Supporters of Mich. No-Fault Reform Release New Report

An  new study that supports legislation aimed at modifying Michigan’s no-fault auto insurance system claims that eliminating lifetime benefits and allowing motorists to choose how much personal injury protection (PIP) coverage they carry could pump $1 billion dollars into the state economy and help create jobs.

The study–which according to Crain’s Detroit Business was paid for by the Coalition for Auto Insurance Reform–takes aim at a report issued last month by opponents of altering the existing state system that contends changes would cost Michigan hundreds of millions of dollars and thousands of jobs.

Study author Gary Wolfram, an economics professor and president of the Hillsdale Policy Group, found that proposed legislation that would offer drivers a choice of coverage levels would expand the economy in part by reducing health care spending and car insurance costs, in turn decreasing costs for businesses to operate.

The study is the latest talking point in an ongoing debate over what, if any, changes must be made to the state’s no-fault system.  Michigan is the only state that requires insurers to cover up to a lifetime of medical and rehabilitative costs for victims of automobile crashes who suffer catastrophic injuries.

Under the system, which was implemented in the 1970s, 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 currently $145 per vehicle.

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

Consumers in other states choose their desired level or other types of coverage “based upon their estimate of the probability that an untoward even will happen, their risk aversion and their income,” Wolfram wrote. “Michigan’s requirement of unlimited PIP coverage results in the over-purchase of personal injury protection by nearly all Michigan drivers.”

State legislators are hearing testimony this week on a bill that would establish a four-tiered system under which motorists could opt to buy $250,000, $500,000, $1 million or $5 million in PIP coverage. If the policyholder does not make a choice, his or her coverage would automatically be set at $250,000.

Proponents say the changes could lead to lower premiums for economically strapped consumers looking for inexpensive auto insurance, possibly making coverage affordable enough for motorists who have driven uninsured because they couldn’t afford policies. According to the Insurance Research Council, 19 percent of Michigan motorists were uninsured in 2009, up from 17 percent two years earlier.

Opponents maintain the legislative changes 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.

A study released last month by the Coalition Protecting Auto No-Fault—which includes health care providers from around the state—projected that up to 90 percent of the state’s motorists would choose less PIP coverage than they must carry currently.

According to the report by Anderson Economic Group, that would lead to as many as 765 catastrophic injury victims having insufficient coverage to pay for medical and rehabilitative care and would cost the state an estimated $209 million in economic output, $75 million to $155 million in lost earnings and up to about 5,200 jobs.

Wolfram argues that the unlimited PIP mandate increases health care costs and inefficiencies and inflates the costs of producing goods and providing services.

“Reducing production costs will create an incentive for existing firms to increase output and for firms to relocate in Michigan. This, in turn, will result in employers’ hiring more workers and greater earnings for the Michigan work force,” the study states.

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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