Auto insurance ‘mandates’ muddy reform debate

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Michigan would end a longstanding “mandate” on unlimited medical coverage in auto insurance policies under a new reform proposal, but critics say the plan would instead require rate cuts for lower-coverage plans and caps on medical provider charges.

The debate over government mandates looms large in Michigan’s Republican-controlled Legislature, where free-market advocates are contemplating new controls to drive down auto insurance costs.

The bipartisan plan is backed by Democratic Detroit Mayor Mike Duggan and House Speaker Tom Leonard, R-DeWitt, but its fate remains uncertain in Lansing.

The House Insurance Committee on Thursday wrapped up two days of extensive testimony without a vote and no clear time line for action. Chairwoman Lana Theis, R-Brighton, asked colleagues to submit potential amendments by next week before she decides on the next course of action.

“This bill has made health providers frustrated, insurance companies frustrated (and) other stakeholders very uncomfortable,” Theis said, “but the group that is the most comfortable with this are the people of Michigan who stand to save billions.”

The legislation would allow motorists to choose from three different levels of personal injury protection when purchasing an auto insurance policy, ending Michigan’s tenure as the only state in the nation to require unlimited lifetime coverage for catastrophic crash victims.

Instead, motorists could choose between unlimited personal injury protection, $500,000 in coverage or a $250,000 plan that would cover $225,000 in emergency treatment and $25,000 in additional care.

For the lowest coverage plan, insurers would be expected to cut the personal injury protection portion on customer bills by an average of 40 percent for at least five years, subject to review by the state Department of Insurance and Financial Services.

While the government would not require premium reductions on full coverage plans, the powerful insurance lobby is opposed to the bill as introduced because of the proposed rate controls on low-coverage offerings.

“In my 30-year tenure in government affairs, I can’t recall a single piece of legislation that dictates the price of a product as this legislation does,” said Pete Kuhmench of the Insurance Alliance of Michigan. “This provision is a dramatic departure from free-market principles and is not imposed on any other industries in this state that I’m aware of.”

The hospital lobby also opposes the bill, which would create a “fee schedule” setting reimbursement rates for medical providers that treat injured motorists. Medical providers often negotiate lower reimbursement rates with health insurers.

Senate Majority Leader Arlan Meekhof, R-West Olive, has called mandated rate rollbacks and fee schedules forms of government “price fixing” he does not support, but other critics say the legislation is not proposing a rate rollback at all.

“I find the use of the words ‘rate rollback’ to be disingenuous because we’re not talking about me getting the same product – this jacket – for $6 instead of $10,” said Rep. Donna Lasinski, D-Scio Township, using her own wardrobe as an example. “I’m getting something completely different with holes and less warmth for not more than $6.”

Rep. Sherry Gay-Dagnogo, D-Detroit, noted the legislation would allow insurers the chance to “justify” premiums on low-coverage policies that do not reduce the personal injury protection of motorist bills by the stated goal of 40 percent.

“From this language, there really is no guarantee if there already is a way for them to basically appeal through the process,” she said.

Teri Morante, chief deputy director for the state Department of Insurance and Financial Services, told Gay-Dagnogo insurers may not meet the rate reduction goal.

“But we are going to look at that very closely and really push them to get to that number,” Morante said.

Pressed further by state Rep. Gary Glenn, R-Williams Township, Morante said she expects more auto insurers will join the Michigan marketplace if the reform proposal is enacted, increasing competition that could lead to other natural rate reductions.

“It’s not just the statutory language, but perhaps that radical notion of market forces,” Glenn said.