By Pat Shellenbarger/Bridge Magazine contributor
Megan Hanges-Reynolds concedes that until recently she gave little thought -- none, really -- to Michigan’s no-fault auto insurance law and its guarantee of unlimited, lifetime coverage for those severely injured in auto accidents.
She thinks about it a lot now.
That’s because the morning of Sept. 18, 2010, on her way to a University of Michigan football game, her life changed forever. On rain-slicked pavement, the driver of her SUV lost control. The vehicle rolled several times, and Hanges-Reynolds was thrown out and against a tree.
Of the six occupants, she was the most seriously injured. She suffered multiple rib fractures, three broken vertebrae, a broken shoulder and clavicle, and a skull fracture. She is paralyzed below the waist, likely never will walk again and always will need some level of care. She had to relearn to talk, eat, even think. More than a year later, she is undergoing multiple kinds of therapy five days a week. The cost -- so far -- exceeds $1 million, she said, all of it covered by her auto insurance.
“It’s crazy how much money it takes if you’re in this position,” said Hanges-Reynolds, 25. “I think most car owners are not aware of how much money goes into something like this.”
Hers was the kind of catastrophic injury state lawmakers had in mind when they included unlimited, lifetime coverage in Michigan’s no-fault auto insurance law in 1972.
Thirty-nine years later, legislation in the state Legislature, if passed and signed by Gov. Rick Snyder, would change that by allowing motorists to select lower levels of coverage for what is called personal injury protection, or PIP. It would eliminate the guarantee of unlimited, lifetime benefits and implement a fee schedule that limits how much doctors, hospitals and other care providers could be paid for various services and procedures.
“We’ve got a mounting problem here, and we’re trying to be proactive,” said Peter Kuhnmuench, executive director of the Insurance Institute of Michigan, representing companies that write 73 percent of the state’s auto insurance policies. “We see huge emerging costs in our no-fault system. What we’re trying to do is implement some badly needed changes.”
Many motorists, particularly young drivers, likely will choose the lowest rate of coverage, opponents of the proposed change argue. When that coverage runs out, many will go on Medicaid or other publicly funded programs, sticking taxpayers with the bill.
A Public Sector Consultants study commissioned by the Michigan Brain Injury Provider Council estimated the change would cost the state’s Medicaid program $30 million in the first year alone to provide medical care that previously would have been paid by auto insurance.
Michigan motorists pay the 11th highest rate for auto insurance in the nation, Kuhnmuench has told the House Insurance Committee. In 2007, Michigan’s average annual rate was $907, about 15 percent higher than the national average, according to the Insurance Information Institute. But most of that difference is because Michigan drivers pay a higher than average rate for collision coverage, not for personal liability, the Public Sector Consultants study found. Liability coverage in Michigan costs only $23 a year more than the national average, the study found.
A RAND Corp. review of auto insurance in Michigan in 2010, however, stated that the fact "premiums are higher in Michigan than in other can be largely explained by higher levels of reimbursement provided to injury victims and their medical providers."
The Coalition for Auto Insurance Reform, which includes insurance trade groups and the state Chamber of Commerce, claims Michigan’s auto insurance rates will continue to climb unless the law is changed. Michigan is the only state that requires insurers to provide unlimited, lifetime coverage for auto accident injuries.
The next highest level of coverage is New York, which requires $50,000 of medical coverage, the coalition said. Minnesota requires $40,000, North Dakota $30,000, Florida and Kentucky$10,000, Massachusetts$8,000 and Pennsylvania$5,000, according to the coalition. Motorists who exceed those limits can try to collect from their health insurance, if they have it, or Medicaid. Otherwise, they must pay the additional amount themselves.
“In this case, different is better,” said David Seaman, executive vice president of the Michigan Health and Hospital Association. His association is one of several hospital, physician and patient advocacy groups that formed the Coalition Protecting Auto No-Fault to fight the proposed changes. The current no-fault law is the best in the nation, they say, and the proposed change would leave countless accident victims without adequate care.
