A new idea for Bernie: Universal no-fault insurance

A universal no-fault system could have a number of advantages.

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Image Credit: Greg Nash

I was looking at my computer the other day and ran across some articles on the American Museum of Tort Law.  This is the first museum on law in the United States.  It’s a Connecticut, and it was built mostly through the efforts of Ralph Nader, whose early career dealt with accident damage.  He wrote “Unsafe At Any Speed,” about the Ford Pinto, and he had a large influence on vehicle safety in the U.S.

The American Museum of Tort Law focuses on the legal system as it deals with accidents and intentional injuries and the court system that attempts to regulate their compensation.   The American system looks at each incident resulting in injury and requires the plaintiff to prove the responsibility of a defendant for the plaintiff’s injury.  In most cases, the plaintiff has to show that the defendant caused the injury, the amount of damage caused, and that the defendant was at fault in causing the injury.

Like anything involving a court, the resolution of an injury case is expensive.  Each party usually has an attorney, and while the court is provided by the government, there are court costs that the losing party normally has to cover.  Moreover, if the damage caused is high, there are many instances where the defendant losing the case cannot pay and files for bankruptcy, leaving both parties in a bad situation.

Fortunately, in many cases the defendant is fully insured, but this still may mean that the plaintiff must go through an extended process in order to recover for the injury caused.

Then, of course, there are situations in which there are injuries, but they are not caused by another person.  For example, the victim slips and falls in a bathtub.  The injuries may be severe, but the victim can recover only if he has personal medical insurance.  And this says nothing about loss of salary.

The only country that has attempted to deal with such problems is New Zealand, which has a universal insurance system against accidents, whether caused by another person or not.  Everyone (including tourists) is covered, but only for personal injury.  No one can sue anyone else for injuries (except in a case of “exemplary damage”).  On the other hand, the system does not cover damage to property or lost income arising from the injury.  So it’s truly universal, but only for a limited type of damage.

If you review the New Zealand system, you’ll find that the method selected for financing the program is somewhat helter-skelter.  Some money is provided by gasoline taxes.  Others are provided by general income taxes.  It appears to me that the costs should be covered more directly by the activities which tend to result in injuries.

Of course, if a universal no-fault system were suggested for the U.S., you would find a substantial opposition by lawyers, since accidents and the court process for sorting out responsibility is a great part of the work for some of them.  Insurance companies would also oppose it.  But the administration of a no-fault system would require knowledge of the system that we presently have (see below).  It would appear to me that a block of lawyers presently employed in our system could be moved to administering the no-fault system.  But a large portion of the remaining lawyers would have to look for other work.  And the insurance industry would be deprived of a source of profits.

Still, let’s see how the system would work.  If two drivers got into an accident with each other, resulting in injuries to the people and damage to their vehicles, and both were unable to work for three months, the system would have to cover the medical problems, repairs to the vehicles, and compensation for lost wages.  It wouldn’t matter which driver was at fault.

The system might be set up, requiring the driver at fault to pay money into the system for a specified amount into the future.  Or the question of fault might be ignored.  But the larger question is whether the cost of the universal insurance should just be paid from general taxes or from other sources. (I’m not even considering payment by the individual covered.  Everyone is covered, so there is no point in charging an individual fee).

It is well known that a substantial portion of injuries every year arise from automobile accidents.  We do have statistics, and doubtless could get more, on the amount of medical costs, losses from property damage, and other costs arising from automobile usage.  It would make sense to consider the percentage of that overall cost that might be attributed to automobiles and provide for a special tax on the makers and sellers of automobiles as a result.  (This is similar to the taxes which we impose on motor vehicles to pay for roads and related costs that arise from their use).  The money paid by the makers and sellers of automobiles would go, along with general taxes, into the fund that would permit the universal no-fault insurance agency to operate and pay claims.

Similarly, we know that a portion of motor vehicle accidents arise from alcohol use.  Alcohol use also causes individuals to get into fights and non-vehicle accidents, and those incidents also result in injuries.  So special taxes on alcohol and the sellers of alcohol might be justified.  

We also know that alcohol use can lead to medical conditions, and treating such conditions would be a cost to universal healthcare.  Similarly, motor vehicles cause pollution, which lead to medical conditions and a cost to universal healthcare.  So companies producing them should contribute directly to paying such costs.

Then consider boxing and football.  Boxers are subject to bad injuries and so are football players.  If universal healthcare coverage pays for these, then the costs should be borne by the organizers of these sports (and if necessary be added to the ticket prices).

Universal no-fault insurance (of which universal healthcare would be a part) would be paid out of general taxes, plus out of activities which can be identified as leading to damage that is covered out of the insurance.  As you can see, “fault” is no part of this.  Basically, all that need be shown is “causation,” which may be difficult to show, particularly if there are several different causes contributing to the damage.  For example, a subset of motor vehicle accidents may be attributable to vehicle tires.  So should the tire industry pay the entire cost of those accidents, or should the motor vehicle industry contribute?  Air pollution causes lung cancer.   How much is caused by fossil fuels? Is some of it caused by livestock? Should motor vehicles, which burns the fossil fuels, also contribute to the payment for the cost of the disease?

If we had universal no-fault insurance, the determination of causes of injuries and diseases should be made by an Insurance Board after a careful review of the facts.  The process of determining causes, ruling on them, and arguing before the Board would best be done by skilled lawyers.  There should be an independent oversight agency to make sure that corruption doesn’t creep into the system.  (That is, cheating by the claimants or those industries which might have to bear a larger share of the cost burden).  Yet even with these costs (which would provide jobs for some of the lawyers displaced by the insurance system) the overall cost would be far less than the system we have now.

I might point out that a universal no-fault system would have a number of advantages.  First of all, the injured parties would be taken care of immediately by doctors and hospitals, since the latter would be paid by the insurance.  Collection of the cost of repairs to property and losses of income would not require a lengthy court case.  There would be no bankruptcy risk because the no-fault insurance would be a government agency. The huge expense of determining recovery through a court case would be eliminated.  The only determination for recovery would be the medical costs plus any property damage and income losses.  A lawyer wouldn’t be needed to do that.

No-fault insurance systems are still available under the private market.  In a 2010 RAND Report, the authors found that there were higher costs in paying for no-fault insurance than for traditional insurance.  This is pretty obvious since tradition insurance does not pay for medical care but only potential liability. Moreover, universal no-fault insurance costs would be borne across society.  Doctors and hospitals would be paid more or less the same as they are by Medicare or medical insurance.

If the voters were concerned that the government would not pay as promised, the law could contain a provision permitting injured persons to sue the insurance agency under a swiftly operating and fair system. If the overall costs turned out to be higher than expected, the independent oversight agency would be prepared to look into that immediately.

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