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The Insurance Industry’s Top 4 Myths About Michigan No Fault Insurance Reform

Debunking the misleading No Fault reform propaganda

Insurance industry myths on No Fault reform

It should come as no surprise that myth and propaganda form the basis for the insurance industry’s strategy of foisting its Michigan No Fault insurance “reform” agenda.

And they are being spread at our own expense.  The insurance companies can use our own premium dollars to help engage in this propaganda campaign to get its way.  Not only are these myths and propaganda misleading and deceptive, but the cost of spreading them comes at the expense  of those people who have the most at stake in the No Fault reform debate:  consumers.

In order to set the record straight about the insurance industry’s No Fault reform myths and propaganda, the attorneys at Michigan Auto Law offer up the following four myth-busters. For more information, click here to read a comprehensive analysis of Michigan No Fault reform and the latest developments.

Myth-buster #1: Michigan’s unlimited, lifetime No Fault medical benefits are not excessive, given that New York’s No Fault medical benefits, which are capped at $50,000, cost consumers $100 more per year.

Myth-buster #2: Auto insurance is not overpriced compared to neighboring states, considering Michigan’s extensive No Fault medical benefits, the relative promptness of getting medical treatment and the infrequency of lawsuits relative to tort states or states with medical caps.

Myth-buster #3: No Fault medical claims and medical costs are not “skyrocketing.” In fact, premiums and rates are lower than they were in 2003-05.

Myth-buster #4: Doctors and hospitals are not overcharging No Fault for their services. Their charges merely reflect No Fault auto insurers’ “reputation for slow payment at best and no payment without legal intervention in many well documented cases.”

Below is a more in-depth discussion of each insurance company talking point,  and the reasons for its bust-worthiness.

Myth #1: Michigan’s No Fault medical benefits are excessive

To try to make its point that Michigan’s guarantee of necessary  lifetime care is excessive, Michigan’s auto insurance industry insists on comparing Michigan to New York, where No Fault medical benefits are capped at $50,000.

But the comparison is misleading: It doesn’t take price into account.

That’s probably because New York’s auto insurance with its $50,000 cap on No Fault medical benefits costs more than Michigan’s auto insurance with its unlimited, lifetime No Fault medical benefits, which has been the case for quite some time.

Going back as far as 2002, New York auto insurance has cost at least $100 more per year than Michigan auto insurance, according to data reported by the Insurance Institute of Michigan, which is based on figures from the National Association of Insurance Commissioners.

Myth #2: Auto insurance is overpriced compared to neighboring states

Comparing Michigan to Minnesota, Wisconsin, Illinois, Indiana and Ohio is a classic example of comparing apples to oranges.

With regard to Minnesota, the only other No Fault state in the bunch, it’s true that Michigan auto insurance premiums are slightly higher.

But when one compares Michigan’s guarantee of unlimited, necessary lifetime No Fault medical benefits, which could run into the millions of dollars, to Minnesota’s $20,000 cap on No Fault medical benefits, it’s clear that Pete Kuhnmuench, Executive Director of the Insurance Institute of Michigan, was right when he said “[m]otorists in this state are getting a bang for their buck when it comes to protecting themselves in the case of a traffic crash.” (IIM press release, 12/2/2009) Take a look at this blog for many other positive things Kuhnmuench has said about Michigan No Fault.

Recent comments by a spokesperson for the Insurance Information Institute (III) provide the proper perspective for considering the auto insurance price differential between Michigan and the other four states, all of which rely on tort systems for resolving auto accident-related medical benefits claims.

In an interview with the South Florida Sun-Sentinel about the possibility of Florida dropping its No Fault auto insurance system and going to a tort system, the III spokesperson identified the following “negatives for the consumer”: slower handling of claims; delays in getting medical treatment; and, “[t]here is likely to be more lawsuits.”

People forget that the reason Michigan turned to its own No Fault insurance system in 1973 was because under the previous “tort system” it resulted in tens of thousands of small lawsuits, most for medical bills and wage loss, that threatened to shut down the courts.

Myth #3: Michigan auto insurance rates are high because No Fault medical claim costs are “skyrocketing”

Not true.

Michigan’s auto insurance industry claims that No Fault medical claims costs are skyrocketing. On its website and in a recent press release, the Insurance Institute of Michigan stated that “[d]uring the last 12 years, the average auto insurance Personal Injury Protection (PIP) medical claim [cost] rose more than 224% …”

Based on that statement, one would assume that Michigan auto insurance increased by a proportionate amount.

Not so.

The most recent available information shows that Michigan auto insurance premiums are only approximately 5% higher than they were in 2002, according to data reported by the IIM, which is based on figures from the National Association of Insurance Commissioners (NAIC).

Moreover, rates are even lower now than they were in 2003, 2004 and 2005, according to the IIM/NAIC data:

  • 2010 average Michigan auto insurance premium: $1,073.52
  • 2005 average Michigan auto insurance premium: $1,088.97
  • 2004 average Michigan auto insurance premium: $1,128.16
  • 2003 average Michigan auto insurance premium: $1,088.15
  • 2002 average Michigan auto insurance premium: $1,018.57

For more, check out our  blog post, “The truth about Michigan auto insurance rates.”

Myth #4: Doctors and hospitals are overcharging No Fault for their services

The best retort to this claim that doctors and hospitals charge more for their services when a No Fault insurer is paying, rather than a health insurer or the Worker’s Comp system, was provided by Oakland County Executive L. Brooks Patterson in a recent open letter that he posted on the Oakland County website.

To date, Mr. Patterson’s observation on why auto insurance companies should be required to pay more has gone unchallenged from the insurance industry. They have not been denied nor has evidence been presented  to disprove them.  The analogy of a person with a terrible credit score complaining it is unfair to have to pay more than a person with excellent credit remains as true today as ever.

Here are Mr. Patterson’s comments on the subject of alleged No Fault “overcharging”:

“Auto insurance providers also claim that they pay more for medical services than other providers such as Blue Cross and Medicare and further claim that they should pay the same rate.  Some simple facts are that Blue Cross and Medicaid represent a larger scale of business to the medical industry than auto insurance.  Also, Blue Cross and Medicare provide preapproval for medical services, allow for electronic medical billing and provide payment within several days by direct deposit.  This gives the medical providers’ confidence that they will be paid in a timely manner and reduces the cost of doing business.”

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“By comparison, auto insurance companies do not provide preapproval for medical services, do not allow for electronic medical billing and often refuse to pay their bills and/or force the medical provider to retain legal representation in order to get their invoices paid.  This causes great uncertainty by the medical providers that they will be paid at all for legitimate medical services that have already been rendered and increases the cost of doing business.”

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“This topic is analogous to people with different credit scores wanting the same interest rate from a bank.  Blue Cross and Medicare have the equivalent of a great credit score and auto insurance has the equivalent of a poor or low credit score.  It’s unrealistic to think that these different entities could (or should) qualify for the same rate when one has a history of paying their bills promptly and the other has a reputation for slow payment at best and no payment without legal intervention in many well documented cases.”

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For more information, click here to read a comprehensive analysis of Michigan No Fault reform and the latest developments.

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