Drastic Change To Michigan No-Fault Auto Insurance Would Reduce Annual Bill
May 07-- May 7--LANSING -- Even though the Michigan Senate passed significant changes to Michigan's highest-in-the-nation auto insurance system on Tuesday, the bill faces an uncertain future.
Gov. Gretchen Whitmer said the plan, which would end the system that requires drivers to pay for unlimited medical coverage that can be used if they're catastrophically injured in a crash, is a nonstarter and she promised a veto.
"Today's action by the Senate 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," she said in a statement. "I am only interested in signing a reform bill that is reasonable, fair and protects consumers and this is not it. If this bill comes to my desk, I will veto it."
The plan, which was approved by the Senate Insurance Committee on Tuesday morning on a party-line 7-3 vote, would let drivers forgo personal injury protection coverage, which has driven up auto insurance rates, as long as they had other health insurance that would cover medical costs.
The full Senate quickly followed suit, passing the bill on a 24-14 vote after approving amendments that would prohibit insurance companies from using gender or ZIP codes as factors to determine rates. Democratic Sens. Adam Hollier and Sylvia Santana, of Detroit, joined all the Republicans to support the bill and move it to the House of Representatives.
But the proposal faces a challenge in the House, too. The Senate version of the bill does not guarantee any rate relief other than the partial elimination of the annual fee that funds the Michigan Catastrophic Claims Association's mission of providing unlimited medical benefits beyond $500,000 for people severely injured in car crashes. The MCCA will be phased out under the Senate plan.
"The people of our state are demanding rate relief and we need to ensure that any reform that we pass delivers on that," said Speaker of the House Lee Chatfield, R-Levering, responding to a question about guaranteed rate reductions. "So all options are on the table."
Another element of no-fault auto insurance -- one that has allowed medical providers to charge different, much higher rates for services if auto insurance is paying the bill -- would end under the Senate's proposal. Health care providers would be required to use rates that are currently in effect for workers' compensation claims.
"This is providing choices for consumers and that's a very American thing to do,"said Sen. Aric Nesbitt, R-Lawton, who sponsored the bill. "We've had a one-size-fits-all system of mandatory coverage for 40 years. The savings in this plan will be long term and permanent."
A sticking point in the bill for Democrats is that there is no guaranteed reduction in auto insurance rates. The only estimated reduction that's guaranteed is the end of the Michigan Catastrophic Claims Association (MCCA), whose annual fee would be reduced from the current level of $192 per vehicle to an estimated $40.
"I was excited to take on this important issue and work together in bipartisan fashion. There was no intent to bring us into the conversation," said Sen. Mallory McMorrow, D-Royal Oak. "It's so disconcerting that there is nothing that would guarantee rate reductions in this bill."
And non-driving factors have to be included, McMorrow said, "particularly when we look at places like Detroit versus the rest of the state. We have to look at gender, ZIP codes, marital status, whether or not you have a college degree."
In order to attract some Democratic votes to the bill, the Legislature did agree to prohibit insurance companies from using gender and ZIP codes as factors in determining rates.
"We need to eliminate all the gender barriers, and take away the ability of insurance companies to use gender as a factor," said Santana.
Hollier offered the amendment on prohibiting the use of ZIP codes to determine rates, noting: "This is something that folks in Detroit have been pushing forever. There are a number of ZIP codes in the city where people can not get the same type of coverage that you could get otherwise."
He didn't think the plan was the best, but it was one he was going to support.
"Today, I had an opportunity to lower people's rates. Is it the best plan? No," said Hollier, who pays $7,500 a year for car insurance for a vehicle that's almost a decade old. "Although this is the first step, it better not be the last."
Nesbitt said that insurance companies have to justify their rates with the Department of Insurance and Financial Services (DIFS) and that rates would be reduced by a range of 15% to 80%, depending on the level of coverage.
"This system is failing the families of Michigan. Passing this bill will lower rates," he said.
But McMorrow said that current law hasn't resulted in DIFS requiring rate reduction from auto insurers as they've been increasing dramatically, costing some drivers -- especially in urban areas -- as much as $5,000 or more a year.
