Who Wants to be a Millionaire No-Fault Auto Insurance Fraud in ...

Who Wants to be a Millionaire? No-Fault Auto Insurance Fraud in New York March 2002 Robert P. Hartwig, Ph.D., Senior Vice President & Chief Economist Insurance Information Institute  110 William Street  New York, NY 10038 Tel: (212) 346-5520  Fax: (212) 732-1916  bobh@iii.org  www.iii.org Insurance Fraud in the U.S. Costs Billions! Health $61.4 billion 64% Total = $96.2 Billion (1999) Life $11.8 billion 12% Disability $0.5 billion 1% Prop./Casualty $22.4 billion 23% Source: Conning & Co. Comparative Statistics: PIP Claims Costs Growth in Total PIP Claims Costs* 30% 1% 2. 3 Four Quarters Ending 2000:3rd PIP Claims Costs 20% % .0 4.9% 15 1 6% % % 0. 10.3 0.2 1 1 PIP Costs in New York are growing faster than in any other no-fault state—by far . % .3 4.1% .3% 0% % 4 2 3 3. % % 2. 2 .6 0 0. 10% 0% N A I PA O D TX FL C Y E S Y J N - M -10% C -20% % .4 7 M N D 9% 8. - % .2 12 - SC 2% 7. 1 T I H N D U M K *Change in “pure premium” Source: Insurance Information Institute from ISO Fast Track Data K Growth in Total PIP Claims Costs* Four Quarters Ending 2000:4th 30% 5% 8. 2 % % .0 3 18 17. PIP Claims Costs 2% % 4. 9 1 2. 1 5% % 0. 9 1 9. 20% PIP Costs in New York grew faster than in any other no-fault state—by far . % .3 4.2% 4.1% 9% 4 2. 1% .6% 0. -1 10% 0% A I N PA O D J N TX FL M M N SC N D U M H K K C -10% 3% % 5. -5.5 9% 1. % .9 -1 3 -1 -20% *Change in “pure premium” Source: Insurance Information Institute from ISO Fast Track Data D C Y E Y S I T Growth in Total PIP Claims Costs* 30% % .6 28 Four Quarters Ending 2001:2nd PIP Claims Costs 5% 9. 1 % % .4 .0 0% % 14 14 3. 1 .3 11 % .7 24 20% Growth NY’s PIP Costs slowed significantly during the first half of 2001 but costs remain extremely high. 8% .5% .4% 7% 5. 5 5 4. 10% 0% % % .6 % % % 1 2 1. 0.7 2.4 3.0% -3.6 - A I N PA O D C E Y Y J N SC TX FL M M H M D K U N N -10% -20% *Change in “pure premium” Source: Insurance Information Institute from ISO Fast Track Data C D K S I T Comparative Statistics: Profitability Return on Net Worth Private Passenger Auto (%), 20 1991-2000 16.2 14.3 12.2 14.2 11.4 8.6 7.5 10.7 7.3 7.0 8.0 8.2 10.0 9.8 13.5 11.6 13.9 12.4 10.1 15 New York Florida U.S. 13.0 12.1 10 10.6 5 2.8 7.7 6.2 4.8 2.2 -1.1 -3.6 0 91 -5 Source: NAIC. 92 93 94 95 96 97 98 99 00 Return on Net Worth Private Passenger Auto (%), 21 1991-2000 16.2 16 12.2 New York Florida 10.7 8.6 7.3 7.0 8.0 13.5 13.0 13.9 12.4 10.0 9.8 11 7.5 8.2 6.2 4.8 6 2.8 1 -1.1 -4 91 Source: NAIC. -3.6 92 93 94 95 96 97 98 99 00 Private Passenger Auto: 6 Least Profitable States, 2000 (Profit as a % of Direct Premium Earned) New York 0.0 -1.2 -2.6 Texas Montana Florida S. Carolina Louisiana -2.0 -4.0 -3.2 -3.3 -4.0 -6.0 •NY ranked 44th in terms of profitability in 2000 -8.0 •FL ranked 48th -10.0 Source: NAIC; Insurance Information Institute -9.8 Private Passenger Auto: 6 Least Profitable States, 2000 (Profit as a % of Direct Premium Earned) U.S. 8 6 4 2 0 -2 -4 -6 -8 -10 Source: NAIC; Insurance Information Institute 7.7 New York Texas Montana Florida S. Carolina Louisiana •NY ranked 44th in terms of profitability in 2000 •FL ranked 48th -1.2 -2.6 -3.2 -3.3 -4.0 -9.8 PIP Fraud and Abuse in New York State New York vs. US:1987-2000* 300% 250% 200% 150% 100% 50% 0% 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 Change in PIP Loss Costs: By 2000, growth in New York PIP loss costs were more than twice (121%) the national average. U.S. New York *Through 4 quarters ending 2000:3 rd. Source: American Insurance Association/ISO FastTrack; Insurance Information Institute New York vs. US:1993-2001* 250% 200% Change in PIP Loss Costs: In 2001:II, cumulative growth in New York PIP loss costs was more than twice (106%) the national average. 