Legislature passes ‘historic’ auto insurance reforms

Jonathan Oosting
The Detroit News
Governor Gretchen Whitmer speaks with Speaker of the House Lee Chatfield before her State of the State speech in this file photo from Tuesday, February 12, 2019. Michigan lawmakers on Friday approved a sweeping plan to reform the state's no-fault auto insurance system negotiated by Whitmer and Republican legislative leaders.

Lansing — Michigan lawmakers on Friday approved a sweeping plan to reform the state's no-fault auto insurance system, signing off on a deal negotiated by Democratic Gov. Gretchen Whitmer and Republican legislative leaders designed to drive down sky-high rates.

While some Democrats blasted the plan, the bipartisan vote marked the largest legislative accomplishment to date for Michigan’s newly divided state government. Legislative leaders have vowed to avoid the type of partisan gridlock that has plagued Washington, D.C.

“In contrast to the dysfunction in national politics, today we are delivering results," Senate Majority Leader Mike Shirkey, R-Clarklake, said before a lopsided 34-4 vote in the upper chamber where four Democrats dissented.

Whitmer’s promised signature will end a decades-long stalemate over the 1973 auto insurance law. Past reform efforts had failed due to aggressive lobbying by the insurance industry, hospitals, trial attorneys and auto crash victims who have benefited from care under the existing law.

"We've accomplished more in the last five months than in the last five years," Whitmer said in a statement after the votes. "This vote demonstrates that when both parties work together and build bridges, we can solve problems and make life better for the people of Michigan." 

The “historic” vote was a big win for “the 7 million drivers across the state of Michigan who have been asking us for years to step up and provide a real solution to our broken car insurance system," said House Speaker Lee Chatfield, R-Levering.

The plan mandates insurer rate reductions for eight years in a state where drivers routinely face premiums that rank among the highest in the nation.

To achieve savings, the legislation will end Michigan’s unique requirement that motorists purchase auto policies guaranteeing unlimited lifetime medical benefits for injured motorists in the event of a catastrophic crash, which defenders say made the system the best of its kind in the country.

Instead, drivers could purchase plans with reduced coverage levels or opt out of personal injury protection altogether if they have qualifying health insurance. The plan will also cap the amount medical providers can charge auto insurers for care they provide to auto crash victims. 

Republicans predict the plan could save a driver now paying $2,400 a year on insurance between $120 and $1,200 annually, depending on the level of medical coverage they select.

Bill sparks Democratic criticism

The House approved the plan 94-15 vote, with support from all Republicans except indicted Rep. Larry Inman of Traverse City, who was absent after being kicked out of the GOP caucus earlier this week. They were joined by 37 House Democrats.

But the other 15 Democrats voted against the plan, arguing it would jeopardize promised care and not do enough to curb so-called rate redlining in urban areas like Detroit. 

In a Friday morning statement announcing the deal, Whitmer promised to sign the plan into law if approved by the Legislature, saying it will “lower costs and protect coverage for Michigan drivers."

The plan “guarantees rate relief for every Michigan driver; provides a choice in coverage levels; establishes more uniform and structured compensation levels for medical providers; and removes the ability of insurance companies to discriminate based on non-driving factors," the governor said.

The proposal would allow drivers with Medicaid health insurance to purchase auto plans with $50,000 in medical coverage, while other drivers could select plans with $250,000, $500,000 or unlimited personal injury protection. 

Older drivers on Medicare could opt out of medical coverage. Drivers who have private health insurance that covers auto accident injuries for all members of their household could also effectively opt out by qualifying for full personal injury protection rate reduction. 

Michigan is the only state in the nation that had required unlimited lifetime medical coverage in auto insurance policies, which critics argue is the primary driver for high rates. Defenders contend it guarantees the best coverage in the nation for auto crash victims. 

Whitmer “did the best she could in negotiating a number of changes to the bill, but it's still not enough lipstick on this pig,” said state Rep. Sherry Gay-Dagnogo of Detroit, who was elected as a Democrat but declared herself a political independent as she voted against the legislation. 

The plan would “fatten” profits for auto insurers without addressing the “root causes of redlining” in urban areas, she argued.

While insurers could not base rates on ZIP codes, they could still use “territory” as a factor to set rates based on geographic designations like census tracts, which are generally small areas that typically average about 4,000 residents. 

The plan would prohibit insurers from considering other non-driving factors like sex, marital status and credit score, which would be defined as a numerical ranking assigned by a consumer rating agency to measure credit risk.

When you cap an auto crash victim's medical care at $250,000, “you are sentencing them to death,” said Rep. Yousef Rabhi, D-Ann Arbor. “That is unacceptable in a state that eliminated the death penalty over 100 years ago.”

