Monday, August 27, 2012

PIP reform analysis 2012: Only 2 changes likely to lower costs

Just two! That's the number of provisions of 2012 PIP law HB 119 that are predicted to have a material impact on reducing PIP loss costs and premiums. The key changes are the $2,500 cap on non-emergency treatment and the exclusion of massage therapy. Their combination is estimated to be as much as 96% of the new law's impact on cost savings.

These are some of the conclusions of Pinnacle Actuarial Resources, Inc. (Pinnacle), in its actuarial analysis of HB 119. Enacted in the 2012 Florida legislative session, HB 119 directed the Office of Insurance Regulation (OIR) to engage an independent actuary to calculate the savings expected from HB 119. OIR selected Pinnacle, which released its final report on August 20, 2012.

Pinnacle divided the statutory changes into 16 principal categories (including 13 potential cost-savers), which begin to take effect next year (2013). The summary data reported by Pinnacle reflects the following minimum and maximum impacts of the legislative changes:
[See page 12 and Exhibit 1 of Impact Analysis of HB119. Note: -% impact means costs are expected to decrease.]

#6 - Limitations on Non-Emergency Conditions. HB 119 imposes a $2,500 cap on non-emergency treatment. Pinnacle studied 2012 claim data and determined that approximately 30% of PIP claims are non-emergency and that 97% of non-emergency claims currently exceed the $2,500 limitation of HB119, as follows:
Based on this data, Pinnacle estimates that the impact of the non-emergency cap will range from 9.8% to 14.7%. As Pinnacle notes, "health care entities are already advertising to provide services to document that an injury meets the definition of an emergency." Thus, if there were wide-scale sharp practices resulting in emergency diagnosis of conditions that would otherwise be diagnosed as non-emergency, then savings would be on the low side. [See pages 24-26 of Impact Analysis of HB 119].

#7- Massage Therapy Exclusion. As the new law takes effect, PIP will no longer pay for massage therapy or acupuncture treatment. Pinnacle reviewed seven years of PIP medical payments, focusing particularly on years 2010 and 2011. In those last two years, massage therapy has accounted for 13.2% of medical payments (acupuncture only 0.2%). Pinnacle concludes, however, "that not all of the payments currently being coded as massage therapy will be eliminated from the system and there will be leakage” with a likely future increase in coding for chiropractic manipulation (in lieu of massage therapy). Because of this leakage, Pinnacle discounts its estimate of loss savings to a range of 6.9% to 10.4%. [See pages 26-27 of Impact Analysis of HB 119].

Other Loss Costs. No other single change under HB 119 is predicted to save more than 2% (on the high side). The combined impact of the other categories could be as low as 1% (or as much as 7%).
Premium Savings - Caveats. Pinnacle's bottom-line estimates of potential premium savings range from 14.0% to 24.6%. These are statewide savings, so the impact could be higher or lower territorially (locally), depending on claimant/provider practices locally. And these are just predictions. Given that most auto policies have six-month terms, insurers should have a better sense of the law's real impact when they make their 2014 calendar-year rate filings during third-quarter 2013. For a summary of other caveats, see OIR press release (Aug. 21, 2012).

This summary was prepared by Perry Cone and posted at

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