The real state of no-fault auto insurance: Reform within reach for Michigan

May 24, 2019: Bipartisan Michigan auto insurance deal reached between Whitmer, GOP
May 14, 2019: Gov. Whitmer, Republicans see path to deal on Michigan auto insurance reform
Feb. 13: Eight ways Gov. Whitmer vows to improve Michigan in State of the State
Reaction: Republicans to Whitmer: Where’s the cash? Doubts on climate plan.​

Republican legislative leaders in Michigan again are taking aim at reforming the state’s no-fault auto insurance system, saying Michigan drivers across the state are demanding lower rates for car insurance.

Changes to no-fault — and its unlimited, lifetime medical benefits that are unique to Michigan — that can win a majority of votes in the Legislature have stymied lawmakers for years.

That could change this term, leaders of the Republican-led House and Senate say.

Senate Majority Leader Mike Shirkey, R-Clarklake, and House Speaker Lee Chatfield, R-Levering, both identified no-fault reform as a top priority. Some lawmakers taking the lead on the issue said they heard from constituents in the 2018 election cycle who are tired of paying high insurance rates.

Last week, a federal judge, during a hearing in a no-fault lawsuit brought by Detroit Mayor Mike Duggan, said the costs of Michigan’s system are “shameful” and called on state policymakers to do something about it.

Related: 5 places where Michigan’s governor and legislature can make deals

Despite mounting pressure, breaking the impasse will be difficult. Past efforts have failed to yield a compromise among powerful groups that lobby on behalf of the insurance industry, medical providers and trial attorneys — all of which have built businesses around Michigan’s no-fault system and are among the state’s largest campaign contributors.

“Some of the state’s biggest political players are heavily invested in this debate, and some of these political players give to lawmakers on both sides of the aisle,” said Craig Mauger, executive director of the Michigan Campaign Finance Network, which has followed the political money on no-fault.

Here’s a look at how the issue failed to gain traction in the past — and what could be different this time.

Why is Michigan no-fault auto insurance so costly?

Michigan drivers pay some of the highest auto insurance rates in the country. Detroit drivers pay the highest rates in the state, which has led many to either register cars in other cities, buy seven-day insurance policies that last long enough to register a vehicle with the state, or go without auto insurance altogether.

The most expensive piece of an auto insurance policy is personal injury protection, known as PIP. Personal injury coverage in Michigan is not only required, it is unlimited, meaning the cost of treating catastrophic injuries sustained in a crash is covered for life. Michigan does not offer any options for drivers interested in purchasing lesser PIP coverage in hopes of lowering their premiums.

As Bridge Magazine and Crain’s Detroit Business have reported, soaring medical costs in Michigan have been the major driver pushing premiums higher. Besides unlimited care, Michigan does not have a cap on what hospitals and health care providers may charge. The result: The cost per injury in Michigan is the highest in the country — and five times higher than the next closest state, New Jersey.

The nonpartisan Citizens Research Council of Michigan has studied medical costs in the no-fault system, and recommended a series of reforms that could address both costs and customers’ premiums.

Related: Bipartisan ex-legislators propose gas tax hike to fix Michigan roads

“The biggest sticking point, I think, is that it is a zero-sum game,” said Eric Lupher, the CRC president. “Because auto insurers are the primary provider of health insurance when there is an auto accident, they are an important player in the health care world. And to change the price structure means changing the revenue structure for hospitals and other health-care providers, and that has consequences.”

Additionally, auto insurers base rates on a variety of factors, including some unrelated to driving, such as the insured’s ZIP code, credit score, gender and age. There’s no standard requirement as to what factors insurers are required to use, and not all carriers use the same ones.

What has been tried before?

The political stalemate has resulted from disagreement over a number of factors, including how much medical providers should be able to charge for crash victims’ care, whether drivers should be given options about how much personal injury coverage to buy, and whether insurers should be allowed to use non-driving factors like ZIP codes and credit scores when setting rates.

Disagreements don’t fall neatly along partisan lines. More Republicans than Democrats have supported the idea of offering drivers choices in the amount of personal injury coverage they can buy, while many Democrats say ending geographic “redlining” practices used to set rates is a priority.

The state House and Senate each voted on no-fault reform legislation last term, but neither advanced to the governor’s desk. A long-shot bid to resurrect the debate fell short during the lame-duck session that ended in December.

Related: Bipartisan bills: New year, new chance for Michigan asset forfeiture reform
Related: Bipartisan bills: Will latest measure put an end to lame duck in Michigan?

In 2017, the Republican-controlled House voted 45-63 to reject a bill that would create tiers of personal injury coverage ranging from $250,000 to unlimited. Sponsored by then-state Rep. Lana Theis, R-Brighton, and backed by then-Republican House Speaker Tom Leonard and Detroit Mayor Mike Duggan, a Democrat, the bill also would have required auto insurers to reduce PIP premiums by set percentages ranging from 10 percent to 40 percent.

