No Fault attorney explains real costs of No Fault “reform”: bankruptcies, higher health insurance rates, increased Medicaid & Medicare burdens and higher auto insurance
First, let’s discuss the best possible spin that No Fault “reform” proponents like Gov. Rick Snyder and the insurance industry have to say for why we should change Michigan’s No Fault law. Ready? You save $10 a month for a year, and in exchange, you lose the right to receive lifetime medical care if you’re in a catastrophic auto accident.
Now, let’s discuss the parts that they aren’t talking about – the most notable of course being a giant boondoggle to the state’s auto insurance companies, as they get to shift the costs of catastrophic medical care to the taxpayers.
But it doesn’t end there. In fact, the $1 million proposed cap on No Fault medical benefits as proposed in House Bill 4612 will cost accident victims, their families, taxpayers and Michigan drivers as much as another $630 million per year.
Currently, Michigan’s No Fault Law guarantees auto accident victims reasonably necessary and reasonably priced lifetime medical benefits if they are catastrophically injured in a car crash.
By eliminating that guarantee and replacing it with a cap on No Fault medical benefits, HB 4612 will shift the cost of catastrophic claims (that exceed $1 million) from the No Fault system and the Michigan Catastrophic Claims Association (MCCA) to crash victims, their families, taxpayers and Michigan drivers.
To get a sense of what that would mean in actual dollars, the House Fiscal Agency, in its May 30, 2013, 18-page Legislative Analysis of HB 4612, examined the Michigan Catastrophic Claims Association’s payouts in excess of $1 million on catastrophic claims exceeding $1 million between 1981 and 2012.
Focusing on 2012 when “the MCCA paid $639.4 million in excess of $1.0 million” for claims exceeding $1 million, the HFA concluded:
“Had HB 4612 (H-1), with its PIP benefit cap, been in effect during FY 2012, all other things being equal, the $639.4 million in payments described above would not have been made under the no-fault system [i.e., the MCCA]. This is illustrative of the magnitude in cost-shifting under this legislative proposal.” [Emphasis added]
Who is going to pay for No Fault “reform” cost shift, and how?
Accordingly, if No Fault and the MCCA are no longer going to pay for auto accident victims’ catastrophic claims that exceed $1 million in cost, then this begs two obvious questions:
- Who’s going to pay?
- And how are they going to pay?
The first question is easy to answer: The folks who will be picking up the tab for and bearing the burden of the hundreds and hundreds of millions of dollars in “shifted” catastrophic claims costs are the victims, their families, taxpayers and Michigan drivers.
The second question is easy to answer, too, but the following list of payment sources paints a very bleak picture:
- Out-of-pocket: The median household income in Michigan is approximately $48,000 according to the U.S. Census Bureau. The average payment in 2012 for back and neck or “moderate” brain injury claims in excess of $1 million were approximately $98,000 and $158,000, respectively, according to the HFA’s calculations. Therefore, it’s easy to see that paying out-of-pocket is nothing but a quick and short drive to bankruptcy.
- Medicaid and Medicare: This will be the option for auto accident victims who are neither independently wealthy nor covered by a private health insurance plan. Of course, an increase in Medicaid and Medicare claims for catastrophic auto accident injuries will cause the burden on taxpayers to skyrocket. As the HFA noted in its “Legislative Analysis”:
“House Bill 4612 would have a significant … fiscal impact on the state budget, primarily on the state’s Medicaid program.”
- Health Insurance: With approximately $630 million in new, annual catastrophic claims liability coming their way, you can bet health insurance companies are going to raise their rates – even more than they already are as a result of the Affordable Care Act – in preparation of the new risks they will be obligated to cover.
- Uninsured and Underinsured Motorist Coverage: Relying on UM or UIM auto insurance to cover catastrophic claims that have exceeded HB 4612’s $1 million No Fault cap on medical will, of course, cause rates for those lines of coverage to increase.
- Lawsuits: A lot more of them. As a result of injured auto accident victims suing the at-fault drivers who caused the automobile accident, the liability portion of all Michigan drivers’ auto premiums will almost certainly rise. Existing liability coverage only covers non-economic, i.e., pain and suffering damages. Expanding that coverage to include catastrophic claim costs in excess of $1 million — and all of the attendant are (in-home nursing services) litigation costs incurred by at-fault driver’s insurance company — will come at what will most likely be a very steep cost.
The auto insurance consumers guide to Michigan No Fault reform and HB 4612