Michigan No-fault Auto Insurance Reform Would Allow Drivers To Opt-Out Of Mandatory Medical Coverage

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Republican lawmakers in Michigan want to cut insurance premiums by setting caps on healthcare reimbursements and by letting drivers decide how much to spend on medical coverage.

The Republican-controlled state legislature announced two no-fault insurance bills last week that promise to reduce automotive insurance costs and to renew some half-century-old automobile insurance statutes in Michigan.

Proponents say insurance premiums will fall fifteen to forty-five percent when the law allows motorists to opt out of now-mandatory, unlimited personal injury protection (PIP) and instead pay for auto accident injuries using their individual healthcare coverage.

In line with two House and Senate bills, the new rules further would compel insurance companies to offer at last three forms of no-fault medical coverage to policyholders:

Option One: Maximum PIP coverage

Option Two: Moderate PIP Coverage

Option Three: No PIP coverage

Most Democrats oppose the proposals, saying the new rules are costly lucrative concessions to insurance companies that would kill the state’s unique no-fault safeguards for policyholders.

Let’s explore the legislation in depth, its opposition, and learn how the new reforms would affect consumers if Governor Whitmer executes the bills into law.

How Will Insurance Regulation Change?

No-fault rules in Michigan today require all auto insurance policies to carry limitless-lifetime PIP medical coverage.

Lawmakers say the state’s unlimited PIP requirement is the reason auto insurance rates in urban areas and in the suburbs have shot up 150% over the last two years.

Senator Aric Nesbitt asserts that drivers from nearby states “already rely on private or public health insurance” to cover medical costs when recovering from auto accident injuries.

Yet, Michigan’s present no-fault laws mandate policyholders to purchase costly, “unused benefits” such as, home care, lost wages restitution, and home accessibility, according to Nesbitt, who contends health insurance companies in other states “don’t require this coverage.”

According to senate Republicans, only the wealthy in Michigan can afford mandatory unlimited medical coverage, and cities like Detroit and Flint need major reforms now to end the “full death spiral” where motorists drive without auto insurance because “the current no-fault system is too expensive,” says Nesbit.

The new regulations would simply allow motorists to have a voice in how much medical coverage they can purchase on their auto insurance policies.

How Do The Bills Differ?

State senators voted 7-3 to give Michigan policyholders FOUR no-fault purchase options:

  • No PIP coverage – an opt out package for motorists with private or public health insurance;
  • $50,000 PIP coverage/$200,000 trauma or emergency care protection;
  • $250,000 PIP coverage; or,
  • Unlimited PIP coverage – with no mandate for insurance companies to offer this coverage.

The House rules offer FIVE no-fault coverage options:

  • No PIP coverage – an opt out package for motorists with private or public health insurance;
  • $50,000 PIP coverage/$200,000 trauma or emergency care coverage;
  • $250,000 PIP coverage;
  • $500,000 PIP coverage; or
  • Unlimited PIP coverage – insurance companies must offer this coverage.

What Savings Would Policyholders See?

The House bill contains language that sets requirements for insurance companies to reduce their rates. Motorists who opt of PIP coverage would likely encounter a direct reduction in premiums of thirty-two to forty-six percent, according to Nesbitt.

Premiums for maximum and minimum PIP policyholders should drop fifteen to twenty-five percent respectively, and drivers who choose unlimited coverage will see no change in costs.

Conversely, the Senate proposal does not mandate insurance companies to lower their premiums; such non-commitment language has caused Democrats to attack the Senate bill vigorously as “there is nothing that would guarantee rate reductions,” says Senator Mallory McMorrow.

Senate Republicans responded by stressing their legislation “assumes lower premiums will arise” for consumers who opt out of no-fault benefits.

Nesbit compared the Senate’s bill to insurance markets in Ohio at a news conference last week, claiming Ohio’s lenient no-fault rules “encourage drivers to purchase cheaper coverage,” and as such, “free market competition” in the state “compels insurance companies to lower prices in order to compete.”

What Price Mandates Are In The House Bill?

