Q. Why does Michigan’s no-fault auto insurance system need to be changed?
A. The cost for auto insurance in Michigan is way too high. Three recent national studies list Michigan’s no-fault insurance as the first or second most expensive in the country. Michigan’s current no-fault auto insurance system mandates all drivers purchase unlimited, lifetime medical benefits that are too costly for consumers. Michigan is the only state in the country that requires drivers to purchase such a high level of medical benefits. The next highest auto insurance medical benefit program is found in New York which requires $50,000 of coverage.
Medical inflation is rising at a staggering rate and is driving the cost of auto insurance up and making it unaffordable for some motorists. The average cost of a Personal Injury Protection (PIP) claim rose 330 percent from $13,617 in 2000 to $45,016 in 2012. As the cost goes up, more people drive without insurance. Uninsured drivers increase the cost of the system even more.
A system that requires people to purchase a product that they cannot afford is not a viable option for the long-term.
Q. What changes to the no-fault auto insurance system are proposed in the consumer choice plan?
A. The reform plan being proposed by the Governor and legislative leaders will preserve our no-fault system at a price we can afford. The plan would:
- Roll back the price of auto insurance by $125 per car – an average savings of $250 per family in Michigan.
- Provide every driver with $1 million in medical coverage that is 20 times greater coverage than the next highest state.
- Prevent the gouging of auto accident victims by establishing a fair a reasonable price for medical services, similar to the prices charged by Blue Cross Blue Shield.
- Establish a Fraud Bureau that will crack down on auto insurance fraud that may be driving up the cost of insurance by 10 percent.
Q. How will this reform proposal impact auto insurance premiums paid by Michigan motorists?
A. Every driver in Michigan will see their auto insurance rates reduced by $125 per car in 2014. That’s an average savings of $250 per family.
Q. How will these changes protect Michigan’s auto insurance consumers?
A. No-fault auto insurance reforms will help control costs in the overall system by controlling the cost of medical care that has been the main cause for the dramatic increase in auto insurance premiums. The cost of Michigan auto insurance will be going down next year while they increase in other states.
Q. How will this new coverage work with my personal health care insurance?
A. If you are covered by a personal or employer provided health insurance policy, that policy’s coverage would respond once your $1 million of auto insurance medical coverage (PIP) has been exhausted.
Q. With $1 million in Personal Injury Protection (PIP) coverage, how will Michigan No-Fault compare to other states?
A. Michigan motorists will still have the most generous coverage for auto medical insurance at 20 times more than the next highest state (New York) with $50,000 in mandated medical coverage.
Q. How will medical costs be covered and paid for?
A. Insurance companies will cover the first $500,000 of medical expenses. A non-profit corporation will be created to cover the next $500,000.
- This new non-profit corporation will have a board appointed by the Governor and be subject to Freedom of Information and Open Meetings laws designed to provide complete transparency.
- With cost controls in place, $1 million will cover more than 99.5% of all medical claims
Q. What happens if you exceed the $1 million in medical benefits covered by No-Fault?
A. Under the proposed no-fault auto insurance reforms, auto insurance companies and the new non-profit would be required to provide PIP coverage of $1 million. One million in coverage, coupled with cost control measures, means that more than 99.5 percent of all accident-related medical claims would be covered. Of the remaining claims, or less than .5 percent of all accident claims, the injured party would have the same options they have in all other states. The options will virtually cover all medical costs.
The proposal provides for the following sources of recovery for Michigan automobile accident victims in the unlikely event they incur costs that exceed their auto no-fault limit of $1 million:
1. Auto Insurance – Other Coverage: Accident victims whose medical costs exceed the PIP coverage may file a claim with the at-fault party’s auto insurance carrier for those losses, including medical costs, wage losses, and pain and suffering. If the at-fault party is uninsured or if the insurance coverage is insufficient to cover the injured party’s losses, the injured party would file an uninsured/underinsured motorist claim under his/her own policy. If that claim cannot be resolved through the claims process, the injured party can file a lawsuit to resolve the claim.
2. Health insurance: If auto insurance policy benefits are exhausted and the claim is resolved with the at-fault party’s insurance carrier (or your UM/UIM carrier), any unpaid medical expenses may be covered under health insurance.
- Approximately 61 percent of Michigan residents have private medical insurance.
- Under the Affordable Care Act, both private and public medical benefits are unlimited.
3. Medicare (and other federal health insurance): For anyone aged 65 or older, or who otherwise qualifies for Medicare because they have been disabled for an extended time period (usually 2 years), Medicare will cover medical costs once auto insurance policy or health insurance benefits are exhausted.
- Michigan seniors are currently forced to buy PIP coverage even though their medical costs are already covered under Medicare. They are forced to pay twice. No other state imposes this mandate on its seniors.
- Medicare and other federal health insurance already covers approximately 17 percent of Michigan residents.
4. Medicaid: Accident victims not covered by private insurance or Medicare may be eligible for Medicaid.
- Approximately 10.7 percent of Michigan residents qualify for Medicaid.
Q. How many people will not be covered under the $1 million policy?
A. According to data from the MCCA there have been 4108 claims that have exceeded the $1 million medical cost threshold in the 35 years the MCCA has been in existence. That averages out to around 117 people per year. Statistics show that approximately 98 percent of those claimants will have coverage for their medical costs.
- 90 percent of those will have insurance coverage (see list above)
- 6 percent will be covered under the Affordable Care Act
- Half of the drivers will also be able use the tort system to collect medical costs.
