What the no-fault auto reform deal means for Michigan drivers

Gov. Gretchen Whitmer and Republican leaders agreed to a landmark deal Friday that dramatically changes the state’s no-fault auto insurance system by allowing drivers to choose their level of personal injury protection coverage, among other things.

The governor and Republicans say the plan, once signed into law, will bring much-needed financial relief to residents who pay the highest auto insurance rates in the country. Some Democrats were disappointed, saying it doesn’t go far enough to regulate insurance companies and will lead to significantly worse medical benefits.

Related: Bipartisan Michigan auto insurance deal reached between Whitmer, Republicans
Related: Gender and education won't factor into new Michigan auto insurance rates

Here’s what the new law would mean for Michigan drivers:

Five options for personal injury protection (PIP) coverage

Right now, drivers are required to purchase unlimited personal injury protection (PIP) coverage, which guarantees insurance companies will cover all of the medical costs associated with car accident injuries. That also means auto insurance companies pay regardless of who’s responsible for the accident.

Under the new plan, drivers can choose between five tiers of PIP coverage beginning July 1 2020:

• Unlimited PIP coverage (the same coverage as now)
• Insurance companies will cover up to $500,000
• Insurance companies will cover up to $250,000
• Insurance companies will cover up to $50,000 — the lowest-price option available to people on Medicaid, who cannot opt out entirely.
• Opt-out of PIP coverage entirely, if you have separate health insurance that covers collision injuries.

If a driver doesn’t have unlimited PIP coverage under the new system and gets in a car accident that’s not their fault, and medical costs exceed the amount of coverage they have purchased, they can sue the at-fault driver for charges beyond their coverage.

Cheaper rates for 8 years

Under the new plan, insurance companies are required to lower PIP coverage rates depending on the level of coverage purchased:

• Those who keep unlimited PIP coverage would receive a 10 percent roll back of PIP coverage costs on average.
• Those who choose the $500,000 get a 20 percent rollback on average.
• Those who choose the $250,000 plan, get a 35 percent rollback on average.
• Those who choose the $50,000 plan, get a 45 percent rollback on average.

Those rate rollbacks must say in place until July 1, 2028. After 8 years, insurance companies no longer will have to hit exact rate rollback targets, said Gideon D’Assandro, spokesman for Speaker of the House Lee Chatfield. But they’ll still be bound by new rules that require them to get rates approved by the state Department of Insurance and Financial Services before offering them to consumers, he added.

Democrats have argued that the cost of unlimited coverage may skyrocket the more people choose less comprehensive plans.

There’s also an escape hatch built into the plan: If an insurance company goes bankrupt offering the rate rollbacks, they can appeal to the Michigan Department of Insurance and Financial Services (DIFS), which could choose to allow the company to change their rates. D’Assandro said this is unlikely to mean a return to the original rate and would more likely be a negotiated mid-range rate.

People would also no longer have to pay the $220 fee to the Michigan Catastrophic Claims Association used to cover the lifetime claims of catastrophically injured people if they don’t choose unlimited coverage. However, everyone with car insurance would still have to pay a $43 annual fee to help pay down the MCCA’s debt.

Insurers may no longer set rates for several “non-driving” factors

The plan will bar insurance companies from setting auto insurance rates based on several “non-driving” factors: gender, marital status, home ownership, educational level, occupation, credit score or zip code.

At first blush, that would seem to put an end to the highest-in-the-nation rates people pay in Detroit and other areas that insurance companies consider to be higher-risk. However, the bill agreed to Friday still allows rates to be determined by “territory,” which could be considered areas as small as census tracts (which are roughly the size of a neighborhood).  

Insurance companies won’t be able to use a driver’s credit scores as a factor anymore, but that doesn’t bar them from using credit reports or “insurance scores” based in part on credit information.

Eric Lupher, president of the Citizens Research Council of Michigan, said it’s not clear how these changes will affect rates.

May 30, 2019: Whitmer urges business to back gas tax, Michigan Republicans still balking

“If you assume the insurance companies are setting the rates to cover all of their costs, reducing cost in one area might mean they can’t reduce it as much in other areas,” he said.

Rep. Sherry Gay-Dagnogo, D-Detroit, a harsh critic of the deal, said using geography in rate setting is “the true root cause of redlining.” Democrats have been committed to ending redlining, she said, and “I think for us to deviate from that today says something about our value statement.”

Your dollar may stretch further on medical care

Beginning July 1, 2021 (a year after tiered options would go into effect), health care providers will be required to keep charges for medical services up to 240 percent of what they charge Medicare for the same services through June 2022 (then up to 235 percent and up to 230 percent over the next two years), which bill supporters say will prevent hospitals from charging far more for the same services just because an insurance company is footing the bill.

D’Assandro and House Democratic caucus spokesperson Samantha Hart said the bill includes a requirement that those savings be passed on to consumers, which should mean lower prices at the hospital.  

Joshua Rivera, Senior Data and Policy Advisor at the University of Michigan’s Detroit Partnership on Economic Mobility, said the Medicare fee schedules are “an extremely promising part of the deal.”

“Medical fee schedules were a necessary part of reform. It was just a no-brainer,” he said. “Medical fee schedules can help control cost the same way they do in Medicare, the same way they do in workers (compensation.)”

More people will end up on Medicaid

Allowing people to eschew unlimited PIP means, of course, that some people will end up in catastrophic accidents without coverage that pays for their medical costs forever.

“To choose a lower plan and not have other protection involves some level of risk that you’re not going to get in an accident that will be severe, a budget buster that puts you into poverty,” said Lupher of the Citizens Research Council of Michigan.

Researchers at the nonpartisan House Fiscal Agency predicted in an analysis of an earlier version of the bill (that also offered multiple tiers of PIP coverage) that more people will end up on Medicaid under the plan.

Some people will get major injuries from car crashes and then be forced onto the aid program after their medical costs greatly exceed their coverage. The fiscal agency estimates this will cost the state around $58 million within 10 years for long-term care costs and $14 million within 10 years for acute injury costs.