Auto Insurance: Personal Injury Protection (PIP) reform

Personal Injury Protection (PIP) is a mandatory auto insurance coverage in Kentucky. All insured drivers must carry PIP coverage of at least $10,000, but additional coverage can be obtained for up to $50,000. The coverage can be used for medical expenses, lost wages, funeral expenses, and replacement services.

PIP costs in Kentucky have been increasing at an unacceptable rate for a decade because costs are not managed and current law prevents any real oversight of PIP medical bills. When medical bills are paid under other types of medical coverage such as workers' compensation, health insurance, Medicare, or Medicaid health care providers must comply with fee schedules or negotiated rates that limit the amount that they may be reimbursed. There is no similar requirement for PIP coverage in Kentucky.

While most health care providers charge reasonable costs under PIP coverage, some abuse the system by charging amounts that greatly exceed charges for identical services when they are paid by other types of coverage. This has the real impact of hurting the consumer who is counting on PIP coverage.

A person with $10,000 in PIP coverage might be counting on PIP to cover wages that were lost due to an accident in addition to his or her medical costs. When some providers submit medical bills that are two, three, or four times the amount billed under other coverages, the entire $10,000 will likely go to pay those medical bills, leaving nothing for lost wages. In addition, the remainder of the medical bills will need to be covered under the person's health insurance, which is likely subject to deductibles and co-pays, unlike PIP.

The result is that the consumer suffers. Ironically, many of those victimized by these billing practices are enticed by television advertisements encouraging them to contact someone who can get them what they are entitled to under the law.

WHAS 11 News (Louisville, Kentucky) has done an expose on PIP abuses. Chuck Olmstead of WHAS 11 News aired a report on May 14, 2007 titled "Chasing the Ambulance Chasers" that described how some attorneys and medical providers work together to abuse the system. See the video here (Used with permission of WHAS 11 News).

The Insurance Institute of Kentucky has joined with other interested parties in seeking a legislative solution to this problem.  In the past we have worked to solve the problem with various proposals that deal with different aspects of the problem, as described in the following paragraphs.

One of the proposals was to impose the workers' compensation fee schedule on PIP claims, thereby limiting the billing abuses which are currently taking place. The workers' compensation fee schedule was chosen since it provides for more generous reimbursement for providers than any other statutorily required coverage fee schedule.  In the 2007 session this legislation was filed as HB 18. This bill was reported favorably from the Banking and Insurance Committee, but did not receive a vote in the House.   

Another approach was to change the statutory presumption of reasonableness.  Under KY law all medical bills submitted under PIP are presumed to be reasonable.  HB 478 was introduced in the 2008 legislative session in order to establish criteria under which a medical bill would not be considered reasonable.  Included among the criteria were bills in excess of “customary” charges, the bill did not use the current CPT code, or if it was not submitted in a timely fashion.  This bill failed to make it out of committee during the session.

There is one other abuse that was also addressed by each of the bills above. Some medical providers, usually the same ones that are committing the billing abuses, will hold medical bills for several months and then submit many of them to the insurer in one bundle.  Often, the total of these medical bills will exhaust the claimant’s PIP coverage, leaving nothing for lost wages or other covered costs.

Since Kentucky law requires that the insurer must pay the bills within 30 days, this does not leave adequate time to investigate the bills to determine if they are proper or are even related to the auto accident. The reform bills described above would have required that medical bills be submitted within 45 days of treatment and every 45 days thereafter.

IIK believes that legislation is needed to curb the abuses currently found in the system of PIP coverage, and that consumers will benefit from these changes.  We are committed to working toward that end.