An attempt to rein in one of the nation's most expensive systems
Legislation to reform Michigan’s one-of-a-kind no-fault auto insurance system initially moved quickly in the Legislature, but the bills are now in “pause” mode. The legislation, Senate Bills 248 and 249, would replace the current Michigan Catastrophic Claims Association with a new entity to perform the same reinsurance function, institute certain cost controls on the unlimited medical expense claims the law permits, and create an authority to combat auto insurance fraud.
“This is an opportunity for us to preserve the best auto insurance system in the country,” said Rep. Tom Leonard, R-Dewitt, the chairman of the House Insurance Committee. “To do that we need to make changes that contain costs. Under the system as it is now insurance companies are paying three or four times what commercial health care providers pay for the same procedures. For instance, commercial health providers pay about $600 or $700 for MRI scans while auto insurance companies are having to pay about $2,500 to $3,000.”
Michigan’s auto insurance system is unique among the 50 states because it combines both no-fault and unlimited injury coverage. Having unlimited coverage of injuries suffered in traffic accidents exposes the system to the sort of excessive rates to which Rep. Leonard was referring. This is one of the factors making Michigan’s auto insurance system among the most expensive in the nation.
According to Jack McHugh, senior legislative analyst with Mackinac Center for Public Policy, there is really no way to fully rein in the costs of no-fault insurance as long as "unlimited" medical coverage is part of the deal, but the reform bills could provide some improvements.
“Politically, there’s a tension between the popularity of unlimited medical expense coverage for people injured in crashes and awareness that we sure do pay a lot for insurance in this state,” McHugh said. “Insurers say they need cost controls, a view supported by accounts of ‘creative’ approaches used to capture a piece of the lifetime benefits that flow to a person permanently disabled in a crash. A proposed copay on personal care expenses may be one way to unwind some perverse incentives and moderate price controls on other medical charges have obvious cost-containing effects.”
On April 16, the Senate bills, which are sponsored by Sen. Joe Hune, R-Hamburg, squeaked out of the Senate on votes of 21-17. When they arrived in the House Insurance Committee it appeared their progress would be slowed in an effort to win bipartisan support. At roughly the same time, Michigan hospitals publicly offered to cut 20 percent of what they charge for medical services to the catastrophically injured in an attempt to bring about a compromise. However, the details of this potential compromise apparently couldn’t be worked out.
Only days later, on April 23, the bills were amended and reported out of the committee on 9-6 votes despite opposition from all of the committee Democrats. That signaled that efforts to gain bipartisan support had apparently ended.
The House Insurance Committee adopted amendments proposed by Rep. Tom Barrett, R-Potterville. They included imposing a $100 per-vehicle rate rollback on insurers for two years and a new fee schedule that sets the reimbursement rate for medical care provided to those catastrophically injured in auto crashes at 150 percent of the Medicare reimbursement rate.
“Considering that 150 percent of the Medicare reimbursement rate is usually higher than what commercial health care providers pay, I’d ask those who say it is not enough if that means people who come into a medical facility with a Blue Cross card are receiving inadequate care,” Leonard said.
Among the principle opponents of the reforms are the state’s hospitals and auto accident attorneys. The hospitals have mounted an aggressive campaign against the bills. They argue that the legislation would provide a $550-million windfall for insurance companies and cost Michigan's network of hospitals and health systems at least $1.2 billion a year.
The House Democratic Caucus is now officially opposing the bills. Meanwhile, there aren’t enough House Republicans supporting the measures to get them passed — a situation House Republican leadership is trying to change.
The Mackinac Center has published a study on this topic in the past.