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Why Rep. Jason Sheppard’s new PIP choice plan should leave you suspicious about “savings”

This “cost shift” plan fails to lay out promised ‘savings’ and shifts burden of catastrophic medical care after an automobile accident from insurance companies to taxpayers; and after losing out on the nation’s best auto No Fault law, Michigan drivers will still pay the 2nd highest in the nation for auto insurance!

no-fault-reform-savings

There’s a lot that sounds fishy in Rep. Jason Sheppard (R-Temperance)’s new No Fault plan, which he claims “could save drivers as much as 30 percent, or more, on their car insurance premiums.”

We’ve seen those kind of outlandish claims of insurance savings before. Lucy always pulls away the football before Charlie Brown can kick it. The insurance industry and the Republican sponsors of these bills to “reform” Michigan No Fault insurance never guarantee any of these promised savings in writing. They’re never a part of the bill itself. The promise of savings is dangled like a carrot at the end of stick, but the auto insurance companies can raise rates later.

And as we know from past legislative “gifts” to the insurance industry, such as after the sweeping 1995 tort reform legislation in Michigan and Kreiner v. Fischer, the premiums for auto insurance continue to rise, even when the insurance industry is making huge profits. There is a reason why Michigan’s auto insurance industry is “highly profitable.”

As I discussed in yesterday’s blog post, the plan is basically a No Fault PIP Choice proposal, which allows consumers to forfeit their legal rights to unlimited No Fault PIP medical benefits and to catastrophic injury care if involved in an automobile accident – in return for Rep. Sheppard’s “suggestion” that they may save some money on their auto insurance.

Aside from the recklessness of losing lifesaving, life-altering No Fault insurance benefits and protections, the claim that the plan will yield “savings” for consumer should raise our collective suspicions for the following reasons:

  • There is no guarantee of savings in the plan.
  • Under the plan and even after its so-called “savings,” Michigan consumers will still be paying some of the highest auto insurance prices in the country, even after losing out on the best No Fault law system in the nation.
  • Even though consumers will be disqualified from catastrophic injury coverage, they will continue to pay for it through annual assessments to the Michigan Catastrophic Claims Association (MCCA).
  • Savings from the plan are not savings at all – it’s only a shifting of costs.

No guaranteed savings for Michigan car insurance consumers

It doesn’t take an insurance lawyer to notice that Rep. Sheppard used the word “could” rather than “will” in the Republicans’ press release when he said that, under his plan, consumers “could save … on their car insurance premiums.”

Alas, while trying to persuade the public and auto insurance consumers into losing their own No Fault PIP benefits, he has committed himself to nothing.

That’s why there’s no guarantee of savings in his plan.

MI auto insurance consumers will still pay the 2nd highest prices in U.S.!

So much for “rein[ing] in Michigan’s exorbitant auto insurance rates” as the headline on the Republicans’ press release says.

Under Sheppard’s plan, Michigan drivers will still pay the second highest car insurance prices in the U.S.

The Republicans’ press release stated that “[c]urrently a driver in Michigan pays, on average, more than $2,000 a year for car insurance …” To be more specific, Insure.com’s “Car insurance rates by state, 2016 edition” reports that Michigan has the highest car insurance premium in the country at $2,738. The state with the second highest car insurance premium in the country, according to the Insure.com list, was Montana at $2,297. Third was New Jersey at $1,905.

Assuming Rep. Sheppard was talking about the entire car insurance premium (not just the No Fault PIP portion), his plan’s 30% percent savings on $2,738 is approximately $822, which would bring the average MI premium down to $1,916.

That would put Michigan … squarely in second place for the second-highest auto insurance rates in the county – but without the full panoply of No Fault protections and benefits that come with being No. 1.

Paying for catastrophic injury coverage they can’t get

As an auto accident attorney, I find this next part to be the most outrageous aspect of Rep. Sheppard’s No Fault plan.

