AUTO MANAGED CARE
Auto Managed Care
Pennsylvania’s Act 6 of 1990
Chet Szczepanski
Chief Actuary
Pennsylvania Insurance Department
Agenda





Review economic and social background leading
to Act 6
Review legislative background leading to Act 6
Review specifics of Act 6
Examine loss cost saving effects of medical cost
containment features implemented by Act 6
Examine impact on loss development and
reserving
Economic & Social Background

Climate of the 1970’s and 1980’s:
– High rates of inflation throughout period,
especially medical inflation
– Society becoming increasingly litigious,
particularly in large population centers
such as Philadelphia
Economic & Social Background
(continued)

Insurance Marketplace in the 1970’s
and 1980’s
– Persistent rate increases outpacing rates
of inflation
– Rate increases consistently in the double
digits in Philadelphia
– Considerable public discontent
– Clamor for increased regulatory scrutiny &
control
Legislative Background

July 19, 1974: Legislature enacts
Pennsylvania No-Fault Motor Vehicle
Insurance Act
– Key Features:
Unlimited Medical Coverage
 $750 Monetary Threshold to Bring Suit

Legislative Background
(Continued)
– Inflation quickly erodes effectiveness of
$750 monetary threshold
– Ineffective threshold and unlimited medical
coverage are catalyst for increased suit
activity and, in turn, excessive medical
usage to perfect claims
Legislative Background
(Continued)
October 1, 1984: Pennsylvania
Legislature repeals No-Fault Motor
Vehicle Insurance Act and enacts Motor
Vehicle Financial Responsibility Law
 Key Features:

Tort System with add-on First Party Benefits
 Medical Coverage now limited (minimum limit
$10,000 Medical Benefits)

Legislative Background
(Continued)

To compensate for such severely reduced
Medical Benefit coverage, Automobile
Catastrophic Loss Trust Fund established
–
–
–
–
–
–
–
–
Coverage from $100,000 to $1,000,000
A State Fund (Not a private sector program)
Mandatory Participation
Funded on a pay as you go basis
initial “Fee” $5.00
Fee paid with annual automobile registration
As “Fee” increases, considerable discontent
As Fee hits $25.00, Letter to the Editor states: “I don’t have
a cat, what do I need a Cat Fund for?”
Legislative Background
(Continued)


Quite possibly worst possible system from a cost
perspective:
– Tort system without limit to suits combined
with add-on first party benefits
– Mandatory uninsured/underinsured motorists
coverage, which courts rule can be stacked
Combined effects of increased suit activity and
accelerating inflation leads to even greater and
more frequent rate increases
Legislative Background
(Continued)
Governor Robert P. Casey takes office
in January, 1987
 A populist governor, he makes auto
insurance reform one of his major
legislative goals

Legislative Background
(Continued)

Governor Casey introduces a comprehensive
auto insurance reform package in early 1988
– No-Fault system with $10,000 monetary
threshold
– 80% of bodily injury claims have
associated medical costs less than
$10,000

Casey’s proposal fails to gain substantive
support from any constituency
Legislative Background
(Continued)

Constituencies (Depending on the
reform package, they can be either
obstacles or facilitators)
– The Public
– The Legislature
– The Insurance Industry
– The Trial Bar
– The Medical Community
Legislative Background
(Continued)





December 12, 1988: Pennsylvania Legislature
Repeals Automobile Catastrophic Loss Trust Fund
Institutes runoff of current claims to be funded by
surcharge on driving violation fees
Mandates that insurance marketplace offer
Extraordinary Medical Benefit Coverage for
voluntary purchase
Coverage similar to original Cat Fund
Initial actuarial cost $45.00
Legislative Background
(Continued)
February 7, 1990: Governor Casey
signs into law Act 6 of 1990 which
substantially modifies the Motor Vehicle
Financial Responsibility Law
 A “Choice No-Fault” System

Act 6 of 1990

Key Features
– Policyholders can voluntarily restrict their ability
to seek recovery for non-economic damages,
such as pain and suffering, to only those cases
resulting in death, serious impairment of bodily
function, or permanent serious disfigurement.
– Policyholders are prohibited from recovering for
economic damages under other insurance
coverage, such as Accident & Health Insurance
Act 6 of 1990

Key Features (continued)
– Increased uninsured motorist detection
efforts
– Increased anti-fraud measures

Penalties for insurance fraud stiffened from a
misdemeanor to a third degree felony
Act 6 of 1990

Key Features (continued)
– Auto insurers’ medical benefit payments
are controlled by generally limiting
providers to 110% of the prevailing fee
available under Medicare.
– Insurers must contract with peer-review
organizations to more effectively evaluate
the reasonableness and necessity of
medical services and treatment.
Act 6 of 1990

Key Features (continued)
– MANDATORY RATE ROLLBACKS!
Constituencies (Revisited)
–The Public
–The Legislature
–The Insurance Industry
–The Trial Bar
–The Medical Community
Effects of Act 6 Medical Cost
Containment Features
A picture is supposed to be worth a
1000 words
 Hopefully the following 4 are worth
considerably more!

