What no-fault auto insurance reform deal could mean for drivers
Lansing — Republicans say the average Michigan driver could save between $120 and $1,200 on their yearly auto insurance bill under a sweeping reform plan approved Friday after a deal between Democratic Gov. Gretchen Whitmer and legislative leaders.
While the estimates have not been confirmed by independent experts, Whitmer and GOP leaders predict significant savings for drivers under a plan that would end the state's unique requirement that motorists purchase auto insurance plans that guarantee lifetime medical coverage for catastrophic injuries in car crashes.
Drivers won't see rate relief for at least another 13 months because changes in the 120-page bill are phased in.
University of Michigan researcher Joshua Rivera said the legislation “marks a significant improvement over the status quo in Michigan.”
The bill successfully addresses unsustainable levels of personal injury protection and discriminatory rate-setting practices, said Rivera, senior data and policy adviser at UM’s Poverty Solutions. Now, it falls to Michigan’s regulatory agencies to ensure the new law is being applied without disparity between the “wealthiest and poorest drivers throughout the state,” he said.
Here's what's in the plan that is headed to Whitmer's desk for expected approval:
Personal injury protection: Michigan is the only state in the nation that requires unlimited medical coverage in auto insurance policies, which critics contend drives up rates but defenders say guarantees the best care in the country for crash victims.
Under the new legislation, lower-income motorists with Medicaid health insurance could purchase auto plans with as little as $50,000 in medical coverage, while other drivers could select plans with $250,000, $500,000 or unlimited personal injury protection.
Older drivers with Medicare health insurance could opt out of medical coverage altogether. 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.
Consumer savings: Insurers would be required to reduce rates by July 2020, and motorists would see savings the next time they renewed their policies after that date. Republicans estimate drivers now paying $2,400 a year could save between $120 and $1,200 annually, depending on the level of medical coverage they choose to purchase.
For eight years, insurers would have to cut average PIP portion premiums by 10% for unlimited coverage plans, 20% for $500,000 plans, 35% for $250,000 plans, 45% for $50,000 Medicaid plans and 100% for senior drivers on Medicare. Drivers who have private health insurance that covers auto accident injuries for all members of their family would also qualify for a 100% personal injury protection rate reduction.
Medical fee schedule: The legislation would create a fee schedule for medical providers, initially capping the amount they can charge auto insurers for crash victim treatment 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.
The fee schedule would begin in July 2021 and phase in over three years, reducing reimbursement rates for some providers to 190% of Medicare by July 2023.
Rate restrictions: Insurers could not set rates based on non-driving factors like sex, marital status, home ownership, education level, occupation, ZIP code or credit score. But they could still based rates on "territories," including areas as small as a U.S. Census tract that typically average 4,000 residents. Credit score would be defined as “the numerical score ranging from 300 to 850 assigned by a consumer reporting agency to measure credit risk and includes FICO credit score."
Lawmakers who voted for the plan said it would provide important new protections against discrimination, but critics said territorial rate setting could still allow for so-called redlining that has led to higher rates in urban areas like Detroit.
Managed care option: Auto insurers would be allowed to sell motorists their own “managed care” health plans to reduce vehicle premiums. The plans could include deductibles or co-pays and would direct injured motorists to a “preferred provider program” or other medical network selected by the auto insurance company. The managed care plan would not apply to emergency care in the case of a crash.
Retroactivity: The proposed fee schedules for medical providers starting in July 2021 would apply to both future and open claims, meaning the changes could affect motorists who were already catastrophically injured in a crash and can require lifetime care. The legislation would also create a 56-hour cap for billable in-home attendant care provided by a family member, household member or someone who had a business or social relationship with the injured person before their injury.
Anti-fraud unit: The proposal would maintain and codify the anti-fraud insurance unit created through executive order last year by then-Gov. Rick Snyder. Whitmer’s budget proposes additional funding for the unit. The plan would also maintain existing memorandums of understanding for anti-fraud collaboration between the Department of Insurance and Financial Services, the Attorney General’s Office and Michigan State Police.
“I feel confident that the Attorney General’s office will have the statutory tools we need to vigorously and thoroughly investigate and prosecute auto insurance fraud in Michigan," said Attorney General Dana Nessel, who had criticized earlier legislation as hampering her efforts to prosecute fraud.
Michigan Catastrophic Claims Association: The proposal would not eliminate an annual MCCA fee assessed on motorists for a re-insurance plan covering the most expensive medical claims, but it would reduce the fee for drivers who select lower medical coverage levels. The annual fee is set to rise to $220 from $192 in July. The state would audit the MCCA every three years, and the claims association would be required to inform lawmakers about certain assumptions they use to set the fee.
The reform deal drew mixed reactions from interest and advocacy groups that have long battled over the law.
The Coalition Protecting Auto No-Fault, which includes trial attorneys, medical and consumer advocacy groups, called the legislation “fundamentally bad policy” in part due to its low levels of personal injury protection, the leeway it gives insurance companies to control accident survivor’s medical care and the consumer confusion the group anticipates will arise when people begin to pick their insurance with the new options.
The Insurance Alliance of Michigan "has always supported giving meaningful savings to drivers through no-fault reform," Director Tricia Kinley said in a statement. But the industry group has "concerns with whether this proposal can live up to the savings the Legislature and governor are promising to drivers," Kinley said.
The Michigan Association for Justice, a trial lawyers group, said the reform measures fail to balance protections for auto accident survivors with rate reduction and were created “behind closed doors with no public input.”
“It allows insurance companies to sell Michigan consumers junk policies that leave catastrophically injured auto accident victims without coverage,” association President Debra A. Freid said. “Insurance companies get off hook and taxpayers end up footing the bill.”
House Speaker Lee Chatfield, R-Levering, described the mixed reaction from interest groups as a badge of honor.
“If the people of our state are going to see the costs savings that we just guaranteed, there are many stakeholders and lobbyists that are going to have to take a haircut, and that’s what we did," Chatfield said. "But because of that, the people of our state have real rate relief, and that’s what they’ve been demanding from us for decades.”