Four Democrats, all from Detroit, voted to support the bill. All other House Democrats voted against it, saying the legislation did not address elimination of the non-driving factors that they put forth in a separate plan, which did not get a hearing and had support from Democrats and Republicans. The separate plan also would have maintained unlimited personal injury coverage. They were joined in opposition to the Duggan-backed bill by nearly two dozen Republicans.

“No matter which changes you make in different places, ultimately it’s going to impact somewhere else,” said state Rep. Sherry Gay-Dagnogo, D-Detroit, who opposed the Duggan-backed bill, arguing it did not guarantee rate savings and would have shifted costs to other taxpayer-funded programs, such as Medicaid. She added that the goal of any reform should be to reach consensus on all sides, rather than taking whatever path can get to a 56-vote House majority.

“It was just an appearance of a savings,” she said. “If you give the appearance of a rate reduction, but (it) further places a burden on Medicaid, state taxpayers still are not getting a better deal.”

State senators last year voted to pass a package of bills that would have given seniors 65 and older the choice between a $50,000 personal injury coverage limit or the current unlimited option. The bills also would have created a fraud authority in the Michigan Attorney General’s office and limited the cost of in-home attendant care.

Other reform bills have been introduced in past years. In 2015, Duggan first proposed a plan, called “D-insurance,” to offer personal injury coverage tiers for Detroit drivers. Democratic lawmakers opposed the measure, saying it would offer weaker medical coverage and leave low-income Detroiters more vulnerable to financial harm should they be critically injured in a crash.

Last year, Duggan supported candidates for the state Legislature who supported the “driver’s choice” model he has favored, several of whom ultimately were elected.

In August, Duggan took the issue to court, suing Patrick McPharlin, former director of the Michigan Department of Insurance and Financial Services, to have Michigan’s no-fault system declared unconstitutional for failing to provide affordable insurance rates.

While Duggan has been involved in past legislative efforts, “his focus will be on the lawsuit,” spokesman John Roach told Bridge.

What do auto insurers want from policy reform?

Auto insurers are seeking fee schedules on what medical providers can charge for services, tiers of personal injury coverage options and a stronger effort to root out fraud in the system, said Tricia Kinley, executive director of the Insurance Alliance of Michigan, which represents property and casualty insurers in Michigan.

No other no-fault state offers unlimited medical coverage through their auto insurance policies. Those who say coverage tiers “are draconian ideas are really not looking at the fact that all other states have been able to make car insurance systems work” and at lower cost, Kinley said.

She said capping medical costs could include setting a fee schedule based on Medicare or workers compensation programs, though she added that the insurance alliance is not prescribing a specific cap to allow discussions about a compromise to unfold.

Related: Bipartisan bills: Michigan lawmakers take fresh aim at 'dark store' taxes

Kinley said the conversation about eliminating non-driving factors from the rate-setting process “is really a distraction” from the real factors driving up insurance rates — overcharging for and overuse of medical services.

Removing those rate-setting factors in an effort to lower premiums in cities like Detroit could have the inverse effect of causing premiums to rise elsewhere in the state, and even within regions, she said.

“Making arbitrary decisions to simply eliminate a certain rating factor just doesn’t make sense to us,” Kinley said, adding that factors such as ZIP code help insurers determine risk.

What do medical providers want from policy reform?

Hospitals want a closer look at how insurance rates are set, including the use of non-driving factors, and guaranteeing long-term savings for drivers while still preserving medical care for people who need it, said Chris Mitchell, executive vice president of advocacy and public affairs for the Michigan Health & Hospital Association.

A starting place for past proposals generally has been to offer choices of lower benefit levels, government-mandated fee schedules for medical providers and costs of attendant care, Mitchell said.

“There’s no looking at non-driving factors,” he said.

Mitchell said the hospital association has not taken specific stances this early in the debate and is open to discussion. He said supporters of past proposals with coverage tiers couldn’t outline what would happen to someone injured in a crash who chose to buy less personal injury coverage once those benefits were maxed out.

“From our members’ perspective, this sort of reform effort can’t be solely a hospital/provider solution to this larger complex problem,” he said. “This is a big problem and no one you will talk to will deny that. But the solution has been placed on the backs of health care and we have so many problems with that, and we will continue to encourage individuals to expand the debate to a larger subset of issues.”

Tom Constand, president and CEO of the Brain Injury Association of Michigan and board member of the Coalition Protecting Auto No-Fault, a group of medical and other groups that support preserving Michigan’s no-fault system, said the coalition has come around to the idea of a fee schedule on medical costs, though there has not been discussion about what the caps should be.

CPAN supported the Fair and Affordable No-Fault Reform bill package supported by a bipartisan group of lawmakers, including some Detroit Democrats, last term.