Other elements of the bill include:
-- A fraud unit within the Michigan State Police to investigate cases of fraud across the insurance industry and its customers;
-- Ending lawsuit abuse by tightening up rules against attorneys having conflicts of interest with medical care providers and ending the practice of agencies selling long-term care annuities to car crash victims
-- Increase oversight, but ultimately phase out the MCCA and stop accepting new patients 90 days after the bill takes effect.
The reduction in the annual fee will cover people who are still in the system until they no longer need the care, Nesbitt said.
"For those who have been covered for the last 45 years ... it will continue to be there," Nesbitt said. "But this would unravel the MCCA that has been with us for 40 years."
Drivers would be able to choose among four coverage options:
-- Insurance companies could, but wouldn't be required to offer a plan for unlimited benefits for personal injury care
-- $250,000 of personal injury protection coverage
-- $50,000 of personal injury protection coverage
-- A policy that contains no personal injury protection coverage if the driver has other insurance policies that would cover health care services
Some are concerned that the costs for providing care for severely injured people will fall to other health care plans, raising costs of health insurance coverage and increasing costs of Medicaid and Medicare for low-income drivers and senior citizens.
"This utterly fails to guarantee rate reduction and places a tremendous amount of trust in the insurance companies. My residents don't have the same brimming cup of trust for insurance companies," said Sen. Jeff Irwin, D-Ann Arbor. "But the reason I'm most opposed to this legislation, is that it this fails our neighbors who are catastrophically injured. Right now in Michigan, folks get attendant care. This bill is going to take that away and leave their families and Medicaid to care for them."
Similar legislation has been introduced in prior legislative sessions and has been heralded by the likes of Detroit Mayor Mike Duggan, who predicted at the NAACP's annual Fight for Freedom Fund dinner Sunday that significant changes will be in place by this time next year.
But each time, the competing interests of the insurance industry, medical providers and car crash victims has scuttled any changes to the no-fault insurance system.
This year is different from previous efforts, said Sen. Lana Theis, R-Brighton, because, "Our constituents have spoken. And then, they started asking and then they started demanding. For those of us who have been at the doors, we've heard it."
Sen. Kenneth Horn, R-Frankenmuth, added, "We'll always have an excuse to vote no. But we shouldn't be putting perfection ahead of the good. It's time that we started listening to the people of our districts."
But opponents were quick to criticize the bill as a giveaway to the insurance industry.
"Michigan residents are desperate for real relief from their auto insurance premiums," said John Cornack, president of the Coalition Protecting Auto No-Fault. "Instead, a group of senators are all too eager to strip away their protections and raise their taxes, while letting auto insurance companies continue to charge exorbitant rates with little to no oversight of their discriminatory practices. SB1 is a great deal if you're an auto insurance company CEO. It's a bad deal if you are anyone else."
Brian Peters, CEO of the Michigan Health & Hospital Association, said the Senate's bill was, "A shocking step backwards. Instead of holding insurers accountable for discriminatory rate setting and lowering rates, Senate Bill 1 limits coverage and asks drivers to simply trust the insurance companies. Accident victims lose, drivers lose and health care providers lose."
Whitmer ordered the Department of Insurance and Financial Services to study and report on both the use of non-driving factors in setting auto insurance premiums and the use of policies that coordinate auto insurance coverage with a driver's existing health insurance policies, which lowers the risk to auto insurers. She's hoping that such a report will contribute to finally changing the state's auto insurance policies.
Republican lawmakers have been holding committee hearings and working on a legislative plan to reduce auto insurance premiums for the last four months, with a goal of giving motorists options beyond the unlimited catastrophic medical coverage that drivers are now required to purchase.
The state House of Representatives also has been meeting for months to come up with no-fault auto reform.
"The Michigan House shares this priority, which is why our special committee has spent the past 15 weeks hearing testimony, taking public comment and meeting repeatedly with every group working on this issue to find a genuine solution that lowers car insurance rates for Michigan families," said state Rep. Jason Wentworth, R-Clare, chairman of the House Insurance Committee. "We are going to combine our findings with the Senate's plan and use the ideas we believe create the best way forward for all Michigan drivers."
Contact Kathleen Gray: 313-223-4430, [email protected] or on Twitter @michpoligal.
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