LANSING, Mich. (March 7, 2013) – The R Street Institute today welcomed the introduction of bipartisan legislation to cap Michigan’s system of unlimited personal injury protection benefits, a major driver in the state’s high cost of auto insurance.

Under S.B. 251, introduced by state Sens. Virgil Smith, D-Detroit, and Joseph Hune, R-Hamburg, Michigan drivers would be required to purchase at least $50,000 of “no fault” medical coverage for the cost of injuries sustained in auto accidents. Michigan currently is the only state that requires unlimited PIP benefits for all auto insurance policies. The $50,000 limit proposed by Smith and Hune would match New York’s coverage minimum, the next highest in the country.

In a January 2013 R Street report on Michigan’s auto insurance system, Senior Fellow R.J. Lehmann noted that Michigan has the highest average claim costs among states with no-fault insurance, with costs spiking 81 percent between 2004 and 2012. Lehmann found that Michigan auto insurers uniformly paid more than either workers’ comp insurers or Medicare for 21 common medical services and procedures.

In Detroit, whose residents face the highest auto insurance rates in the country, auto insurers paid at least one-third more than workers’ comp insurers, and at least 50 percent more than Medicare, for 18 of the 21 services.

“While well-intentioned, Michigan’s system has resulted in inefficient medical claims payment and auto insurance rates that are unaffordable in many areas of the state,” Lehmann said. “We’ve proposed a variety of alternatives to rein in those costs, but certainly, ending unlimited PIP benefits is a necessary first step for any of them.”

S.B. 251 also would run off and eventually dissolve the Michigan Catastrophic Claims Association once all of its open cases are paid. Created by statute in 1978, the MCCA is a nonprofit reinsurer that covers PIP claims that exceed $500,000. It is financed by an annual per-vehicle surcharge, which currently stands at $175, on every vehicle in the state.

Featured Publications