Could a good deal for Detroit drivers spell the end of Michigan no-fault?

If Mike Duggan wants to remove a major barrier keeping people from moving to Detroit, he may have to deal with an even bigger barrier - Michigan’s guaranteed lifetime benefits for catastrophic auto accident injury.

Several bills wending through the legislature attempt to alter a popular state benefit: no-fault auto insurance. Among those proposals, the one sparking the most chatter doesn’t even address no-fault insurance for most of the state. Duggan’s plan, called “D-Insurance,” would create first-ever coverage caps that could drastically lower rates in Detroit.

Gov. Rick Snyder and other Republicans have long sought to alter no-fault, and though they’ve been unsuccessful, they now have an unlikely ally in prominent Democrat Duggan, who is lobbying Democrats and Republicans alike to help him lower a barrier for the uninsured and would-be migrants to the city.

But though it’s targeted to help just those in the state’s largest city, some supporters and critics focus on its potential to trigger broader, statewide reform.

“It will be the beginning of the end of unlimited benefits and no fault insurance everywhere in the state,” warned Rep. Tim Greimel, D-Auburn Hills, House Democratic leader.

“I think some of the (pro-reform senators) do see it as the proverbial camel’s nose under the tent,” said Peter Kuhnmuench, executive director of the Insurance Institute of Michigan. As critics wind up their defense of no-fault and target D-Insurance’s establishment of caps -- $250,000 for critical care in the wake of an accident, and $25,000 for post-critical care – the city points to the potential benefits.

“The much more powerful narrative is who speaks for the 60 percent of Detroiters who have been criminalized for not being able to afford a product they are required to buy?” asked Melvin “Butch” Hollowell, Duggan’s top city attorney.

High rates have ripple effect

No one argues that insurance rates are insanely high in Detroit, and that those rates trigger several problems: Many motorists get policies good for only seven days so they can get license plates, and then drive illegally without insurance. Many others choose to register their cars outside the city, a move that eliminates their ability to vote in the city and which invites a potential fraud claim.

“Detroiters are getting screwed by the high cost of insurance,” said Josh Hovey, spokesman for the Coalition to Protect Auto No Fault. CPAN would address those costs in other ways and says the quality of the D-Insurance is so low many victims would suffer from a lack of coverage.

Duggan wants motorists to have a choice to buy insurance with coverage caps, hoping it would result in savings of up to $2,300 a year for some drivers.

Hollowell said that the D-Insurance plan is getting overwhelming support in meetings across the city, where more than half drive without auto insurance, and the cost for those who meet the legal requirement can easily top $5,000 a year.

Those plans would differ vastly from plans elsewhere in the state: Michigan is unique in that it has lifetime unlimited “personal injury protection” benefits; D-Insurance would mimic those of the states with the next-highest caps.

Duggan’s Detroit auto insurance plan needs the approval of the Legislature and the Governor. But the proposal has run into advocates worried it will eventually lesson the lifetime care that accident victims get in other parts of Michigan. A diminution of no-fault in one place, they fear, could lead to lesser care everywhere. And making that point powerfully could be accident victims who would appear in pro-no-fault campaign commercials come election time.

“(Legislators) really do not want those commercials running in their districts,” said Susan J. Demas, publisher of Inside Michigan Politics.

Paying the price

In Michigan, motorists seem to love the high quality of their auto insurance, yet they also dislike its high cost, creating two competing narratives: Do we support long-term high-quality care for the catastrophically injured or do we want to lower some of the highest insurance rates in the country?

For years, the insurance industry has pushed Michigan legislators to reform the state’s one-of-a-kind no-fault insurance. But those efforts have been repeatedly beaten back by the health-care industry and trial attorneys, as well as the public on two occasions. Michigan voters in 1992 and 1994 rejected proposed changes to no-fault and recent attempts to lower caps have failed in the state legislature.

Currently, there are other proposals to lower rates before legislators, including Senate bills 248 and 313. They attempt to lower costs in other ways, including changing the format for catastrophic coverage and limiting how much health-care providers can charge auto insurers.

That set of bills, which passed the Senate and has passed a House committee and is awaiting a vote of the full House, mandates a decrease in auto insurance of $100 per vehicle for two years.

That’s a good deal for much of the state, but doesn’t make a dent in insurance costs in Detroit.

