2020 OPEN ENROLLMENT ENDS (most states)

Time: D H M S

Michigan Republicans "lower" auto insurance premiums by...raising health insurance premiums.

For years, Michigan, the state which put America on the road, has held the dubious honor of having the highest auto insurance premiums in the nation:

Michigan is the most expensive state for car insurance for the sixth consecutive year.

The Wolverine State is in a league of its own when it comes to car insurance with an average annual premium that is $313 higher than that of Louisiana, which ranked second. A Michigan car insurance policy averages $2,611, which is almost 80 percent higher than the national average of $1,457.

Louisiana remained in second place for the third year in a row, while Florida secured third place. Oklahoma and Washington D.C. rounded out the top five.

In most cases, a high number of uninsured drivers combined with less than stellar weather and high population density led these states onto the most expensive states for car insurance list.

There's several reasons for this, but one stands out above all others:

The first thing Gusner pointed to was Michigan's no-fault law, which provides unlimited lifetime medical care for those involved in auto crashes.

Michiganders pay a $170-per-vehicle fee* to the Michigan Catastrophic Claims Association, which then reimburses auto insurers for auto crash-related medical costs that exceed $555,000.

"The no-fault is really the biggest reason, we find, year after year," Gusner said.

...Here's where Michigan gets into a cycle: it has high premiums, so some people can't afford insurance.

"The uninsured people, it's hard for them to get insurance because it costs so much. So they're risking driving around without it and hoping for the best," Gusner said.

If they drive without it (which is illegal) and get into an accident, all the people who do have insurance cover their injuries, driving rates up, Gusner said.

The idea of insurance, she said, is spreading risk among a pool. If the pool is smaller, the risk is spread among fewer people and everybody has to pay more.

*(Note: That fee is actually up to $192/vehicle today and is scheduled to increase again to $220/vehicle next year.)

Michigan is the only state to provide unlimited lifetime coverage for medical expenses resulting from auto crashes.

To put this in Affordable Care Act terms, Michigan is the only state which has the equivalent of No Annual/Lifetime Limits on medical claims coverage, which is something which people like about the ACA. Of course, like the ACA, that regulation also means higher average insurance premiums as a result...even more so, since I'm guessing that auto crash-related injuries are far more likely to result in long-term or lifelong medical problems (paralysis, closed head injuries, etc).

So what happened today? This did (via Jonathan Oosting of the Detroit News):

Michigan's Republican-led Senate on Tuesday unveiled and quickly approved a new no-fault auto insurance reform plan supporters say could significantly reduce rates that rank among the highest in the nation.

Note: "Quickly" is an understatement...the MI GOP introduced the 79-page bill just minutes before starting "debate" over the bill which no one had a chance to actually read. The final vote took place just 4 hours after the bill was sprung on everyone.

The proposal would end a long-standing requirement that Michigan auto insurance policies guarantee unlimited lifetime medical coverage for injured motorists. It would also mandate lower reimbursement rates for hospitals and other medical providers.

Welp. Kiss lifetime coverage for that brain injury goodbye, folks...and your quality of care presumably just dropped as well, since the better doctors and hospitals aren't gonna be too keen on treating you at a lower reimbursement rate. But hey, at least it guarantees lower premiums, right?

Most Democrats voted against the plan because it would not force insurers to pass along savings by cutting premiums or prohibit them from using non-driving factors such as ZIP codes to set rates, a practice critics contend contributes to sky-high rates in cities like Detroit.

Oh. Um...never mind.

Under the proposal, insurers could still offer policies with unlimited medical coverage, but they'd be unlikely to do so because the state would end liability for and eventually dissolve the reinsurance program that helps pay the most expensive claims.

Instead, drivers with private or public health insurance plans that cover vehicle accident injuries could choose to waive any personal injury protection in their auto plan.

Junk plans for everyone! (Literally...in many cases your car will be a pile of junk after the crash which caused the injury)

The plan will empower Michigan residents “to choose the level of coverage that fits their budget and their needs, instead of having the state dictate to them what level of coverage they are required to have,” he said.

