Lansing – A new bipartisan auto insurance reform plan backed by Detroit Mayor Mike Duggan and House Speaker Tom Leonard would reduce motorist premiums but shift significant health care costs onto Medicaid, according to a new analysis.
The non-partisan House Fiscal Agency projects the plan would increase costs for the government health insurance program by $10 million in the first year of implementation and $150 million a year within a decade.
The legislation would allow motorists to purchase reduced-coverage policies with a $250,000 or $500,000 cap on personal injury protection benefits. Motorists could still purchase unlimited lifetime coverage, which is currently required under Michigan’s unique law.
“This mandate is the main culprit in these outrageous insurance premiums that we all experience,” House Insurance Committee Chairwoman Lana Theis, R-Brighton, told her colleagues Tuesday in the first public hearing on the new proposal.
“For the time since the mid-’70s, (motorists are) going to have an option to choose lesser coverage should they want it, choosing to save some money.”
The reduced-coverage policies could save motorists between 20 to 50 percent on auto insurance, depending on their collision coverage, Duggan said. It would require insurers to reduce personal injury protection portion of bills by 40 percent or face rejection by the director of the Department of Insurance and Financial Affairs.
The $250,000 cap plan would allow $225,000 for emergency health care and $25,000 for other allowable benefits, including reimbursement for lost work wages.
Critics say the lowest-cost plan would actually amount to a $25,000 medical coverage cap with a narrow exemption for emergency treatment, calling it “woefully inadequate” for crash victims who sustain catastrophic injuries and can rack up millions of dollars in immediate and long-term medical bills.
Theis called the $25,000 a “bridge” for patients as their care moves from auto insurance to health insurance.
The Medicaid effect
The proposal would also shift various costs from auto insurers to Medicaid, according to the House Fiscal Agency.
Medicaid would be responsible for chronic nursing home and attendant care costs for catastrophically injured motorists already on Medicaid or those who exhaust benefits through their health insurer and spend down their savings to become eligible.
Lower premiums would also affect the state budget by reducing premium taxes paid by domestic and foreign insurers. The proposal would cut state and general fund revenues between $35 million and $55 million per year, according to the House Fiscal analysis.
The Medicaid cost shift is among the issues raised by the Coalition Protecting Auto No-Fault, which opposed the legislation and says it would “virtually destroy” the state’s current auto insurance system.
“Those uncovered expenses that are cost-shifted to Medicaid will impose additional and substantial burdens on Michigan’s Medicaid budget, further complicating the funding of Michigan’s future health care needs,” CPAN’s legal team said in prepared testimony. “This will potentially create the need for higher taxes.”
Theis said she had not yet reviewed the new House Fiscal analysis but denied it would create a “direct cost-shift.”
“Right now, every single citizen in Michigan is paying for unlimited lifetime medical benefits that they’re very likely not to need and that they probably already have another insurance to cover,” she said.
State Rep. Tom Barrett, R-Potterville, downplayed the projected Medicaid cost shift, arguing the expense would pale in comparison to motorist savings, which he suggested could run into the “billions.”
The legislation would create a “fee schedule” to limit the amount medical providers can charge auto accident victims, implement new rules for attorneys who sue on behalf of crash victims, create a new anti-fraud authority and potentially limit in-home attendant health care hours.
It would also allow seniors 62 years or older to opt out of purchasing personal injury protection coverage if they have Medicare or other retirement health insurance plans with lifetime benefits.
Duggan said he wants to see the numbers that informed the House Fiscal analysis before weighing in on the Medicaid shift, but he agreed with Barrett that customer savings would outweigh any new taxpayer health care expenses.
Under current match rates, the federal government pays for 64.78 percent of Medicaid costs while the state pays 35.22 percent.
“Today, the drivers of Michigan are paying 100 percent of the costs,” Duggan told The Detroit News. “Senior citizens are paying $1,000 a year for health coverage they don’t need on their car insurance in order to save the state some money on Medicaid.”
The proposal would not guarantee rate reductions for motorists who choose to continue receiving unlimited lifetime medical care coverage. Savings on lower-coverage policies would be mandated for five years, while reforms like the medical provider fee schedule would last indefinitely.
Rep. Sherry Gay Dagnogo, D-Detroit, said the GOP auto no-fault overhaul plan would not lead to relative rate savings for Detroiters because it does not include measures prohibiting insurers from charging them more than suburban drivers.
“Being from Detroit, the sole Detroiter on this committee, it is my duty to also protect and advocate for my constituents,” she said. “There’s no guarantee of the savings.”
A ‘failed experiment’
The new proposal, backed by Detroit’s Democratic mayor and the Republican state House speaker, is one of the most coordinated attempts to reform Michigan’s no-fault auto system since it was implemented in 1973.
But it faces hurdles, including early opposition from Senate Majority Leader Arlan Meekhof, R-West Olive, who has criticized mandated rate rollbacks and hospital fee schedules as government “price fixing.”
Director Pat McPharlin said the Michigan Department of Insurance and Financial Services supports reform but told lawmakers that GOP Gov. Rick Snyder will “speak for himself” on the new plan.
Michigan’s no-fault law “is a 45-year experiment that has failed to achieve the goal of reducing costs and the goal of reducing lawsuits,” McPharlin said. “Neither one of them has been met in any way.”
Michigan motorists routinely pay some of the highest auto insurance rates in the nation. Reform advocates say many choose to illegally drive without insurance because of the sky-high costs.
State premiums averaged $1,351 in 2014, the third highest rate in the country, according to a National Association of Insurance Commissioners’ report released in January. Insure.com recently pegged Michigan’s full-coverage average premiums as the nation’s highest at $2,394.
Duggan, former CEO of the Detroit Medical Center, said hospitals and other medical providers often charge significantly higher rates to treat patients covered by auto insurance instead of health insurance. Physical therapy can cost $31 an hour under Medicare and $79 under insurance, he said.
The proposal would limit the amount medical providers can charge for treating injured motorists. Hospitals could charge 125 percent of Medicare rates for emergency services and 100 percent of Medicare rates for all other circumstances.
The proposal would also enact new rules on attorneys filing lawsuits on behalf of injured motorists, including restrictions on filing liens for non-payment and a ban on fees for lawyers who have a financial interest in the person who provided the medical treatment.
“Now every time a client walks into a lawyer’s office – however they got there is an interesting question to start with – it is in their interest, and the doctors’ and hospitals’ interest, the long-term care interest. To run these bills up as much as you can make them for as many years as you can make them because they’re all profiting,” Leonard said.
The legal team for CPAN, a coalition that includes trial attorneys, said lawsuits have increased because of denials or delays by auto insurers and a Michigan Supreme Court ruling enforcing a strict one-year statute of limitations on legal action.
“We don’t want to litigate no-fault cases,” said Tom Sinas, a personal injury attorney based in Grand Rapids.
The legislation would change the standard by which injured motorists can fight claims “unreasonably denied” by insurers, said Steve Sinas of the Sinas Dramis Law Firm. It would also make it easier for insurance companies to win attorney fees from residents if they ultimately prevail in legitimate legal disputes, he said.
“There is very little power for consumers under this bill,” Sinas said. “The power goes to insurance companies, and I don’t know quite frankly how anybody could vote for that.”