MCCA: Fraud, not fee, driving up Michigan auto insurance rates

Jonathan Oosting
The Detroit News
Kevin Clinton, the current executive director of the Michigan Catastrophic Claims Association, is a one-time Michigan treasurer.

Lansing — Officials from the Michigan Catastrophic Claims Association on Wednesday disputed anti-transparency accusations and argued that “waste and fraud” in the medical system is driving up the costs of no-fault auto insurance.

Republicans seized on the claims as they push to eliminate the state’s unique guarantee of lifetime medical benefits for motorists who suffer catastrophic injuries in crashes by giving customers a choice to purchase reduced coverage plans.

The MCCA, created by the Michigan Legislature in 1978 but controlled by insurance companies, is sitting on $20.6 billion in assets but claims $23.5 billion in long-term liabilities and is passing along costs from a projected deficit to motorists through an annual assessment.

The private non-profit currently charges insurers a $192 fee per vehicle and then reimburses them on costs for any auto accident claim exceeding $550,000, a threshold that is expected to rise to $580,000 in July. The cost is ultimately borne by motorists and is adjusted annually.

Of that fee, $161 covers catastrophic claims this year and $31 gradually pays down a $2.9 billion deficit over 15 years, MCCA Executive Director Kevin Clinton told lawmakers Wednesday during a Senate hearing on the state’s no-fault system.

The former state treasurer and insurance commissioner downplayed speculation about the MCCA, which is not subject to the Michigan Freedom of Information Act. He discouraged lawmakers from attempting to tap the association's assets as they work to lower the state’s highest in the nation auto insurance rates.

The reinsurer is “very leveraged,” Clinton said, explaining that the MCCA invests its assets to cover projected costs for injured motorists who may need decades of medical care and qualify for unlimited lifetime medical benefits under Michigan’s law.

“We can’t be giving away our investment income for other purposes right now,” he told legislators.

The insurer-managed MCCA has become a punching bag in the debate over the state’s high auto insurance rates, with lawmakers questioning fund assumptions, spending and proposing new transparency laws to open— its fee calculations to public scrutiny. 

MCCA already posts detailed financial reports online that are audited by an outside firm, Clinton said. Board members don’t have yachts, he said, noting the group’s Livonia office is far from “lavish” and often gets too hot.

Clinton and MCCA attorney Joe Erhardt argued the biggest cost drivers for long-term medical bills from injured motorists is care at a residential facility, in-home attendant care, prescriptions and hospitalizations.

“If there is fraud and abuse in the system, everybody pays for it,” Clinton said.

While health insurers often negotiate price discounts with medical providers, state law requires auto insurers to cover “all reasonable charges” for “reasonably necessary” products and services, Erhardt said.

In one instance, an auto insurer was billed $35,000 for five MRI brain scans in a week that would have cost a health insurer $2,366, he told lawmakers.

In another case, he said the mom of a 23-year-old woman with a “moderate traumatic brain injury” is trying to bill $35 an hour to provide round-the-clock in-home attendant care at a cost of more than $300,000 a year, but the insurer has only agreed to pay $100,000.

“We’ll have to put that case in front of a jury to decide,” Erhardt said. “If the claimant wins, the lawyer will take $100,000 per year going forward for the life of that claimant.”

Supporters of Michigan’s no-fault auto insurance system contend that eliminating the state’s guarantee of lifetime medical benefits would end an important safety net for injured motorists and ultimately force more residents into bankruptcy and on to government health coverage.

The Coalition to Protect Auto No-Fault has joined calls for lawmakers to create a fee schedule for medical providers and crack down on fraud. The group is also urging lawmaker to prohibit insurers from using non-driving factors, such as zip code or education level, to set rates.

But critics, including Detroit Mayor Mike Duggan, argue that the state’s guarantee of unlimited lifetime medical coverage is driving up rates and making insurance unaffordable for many residents, who instead choose to drive illegally without coverage.

Giving motorists a choice to purchase auto insurance coverage with lower medical benefits below the MCCA threshold would at least allow them to avoid paying the $161 base of the MCCA’s $192 fee and likely produce other savings, said Sen. Aric Nesbitt, R-Lawton.

The MCCA does “have a lot of money, but there’s no cost controls on the system and there’s no choice for the people here initially,” Nesbitt said after the hearing.

For poor residents, “we’re making it impossible for them to actually insure the most valuable asset in their lives to help them get to work and get them around,” he added.

But state Sen. Erika Geiss, D-Taylor, said she was not convinced by Clinton’s explanation of how the MCCA's annual fee is calculated, suggesting the group is “over-projecting” the long-term costs of claims that it will cover.

She also questioned why the MCCA is not investing more aggressively to avoid its current deficit.

“While we definitely have to do something about the fraud, and the really egregious examples they gave us, they didn’t talk about when it’s in the other direction and insurers are not paying for care that is legitimately needed,” Geiss said.

Geiss said she thinks the Legislature could improve the 1978 law that created the MCCA to ensure better management and expressed a desire for the non-profit to include medical professionals who “know what is or what should be reasonable when it comes to health care.”

Leaders in Michigan’s Republican-led House and Senate have both made auto insurance reform a top priority this session but have not yet unveiled a concrete proposal to tackle costs. Debate is expected to continue in coming weeks.