Is Michigan no-fault car insurance bill dangerous or a money-saver?

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A bill in Lansing would rein-in medical costs and offer consumers new choices with a goal of lowering auto insurance premiums
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Opponents of the latest proposed overhaul of Michigan’s pricey no-fault auto insurance system have warned that if the legislation in Lansing becomes law, motorists would lose valuable benefits and risk getting “warehoused” in Medicaid-funded nursing homes after a bad crash.

But Detroit Mayor Mike Duggan, one of the bill’s champions, says most auto accident victims in Michigan would still enjoy the best medical insurance benefits in the country under the legislation, which could cut the annual cost of some auto policies by hundreds of dollars — or even a thousand dollars or more.

Motorists would have the option of keeping Michigan’s current level of no-fault insurance, with its unlimited lifetime medical benefits that are unrivaled in the nation. If they instead chose the cheapest option in the legislation, their benefits after a crash would still beat those in 48 other states — and more or less equal the mandatory no-fault benefits in the state with the  next highest benefits, New Jersey. 

“This is not some harsh bill,” Duggan said last week during testimony on the bill before the House Insurance Committee. “We’re not selling people some poor policy. We’re matching the best coverage — and beating it — in America.”

Eric Poe, who heads a not-for-profit insurance company in New Jersey and who advised the City of Detroit in a previous effort to lower auto insurance rates in the city, said New Jersey’s experience has been that motorists rarely exhaust  their no-fault insurance benefits and those who do are rarely left destitute. 

“The incident rate of catastrophic claims is so low,” said Poe, chief executive officer of not-for-profit Cure Auto Insurance.

He said his company insures roughly 50,000 vehicles and only about six times a year will a customer’s medical bills exceed New Jersey’s lowest optional benefits level, which is $250,000 for emergency care.Those individuals can then fall back on their health insurance for coverage, and may also sue the other driver in the crash for their economic damages if circumstances allow, he said.

In Michigan, roughly .02% of all injury accidents are severe enough to qualify for the Michigan Catastrophic Claims Association, which currently reimburses auto insurers once a patient’s medical bills hit $555,000, according to an insurance industry estimate.

The new legislation is an attempt to lower auto insurance premiums across Michigan that, by some measures, are the most expensive in the country.

Yet its chief mechanisms for reining in costs are proving highly controversial: imposing price controls on hospitals and clinics that see car accident victims, and for the first time since the no-fault system began in 1973, giving consumers a choice in how much health insurance they must buy as part of their auto insurance.

“With the fee schedule that’s been promoted in this bill, there are many post-acute providers that won’t be able to remain in business,” Dr. Owen Perlman, a physical rehabilitation specialist in Ann Arbor, said last week when testifying in Lansing against the bill. “If they can’t remain in business, then you can have these benefits but there’s nobody to provide the services.”

Proponents, including the Michigan Chamber of Commerce, claim the legislation  could save motorists and businesses $1 billion a year. The bill’s sponsor, state Rep. Lana Theis, R-Brighton, contends it is only fair that motorists have choices over the type of insurance policy that they must buy to legally drive.

“We allow people to choose how much health care coverage they purchase. We allow people to choose how much they insure their life. We allow people to choose how much they insure their home,” she said. “However, when it comes to medical coverage under their auto policy, they (the bill’s opponents) suddenly feel that drivers are inept and can’t have that choice.”

But opponents contend that the new coverage options would lure consumers into making irresponsible choices. Additionally, the proposed cost-containment mechanisms would put hospitals and rehabilitation centers in a financial squeeze, they say, and also shift the cost of treating people who are catastrophically injured in car crashes to taxpayer-funded Medicaid, instead of auto insurance companies and their customers, who currently foot those bills through premium dollars and annual fees.

“We are strongly — and in the strongest terms — opposed to this bill,” said Steve Sinas, a representative of the  Coalition Protecting Auto No Fault, a lobby group of medical providers, patient advocates and plaintiffs lawyers.