Many found it ironic when Duggan, a prominent Democrat, supported Senate Bill 288, which could slash auto insurance rates in the state’s
largest city.

“It was like Bizarre-O World watching the testimony in the Senate,” said one former state representative and insurance reform advocate who did not want his name used because of his current position.

After all, Duggan was once CEO of the Detroit Medical Center, whose association is one of the fiercest defenders of the unlimited coverage that Duggan was hoping to lower, at least for Detroit motorists. And his aide during his trip to Lansing was Hollowell, an attorney who once lobbied for the Coalition to Protect Auto No-Fault (CPAN).

Now, Duggan and Hollowell are calling for their own plan to reform no fault and lower rates for their constituents in Detroit.

So far, only the Senate Insurance Committee has backed the plan, voting to approve the measure with an amendment that might make it applicable to other Michigan cities. The amendment allows residents of any city where 35 percent or more of drivers are uninsured could get the cheaper, lower-benefit car insurance.

(Statewide, an estimated 21 percent of motorists don’t have insurance, a number totaling 1.1 million motorists and rising, according to the Insurance Research Council. That same council said it is unaware of accurate data on a city level that would allow state officials to determine which communities meet the 35 percent threshold.)

The bill would need to be approved by the full Senate and the House, and be signed into law by Snyder, to take effect.

Rep. Brian Banks, D-Detroit, applauds the efforts of the mayor but says the current proposal should be dead on arrival. He claims no Democrat is supporting the plan and many Republicans have reservations about insurance coverage that offers “watered down, second-class benefits.”

Banks said Duggan would be wise to spend his political capital on a more palatable plan “to make a fix across the state and help everybody. At this point there has to be a compromise.”

What’s driving auto insurance costs?

The math seems simple: In 2013, Detroit had nearly 12,000 motor vehicle thefts, 20 times more than the next closest city, Warren, the third largest city in the state.

So that’s why Detroiters pay so much in auto insurance, right?

No.

According to AAA, one of the largest insurers in the state, comprehensive coverage – which is optional – is three times higher in Detroit. But it’s still only a third the cost of the most expensive portion, personal injury protection (PIP), which is required and includes unlimited lifetime caps covering catastrophic injuries. PIP is the largest component of premiums, more than the cost of collision and comprehensive combined.

Those unlimited lifetime caps drive up the cost of PIP. (New Jersey has the second-highest cap at $250,000, though motorists can now choose lower coverage limits). In Michigan, someone injured in a crash can get up to three years of lost wages through PIP and lifetime care.

Adding to the cost, healthcare providers typically charge auto insurers far higher
fees – double or triple in some instances - than they charge private insurers and Medicaid
and Medicare for the same procedure.

Insurers pay the first $545,000 of coverage, after which the money is drawn from the Michigan Catastrophic Care Association, into which every policy pays a flat fee. It was $186 last year and went down to $150 on July 1.

That catastrophic care flat fee is only a minor portion of insurance bills in Detroit. As an actuarial study done for the city points out, Detroiters pay exorbitantly higher rates because of the high cost of medical care for people in accidents. Detroit motorists are twice as likely to file a medical claim and those claims are twice as expensive as those outside the city.

AAA’s own rate plans, submitted with the state, confirm the same (as do filings from Allstate). It applies “factors” to Census tracts based on claim experience. The higher the claims, the higher the premiums. (Caps on geographic rate differences were tossed in 1996, allowing insurers to charge motorists extra – or in some cases less – depending on where they live.)

The result: In many parts of Detroit, as well as a few Census tracts in Dearborn, Inkster, Warren and Eastpointe, personal injury insurance coverage costs double or even triple that of most of the state, regardless of credit, driving record, gender or age.

Political battle looms

Duggan wants D-Insurance to lessen that blow. And as a former health care official and powerful Democrat, he’s getting people’s attention.

“We welcome the mayor to the conversation,” said Heather Drake, AAA’s vice president for governmental affairs. AAA has supported PIP choice plans in the past and is encouraged by D-Insurance.

Greimel agrees with Duggan that auto insurance is too costly in Detroit. But to him and some other Democrats and Republicans, any statewide solution should avoid reducing benefits.

Greimel wants to create a fraud authority to attack bad claims, crack down on excessive and unnecessary health-care use, and prohibit redlining. He and others also want to look into the now-acceptable practice of letting insurers give discounts – or increase premiums – based on a motorist’s credit rating.

