UPDATE x2: Michigan: Here's the details on the PIP auto insurance "agreement in concept"

UPDATED with my personal initial thoughts (see below):

A few weeks ago I noted that Michigan Republicans were pushing hard for new Democratic Governor Gretchen Whitmer to basically eliminate Michigan's unique unlimited catastrophic care requirement for no-fault auto insurance, which is the main reason our state has the highest auto insurance premiums in the country.

Whitmer and legislative Democrats don't want people to be stuck with massive auto injury medical claims, of course, and they also wanted a guarantee of significant rate reductions as well as the elimination of "redlining" (basing rates on zip codes) and other discriminatory auto insurance pricing practices, like basing premiums on credit ratings, gender and the like.

Well, this morning there was a Big Announcement about a bipartisan deal between Whitmer and the legislative GOP:

Democratic Gov. Gretchen Whitmer and Republican legislative leaders have reached an “agreement in concept” to reform Michigan's no-fault auto insurance system and drive down rates that routinely rank among the highest in the country, they confirmed Friday morning ahead of a planned vote.

The proposal would mandate insurer rate reductions for eight years and end Michigan's unique requirement that motorists purchase auto policies guaranteeing unlimited lifetime medical benefits in the event of a catastrophic crash. Instead, drivers could purchase plans with reduced coverage levels or opt out of personal injury protection all together if they have qualifying health insurance.

House Republicans predict the plan could save a driver now paying $2,400 a year on insurance between $120 and $1,200 annually, depending on the level of medical coverage they select.

Whitmer said in a statement the deal will “lower costs and protect coverage for Michigan drivers." She plans to sign it into law if approved by the Legislature and was working to sell the deal to reluctant Democrats who had voted against earlier GOP proposals.

The GOP is happy with the deal, and it sounds like Whitmer is at least satisfied. On the Democratic side of the aisle, it sounds like the state Senate Dems are...well, not thrilled. And a lot of the House Dems are...well, "not happy" is putting it mildly.

Here's the details (via anonymous source), with my own initial thoughts:

PIP Benefit Coverage Levels

  • Unlimited
  • $500,0000
  • $250,000
  • $50,000 for individuals on Medicaid only
  • Opt-Out for qualified persons with qualified health coverage. Qualified health coverage means:
    • Medicare Parts A & B
  • Enhanced Coordination
    • Allow for an applicant or named insured who has selected the $250,000 PIP benefit coverage to reduce his/her PIP benefits premium by 100 percent if the named insured, his/her spouse, and all relatives domiciled in the same household have health coverage that will cover injuries related to an auto accident.
      • If a member, but not all members, of the household covered by the auto policy has health coverage that will cover injuries relating to an auto accident, the insurer must offer a reduced premium that reflects reasonably anticipated reductions in losses, expenses, or both.

Hmmmm...OK, if you're going to allow anything short of unlimited benefits, I understand that $500K and $250K options, but the $50K and full opt-out get messier. In some ways the "full opt-out if you have Medicare" part makes more sense, since about 85% of Medicare enrollees are already over 65 and therefore, to put it rudely, aren't likely to live more than 13 years longer to begin with and therefore aren't likely to rack up the same long-term catastrophic injury expenses as, say, a 20-year old who requires lifelong treatment for the next 60 years.

As for the actual costs, those are mostly pushed off onto Medicare, which is funded by federal taxes, not state. Unfortunately, Medicare doesn't cover long-term care at all, which is gonna be a bit of a problem for most of those 13 years...and of course some people do live into their 80's or 90's...

The $50K option for Medicaid enrollees makes a bit more sense, I suppose, although of course this also means that the state would end up picking up the tab. A couple of analyses projected that letting drivers opt out of PIP coverage would increase the state's portion of Medicaid expenses by between $66 - $83 million/year, although I'm guessing that assumes every Medicaid enrollee opted out completely, whereas the proposed deal would require at least $50,000 in coverage. How much would that reduce the cost to the state? I've no idea.

The "Enhanced Coordination" part is kind of confusing to me.

Rate Rollback

  • 10% for unlimited PIP coverage plans
  • 20% for $500k PIP coverage plans
  • 35% for $250k PIP coverage plans
  • 45% for $50k+Medicaid PIP coverage plans
  • 100% for Medicare Opt-Out or for Enhanced Coordination as described above.

Well, this is what everyone has been screaming about. You wanted lower premiums? Fine, here's your lower premiums. This is similar to the push among the GOP for #ShortAssPlans, which cost half as much because, frankly, they don't cover nearly as much. Of course, it's important to know whether those percentages are for every policy statewide or if they're just the overall averages; otherwise a carrier could drop rates in, say, Flint by 5% and Livonia by 15% (both around the same population) and call it 10% on average.

