No-fault insurance changes could shift cost to taxpayers

Oct 3, 2011

Tomorrow (TUES.) the Michigan legislature holds the first hearings on bills that would change the state’s no-fault auto insurance.  Legislators say auto insurance is too high and they want to allow people to buy less coverage. 

Right now, people who buy car insurance in Michigan also have to purchase something called Personal Injury Protection.  But, Representative Pete Lund says drivers who don't want the coverage should by law be able to pay for something less.

“I think it’s good to give people the options in life.”

So, let's look a what Personal Injury Protection is.  If you are hurt badly in an auto accident –a spinal injury, bad burns, brain injuries- PIP will pay all of your medical costs.  If you need physical therapy or other kinds of therapy such as help with your speech or re-learning tasks or how to function on the job, you’ll get help as long as necessary.  It’s lifetime, unlimited coverage.   

But critics of the coverage mandate say it's driving up the cost of insurance.  Again, Pete Lund. 

“We're the only state in the country that has unlimited.  And, you know, that helps to drive the cost up.”

And Representative Lund says without the legislation the no-fault insurance system could fail. 

“You know, we got a real problem in the state too with uninsured motorists.”

The number of people who’ve illegally stopped buying the mandatory insurance has risen from about eleven percent to more than 19 percent. 

Representative Lund says if the price doesn’t go down, more people will stop buying it and rates for everyone else will go higher causing more to drop the coverage.

So Representative Lund and others say we should do as the insurance industry suggests, change the no-fault Personal Injury Protection.

There are four things you need to know about the proposed changes.

  • NUMBER ONE:

The way it is now, you are required to buy $500,000 worth of coverage and then if medical expenses exceed that, you’re covered for as long as necessary.  Again:  Unlimited, lifetime benefits. 

In the proposal you can opt for less coverage.

The lowest level would be  $250,000. 

When medical costs exceed that – and too often they do -  you would pay for the rest.  One study indicates somewhere between 75 percent and 90 percent of people would buy that cheapest option.

And, if you wanted better coverage, it would likely cost more because fewer people would be paying into the pool.

  • NUMBER TWO:

Critics of the current mandated coverage say even with everybody paying into the pool, the costs of Personal Injury Protection are skyrocketing. 

Pete Kuhnmuench is the Executive Director of the Insurance Institute of Michigan. That's  a trade group for the industry.  He says there need to be limits to what doctors and other health care providers can charge for care.  

“We have to have those types of reasonable restraints on the health care system. Otherwise we get what we’ve seen in a 2500% increase in that assessment over the last 12 years.”

The assessment Kuhnmeunch is talking about is the portion of your auto insurance bill that pays for catastrophic claims-  the worst, most expensive kind of accidents that we've been talking about.  

Now, the 2500% increase he mentions is correct.  But, it's a little misleading.  See, the annual rate rises and falls because the fund that pays for catastrophic coverage invests in the stock market.  So, yes, if you look back to 12 years ago, the rate went up from there 2500%.  But, if you go back just a little farther -say, 19 years-  the jump from then to now is less than 23 %!

  • NUMBER THREE:

So, how much would the average driver save, anyway?

 “Well, it depends.”

Pete Kuhnmuench with the Insurance Institute of Michigan:

 “You know, our actuarial study has demonstrated that the application of both  selective limits in addition to the fee schedule which is we believe critically important, that makes a heck of a difference, it can run anywhere from 15 percent to 40 percent reductions.”

Now, again, this is a bit of a numbers game. 

The high end Kuhnmuench mentions there , a 40 percent drop in you insurance premium, that's IF you opted for less Personal Injury Protection AND you drop collision coverage for your vehicle. 

But, you can already drop collision coverage if there’s no lien against your car. 

So, let’s look at the 15 percent you’d save just through Lower Personal Injury Protection coverage.  On average an auto owner could save $136 a year. 

That's about 11 bucks a month.  And, there’s no guarantee the insurance companies would actually pass that savings on to you. 

  • NUMBER FOUR:

So, you're saving $11 a month more, but you've also got less coverage if you get severely injured in a car wreck. 

Alex Rosaen says you might not be covered for some of your most basic needs by health insurance. 

Rosaen is with Anderson Economic Group.  He's the author of a study commissioned by a group fighting the legislation. 

"Your health insurance will cover medical procedures, visits to doctors and so forth, but a lot of what people need in order to improve their function, in order to just live their life involves things that are not covered by health insurance like residential care by skilled nurses or various therapies: speech therapy, occupational therapy, physical therapy.  And a lot of this isn’t covered.”

And most health care plans don’t pay 100 percent of the costs. That means people with long term, expensive health care needs will be stuck with huge medical bills.

The medical community says people are still going to be severely injured in car accidents and someone will have to pay.

David Finkbeiner is with the Michigan Health and Hospital Association.

“Families who have a severely injured loved one will have to turn to the court systems to try to sue to recover the cost of the expenses of taking care of that loved one.  Or ultimately individuals may find themselves spending their resources down to the point where they’re elegible for Medicaid to cover their costs.  And in that case, it becomes a cost-shift to taxpayers.”

Here's an example.  Diane Jackman’s son, Bradley, still needs help after an accident two decades ago.  She says the cost was more than any health insurance would have covered.  Her family would have gone bankrupt. 

“Why are the legislators trying to take people who are being covered, well covered, and given proper care now under the private insurance that they contract for, why are they trying to take them and put them into the Medicaid system that the state pays for and is already way overburdened?  It makes no sense to me other than somebody’s got a friend in the insurance company.”

“Will there be circumstances where there’s a lack of coverage?  Potentially, but it’s a very, very small number.”

That's the Insurance Institute's Pete Kuhnmuench again.

“And, I guess my theory is:  should we have our public policy driven by that literally one-ten-thousandths of a percent of circumstances that might happen or should we do it for the vast majority of our consumers who are, quite frankly, we think are paying more than they should because they’re duplicating coverages they already have.”

So, the backers of the legislation say it’s about fairness.  It’s about giving people the choice of different levels of coverage instead of paying higher rates that will benefit only a very small number of people. 

But, whether the mandatory insurance is fair depends on whether you’re one of the unlucky ones who actually needs the coverage… something many people don’t really think you’ll need… until it’s too late.