• Because Michigan’s no-fault auto insurance has failed to lower premium costs, drivers are paying the highest average costs in the nation.
• The Citizens Research Council published a paper in 2013 that identified several reforms capable of reigning in the medical costs that account for much of the price escalation
• Separate bills voted out of each chamber of the legislature focus heavily on the medical aspects of no-fault insurance and include reforms discussed in our paper.

Michigan drivers have complained for years about the high cost of car insurance statewide, and its ruinous cost in particular urban areas (primarily Detroit). And after years of half-measures and unmoving legislation, suddenly lawmakers have sent bills out of the House and Senate at a dizzying speed for an overhaul of such important legislation.

We identified many of the thorny issues in our 2013 report focusing primarily on the medical cost drivers of the auto no-fault law. The current legislative proposals embrace some of the reforms suggested in our work.

When Michigan transitioned from its tort-based auto insurance system to a no-fault system in 1972, it was hoped that the change would lower premium costs, allow for more equitable payment of claims, result in fewer fraudulent claims, and enable faster claims processing. We have achieved two of these – greater equity in claims payments and faster claims processing – but fraud remains an issue and certainly the Michigan law has not lowered premium costs.

With average premiums of $2,610, Michigan motorists are paying sharply higher premiums than the national average of $1,427 or the average of Great Lakes states at $1,375. Detroiters pay the highest average premiums in the nation at $5,414, almost $2,000 more than the second highest city: New Orleans at $3,433.

The main cause of higher premiums is the requirement that drivers purchase personal injury protection,  and the fact that the state does not cap medical benefits resulting from accident injuries.

This week the Senate and  House moved bills that address these underlying cost components through reforms identified in our 2013 research.

Unlimited medical benefits essentially requires everyone with insurance to get the “gold” plan regardless of their driving patterns, age, or aversion to risk. Drivers simply do not have a choice with regard to protection level provided in personal injury protection coverage. In effect, for many people the law required duplicative medical insurance, one in case of auto accidents and another for all other instances. We suggested doing more to tie the plans together. The bills aim to facilitate that.

We offered a number of alternatives to the mandatory personal injury protection (PIP). Michigan could abandon no fault and return to a tort system; provide options for tort or no fault coverage; or allow different levels of PIP including the possibility of moving away from unlimited benefits. No-fault insurance is associated with higher medical spending compared to all other types of auto insurance. The bills do not move the state closer to a tort system, but create a hybrid system. They would make PIP optional and allow customers to choose among several amounts of coverage. Unlimited benefits remain in the mix at this time.

For those who continue to buy personal injury protection through their auto insurance, both bills attempt to rein in the cost of insurance claims related to medical treatment following accidents. At issue is Section 3157 of the Insurance Code, a provision that allowing healthcare providers to “charge a reasonable amount” and limits the charges to the “amount the person or institution customarily charges for like products, services and accommodations in cases not involving insurance.” Modifying this section of the law is key to lowering the cost of claims.

In a 1996 court case, Munson Medical Center v Auto Club Insurance Association, it was decided that the amount a person or institution “customarily charges” means the standard amount a provider bills, regardless of whether the provider routinely accepts less than this amount. For most medical insurance, the amount paid is usually a lower amount due to negotiations between providers and insurers.

When a person receives medical treatment the provider submits a claim to the health insurance company with amounts that represent it’s cost for the care. The insurance companies are often able to negotiate a lower rate because of the volume of individuals covered and the number of transactions that insurer may have with the provider. The judicial interpretation of the Insurance Code prevents auto insurers from negotiating the lesser amounts. They are to pay the amount charged.

We identified several approaches to this cost driver. The Insurance Code could be amended to allow insurers to negotiate lesser amounts. Alternatively, legislation could adopt fee schedules for each type of injury claim and medical treatment, similar to those used for Medicare or workers’ compensation claims. The proposed legislation calls for workers’ compensation fees as the standard for auto-related claims.

Our paper identified ways in which claimants drive up costs by seeking additional treatment using coverage for such things as attendant care. The injured may seek additional care and it is in the financial interest of medical providers to deliver services, for which payment is assured. The insurance companies have little recourse; because the law requires them to pay all reasonable charges, they have limited ability to constrain service use, and more services are deemed necessary. These bills attempt to build in an effort initiated by the Snyder administration to uncover some of this fraud.

The bills and attempted amendments offer solutions to other aspects of auto insurance that were external to our paper. Rating factors remain a controversial aspect of the law with some pushing to include prohibitions on non-driving related factors.

The Citizens Research Council is often able to play an important role as a arbiter of facts, helping parties on all sides of public policy issues to agree on a common understanding of the issue. There remains a great deal of work to be done, but reform of Michigan’s no-fault auto insurance law is one of the major policy issues we’re hoping gets addressed in this legislative session.