Of course there's one other thing to keep in mind...

  • The above applies only to the PIP line of the auto policy.

Remember, auto insurance is primarily intended to insure the car itself from theft or damage, as well as property damage caused by crashes. The Personal Injury Protection portion is what we're talking about here. Could insurance carriers simply jack up the theft/damage portion of the premiums to cancel out the reduction in PIP coverage? Well, there is a provision regarding rate filing and approval (see below); I'm not sure how much teeth that actually has, however.

  • These are all still only required to be as nearly as practicable and the DIFS Director can grant variances to the rollback percentage if the required percentage would lead the insurer to be insolvent of would result in an unconstitutional taking under the Constitution.
    • The unconstitutional takings provision would only apply until 2022.
  • There are two reconciliation periods, requiring insurers to refile rates to allow DIFS to ensure that the insurer follows the rate rollback provisions, and to allow for the Director to establish if an insurer must offer greater rate relief to consumers due to increased profits related to the fee schedule.
  • Inseverability Clause
    • If a court invalidates the rate rollback provisions the entire amendatory act is invalid. This would lead the auto no-fault system to revert to the current statute.

Hah! The #TexasFoldEm lawsuit claiming the entire Affordable Care Act is unconstitutional is trying to use this claim...except that in the case of the ACA, there's nothing in the bill language which claims inseverability, nor is there any reason for it to be "inseverable". That's an entirely different situation from this MI no-fault bill.

Fee Schedule – set at effective date, decreasing by 5% every year for 2 yrs.

  • 200% of Medicare base. Decreasing to 190% in year 3.
  • 230% of Medicare for providers rendering treatment that 20% or more of total treatment is provided to individuals under Medicaid, the provider does not receive any compensation for 20% or more of the total treatment or is a freestanding rehabilitation facility. Decreasing to 220% in year 3.
  • 240% of Medicare for Level 1 & 2 Trauma Centers until stabilized and transferred. Decreasing to 230% in year 3.
  • 250% for providers that provides 30% or more of its total treatment to individuals under Medicaid or do not receive any compensation for 30% or more of the total treatment. This fee schedule does NOT decrease.

This seems like one of the more important positive elements of the agreement: It would start to impose provider reimbursement rate setting on doctors and hospitals, which is a vital part of any serious attempt to get healthcare costs under control. Are the specific rates above reasonable? Again, I have no idea.

Rating Factors:

  • The substitute will prohibit insurers from using sex, marital status, home ownership, credit score, educational level attained, occupation, or postal code when establishing rates on any type of auto insurance policy.
    • Credit score is defined as the numerical score ranging from 300 to 850 assigned by a consumer reporting agency to measure credit risk.
      • This does not prevent an insurer from still using credit information, a credit report, or an insurance score.
    • While the use of zip codes is prohibited, insurers will still be able use territory as a rating factor. This is an important difference that may limit price spikes occurring between adjacent zip codes, but not prohibit the overall use of territory by an insurer when establishing rates.
  • There will be exceptions for educational level and occupation, so long as they are used solely for a common enterprise, economic, or social affinity or relation. This is to allow groups like alumni clubs and professional organizations to still obtain discounts for their members.

DANGER WILL ROBINSON. One of the biggest demands of the Democrats was that redlining (pricing premiums based on where people live) be eliminated. The agreement would eliminate some types of non-driving record pricing discrimination (gender, marriage status, etc) which is all good...but check out the two big ones: Finances and geography. Yes, it eliminates pricing based on "credit score" or "zip code"...but it doesn't eliminate pricing based on credit reports, insurance scores or "territories"...and I've been informed that "territories" could even mean "Census Tracts", which could be even smaller than a zip code. I don't know if that's the case, but if so, that would make the redlining problem worse, not better.

The next few items all sound like good things, but seem like pretty small potatoes compared to the rest:

Residual Liability Insurance (RBI):

  • Increased current minimum coverage from $20k/$40k to $50k/$100k;
  • Set the default level at $250k/$500k;
  • An individual can select an RBI level below the default level, so long as the affirmatively assert on a form approved by DIFS that they do so.

File & Approve:

  • Insurers must file rates with DIFS and cannot use those rates until they are approved by DIFS or 90 days have elapsed, whichever is earlier.
  • If DIFS disapproves of an insurer’s rates for non-compliance with the rate an insurer has 15 days to refile a rate in compliance with DIFS disapproval order.