State Rep. Isaac Robinson, D-Detroit, accused Whitmer of going "to bat for corporate special interests" and suggested the deal was propelled by pressure from Detroit businessman Dan Gilbert, who promised to pursue a petition drive if the governor and lawmakers did not act.

“Five days after a benevolent billionaire said get to work, we jumped," Robinson said in a fiery floor speech. 

'Step in right direction'

Gilbert praised the bipartisan deal to reduce rates, saying in a statement that “Michigan has taken a major step by removing this big obstacle to both our competitiveness to retain our own talented young people and recruiting talent from all over the country and world to move to our great state.” 

State Rep.  Leslie Love, D-Detroit, supported the plan and said she was personally invested in the issue because she pays more than $5,000 a year for auto insurance on her 2009 Saturn Aura.

“Detroiters have waited too long for rate relief and respect,” Love said. “Let’s not forget that there are still people, thousands of people in this state, who just cannot participate because they cannot afford auto insurance.”

Sen. Adam Hollier, D-Detroit, predicted “huge” savings for residents in his district. Because he has coordinated health insurance coverage, he said he would personally save $5,400 on his family’s three vehicles that now cost him $9,800 a year to insure.

“When we talk about people who don’t have auto insurance, they can now afford to do it,” Hollier said. “It means people aren’t going to get pulled over the way they been because their registration wasn’t any good because they can actually afford no-fault.”

House Minority Leader Christine Greig, D-Farmington Hills, called the auto insurance deal “a step in the right direction for Michigan families.”

The plan would require rate rollbacks by auto insurers for at least eight years depending on the level of medical coverage a driver selects, reducing the personal injury protection portion of a premium by 10% for unlimited coverage and up to 100% for Medicare recipients and families that are fully covered by health insurance.

But the Department of Insurance and Financial Services could provide exceptions to those rate rollbacks if insurers can show they would lead to company insolvency.

The legislation would also create a fee schedule for medical providers, initially capping the amount they can charge insurers at between 200% and 250% of Medicare, depending on the level of care they provide and the percentage of Medicaid or patients without health insurance they typically treat.

Detroit Mayor Mike Duggan, who has long pushed for auto insurance reforms and helped develop a 2017 plan that failed in the state House, praised the deal between Whitmer and GOP leaders. He called it “a great step forward for Michigan” and “excellent news for Detroit.”

“It’s going to mean major rate reductions for Detroit drivers and every driver in the state,” Duggan told The Detroit News, noting that personal injury protection coverage accounts for a significant portion of most car insurance bills.  

The mayor said he’s continued to talk to top state officials about the issues but credited them for negotiating the deal.

“These are issues I’ve been pushing for five years in a whole series of bills, but kept coming up short. And a lot of those concepts are in here, and they made improvements. It took a new governor and it took new legislative leadership, but they’ve solved the problem that’s been terrible for so many years.”

More: Duggan to lawmakers: Michigan auto insurance system ‘morally indefensible’

The Michigan Legislature convened for a rare Friday session after a week of intense negotiations between Whitmer and the GOP leaders. Lawmakers have debated no-fault auto insurance reforms for decades, but past efforts have failed due to aggressive lobbying by the insurance industry, hospitals, trial attorneys and past auto crash victims who have benefited from care under the existing law.

Whitmer two weeks ago vowed to veto similar auto insurance reform plans approved by the House and Senate, suggesting significant changes would be needed to win her support. Most Democrats had voted against the initial Republican plans. 

Bipartisan negotiations picked up last weekend after Whitmer signaled she would be open to giving motorists some choice to buy auto insurance policies with reduced medical coverage, which Republicans contend is the predominate cost driver for Michigan rates.

Senate Democrats have been "working collaboratively" with GOP colleagues and Whitmer "to come to a consensus on reforming no-fault auto insurance," Minority Leader Jim Ananich, D-Flint, said in a Friday statement. 

"The end result will relieve rates for drivers while still providing them with a broad range of coverage options, and it shows how, when we work together, we can find common ground.”

Yearly auto insurance premiums in Michigan average $2,693, the highest rate in the nation, according to 2019 rankings compiled by The Zebra, an insurance search engine and industry research firm. Detroit is the easily the country's most expensive city for auto insurance, with rates more than double the state average.

Auto insurance rates are "unaffordable" by federal standards in 97% of all Michigan ZIP codes, according to a recent analysis by University of Michigan researchers. In Detroit, average premiums cost between 12% and 36% of residents' pre-tax income in almost every ZIP code.