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How to be a smart shopper when buying Michigan No-Fault auto insurance

Penny-pinching insurers’ scrutiny of auto accident victim’s medical bills provides invaluable lesson on ‘driving a hard bargain’

You will never guess who has devised a sure-fire, fool-proof strategy for helping Michigan drivers save money on their mandatory Michigan No-Fault auto insurance.

Here’s a hint: It’s the same group of “people” that is responsible for No-Fault insurance prices being so high.

That’s right: It’s Michigan’s No-Fault auto insurance companies.

In their tight-fisted zeal to boost profits by minimizing payouts to seriously injured auto accident victims, Michigan’s greedy No-Fault insurers have taught everyone – especially Michigan drivers – a valuable lesson about “driving a hard bargain.”

Instead of just taking an auto accident victim’s medical bills at face value and paying the “amount owed,” No-Fault insurers are now demanding to know what the “mark-up” is on those bills.

Their argument, which has been accepted by the Michigan Court of Appeals, is that, in order to assess the “reasonableness” of the bills, the No-Fault insurers are entitled to know the “wholesale costs” of the medical services they are being asked to pay for.

And, therein the No-Fault insurer’s “penny-pinching” logic lies the lesson for cost-conscious Michigan drivers:

In order to assess the “reasonableness” of what they are being charged for their No-Fault auto insurance, Michigan drivers should demand to know from their No-Fault insurers what the “mark-up” is on their auto insurance and what the insurer’s “wholesale costs” are for providing No-Fault coverage.

If being a “smart shopper” is good enough for Michigan’s No-Fault insurance companies, then it should be just as good for the hard-working, premium-paying Michigan drivers who, by force of law, are required to buy their product.

Bargain hunting

Under Michigan’s No-Fault law, auto insurance companies must pay for the unlimited, lifetime medical benefits of seriously injured auto accident victims. No-Fault medical benefits include payment of the victim’s collision-related medical expenses.

However, No-Fault insurers are only obligated to pay “reasonable charges” for the victim’s medical expenses. (MCL 500.3107(1)(a))

With those rules in mind, in Bronson Methodist Hospital v. Home-Owners Insurance Co., et al., Home-Owners Insurance Company and Auto-Owners Insurance Company decided to see how far they could push the envelope to challenge the “reasonableness” of claimed medical expenses.

After Bronson Methodist Hospital billed the No-Fault insurers for “surgical implants products” provided to their insureds who had been injured in Michigan auto accidents, the insurers refused to pay until they were told “wholesale costs” of the “surgical implant products.”

The insurers insisted:

“[T]he cost to providers of the products used in treating an insured is an appropriate consideration in determining whether the charge for those products is reasonable.”

The Michigan Court of Appeals agreed.

In a published opinion, the unanimous three-judge panel observed that, in a dispute over the reasonableness of a medical provider’s charges for products such as the surgical implants in Bronson Methodist Hospital, the No-Fault insurer may assert:

The medical provider’s “mark-up over [the] average wholesale costs of those products renders the charges excessive.”

Being a smart shopper for No-Fault auto insurance

The “smart shopper” approach taken by the No-Fault insurers in Bronson Methodist Hospital can be of enormous benefit to Michigan drivers when they are shopping for No-Fault auto insurance.

In particular, it allows them to enforce their rights to be protected from “excessive” and/or “unreasonable” auto insurance prices.

Under Michigan law, “[a]ll rates for automobile insurance … shall not be excessive,” and premiums shall not be “unreasonable.” (MCL 500.2109(1)(a); 500.1615(5)).

Accordingly, to borrow a page from the No-Fault insurers’ playbook, a Michigan driver who is shopping for No Fault auto insurance should insist on knowing:

  1. The “wholesale cost” to insurers of the No-Fault coverage they are providing, because the “wholesale cost” is an appropriate consideration in determining whether the price for No-Fault auto insurance is reasonable; and,
  2. The mark-up over the No-Fault insurers’ wholesale costs, because the mark-up reveals the excessiveness of the price for No-Fault auto insurance.