According to the PSC report, very few PIP cases exceed $50,000 in costs. It refers to a previous study of 70,000 claims that identified only 1 in 200 such cases broke the $50,000 barrier. However, the average costs of those cases was $1.4 million.
“This is a solution in search of a problem,” Seaman said. “Our system works extremely well. This is not some grossly underfunded, unsustainable program.”
From adversarial to 'no-fault'
Before 1972, the year the Legislature enacted Michigan’s no-fault auto insurance law, those injured in auto accidents had to collect from the insurance of the driver who was at fault. Under that adversarial system, many claims were denied, forcing the injured to sue, often waiting years to collect.
State lawmakers took those cases out of the courts by implementing a no-fault system under which those injured in vehicle accidents were covered by their own insurance, regardless of who was at fault. Even those who choose not to have collision coverage for damage to their own cars must pay for personal injury protection. The law requires unlimited, lifetime benefits “for reasonably necessary products, services, and accommodations for an injured person’s care, recovery and rehabilitation.”
In 1978, the Legislature created the Michigan Catastrophic Claims Association, a private nonprofit whose board members are insurance company officials appointed by the state insurance commissioner, to protect auto insurance companies from losses resulting from the largest claims under the no-fault law. The MCCA charges each auto insurance company a fee -- currently $145 a year for each vehicle they insure. The insurance company adds that fee to its customers’ bills. When a claim exceeds a certain amount -- currently $500,000 -- the MCCA covers the additional sum.
|Selected years of surplus/(deficit) between MCCA's assets and liabilities: |
1978 -- $2.74 million
1987 -- ($281.3 million)
1997 -- $2.46 billion
2000 -- $754.1 million (last year of surplus)
2002 -- ($970.87 million)
2007 -- ($632.65 million)
2010 -- ($2.53 billion)
2011 -- ($1.03 billion)
In the late 1990s, the MCCA had a surplus of $2.5 billion – more than enough to cover catastrophic claims. At the urging of then-Gov. John Engler, the MCCA board in 1998 -- an election year -- refunded $180 per vehicle to Michigan motorists. The following year, again under pressure from Engler, the MCCA agreed to lower its surplus another $1.2 billion by reducing the amount motorists would pay into the fund over the next five years.
“Michigan residents have the best medical coverage in their auto policies of any state under our no-fault auto insurance law,” Engler said at the time. “Today’s action protects people by covering catastrophic injuries with a financially sound fund and returns money to insurance policy holders.”
Yet, the insurance industry and its supporters claim the MCCA soon will not be financially sound (Kuhnmuench says the gap between the MCCA's funds and its liabilities exceeds $1 billion) -- unless the Legislature changes the no-fault law.
MCCA fees reached an inflation-adjusted peak in 1993, as the $118.69 assessment then would equal $186.36 in 2011 dollars. In its first 25 years, the MCCA fee exceeded $100 only four times, but in the aftermath of the Engler-backed rebates, the fee has exceeded $100 on an annualized basis 10 of the last 13 times.
Michiganvoters twice -- in 1992 and 1994 -- rejected efforts by the Legislature to weaken the no-fault law. The second time was by a statewide referendum vote overturning a change that also would have eliminated the lifetime benefit.
Major changes on tap in Legislature
The current legislation changing no-fault includes a $50,000 appropriation. Under the provisions of a controversial 2001 Michigan Supreme Court decision, this amount nullifies voters' ability to call a referendum on the legislation, should it become law. Opponents say the appropriation was included in the bill to thwart the will of the people.
Traditionally, appropriations are included in separate bills, but this is the fourth time this year the Republican-controlled Legislature has included an appropriation in a bill in an apparent bid to make it referendum-proof.
Rep. Pete Lund, chairman of the House Insurance Committee, said he included the appropriation in House Bill 4936 to pay for a study on the law’s effect and to educate the public about the change. If the Legislature passes the bill into law and the voters want it overturned, they still can do so by an initiative petition drive, he said.
