Democrat urges that MCCA should be lawmakers’ focus if claims of its “unsustainability” is what’s driving No Fault reform
Rep. Phil Cavanagh (D-Redford Township), makes an incredibly important point in his guest blog post today.
Referring to testimony at the recent House Insurance Committee hearing on House Bill 4612 that the Michigan Catastrophic Claims Association is “unsustainable” and it is hurting insurers’ credit ratings (when did this become a concern of the Michigan Legislature?), Rep. Cavanagh asks the obvious and logical question:
“Well, if the problem is the MCCA, then why are we not looking into the MCCA? This bill does nothing but protect the insurance company’s interest and it shields the MCCA from public scrutiny … This legislation should not even be considered by anyone in the legislature without asking to look into the ‘problem’ – the MCCA.”
On April 16, 2013, Rep. Cavanagh sponsored House Bill 4551, which proposed that the MCCA be required to comply with the Michigan Open Meetings Act and the Michigan Freedom of Information Act. Previously, Rep. Cavanagh sponsored similar legislation: House Bill 6080 (2012); House Bill 6081 (2012); House Bill 4785 (2011); and House Bill 4786 (2011).
Additionally, in 2012, based on claims that Michigan’s “current [No Fault] law is broken and unsustainable and that insurance companies cannot maintain the level of benefits for drivers and those suffering long-term catastrophic injuries in auto accidents,” Rep. Cavanagh introduced House Resolution 228 to “implore the Michigan Department of Treasury to conduct a financial review of the Michigan Catastrophic Claims Association (MCCA) to consider the appointment of an emergency financial manager.”
Accordingly, Michigan Auto Law is honored to share Rep. Cavanagh’s guest blog post regarding MCCA transparency and No Fault reform:
“Since 1978 Michigan drivers have been paying an annual assessment to the Michigan Catastrophic Claims Association which was established by amending the ‘No-Fault Act’ to spread the risk of high cost medical claims related to auto accidents.
The MCCA, however, has decided to create a reserve fund of 15 times their annual expenditures on medical care which are invested in stocks and/or bonds and earn income for the MCCA. Right now, that reserve is over $14 billion and is estimated to climb to over $16 billion by June 2013.
Every year, the MCCA board determines what Michigan auto policy holders will pay per vehicle, so in effect they are actually levying a tax on each person who owns a vehicle. The assessment changes per year based on investment, income, cost of medical care and the assumed need to build up the asset base. Although the MCCA was created by state statute, they are considered a private entity and therefore is not subject to the Open Meetings Act, the Freedom of Information Act; nor is there any enforcement over this entity even though their actions have a major impact on every insured driver across the State of Michigan.
In March on this year, I along with Representative Callton introduced bi-partisan legislation (House Bills 4551 and 4543) to bring transparency throughout the MCCA. These bills would require the MCCA to be subject to the Open Meetings Act, the Freedom of Information Act, an independent annual audit and put a member of the public on the board. This is not the first time legislation of this kind has been introduced, and in fact, I introduced this same legislation last session to no avail.
Since 2000, the annual assessment imposed by the MCCA has increased over 2500% with the latest increase of $11.00 to hit drivers this June, increasing the fee from $175.00 to $186.00 per year. The only justification Michigan drivers received from the MCCA for this increase is that they are ‘unsustainable’ with a 30-year projected deficit of $2 billion dollars. So what happens when the MCCA reports a surplus of $16 billion and a projected 30-year deficit of $2 billion? Legislation is introduced to reform Michigan’s Auto No-Fault System and phase out the MCCA.
On April 23, 2013, Representative Pete Lund introduced House Bill 4612 to drastically ‘reform’ Michigan’s Auto No-Fault system. As introduced, the bill would make numerous amendments to the No-Fault Automobile Insurance statute including putting a $1 million cap on medical and rehabilitation benefits for anyone injured in an auto accident, change the term “reasonable necessary” to “medically appropriate”, impose limitations on expenses and reimbursements, phase out the MCCA and create the MCCC (Michigan Catastrophic Claims Corporation), lower PIP benefits for Michigan residents and nonresidents, impose attendant care limits and put a cap on home modification limits and motor vehicle modification limits to name a few.
And what will Michigan drivers get in return for these horrific changes to our system, they get a guaranteed savings of $125 per insured vehicle for the first year and the new MCCC with claims they will be transparent.
The new MCCC will start off by assessing a fee of $25 per year and this money will be under the control of the governor. Once the MCCA has been completely dissolved, meaning they have no more catastrophically injured persons to care for, if there are funds left over they will transferred to the MCCC, not returned to drivers like stated in the Governor’s press conference on April 18. By transferring the money into the MCCC, the MCCA claims to be ‘returning money to driver.’
According to the MCCA Plan of Operation, under section 9.08, the MCCA Board can meet at any time, declare a surplus, and distribute that surplus amongst the members-meaning the insurance companies. I question if the public will ever see any portion of the $16 billion amassed and stockpiled over the last 35 years (especially over the last 12 years); or if the MCCA Board will just meet, declare a surplus, and distribute the money amongst themselves.
I sat through the two days of testimony before the Insurance Committee voted it out of committee. During testimony the Director of the Department of Insurance and Financial Services, Kevin Clinton, and various insurance agencies testified that insurance companies are hampered because the MCCA is unsustainable and it’s affecting their credit ratings. Well, if the problem is the MCCA, then why are we not looking into the MCCA? This bill does nothing but protect the insurance company’s interest and it shields the MCCA from public scrutiny by phasing the Association out while allowing them to continue assessing drivers an annual fee until their ‘deficits’ have been paid off. Throughout this process, the MCCA would remain shrouded in secrecy and would continue to keep the public in the dark by not opening their books to the public. This legislation should not even be considered by anyone in the legislature without asking to look into the ‘problem’ – the MCCA.
With the claims made against the financial stability of the MCCA during testimony and the recent article in MLive which reported that IRS filings shows the MCCA top two executive received 19% pay increases over the last two years in times of financial difficulties, not to mention the $212 million in a Cayman Island account, transparency is needed now more than ever. With the lack of interest by the State Legislature to take up the pending legislation to bring accountability and transparency throughout the MCCA, I wonder if this Auto No-Fault ‘Reform’ is just a political ploy to abscond with the billions of dollars that drivers have contributed to the MCCA in order to fund their political agenda, and repay favors.”