The legislation focuses on the portion of no-fault insurance policies called personal injury protection, known as PIP, which covers benefits such as emergency room care, doctors visits, physical therapy, wage loss replacement and in-home attendant care.

These benefits are the largest component of auto insurance policies in Detroit, typically 44% of the cost, according to an actuarial study. The cost of PIP benefits in other Michigan cities varies based on the number of claims filed in those areas, among other factors.

Michigan is the only state where motorists are required to buy an unlimited level of no-fault PIP benefits, even if their health insurance would otherwise cover some or all of the medical bills from an auto accident.

Motorists in states without no-fault insurance, such as neighboring Ohio and Indiana, don’t get medical benefits with their auto insurance and typically pay far lower premiums. They must rely on their own health insurance after accidents.

And in the 11 other states that do have no-fault insurance, PIP benefits are capped at various dollar amounts.

“In most states, the PIP limits are a tiny, tiny fraction of what Michigan promises,” said James Lynch, chief actuary at the Insurance Information Institute based in New York. “Usually PIP limits are $5,000, $10,000, $15,000.”

“I can tell you for certain there is no desire in any state to adopt the current structure that Michigan has,” he added. “The complaints that we hear from consumer organizations is not that the insurance limits are too low, it’s that the premiums are too high.”

The proposed legislation calls for letting Michigan consumers choose from three general options for personal injury protection benefits, with a fourth option just for seniors:

  • The $250,000 PIP option: up to $225,000 for emergency care, with $25,000 then available for post-acute services such as physical therapy, surgeries, wage loss, transportation and attendant care.
  • The $500,000 PIP option: up to $500,000 available for any use.
  • Unlimited PIP: The same unlimited, lifetime benefits that exist now under no-fault.
  • The seniors option: Those who are 62 or older and have lifetime health benefits, such as Medicare, can opt-out of buying any PIP.

Those who pick the $250,000 option are expected to get at least a 20% price cut on their insurance premiums if they are average drivers with comprehensive coverage. The price cut could be 45% to 50% if they have no collision or theft coverage.

And seniors are expected to see a 40% or higher price cut.

Opinions on auto insurance in Michigan: 
Nancy Kaffer: Auto insurance proposal first reasonable effort at a fix
Erica Coulston: What lifetime insurance benefits have meant for me

There is no mandated price cut written into the bill for those who choose to buy unlimited PIP. However, proponents contend that the legislation’s other cost-containment mechanisms could still lower the prices for those policies because competitive pressures would compel insurers to pass along the savings, rather than pocket them.

Can drivers handle choice?

The notion of giving consumers options for personal injury protection was a point of controversy during last week’s hearings before the House Insurance Committee.

Opponents of the bill, including members of the Coalition Protecting Auto No Fault, said consumers who choose the $250,000, $500,000 or $0 PIP options would find themselves in dire circumstances after a catastrophic accident.

Neither commercial health insurance, Medicare nor Medicaid would pay for all the in-home care and other assistance that seriously injured individuals would need, they said.

“I think it’s fair to say that none of Michigan’s 16,000-plus auto accident survivors currently in the system ever imagined they’d be in a serious accident,” said Tom Constand, president of the Brain Injury Association of Michigan. “And it’s likely that a vast majority of them — as many of us, whose finances require watching every dollar —would have chosen (the bill’s) lowest level of coverage.”

“Well, how wrong they would have been,” he said.

Those who buy a policy with PIP benefit caps and then get into a crash would face several potential scenarios, including: 

  • Their commercial health insurance, such as Blue Cross Blue Shield, could pay most or all of their medical bills if they have a “coordinated” insurance policy and the crash injuries aren’t overly serious. Benefits that aren’t covered by the health insurance, such as months of long-term therapy, wage loss replacement or  attendant care, would come from their $25,000 or $500,000 auto insurance PIP benefit. 
  • Those on Medicaid would use their PIP benefits until they reach their dollar limits. Then they would switch back to Medicaid, which would pay crash-related medical bills — but not certain no-fault benefits that are helpful after catastrophic injuries, such as extensive rehabilitation therapy, vehicle modification and round-the-clock nursing care. 
  • Catastrophically injured people who use up their auto insurance PIP benefits may have to rely on commercial health insurance, Medicare or Medicaid for some or all of their nursing care, depending on their financial situation. For the worst injured, the final stop may be Medicaid-funded nursing home care. Yet most of these individuals’ medical bills would still be covered by the government programs or by commercial health insurance, which now does not have lifetime limits for benefits.