“House Democrats have long had deep concerns of any proposal that would allow insurers to drastically lower benefits without guarantees they would lower rates,” Greimel said.

Duggan is running into entrenched battle lines because of its potential, far-reaching implications. But he’s faced obstacles before. He had to run as a write-in candidate to get on the Detroit ballot in 2013, and won soundly. Then he became the city’s first white mayor since the 1974 in a city where the non-Hispanic white population is 8 percent.

Now, as Duggan attacks blight and create jobs, D-Insurance remains a priority. It’s seen as solving one of the quiet impediments to becoming a Detroiter. And since Duggan has made population growth his No. 1 metric for job performance, D-Insurance matters.

"It's at the top the list,'' Hollowell said.

And though Hollowell, Duggan and many others can diagnose the illness, not everyone agrees with the course of treatment suggested by D-Insurance.

State Sen. Coleman A. Young II, (D., Detroit) agrees that rates need to come down. But he likens the D-Insurance plan, and its hope of lowering rates, to going skydiving. What if, he says, someone told you just before jumping that there’s a chance your parachute may not work.

“Are you seriously going to jump out of that plane?” Young asked. “Most people would not.”

We’ll soon see.

About The Author

Mike Wilkinson

Mike Wilkinson is Bridge’s computer-assisted reporting specialist. He can be reached here.

