Could a good deal for Detroit drivers spell the end of Michigan no-fault?

If Mike Duggan wants to remove a major barrier keeping people from moving to Detroit, he may have to deal with an even bigger barrier - Michigan’s guaranteed lifetime benefits for catastrophic auto accident injury.

Several bills wending through the legislature attempt to alter a popular state benefit: no-fault auto insurance. Among those proposals, the one sparking the most chatter doesn’t even address no-fault insurance for most of the state. Duggan’s plan, called “D-Insurance,” would create first-ever coverage caps that could drastically lower rates in Detroit.

Gov. Rick Snyder and other Republicans have long sought to alter no-fault, and though they’ve been unsuccessful, they now have an unlikely ally in prominent Democrat Duggan, who is lobbying Democrats and Republicans alike to help him lower a barrier for the uninsured and would-be migrants to the city.

But though it’s targeted to help just those in the state’s largest city, some supporters and critics focus on its potential to trigger broader, statewide reform.

“It will be the beginning of the end of unlimited benefits and no fault insurance everywhere in the state,” warned Rep. Tim Greimel, D-Auburn Hills, House Democratic leader.

“I think some of the (pro-reform senators) do see it as the proverbial camel’s nose under the tent,” said Peter Kuhnmuench, executive director of the Insurance Institute of Michigan. As critics wind up their defense of no-fault and target D-Insurance’s establishment of caps -- $250,000 for critical care in the wake of an accident, and $25,000 for post-critical care – the city points to the potential benefits.

“The much more powerful narrative is who speaks for the 60 percent of Detroiters who have been criminalized for not being able to afford a product they are required to buy?” asked Melvin “Butch” Hollowell, Duggan’s top city attorney.

Mayor Duggan

High rates have ripple effect

No one argues that insurance rates are insanely high in Detroit, and that those rates trigger several problems: Many motorists get policies good for only seven days so they can get license plates, and then drive illegally without insurance. Many others choose to register their cars outside the city, a move that eliminates their ability to vote in the city and which invites a potential fraud claim.

“Detroiters are getting screwed by the high cost of insurance,” said Josh Hovey, spokesman for the Coalition to Protect Auto No Fault. CPAN would address those costs in other ways and says the quality of the D-Insurance is so low many victims would suffer from a lack of coverage.

Duggan wants motorists to have a choice to buy insurance with coverage caps, hoping it would result in savings of up to $2,300 a year for some drivers.

Hollowell said that the D-Insurance plan is getting overwhelming support in meetings across the city, where more than half drive without auto insurance, and the cost for those who meet the legal requirement can easily top $5,000 a year.

Those plans would differ vastly from plans elsewhere in the state: Michigan is unique in that it has lifetime unlimited “personal injury protection” benefits; D-Insurance would mimic those of the states with the next-highest caps.

Duggan’s Detroit auto insurance plan needs the approval of the Legislature and the Governor. But the proposal has run into advocates worried it will eventually lesson the lifetime care that accident victims get in other parts of Michigan. A diminution of no-fault in one place, they fear, could lead to lesser care everywhere. And making that point powerfully could be accident victims who would appear in pro-no-fault campaign commercials come election time.

“(Legislators) really do not want those commercials running in their districts,” said Susan J. Demas, publisher of Inside Michigan Politics.

Paying the price

In Michigan, motorists seem to love the high quality of their auto insurance, yet they also dislike its high cost, creating two competing narratives: Do we support long-term high-quality care for the catastrophically injured or do we want to lower some of the highest insurance rates in the country?

For years, the insurance industry has pushed Michigan legislators to reform the state’s one-of-a-kind no-fault insurance. But those efforts have been repeatedly beaten back by the health-care industry and trial attorneys, as well as the public on two occasions. Michigan voters in 1992 and 1994 rejected proposed changes to no-fault and recent attempts to lower caps have failed in the state legislature.

Currently, there are other proposals to lower rates before legislators, including Senate bills 248 and 313. They attempt to lower costs in other ways, including changing the format for catastrophic coverage and limiting how much health-care providers can charge auto insurers.

That set of bills, which passed the Senate and has passed a House committee and is awaiting a vote of the full House, mandates a decrease in auto insurance of $100 per vehicle for two years.

That’s a good deal for much of the state, but doesn’t make a dent in insurance costs in Detroit.

Many found it ironic when Duggan, a prominent Democrat, supported Senate Bill 288, which could slash auto insurance rates in the state’s
largest city.

“It was like Bizarre-O World watching the testimony in the Senate,” said one former state representative and insurance reform advocate who did not want his name used because of his current position.

After all, Duggan was once CEO of the Detroit Medical Center, whose association is one of the fiercest defenders of the unlimited coverage that Duggan was hoping to lower, at least for Detroit motorists. And his aide during his trip to Lansing was Hollowell, an attorney who once lobbied for the Coalition to Protect Auto No-Fault (CPAN).