The bill’s opponents also note a House Fiscal Agency analysis estimate that the legislation, a decade after taking effect, would add $150 million a year in state Medicaid costs. That would occur because more auto accident victims would be getting long-term care through Medicaid instead of auto insurance.

The state currently pays for 35% of Medicaid expenses in Michigan, with the federal government paying the rest, according to the agency.

In addition, Michigan could also lose $20 million to $35 million in annual revenue because insurance companies pay state taxes on premiums and the legislation would lower premiums.

Sinas, associate general counsel for the Coalition Protecting Auto No Fault, called the shifting of medical costs to Medicaid “financially irresponsible.”

“If you don’t want Medicaid funds going to fund auto accidents, you’d be concerned about how much money Medicaid will have to bear under this bill,” Sinas, also an attorney with Lansing-based Sinas Dramis law firm, said during testimony.

Proponents acknowledge that Medicaid costs would rise. But they contend that the size of patients’ medical bills would be much smaller than under the existing system because of the legislation’s price controls for medical service providers who treat people who were in accidents.

These price controls, known as a fee schedule, also would make no-fault insurance less attractive to those looking to game the system and profit from unnecessary services. A Free Press investigation this spring found that Michigan’s unlimited no-fault benefits are ripe for abuse.

“What’s happening right now is we have auto insurance doing health care, which is the least efficient way possible because they (auto insurers) pay the most expensive price,” Theis said. “What we’re going to have instead is health insurance paying health care, so it’s going under the right line item at the right price.”

Can drivers handle choice?

Under the legislation, reimbursement for medical service providers who see no-fault insurance patients for emergency services would be capped at 125% of what Medicare would pay for the same procedures. Afterward, all post-acute services would be capped at 100% of Medicare rates, including ambulance runs.

These billing restrictions would mean a significant pay cut.

Duggan, a former hospital system executive, said during testimony last week that medical providers, when they bill no-fault insurance, often get triple the reimbursement rates that Blue Cross Blue Shield pays for the same services.

“Believe me, the people running hospitals and medical care facilities — it’s no longer a nun running a charitable hospital,” Duggan said. “These are really smart MBAs who have got very sophisticated financial models, they know exactly how to charge everything.”

An analysis of no-fault reimbursement rates several years ago by a casualty claims firm found that Michigan auto insurers paid significantly more for medical procedures and services than Medicare, such as $3,278 per MRI image in Detroit while Medicare paid under $500. The Free Press investigation found several metro Detroit MRI centers that charge $5,000 or more per image when billing no-fault insurance.

Michigan has had a fee schedule since the 1980s for medical charges in the Workers’ Compensation program. The allowable charges are 130% to 135% of what Medicare pays for each service or procedure, state officials said.

How lucrative is Medicare?

Medicare generally pays hospitals based on their costs and overhead, plus a small profit margin.

Michigan hospitals overall reported a negative 4% margin on Medicare in 2015, meaning those reimbursements came in below hospitals’ cost, according to the Michigan Health & Hospital Association.

To be sure, health care experts have said that low Medicare margins can be a result of hospitals receiving higher reimbursement payments from commercial health insurers, such as Blue Cross Blue Shield. Those meatier reimbursements allow hospitals to carry higher cost structures, which in turn can make their Medicare margins appear inadequate.

Still, the Medicare-linked fee schedule could mean a $935 million annual loss for all Michigan hospitals, said Laura Appel, senior vice president for the Michigan Health & Hospital Association, which opposes the bill.

“I can say that compared to what they’re currently getting, it’s a loss for everybody,” she said.