What do ‘smart shoppers’ need to know?

There are at least three things that should be done to allow all Michigan drivers to be “smart shoppers” when they are shopping for No-Fault auto insurance:

1. Michigan’s No-Fault auto insurance companies should be required to disclose annually their loss ratios on their No-Fault (PIP) coverage lines.

An auto insurance company’s “loss ratio” reflects how much of each premium dollar is paid out in claims. It is calculated by dividing the insurer’s “incurred losses” by its “earned premiums.”

Under Michigan law, if an insurer’s loss ratio is 60 percent or less — meaning that for every $1 collected in insurance premium only .60 cents is paid out in claims – then its insurance prices are deemed “unreasonable.” (MCL 500.1615(5))

In reporting its loss ratios for No-Fault coverage, it is also crucial that insurers include in their “incurred losses” calculation only those losses actually paid by the insurer – not the catastrophic claims payments made by the Michigan Catastrophic Claims Association.

2. Michigan’s No-Fault auto insurance companies should be required to disclose No-Fault claims trends.

In the ongoing debate over so-called Michigan No-Fault “reform,” the state’s auto insurance industry keeps beating the drum about how much the average No-Fault (or personal protection insurance or PIP) claim has increased.

However, what the insurance industry fails to include in its fear mongering campaign is the necessary contextual information.

For instance, for Michiganders to know whether the apparent increase in the average No-Fault claims is something to be alarmed about, the auto insurance industry should disclose:

  • No Fault claim trends: Whether No-Fault claims are increasing or decreasing.
  • No-Fault payout trends: Whether No-Fault auto insurance companies’ payouts on claims are increasing or decreasing.
  • No-Fault consumer trends: Whether the number of premium-paying No-Fault insureds in Michigan is increasing or decreasing.

3. Michigan’s insurance commissioner should conduct an updated study of the excessiveness or non-excessiveness of Michigan auto insurance prices.

In 2003, a former Michigan insurance commissioner arranged for a study and analysis of Michigan’s auto insurance market to determine its competitiveness and the excessiveness or non-excessiveness of auto insurance prices.

(Both can be found in the publications/reports sections of the Michigan Department of Insurance and Financial Services). 

The impetus for the study was “a substantial number of consumer complaints … regarding high … auto insurance premiums …”

The study, which was completed in September 2004, and the commissioner’s summary, which was completed in March 2005, provides invaluable insight into the inner workings of Michigan’s auto insurance market.

Given the prominence of the current debate over the price of Michigan No-Fault auto insurance and the centrality of that issue to the controversy over so-called Michigan No-Fault “reform,” there is no time like the present for the Insurance Commissioner to step forward and use his power and position to gather and present the information that Michigan needs to have a meaningful discussion about the future of Michigan No-Fault auto insurance.

Reminder: March is Traumatic Brain Injury Awareness Month. And you can help raise up to $10,000 for brain injury survivors without paying a thing. For every “Like” on Michigan Auto Law’s Facebook page, we will donate $1 — up to $10,000 — to the Brain Injury Association of Michigan. Please consider helping us in this important cause.

Steve Gursten is one of the nation’s top insurance attorneys handling auto accident lawsuits. He is head of Michigan Auto Law and president of the Motor Vehicle Trial Lawyers Association. Steve frequently writes and speaks about Michigan No-Fault law and auto insurance, and is available for comment.

Related information to protect yourselves:

6 worst auto insurance companies

How to choose the best auto insurance company

FAQs: How does the Michigan No-Fault law apply to my car accident?

Michigan Auto Law is the largest law firm exclusively handling car accident, truck accident and motorcycle accident cases throughout the entire state. We have offices in Farmington Hills, Detroit, Ann Arbor, Grand Rapids and Sterling Heights. Call (800) 777-0028 to speak with one of our Michigan insurance attorneys.

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