150% 100% 50% 0% 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 U.S. New York *Through 4 quarters ending 2001:2nd. Source: American Insurance Association/ISO FastTrack; Insurance Information Institute Personal Injury Protection Paid Claim Frequency 2.5 2.0 1.5 1.0 0.5 0.0 NY MA CO FL DE UT MN NJ US* *US excludes New York 2.24 Year 2000 2.17 2.10 1.90 1.85 1.83 PIP frequency is 33% above the US average 1.80 1.80 1.68 Source: Insurance Information Institute and Insurance Services Office. Personal Injury Protection Paid Claim Frequency 2.5 2.0 1.5 1.0 0.5 0.0 NY MA CO FL DE UT MN NJ HI US* *US excludes New York and Florida 2.27 2.26 2.11 Year Ending 2001:2nd 1.90 1.87 1.86 1.80 PIP frequency is 42% above the US average 1.68 1.60 1.60 Source: Insurance Information Institute and Insurance Services Office. PIP Claim Severity 1995-2000: New York vs. United States Average PIP Claim New York $6,700 $6,064 $5,675 $4,862 $4,969 $4,699 $4,963 $8,335 Other No-Fault States* $3,976 $4,183 $4,352 $4,523 1995 1996 1997 1998 1999 2000 * Excluding Michigan Source: Fast Track Monitoring System, Fourth Quarter 2000 Report Impact on Cost of Auto Insurance in New York State Projected Average Auto Insurance Expenditure in NY State Assuming No Meaningful Reform $1,600 $1,500 $1,400 $1,317 $1,578 $1,439 $1,300 $1,210 $1,200 $1,100 $1,000 $900 2000 2001 2002 2003 2004 2005 Source: Insurance Information Institute $1,096 $957 Projected Average Cost of No-Fault Auto Insurance Fraud in NY State Assuming No Meaningful Reform $400 $321 $300 $242 $200 $124 $177 $100 $81 $0 2001 2002 2003 2004 2005 Source: Insurance Information Institute Impact on New Auto Plan (Residual Market) New Residual Market PPA Applications Growth 09/30/00 – 09/30/01 Florida New York Connecticut Pennsylvania Virginia Rhode Island New Jersey California Texas Michigan 36.8% 34.0% 22.0% 21.7% 14.5% 12.4% -5.0% 122.3% 79.8% 438.9% Source: AIPSO; Morgan Stanley Research New Residual Market PPA Applications All Other 41% 181,770 New York 40% 174,598 All Other 42% 391,802 New York 42% 388,066 Florida 2% 9,695 New Jersey 17% 73,849 Florida 6% 52,246 NewJersey 10% 89,859 09/30/2000 – Total of 439,912 Applications 09/30/2001 – Total of 741,973 Applications Source: AIPSO; Morgan Stanley Research How Do We Know It’s Fraud & Abuse? How Do We Know It’s Fraud? • NY PIP: Definitely Issue of Fraud  Not medical inflation (+4.6% in 2001)  Not “surge” in accidents (e.g., weather, road rage, etc.) No corresponding increase in claiming in other auto coverages  PIP Fraud Reports up sharply (up 246%, 1995-2001) PIP is leading type of fraud reported to NY Insurance Dept. Increase in PIP fraud masking overall decline in NY fraud – Excluding PIP, fraud reports in NY fell 32% from 1995-2001 Percentage Change in New York Paid Claim Severities from 1987 250% 200% Bodily Injury Liability Personal Injury Protection Property Damage Liability Collision Comprehensive 150% 100% 50% 0% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Fastrack (ISO, NAII), American Insurance Association Analysis. New York Average Loss Costs $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Fastrack (ISO, NAII), American Insurance Association Analysis. Bodily Injury Liability Collision Personal Injury Protection Comprehensive Property Damage Liability Paid Claim Severity: Property Damage Liability Coverage $2,500 $2,000 New York $1,500 Countrywide $1,000 $500 $0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Private Passenger Auto – Fast Track Data Paid Claim Severity: Collision Coverage $3,000 $2,500 New York $2,000 $1,500 Countrywide $1,000 $500 $0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Private