Virgil Smith’s No Fault reform bill is irresponsible and unrealistic

Smith and Hune introduce Senate Bill 251, replacing No Fault’s most important protections with $50,000 cap

If the insurance industry wanted to sell Sen. Virgil Smith (D-4th District) the Brooklyn Bridge, would he buy it?

Virgil Smith, with Republican co-sponsor Joe Hune, recently introduced a bill (SB 251) that would cap medical coverage for auto injury claims at $50,000.  It would wipe out the crown jewel of Michigan’s No Fault system – paying for all necessary medical care for catastrophic personal injury.

It would also eliminate the Michigan Catastrophic Claims Association (MCCA), which provides life-long coverage for all automobile accident injuries costing more than $500,000.

SB 251 would shift all of these costs from the insurance industry in Michigan (which is already making some of the highest profit margins in the nation) and onto taxpayers, by forcing people onto Medicaid and Medicare.  It would slash jobs and significantly reduce the quality of medical care that auto accident victims receive.  And it would do all of  this without any guaranteed savings or reduction in insurance premiums from the insurance industry.

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

The Detroit Free Press said it best back in a June 7, 2011, editorial, when the newspaper called a similar  proposed Michigan No Fault reform measure “irresponsible” and “unrealistic.”

That was when Senator Virgil Smith had wanted to replace the Michigan No Fault Law’s nearly 40-year-old guarantee of necessary medical care  for seriously injured automobile accident victims with a similar $50,000 cap on benefits.

The Free Press observed:

“To be sure, a $50,000 minimum for medical care might be irresponsible and unrealistic, given today’s medical costs.”

Now, Smith is at it again. Nearly two years after his previous bill, Senate Bill 514, was introduced, Sen. Virgil Smith, has sponsored Senate Bill 251.

I have always believed and I continue to believe that this legislation or any legislation aimed at  eliminating the most important legal protections under Michigan’s No Fault Law is both “irresponsible” and “unrealistic”

Here’s why:

1. There’s no guarantee of any savings whatsoever for Michigan drivers. The insurance industry refuses to say that eliminating the most important benefits under our current No Fault law will result in any reduction in our insurance premiums.
2. Capping benefits at $50,000 will cost auto accident victims, their families, and all of us as taxpayers untold hundreds of millions of dollars or more every year.  It is shifting burdens from the insurance industry that charges a premium for this – and is making very high profits for doing so – onto the rest of us.  It is substantially reducing their liabilities without any corresponding reduction on the price of auto insurance.
3. Auto accident victims will be forced to file thousands of unnecessary lawsuits to collect the medical benefits no longer covered by No Fault, even though such lawsuits are notoriously costly and ineffective.  In fact, such lawsuits were so burdensome to the legal system and so costly, that this was the reason Michigan created our No Fault system of insurance back in 1973.

No guaranteed savings on auto insurance

Sen. Smith’s latest No Fault reform effort, SB 251, suffers from the same glaring flaw that plagued and likely doomed its predecessor bills, including Smith’s own “low cost automobile insurance” pilot program, which was part of his previous SB 514:

There’s no guarantee of any savings for Michigan drivers.  There is no guarantee of any reduction in our insurance premiums.

When will Virgil Smith learn that the true goal of No Fault reform is – as he insists on  claiming – to actually save Detroit drivers money on auto insurance? There must be  attention to how, where and how much drivers will save if we agree to completely dismantle what has been called the best insurance system in the country. He and Sen. Hune have given no details of how No Fault benefits will be slashed.

On the other hand, Michigan auto insurers know exactly how much they will save.  They know exactly how much  profits will skyrocket with the enactment of a $50,000 cap on critical medical benefits and medical care for injured auto accident victims.

If we are going to dismantle No Fault, where is any guarantee of price savings to consumers?

But we do know that capping medical benefits will cost auto accident victims and taxpayers hundreds of millions of dollars

Auto accident victims, their families, taxpayers and health insurance companies will have to pay  hundreds of millions of dollars or more every year if Sen. Virgil Smith’s bill becomes law.

That’s because they will be picking up the tab for everything the insurance industry previously paid.  That would include all of the catastrophic-injury benefits that No Fault and the MCCA are no longer paying for.  Between 2008-11, the MCCA’s annual payouts on catastrophic claims were $724 million, $811 million, $897 million and $927 million, respectively, according to MCCA press releases.

But it isn’t just catastrophic medical care.  Auto accident victims, their families, taxpayers and Medicare, which is in turn funded by all of us as taxpayers, will be forced to pick up the tab for all of the thousands of claims with benefit costs that fall between $50,000 and $500,000. And let’s face it, after a serious auto accident, the $50,000  medical care cap could be wiped out by an emergency room alone.

By replacing the No Fault guarantee of unlimited, lifetime medical benefits with a $50,000 cap on benefits and by closing down the Michigan Catastrophic Claims Association, Smith is eliminating No Fault coverage for personal injuries with benefits that cost more than $50,000 but less than $500,000. A catastrophic injury claim is one that has insurance benefits that exceed $500,000.