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Comments

Jandrel
Thu, 07/02/2015 - 8:40am
No-fault and PIP are separable issues. No-fault eliminates litigation and all the associated costs. PIP, however, is essentially health care coverage. Giving more benefits to those whose needs arise from car crashes tha to those whose needs arise from a house fire or a bad heart makes no sense. With truly universal health care, those injured in a crash would get the same care as any other sick or injured person. Car insurance should cover property damage and liability. Period.
DW
Thu, 07/02/2015 - 10:32am
Well said
John S.
Thu, 07/02/2015 - 11:01am
I'd expect the lawyers who troll the City and hospitals in the City to fight tooth and nail against any reform that eliminates their legal right to steal from the Catastrophic Care Association fund. The relevant concept is MORAL HAZARD. There are no incentives in place for insurees, their lawyers, or the hospitals that deliver care to reduce or eliminate compensable losses. There are incentives in place for them to run up the bill, endlessly. Hospitals probably rely on the CCA fund as a slush fund to cover losses from uncompensated care.
Chad
Thu, 07/02/2015 - 11:37am
If D insurance were to happen in Detroit and someone hits my car while I'm visiting Detroit would I get lesser compensation than if I got hit in any other city? Since D insurance would be only for Detroit residents there are a lot of scenarios that could happen. Visitor to Detroit hit by D ins driver, D ins. driver hits non D ins in another city etc. Sounds like the answer is to regulate the health related care so that care providers can't get away with charging triple costs. Do auto insurers just pay triple or do they work out a reasonable and customary/approved amount similar to the way regular health insurance does? In the end it appears that the no fault reform movement is a continued attempt for elected officials who have been winning elections with lower tax promises to avoid doing their job by raising taxes to fix the roads. It is no secret that if no fault goes away, there will be billions of dollars to raid for the road fixes that doomed proposal 1 failed to deliver. Politician: "I want the clean work of lowering your taxes and not the dirty work of raising them, so please vote yes on proposal 1 and voluntarily impose your own tax hike. I won't get re-elected if I have to raise them" It's like Duggan and Hollowell are up to something that doesn't pass my smell test. They've both done a complete 180. No insurance changes please. No D-insurance.
Jay
Wed, 07/08/2015 - 10:00am
Chad--To answer your question NO if your wife got hit by a driver with the "D" insurnace her benefits would not be effected as long as she didn't have the D-ins option on her policy too. So all it would mean is that the driver with the D-ins would have a cap on his/her medical benefits related to the accident - so they would only have up to $250k in coverage for any medical payments related to that accident. The same would go for the driver of the D-ins regardless of where in the state or out-state he/she got into the accident. The change would only effect the driver who has the "special" D-ins policy.
Tom
Thu, 07/02/2015 - 12:02pm
In order to lower the price of no-fault in Detroit and everywhere else in the state you have to either reduce the benefits or reduce the cost to provide the current benefits. The Duggan proposal gives Detroit drivers the option of reduced benefits in exchange for lower rates. The Hune bill that passed the Senate reduces costs by establishing a fee schedule that simply says that a broken arm is a broken arm. It shouldn't make any difference is it happens on the job or in an auto accident, the cost should be the same. Put both approaches together and everyone gets a break on their insurance bills and Detroiters will have insurance options they can afford. There are no other plans from CPAN or anyone else that will lower rates.
Barb
Sun, 07/05/2015 - 8:08pm
YES!!!!
D Johnson
Thu, 07/02/2015 - 12:28pm
Why not just give people a choice? If they want unlimited lifetime caps, they can pay the corresponding premium. If they want just $250,000 in coverage (which is the highest cap in any other state) they can pay the corresponding premium for the reduced coverage. We can choose deductibles and policy limits in other components of our insurance bill. We should have the same type of choice for catastrophic care.
Sharron Solomon
Fri, 07/03/2015 - 7:51pm
For the very same reason that the state took away the choice to not have coverage.
Chuck Fellows
Thu, 07/02/2015 - 12:58pm
The problem is not no fault, not PIP, not a concentration of humans in urban areas, rates of uninsured motorists, high incidence of vehicle that - none of the above "excuses" for poor management. And fiscal irresponsibility on the part of the auto and health insurance and medical care industries. Totally out of control health care costs and rate setting using zip code and credit scores lead to misaligned rate structures and an insurance industry with the lowest profit ratio in the nation. Mayor Duggan is attempting to do the job of insurance companies and is probably fully cognizant of the theft being imposed upon anyone choosing to live in an urban environment. Our term limited legislators care more about campaign contributions and perks from contributors, massaging their egos, than making the effort to study the readily available non partisan analyses that have repeatedly pointed out what the real cost problem is (cost of receiving medical care) and have proposed reasonable solutions.
Matt
Thu, 07/02/2015 - 1:39pm
With one in three drivers not having insurance, good luck, and it probably wouldn't make a difference if insurance was half as expensive. The only way to solve this issue is to make the penalty for driving uninsured so onerous it's not worth the risk. How about automatic confiscation of your car? This would also lower traffic, and act as a boost to public transportation.
Karl
Thu, 07/02/2015 - 2:21pm
