A closer look at how auto insurance reform affected drivers

Auto insurance reform was desperately needed in Michigan because the one-size-fits-all approach that was created almost 50 years ago was too expensive, according to state Sen. Aric Nesbitt.

Nesbitt, R-Lawton, said that's why he sponsored legislation that was passed in 2019 to give drivers choices.

When Michigan legislators created the state's no-fault auto insurance law that went into effect in 1973, he said drivers were limited by what they could do. They were also required to have unlimited personal injury protection (PIP) coverage.

"Michigan has the most expensive auto insurance in the nation," he said. "... New Jersey was the last state to have unlimited lifetime benefits. That was in the early '90s and they changed that because it was becoming unaffordable to so many people."

Before 1973, Michigan was a tort state where at-fault drivers were responsible for paying the other driver's medical expenses, which led to many costly lawsuits.

In 1978, the Michigan Legislature created the Michigan Catastrophic Claims Association (MCCA), a private nonprofit entity that sets how much the PIP benefits will cost per vehicle, which is passed on to drivers through their auto insurance companies.

But the amount of money needed to cover catastrophic claims has ballooned over the years, with the amount assessed by MCCA going from $3 per vehicle in 1978 to a high of $220 per vehicle in 2019.

Nesbitt said the 2019 law allows drivers to choose not to have any PIP coverage at all if they have health insurance or to choose from four PIP coverage levels.

"Drivers could still pick the unlimited lifetime benefit, they could pick a $500,000 benefit, $250,000 benefit, $50,000 benefit, or they could opt out ... of PIP at all and rely on their health insurance or any long-term insurance like they do in other states," he said.

Drivers could start making those choices on July 1, 2020.

The rates assessed by MCCA for people who opted to continue to have unlimited PIP dropped to $100 per vehicle in 2020 and $86 per vehicle in 2021.

Insurers and health care

Another part of the 2019 law, which kicked in on July 1, 2021, required auto insurance companies to reimburse providers at 55 percent of what they were paying in 2019 for services not covered by Medicare, which includes most home health care. That rate drops to 54 percent this July and to 52.5 percent after July 1, 2023.

Nesbitt said something needed to be done to rein in health care costs.

"There was a massive overcharging for auto insurance accident victims and there was no choice within the system," he said. "... We stopped the price gouging that was going on. You could see, whether it's hospitals or other health care sectors or long-term care, where they were charging two to three to four times as much for different procedures or care ... for auto injury claims."

Nesbitt said the people injured before the new law went into effect will continue to receive care, but the fee schedule was put in place to control costs.

"There's a lot of tragic accidents that the system has covered with no questions asked for a long time," Nesbitt said. "And we need to continue to provide a quality of care to insure a quality of life that isn't overcharging the drivers here in the state. That's the goal and that's what I'm going to continue to monitor."

Sarah Rhein, assistant director of Private Duty Home Healthcare in St. Joseph, said her company charges the same rates for all patients, whether their bills are self paid or are paid through auto insurance, health insurance or some other kind of insurance.

She said the reduction in reimbursement from auto insurance has left many home health care agencies, including Private Duty, faced with continuing to serve their auto insurance clients at a loss or dropping them as patients.

Nesbitt said several bills have been introduced to amend the law, but they aren't on the fast track.

"People want to say, 'Let's give it some time. Let's make sure competition's entering before we change anything,'" he said.

State Rep. Brad Paquette, R-Niles, said his office has been helping several people who have been under the threat of losing their in-home care.

"We've been diligent in getting the director of the Department of Insurance and Financial Services onboard to spotlight some of those issues and have cleared it up with a lot of those individuals who are feeling scared that they're going to lose coverage," Paquette said.

He said his constituents can contact him if they are having a problem so he can better understand their circumstances.

"If necessary, we'll change the statute because we're definitely looking at making the law better," Paquette said.

In a March 2019 news release, MCCA estimated that more than 1,000 people insured in the state will "be catastrophically injured in auto accidents in the upcoming fiscal year."

From July 1, 1978, through Dec. 31, 2018, 40,715 claims had been reported, with more than $17.2 billion having been paid out.

Kevin Clinton, executive director of MCCA, was unavailable for comment to give updated statistics.

Some help

Nesbitt said individuals and providers who are having problems paying for care can call the Michigan Department of Insurance and Financial Services' toll-free hotline at 833-ASK-DIFS (833-275-3437).

"Insurers will have about 48 hours to respond if there's a lack of care that's going on," he said.

In addition, Nesbitt said state legislators created a fund last year to give financial support to health care providers who can show they are losing money taking care of people injured in motor vehicle accidents.

"We actually set up a $25 million fund to assist providers who can prove they are at risk of closure due to the new fee schedule," he said. "Turn over what your costs are. Turn over what's needed. ... It was created so we can collect some data on what's actually going on with these providers."

The last time he checked, Nesbitt said only one provider had applied to the fund.

Rhein said the process to apply to the fund is long, and the most health care providers can receive is a one-time payment of $500,000.

"In order to access that fund, you have to first file a complaint with DIFS and be denied," she said. "That's an extensive process that takes a couple months. And then, you have to file a utilization review appeal through DIFS and share full financials on your business and basically prove there is no possible way you can do what you did for less. And then you have to be denied for that. After you're denied for that, you can put together an application to this fund."

Rhein said she spent many unreimbursed administrative hours over three months last year on the first step and was denied.

"The process you have to go through even to apply could take up to six months," she said. "Meanwhile, you're just supposed to sustain a loss for six months on the hope that you can get paid out of the fund."

She said she's uncertain if she will continue to the next step.

"We're trying to operate during a pandemic," she said. "Most of the time, I'm not able to work on this because I'm trying to figure out whether I can send staff to work or whether I have to quarantine them and who can go where safely."