Michigan's catastrophic claims auto fee to be cut in half or eliminated next year

Beth LeBlanc
The Detroit News

Michigan drivers will see their catastrophic claim fee cut in half or eliminated in the coming year, in what advocates say is proof that reforms adopted in May are working to lower costs to drivers.

Drivers who choose unlimited, lifetime medical benefits will pay $100, down 55% from $220, and drivers who choose other tiers of coverage will pay no fee, according to the Michigan Catastrophic Claims Association. The fee schedule is applicable from July 2, 2020, through June 30, 2021.

The fee reflected in all Michigan premiums pays for catastrophic car crash injuries and is overseen by the Michigan Catastrophic Claims Association, a group created by the Legislature in 1978. The association reimburses auto insurance companies after a certain threshold — set at $580,000 this year — is reached for medical costs.

The changes are expected to reduce the association's overall assessment by $1 billion and erase the group's $2 billion deficit, according to a statement from the MCCA. The reduction "results directly from savings created by cost controls of medical treatment and other changes," the association said in a statement Wednesday.

The reductions are proof that the "historic bipartisan legislation" is working to save Michigan drivers money, Gov. Gretchen Whitmer said Wednesday.

"The new law will enhance consumer protections and continue to lower costs for Michiganders by mandating rate reductions for eight years," she said. "Millions of Michigan drivers will finally see relief under a new system that maintains the highest benefits in the country."

The Coalition Protecting Auto No-Fault dismissed the decreases from the association, noting they were countered by increased premiums among Michigan auto insurance companies "so they can keep their profits high when they are forced to offer savings on personal injury protection insurance next summer."

"The auto insurance industry-controlled MCCA is looking for a public relations win by reducing your assessment while increasing your bill in other areas — and they still refuse to make their rate-making data public," said CPAN President John Cornack. "It's all a shell game, one the auto insurance companies will continue to win until Michigan gets serious about increasing oversight and requiring transparency." 

Michigan traditionally has had among the nation's highest auto insurance rates due mainly to the state's requirement that motorists purchase auto insurance policies that guarantee uncapped lifetime medical benefits in the event of catastrophic crash injuries. Under the new changes, insurers will be able to sell reduced coverage policies but will be required to reduce medical premiums for eight years.

Starting July 1, drivers will be able to choose from tiered-coverage plans ranging from unlimited lifetime medical benefits, $500,000 personal injury protection coverage, $250,000, $50,000 or a complete opt out for people with Medicare or separate health insurance covering car crash injuries. 

For eight years, insurers would have to cut average personal injury protection premiums by between 10% and 100%, depending on which level of medical coverage a driver selects. Insurers will be required to adjust rates by July 2020.

The plan creates a tiered fee schedule for medical providers that caps rates they can charge auto insurers for motorist care.

The law signed in May 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.

The changes signed into law in June had largely bipartisan support, including from the Democratic governor, Republican House Speaker Lee Chatfield and GOP Senate Majority Leader Mike Shirkey.

But some Detroit area legislators argued the reforms didn’t go far enough to address alleged discriminatory rate-setting practices. Medical providers and personal injury attorneys have criticized other aspects of the law.

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 non-partisan Senate Fiscal Agency earlier this year estimated the reforms would result in some cost shift to Medicaid, increasing state costs roughly $70 million in the next 10 years. 

In early October, a brain injury rehabilitation clinic and the guardians of two people injured in catastrophic crashes sued two insurance companies in an effort to declare the new reform unconstitutional.

Given the decrease, the potential repeal of the reform, advocated by some, "would be a bad idea, and the full reforms should be allowed to go into effect," said Tricia Kinley, executive director for the Insurance Alliance of Michigan. The decrease is "the first in what we hope is a series of cost savings," she said. 

“By next summer, drivers will finally be able to choose the level of medical coverage that works best for them, which should further decrease costs," Kinley said. "The combination of new choices for consumers and the enactment of a fee schedule to stop medical providers from charging three and four times more for auto accident injuries should allow drivers to see savings on their premium.”