Editorial: Accelerate auto insurance reform

To cap auto insurance payouts at $1 million would still leave Michigan with most generous program

The Detroit News

Gov. Rick Snyder has introduced auto insurance reform to the state’s no-fault system. The reform that caps payouts for medical costs and will finally give Michigan drivers relief from some of the nation’s highest auto insurance rates, especially Detroiters whose auto insurance costs double the state average.

We welcome the governor’s long-awaited action, but it does not go far enough.

“Michigan’s too expensive for auto insurance,” says Snyder. He’s right. An Insure.com study pegs Michigan auto insurance costs as the second-highest in the nation behind Louisiana. Detroit’s average premium is a staggering $5,900, a cost exacerbated by car theft that is $2,000 higher than Philadelphia, the second-most expensive city. As a result, more than half of all Detroit drivers are uninsured, while 20 percent of Michiganians drive without insurance.

The reasons are well known: Michigan is the only state that mandates auto insurance policies cover unlimited medical coverage, and unlike most states, Michigan does not have a medical fee schedule for common procedures, doubling our costs compared to other no-fault states.

“What is driving Michigan’s auto insurance costs up in both absolute and relative terms?” said Robert Hartwig, an Insurance Information Institute economist, in 2009 testimony before Lansing legislators. “Its unlimited threshold for no-fault auto insurance claims. With unlimited benefits come unlimited costs.”

Hartwig predicted back then that Michigan, with the 11th highest auto insurance premiums, would soon be No. 1. We’re almost there.

Snyder’s remedy is properly focused on consumers’ wallets. His legislation would set medical procedure rates to reign in fees (the average cost of an X-ray covered by Medicare is $42 vs. $162 under auto insurance plans).

But his cap on medical payouts (a compromise to quiet powerful trial lawyer and hospital lobbies that have benefited without a payout cap) of $1 million is more than 20 times higher than the second-most generous state, New York. Snyder’s reform would still leave Michigan with the highest rates in the Midwest and well above the national average.

A better solution is authored by Sen. Virgil Smith, D-Detroit, and Sen. Joe Hune, R-Hamburg Township, and would adopt New York’s still-generous $50,000 cap on medical payouts, after which costs would roll over to a driver’s regular health insurer, Medicaid, or Medicare.

Snyder’s reform is too modest, but still opponents charge it will set off a chain wreck of individual bankruptcies, benefiting insurance companies. “What they’re talking about is making my family go bankrupt in order to qualify for Medicaid,” Rep. Kate Segal, D-Battle Creek, told The Detroit News, warning of lifting the cap.

There’s no evidence to support those fears. A review of other states finds no relation between an auto insurance cap and personal bankruptcies. Indeed, Michigan has the seventh-highest bankruptcy rate in the nation. New York, with its $50,000 cap, ranks 42nd.

Opponents also argue that Michigan insurance companies look to fatten their bottom lines with Snyder’s reform. But Michigan has one of the most competitive auto insurance markets in the country with more than 100 companies offering insurance. Michigan’s industry has consistently earned rates of return below that in other states, and that competitive dynamic will continue with reform even as drivers save hundreds of dollars.

Snyder is on the right path with his reform proposal; he just needs to make it more sweeping.