We all know that Michigan motorists pay a ton of money for their auto
insurance. Our no-fault system in Michigan is the most generous in the
nation. It has worked well for several decades (since the early
1970s). However, it’s falling apart under its own weight.
The primary culprit with regard to sky rocketing auto insurance rates
are the increasing costs associated with the first party benefits.
These benefits, sometimes referred to as the no-fault benefits or
economic benefits, include unlimited medical coverage (and the related
fee for service reimbursement to medical providers) and reimbursement
for lost wages, attendant care and replacement services. The insurance
industry estimates that twenty years ago first party benefits
accounted for approximately 20% of the premium cost. Today, first
party benefits have doubled to 40% of the premium cost. As medical
costs increase, the cost of auto insurance will increase. Essentially,
Michigan auto insurance companies have become health insurance
companies. Despite the fact that most drivers are already paying for
their own health insurance.
Recently, an unlikely coalition of legislators and special interest
groups including the Michigan Chamber of Commerce, Urban League, Small
Business Association and legislators Virgil Smith (a Democrat) and
Alan Sanborn (a Republican) introduced an effort to reduce auto
insurance rates. Their proposal involves a $50,000 cap on no-fault
benefits. This approach is often referred to as “PIP Choice”. The same
approach that was roundly rejected (by a 30 point margin) in the early
90’s in two state wide voter initiatives. For many reasons, the
specific approach is misguided.
However, an approach that might accomplish the same result – lower
auto insurance rates in Michigan – has support from many important
stakeholders in this debate. This approach seeks to adopt a fee
schedule for medical providers that is identical to the worker’s
compensation fee schedule – a system that already works. Importantly,
this reimbursement approach is more generous than private insurance
(including Blue Cross and all HMOs).
An approach involving fee schedules would accomplish everyone’s
objective – lower auto insurance rates – without cutting off (read -
shifting the responsibility to the state…read – forcing Michigan
taxpayers to pick up the tab) catastrophically injured auto accident
victims when they blow through the $50,000 cap.