Insurers often say that insurance regulation is a bad thing that leads to increased premiums and less competition, ultimately harming the consumer. Except, that is, when insurers think that a state law might save them some money. So goes the thinking behind a lawsuit filed by an insurance industry trade group against the New Jersey Department of Insurance (DOI), alleging that the DOI has not passed enough regulation of medical fees that doctors can charge for auto accident-related injuries.

The lawsuit follows the DOI's June 2001 announcement of a new medical fee schedule that capped doctors' fees for 92 of 953 common crash-related injuries. The new fee schedule had been in the works since 1998, when New Jersey's Auto Insurance Cost Reduction Act forced insurers to slash premium rates by 15 percent. In exchange, the DOI promised it would regulate medical fees, which would allow insurers to recoup that 15 percent by saving money on patient care. The DOI says it has kept its promise with the new fee schedule, but insurers say that their expected cost savings never materialized.

Insurers are unhappy, complaining that the 92 injuries listed are just the tip of the cost-cutting iceberg. The American Insurance Association (AIA) is suing the DOI for failure to cap medical fees for the 861 remaining injuries on the list, and for failing to adopt similar fee schedules for hospital and dental care. As it stands, doctors are allowed to charge their "usual, customary, and reasonable" fees for injuries not covered by the fee schedule.

"Those injuries constitute better than 85 percent of the procedures that are typically billed as a result of an auto accident. These are the most common treatments we've seen," says Bill Heine of the DOI. The DOI maintains it has kept the "regulatory burden" to a minimum by regulating only the most common injuries.

"This partial fee schedule fails to achieve the cost-containment goals because it addresses only a fraction of the medical expenses reimbursed by personal injury protection (PIP) benefits," says David Snyder of the AIA. The AIA says that some of the most common treatments, including chiropractic visits, are not included on the fee schedule, but Heine of the DOI says a separate rule passed in May 2001 caps chiropractic and physical therapy fees at $90 per day if the treatment results from an auto accident.

"The insurance commissioner is looking at the remainder of the list," says Heine. "We wouldn't want to rule out the remaining 861."

Auto insurers have recently complained of over-regulation in the New Jersey insurance market, blaming it for the departure of State Farm Indemnity Co. and American International Insurance Co. from the state. "At the root of most of these problems is excessive regulation by the state," Snyder says of New Jersey auto insurers' financial woes.