Now, Duggan and Hollowell are calling for their own plan to reform no fault and lower rates for their constituents in Detroit.

So far, only the Senate Insurance Committee has backed the plan, voting to approve the measure with an amendment that might make it applicable to other Michigan cities. The amendment allows residents of any city where 35 percent or more of drivers are uninsured could get the cheaper, lower-benefit car insurance.

(Statewide, an estimated 21 percent of motorists don’t have insurance, a number totaling 1.1 million motorists and rising, according to the Insurance Research Council. That same council said it is unaware of accurate data on a city level that would allow state officials to determine which communities meet the 35 percent threshold.)

The bill would need to be approved by the full Senate and the House, and be signed into law by Snyder, to take effect.

Rep. Brian Banks, D-Detroit, applauds the efforts of the mayor but says the current proposal should be dead on arrival. He claims no Democrat is supporting the plan and many Republicans have reservations about insurance coverage that offers “watered down, second-class benefits.”

Banks said Duggan would be wise to spend his political capital on a more palatable plan “to make a fix across the state and help everybody. At this point there has to be a compromise.”

What’s driving auto insurance costs?

The math seems simple: In 2013, Detroit had nearly 12,000 motor vehicle thefts, 20 times more than the next closest city, Warren, the third largest city in the state.

So that’s why Detroiters pay so much in auto insurance, right?

No.

According to AAA, one of the largest insurers in the state, comprehensive coverage – which is optional – is three times higher in Detroit. But it’s still only a third the cost of the most expensive portion, personal injury protection (PIP), which is required and includes unlimited lifetime caps covering catastrophic injuries. PIP is the largest component of premiums, more than the cost of collision and comprehensive combined.

Those unlimited lifetime caps drive up the cost of PIP. (New Jersey has the second-highest cap at $250,000, though motorists can now choose lower coverage limits). In Michigan, someone injured in a crash can get up to three years of lost wages through PIP and lifetime care.

Adding to the cost, healthcare providers typically charge auto insurers far higher
fees – double or triple in some instances - than they charge private insurers and Medicaid
and Medicare for the same procedure.

Insurers pay the first $545,000 of coverage, after which the money is drawn from the Michigan Catastrophic Care Association, into which every policy pays a flat fee. It was $186 last year and went down to $150 on July 1.

That catastrophic care flat fee is only a minor portion of insurance bills in Detroit. As an actuarial study done for the city points out, Detroiters pay exorbitantly higher rates because of the high cost of medical care for people in accidents. Detroit motorists are twice as likely to file a medical claim and those claims are twice as expensive as those outside the city.

AAA’s own rate plans, submitted with the state, confirm the same (as do filings from Allstate). It applies “factors” to Census tracts based on claim experience. The higher the claims, the higher the premiums. (Caps on geographic rate differences were tossed in 1996, allowing insurers to charge motorists extra – or in some cases less – depending on where they live.)

The result: In many parts of Detroit, as well as a few Census tracts in Dearborn, Inkster, Warren and Eastpointe, personal injury insurance coverage costs double or even triple that of most of the state, regardless of credit, driving record, gender or age.

Political battle looms

Duggan wants D-Insurance to lessen that blow. And as a former health care official and powerful Democrat, he’s getting people’s attention.

“We welcome the mayor to the conversation,” said Heather Drake, AAA’s vice president for governmental affairs. AAA has supported PIP choice plans in the past and is encouraged by D-Insurance.

Greimel agrees with Duggan that auto insurance is too costly in Detroit. But to him and some other Democrats and Republicans, any statewide solution should avoid reducing benefits.

Greimel wants to create a fraud authority to attack bad claims, crack down on excessive and unnecessary health-care use, and prohibit redlining. He and others also want to look into the now-acceptable practice of letting insurers give discounts – or increase premiums – based on a motorist’s credit rating.

“House Democrats have long had deep concerns of any proposal that would allow insurers to drastically lower benefits without guarantees they would lower rates,” Greimel said.

Duggan is running into entrenched battle lines because of its potential, far-reaching implications. But he’s faced obstacles before. He had to run as a write-in candidate to get on the Detroit ballot in 2013, and won soundly. Then he became the city’s first white mayor since the 1974 in a city where the non-Hispanic white population is 8 percent.

Now, as Duggan attacks blight and create jobs, D-Insurance remains a priority. It’s seen as solving one of the quiet impediments to becoming a Detroiter. And since Duggan has made population growth his No. 1 metric for job performance, D-Insurance matters.

"It's at the top the list,'' Hollowell said.

And though Hollowell, Duggan and many others can diagnose the illness, not everyone agrees with the course of treatment suggested by D-Insurance.

State Sen. Coleman A. Young II, (D., Detroit) agrees that rates need to come down. But he likens the D-Insurance plan, and its hope of lowering rates, to going skydiving. What if, he says, someone told you just before jumping that there’s a chance your parachute may not work.

“Are you seriously going to jump out of that plane?” Young asked. “Most people would not.”

We’ll soon see.