Michigan drivers face new $48 fee in 2023, no more $400 checks

The Michigan Catastrophic Claims Association this week released its latest annual report, showing how the statewide fund for medical expenses for the most severely injured auto accident victims swung from a $5 billion surplus in 2020-2021 to a deficit of $3.7 billion in the fiscal year ending June 30.

The deficit was the result of three main factors:

A court decision this summer that overturned some no-fault medical cost controls for crash victims (a projected loss of $3.7 billion).

Recent declines in the stock market ($2.8 billion loss).

The cost last spring of $400 per-vehicle refund checks, prompted by the earlier surplus ($3.1 billion loss).

To address the deficit, the MCCA said it is raising per-vehicle assessments on all Michigan auto insurance policies next year. The following assessments apply to policies starting July 1:

Drivers choosing unlimited, lifetime medical coverage — known as personal injury protection, or PIP — will be charged $122, up from $86.

Drivers choosing any other PIP option, including zero-dollar PIP, will be charged a $48 assessment for "deficit recoupment." Currently, drivers who choose an option besides unlimited pay no MCCA assessment or fees.

The new $122 assessment for unlimited no-fault coverage breaks down as a $74 "pure premium" plus the $48 deficit recoupment.

Even though the MCCA's benefits don't apply to drivers who opt out of PIP or choose a less-than-unlimited policy, under Michigan's no-fault law, they are still on the hook to help fix its deficits, according to MCCA Executive Director Kevin Clinton.

Prior to the recent overhaul of Michigan's no-fault auto insurance system, nearly all insured vehicles paid the full MCCA assessment.

The 2019 law change, designed to save drivers money, gave a first-ever choice in the amount of medical benefits in auto insurance policies. The last full MCCA assessment that everyone paid was $220 for the 2019-20 fiscal year.

"We are pleased to see that the assessment for anticipated new claims continues the downward trend we saw when Michigan's new auto insurance law was passed, but of course are disappointed that there is now a projected deficit for past claims resulting in a per-vehicle assessment for all drivers," Michigan's Department of Insurance and Financial Services said in a statement Friday.

Drivers across Michigan received $400 refund checks last spring for the now-vanished MCCA surplus.

Gov. Gretchen Whitmer, a Democrat, who signed the no-fault overhaul into law and is up for reelection next month, said earlier this year that "I called for these refunds because I am committed to lowering costs for Michiganders and putting money back in people's pockets."

The MCCA is a nonprofit corporation controlled by the insurance industry that manages the catastrophic care fund. Its board of directors determines the assessments, with assistance from an independent actuarial consulting firm and members of the MCCA's nine-person actuarial committee, who are credential actuaries, Clinton said.

The MCCA acts as a form of reinsurance that reimburses auto insurers once the size of an accident victim's medical bills exceeds a set threshold, currently $600,000.

There were 16,800 individuals in Michigan who had crossed the threshold and had open claims as of June 30, down from 17,542 a year earlier. The MCCA generally closes out claims when a person recovers, reaches a settlement or dies.

Former Red Wings star Vladimir Konstantinov, who suffered brain injuries in a 1997 limousine crash and requires round-the-clock supervision in his home, is one such individual with an open and active MCCA claim.

How much is in the fund

To be sure, MCCA is nowhere close to running out of money.

The new financial report shows the corporation with $21.8 billion in total assets, down from $27.2 billion a year earlier. So if the MCCA were to immediately liquidate all its stocks, bonds and other holdings, the nearly $22 billion is how much money there would be.

A deficit occurs when the MCCA's projected long-term liabilities exceed its assets.

A deficit, Clinton said in an email, "does not mean the MCCA is out of money. MCCA claim liabilities often exist for decades. This is similar to an underfunded pension plan."

Also similar to pension plans, the MCCA invests the money it collects in hopes of growing the pot of money. That strategy, of course, risks losses in years when financial markets are down.

New law was meant to address some medical costs

The previous $5 billion MCCA surplus was in large part a result of projected savings from new medical cost controls in Michigan's 2019 no-fault overhaul law that took effect in July 2021.

However, a Michigan Court of Appeals panel ruled 2-1 in August that it is unconstitutional for the cost controls to apply retroactively to crash victims whose accidents occurred before the 2019 change in the law. The ruling overturned a November 2020 decision in Ingham County Circuit Court, and is now being appealed to the Michigan Supreme Court.

The appeals court ruling was celebrated by medical providers and families of accident victims, who contend that the cost controls are too severe and make it difficult to hire in-home care aides.

Before the no-fault overhaul, Michigan was the only state with an auto insurance system offering unlimited, lifetime medical benefits without mandated cost controls. Some doctors and chiropractors would prescribe months or even years of questionable services to accident victims that drove up costs, and even legitimate services were expensive because of billing markups.

The cost controls are still in effect for accident injuries that occurred after June 11, 2019.

The controls generally limit medical providers' reimbursements to a maximum 200% of Medicare rates. By comparison, the average commercial insurance reimbursement to Michigan hospitals in 2020 was 203% of Medicare rates, according to a study by the government-funded Rand Corp.

Another set of cost controls applies to certain post-acute services that are used by the most severely injured victims whose bills are paid by the MCCA, such as in-home attendant care and specialized long-term rehab stays. These services have no equivalent Medicare billing code, and therefore were subject to 45% cuts under the no-fault law from whatever price the provider charged in 2019.

Impact of new price controls

Those cuts have led to some medical providers with higher-cost business models closing, and some in-home care services dropping or threatening to drop patients.

The MCCA fee was never the entire cost of medical benefits in Michigan's no-fault system because only a small fraction of accident claims reach the $600,000 threshold to become a catastrophic claim and get reimbursed from the multibillion-dollar asset pool. Most claims are under the threshold and paid by auto insurance companies themselves.

Contact JC Reindl: 313-378-5460 or [email protected]. Follow him on Twitter @jcreindl.