This is actually important, and presumably goes directly to my earlier question about carriers jacking up non-PIP rates to cancel out the PIP reduction. This makes it sound like the DIFS director has pretty tight control over overall auto insurance rates...except for that "or 90 days" bit. I presume the idea is to push DIFS to make sure they don't sit on their butts, but this also makes it sound like if they do wait 90 days, the carrier can charge whatever they want.

Anti-Fraud Unit:

  • Codify Executive Order 2018-9, which maintains the current fraud authority in DIFS and allows for the maintenance of current Memorandums of Understanding that exist between DIFS, Attorney General, & MI State Police.
  • DIFS is required to provide an annual report on the activities of the Anti-Fraud Unit.

Re-entry Penalty:

  • Prohibit an insurer from charging a re-entry penalty, limiting coverage available, refusing to provide or continue coverage, or increase premiums for auto insurance for an individual solely because the individual failed to maintain mandatory auto insurance coverage.
  • This provision applies for 18 months after the PIP cap levels are available to consumers.

This next section sounds an awful lot like opening Michigan PIP insurance to the equivalent of "Medicare Advantage"...although this is already private health insurance to begin with, so I'm not sure I understand how it'd differ. Is the idea that it would let AAA subcontract out to some smaller insurance firm or something (which doesn't sound wise to me)? I admit confusion so I'm not going to comment one way or the other just now:

Managed Care Option:

  • Insurers may offer an optional managed care plan to applicants and named insureds that provides for allowable expenses.
  • The plan must include, but is not limited to, the monitoring and adjudication of an injured person’s care, the use of a preferred provider program or other network, or similar options.
  • The managed care plan does not apply to emergency care.
  • When providing applicants or named insureds with a managed care option, the insurer must also provide a form with information relating to a summary of the provisions in the option, the estimated range of the percentage of discount provided by the option, a general description of the managed care option compared to traditional PIP benefits, consequences of violating the managed care option, and an explanation of whether the insurer allows individuals to change his or her policy from the option to PIP benefits.

OK, this next one is a good thing...I'm sure Dana Nessel (Michigan's new Democratic Attorney General) will be happy about it:

Penalties & Fines

  • Double numerous civil fines related to violations of the Insurance Code that are currently in statute related to wrongful denials of claims, insurance fraud, etc.

This next one is good, but it's disturbing to me that Michigan didn't already require all of this, especially the first two bullet points:

Independent Medical Examiners

  • Require that a physician who conducts mental or physical exams for an insurer to be a licensed physician in Michigan or another state.
  • The examining physician must be a licensed, board certified, or otherwise qualified to treat the person condition.
  • During the year immediately preceding the exam, the examining physician must have devoted most of his/her professional time to active clinical practice of medicine, including active clinical practice relevant to the specialty, or have taught students at an accredited medical school, residency, or clinical research program for physicians, including instruction to students relevant to the specialty.

Wait...your'e saying that right now, examining physicians don't have to be licensed in Michigan or another state or licensed or board certified?? Who the hell is conducting the exams? Doctor Detroit??

Here's a hodge-podge of additional stuff included:

Miscellaneous Changes

  • DIFS will be required to provide a report to the Legislature outlining the impact and necessary changes to the fee schedule.
  • Codification of McCormick
    • Setting a consistent standard for the determination of serious bodily impairment, which is necessary to establish to be able to sue for non-economic damages (pain and suffering).
  • Mini-Tort – allows for collection of damages to a motor vehicle to the extent the damages are not covered by insurance.
    • The current level of $1,000 is increased to $3,000.
  • • Changes to Tort
    • A consumer will be able to sue for allowable expenses, work loss, and survivor’s loss, including allow future allowable expenses and work loss, in excess of the applicable PIP coverage limit.

This sounds like a win for personal injury victims/attorneys (not necessarily a win for the victims overall, but this particular provision sounds like a good thing).

  • MCCA
    • DIFS will be required to conduct an actuarial audit of the MCCA every third year, beginning in 2022.
      • Based on the results of this audit, if the MCCA’s assets ever exceed 120% of its liability, the DIFS Director will be able to order a refund to consumers (through insurers) based on that excess.
    • September 1 of every year, the MCCA must prepare a report outlining certain information that it uses to establish the MCCA fee, as well as short- and long-term historical information relating to claims opened, the length of claims, claims closed, and the costs of current open claims.
    • o The MCCA will also be required to provide a report for the House and Senate legislative committees with jurisdiction over insurance matters that contains at least information on mortality assumptions, an evaluation of the accuracy of the MCCA’s assumptions for the preceding five years, and the transparency statement outlined above.