Passenger Auto – Fast Track Data Paid Claim Severity: Comprehensive Coverage $1,400 $1,200 New York $1,000 $800 $600 $400 $200 $0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: Private Passenger Auto – Fast Track Data Countrywide Types of Fraud Committed? • The Many Faces of PIP Fraud in NY  Provider Billing Practices  Durable Medical Supplies  Transportation Services  Lost Wages  Household Help  Exotic/Dubious Treatments  Excessive Frequency  Identity Theft  Bounced Checks  Forgery New York Insurance Fraud Reports, 1995 - 2001 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1995 1996 1997 1998 1999 2000 2001 Auto Collision Damage Auto Theft No-Fault Auto Source: New York Department of Insurance; Insurance Information Institute. New York Insurance Fraud Reports, 1995 - 2001 16,000 14,000 12,372 15,219 12,000 10,000 8,000 6,000 Workers' Compensation No-Fault Auto 9,659 9,191 7,042 5,214 4,393 4,000 2,000 0 1995 1996 1997 1998 1999 2000 2001 1,733 851 758 698 661 798 862 Source: New York Department of Insurance; Insurance Information Institute. NY Insurance Fraud Bureau Investigations Opened, 1996 - 2001 2,500 Total No-Fault Auto 1,833 2,000 1,934 1,500 1,317 1,238 1,004 939 1,000 500 195 295 132 127 88 62 0 1996 1997 1998 1999 2000 2001 Source: New York Department of Insurance; Insurance Information Institute. Composition of Fraud Reports, 1995 vs. 2001 1995 Total Reports = 20,205 No-Fault Auto 22% Auto Theft 7.6% Auto Collision 10% Workers' Comp 3.9% All Other 16% Health Accident 6% 2001 Total Reports = 26,028 No-Fault Auto 59% Workers' Comp 4% Auto Collision 4% Health Accident 23% All Other 29% Auto Theft 8% Source: New York Department of Insurance; Insurance Information Institute. New York Insurance Fraud Reports, 1995 - 2001 16,000 14,000 12,372 15,219 12,000 10,000 8,000 6,000 4,000 2,000 0 1995 Health/Accident No-Fault Auto 9,659 9,191 7,042 5,841 4,712 4,393 2,637 2,359 2,205 5,214 5,457 1,572 1996 1997 1998 1999 2000 2001 Source: New York Department of Insurance; Insurance Information Institute. No-Fault Fraud: A Growing Problem 30,000 25,000 20,000 15,000 10,000 5,000 0 1995 1996 1997 1998 1999 2000 2001 Source: New York Department of Insurance; Insurance Information Institute. Total All Types of Fraud No-Fault Auto Fraud Abuses of the Legal System • Abuse of the Legal System Suits are Exploding 100% - 200% increase at most companies Small number of law firms generate majority of suits Complaints to insurance department mostly generated by providers and attorneys Inequities in the Arbitration Process Differences in Claiming Behavior in New York State Average PIP Payments in Metro NYC versus Rest of State Average Total Payment Per PIP Claimant $4,627 $4,393 $2,806 $3,295 $4,342 $6,898 1992 1997 NYC Metro Outside NYC Metro 2000 Source: Insurance Research Council PIP Claim Frequencies, Selected Territories 5.27 5.03 3.55 2.82 1.88 1.63 1.86 1.43 1.34 Kings County Bronx County (1) Queens County (3) Buffalo Albany Syracuse White Plains Rochester Binghamton 2.23 Source: Insurance Research Council, Trends in Auto Injury Claims, 2000 Edition. State (1) Remainder (3) Remainder Increase in Appearance of Fraud and Buildup Percentage of NY PIP Claims 25% 16% 13% 1992 2000 5% Appearance of Fraud Source: Insurance Research Council Appearance of Buildup NY PIP Claimants Reporting Three or More Injuries Percentage of Claimants Reporting 3+ Injuries 47% 34% 20% 1997 vs. 2000 1997 2000 23% 23% 17% NYC Metro Other Metro Rest of State Source: Insurance Research Council New York PIP Claimants Visiting More Professionals Percentage of NY PIP Claimants Visiting 4+ Professionals 1997 vs. 2000 27% 1997 2000 9% 4% 7% 6% 6% NYC Metro Other Metro Rest of State Source: