May 21, 2019: Michigan inches toward no-fault deal, as Whitmer remarks add to optimism
May 16, 2019: Republicans and Whitmer move closer to no-fault auto insurance deal
Update: House Republicans pass Michigan no-fault reform with tweaks from Democrats
The Michigan Senate on Tuesday passed a Republican plan to reform no-fault car insurance policy by allowing drivers to opt out of unlimited medical benefits.
The bill would overhaul a decades-old system that has made Michigan’s auto insurance the most expensive in the nation by a long shot. Most notably, the bill would end the state’s distinction as being the only one in the nation to require unlimited personal protection coverage, known as PIP, which is the most expensive part of insurance policies.
“The goal is simply to provide consumers with options so they can choose how much they want to spend,” said Amber McCann, spokesperson for Senate Majority Leader Mike Shirkey.
The bill passed the full Senate 24-14 after earlier clearing a Senate committee by a 7-3 vote along party lines earlier Tuesday. But it faces murkier prospects in the House, and Gov. Gretchen Whitmer, a Democrat, is vowing a veto if the measure makes it to her desk.
Among other things, the bill would:
Allow drivers to choose between at least four tiers of PIP coverage: Unlimited; $250,000; $50,000 coverage plus $200,000 for emergency room or trauma treatment following crashes; or no coverage for those with health insurance.
Effectively eliminate the Michigan Catastrophic Claims Association, resulting in a savings of $180 beginning in July. (The program will continue to cover people who are currently in the system, but will not accept new patients 90 days after the law goes into effect.)
Create an Automobile Insurance Fraud Task Force inside the State Police that would investigate fraud by medical providers, attorneys, or others and report their findings annually to the Legislature.
Bill sponsor Sen. Aric Nesbitt, R-Lawton, said Tuesday he expects drivers who opt out of PIP could save 45 percent or more on premiums, while buyers of policies with $250,000 in medical coverage could save 15 percent.
Auto insurance prices will only continue to increase if legislators don’t take action, Nesbitt said.
“Drivers will be empowered, families will be empowered, seniors will be empowered to select the level of coverage they need and can afford,” Nesbitt said on the Senate floor
Sen. Aric Nesbitt discusses Michigan auto insurance reform bill
Though unlimited PIP coverage would legally still be an option, it’s unlikely that insurance companies will offer it because it would become too risky without the insuring MCCA body, McCann said.
Whitmer said the bill "creates more problems than it solves."
"It preserves a corrupt system where insurance companies are allowed to unfairly discriminate in setting rates and the only cuts it guarantees are to drivers’ coverage. I am only interested in signing a reform bill that is reasonable, fair and protects consumers and this is not it,” she said in a written statement.
Democrats contend the bill doesn’t include enough guaranteed savings because it does not require that insurance companies reduce their rates because of the changes.
"It’s disconcerting to me that there’s nothing in (this bill) that would guarantee rate reductions,” said Sen. Mallory McMorrow, D-Royal Oak.
Sen. Jeff Irwin, D-Ann Arbor, agreed, saying “there’s a tremendous amount of trust in this chamber of insurance companies” and most drivers “don't have the same brimming cup of trust of insurance companies.”
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Two of 16 Democrats, Sens. Adam Hollier and Sylvia Santana from Detroit, voted for the bill. Both are allies of Detroit Mayor Mike Duggan, who has long pushed for auto insurance reform.
The Democrats offered amendments to bar using gender as a factor in car rates and prohibit insurers from limiting coverage based on ZIP codes.
Hollier argued that the bill is not perfect, but “today we have an opportunity to make some difference.”
Nesbitt said the plan is similar to what is offered in other states with far lower rates.
“There’s going to be significant savings for our residents here in Michigan,” he said.
A Senate Fiscal Agency analysis of the legislation estimated the state would lose around $10-15 million in insurance premium tax and have to pay around $66 million more over ten years in Medicaid costs (about a 1.2 percent increase), depending on the availability of unlimited PIP coverage. The more available the coverage is, the lower Medicaid costs would be.
McCann said “there’s been a lot of back and forth” with the House over the package, and it’s not clear when they would take it up.
Just last week, Whitmer ordered the state insurance department to investigate the impact of non-driving factors on rates. Insurers often raise or lower rates for people depending on their credit scores, gender, marital status, and occupation.
But one of the biggest drivers is geography: insurers often charge double and triple for people in many parts of Detroit and its suburbs, in part, insurers say, because those areas have the highest claims for medical care under the unlimited PIP benefits.
In 2017, Detroit Mayor Mike Duggan was unsuccessful in getting the legislature to pass a multi-tiered insurance plan in an effort to lower rates in the city, which has some of the highest rates in the country.
In a statement, Duggan’s chief of staff, Alexis Wiley, called the legislation a “step forward” but called for guaranteed rate rollbacks and prohibitions on non-driving factors like credit scores when setting rates.
“We will be working with members of both parties to try and get those protections added when the bill is taken up in the House,” she said in the emailed statement.
The Michigan Chamber of Commerce cheered the reforms, which drew criticism from advocates for the current system who called it a "giveaway" to the insurance industry that doesn't address the role of non-driving factors in rate-setting.
In a statement, John Cornack, president of the Coalition Protecting Auto No-Fault, largely supported by medical providers, said the reform leaves Michigan residents without protections they’ve long held.
The statement did not explain how it helps auto insurers, who would generate far less in annual premiums – and also pay out less for care, the basis for premiums.
Cornack and others, including many Detroit legislators, have long touted the health care and lifetime benefits that pays full costs of recovery for those who are critically injured.
Yet it is those benefits that have pushed the state’s rates so high. The amount required to pay for personal injury protection (PIP) is half of insurance bills, a Bridge analysis has found, and far more than collision or theft costs.
For AAA customers, for instance, PIP accounts for nearly 90 percent of base premiums – no matter whether drivers live in Detroit or Kalkaska, according to company filings with the state.
Those unique benefits are the reason Michigan’s rates are, by far, the highest in the nation, said Eric Lupher, president of the Citizens Research Council of Michigan, a nonprofit that has offered non-partisan analysis of state issues, including auto insurance.
According to The Zebra, an insurance search engine, Michigan had the highest average rate ($2,693) last year, which is 15 percent higher than the second highest state, Louisiana, and $1,200 above the national average.
Michigan insurance law limits the ability of auto insurers to negotiate prices from health care providers and it is the only state to offer unlimited coverage, Lupher said. Other states with no-fault have hard caps on spending.
“It’s health-care that is escalating the cost,” said Lupher, whose group has not taken a position on the bill.