Michigan Amongst Highest Cost for No Fault- Why?
Michigan leads the nation in No Fault Insurance Premiums. The national average is $1325 per year, Michigan comes in at $2738 and our nearest competitor for the ‘most expensive’ title is Montana at nearly $500 a year less. We extensively researched this issue and I spoke with a local insurance agent to get a good grasp of what Michigan No Fault Insurance provides and why it costs what it does. More importantly, I worked through the problem and developed some possible solutions.
What Does Michigan No Fault Give us as Drivers?
Michigan, bar none, has the best no fault coverage in the nation. In addition to an excellent base package, Michigan no fault provides unlimited catastrophic injury protection. By unlimited protection, I mean the best money can buy at any cost. Besides taking excellent care of Michigan drivers injured in automobile accidents, this unlimited funding source has made Michigan the leader in research into rehabilitative care, head injury treatment, and other medical research related to spinal cord injuries, etc.
The way this works is that when we purchase no fault insurance, it pays a premium that covers up to about $550,000 in claims. We also pay a premium to the ‘Michigan Catastrophic Claims Association’. This is a private, non-profit corporation run by the insurance companies that covers medical costs past the $550,000 cap. It is currently funded to the tune of $20 Billion Dollars. Initially this additional premium cost around $3 per year (1979) and currently Michigan drivers are paying around $190 per year PER VEHICLE.
The Problems with Michigan No Fault
Lack of Transparency
First and foremost, the Michigan Catastrophic Claims Association does not have to and will not open its books to the State for Audit. Simply having $20 Billion in money from Michigan Drivers should mandate having a review of the books, but to date that has been resisted and refused by the Association. This is just not right. We, as drivers and citizens, have a right to know how our required premiums are being handled, and non-profit does not mean no profit- any idea what the interest income on $20 Billion is? What are the salaries being paid to the executives of the Association, do the pay for lobbyists, etc.
Unrestricted Medical Costs
Second, payments for medical services are unrestricted. Normally when a physician or hospital bills an insurance company, there is a large figure listed on the bottom line. The insurance company goes through the bill, charge by charge and notes the ‘allowable’ charge for the service. The difference between the allowable and billed amount is written off, and a portion of the remaining charge is paid less deductibles and co-pays. There are no ‘allowable’ charge limits for medical care under the catastrophic fund. The result is payment of bills for 2-10 times the amount that would be allowed under regular insurance.
Creative Accounting to Increase Profits
Another factor is that insurance plans have insurance of their own. Similar to the FDIC for bank accounts, insurance plans pay for an insurance policy to cover claims. The premiums for this policy are based on a ration of premiums paid in to benefits paid out. Under our current no fault system, premiums are paid into the Catastrophic Injury Fund, so they do not count for the base no fault insurance plan. But benefits paid out of the fund do not go to the patient, they go back to the basic no fault policy. This causes the no fault plan to have a higher ratio of claims to premiums, raising ITS insurance rates. These increased rates are passed on to the drivers.
Uninsured motorists get the same unlimited coverage as insured motorists, yet pay no premiums into the fund. While there are ways to recover money with driver responsibility payments, this unlimited benefit puts them on equal footing with more responsible drivers. Efforts to cap the uninsured motorist benefits have not met with success in Lansing.
Finally, when the concept of Michigan No Fault Insurance was voted in, it was ‘sold’ with the idea that we were providing the best insurance money could buy. As an unmentioned benefit, we got research into injury and rehab, which is funded by the unlimited billing allowed and directly from the fund set aside to care for the injured drivers. While this is good, it is very expensive. While many drivers would be willing to help pay for research (as they pay gas taxes to improve roads) I am not sure they are willing to pay quite this much. In fact, they are giving a blank check to research, providers and hospitals to do whatever they want.
Unfortunately the high cost of premiums for our basic, required, no fault have priced many drivers out of the market. This not only increases the number of uninsured drivers, it opens them up to civil and criminal charges, further disrupting their ability to work- car seized, drivers license suspended, additional costs, fines, penalties, and higher insurance rates. They are also not contributing to the insurance fund and shifting the burden of their care, if injured, to medicaid and private health insurance (if they have any).