Well,... VERY well said! I am old enough to remember a world without "no-fault", and it wasn't pretty! Vehicles ("property") damaged (or "totaled") were usually tied up for weeks, even months waiting to be repaired, and the time and costs associated with litigation were intolerable. In the meantime, those affected by irresponsible driving behavior became exponentially even more, the victims! And only those with medical insurance had any hope of covering the doctor bills. I long ago became disgusted with the "war on Detroit" associated with all things such as this, and frustrated with the idea that no one seemed interested in addressing the true causes associated with everything like this. I have attended events in other States where representatives from the Insurance Industry condemned me upon discovering me a Michigan resident! I have been appalled at the proposal that if "no-fault" were to be ended in Michigan, that the nearly $20 Billion in the Michigan Catastrophic Claims Fund should become the property of the Insurance industry (distributed among those insurers in our State), or be used to improve roadways. That money belongs to insured motorists who paid into it! For American industries to simply use up and pollute everything in Detroit and be allowed to walk away (or "lured" by suburban "tax-incentives") from it is one of the greatest wrongs in the history of our nation! Blaming crime in Detroit for high insurance rates has been similar to blaming a handgun for it's operators behavior. No-Fault insurance is, and has been truly one of the most progressive, and impressive ideas we have ever accomplished! Unlimited "health care coverage" for "Detroiters" is not what "Motor Vehicle" or "Automobile Insurance" should continue to be about. Mike Duggan has a job to do, and a constituency to do it for. However, I too believe it has come time for a statewide, or possibly even a national solution? This is a time when we might finally be able to redefine the basis for what are really two types of insurance, and preserve benefits for everyone? The Affordable Care Act is something that certainly holds potential to help us arrive at a new definition for "Motor Vehicle Insurance", and how that should help separate "Insuring Property" from "Providing medical and health restoration" in America.
Marie
Thu, 07/02/2015 - 7:47pm
If unlimited PIP is the reason for higher insurance premiums in Detroit, then why can I drive 6 blocks east to GP and my rates drop by half, but still include unlimited PIP? Did I miss something?
Sharron Solomon
Fri, 07/03/2015 - 7:59pm
Because AAA claims that , because health care providers charge Detroiters more than they charge suburbanites, Detroiters must be penalized. Seems to me Mayor Duggan and Hollowell should be suing healthcare providers rather than continuing the tradition of turning the screws on Detroiters.
Jim
Fri, 07/03/2015 - 11:03am
Politicians the jackals of the world what's the real motive. What does Mike Duggan really want?
Sharron Solomon
Fri, 07/03/2015 - 8:21pm
It appears to me that this D-insurance plan (and I can think of o lot of D words that would be a better fit than Detroit) is meant to benefit insurers, not Detroiters. I think it is unconscionable that Detroiters are being charged exorbitantly higher rates based on the rediculous reasonimg presented by AAA, et al. Again, it is insulting and offensive. I still say, because no-fault coverage is mandated by the state, the cost for coverage should be unilateral with the only exception being consideration of one's driving record.
brokengovt
Sat, 07/04/2015 - 12:20pm
I fear folks are missing the most salient point. Insurance rates for any area, both the high ones and the low are based in frequency of claims and those related costs. There may be more deer car accidents and claims in low populated areas, but a car theft hardly ever happens. I see car insurance rates based on the numbers statewide. The same criteria is used for any insurance rate like homeowners, medicare advantage and life insurances. If you live in an area that has a high incidence of anything there will be a cost applied to it. These folks aren't victims of insurance, but of what makes it cost so much. That is their choices in politicians, governments and how they choose to live along with what they tolerate. PIP should definitely be a choice.
David Richards
Sun, 07/05/2015 - 10:07am
I am concerned that the automobile insurance issues here are terribly confused. There are three separate concepts, two of which are mistakenly grouped under the term no-fault. No-Fault relates to the principal that some of your insurance coverage comes from your own insurance company without regard to who was at fault in the accident that caused the need for benefits, and this is where the term no-fault comes from. The second concept (and issue) has to do with the cost of the medical and other care and rehabilitative benefits insurance is to pay for. The last point, which is generating the most controversy, is the unlimited cap in Michigan on medical and other care and rehabilitative benefits. You can make changes in the last two issues without changing the concept of the no-fault system. We should also keep in mind that frequently the cost of protecting our vehicle exceeds the cost of the PIP benefits (which are the benefits being debated), and that liability coverage protects people other than the insured when a major injury occurs to third parties in a motor vehicle accident. Imposing a cap on benefits for catastrophic injuries by itself would make only a small difference in the cost of automobile insurance for many, if not most people in Michigan.
Sharron Solomon
Wed, 07/08/2015 - 8:59am
I think Rep. Greimel's plan and ideas make the most sense. Attack the problems, not the people.
Joel
Wed, 07/08/2015 - 1:32pm
Isn't the issue how we care for people requiring long term rehabilitative care in Michigan? What if I fall off a ladder and become a paraplegic - how is long term care handled? And, how about motorcycle injuries? Are automotive injuries treated as a special case only because they are the vast majority of these cases? If the reform included a provision that rehabilitative care had to take place outside Detroit, would that solve the problem? Joel
Sharron Solomon
Sun, 07/12/2015 - 11:13am
No, it would not necessarily make a difference if services were provided outside of the city. The article did not state that the higher medical charges were attributable only to Detroit based healthcare providers, it states only that Detroiters were being charged more.
Mike B
Wed, 02/22/2017 - 6:06pm

Here's an uncomfortable reality - 49 other states look at this insurance as a nightmarish joke of exploded costs.

Not allowing insurance companies to negotiate on cost structures? A recipe for fraud - which is rampant with the cost structures applied.

But one can expect superior medical outcomes in MI right? Nope - not at all

Overall MI pisses away, as a state, 9% of every dollar earned in the state - on auto insurance. The national average? 3%. You want to fund roads? Public transit? Schools? Not one single state in the country emphasizes them to a lesser degree in comparison to auto insurance - than Michigan.

So far as the coverage level - if you need it - its great. But by that argument, why don't we require the same level of coverage for other types of insurance? Why shouldn't everyone be required to buy a $1mm life insurance policy in MI to prevent bankruptcy of loved ones? Why shouldn't every be required to carry insurance on their home that provides for twice the value of the home to be re-built in the case of meteor strike?

The reason - because those would be idiotic insurance requirements - just like MI's ridiculous failure to utilize auto insurance is absolutely stupid.

When any one of the 49 other states wants any part of this clown show - let me know. Otherwise we, as a state, are the colossal failure on this topic.