Gov. Rick SNYDER‘s creation of a fraud authority within the state’s Department of Insurance and Financial Services (DIFS) is being applauded as a “first step” in squeezing “rampant fraud and abuse” out of the system.
But entities on both sides of the no-fault insurance debate believe more legislation is needed and are quibbling over where the fraud exists in the system.
Insurance companies are concerned about scam artists faking or exaggerating injuries for a quick buck while trial attorneys employ a practice of “delay, deny and defend” that can make it difficult for the injured to be compensated for medical costs.
Trial attorneys are more skeptical.
“It is part of the rhetoric on this is that there is fraud and fraud is driving up the cost of no-fault insurance. Of course there is fraud, but the reality is that the insurance companies now have tremendous powers to fight fraud,” said Wayne Miller, chair of the no-fault auto insurance committee at the Michigan Association for Justice (MAJ).
If the state is going to have a fraud authority, it should be balanced, he said, investigating not only cases of fraud committed against insurance companies but also cases in which the companies “delay, deny and defend” claim rejections that “border on fraud.” And he contends that while there are penalties including jail time and fines for policyholders who commit fraud, there should be tougher penalties for insurance companies which delay and deny.
Pete Kuhnmuench, executive director of the Insurance Alliance of Michigan, agreed with the principle of balance, but contended “the reality is that right now it is balanced, quite frankly, in favor of the consumer.” He contended the penalties for fraud, potential jail time and fines, should apply to both policyholders and insurance companies. Also, he said, another section of law applies only to the industry, setting uniform trade practices and prohibiting deceptive practices. That section has its own set of penalties.
Kuhnmuench applauded the Governor creating the fraud authority. He said the National Insurance Crime Bureau estimates put the cost of insurance fraud currently at $200 to $300 per family.
Rep. Lana Theis (R-Brighton), chair of the House Insurance Committee, said Snyder’s executive order helps because it encourages investigation, allows the sharing of information and mandates reporting of fraud, but she still sees a need for legislation.
“Policing agencies such as the Attorney General and law enforcement departments should be given the authority and funding to track fraud, and the law needs to have the teeth to make certain that fraud is punished,” Theis stated.
And she said, the fraud authority is expected to look at fraud from both directions, consumer fraud and company fraud.
Snyder announced the formation of the new division last week, saying it would investigate fraud and share information with other law enforcement agencies to combat fraud in the auto insurance, health insurance, and banking sectors.
“Fraud in the system drives up the cost of insurance for all Michiganders, and we need to do everything we can to eradicate it,” Snyder said.
“Insurance fraud touches all consumers and is not a victimless crime. Insurance fraud schemes vary from the simple to the extremely complex. With this executive order, DIFS can more aggressively engage in crime fighting efforts,” said DIFS Director Patrick McPharlin. “It will increase our ability to investigate fraud and will ultimately drive down the cost of insurance for Michiganders.”
He noted the department launched a website in March, www.mi.gov/InsuranceFraud, which allows consumers and the insurance industry officials to report fraud. So far, DIFS has received 167 complaints of fraud from consumers and 68 complaints from the industry. DIFS spokesperson Andrea Miller said the department has not yet categorized the complaints received.
“DIFS’ Fraud Unit will address fraud regardless of the source,” Andrea Miller said, explaining that Michigan’s Insurance Code defines fraudulent acts as those “committed by consumers, third-party service providers, agents, or companies.” And she said the penalties apply to them all, as well. She also said the act defines unfair or deceptive acts, outlines an insurer’s obligation to pay claims, and sets forth penalties for violations.
“There are many reasons a claim may not be paid that would not be unfair or deceptive; for example, the benefit being claimed is not covered by the policy. However, if a consumer believes they are entitled to payment of a claim that the insurer has refused, DIFS Office of Consumer Services is available to take that complaint,” she said.
How big the problem of fraud is unclear. The National Association of Insurance Commissioners received 3,453 suspected insurance fraud claims from Michigan last year.
Theis pointed, as an example, to a 2013 New York case that was “arguably the single largest no-fault insurance fraud case in U.S. history: $279 million.” Mikhail Zemlyansky created a scheme in which runners were paid to recruit patients to fake injuries to maximize medical treatment. To mislead authorities, owners of medical clinics paid medical practitioners, including doctors, to use their licenses to incorporate clinics that billed insurers for bogus medical treatments. Zemlyansky was eventually sentenced in 2016 to 15 years in prison.
“This happened in a state with a $50,000 cap on benefits,” Theis stated. “Michigan is the only state in the country with unlimited, lifetime medical benefits, and one of the only states in the nation without an anti-fraud bureau tasked with investigating insurance fraud. If there was that much fraud in New York with a $50,000 cap, imagine how much fraud exists in our system under our unlimited, lifetime medical benefits.”
But Theis wouldn’t try to predict how much it would save ratepayers, saying that depends on how effective the executive order turns out to be. She also said the reduction would likely be long-term and not immediate.
“Those estimates will be much easier to make after actual cases have been resolved. We’ll go in and see what actual fraud has occurred, whether or not there is any recoupment or not as a result of these efforts,” Kuhnmuench said. “It will be really interesting to see what cases they end up delving into and what the results of those cases are. Unfortunately, there is no centralized mechanism right now to give it a better estimate.”
MAJ’s Wayne Miller said that while the cost of fraud is often discussed when policymakers talk about reform, what is not talked about is the cost of insurance companies’ “excessive defense, paranoid defense” of claim rejections.
“I wonder, if they would just pay the claims and not delay, deny and defend, I believe there would be a substantial reduction in premium costs,” he said.
Insurance companies already have the right, and a responsibility, to investigate claims, said Wayne Miller, who teaches the auto no-fault insurance course at Wayne State University Law School.
“What they do in every case, virtually every case, is the so-called independent medical examination and these IMEs are done by these doctors who apply to these services — I call them bordellos — and they all know what they are supposed to do. They are supposed to say, ‘Well, this injury, this condition that the claimant is complaining of, didn’t come from the auto accident. It came from some pre-existing condition,’ or ‘the plaintiff didn’t really suffer an injury,’ all sort of things that are in contrast to what the treating physician says,” Miller said.
He contends IMEs are “totally unregulated.”
“I think that it amounts to fraud. So many of these doctors make hundreds of thousands and some make into the millions of dollars a year doing what I call these drive-by IMEs. Somebody comes in and looks at him for 15 minutes and says, ‘Nope, we don’t think your injury is compensable,'” he said.
Theis argued MAJ is “choosing to ignore” the section of the Insurance Code that regulates companies and outlaws “unfair and prohibited trade practices.” Under the code, she noted, violations of that section might not meet the definition of fraud, but could still result in significant fines for the company and even revocation of licensure, which would prevent the company from doing business in Michigan.
“The Governor’s Anti-Fraud Unit is a great step in the right direction, but there is much more to be done to ensure Michigan’s drivers see real relief,” Theis said. “To reduce their cost, we also have to address overcharging by hospitals, who charge three or four times more for auto injured patients, and by trial attorneys that can legally continue to take fees from accident victims for decades after a case was filed. Additionally, we must give drivers a choice in their coverage level, as we do for every other type of insurance coverage they have.”