Whitmer orders audit as Michigan auto insurance fee rises to $220

Jonathan Oosting
The Detroit News
Firefighters, police, tow truck employees and drivers help to clear cars that crashed into one another in a multiple-car accident that occurred on northbound U.S. 31 in Muskegon.

Lansing — Gov. Gretchen Whitmer on Wednesday ordered an accelerated state audit of the Michigan Catastrophic Claims Association after the private nonprofit's board voted to increase an annual auto insurance assessment by 15 percent.

The association announced the fee on auto insurers will rise from $192 to $220 on July 1, a $28 increase that will ultimately be passed along to consumers in the form of higher premiums.

State law requires auto insurance companies to pay the assessment to cover costs of lifetime medical benefits guaranteed under Michigan’s no-fault auto insurance law. 

The MCCA operates as a reinsurance program, reimbursing auto insurance companies for expensive medical claims for motorists who are catastrophically injured in auto accidents. The claim threshold is also set to rise from $550,000 to $580,000 this summer.

The pending increase in the fee — which has risen 76 percent since reaching $124.89 in 2009 — comes as Michigan lawmakers develop plans to reform the state’s no-fault auto insurance and rein in premiums that routinely rank among the most expensive in the nation.

Drivers across the state are "feeling the pinch of paying the highest auto insurance rates in the nation, and it’s time to do something about it," Whitmer said in a statement. “Michiganders deserve to know why they are being forced to shell out hundreds of dollars in additional fees for car insurance, which is why I’m ordering an audit to provide drivers with the transparency they deserve."

MCCA officials testified before a Senate committee earlier this month, disputing anti-transparency accusations while arguing that “waste and fraud” in the medical system is driving up insurance costs.

The association, 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. It is not subject to public records requests that could shed further light on its fee calculation process but publishes internal financial and independent auditor reports each year.

The annual fee is designed to cover current-year catastrophic claims but also gradually pay down a $2.9 billion deficit over 15 years, MCCA Executive Director Kevin Clinton told lawmakers.

In announcing the pending $28 fee increase on Wednesday, the MCCA said its costs are rising, in part, because more individuals are receiving benefits and medical care costs continue to rise. 

The association said it paid out $1.2 billion in 2018 for claims resulting from catastrophic injuries. The majority of claims involve brain and spinal cord injuries, multiple fractures, and back and neck injuries. Most of the payments were for attendant care, prescriptions and hospitalizations. 

But the Whitmer administration said the announced fee increase comes on the heels of a volatile investment market that caused the association to miss projected returns.

The Michigan Department of Insurance and Financial Services, which Whitmer ordered to conduct a separate and accelerated audit, has the authority to examine MCCA documents and review its operations, a process that last occurred in 2015, according to the administration.  

“Today we told the MCCA that we were concerned and strongly urged them to provide more information so the public can understand the basis for this fee increase,” Insurance Director Anita Fox said in a statement welcoming the governor's request for a financial audit. 

The Insurance Alliance of Michigan, a coalition of insurers urging lawmakers to reconsider the state’s mandate for unlimited lifetime medical benefits, said the pending MCCA fee increase underscores the need for reform.

Other long-debated ideas include creating a fee schedule for medical providers that would cap the amount they are allowed to charge insurers for patients injured in auto accidents.

“It’s time the Michigan Legislature sees the state’s auto no-fault system for what it is: A failed policy experiment that has forced drivers from Metro Detroit to the western Upper Peninsula to choose between paying their auto insurance premium or buying groceries,” Insurance Alliance of Michigan Executive Director Tricia Kinley said in a statement.

“For some, it’s like a second mortgage.”

Michigan’s Republican-led Senate and House are developing proposals that are expected to provide motorists with the “choice” to purchase auto insurance policies with reduced medical coverage.

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 some injured motorists and ultimately force more residents into bankruptcy and on to government health coverage.

Democrats want to prohibit insurers from using non-driving factors like ZIP code or gender to set rates that are especially high in urban areas like Detroit.

Full MCCA transparency must also be part of any reform package, John Cornack, president of the Coalition Protecting Auto No-Fault, said Wednesday.

“Every year it asks for more money, yet it refuses to show us the rate-making data it uses to determine its financial health and set its annual assessment,” Cornack said. “This is yet another example of the auto insurance industry not being held accountable due to a lack of strong consumer protections in Michigan."

State Rep. Jason Wentworth, a Clare Republican chairing the new House Select Committee on Reducing Car Insurance Rates, called the pending fee increase “aggravating news” for Michigan motorists that is “symptomatic of the underlying problems with the no-fault system.”

“Over 20 percent of Michigan motorists are illegally operating uninsured, and this MCCA fee increase makes matters worse,” he said, going on to link the issue to Whitmer’s controversial road funding plan. “This on top of the governor’s lazy 45-cent gas tax proposal is going to drive residents out of the state and hurt Michigan’s economy.”

Legislators have tried for years to reform the state's auto insurance laws, but efforts have repeatedly stalled amid intense lobbying from hospitals, the insurance industry and trial lawyers. House and Senate leaders say reducing rates is a top priority this session.