But under the state constitution, an initiative requires more petition signatures than a referendum: 8 percent of all votes cast for governor in the last election versus 5 percent for a referendum. That means opponents of changing the no-fault law would need to collect more than 258,000 valid signatures for an initiative, compared with 161,000 for a referendum.
“The people who are opposing this have a lot of money -- a lot of money,” Lund, a Republican from Shelby Township, said. “They could spend some of that money gathering signatures.”
The current no-fault law is “a great system,” Lund added, “but I have a great fear that it can’t stay the same. It could collapse. What we really want to do is save the system, not destroy it.”
Lund’s committee approved the bill Oct. 13. The full House could take further action on the bill as early as today. Gov. Rick Snyder has indicated he’s willing to discuss changing the no-fault law, but his press secretary did not respond to repeated phone messages seeking his position on the current bill.
Lund’s bill would allow drivers to select one of three levels of personal injury protection: $500,000, $1 million or $5 million. Drivers would still face an MCCA assessment based on the level of coverage they choose, plus, at least initially, an additional sum to cover costs MCCA carries for benefits in existing cases.
“When has choice become a bad thing?” Kuhnmuench, the Insurance Institute head, asked during a House Insurance Committee hearing. “Our current insurance mandate forces citizens to purchase a one-size-fits-all product that many do not need and many of whom cannot afford.”
Medical bills under no-fault average three times higher than those submitted under Michigan’s workers compensation system, Kuhnmuench said. That’s why the House bill would require doctors, hospitals and other medical care providers to accept the same rates for services under no-fault as those under workers compensation.
Hospitals rally against changes
“The workers compensation fee schedule is in no way designed to address traumatic injuries,” the kind sometimes suffered in auto accidents, said Laura Appel, vice president of the Michigan Health and Hospital Association.
The changes would cost hospitals tens of millions of dollars in uncompensated care, she said. Oakwood Hospital in Dearborn estimated it would lose $18 million a year if the workers compensation fee schedule is incorporated into the no-fault law, she said. The Detroit Medical Center estimated it would lose $24 million a year, she said, and Munson Medical Centerin Traverse City $8 million.
Kuhnmuench and other advocates of changing the law contend that for many injured motorists, health insurance coverage would take over when they reached the limit of their benefits under their auto insurance policies. But health insurance typically does not provide unlimited coverage, does not cover such services as home health care and limits the number of sessions it will cover for most kinds of therapy.
Anyone injured in a non-vehicle accident already faces those limits, Kuhnmuench noted.
“Someone who falls off the roof and breaks their neck is in that same situation,” he said.
Kuhnmuench acknowledged that there is no "guarantee" of lower auto premiums for consumers if the legislation is enacted, but said the limits on health providers would save insurers 10 percent to 12 percent -- savings that can be passed along to consumers.
As director of the traumatic brain injury program at Mary Free Bed Rehabilitation Hospital in Grand Rapids, Dr. Robert Kreitsch, sees many patients whose lives are forever changed by catastrophic injuries. Those whose injuries were not from auto accidents face a financial burden not shared by the patients whose bills are paid under no-fault, he said.
“I see disasters,” Kreitsch said. “I see families that break apart. They have to spend down their savings to qualify for Medicaid. I see couples who divorce to qualify. It’s an extreme burden.”
One of his patients is Hanges-Reynolds, who is grateful her auto insurance is paying for all the care she needs.
Before the accident, Hanges-Reynolds managed a hair salon, but no longer can work.
In addition to the acute care she received in the months following her accident, insurance is covering her physical, occupational, speech, recreational and psychological therapy. It pays for around-the-clock care-givers and a specially adapted van. She plans to have a new home built, and the insurance will cover the cost of making it barrier-free.
Without that much coverage via Michigan's no-fault and PIP system, “I probably would have been put on Medicaid,” she said. “I probably would end up in a nursing home or something of that sort. I wouldn’t be able to progress. I wouldn’t have been able to do a quarter of what I do now. My overall value of life would have gone down.”