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$1 billion raid on MCCA for road repair?

Republican Pete Lucido’s HB 4560 proposes taking $1 billion from catastrophically accident victims for roads; MCCA to ‘reimburse’ itself

Rep. Pete Lucido, R-Shelby Twp.

Rep. Pete Lucido, R-Shelby Twp.

Do you want to hear the absolutely worst, least-thought-out, reckless and impractical idea for fixing Michigan’s roads?

I didn’t want to either, but, like a Michigan pothole, there’s no getting around it.

On May 7, 2015, Rep. Pete Lucido (R-Shelby Township) introduced House Bill 4560, which proposes funding Michigan road repairs by taking $1 billion away from catastrophically injured Michigan car accident victims.

His co-sponsors on HB 4560 are Rep. Derek Miller (D-Warren) and Rep. Scott Dianda (D-Calumet) – neither of whom (I suspect) really read and/or understood the proposal that their Republican colleague had recruited their support for.

Specifically, HB 4560 would “appropriate” $1 billion from the Michigan Catastrophic Claims Association (MCCA) and “deposit” the money into the Michigan Transportation Fund, where it would be used “for highway purposes” (according to the Michigan Legislature website’s description of the bill).

Given his background as an attorney and an insurance agent, one would think Rep. Lucido would know first-hand how reckless, preposterous, dangerous and impractical his political ploy is. Here’s why:

  • The MCCA, which is currently running a $410 million deficit (which was nearly $2 billion a year ago), doesn’t have $1 billion to give away. (See MCCA’s “Annual Report” to the DIFS Director, Page 3 (“The MCCA deficit decreased by $1.5 billion from the June 30, 2013 deficit of $1.9 billion to the June 30, 2014 deficit of $410 million.”)
  • The MCCA doesn’t have $1 billion to “reimburse” itself for giving away $1 billion. (Yes, you read that right. Nuts as it sounds, that’s what Rep. Lucido is proposing: He wants the MCCA to “reimburse” itself for the funds that HB 4560 is extracting. More about this below.)
  • The money that’s in the MCCA’s possession is intended for one purpose and one purpose only: Paying for the No Fault medical benefits of catastrophically injured Michigan car crash victims. The MCCA’s existing funds are committed to enabling the MCCA to pay for the existing and projected liabilities that the MCCA is obligated to pay. The MCCA’s funds are not there to be given away, donated or loaned out. They must not be treated as – and should not be converted into – a “rainy day” fund to bailout intransigent lawmakers.
  • The money in the MCCA’s catastrophic claims fund is “not state money.” It is not now – under existing law (MCL 500.134(3) and (6)(c)) – and it shouldn’t be in the future. The funds in the MCCA’s possession were, ultimately, paid for by Michigan auto insurance consumers, who had the reasonable and legally-based expectation that the monies would be used exclusively to pay for No Fault medical benefits in the event that they (i.e., the consumers) were catastrophically injured in a Michigan car crash.
  • Giving away the MCCA’s money is a recipe for financial disaster. When the MCCA gave away $1.2 billion in 1998 (which, unlike now, it could actually “afford” to because it had been running a nearly $2.5 billion surplus the previous year), the MCCA’s “refund” ushered in an era of MCCA deficits which continues to this day.

HB 4560’s raid on the MCCA

Here’s what Rep. Lucido’s HB 4560 proposes:

  • “Money received and held by the [MCCA], having been paid indirectly by the citizens of this state, is money of this state” – which means it can be “appropriated” by the Legislature.
  • “For the fiscal year ending September 30, 2015, there is appropriated from money held by the [MCCA] $1,000,000,000.00 to be deposited in the Michigan Transportation Fund … to be used for purposes for which money in that fund may be used … [T]he [MCCA] shall disburse the money as required by this subsection.”
  • “The [MCCA] shall reimburse the money appropriated … from interest or other income earned by money remaining in the [MCCA] after the disbursement … and future assessments paid to the [MCCA] …”

‘You’re on your own!’

Relatively speaking, I think that quite possibly the most outrageous aspect of HB 4560’s nonsensical proposition is the Monty Python-esque requirement that the MCCA “reimburse” itself for the $1 billion it is being forced at legislative-gunpoint to give up.

As if $1 billion can be made to appear with the snap of one’s fingers. Crazy.

And if $1 billion is so easy to come by, then why haven’t Rep. Lucido and his colleagues in the Michigan Legislature managed to come up with a plan to raise the money to fix the roads?

Well, I guess with HB 4560, they have.

Higher auto insurance prices

And another thing about the ridiculousness of requiring that the MCCA “shall reimburse” itself for the $1 billion that HB 4560 would force it to hand over to pay for Michigan road repairs.

It will result in Michigan consumers having to pay higher auto insurance prices!

In HB 4560, Rep. Lucido says the MCCA “shall reimburse” itself from, among other things, “future assessments paid to the” MCCA.

You know what means, right? Higher MCCA assessment payments in the future and, thus, higher auto insurance prices and payments for consumers.

By taking $1 billion out of the MCCA, that adds $1 billion to the MCCA’s existing $410 million deficit, making the new deficit $1.4 billion.

To pay down the increased deficit, the MCCA would have to increase the “deficit reduction” portion of its annual per-vehicle assessment – the costs of which would be passed along to consumers in the form of higher auto insurance prices.

If only the MCCA can find its own “moneyed” victim to prey on …

Giving away money is a losing proposition

Proof that giving away the MCCA’s money – even when it has a multi-billion-dollar surplus (as opposed to a $410 million deficit) – is a recipe for financial disaster can be easily found by looking to the “Great MCCA Refund of 1998” and its aftermath.

Here’s what Michigan’s Insurance Commissioner said in Insurance Bulletin No. 98-01 (April 10, 1998), “Michigan Catastrophic Claims Association Surplus Return,” about the MCCA’s $1.2 billion refund ($180 per vehicle) to auto insurance consumers:

“On March 18, 1998, the Michigan Catastrophic Claims Association (MCCA) voted to return $1.2 billion of its surplus … The action occurred because the association’s surplus increased beyond a level necessary to cover its expected losses and expenses. … Because policyholders are the ultimate payers of the MCCA premium by way of a pass-through of the charge by the member companies, and because this situation is unique and not contemplated by the MCCA Plan of Operation or the Michigan Insurance Code, equity demands that this extraordinary return of MCCA surplus be passed through to policyholders directly and promptly. … It is therefore expected that the return of surplus will be passed through to policyholders directly and promptly in the amount of $180 per vehicle.”

After the refund, the MCCA’s financial health started to go downhill … fast.

The first two years after the refund, 1999 and 2000, the MCCA’s surplus dropped $110 million and $600 million, respectively.

Then, in 2001, the era of the MCCA deficits started and it hasn’t stopped since.

Significantly, nine of the 14 years between 2001 and 2014 have been marked by billion-dollar MCCA deficits, ranging from $1 billion to $2.5 billion.

Back, again

Unfortunately, this is not the first time Rep. Lucido has brought up the idea of raiding the MCCA to pay for Michigan road repairs. I wrote about issue in March when Rep. Lucido was pedaling his outlandish and absurd idea to any reporter, newspaper or TV station who would listen.

To learn more, please check out Michigan Auto Law’s blog post, “Raid the MCCA to pay for road repairs?”

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