The House proposal contains strict sanctions on auto insurance companies to lower their rates within a five-year period. Republicans estimate overall premium reductions for opt-out policyholders would fluctuate from 80% to 180% within the first three years, or approximately $120 to $1,200 a year.

Their proposal does however roll back mandatory rates after the five-year term runs out, something state Democrats jumped on when opposing the House bill.  Republicans countered these concerns by asserting competition among insurers would continue to keep insurance rates down after the five-year mandate ends.

What Is The Catastrophic Fee And How Will It Change?

Michigan’s unique no-fault laws require drivers to pay fees to the Michigan Catastrophic Claims Association (MCCA), a special fund used to reimburse auto insurance companies for claims on no-fault, limitless-lifetime PIP coverage.

Insurance companies currently receive reimbursements from the MCCA if providers pay over $555,000 for medical costs on any auto insurance policy. In 2018, state regulators set MCCA fees to $220 per vehicle.

Both bills would reduce MCCA fees by $40 for consumers who elect not to pay for unlimited lifetime coverage.

Why do Democrats Oppose These Bills?

In addition to the dissent mentioned above, Democrats have objected to the following issues.

No Anti-Discriminatory Language

Neither bill contains language to proscribe insurance companies from continuing to apply non-driving considerations when estimating a policyholder’s premium.

Democratic lawmakers and Governor Gretchen Whitmer have openly condemned Michigan insurance companies for using factors such as a driver’s credit score or ZIP code when quoting insurance premiums, a practice they consider  “discriminatory.”

Detroit for example holds the nation’s highest auto insurance rates, and residents there believe if two policyholders with the same good driving record purchase identical coverage, their premiums should be the same, regardless of where the person lives.

Governor Whitmer contends both bills would allow this unfair practice to continue, and she has directed the state insurance commisoer to investigate “how providers currently use non-driving factors” to determine their auto insurance rates.

Medical Cost Caps

The opposition further contends the Republican no-fault legislation will impose arduous caps on the fees healthcare providers charge insurance companies for their services.

New insurance rules would introduce reimbursement restrictions on all no-fault medical claims via fee schedule for hospitals, healthcare providers and physicians who treat auto injuries.

Lawmakers simulated Michigan’s workers’ compensation rates to mandate how much doctors and healthcare providers could demand for their services. Workman’s comp claims in Michigan pay a maximum of 130% to 135% of what Medicare reimburses for the same medical procedure.

Nesbitt says capping healthcare fees “will reduce profiteering,” where the current system forces insurance carriers to reimburse doctors at high rates; under the new law, “medical providers can still meet their costs” using the state’s workman’s comp fee schedule, according to Nesbit.

Democrats do not concur; Nesbit’s fee schedule “could put financial strains on healthcare providers,” says McMorrow, and it will “force doctors to stop treating injured motorists.”

Advocates for the opposition claim the Republican-imposed fee schedule is illegal price-fixing that would force thousands of doctors out of business. McMorrow echoed these concerns on Friday, pointing out medical facilities in the state “do not receive higher reimbursements from current no-fault insurance policies [than they do] from private health insurance.”

Increased Medicaid Costs

Democrats claim that the legislation would raise the state’s Medicaid costs by $66 million after a decade.

Medicaid costs would go up because the new law would compel many no-fault policyholders who opt out of full PIP coverage to use their public healthcare benefits to pay their medical bills after a vehicle accident.

Senator McMorrow says the House and Senate bills would make Michigan “the primary payer” of a policyholder’s medical damages, as state Medicaid “would start picking up medical bill tabs instead of insurance companies.”

The opposition further contends the new rules would force drivers with public healthcare who experience catastrophic accidents to depend on Medicaid for recovery, meaning taxpayers would pay over $550k per major accident, an event that would hand over “major concessions to insurance providers,” according to McMorrow.

Nesbit brushed off these concerns, recounting “Medicaid fee schedules already pay minimal to healthcare providers for services,” and “the state insurance does not cover everything.” Consumers on Medicaid who opt out of PIP protection “would therefore have to seek supplemental health insurance if they wish to be fully covered,” according to the senator.

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