Insurance Research Council Use of Chiropractors Among NY PIP Claimants Percentage of Claimants 46% 1997 vs. 2000 31% 19% 13% 1997 2000 15% 17% NYC Metro Other Metro Rest of State Source: Insurance Research Council Use of Physical Therapists Among NY PIP Claimants Percentage of Claimants 43% 1997 vs. 2000 28% 16% 17% 20% 1997 2000 14% NYC Metro Other Metro Rest of State Source: Insurance Research Council More Visits to Providers Among NYC PIP Claimants Percentage of Claimants 51% 46% 37% 16% 4% 4% 53% 33% 33% More than 10 visits to general practitioner NYC Metro More than 25 visits to chiropractor Other Metro More than 25 visits to physical therapist Rest of State Source: Insurance Research Council Increased Use of MRI in Metro NYC Percentage of PIP Claimants 1997 vs. 2000 50% 38% 1997 2000 14% 13% 16% 14% NYC Metro Other Metro Rest of State Source: Insurance Research Council Use of Durable Medical Equip. & Pain Clinics by NY PIP Claimants Percentage of Claimants 32% 31% 6% 7% 3% 4% NYC Metro Other Metro DME Pain Clinics Rest of State Source: Insurance Research Council Attorney Involvement Higher in NYC Metro Area Percentage of NY PIP Claimants 48% 52% 1997 vs. 2000 19% 13% 22% 14% 1997 2000 NYC Metro Other Metro Rest of State Source: Insurance Research Council Time to Report Injury by Location Number of Days from Accident to Report of Injury to Insurer 14% 16% 27% 66% 43% 63% 5% 6% 7% 6% Percentage of NY PIP Claimants 24% 24% More than 30 Days 8-30 Days 2-7 Days 0-1 Days NYC Metro Other Metro Rest of State Source: Insurance Research Council Time to Submit Medical Bills by Location Number of Days from First Treatment to First Bill Received by Insurer 27% 54% 29% Percentage of NY PIP Claimants 73% 46% 71% Over 45 Days 0-45 Days NYC Metro Other Metro Rest of State Source: Insurance Research Council PIP Fraud in NY Actual Case Studies PIP Fraud in NY Case Study 1 Treatment and Testing for Mr. H Chiropractic Jul Aug Sep Oct Jul Aug Sep Total Treatments 12 13 12 6 11 14 11 5 9 13 11 5 4 2 2 0 8 38 41 43 Physical Therapy Oct Jul Aug Sep Oct Jul Aug Sep Accupuncture Diagnostic Oct Treatment and Testing for Mr. B Chiropractic Jul Aug Sep Oct Jul Aug Sep Total Treatments 4 9 7 6 5 8 6 5 4 8 6 5 5 7 7 0 14 23 24 26 Physical Therapy Oct Jul Aug Sep Oct Jul Aug Accupuncture Misc Sep Oct Treatment and Testing for Mrs. P Chiropractic Jul Aug Sep Oct Jul Aug Sep Total Treatments 7 10 13 2 8 9 12 0 7 9 12 0 5 7 1 4 17 28 29 32 Physical Therapy Oct Jul Aug Sep Oct Jul Aug Accupuncture Misc Sep Oct Treatment and Testing for Mrs. D Chiropractic Jul Aug Sep Oct* Jul Physical Aug Therapy Sep Oct * Jul Accupuncture Aug Sep Oct* Jul Aug Sep Oct * 7 10 1 1 Total Treatments 9 12 11 16 8 11 10 16 45 48 8 11 10 15 44 Misc 19 Total Treatments and Testing, 482 Chiropractic Jul Aug Sep Oct* Jul Physical Aug Therapy Sep Oct * Jul Accupuncture Aug Sep Oct* Jul Aug Sep Oct * 32 42 39 26 Total Treatments 32 44 43 149 30 139 28 41 39 25 23 27 6 5 133 Misc 61 Where Do You Find the Time Mrs. D? August 2000 Monday Tuesday TMJ-Dental, Acupuncture, Physical Therapy, Chiropractic 1 Wednesday Thursday Friday Acupuncture, Physical Therapy, Chiropractic 4 Chiropractic-Off, Acupuncture, Physical Therapy, Chiropractic 7 14 MRI, Acupuncture, Physical Therapy, 3 Chiropractic 2 Chiropractic, MRI Transportation, Neuro-Consult, Physical Therapy, Neuro-Tests, 8 Acupuncture 9 10 Acupuncture, Acupuncture, Physical Therapy, Physical Therapy, 15 Chiropractic 16 Chiropractic 17 Whirlpool, Supplies, Acupuncture, Physical Therapy, Chiropractic 11 18 Acupuncture, Physical Therapy, Transportation, 23 21 Chiropractic 22 MRI, Acupuncture, PT, Diag – ROM, 28 Chiropractic 29 30 Acupuncture, Physical Therapy, 24 Chiropractic 25 31 