(sigh) ONE MORE TIME FOR THOSE IN THE BACK: NO ONE KNOWS WHAT THEIR "NEEDS" ARE WHEN IT COMES TO MEDICAL INSURANCE. By the time you find out you "need" more coverage, it's too late, because you're already laid up in a hospital bed with a million-dollar bill breathing down your neck.

Nesbitt estimated that motorists with health insurance could save up to 46 percent by opting out of personal injury protection coverage on their auto policies. Motorists who choose auto policies with $250,000 in medical coverage could save at least 15 percent over unlimited plans, he said.

"Could" is doing an awful lot of work here. Nothing in the bill guarantees those savings or anything close to them. If those levels of savings don't show up in the actual premiums, they've give up those protections in return for absolutely nothing.

At the least, motorists would save an estimated $180 in annual Michigan Catastrophic Clams Association fee reductions. The fee, set to rise to $220 in July, would instead be reduced to roughly $40 when the reinsurance program is effectively closed to future claims, according to Senate Republicans.

OK, that's a decent savings, I agree (around $15/month)...except for one major flaw in the logic, which I'll get to in a moment...

But Democrats blasted the proposal for failing to mandate insurer rate reductions. Sen. Erika Geiss, D-Taylor, proposed an amendment that would have mandated they pass along a savings of at least 50 percent for motorists.

"Colleagues, I'm asking for you to show that you're not just for the bottom line of insurance companies, but also for the wallets and bank accounts of the vast majority of customers," Geiss said before Republicans rejected her amendment.

Of course they did.

OK, here's where the logical flaws start to pile up. First of all...

While the proposal could cut rates for motorists, it could also increase long-term Medicaid costs for the state. The non-partisan Senate Fiscal Agency projects that in a decade annual state Medicaid costs would be $65.9 million higher than they are now because of reduced medical coverage options in auto insurance policies.

Every time someone on Medicaid who doesn't have PIP coverage is injured in a car crash, guess who ends up paying for their medical expenses? Medicaid...the cost of which Michigan pays either 10% or 36%, depending on whether they're enrolled in traditional or ACA expanded Medicaid.

Second...

The plan could also cost the state up to $15 million a year in reduced revenue from an existing 1.25 percent insurance premium tax, according to the agency.

But there's a third problem as well, which is the one I referenced above:

  • Right now, every driver pays $192/year (set to increase to $220 next year) to fill the catastrophic claims fund, which covers claims once they hit $555,000 (set to increase to $580,000 this year).
  • If this bill becomes law, that fund will be sunsetted and eventually dissolved as remaining claims are paid.

Here's the math on the MCCA:

The MCCA's assets totaled $20.6 billion as of June 30 last year, while the fund calculated liabilities topping $23.5 billion, resulting in a $2.9 billion shortfall to pay for the long-term care of 18,000 catastrophically injured motorists, Clinton said.

But because many of those drivers injured in their younger years could live for 50, 60 or even 70 more years, the MCCA anticipates the cost of their long-term medical care at $70 billion, Clinton said.

...About 57 percent of the $1.2 billion spent annually covers some form of round-the-clock attendant care of critically injured or disabled motorists: Either in-home attendant care by a loved one or a nurse aide provided by an attendant care company or care inside a residential facility.

...Prescription drug costs are the second-highest cost for the MCCA's reimbursements to auto insurers, followed by hospitalization, doctors/specialists and rehabilitation services, according to Clinton.

The MCCA also pays claims from injured motorists that include lost wages from an accident and six-figure modifications to an injured driver's home to make it accessible for the rest of his or her life.

"If all of these particular categories raise their rates 10 percent tomorrow, we would have to raise our rates 10 percent — and then we'd have to raise our reserves 10 percent," Clinton said.

Of the 18,000 injured motorists relying on the MCCA, about 10 percent of them "at any time" are entangled in some form of ongoing litigation, said Joseph Erhardt, legal counsel for the MCCA.