Constand said other ideas CPAN supports include having the Michigan Department of Insurance and Financial Services take a more active role in oversight of auto insurance rates, and bringing more transparency to the Michigan Catastrophic Claims Association, a private organization created in the no-fault statute that pays the cost of medical care beyond the first $555,000 and charges fees on drivers’ auto insurance policies.

What do trial attorneys want from policy reform?

The Michigan Association for Justice, formerly the Michigan Trial Lawyers Association, is a member of the Coalition Protecting Auto No-Fault and supports the coalition’s position on fee schedules, said Wayne Miller, chairman of the Michigan Association of Justice’s no-fault committee and an attorney with Miller & Tischler P.C., a Farmington Hills-based personal injury law firm.

Miller said the trial lawyers’ association also supports creating a fraud authority that covers all aspects of the no-fault system, including doctors, claimants and the insurance industry alike.

He said rather than offering choices to drivers about the maximum amount of personal injury benefits they could purchase, one option should be to allow drivers to choose to buy higher personal injury deductibles in an effort to reduce premiums. A bill to that effect was introduced last legislative term, but died in December.

Critics say Michigan lacks a robust system to detect and prevent abuses of the system.

What’s new this legislative term?

The first bill in the Senate this term doesn’t propose specific policy changes, but instead spells out the upper chamber’s intent when it comes to no-fault reform, centered around lower premiums, cost controls on medical services and rooting out fraud.

Specifically, Senate Bill 1, sponsored by Sen. Aric Nesbitt, R-Lawton, says the Legislature intends to control medical costs, allow seniors 63 and over to opt out of personal injury coverage when they already have health insurance coverage, allow drivers to choose different personal injury protection coverage and reduce fraud.

“We’re starting anew now. The bill that was submitted speaks to what our intent is, and now we’re sitting down and listening to what other people’s solutions are,” said Theis, now a state senator and the sponsor of the no-fault reform bill that failed in the House last term.

“I would like to see comprehensive (changes),” Theis said. “It depends on what we can get across the line.”

In the House, Chatfield, the new House speaker, created a special committee charged with coming up with reforms to the no-fault system, to be led by state Rep. Jason Wentworth, R-Clare.

Wentworth told Bridge the committee process will not start with a bill on the table, but rather will launch a discussion about how to lower car insurance rates that could lead to legislation. He said the process will be “solutions-oriented and factual,” adding that the committee will not be a place for finger-pointing or blame over past efforts.

In some parts of the state, people are choosing between buying car insurance and filling their gas tank, Wentworth said, adding that Michigan’s no-fault system is a government mandate that has been made unaffordable for too many people.

He said he wants to preserve unlimited coverage for people who have paid for it and need long-term medical care, while offering drivers the option of buying less personal injury coverage.

“The benefit’s great, but not everybody can afford a Cadillac,” Wentworth said. “How do we make it more affordable for those and still allow them to drive legally?”

Can no-fault reform pass this legislative term?

“I usually get laughed at when I say this, but I’m absolutely confident that this is the term” for auto insurance reform passage, Wentworth said, adding that divided government creates opportunity for bipartisan solutions.

Advocacy groups involved in the no-fault debate, however, appear less confident, though encouraged, by the early movement at the Capitol.

Kinley, of the auto insurers’ association, said the group’s members are “really pleased” to see GOP legislative leaders signal that no-fault reform is a policy priority this term.

“They did certainly make a political statement outside the gate like we haven’t seen before,” said Mitchell, of the Michigan Health & Hospital Association. “I’m not ready to couch how things will play out. It’s still just so very early. There are so many new lawmakers. There’s this new dynamic we haven’t dealt with in the past eight years, with a Democratic governor having to come to some sort of agreement with a Republican state Legislature.”

Said Constand, of the Coalition Protecting Auto No-Fault: “I don’t know if optimistic is the right word, but we’re encouraged (by) the talk about compromise on all sides.”

Gay-Dagnogo, who leads the Legislature’s Detroit caucus, said she is optimistic that if legislative leaders can build trust, “we can find a path forward in our respective parties to truly lead.”

“I’m hopeful that it will be thoughtful and intentional towards truly teasing out … the fault lines that exist in our system,” she said, “and ways that we can advance a package that would present compromise for all.”

One potential wrinkle: Duggan’s federal lawsuit, which challenges the current no-fault system as unconstitutional because, plaintiffs argue, it has failed to provide “fair and equitable rates.”

The suit asks the court to compel the Legislature to rewrite the no-fault law within six months or return to the tort system that predated no-fault, a process in which at-fault drivers, through their insurer, are responsible for covering damages and medical costs for other drivers involved in a crash.

Duggan has said the high cost of auto insurance in Detroit is a barrier to the city’s economic comeback, as low-income Detroiters often can’t afford to drive legally.

U.S. District Judge George Caram Steeh, in a court hearing in the case last week, said policymakers should “address what really is a shameful situation as it relates to the cost of our insurance coverage.”

Bridge staff writer Mike Wilkinson contributed to this report.