Michigan’s unlimited auto insurance, revisited
Most of the attempts to fix Michigan’s long-time Essential Insurance Act have ended as spectacularly as the meteor which exploded over the Ural Mountains town of Chelyabinsk a few days ago, injuring over a thousand stunned residents of central Russia. A huge proportion of all accident injuries and fatalities are suffered by people driving or riding in various kinds of vehicles. Obviously, there are many interested parties to the process of sorting out who pays for what kinds of medical treatment, rehabilitation and compensated damages.
Most state laws do and always have featured upper limits in the policy for medical care resulting from crashes. Three states provided unlimited coverage and only Michigan still offers this expensive version of auto insurance. To pay claims for damages in the truly catastrophic cases, a private, non-profit fund –-the Michigan Catastrophic Claims Association–manages the major claims, since “unlimited,” in this case, refers to both length and severity. The association is itself managed by a board of property and casualty insurers doing business in Michigan, and charges a surcharge to raise the necessary revenue to pay the claims.
Separately, Michigan has recently levied a 1% surcharge on claims paid by health insurers, which was supposed to raise about $400 million annually, but has not.
Now the threads might be coming together to produce some needed reform. It appears that state lawmakers may be ready to accept the insurers’ argument that actuaries do not deal well with anything that is unlimited, because it loosens up the sophisticated guesses about what rates ought to be to stay in business. Some number will be picked as a cap, and I’m guessing it will be between $1 million and $5 million, because that will cover something like 95% of the cases. A new MCCA may be set up under new financing and with the new limits, if agreement can be found that a consortium is still the best way to handle catastrophic cases. Cases handled by the existing association will run on for years under the system in which they were created, until there are no more cases left.
Some cost containment will be have to be selected as an element, and a medical fee schedule such as those used typically for Medicaid or workers’ comp is likely. Some of the money saved will keep auto insurance rates from rising as fast as the cost of medical procedures and devices, with the rest will be used to shore up the MCCA’s deficit, as the new claims surcharge has not delivered revenue as reliably as projected.
Any true reform would have to address the worsening and expensive problem of how to compensate for home health care, as well, which is mostly administered by unlicensed friends and relatives.
In the legislative arena, it is always possible that a fight will erupt over some hitherto unexamined, but linked requirement of the federal Affordable Care Act, or family planning, or compensating people who suffer nightmares but present no physical injuries. There are lots of reasons that proposed solutions don’t look as promising to all the actors in a major legislative production.
But if one adds in the backing of the governor’s office and a couple of experienced and thoughtful insurance committee chairs working with their committees on this while Medicaid red ink is sloshing all over the landscape, I think this might be the year.