PIP Fraud in NY Case Study 2 Low Impact, High Cost Claim Damage to Vehicle $0 Amount Billed for Claimant $17,188 The Anatomy of a Minimal Impact Claim: The Red Flags Date of Loss 03/21/00; Reported by Claimant Attorney 06/13/00 • Claimant Atty refused vehicle inspection • Pictures provided by SIU showed No Physical Damage • Independent medical exam came back negative • Claimant “No-Showed” for scheduled vehicle inspection and examination under oath • Investigative/legal costs to date: $3,626 (could go much higher) PIP Fraud in NY Case Study 3 Where’s the Impact? • Date of Loss 03/20/00 Service Category Total Amount Billed = $21,862 $998 $4,755 $9,394 • 3 claimants involved; 2 claimants accounted for $20,122 of amount billed. • 2 claimants accounted for nearly 240 treatments (PT, Chiro, Acup, H/C, ES, and MT). • Expensive diagnostics were provided within 2 weeks from DOL (totaling $4,462). $2,254 $4,462 Physical Therapy Manipulation Office Visits MRI's ME/Supplies • Medical equipment/Supplies accounted for $4,755 of amount billed. PIP Fraud in NY Case Study 4 Big Car, Small Thump, Big Bucks • Single claimant Major Service Categories • Billed $16,666 • 112 separate treatments 3,112 $3,583 $3,135 • 180 days from DOL to last treatment $3,027 $804 $1,198 $1,807 Electrodiagnostics Physical Therapy Hospital Services • Services included sensory and motor nerve testing, a breathing capacity test, manual traction therapy, muscle tests, and various other therapies MRIs CT Scans Radiology Other Where Does it All Go? • Medical Services includes Acupuncture, electrical stimulation, hot and cold packs, manual traction, chiropractic, and physical therapy Total Billed Services = $16, 666 $2,285 $4,228 • Diagnostics includes MRIs, CAT scans, X rays, nerve testing, and muscle testing $714 $9,439 • Other includes ER/Ambulance, hospital services, office visits, lab work, manipulation, and supplies • Supplies includes ER/Ambulance, hospital services, office visits, lab work, manipulation, and supplies Medical Services ME/Supplies Diagnostics Other Here’s the Diagnosis • Treatments were rendered for 14 different Diagnoses Codes. • There was a change of body region being treated subsequent to DOL • Diagnoses included Unspecified site of sprain and strain Intervertebral disc disorder Lumbago Headache Post concussion syndrome Unspecified chest pain Cumulative Cost Calendar May 1999 Monday 3 Tuesday 4 Wednesday 5 Thursday 6 **Date of Loss** Lutheran Med Ctr Friday 7 Manipulation, Other, Off Visit $3,497 14 Physical Therapy 10 Supplies, Other, Physical Therapy $4096 17 Lutheran Med Ctr 11 12 $3,135 Physical Therapy 13 18 $4162 19 20 $4229 21 $7363 24 31 25 26 27 28 PIP Fraud in NY Solutions Solutions to NY’s PIP Problem • What Is Being Done  Legislative & Administrative Action Required Key elements of solution – Reduce 180 day provider claiming window & 90 reporting window (Regulation 68) – Remove inequities in arbitration process (mandatory arbitration) – Enhanced ability to challenge questionable medical treatments – Cost containment initiatives (e.g., treatment guidelines) – Strengthen criminal penalties for insurance fraud (e.g., runners) • Bogged Down  NY Appellate Court stayed implementation of shorter reporting deadlines on Feb. 20 (2nd stay in 5 months) 30 days for reporting claim (down from 90) 45 days for submission of med bill (down from 180) Need legislature to act on non-administrative reforms Who Wants to be a Millionaire? No-Fault Auto Insurance Fraud in New York March 2002 Robert P. Hartwig, Ph.D., Senior Vice President & Chief Economist Insurance Information Institute  110 William Street  New York, NY 10038 Tel: (212) 346-5520  Fax: (212) 732-1916  bobh@iii.org  www.iii.org