The MCCA is the Michigan Catastrophic Claims Association. Every year, vehicle owners have to pay $180 (set to increase to $220 this year, I believe) towards this fund, which goes to cover long-term catastrophic care for auto injury victims who rack up more than $550,000/year in medical expenses.

The good news here is that the agreement looks like it'd involve a detailed audit of how the MCCA's finances work to make sure that they aren't price gouging, etc.

The bad news is that, while the MCCA would still technically be around under the new bill...

It is expected that people who opt out of unlimited medical coverage will no longer have to pay much of the MCCA fee - an annual per-vehicle charge that's rising to $220 in July #mileg

— David Eggert (@DavidEggert00) May 24, 2019

BUT also of note - people who stick with unlimited coverage (and pay the MCCA fee) are likely to see that fee rise as more people opt out entirely. Will unlimited benefit be a realistic option? #mileg https://t.co/YRS1IQhSHU

— David Eggert (@DavidEggert00) May 24, 2019

(sigh) If 50% of drivers opt out of the unlimited coverage option, that fee will presumably double to $440/year. OK, it wouldn't be a direct doubling, since 50% of drivers would also no longer be eligible for unlimited catastrophic coverage...but it also wouldn't be a 1:1 ratio either, since it'd take a few years for the MCCA to figure out which drivers are the ones getting into catastrophic accidents, etc. Let's split the difference and say it'd increase to, say, $330 or whatever. That, of course, will lead to more people dropping back to $500K or $250K coverage...which will lead to the fee increasing further. Which will lead to more of them dropping unlimited coverage still, and so on, and so on. A classic Death Spiral, I'd imagine.

Prediction: Within two years unlimited coverage won't even be offered anymore (or it'll still technically be available but the MCCA fee will cost more than the car itself, meaning no one would choose it).

There are definitely some good things in this bill, overall it sounds to me like the bad significantly outweighs the good. Again, I'm hardly an expert, but on the face of it I'd say the following changes would have to be made at a minimum to make this deal acceptable (not great, but acceptable):

  • Remove the "territory" exception (or at the very least, limit the "territories" to CMS's 16 Michigan Geographic Rating Areas).
  • Remove the $50K and Total Opt-Out options for those on Medicare/Medicaid (or at least make $100K the minimum)
  • Make damned sure that the non-PIP portion of the premiums can't be increased to cover the reduction in the PIP portion (this may not be a problem, I don't know how rate review/oversight works in Michigan for auto insurance rates)

What bothers me most of all, however, is the fact that the deal was sprung upon the public and the state legislature this morning, with plans (as I understand it) for them to have to vote on it today.

That's insane. The bill itself is 120 pages of legislative text. It'll take a full day or two just to read and absorb some of the implications (as well as the potential loopholes, a couple of which I've already noted). If I'm wrong about the voting timeline, I'll retract this (I guess I'll find out in a few hours, anyway).

UPDATE x2: Welp. That was quick...in the end, the bill ended up passing with wide bipartisan support in both the state House and Senate:

BREAKING: Michigan House of Representatives passes major overhaul of the state’s auto insurance law on a 94-15 vote.

— Chad Livengood (@ChadLivengood) May 24, 2019

BREAKING: Michigan Senate sends @GovWhitmer sweeping auto insurance reform on 34-4 vote.
https://t.co/jj5nR4RGj6 pic.twitter.com/P1alqgqkc5

— Chad Livengood (@ChadLivengood) May 24, 2019

The 15 Democrats voting No in the House included Kyra Bolden, Julie Brixie, Jim Ellison, Sherry Gay-Dagnogo, Rachel Hood, Cynthia Johnson, David LaGrand, Donna Lasinski, Kristy Pagan. Yousef Rabhi, William Robinson, Lori Stone, Rebekah Warren and Robert Wittenberg. The 4 Democrats voting No in the Senate included Winnie Brinks, Mallory McMorrow, Jeff Irwin and Jeremy Moss.

I'm not necessarily upset with those who voted for the bill, especially given that it had Gov. Whitmer's full support, but I can't blame any of the 19 above for voting against it either, especially given the insane process by which it was rammed through in less than 9 hours from introduction to the final vote.

It's also worth noting that at least two of the Representatives who voted No (Kyra Bolden and Robert Wittenberg) have backgrounds in either auto insurance law (Bolden) or health insurance (Wittenberg), so their No votes hold additional weight with me.

Regardless, what's done is done--even if Whitmer changed her mind and wanted to veto it, it passed with overwhelming majorities in both. So be it.