Michigan’s new deal on auto insurance premiums: 10 things to know

May 25-- May 25--A deal to fundamentally change Michigan's no fault auto insurance system passed the Michigan House of Representatives and Senate on Friday and Gov. Gretchen Whitmer said she will sign the legislation, calling it a "truly historic" plan that will provide rate relief for all of the state's drivers.

The reform has been 46 years in the making since the state adopted no-fault auto insurance in 1973 in an attempt to put the brakes on runaway lawsuits that were being filed by people involved in car crashes and clogging court dockets throughout the state.

Instead of bringing down the cost of auto insurance, Michigan has ended up with the highest rates in the nation, primarily because of the unlimited lifetime medical benefits included in no-fault for people critically injured in car crashes. The Legislature has repeatedly tried to change the system over the years, but special interests -- primarily the insurance companies, health care providers and trial lawyers -- have always been at odds and successful in stopping any change.

That changed Friday, when wide bipartisan majorities in both the House and Senate voted for the deal, which is expected to save drivers between 10% and 100% on a portion of their insurance bill. Here are details:

How much will my rates go down?

It will depend on what level of coverage you choose. Drivers will have five options for personal injury protection coverage that carry savings on that portion of the insurance bill from 10% for people who want to continue unlimited lifetime benefits to 100% for senior citizens and drivers with qualifying health care benefits, such as Medicare or private insurance, who totally opt out of PIP coverage. The PIP portion is roughly 40% to 50% of an insurance bill.

Savings for other levels of PIP coverage, ranging from $50,000 to $500,000, will be from 20% to 45%.

How long will the savings last?

The rate reductions in PIP coverage begin in July 2020 and would be guaranteed for eight years.

Will there be any other savings?

Additional savings will come in the annual Michigan Catastrophic Claims Association fee paid by all drivers that has funded unlimited benefits for people severely injured in a car crash. That fee was scheduled to go up to $220 in July, but for people who choose other levels or totally opt out of PIP coverage, the fee would drop to $43 per year.

What if I keep unlimited benefits?

The fee would likely go up for those who choose to remain at the unlimited medical benefit level because there will be fewer people in the pool to cover the risk.

What if I have Medicaid insurance?

Medicaid recipients would have to purchase at least the lowest level of PIP coverage, which would cover $50,000 in medical expenses, and would receive a 45% reduction in the PIP portion of their insurance.

Can insurance companies still use non-driving factors to set my rates?

Not entirely. The bill specifically bans insurance companies from using sex, marital status, ZIP codes, credit scores, home ownership, education level and occupation as factors in setting rates.

Insurance companies, however, could set rates based on "territories" of the state. What "territories" means has not been defined yet, but it could be as small as a Census tract or as large as a region such as southeast Michigan. Both could be determined as an area of the state where there are more accidents and car thefts that would cause insurance companies to boost rates in that territory. Insurance companies also could still use age as a factor when determining rates.

The state Department of Insurance and Financial Services would have the authority to weigh in on those territorial rates. And insurance companies would have to justify rate increase requests with the agency before the new rates could be used.

How does the deal handle the cost of medical services?

The ability for medical providers to charge much higher rates for services provided to people when auto insurance is paying the bill has been cited as one of the reasons the cost of auto insurance is so high in Michigan.

The bill will still allow medical providers to charge higher prices for treatment of car crash victims. But, phased in over three years, the health care providers will only be able to charge 200% to 240% of what they reimburse Medicare for the same treatment.

Hospitals with a high percentage of treating indigent patients could go up to 250% of Medicare reimbursement rates.

What about reimbursement rates for home care?

For people still receiving unlimited medical benefits, the home attendant care would be limited to 56 hours per week for family members.

Who doesn't like this bill?

Some Democratic members of the House of Representatives, who feel Detroit drivers who still pay far more for their insurance than other Michiganders because of territorial rates for an inferior level of coverage. There would be no guarantees that the rest of the insurance bill, outside of PIP coverage, wouldn't go up.

Trial lawyers say the rate reductions aren't enough to make insurance affordable for low-income drivers.

Insurance companies don't like the provisions that prohibit them from using non-driving factors to boost rates.

What's next?

A ballot initiative committee backed by billionaire businessman Dan Gilbert, which filed its paperwork on an auto insurance reform petition drive this week, is expected to die once the legislation is signed.

Contact Kathleen Gray: 313-223-4430, [email protected] or on Twitter @michpoligal.

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