Report: Mich. Auto Insurers Bear Higher Medical Costs

Emergency Room SignMichigan auto insurance companies pay double—and oftentimes even more—the amount that health and other insurers pay for the same medical services that treat crash-injured drivers under the state’s no-fault system, according to a new report from a nonpartisan group.

The Citizens Research Council of Michigan (CRC) said in its report that statewide spending to treat motorists injured in car crashes has increased, but much of it is driven by auto insurers facing exorbitantly higher prices for services.

Under its no-fault law, Michigan is the only state in the U.S. to offer unlimited, lifetime coverage for severe crash-related injuries. The CRC said that the system provides a “robust medical safety net” with “likely more expansive” coverage than coverage offered by a private health insurer.

“However, the trade-off for this more generous medical coverage is higher auto insurance premiums for Michigan drivers,” the report said.

According to the report: “Michigan drivers are subsidizing the health care system by paying higher prices than other payers for identical services.”

Auto Insurers Face Higher Medical Costs Than Other Entities

The report found that, compared to Medicare groups in Detroit, auto insurers on average pay 268 percent more for the 15 most common medical services. In addition, Detroit auto insurers pay an average difference of 160 percent more for those services compared to workers’ compensation fees.

“These medical costs are raising automobile insurance premiums, disproportionately increasing overall health care spending, and likely causing some costs to be shifted from other health care payers to automobile insurers and drivers,” the CRC said.

Some of those services cost auto insurers a much higher amount than their counterparts in workers’ comp and health coverage industries. No-fault reimbursements for low-back MRIs, for example, cost 577 percent more compared to Medicare reimbursements: $3,278 compared to $484.

“Uniquely, Michigan’s auto insurance does not contain cost containment measures related to medical spending and some provisions make it difficult or impossible for auto insurance to initiate such changes on their own,” the report said.

The Insurance Institute of Michigan (IIM) said that the CRC’s study “affirms the industry’s position” that the state needs to reform its no-fault setup.

One reform, according Lori Conarton, spokeswoman for the IIM, should be allowing auto insurers to negotiate lower fees for medical services.

“Medical cost containment is a key to reforming the auto insurance system in Michigan,” Conarton told Online Auto Insurance News (OAIN).

The CRC report said that auto coverage providers possess “little market power to negotiate” because of:

  • The language of state Insurance law that, among other things, “bars copays and deductibles”
  • A lower volume of claims requiring medical services
  • Other laws that “somewhat limit their ability to incentivize patients to visit certain ‘in-network’ providers in exchange for reduced copayments and premiums

Higher costs within the system lead to higher costs for drivers’ coverage policies, the report said. Premium prices have skyrocketed to a point where they have become a flashpoint for politics in Detroit and the state Capitol.

Report Suggests Reforms Amid Continuing Efforts

Included in the CRC report are 11 reforms that lawmakers could pursue. They run the gamut, from instituting fee schedules to allowing drivers the choice between “a less expensive” no-fault policy and the traditional tort policy that is “more expensive,” both of which have been proposed by lawmakers in recent legislative sessions.

Such a choice, the CRC said, “may provide a better value for consumers who do not want access to the tort system.”

More drastic changes could make a large impact but would lessen access to medical services for catastrophic injuries currently offered to motorists, according to the CRC. Such options include replacing the no-fault system with a tort system.

Some of the advised reforms are already under way.

Both state Democrats and Republican Gov. Rick Snyder have introduced rival pieces of legislation seeking no-fault reforms.

Snyder’s bill seeks a $1 million cap on benefits, requiring that injured drivers seek coverage costing above that amount with a state insurer, their own insurer or take their matter to court. The CRC listed a benefit cap as a reform that “may make the largest impact on medical costs.”

Democrats, on the other hand, said such a cap would shortchange crash victims whose medical care often exceeds $1 million. To obtain premium reductions, the bill from state Democrats seeks regulatory reforms in lieu of reductions to coverage.

In addition, the state House passed legislation last week that they said would target “ambulance-chasing” fraudsters and limit their activities that center on inflating drivers’ injury claims for medical services.

The IIM has been involved in talks about legislative reforms and expects to see those reform efforts at the state Capitol continue this fall, according to Conarton.

“The governor, Senate and House leadership have all indicated no-fault reform is still on the agenda,” she told OAIN, adding that “the industry is hopeful we can find a solution.”

Some type of reform is necessary, Conarton said, to rectify the excessive rates that auto insurers pay to treat severely injured drivers.

“It is not fair to auto insurance consumers that auto insurers pay three to four times more for the same medical treatment as someone injured who is covered by workers’ compensation or another insurance payer,” she said.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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