The legislation also would allow insurance companies to limit in-home attendant care to 56 hours per week if the care is being provided by an injured person’s family members or friends. Attendant care pays providers roughly $11 to $22 an hour, and generally involves helping an injured person with tasks such as dressing, showering and preparing meals.

Accident victims requiring more attendant care could still contract through insurance with a nursing agency to visit the home.

 Others stand to lose

The Free Press investigation found that many Detroit-area residents, when recovering from auto accidents, visit independent medical or rehabilitation clinics that aren’t affiliated with hospital systems. The price controls and optional benefits caps could have a significant impact on these businesses.

Rainbow Rehabilitation Centers is a residential and outpatient rehab program for those with brain and spinal cord injuries. About 90% of its patients were in auto accidents and pay using no-fault’s personal injury protections benefits, said Bill Buccalo, the organization’s president.

The total cost for a year of residential care at Rainbow, including therapy and visits to outside physicians, can be about $250,000 to $300,000, he said.

Under the existing no-fault system, motorists pay an annual per-vehicle fee to support the Michigan Catastrophic Claims Association, currently $170 a year. The claims association would continue paying existing catastrophic claims if the legislation passes. And motorists who don’t buy full no-fault coverage wouldn’t have to pay the full annual assessment.

Buccalo said that under the proposed legislation, Rainbow and similar rehab clinics would see business dwindle. There would be fewer new patients, as consumers would be inclined to choose the cheaper auto policies with limited benefits. Current patients would still have full no-fault benefits, but Rainbow’s budget would take an immediate hit from the price controls, and likely have to reduce its staff of 850 employees, he said.

“If it passed as is, it would be an absolute disaster for the entire industry,” Buccalo said.

The legislation also proposes significant reimbursement cuts for medical transportation companies that shuttle no-fault patients between appointments.

Those firms couldn’t bill higher than 300% of the standard IRS mileage rate, which would come out to $1.61 per mile. That would be a big change from current billing practices.

The Free Press investigation found some companies have been charging $100 per round-trip for short distances such as 12 miles, or standard rates for longer trips of $45 for pickups, $45 for drop-offs, then $3.50 per mile. Patients can have three or more rehab and doctors appointments scheduled each week for a period of months, so transportation bills add up quickly and routinely hit thousands of dollars.

Rainbow Rehabilitation Centers operates a medical transportation subsidiary called Rehab Transportation with about 30 vehicles. Buccalo said his transport firm would be forced out of business by such billing restrictions.

“To own the car, employ people, drive miles when nobody is in the car to go get the patient, and get them to their appoints and wait, we would be out of business,” Buccalo said in an interview. “And I think everybody else who provides that service at ($1.61 per mile) would be out of business as well.”

Rein-in lawsuits, fraud

The legislation also has provisions aimed at reducing the proliferation of accident-related lawsuits against insurance companies. However, the no-fault coalition says the proposed reforms would cause the pendulum to swing too far in favor of insurance companies.

The legislation also specifies that lawyers with financial interests in medical treatment centers where their no-fault clients get treatment would be ineligible for collecting attorney fees.

“These (proposed) reforms were brought forward by trial attorneys who could no longer turn a blind eye to these dishonest ownership practices,” Theis said of the financial interests prohibition

And the legislation would create an auto insurance fraud authority to root out behaviors that drive up insurance rates. Michigan — unlike many other no-fault states — has no dedicated no-fault insurance fraud watchdog.

Florida had success in reining-in fraud by assigning dedicated no-fault fraud investigators and prosecutors to the state’s major metro areas.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @JCReindl.

MINIMUM PURCHASE REQUIREMENT FOR PERSONAL INJURY PROTECTION (MEDICAL) IN THE 12 NO-FAULT STATES

Michigan: unlimited medical

New Jersey: $250,000 for emergency care, lowest post-acute option is $15,000.

New York: $50,000

Minnesota: $40,000

North Dakota: $30,000

Florida: $10,000

Hawaii: $10,000

Kentucky: (optional no-fault) $10,000

Massachusetts:  $8,000

Pennsylvania: $5,000

Kansas: $4,500

Utah: $3,000

Source: Free Press research

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