Mich. Car Insurance Reform Plan: $10M Benefit Cap, 10% Savings

Capitol StatueMichigan’s recently announced car insurance reform efforts took firmer shape on Tuesday, with state Republicans releasing their plans in a draft bill that includes capping no-fault benefits at $10 million.

The latest draft is a substitute to last year’s HB 4612, a piece of legislation backed by Gov. Rick Snyder. Snyder was one of many lawmakers who, during last year’s session, tried to legislate reforms that would cut car insurance rates in Michigan, which are increasingly unaffordable.

Benefits through personal injury protection (PIP) coverage in Michigan’s no-fault auto insurance system are currently uncapped and cover injured drivers throughout their lifetime.

Those limitless injury benefits, which are awarded regardless of who caused the crash, are unique to Michigan but have inflated car insurance rates there compared to other states.

Plan Caps Benefits, Sets Requirements for Rate Reductions

The plan requires Michigan auto insurers to cut policy rates by at least a 10 percent for two years.

“Under our plan, you’re going to pay less for your car insurance,” John Whetstone, spokesman for Republican state House lawmakers, said in an audio legislative update. “And that’s what people want.”

The plan also sets a fee schedule for health care providers, requiring that auto insurers pay them at a level of 125 percent of workers’ compensation rates if the auto insurers pay the claim within 30 days. The schedule would push those providers and insurers toward settling disputes instead of taking bill disputes to court, according to Jase Bolger, speaker for the state House.

In addition, lifetime PIP coverage would be capped at $10 million under the plan. Bolger said the cap preserves the quality of Michigan’s auto insurance system while cutting costs.

“Michigan has the best auto insurance coverage in the nation—far and away,” he said at a press event last week where the plan was announced. “But we also have among the most expensive auto insurance in the country. That escalation in auto premiums has continued to strangle our families.”

The cap could be one flashpoint for discussion as lawmakers debate the bill. A previous version of the piece of legislation, introduced last year, drew intense protests from injured motorists and their advocates, who said that bill’s benefit limit would leave severely disabled drivers at the mercy of an unaffordable healthcare system.

Rep. Kate Segal (D-Battle Creek) echoed the sentiment last week, calling the Republican plan an “election year giveaway to insurance companies.”

“It is the same old proposal to line the pockets of insurance companies at the expense of Michigan drivers,” she said in a statement. “Giving the bill a new name and different form does not change its basic intent and the harmful effects it would have on the people of Michigan. The plan is wrong for Michiganders. We should never compromise their health and safety for the sake of big corporations.”

The Coalition Protecting Auto No-Fault (CPAN), a group that has fought extensively against limits on Michigan’s auto insurance benefits, called the latest proposal a “non-compromise compromise.”

The plan’s two-year requirement for premium savings falls short of lasting reform, according to John Cornack, president for CPAN.

“There are no real savings at all, and all the while Michigan drivers will be losing the best injury care in the country. That just doesn’t make sense,” Cornack said in a statement. “Real rate relief would involve stopping credit scoring and giving the insurance commissioner greater powers to approve rates to ensure they are fair.”

Latest Plan Comes After a Busy Year for Michigan Auto Insurance in 2013

A major reform bill was introduced last April by Gov. Rick Snyder, who said at the time that an overhaul of auto insurance in Michigan was “long overdue.”

The Snyder-backed piece of reform legislation, HB  4612, never made it past a House committee recommendation a month later.

Last year’s piece of legislation sought to cap medical benefits at $1 million, lower than the $10 million cap in the most recent proposal from Republicans.

Last year, HB 4612 also sought to created an anti-fraud authority to support insurers’ crime-fighting efforts. The latest draft of HB 4612 preserves the creation of that authority.

A group of Detroit-based Democrats also introduced their own reform plan last June. Supporters of that package of proposals said their plan went further than HB 4612 in prioritizing the severely injured drivers that benefit the most from Michigan’s extensive no-fault benefits.

Democrats said that one of the ways their proposals would reduce Michigan auto insurance premiums would be tighter regulations on car insurers, including scrubbing their pricing formulas of the credit-, education-, and employment-based factors they are currently allowed to consider.

Those reform proposals from Democrats hadn’t passed by the end of Michigan’s legislative session. But lawmakers did pass other reforms that focused on warding off “ambulance-chasing” parties that often target injured drivers immediately after a car crash.

Two pieces of legislation, HB 4470 and HB 4471, were signed into law in December and tightened access to crash reports and criminalized solicitation of crash victims.

Other reform efforts are still in the air or did not find their way into law. A bill introduced late last year would have lifted PIP requirements for drivers who are 65 years and older and recipients of Medicare benefits but never made it past a committee hearing.

Last August, Mike Duggan highlighted car insurance reform as he pursued the mayor’s seat in Detroit, which he eventually won.

The newly-elected Duggan said in November that his plan to establish a city-backed car insurer was still on the table as a one of the quality-of-life “issues that are here right now” in Detroit, according a report from the Michigan Chronicle’s senior editor Bankole Thompson.

According to Thompson, Duggan said that the issue is even more urgent because state legislators are unlikely to address the affordability of auto coverage in Detroit.

Car insurance rates are so high in Detroit that many of its residents list themselves in their auto policies as suburban residents to duck the city’s prices. Others simply skip car insurance and illegally drive without coverage. Duggan himself said his car insurance bills doubled when he moved into Detroit.

In Wednesday’s State of the City Address, Duggan shed more light on the municipal insurance plan that he called “D Insurance.” Duggan said that he intends to “move on this quickly” with work on an “affordable car insurance option” to begin this summer.

Report: Increasing Health care Costs Weigh on Auto Insurers

With the fee schedule in the latest version of HB 4612, Republicans said they were taking aim at the problem of high healthcare costs for auto insurers that pay injury claims. The problem was highlighted by a report from the Citizens Research Council of Michigan (CRC) released last year.

Michigan’s no-fault system is unique in offering wide coverage for injured drivers that would be “likely more expansive” than coverage from a private health insurer, according to the CRC report.

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

That report was the center of sometimes-heated discussions at a legislative hearing that followed the report’s October release.

Some legislators said that the report’s wide-ranging set of 11 options to achieve more efficient spending in Michigan—from setting a fee schedule to swapping the entire no-fault system for a tort system—could trigger bad policy-making.

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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