Consequences of eliminating mandatory no-fault auto insurance

Aug 29, 2011

The Michigan legislature is considering bills to end the state’s mandatory no-fault auto insurance.  Its supporters say it will give consumers more choices and help reduce cost of auto insurance.  Opponents say it’s a misguided effort that will have very little effect on insurance rates and could mean people who suffer injuries won’t get the help they need to fully recover. 

Kristin Howard was driving, taking an interstate to work on a summer day in 2006 when her life was changed forever.

“When I came up over the hill, the traffic was stopped there.  And I guess there was a car in front of me; I hit the brakes, swerved off the side of the road, missed the car in front of me and the front passenger side of my car hit the back driver's side of a stopped semi somewhere between 65 to 70 miles per hour.”

For days, it was not certain she would live.  She had extensive head injuries and she had brain injuries.  She was in a coma for a week, in the hospital for seven weeks.  Eventually she started physical therapy and then testing to see what kind of brain damage she might have experienced.

"Uhm, I didn’t realize how extensive it was going to be.  I had spelling tests, like  a third-grade spelling test .  I was given a list of several words, like some of them would be like four and five-letter words like ‘walk,’ or ‘store,’ or ‘shopping,’ or ‘pizza.’   I wasn’t able to--  like, a lot of times I’d have to come back the following day with the same words because I wasn’t able to spell them.”

It was a slow process, but just over five years later she’s doing well.  She’s about to finish her therapy.  She’s driving again.  She’s got a job.  She seems happy.

“I was able to re-learn how to live on my own again.  And without that support, I’d probably be sitting at my parents’ house on the couch watching television right now like I was for the first month because I wasn’t able to do anything.”

Kristin got therapeutic help that’s not generally covered by health insurance.  But it is covered under Michigan’s no-fault Personal Injury Protection.

The insurance, mandated by the state, is the only one of its kind in the nation.

The Michigan Office of Financial and Insurance Regulation explains if you are hurt in an auto accident, the Personal Injury Protection part of the no-fault policy will pay all of your medical costs.  It will also pay up to 85 percent of the income you would have earned if you had not been hurt for up to three years--  with some limits.

And if you need physical therapy or other kinds of therapy such as help with your speech or re-learning tasks or how to hold a job, you’ll get help as long as necessary.  It’s lifetime, unlimited coverage.

One person told me Michigan drivers might pay a little more for insurance, but it’s a great state to live in if you get mangled in a car accident.  You’ll get the help you need as long as you need it.

Now, legislation is being considered that would end that mandatory coverage.

Pete Kuhnmuench is the Executive Director of the Insurance Institute of Michigan, a trade group for the insurance industry.  He’s often praised Michigan’s no-fault insurance in the past, saying it’s “the best auto insurance coverage in the country.”

But, now he says there are some problems.

“It has been a wonderful product  for our citizens to this point, but we see an increasing long-term concern that we have.  And in addition we’ve been challenged within the legislative process because of the price of our product, particularly in the urban areas where it’s very expensive to deliver a no-fault policy.”

Kuhnmuench says auto-insurance buyers should not be forced to buy the coverage.  They should have a choice.

“What we’re trying to do is provide some cost constraints within the system and provide consumers with some options to kind of tailor their insurance to their personal needs.”

But, if people can opt out of the mandatory personal injury protection portion in favor of lesser coverage, then the pool for that coverage will be smaller.  And the cost of that coverage is likely to increase dramatically… and some people won’t be able to afford it.

Mike Dabbs is president of the Brain Injury Association of Michigan and with a group called the Coalition Protecting Auto No-Fault.  He suggests many people who are getting help through this mandatory personal injury protection coverage will find without it, they’ll have few options but to go on Medicaid.

“Choice on coverage, where people would be able to reduce the amount of coverage, they won’t be covered in the event of catastropic loss in which case then you and I as taxpayers are going to have to pay for them.”

Dabbs says Michigan’s auto no-fault is doing exactly what was intended since it was passed in 1973.

“This way what we’re able to do is to keep people off of Medicaid, actually get them better care, get them to return to work , in order for them to be taxpayers instead of tax users.”

Michigan Watch attempted to contact the sponsors of the bills to end mandatory no-fault.  But, both Senators, Joe Hune, a Republican, and Virgil Smith, a Democrat, declined to grant interviews.  Although, a staff member with Senator Smith’s office did say the goal was to lower insurance rates.  Senator Smith represents a part of Detroit, which has not only the highest insurance rates in the state, but the highest rates on average in the country.  But, Detroit’s high rates have as much to do with collision, vandalism, and theft coverage as with the mandatory personal injury protection coverage.

Steven Gursten is a partner with the law firm Michigan Auto Law and the current president of the Motor Vehicle Trial Lawyers Association.  He says if the Michigan legislature really wants to lower insurance rates in the state, there’s a smarter way to do it:  Limit the insurance companies’ profits.

“We have a system where the law requires us to buy insurance, but we don’t regulate the amount of profits that the companies can make for selling us this product that we are forced by law to buy. 

A few years ago an independent commission found Michigan insurance companies lead the nation in profits.

Gursten says if mandatory no-fault insurance with the current personal injury protection is made optional, people won’t think about the worst-case scenario.  They’ll just buy the cheapest  insurance.

Corey Barron is recovering from a brain injury he suffered in a car accident.  He says he never really thought that much about his car insurance.

“I did not have any idea what ‘no-fault’ was at all.  I mean, I had I no idea, but know I definitely know what that is, that’s for sure.”

He says that mandatory no-fault personal injury protection coverage has made a lot of difference in the kind of care he’s been able to get.

“I wouldn’t be sitting here today talking to you guys or going to school, or driving, or doing anything that I’m doing right now if it wasn’t for that because my family would have been broke, basically, and not being able to afford coming to get rehab or therapy that I needed.”

One of Corey’s therapists at WillowBrook Rehabilitation Services, J. C. Cormier, says most people don’t realize how important the no-fault coverge is until they need it. 

“With this change, there’s actually no--  there’s nothing to replace.  People are still going to have head injuries, there’s going to be the same rate of people involved in auto accidents.  This doesn’t replace that.  They’ll just get less care and less support and less help.”

A recent Michigan State Police report indicated data from 2009 showed traffic crashes caused 937 deaths and 70,000 injuries.  Many of the families of those who died got financial help for three years.  Those who had catastrophic injuries were covered completely for a lifetime if necessary because of Michigan’s no-fault personal injury protection.