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Auto insurers strike it rich with No Fault ‘price controls’

$550 million profit windfall for auto insurance companies could increase to $1.2 billion per year after expiration of SB 248’s two-year moratorium on price increases

Auto insurance profits SB 248

For an industry that’s so deathly averse to price controls being imposed on what it charges auto insurance consumers, the auto insurance industry is plenty gung-ho when it comes to imposing price controls on what doctors and hospitals can charge for treating Michigan car crash victims.


Because price controls on doctors and hospitals will make Michigan’s auto insurance industry rich.

Under the price controls proposed in the House Insurance Committee’s version of the Senate No Fault plan, Senate Bill 248, the auto insurance industry will:

  • Pocket approximately $550 million in savings (read: profits) for each of the next two years.
  • Reap annual windfalls in the range of $1.2 billion per year after SB 248’s two-year moratorium on price increases has expired.

SB 248, which rocketed through the Michigan Senate and the Michigan House Insurance Committee, and is now waiting to be considered by the full Michigan House.

Aside from the two-year $550 million windfall and the permanent $1.2 billion windfall that SB 248’s No Fault price controls bestow on Michigan’s auto insurance industry – while consumers are left to make ends meet with a $100 per-vehicle savings and a two-year moratorium on price increases – there are other reasons to question the wisdom of imposing price controls on doctors and hospital that treat Michigan car crash victims:

  • “[T]here are doctors who have already vowed to reject new patients seeking treatment from auto crash injuries because the new law gives insurers too much power in determining the level and price of care.” (Frank Beckmann, “Beckmann: Big money backs the no-fault repeal effort,” The Detroit News, April 24, 2015)
  • SB 248’s price controls would “ultimately leave victims of catastrophic accidents with fewer options and higher bills.” (Jack Lessenberry, “Health insurance companies’ favorite Michigan legislator,” Michigan Radio, April 24, 2015, quoting Rep. Tom Cochran (D- Mason))
  • “If this legislation is adopted, Michigan will join the many states where hospitals are dropping out of trauma care because of the costs associated with it … Patients injured in auto crashes aren’t the only ones who will suffer as a result of this legislation. Medical care for the entire community will be diminished as hospitals close or cut services, or reduce jobs, to offset the impact of these reimbursement cuts.” (Khalil AlHajal, “Oakland County Exec. L. Brooks Patterson calls no-fault legislation ‘totally irresponsible,’” MLive, April 27, 2015, quoting Randy Janczyk, medical director of Beaumont’s Level I Trauma Center in Royal Oak)

Price controls on doctors and hospitals

The Senate’s No Fault plan proposes that doctors and hospitals who treat Michigan car crash victims be subject to the following “price controls” on what they charge for their services and treatment:

A doctor or hospital “shall accept as payment in full for” their services and/or treatment “the lesser of the amount charged or 150% of the amount that would be paid under Medicare.”

$1.2 billion in savings for Michigan auto insurance industry

As a result of the No Fault price controls, Michigan’s auto insurance industry will save  approximately $1.2 billion per year, i.e., pay approximately $1.2 billion less in No Fault medical benefits.

Translation: Michigan auto insurers’ bottom-lines (read: profits) will be $1.2 billion fatter every year – thanks to SB 248’s proposed No Fault price controls.

This is based on reports from the Michigan Health & Hospital Association and several healthcare professionals that SB 248’s No Fault price controls will take approximately $1.2 billion annually out of Michigan’s healthcare industry.

$550 million in savings for next two years

In the event that SB 248 is passed and the No Fault price controls are put into effect, for the first two years, the auto insurance industry’s $1.2 billion annual windfall will be offset by the $650 million in savings that SB 248 guarantees for auto insurance consumers.

That means that, for two years, Michigan’s auto insurance industry will have to try to squeak by with a windfall of only $550 million.

However, once SB 248’s two-year moratorium on auto insurance price increases expires, then Michigan’s auto insurance industry is legally able to jack prices back up and thus, take full advantage of the annual $1.2 billion windfall that SB 248’s price controls have guaranteed them – permanently.

Under SB 248, auto insurance consumers are guaranteed $100 per-vehicle savings. Auto insurers are prohibited from increasing auto insurance prices for two years.

Michigan Traffic Crash Facts data shows there were approximately 8,171,407 vehicles registered in Michigan in 2013. Given that 21% of Michigan drivers are uninsured, that means there were approximately 6,455,413 insured drivers in Michigan in 2013.

At $100 savings per vehicle under SB 248, that works out to approximately $650 million in savings for auto insurance consumers.

Cashing in on No Fault price controls

This is not the first time the auto insurance industry has tried to cash in imposing price controls on doctors and hospitals.

In 2014, former House Speaker Bolger and the House GOP proposed price controls that would have generated permanent savings of 55% to 64% annually for the auto insurance industry.

By contrast, savings for auto insurance consumers were only 10% and expired in two years.

To learn more about House Republicans’ previous price control proposals, please check out Michigan Auto Law’s blog post, “Who will cash in on No Fault ‘reform’ fee schedule?”

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Blog Author Steven M. Gursten
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