Michigan’s Debate over No-Fault Auto Insurance Reform Continues

A Democratic state lawmaker has entered the ongoing debate over proposed changes to Michigan’s no-fault auto insurance system, claiming that removing the legal requirement that insurers pay up to a lifetime of health care costs for serious accident victims would enrich coverage providers while overburdening the state’s taxpayers.

“No-fault insurance ensures that citizens get the care they need without wasting time and money fighting with the courts and lawyers,” state Rep. Jeff Irwin (D-Ann Arbor) said in a news release. “The system is working well for consumers, but the insurance companies would love to shift their liabilities to the taxpayers.”

Irwin is among the latest to weigh in on the issue of what, if any, changes must be made to Michigan’s no-fault system, the only one nationwide that requires insurers to cover up to a lifetime of medical and rehabilitative costs for victims of automobile crashes.

In a debate that has played out largely along party lines and pitted health care organizations against vehicle coverage providers, Republicans claim the system must be overhauled in order to prevent insurer costs and premiums from skyrocketing statewide. Democrats, meanwhile, contend that proposed changes would bankrupt victims of auto crashes and their families and leave taxpayers to cover many costs.

Under the existing system, which was established in the 1970s, drivers statewide pay into a fund managed by the Michigan Catastrophic Claims Association (MCCA) that helps finance personal injury protection (PIP) claims that exceed a half-million dollars. That payment is made via a fee that is added to policies and is currently $145 per vehicle.

Average PIP claim size by stateCritics claim the system burdens insurers with high health care costs and has led to prohibitively high premiums in Michigan, which has among the highest policy rates nationwide. The American Insurance Association (AIA) says PIP claims costs have risen 20 percent in the last four years because of Michigan’s lifetime benefits mandate, making it the 11th most expensive state for auto coverage nationwide.

Bill Would Establish Coverage Tiers

Legislation supported by AIA and other insurers 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 opts not to choose between those coverage levels, the policy would automatically be set at $500,000, which is higher than the minimum limits in any other state.

That default amount was $250,000 in the original version of the bill.

The limits outlined in the bill are far higher than those outlined in earlier legislation backed by insurers, which would have let policyholders buy as little as $50,000 in PIP coverage.

Proponents say the lower limits would lead insurers to reduce premiums, making it easier for state residents to find cheap car insurance and inducing some motorists who haven’t been able to afford coverage to buy policies.

Opponents, including many of the state’s health care organizations, maintain the changes would be a windfall for insurers, who would no longer be required to pay for necessary treatment of serious accident victims. And some lawmakers are pointing out that the legislation does not require insurers to give a corresponding decrease in prices along with the decrease in coverage.

Some Are Concerned about Cost-Shifting

A study released in September by critics of the proposed legislation claims that healthcare costs for accident victims would be forced on those victims, their families and taxpayer-funded health care programs, costing the state’s Medicaid program an estimated $30 million or more in just the first year.

Irwin says the bill—introduced by Rep. Pete Lund, the Republican chair of the House Insurance Committee—does not obligate insurers to reduce rates for policyholders once their costs are lowered.

According to a recent analysis by the nonpartisan House Fiscal agency, Lund’s bill would shift some costs between private insurers and state and federal healthcare programs in cases in which low-income, uninsured motorists are injured in crashes. But the report does not attempt to estimate the size of those costs.

The lower PIP limits could be expected to reduce insurers’ costs by having the option to limit their liability, with those savings theoretically passed onto policyholders, according to analysts. That would in theory then allow an undefined number of uninsured motorists to purchase coverage that they previously could not afford.

Under the current system, uninsured drivers who are covered by the federal Medicaid program have the cost of their medical treatment split, the report says, with the state picking up about 34 percent of the tab and the federal government paying the other 66 percent.

The lower limits would shift some of that cost over to private insurers, analysts said. But other costs for injured drivers whose benefit claims exceed the PIP limit on their policies—qualifying them as disabled—would be transferred from private companies to federal health care programs.

The size of that shift is also undefined, but according to MCCA estimates, a large proportion of claims filed on behalf of catastrophic injury victims would exceed the lower PIP limits that have been proposed.

MCCA estimates that 850 people will be catastrophically injured in car crashes in Michigan in 2012, and 22.7 percent of those claims for future benefits are expected to exceed the $5 million highest level outlined in the bill. Another 28.2 percent would exceed the $1 million level.


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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