So what happens to those over-$580K claims after the fund is dissolved?

Well, let's assume that there's no population growth, inflation or increase in the number of severe auto injuries going forward. In other words, let's assume that $1.2 billion stays about the same.

Let's further assume that the current 3.2 million registered automobiles Michigan stays around the same. If that $1.2 billion was spread out across all of them, it'd amount to around $375 per car or truck.

However, what happens if, say, 50% of current drivers decide to opt out of PIP altogether? Well, there'd still be at least $1.2 billion in catastrophic medical claims which would have to be paid for.

Some of that would be shifted to Medicaid (see above) and other medical insurance policies, raising their rates instead...but my guess is that a disproportionate amount (2/3, perhaps?) would be dumped on the other half who choose to keep full PIP coverage...assuming it's still offered at all.

If that happens, the 1.55 million car/truck owners who choose to keep full coverage would see their premiums increase to the tune of $775 apiece. Subtract the $180 in fee savings and they're still paying nearly $600 more than they are today.

This, of course, would lead to most of them dropping PIP coverage as well...which in turn means shifting their catastrophic injury costs over to the major medical insurance policies as well.

Overall, this would lead to everyone's health insurance premiums increasing by at least $120 apiece state-wide. Throw in inflation, medical trend and other factors, and my guess is that it'd be more along the lines of $180 or so apiece...wiping out all of the "guaranteed" savings from dissolving the MCCA in the first place.

There's a couple of bright spots in the legislation, I suppose:

GOP adopts amendment from Sen. Santana, D-Detroit, to prohibit insurers from considering the sex of a customer when determining auto insurance rates. https://t.co/Lw1kdjMB0V

— Jonathan Oosting (@jonathanoosting) May 7, 2019

Senate GOP also adopts amendment from Sen. Hollier, D-Detroit, to refuse to insure or limit coverage available because of location risks. Hollier described it as an attempt to discourage red-lining. https://t.co/7LNs3ZQiyC

— Jonathan Oosting (@jonathanoosting) May 7, 2019

Note: the amendment does not appear to address *cost* based on location, just availability of coverage https://t.co/4m1KiUK4BA

— Jonathan Oosting (@jonathanoosting) May 7, 2019

Sen. Bullock, D-Detroit, proposes amendment to tie-bar GOP auto insurance reform plan to separate bill that would ban insurers from using non-driving factors to set rates. GOP majority rejects 16-22. https://t.co/Wbk5WZSttl

— Jonathan Oosting (@jonathanoosting) May 7, 2019

Again, to put this in ACA terms: This is like locking in Guaranteed Issue but not locking in Community Rating. Insurance carriers have to sell you an auto insurance policy no matter where you live...but they can charge whatever the hell they want to based on pretty much any factor they want to (except your gender, now, I guess).

Live in the wrong zip code? Tough beans.

UPDATE: One other thing which has been rattling around in the back of my head: Even if everyone were to agree that it makes sense to shift the cost of auto-injury medical expenses away from car insurance over to health insurance...how many people's health insurance includes long-term support & services (LTSS), which appears to make up 57% of the costs involved?

Here's the thing: There is an argument to be made for shifting some (or all) auto crash-related medical expenses off of car insurance onto health insurance...I presume that's how the other 49 states handle it. However, the Michigan GOP doesn't appear to be acknowledging the tradeoff involved...they seem to be under the impression that elminating PIP coverage will cause that $1.2 billion/year ($67,000 per crash victim per year) to magically disappear.

It doesn't...it just gets shifted. From the data above, it sounds like 43% of it would be dumped onto people's private health insurance premiums, while the other 57% in LTSS expenses would be paid for by...who again? Medicaid would evidently cover a chunk of it for those enrolled in the program...but what about everyone else?

People who are on Social Security Disability Insurance for at least 24 months are eligible for Medicare, so I guess that covers another chunk of it...but again, that still leaves a lot of people out in the cold, and it still isn't eliminating the costs, just shifting them to taxes.