First Party Benefits
Arising Claim Frequency
3 .5 0 0 0
3 .0 0 0 0
2 .0 0 0 0
1 .5 0 0 0
1 .0 0 0 0
0 .5 0 0 0
/1
/3
98
98
/3
97
/3
/1
/3
/1
/3
/1
97
96
96
95
95
94
/3
/1
94
/3
/1
93
93
/1
92
/3
92
91
/1
91
/1
/3
/1
/3
/3
90
90
89
89
88
/1
88
/1
/3
/1
/3
87
87
86
86
ea
r/
0 .0 0 0 0
Y
F r eq u en cy
2 .5 0 0 0
Y e a r & Q u a rte r
P e n n s y lv a n ia A ris in g C la im F re q u e n c y
C o u n try w id e A ris in g C la im F re q u e n c y
First Party Benefits
Average Paid Loss
5000
4500
4000
3000
2500
2000
1500
1000
500
P e n n sylva n ia A ve ra g e L o ss
C o u n tryw id e A ve ra g e L o ss
/3
/1
Y e a r & Q u a rte r
98
/1
/3
/1
/3
98
97
97
96
96
/3
95
/3
/1
/3
/1
95
94
94
/1
93
93
/3
92
/1
/1
/3
/1
/3
/3
92
91
91
90
90
89
/1
89
/1
/3
/1
/3
/3
88
88
87
87
86
/1
86
ea
r/
0
Y
A ver ag e Paid L o ss
3500
Medical Incurred Development
12
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
24
1.9811
1.9144
1.6970
1.8667
1.8786
1.9160
1.4730
1.7146
1.5063
1.5621
1.4729
36
1.2164
1.2022
1.2666
1.2441
1.1970
1.2042
1.1091
1.1389
1.0540
1.1199
1.1011
48
1.0685
1.1604
1.1074
1.0920
1.1039
1.1231
1.0627
1.0638
1.0554
1.0574
1.0464
60
72
1.0976
1.1233
1.0562
1.0371
1.0301
1.0478
1.0346
1.0190
1.0197
1.0285
0.9995
84
1.0115
1.1936
1.0635
1.0259
1.0196
1.0382
1.0153
1.0643
1.0203
1.0294
1.0049
1.0212
1.0645
1.1243
0.9796
0.9908
1.0109
0.9920
1.0006
1.0089
1.0117
1.0062
96
1.0365
1.0716
1.0738
1.0318
0.9856
1.0134
0.9975
1.0017
1.0061
1.0172
1.0277
108
1.0268
1.0661
1.0488
0.9903
0.9995
0.9410
1.0063
1.0610
0.9995
1.0104
1.0073
Medical Paid Development
12
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
24
2.0837
2.3803
2.0436
2.5618
2.3714
2.2078
1.7344
1.8878
1.7767
1.7839
1.6956
36
1.2004
1.2111
1.2223
1.2819
1.2834
1.2319
1.1483
1.1516
1.1573
1.1451
1.1621
48
1.1110
1.1145
1.1031
1.1415
1.1850
1.1544
1.0809
1.0741
1.0794
1.0840
1.0778
60
72
1.0758
1.0670
1.0689
1.0763
1.1081
1.1002
1.0604
1.0457
1.0428
1.0496
1.0603
84
1.0179
1.0723
1.0495
1.0650
1.0751
1.0816
1.0420
1.0346
1.0362
1.0379
1.0296
1.0331
1.0427
1.0596
1.0361
1.0639
1.0545
1.0331
1.0289
1.0296
1.0248
1.0284
96
1.0318
1.0388
1.0277
1.0735
1.0345
1.0491
1.0243
1.0288
1.0234
1.0212
1.0235
108
1.0302
1.0222
1.0424
1.0350
1.0452
1.0065
1.0178
1.0195
1.0166
1.0144
1.0190
CONCLUSIONS
Act 6 enacted because a successful
coalition of constituencies formed
 Act 6, especially Choice Features and
Medical Cost Containment Features, a
big success
 Such law changes have substantial
effects on actuarial analyses
