Legislature and Governor agree on major no-fault auto changes.
In a rare Friday session last week (5-24-2019), the state legislature passed Senate Bill 1, that will make landmark reforms to Michigan’s broken and unsustainable no-fault auto insurance system. Governor Whitmer is also supporting the reforms and has announced that she will sign Senate Bill 1.
The passage of Senate Bill 1 will substantially lower the high cost of auto insurance for small business, especially those that have multiple vehicles and large fleets.
NFIB has been working to fix Michigan’s costly auto insurance system for many years. A majority of NFIB members in Michigan (76 percent) supported the reforms that were included in the final bill that would allow customer choice for selecting Personal Injury Protection levels and implementing a medical fee schedule to control claim costs.
Before these reforms were passed, motorists in Michigan were required to purchase auto insurance that included unlimited lifetime medical coverage, referred to as PIP or Personal Injury Protection. No other state in the country has this requirement. The closest state to a mandatory medical requirement was New York, and even their medical benefits were capped at $50,000. The cost for this coverage was the primary culprit in the escalation of premiums for most drivers. Over time, trial attorneys and medical providers took advantage of the generous coverage requirements and padded claims with overcharges and assorted legal fees. In addition to the ballooning costs of the mandatory PIP coverage, a per vehicle assessment (the Michigan Catastrophic Claims Association or MCCA fee) is charged on all policies to fund the current and future costs of all claims more than $555,000. That fee will rise to $220.00 per insured vehicle effective July 1, 2019 to June 30, 2020.
New PIP Medical Coverage Choices and Savings for Motorists:
- No PIP – complete opt-out, 100% savings on PIP cost. Seniors on Medicare and drivers that have their own health insurance that covers injuries from traffic accidents (if total out of pocket costs for deductibles and co-pays are no more $6,000 per person) can choose this option.
- $50,000 PIP coverage, 45% savings on PIP cost. Drivers on Medicaid would have to purchase at least $50,000 in personal injury protection benefits and the $50,000 option would only be available to those on Medicaid.
- $250,000 PIP coverage, 65% savings on PIP cost.
- $500,000 PIP coverage, 20% savings on PIP cost.
- Unlimited PIP coverage, 10% savings on PIP cost. The unlimited option will still be available.
The new law will require insurance companies to implement the required rate savings on PIP (Personal Injury Protection) for at least eight years.
However, rate reductions will not be seen immediately as most of the changes in the legislation are phased in over several years. It is expected that rates will begin to reduce this time next year, or earlier if competition brings new insurance carriers into the state.
Drivers should see annual savings ranging from $120 to $1,200 based on an average premium of $2,400 per year with 50 percent of the premium attributed to the cost of personal injury protection.
Other reforms and changes in the legislation:
- Cost controls: The law limits family-provided attendant care to 56 hours per week and applies a fee schedule equal to worker’s compensation fees. Fee schedules on health care providers will be phased in over four years at 190 percent of Medicare scheduled fees.
- Rating restrictions: Insurance companies would no longer be allowed to use non-driving factors when calculating insurance premiums such as gender, marital status, ZIP code, credit score, home ownership, education levels and occupation. Insurers could still use some form of “territory” in setting rates to account for higher geographic costs.
- No more unlimited lifetime benefits for uninsured drivers: Drivers and passengers with no auto insurance coverage injured in a motor vehicle crash will have coverage capped at $250,000 (unless they lost their health insurance coverage within the last 30 days because they lost their job, in which case the limit is $2 million).
- Catastrophic Claims Fund Oversight: (The MCCA per vehicle assessment on all policies) The Department of Insurance and Financial Services director would retain an independent actuary to examine the Michigan Catastrophic Claims Association and determine if the MCCA assessment is supported by loss data and future claims projections. If not, refunds can be required.
- Attorney fee and litigation cost controls: No more fees for attorneys for treatments, products, services or rehab from clinics and providers that they own or control. Attorneys can no longer file a claims or liens for payment of a fee until the claim is authorized and overdue. Courts may award fees to an insurer against a claimant’s attorney if the attorney made the claim in violation of law or rules of professional conduct.
- Hospital and Medical Provider Cost Controls: Fees and charges must conform to “reasonable and customary” standards. Health care providers can be required to explain the necessity of treatment, products, services or other accommodations do not meet the usual standards for such conditions. Insurers determining treatments do not meet the reasonable and customary standards can appeal the costs to the Department of Insurance and Financial Services.
View or download NFIB’s letter to the legislature on no-fault auto reforms HERE.
View NFIB testimony in favor of no-fault auto reforms HERE. (NFIB testimony begins at the 00:36:58 minute mark).