While Catastrophic Coverage adds Expense
It is NOT the Only Factor
While the Catastrophic Coverage is a significant factor in the cost of Michigan No Fault, there are other factors to consider that are under the control of individual drivers. Clearly if there is a significant history of accidents and/or tickets, this will increase the rates. Age of the drivers also has a factor in the cost of insurance. Sex and Race do not. There are a variety of discounts available for students with good grades, taking specific classes (Drivers Ed, AARP courses for seniors, etc) which should be discussed with your agent. Don’t just go in and ask for no fault, look into discounts.
Furthermore, No Fault Insurance only covers medical expenses and damages. It does NOT stop lawsuits for pain, suffering, economic loss, etc. The cost of this litigation adds to the overall cost of insurance, but differences between states should not account for huge differences (though urban v rural has a more significant impact).
Take control of you Premium
Probably the most important factor is an insurability score developed by insurance companies. While the factors that go into this score are not released, like a credit score there is a pretty good idea of what they are. Zip Code, age, and accident/ticket history are obvious factors. One frequently overlooked is your financial credit score. The average credit score in Michigan is around 697 (about 30th in the country). Statistically, drivers with significantly lower scores tend to have more claims due to accidents, so this factors heavily into your insurance rate. Maine (the lowest no fault state) doesn’t have unlimited coverage an an average credit rating of about 712. There are also no lawyers in Maine. Just kidding on that last one.
Improving your credit score is one thing (like safe driving, not getting tickets, no drunk driving, etc) that you have some control over. Join an organization like CreditKarma.com. Review your credit score. You can challenge ANY hits on your credit, like bills, liens, collections etc. Your creditor has 30 days to respond to that challenge or IT IS DROPPED from your score. If you have any questions about an item, think it is unfair or otherwise inaccurate in any way, challenge it and see how anxious the creditor is to keep it on your report. Pay your bills on time, and use credit responsibly. If you can keep your credit use below 20% of your available credit, you are in pretty good shape. Don’t give up old credit cards- they increase the average age of your credit. If they are not costing you much, keep them active. Use them once in awhile and pay them off the next month to show some activity.
Bad Ideas to Solve the Problem
One bad idea that has been suggested is to return No Fault to minimal insurance to reduce the cost. While this does have some merit, for example increasing the number of minimally insured drivers, it comes at the cost of coverage of catastrophic injuries and long term care. Either we pass that catastrophic care over to our already struggling Medicaid system (which pays for minimal care) or we cap the limits of coverage. Giving drivers the option to essentially ‘opt out’ of this care or only cover a limited amount (a $50,000 cap would really only cover the ER visit in a really significant auto accident) would seriously underfund even basic care and destroy our research capability, while only saving a minimal amount on the premium.
Can We Have Excellent No Fault AND Economy??
Yes, I believe we can continue to have excellent coverage and be fiscally responsible. When discussing this with a current representative, his objections were that if we didn’t have the Catastrophic Injury fund, medicaid would be responsible for the charges in excess of $500,000, shifting the burden from drivers to the taxpayers.
We could bring billing into line with other health insurance plans- by using predefined ‘allowable costs’. Money drives care and research, but blank checks drive up the cost of care, and the billing will expand to absorb the available money. Insurance companies currently control the cost of medical care by having ‘allowable’ charges that have to be accepted as payment in full by participating providers and hospitals. Even allowing for extra money for the care of the injured and research, capping charges at 2 or 3 times the Medicaid allowable would still provide excellent funding while showing fiscal responsibility and keep costs reasonable. Currently charges up to 10 times the Medicaid allowable for the same services are being charged AND PAID with your no-fault insurance premium money.
Let’s Keep Our Coverage
My feeling, and the one I will back if you send me to Lansing, is that Michigan should keep the major aspects of our No Fault Insurance. I would like to see the money put into Medicaid rather than a private organization run by the insurance companies. If we do leave it in private corporations, I would insist on audits to make sure the money was being managed properly and premiums were fairly priced without the ‘financial tricks’ designed to increase profits for the insurance industry on the backs of drivers. I would also work to cap the payments to providers and hospitals, not to curtail care or research, but to limit the price gouging we are seeing with YOUR MONEY.