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JC Reindl | Detroit Free Press

Detroit Free Press

The Republican-controlled state Legislature last week passed two similar bills that would overhaul Michigan's no-fault car insurance system.

Proponents contend the bills would significantly lower insurance premiums for motorists by giving them new choices.

But opponents, including most Democrats, say the bills are simply giveaways to insurance companies and would not only wreck the no-fault safety net for accident victims, but offer no guaranteed long-term savings on insurance rates.

2016 photo by Salwan Georges/Detroit Free Press

The bills must still be negotiated into a single bill that can garner support from both chambers.

Democratic Gov. Gretchen Whitmer has vowed to veto the bills in their current form.

What would the bills do?

Both the House and Senate bills would give Michigan motorists a first-ever choice in how much medical benefits they wish to buy with their auto insurance.

The existing no-fault system requires that all insurance plans have potentially unlimited lifetime medical benefits, known as personal injury protection or PIP. Michigan is the only state with such a mandate.

Many insurance experts point to the unlimited benefits requirement as the underlying reason why auto insurance rates are so high in Michigan, especially in Detroit.

Motorists in other states typically rely on private health insurance or Medicare or Medicaid to cover auto accident injuries.

Michigan's no-fault system offers extensive benefits with minimal deductibles as well as things that aren't commonly covered by health insurance, such as in-home attendant care, lost wages replacement, long-term physical therapy and vehicle or home accessibility modifications.

What are the differences between the 2 bills?

The Senate bill would give Michigan drivers four no-fault coverage options:

$0 in personal injury protection coverage (If a driver has health insurance).

$50,000 of personal injury protection coverage (plus $200,000 for immediate trauma care).

$250,000 of personal injury protection coverage.

Unlimited personal injury protection. (Insurers, however, would not be mandated to offer unlimited plans.)

The House bill would offer five no-fault coverage options:

$0 personal injury protection.

$50,000 of personal injury protection (plus $200,000 for immediate trauma care).

$250,000 of personal injury protection.

$500,000 of personal injury protection.

Unlimited personal injury protection. (Insurers would be mandated to offer it.)

Would the plans offer savings to the insured?

Motorists who opt for minimal or zero personal injury protection plans would likely see significant savings.

That is because personal injury protection is a significant portion — oftentimes the largest — of an insurance premium, particularly in high-cost areas such as Detroit.

The cost of those benefits goes beyond the annual Michigan Catastrophic Claims Association fee that covers individual medical claims exceeding $580,000. That fee is set to increase by $28 July 1 to $220 per vehicle.

To be sure, the Senate bill does not spell out any requirements for insurance companies to lower their prices.

That fact was seized on by Democrats, including state Sen. Mallory McMorrow of Royal Oak.

"It's so disconcerting that there is nothing that would guarantee rate reductions in this bill," McMorrow said last week.

Nevertheless, the Senate bill would still likely result in lower insurance premiums for drivers who choose plans with capped no-fault benefits.

The vibrant auto insurance markets in nearby, non-no-fault states such as Ohio that do not have Legislature-imposed price mandates, yet where drivers buy comparatively cheaper auto insurance, suggest that free market competition could compel insurance companies here to lower prices if a no-fault overhaul lowers their cost structure.

Insurance companies that refuse to lower prices would presumably lose business to insurers that do.

Are there mandates to lower costs in the bills?

In contrast to the Senate bill, the House bill has hard five-year mandates for insurance companies to lower their prices. Those reductions would range from 10% to 100% on just the personal injury protection portion of insurance plans, with the biggest savings tied to the lowest coverage levels.

Republicans estimated the savings as between $120 to $1,200 a year on average.

Democrats noted how those mandatory rate rollbacks would expire after five years.

However, competition among insurers would presumably keep insurance rates from then shooting back up.

What happens to the catastrophic claims fee?

Both bills would reduce no-fault's annual per vehicle fee for the Michigan Catastrophic Claims Association.

The Senate and House bills would cut the fee to roughly $40 for those who opt out of 100% no-fault coverage. The catastrophic fund would continue to provide care to accident victims who are currently receiving it.

Will non-driving factors still play a role in rates?

Neither bill outright bans insurance companies from using non-driving factors when pricing consumers’ premiums, including using versions of drivers’ credit scores.

The House legislation only prohibits insurers from using non-driving factors when "there is no rational correlation between the factor and insurance losses." That caveat would probably allow the practice to continue, as insurance companies contend that credit scores are proven, valid predictors for the likelihood of someone filing a claim.

The bills also wouldn't prohibit insurers from using ZIP codes when pricing insurance. That has been a hot topic for years in Detroit, a black-majority city with the country's highest auto insurance rates, and is often compared to past "redlining" practices by banks denying home mortgages.

Do the bills include any medical cost controls?

Critics have faulted Michigan’s no-fault system for often allowing high charges for medical procedures and services, including van transportation to medical appointments that can exceed $100 round-trip.

Both bills would introduce price controls for no-fault medical charges, known as a fee schedule.

The proposed system would be modeled on Michigan’s workers' compensation program, which pays doctors and medical providers 130% to 135% of what Medicare would pay for the same procedure or service.

That reimbursement limits profiteering and is enough for many medical providers to meet costs or see a modest profit.

Still, a fee schedule could put financial pressure on some hospitals and medical clinics, which can get higher reimbursement from no-fault insurance than private health insurance such as Blue Cross Blue Shield.

The Senate and House bills also would limit in-home attendant care to no more than 56 hours per week if the care is being provided by a relative.

Would Medicaid costs rise under the bills?

Both bills are projected to increase the state's Medicaid costs by an estimated $65.9 million over 10 years.

Those costs would rise because the Medicaid program requires that its beneficiaries' no-fault insurance be the primary payer of medical bills after an accident. So if people began opting out of full no-fault coverage, Medicaid would need to pick up more of their medical bills.

More people also would presumably be forced onto Medicaid after catastrophic accidents that leave them unable to work.

Even with a Medicaid spike, the total amount of auto accident-related health care spending in Michigan would likely go down under the bills. That is because Medicaid offers fewer benefits than no-fault and pays medical providers less for the services that it does cover.