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Major Auto Insurance Compromise Moves Through Legislature

May 28, 2019

Lawmakers voted to move Michigan away from being a full “no-fault” auto insurance state when both chambers overwhelmingly approved legislation that will allow some injured drivers to sue those at fault in car wrecks for high-dollar medical costs.

Gov. Gretchen Whitmer and 75% of legislative Democrats conceded to the sweeping changes designed to lower the state’s highest-in-country insurance costs. The bill mandates insurers lower their rates, provide customers choice on personal injury protection (PIP) and stop using certain non-driving factors when setting rates.

A reworked, 130-page version of SB 0001 will implement a hospital fee schedule that starts July 1, 2021, that will pay out at around 200% of the Medicare reimbursement rates. The exact percentage will be based the volume of Medicaid patients and car wreck victims they see.

In passing the bill 94-15 in the House and 33-4 in the Senate, Michigan’s new governor and Republican legislative leaders pounded out an agreement on major reform, while the threat of developer Dan Gilbert’s well-funded citizens’ initiative appeared to grease the wheels.

“We stood here in January and we vowed that we were not going to allow partisan politics to plague us getting work done and becoming the dysfunction that Washington has,” said House Speaker Lee Chatfield (R-Levering). “The fact is, this reform has eluded this chamber for over 30 years. Today, we came together and provided for over seven million drivers rate relief. This is the right solution at the right time.”

Whitmer called Friday’s “historic” vote proof that the leaders have “accomplished more in the last five months than in the last five years. This vote demonstrates that when both parties work together and build bridges, we can solve problems and make life better for the people of Michigan.”

While not a 100% victory for any of the interest groups, most legislators claimed the bill a victory for ratepayers, particularly those in Detroit who pay an average of $5,000 a year for auto insurance. 

Other differences between the compromise and the version passed by the House earlier this month include extending the rate rollbacks from five years to eight years and asking low-income residents and those with very high-deductible plans to purchase additional coverage.

The compromise also gives insurance companies an “off-ramp” to avoid the rollbacks when the administration allows. The new Fraud Authority has also been eliminated in the plan, meaning the one created by Gov. Rick Snyder in 2018 will continue.

For those Democratic no votes, the concerns revolve around skepticism that “big business” insurance will find a way to make their money while those who opt out of unlimited lifetime coverage and are catastrophically injured in a wreck will go broke.

“In the no-fault ‘compromise’ health care execs have wins and losses, insurance execs have wins & losses, trial lawyers have wins & losses. And they’ll all be just fine. But the most vulnerable — the catastrophically injured — only losses,” wrote Sen. Jeremy Moss (D-Southfield).

Others wanted more drastic reforms — like a cap on insurance company profits and the hiring of at least 14 more state actuaries within the state insurance commissioner’s office to make sure rates are fair.

“Detroiters are being sold out. Car insurance companies were supposed to get a haircut, but this bill is a massage to make sure all the special interests are held harmless,” said Rep. Isaac Robinson (D-Detroit).

But Detroit Mayor Mike Duggan called the “bipartisan auto insurance agreement” “outstanding.”

“It will cut rates for Michigan drivers significantly, and we congratulate Gov. Whitmer and the Republican and Democratic leadership for coming up with an excellent bipartisan deal.”

The bill allows for four different PIP coverage options, including the existing unlimited lifetime coverage currently mandated by law, a $500,000 limit, a $250,000 limit and a $50,000 limit for those on Medicaid. Seniors on Medicare and those with specific health insurance can opt out of having to buy PIP coverage all together.

The mandatory 8-year PIP rollbacks on the rates are connected to the level of coverage. Drivers with the unlimited lifetime coverage are mandated to see 10% savings on their PIP costs. The insured selecting the $500,000 coverage option will see 20% savings, $250,000 35% and $50,000 45%. Drivers who opt out altogether will no longer need to pay for PIP coverage.

The provider fee schedule will start July 1, 2021 and will be based on how many Medicaid patients the hospital or doctor sees. Those doctors whose patient base is less than 20 percent Medicaid patients will be initially reimbursed at 200% of Medicare, which will drop to 190% by July 2023. Those who see more Medicaid patients will be reimbursed at higher rates.

Gender, marital status, zip codes, credit scores, homeownership, education level and occupation will all be banned rating factors under the bill.

While the use of zip codes would be prohibited, insurers would still be able use territory as a rating factor. This is an important difference that is intended to limit price spikes occurring between adjacent zip codes, but not prohibit the overall use of territory by an insurer when establishing rates.

Insurers must file rates with the Department of Insurance and Financial Services (DIFS) and cannot use those rates until they have been approved or 90 days passes.

If DIFS disapproves, the insurer has 15 days to refile a rate in compliance with DIFS disapproval order. DIFS will be required to report to the Legislature outlining the impact of the reform and necessary changes to the fee schedule. 

SB 0001 will create a mini-tort system in which those not at fault in an accident can go after the person responsible if the damages are not covered by insurance. A consumer will be able to sue for allowable expenses and work loss.

Starting in 2022, the Michigan Catastrophic Claims Association (MCCA) will also be required to report to House and Senate committees on mortality assumptions, evaluations of the accuracy of the MCCA’s assumptions for the preceding three years, and a transparency statement. 

DIFS will conduct an actuarial audit of the MCCA every third year, beginning in 2022. If MCCA’s assets exceed 120% of its liability, DIFS will be able to order a refund through insurers to consumers.

In the House and Senate, all of the Democratic member-sponsored amendments were shot down. 

As part of a collection of clean-up amendments sponsored by Rep. Jason Wentworth (R-Clare), car insurance companies could no longer sell a policy without PIP coverage unless the customer proves it can use Medicare or their health policy to cover their car accident injuries. 

The Court of Appeals ruled last week that state law allows insurers to sell optional-only coverage, such as a policy without PIP, even if drivers are required to carry PIP to drive.

The Wentworth amendment also has the Insurance Commissioner taking an offending insurance company to the Court of Claims instead of Ingham County Circuit Court.

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