Gazelka, who said he's not backing the full repeal of no-fault, said some of his proposed changes have a chance, especially because they have bipartisan support. Gov. Mark Dayton, a Democrat, has not yet taken a position on the issue, his spokeswoman said.
A COST SHIFT
Several groups are lining up to oppose changes to Minnesota's current auto insurance system, including trial lawyers who represent accident victims.
Jim Carey, a personal injury attorney with Sieben, Grose, Von Holtum & Carey, said repealing no-fault would only shift costs from auto insurance companies to health insurance providers.
"The fact that they repeal no-fault doesn't mean that car crashes are going to go away," said Carey, who serves as president of the Minnesota Association for Justice. "So when [people] need care, somebody's going to pay for that, and if it's not the auto insurance system, then it's going to be the health insurance system. So it's kind of like squeezing the balloon. If you stop paying for it through the no-fault system, those bills go somewhere."
Hospitals and ambulance services also want to keep the no-fault system, because it's usually clear who will pay for medical bills. Hospitals are concerned about changes to no-fault insurance that shift costs from auto insurance to health insurance.
It becomes a big issue when someone doesn't have health insurance, because hospitals would end up paying, said Mike Harristhal, vice president for public policy and strategy at Hennepin County Medical Center.
Harristhal said HCMC is also concerned about a provision in Gazelka's bill that creates an arbitration process, aiming to cut down on overcharging for accident victims' medical procedures.
"An arbitration process can be pretty time consuming as well as expensive," Harristhal said. "It feels like in the interest of saving a nickel, we're potentially spending dollars."
Auto insurance companies could benefit financially if a new or altered insurance system in Minnesota shifts more of the costs onto health insurers. They could also potentially benefit if lower premiums led more Minnesotans to buy auto insurance.
Some observers say the fact that two of the senators who will be voting on the insurance legislation are themselves insurance agents could create a conflict.
"The challenge is how direct is the impact?" asked Mike Dean, executive director of Common Cause Minnesota, a group that advocates for open government.
At the very least, Dean said legislators should make the public aware of their background and disclose any potential conflicts when presenting legislation.
"At least then the public knows about it," Dean said. "Too often we're sort of in the dark."
Gazelka has made no secret of the fact that he sells insurance. But he said his bill being heard Tuesday wouldn't benefit insurance agents and might even reduce their commissions if overall premium costs are lowered.
"It's really not about the agent or me as a legislator, but what's the right thing to do for, in this case, people who have auto insurance," Gazelka said.
Before Republicans took over both the House and Senate this year, those seeking changes to the state's no-fault law were concerned about a different potential conflict: The representative overseeing the House Commerce Committee was a personal injury lawyer.
While Rep. Joe Atkins chaired the committee, no proposals to significantly change no-fault insurance were heard in the House, according to legislative records.
DFL Sen. John Marty of Roseville, who served on the Senate Commerce Committee in the past, and said he's concerned the no-fault auto insurance bills will be considered without hearing from consumers.
"Nobody's employed as a consumer advocate in insurance issues," Marty said. "The insurance industry already has an upper hand, and when they have legislators who are insurance agents they're even more so."