New No-Fault Reform Bill Introduced to Michigan Legislature

Michigan legislators have introduced another bill aimed at modifying the state’s no-fault auto insurance system that they claim would “preserve the integrity” of that system while offering consumers greater choice.

The proposed legislation could potentially relieve coverage providers of the obligation to provide unlimited medical coverage by allowing motorists to choose from one of four levels of personal injury protection (PIP).

Currently, Michigan is the only state that requires insurers to cover up to a lifetime of medical and rehabilitative costs for vehicle accident victims who suffer catastrophic injuries.

Under the state’s system, which was implemented nearly four decades ago, policyholders statewide pay into a catastrophic claims fund that helps finance PIP claims greater than $500,000. That payment is made in the form of a fee that is added to all policies and is currently $145 per vehicle, according to state regulators.

Average PIP claim size by stateCritics say the system unfairly burdens insurers and has led to prohibitively high premiums in Michigan, which has some of the highest policy rates nationwide.

A new bill sponsored by state Rep. Pete Lund, the Republican chair of the House Insurance Committee, would establish a four-tiered system under which motorists could choose to carry $250,000, $500,000, $1 million or $5 million in PIP coverage. If the policyholder does not choose from one of the four PIP coverage levels, it would automatically be set at $250,000.

The limits proposed in Lund’s bill are significantly higher than those proposed in earlier legislation, which would have let policyholders purchase as little as $50,000 in PIP coverage.

The bill also makes changes to how individuals other than the policyholder would be covered. If a policyholder chooses one of the levels above $250,000, full coverage will only be provided to the driver named on the policy, his or her spouse and relatives who live in the same household. Anyone else who receives compensation through the policy would have a $250,000 cap on benefits.

The bill would set restrictions on payments for hospital stays and nursing services and prohibit PIP payments to people who were riding on a motorcycle without a helmet at the time of a crash.

Proponents say the changes could lead to lower premiums for economically strapped consumers looking for the cheapest auto insurance companies out there, possibly making coverage inexpensive enough for motorists who have driven uninsured because they couldn’t afford policies.

“In a time when people in Michigan are pinching pennies just to make ends meet, they should not be forced to purchase a one size fits all insurance plan that they cannot afford and may never need,” state Sen. Joe Hune said in a news release. “This proposal will provide people responsible options to choose the level of coverage to suit their needs.”

According to the Insurance Research Council, 19 percent of Michigan motorists were uninsured in 2009, up from 17 percent two years earlier.

Critics of legislative attempts to modify the state’s no-fault system say the proposals would benefit insurers by relieving them of the obligation to provide necessary care for serious accident victims, instead shifting that burden to taxpayers.

A recent study commissioned by the Michigan Brain Injury Provider Council projected that lifting the mandate for insurers to provide unlimited medical benefits would costs the state’s Medicaid program more than $30 million in the first year alone.

About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

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