Michigan No-Fault Reform Bill Passes First Committee

A bill backed by Michigan Gov. Rick Snyder overhauling the state’s no-fault insurance system made it past its first committee Thursday but has drawn heated opposition from injured drivers who say the reforms will upend how their medical treatments are funded.

Michigan is the only state in the U.S. with a no-fault system that awards unlimited medical benefits to motorists who were severely injured in a crash, regardless of who caused it.

Before presenting the proposal as HB 4612 last week, Snyder led an April 25 press conference where he presented a framework of desired reforms that aims would curb rising Michigan premiums.

A major portion of the proposal institutes a $1 million limit on benefits that are currently uncapped and awarded over an injured driver’s lifetime.

Rep. Pete Lund (R-Shelby), the bill’s sponsor in the state House, said at the press conference that the current no-fault system is “outdated, expensive and unsustainable.”

“[It] puts an incredible burden on Michigan families trying to make ends meet,” he said about rising costs within the system. “The hard-working people of this state need and deserve relief.”

Lund also chairs the House Insurance Committee that recommended HB 4612 for passage on Thursday; it now goes to the House floor for further consideration.

Snyder had hinted at his support for major reforms during his State of the State address earlier this year.

Premium Decreases Expected

Certain deadline-based criteria are set within the bill to ensure a decrease in state coverage rates.

No-fault insurers face a Dec. 31 deadline for rate filings that are required to lower average annual premiums; the filings should equate to savings of $125 per vehicle in the first year, according to the bill.

Also under the bill, rates for personal injury protection (PIP) coverage are barred from hikes before Jan. 1, 2015.

According to a fiscal analysis released Thursday, the premium reduction would “reflect the savings expected as a result of the changes” from HB 4612 like the lower benefit cap.

Bill Limits Benefits on Several Fronts

The proposed $1 million limit would apply to policies issued or renewed after Dec. 31.

The bill also tightens other benefits awarded under the state’s no-fault law with $50,000 limits on compensation for both home and car modifications that are necessary to ensure mobility for people injured in serious crashes.

Family or household members caring for the injured also face new limits of $15 per hour and 56 hours per week paid in attendant care, along with new limits on attendant expenses.

Insurers could still contract with a family member to provide attendant care that wouldn’t be subject to the wage or hourly restrictions.

The proposal also swaps wording governing compensation eligibility. While currently the no-fault law requires that benefit-eligible “products, services and accommodations” be “reasonably necessary,” the phrase would be replaced with “medically appropriate.”

New Organizations Created Under Proposal

The Michigan Catastrophic Claims Association (MCCA) handles especially costly injury claims under the no-fault system, but has faced scrutiny after accusations of financial mismanagement and lack of transparency.

High-priced claims of $500,000 and over are backed by a fund fueled by a per-vehicle “assessment” fee charged to insurers that ultimately reach consumers in the form of higher premiums. Even that fee itself has been hiked over recent years; it will increase from last year by $11 to $186 this coming July.

Under Lund’s bill, the MCCA would be nixed in lieu of the Michigan Catastrophic Claims Corporation (MC3), which would fund PIP coverage for claims over $530,000 up to the $1 million cap.

The proposal would also pass over car insurers and charge the MC3 assessment “directly on the owner or registrant of each motor vehicle that carries no-fault coverage.” Insurers would still collect the fee as a part of their policyholder’s premiums, according to the legislative analysis.

The proposal would also found an Insurance Fraud Authority (IFA) that provides financial backing to programs from state and law enforcement agencies that are “designed to reduce the incidence of automobile insurance fraud.” The IFA would also receive fraud-related data from insurers.

Insurers Back Proposal; Injured Drivers Plead Case at Hearings

The House Insurance Committee hosted testimony over two weeks in two public hearings, where scores of injured drivers and their family members pled with lawmakers to reject the reform bill.

Much of opponents’ testimony centered on the proposed $1 million cap that they contend is paltry compensation when considering the high medical costs of severe injuries.

Tracie Lentz testified on behalf of her brother-in-law, whose injuries in a January 2011 crash rendered him a quadriplegic. According to her testimony, Lentz’s sister provides round-the-clock care that is made possible by Michigan’s no-fault coverage.

“With the insurance coverage, he gets the care that he needs to be provided daily on 24/7 basis,” she said. “Without this coverage, which neither he nor I would ever think anyone we knew would need, would have to be paid for out of pocket. And when a catastrophic event happens to your sole income provider you will see that this would be impossible.”

Lentz said she would “gladly continue” paying her insurance premiums “to know that I have peace of mind.”

Michelle Gallup got specific with medical expenses that she became familiar with after her best friend was involved in a crash, including catheter supplies over a month that she said cost $2,000.

“Need I remind you that is just to pee,” she testified. “Would you mind paying $2,000 a month just to pee due to the fact that you were in an accident that may or not have even been your fault? I do not believe so.”

Katlin Dunford said she was paralyzed from the neck down in a September 2010 crash when she was 17 years old. Now a 20-year-old, Dunford said she had two wheelchairs that cost about $39,000.

“That cost [is] more than most of your cars,” she testified. “It’s also not like we’re getting this all for free, we pay for insurance too.”

But insurance trade organizations have lined up to support the reforms, saying that costs have spiraled out of control for insurers and policyholders alike.

The Property Casualty Insurers Association of America (PCI) said it was pleased with the bill’s reforms on attendant care, saying it would “help control costs.”

Jeffrey Junkas, state government relations manager for PCI, also said the cap was a “welcome” reform and echoed Lund’s previous statements that the current system is “unsustainable and expensive for consumers.”

The National Association of Mutual Insurers also backed the bill, calling it a “step in the right direction toward rescuing Michigan’s failing no-fault system.”

Patricia Parr-Armelagos, who has handled State Farm’s Special Investigation section in Michigan for decades, said in testimony that her support for the bill centered on the IFA, citing a “compelling need” for better enforcement within the industry.

“We have created a no-fault system that is ripe for abuse, and the profiteers have come,” she said, highlighting ploys ranging from staged accidents to medical clinics running up phony claims that cost tens of millions.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com 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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