The state that long has been home of the American auto industry also long has taken a unique approach to auto insurance. The Great Lake state is the only one in the country that requires auto insurance policies to pay unlimited medical benefits—unlimited both in size and in length of time—for residents injured in auto accidents. In some cases, policyholders may make claims for years or even decades after the fact for lost work, rehabilitation and home health care that stem from auto accidents.
As you might suppose, the premiums needed to afford this level of coverage are among the highest in the nation. According to the Insure.com website, Michigan residents this year paid the highest auto insurance rates for the fourth year in a row. Average annual premiums in Michigan are now $1,076 higher—or in other words, nearly twice as high—as the national average
Last month, Detroit Mayor Mike Duggan joined with state House Speaker Tom Leonard, R-DeWitt, and House Insurance Committee Chair Lena Theis, R-Brighton, as the latter introduced yet another bipartisan legislative fix intended to allow people with different circumstances, needs and health-care coverage to buy a less expensive insurance product. This alternative auto insurance plan would protect at least 95 out of 100 accident victims from having to use any other insurance to pay the bills that might arise from an auto accident.
H.B. 5013 would allow insurers to offer two kinds of policies with limited medical benefits of either $250,000 or $500,000, covering the driver, any passengers and pedestrians. Those offering the $250,000 option would have to comply with mandated rate rollbacks to guarantee savings for consumers. In addition, seniors who have lifetime health coverage through employee retirement plan would be allowed to opt out of personal injury protection, or PIP, entirely.
As Duggan noted at the news conference, the current system “leaves too many people driving uninsured or unable to drive at all because their insurance costs more than their car payment.” Estimates vary, but it’s believed that as many as one in five Michigan drivers currently drive without insurance, and the high cost of coverage is clearly a major driver of that perilous trend.
The bill does offer some steps in the right direction, but it’s far from a free-market panacea. Michigan’s system clearly is broken, but mandated rate rollbacks aren’t the answer, even if their inclusion in this package is solely as an inducement to pass reform. Lower rates would be an inevitable consequence of any healthy and competitive auto insurance system.
One danger of the mandated rollbacks is that it is likely the reforms will be challenged in court, particularly by other industries that currently enjoy health revenue streams from Michigan’s unlimited medical benefits, such as hospitals, physical therapists and home health aides. Should the enacted reforms be struck down, the mandated premium reductions may not enough to support the benefits insurers had promised. Meanwhile, another provision in the bill would give the insurance commissioner even greater powers to turn down requested rate increases.
The measure also would order auto insurers to comply with a fee schedule, as Michigan’s health insurers already must do. Obviously, this would be an explicit form of price controls, but it’s a recognition that—as auto insurers have much less pricing power in the market than health insurers or Medicare—they frequently end up paying three or four times as much for an X-ray, CT scan, MRI or other diagnostic test.
Michigan is one of about a dozen states across the country that still employ a no-fault system for auto insurance, the purpose of which is to allow recoveries for personal injuries without going to court. Unfortunately, no-fault systems also are perennially rife with fraud. One approach the bill takes to address the lingering problem of litigation is to prevent lawyers from filing liens against health care providers until an insurer has denied a coverage claim. Another approach Michigan should explore would be to create a dedicated insurance fraud bureau, as Michigan is one of just a handful of no-fault auto insurance states states that doesn’t formally coordinate insurance fraud investigations.
Michigan drivers are probably paying an extra $200 to $300 every year to cover fraudulent claims that the Michigan Insurance Fraud Awareness Coalition estimates to be about 10 percent of no-fault claims in the state. A proposal to create such a bureau could also be coupled with a ban on lawyers and their families profiting from interests in health-care facilities, a conflict of interest that produces a financial incentive to rack up medical services. If it does nothing else on auto insurance reform, the Legislature should finally push this over the goal line.
The latest package of reforms speaks directly to Michigan citizens who have not supported reform in the past because they were willing to pay exceedingly high rates for the largest benefit package. The overwhelming majority of Michigan residents would be better off with these tweaks to the law, and we are rooting for the mayor and the legislative leadership to be able to sell and enact most of them.
Image by Barbara Kalbfleisch