This is exactly what former Michigan Insurance Commissioner Thomas C. Jones said nearly 30 years ago, when the auto insurance industry first began its push to “reform” No Fault’s guarantee of unlimited, lifetime benefits out of existence:

Capping No Fault medical benefits is “destructive to the no-fault concept,” “clearly contrary to the public interest, and “actually increases the overall cost of the catastrophic loss.”

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“[Capping] benefits introduces no overall savings in the economy.”

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The cost of paying for medical benefits that will no longer be covered by No Fault “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.” (“No-Fault Insurance In Michigan: Consumer Attitudes And Performance,” Thomas C. Jones, Michigan Insurance Commissioner, April 10, 1978, Pages 76-77)

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Lawsuits: A notoriously costly and ineffective last resort, shutting down our courts

At a minimum, thousands of new lawsuits will now need to be  filed every year to collect medical benefits that are no longer covered by No Fault if these caps are enacted.

The most conservative estimate I have found is 1,600 completely unnecessary lawsuits.  But as a practicing auto accident attorney in Michigan, I know the actual numbers will certainly be considerably more.

The 1,600 figure above only represents the lawsuits initiated by catastrophically injured auto accident victims. Between 2010-12, there was 1,684, 1,617 and 1,619 catastrophic claims filed with the MCCA each year, according to the MCCA’s Annual Reports.

Now add in tens of thousands of additional, completely unnecessary additional lawsuits that will be filed by injured auto accident victims whose medical benefit costs are less than $500,000, but more than the amount of the $50,000 cap. Yes, there will be full employment of all personal injury lawyers in this state, and the lawyers will be happy.  And yes, the insurance companies will be thrilled as already “excessive” profit margins will now reach stratospheric levels.

But something critical is being lost in all of this – that we already have in place a fantastic system that is considered the very best in the nation.

Our No Fault system actually helps people.

Clogging  our courts

It’s both expected and universally accepted that the enactment of a cap on No Fault medical benefits will lead to more lawsuits.

Here’s what two insurance industry leaders said in 2011 after Rep. Pete Lund, R-36th District, introduced House Bill 4936 whose his proposed elimination of unlimited, lifetime No Fault medical benefits would, critics said, leave catastrophically and seriously injured auto accident victims without the means to pay for the products, services and accommodations they will reasonably need for their accident-related care, recovery and/or rehabilitation:

Pete Kuhnmuench, Executive Director of the Insurance Institute of Michigan: “Despite what some critics claim, this legislation would not leave people out in the cold. … [Auto accident victims with] accident-related medical claims [that exceed the new medical limits] … can … sue a responsible party for any excess medical losses.” (9/15/2011, Detroit Free Press, guest writer)

Gary Wolfram, President of Hillsdale Policy Group, Ltd.: “Accident victims can sue responsible parties for costs in excess of medical coverage.” (Gary Wolfram, 9/29/2011, “A Brief Analysis of the Anderson Economic Group report, Impact of Proposed ‘PIP Choice’ Law in Michigan)

Former Michigan Insurance Commissioner Thomas C. Jones recognized nearly 30 years ago that capping No Fault medical benefits would force seriously injured accident victims to go to court:

“[L]imiting first party benefits … would simply result in a renewed increase in tort cases as people were required to sue for benefits denied by a limitation on medical and rehabilitation expenses.” (“No-Fault Insurance In Michigan: Consumer Attitudes And Performance,” Thomas C. Jones, Michigan Insurance Commissioner, April 10, 1978, Pages 76-77)

The irony of all this is that Michigan’s No Fault system was enacted precisely because the “tort liability” or “at fault” system of filing lawsuits, which preceded No Fault, did such a horrible job of compensating seriously injured auto accident victims for their accident-related medical costs.

Here are a few of the criticisms of the lawsuit system:

It is “incomplete, inequitable, inefficient and slow” and it does “a poor job of providing for seriously injured auto accident victims.”

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It had an “inequitable payment structure” because a “high percentage of persons injured in automobile accidents received no reparations under the tort system” and the system “systematically undercompensated the most seriously injured” victims.

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Moreover, “lengthy delays existed under the tort system in compensating those injured in automobile accidents — often in cases where the need for prompt compensation was strongest.”

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As such, given the “long payment delays,” “[s]everely injured people [were forced] to bear devastating financial burdens while waiting for lawsuits to be settled.” (“No-Fault Insurance After Three Years,” Thomas C. Jones, Michigan Insurance Commissioner, October 6,1976, Opening Letter, Introduction, Page 12; “No-Fault Insurance In Michigan: Consumer Attitudes And Performance,” Thomas C. Jones, Michigan Insurance Commissioner, April 10, 1978, Pages iv, 3; Shavers v. Attorney General, Michigan Supreme Court, 1978)

Additional Sources Not Listed Above: “Editorial: Choices can help cut Detroit’s auto insurance rates,” Detroit Free Press, June 7, 2011, reprinted on Sen. Virgil Smith’s website.

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

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