Column: Time to fix no-fault insurance
Nearly 45 years ago, Michigan lawmakers decided to eliminate skyrocketing auto premiums and out-of-control lawsuits by adopting a no-fault auto insurance law. Little did they know the law they’d just created would, in the end, be responsible for thousands of confusing court cases, more than 350 new “corrective” pieces of legislation, and insurance rates that are among the highest in the U.S.
Details of these consequences are outlined in a new study I’ve completed through the Mackinac Center. As the study shows, the system lacks flexibility, creates opportunity for fraud, doesn’t achieve its goal of limiting lawsuits and is outrageously expensive. As a result, more than 1 in 5 Michigan drivers is uninsured. Michigan’s no-fault experiment was well-intentioned, but has failed. It’s time to enact more reasonable standards, which will mean lower rates for everyone and fewer uninsured drivers.
It’s time to fix Michigan’s broken system of no-fault auto insurance. Drivers are demanding it, particularly in Detroit where rates are even higher than they are across the rest of the state.
We know why the law isn’t working:
■ The state’s no-fault law results in claims that are 57 percent higher, on average, than they ought to be given accident details and injuries.
■ Motorists are forced to pay for unlimited personal injury protection, despite the fact most will never use it. Michigan is the only state that requires 100 percent of insured drivers to pay for a benefit only 0.5 percent of claims ever touch. Drivers deserve an opportunity to choose the level of coverage they want.
■ Health care providers can charge auto insurers whatever fee they deem “reasonable,” even if it’s 10 times higher than what they’d get from any other payer. Medical providers don’t have any realistic limits when it comes to settling claims from auto injuries, and this would appear to be an obvious important factor in the high cost drivers pay for their premiums.
■ Injured people can receive a host of benefits from their auto insurer: attendant care, home modifications, transportation, lost wages, occupational rehabilitation benefits, home replacement services, funeral costs and survivor benefits. These types of benefits are truly extraordinary — and very costly for the system.
■ In Michigan, the number of auto negligence lawsuits has sharply increased since 2010. Generous benefits without regard to fault were supposed to reduce negligence lawsuits.
Statewide legislative options include stricter standards for driver lawsuits, capping personal injury protection benefits, and developing a fee schedule to restrict medical providers from overcharging. The following statutory changes represent strong possible starting points:
■ Drivers should be allowed to purchase a variety of levels of personal injury coverage, such as $10,000, $25,000 or $100,000. And, of course, if drivers still demand unlimited PIP coverage, they would potentially be able to purchase it from insurance companies. It’s just now these drivers will have to bear more of the direct costs of that expensive benefit themselves rather than spreading it across all drivers, nearly all of whom will never use it.
■ Adopt health care fee schedules similar to those used for Medicaid and Medicare coverages. These fee schedules could be used as the baseline for an auto insurer fee schedule.
■ Strengthen the causation standard for automobile accident lawsuits.
■ Reduce costs by restricting the ability of injury victims to sue.
■ Correct provisions of the no-fault law awarding attorney fees so it is less unequal and slanted against insurers.
■ Eliminate or make optional paying for coverage that includes attendant care provided by family and friends.
■ Eliminate fraud and unnecessary medical treatment engineered by lawyers.
Policy options being discussed in the Legislature are promising. We need not throw out the no-fault system, because it’s possible to modify it in ways that will help reduce the costs of insurance premiums. The result should be lower premiums for all Michigan drivers and fewer uninsured cars and drivers out on the road.
Matthew Coffey is a lawyer and lecturer at Central Michigan University.