However, with the addition of cost controls forcing medical providers to accept the same rates they are paid by private health care plans, $1 million in coverage will go a lot farther than it does today with a system that allows medical providers to charge 300 to 400 percent more than they accept from private insurance companies.
Q. How will the medical fees/reimbursements to health care providers be determined?
A. Automobile insurance companies will be required to pay hospitals and medical providers the rates they voluntarily negotiate to accept from private health carriers such as BCBSM and CIGNA. Eliminating discriminatory billing practices by hospitals and providers will reduce the costs of medical coverage under No-Fault.
Q. What happens to the Michigan Catastrophic Claims Association (MCCA) and accident victims covered under the current system?
A. Current accident victims will continue to receive unlimited, lifetime benefits FROM THEIR INSURANCE COMPANY – and those insurance companies will continue to be reimbursed from the MCCA for those claims. Going forward, the MCCA will not provide reinsurance for claims occurring after the bill is enacted into law.
Q. Why isn’t the MCCA more transparent, subject to the Freedom of Information (FOIA) and the Open Meeting Act?
A. The MCCA is not a government agency. The MCCA is an unincorporated nonprofit corporation established under law to provide reinsurance to the insurance industry for large catastrophic claims. The insurance companies are liable for any and all costs associated with funding the MCCA and the paying of any medical claims. The legislature deliberately insulated the MCCA from state government because insurance companies – not state government – are responsible for 100 percent of the claims costs even if the MCCA were to dissolve. As a result, the MCCA is exempted by law from both the FOIA and Open Meetings Act.
Even though it is not required to do so, the MCCA publishes volumes of information on its website on the history of claims and data that are used each year to set the rates for the MCCA along with investment information. Everyone can access the information at www.michigancatastrophic.com.
Q. How are the rates established for the annual MCCA charge to its member insurance companies?
A. Each year, the MCCA hires two independent actuarial firms to examine the data and recommend the charge to insurance companies for the next year to reinsure catastrophic claims. The Insurance Commissioner regulates the MCCA and sits as a non-voting member of the MCCA Board. The MCCA is also audited every year by an independent auditing firm. The audit is published on the MCCA website.
Q. Does the actuarial firm really assume that all accident victims will live until 104 when determining future costs of the MCCA?
A. This is another urban legend. Apparently, the Insurance Commissioner once testified about the use of mortality tables and actuarial assumptions that go into the determination of loss expectancies. Those opposed to reforms have twisted that testimony to suggest that all rates are set based on people living until they are 104. They have even included this false claim in their published studies. The actuarial firms use standard mortality tables, similar to those used for pension funds, for determining the average life expectancy of those filing claims with the MCCA. From these tables, life expectancy is frequently reduced depending on the type of injury and medical condition of the injured accident victim.
Q. How much will each driver save if the legislature passes No-Fault reform legislation?
A. It’s estimated that the premium charges for every vehicle in Michigan will be lowered by $125 to $150 per year with reforms that control costs, provide $1 million of medical coverage and establish new laws to fight fraud. That is an average savings of $250 to $300 per household. Total savings to Michigan drivers will be from $750 million to $1 billion in the first year alone.
Q. How can we be assured that insurance rates will not go back up after the first year?
A. Insurance companies will be required to file proposed rate increases and justify them to the Commissioner. Additionally, Michigan has a very competitive insurance market with more than 100 companies selling auto insurance. The elimination of the MCCA will attract even more companies to the state making rates even more competitive.
Q. I’ve heard claims that adopting these reforms will cost the State of Michigan $30 million annually in new Medicaid claims as a result of the capped benefits. Is that true?
A. Not true at all. That $30 million estimate comes from a study released by Public Sector Consultants produced for the Brain Injury Association of Michigan in 2010. The study looked at a completely different No-Fault proposal offering injury protection coverages starting at $50,000 in medical coverage and offering other levels up to the current lifetime, unlimited coverage. The study assumes that 90 percent of consumers would choose a $50,000 limited policy and that every claimant exceeding his/her benefit level automatically goes to the state Medicaid roles.
Neither assumption was valid for the prior reform plan and neither assumption is valid for the current No-Fault reform plan being considered by the legislature.
Q. How is the current No-Fault system hurting Michigan businesses?
A. Insurance companies doing business in Michigan are under increasing risk of having their financial ratings downgraded because of their exposure to the current unlimited medical benefit system and the MCCA. This is forcing them to shift their business appetite to other states to limit their exposure in Michigan. The current system also hurts consumers because some national companies are unwilling to market their policies in Michigan.
Also, Michigan companies are forced to insure their vehicles and insure their employees with duplicative, unlimited benefits – they pay twice, but collect only once! Worker’s Compensation covers medical claims resulting from accidents involving employees on the job.
Finally, our seniors on Medicare, a lifetime health benefit, are also forced to buy duplicate coverage – needlessly spending millions more each year for insurance.
Q. Who is supporting the No-Fault Reform package?
A. A coalition of state-wide organizations including the Michigan Association of Insurance Agents (MAIA), Michigan Chamber of Commerce, Michigan Farm Bureau, Michigan Manufacturers Association (MMA), Michigan Professional Insurance Agents (MPIA), Small Business Association of Michigan (SBAM), National Federation of Independent Business – Michigan (NFIB Michigan), Insurance Institute of Michigan (IIM), and Michigan Insurance Coalition (MIC).