Report: Consumer Choice Key to Michigan Auto Insurance Reform

Report: Consumer Choice Key to Michigan Auto Insurance Reform
February 21, 2013

With no-fault auto insurance premiums that are among the highest in the nation, Michigan lawmakers should act to grant consumers more choice and to control the sky-rocketing cost of medical claims, a new policy study from the R Street Institute finds.

The report from R Street Senior Fellow R. J. Lehmann comes on the heels of Gov. Rick Snyder’s recent call for reforms to Michigan’s “no-fault” system of personal injury protection auto insurance. Michigan has the highest average claim costs among states with no-fault insurance, with costs spiking 81 percent between 2004 and 2012.

Unique Requirement

Many of Michigan’s auto insurance problems can be traced to its unique requirement that all policies provide for uncapped medical benefits, the report argues. Although 11 other states require insurers to offer coverage on a no-fault basis, none has uncapped medical benefits. An April 2011 paper from Sharon Tennyson of Cornell University demonstrated Michigan drivers have paid more than $7.3 billion to support the MCCA’s operations over the past decade, a period when the state’s average claim costs increased nearly four times as fast as in other no-fault states.

The R Street study also found Michigan auto insurers uniformly paid more than either workers’ comp insurers or Medicare for 21 common medical services and procedures. In Detroit, auto insurers paid one-third or more than workers’ comp insurers, and 50 percent or more than Medicare, for 18 of the 21 services.

“The cost spiral of PIP claims in Michigan, already unsustainable, could soon be accelerated by such external factors as the state’s decision to strike its mandatory motorcycle helmet law and cost shifts associated with changes brought on by the Affordable Care Act,” Lehmann wrote. “In order to avoid increasing the deficits faced by, and the assessments charged by, the MCCA, the state should pursue reforms of its auto insurance system.”

Recommendations Made

Lehmann offered a set of three recommended reforms to Michigan’s system:

  • To take advantage of the stronger bargaining power of health insurers, auto insurers should be allowed to set as a policy default that health insurance will serve as the primary payor for auto accidents. Policyholders who opt for this arrangement would be eligible for significant premium discounts.
  • Lawmakers should consider publishing a medical fee schedule for auto insurance based on the state workers’ compensation fee schedule. Legislation that prescribes reimbursements to physicians, hospitals, and clinics that treat persons injured in automobile accidents could help control medical inflation.
  • The state should allow consumers to choose the level of medical benefits they wish to obtain through their auto insurance carrier, just as they can in the other 49 states and the District of Columbia. Those opting for less than unlimited benefits would pay lower premiums and reduce the MCCA's potential liabilities.

Source: R Street Institute

Internet Info

“Reforming Michigan’s Auto Insurance Market,” R. J. Lehman, R Street Institute: http://www.rstreet.org/wp-content/uploads/2013/01/RSTREET7.pdf