He “allows” consumers to opt out of catastrophic injury coverage (a very bad idea), but he doesn’t allow them to opt out of paying for catastrophic injury coverage!

As I mentioned yesterday, if a consumer takes the bait and chooses to cap her or his No Fault medical benefits at one of three levels proposed in the plan ($250,000, $500,000 or $1,000,000), then she or he will be giving up  unlimited medical benefits – which necessarily includes catastrophic injury coverage through the MCCA if they or a loved one are ever seriously injured in an automobile accident.

The kicker is that even though consumers will lose this catastrophic injury coverage, they’ll still be billed for it. And they will still be paying for it.

Under Rep. Sheppard’s plan, no provision is made that would relieve consumers of having to pay the MCCA assessment (used to raise funds for medical claim costs for catastrophically injured car accident victims) if they choose give up the unlimited medical benefits guaranteed by the No Fault law.

Indeed, to the contrary, Sheppard’s plan emphasizes that auto insurers “must” factor their MCCA assessment costs into the car insurance prices they charge to consumers.

Savings = Shifting costs

When politicians talk about the “savings” that consumers will see from proposed changes to the No Fault Law, they’re not really talking about money going back into people’s pockets. They’re talking about shifting the costs that are currently paid by  auto insurance to something else – like to the taxpayers by shifting the burden of care to Medicaid or Medicare.

Like many – if not all – of the Republican-sponsored No Fault plans that preceded it, Rep. Sheppard’s plan is built around this cost shift game. Insurance companies win. Taxpayers and those injured in automobile accidents lose.

To learn more about the “cost shifting” effects of a plan like Rep. Sheppard’s, please check out my blog posts, “What’s so bad about capping No Fault PIP benefits?,” Part 1 and Part 2.

No Fault PIP cap will lead to financial ruin for Michigan car accident victims

For more than 40 years, Michigan’s No Fault auto insurance system has guaranteed unlimited medical benefits to car accident victims for as long as the medical care is deemed  “reasonably necessary” to a person’s care, recovery, and rehabilitation.

We’ve never had caps on those No Fault insurance benefits – and that’s for a very good reason: Because caps are devastating for automobile accident victims.

Former Michigan Insurance Commissioner, Thomas Jones, said it best when, in 1978, he explained by eliminating No Fault’s unlimited medical benefits guarantee was a bad idea:

“[A] ceiling on benefits introduces no overall savings in the economy. In fact, it probably would cost the public money in the long run. … The savings to the insurance industry from [capping] unlimited medical benefits will simply be shifted forward to the injured individual through inadequate medical care, through inadequate rehabilitation, through increased health insurance costs, or through total financial ruin of some individuals, and finally onto public assistance programs.”

How to really bring down car insurance prices

In the press release on the House Republicans’ website, it says that Rep. Sheppard’s plan will “rein in Michigan’s exorbitant auto insurance rates.”

As I’ve shown above, the terrible plan (read: insurance company giveaway) will not accomplish that goal. However, if Rep. Sheppard or other lawmakers are sincerely committed to making auto insurance prices more affordable to Michigan consumers, here are two important proposals that I have previously – and repeatedly advocated:

I also found it very odd that Rep. Sheppard’s plan said nothing about the medical fee schedule issue, given the observation in the press release on the House Republicans website that “Michigan drivers, through their auto insurance, also pay 200% to 300% more for the same medical procedures as health insurance, Medicaid and workers compensation insurance.”

That 200% number is very debatable. And even if we assume it to be true, financial conservatives such as L. Brooks Patterson have observed that there are very good reasons for this, with almost all of the blame laying at the hands of the auto insurance companies and how they process claims.

But I still found the absence of fee schedules surprising. I guess duping accident victims and consumers into giving up their No Fault PIP benefits and protections is easier – and probably, much less politically dangerous – than taking on the medical establishment by trying to limit how much they can charge auto insurance companies for medical care and treatment for car accident victims.

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Blog Author Steven M. Gursten
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