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Why “low-cost” No Fault insurance discriminates against the poor — and won’t guarantee savings for auto insurance consumers

March 5, 2014 by Steven M. Gursten

Consumers get $10 million in No Fault medical coverage, but “poor” are limited to $50,000. It just doesn’t seem fair…

No Fault - Low Income Discrimination

The “low-cost” No Fault option that House Speaker Jase Bolger (R-Marshall) has proposed in his plan for No Fault “reform” in actuality discriminates against the poor. It also is no  guarantee of savings for Michigan’s auto insurance consumers.

In today’s installment of my blog post series analyzing Speaker Bolger’s  recent proposals to change Michigan’s No Fault auto insurance system, I will look at his proposal for:

  • A low-cost No Fault auto insurance option with a $50,000 cap on No Fault medical benefits for individuals who earn up to 133% of the federal poverty level, e.g., approximately $15,000 per year.

Bolger’s “low-cost” No Fault option discriminates against the poor

Speaker Bolger’s “low-cost” No Fault option hurts the poorest of Michigan’s auto insurance consumers.

Consider the difference in coverage levels.

For  those who can afford to buy a traditional No Fault auto insurance policy, they would get up to $10 million worth of No Fault medical benefits.

But “poor” auto insurance consumers, those who earn up to 133% of the federal poverty level or approximately $15,000 per year, they only get $50,000 in No Fault medical benefits. If they’ve been seriously injured in a bad car accident, that might not cover the ER and the first 24 hours of hospitalization.

In other words, under Speaker Bolger’s “low-cost” No Fault option, the poor are entitled to only .5% (or ½ of 1%) of the No Fault benefits and protections that the rest of us receive.

This GOP “tax increase” is also no guarantee of larger savings on the price of auto insurance

Before we examine this, let’s begin with the obvious point: This is a cost-shifting mechanism (ironically, by a Republican lawmaker) that shifts the burden of paying for a “poor” person’s medical care and treatment from the auto insurance to the rest of us, as taxpayers.

Someone who has suffered catastrophic brain injury or spinal cord injury from a car accident won’t suddenly get better when the first $50,000 in medical has been spent.  Instead, the burden becomes the one for the rest of us, as this person is put on Medicaid.  That means that instead of highly profitable insurance companies, who charge all of us a premium to insure against a car accident risk, the cost of all future medical care is transferred to the public.

This is a boondoggle for the insurance companies, but it is a tax for everyone else.

In addition, when we look beyond this new tax, a $50,000 cap on No Fault medical benefits also is no guarantee of savings.

Just consider what New York consumers pay for auto insurance despite the state’s $50,000 cap on No Fault medical benefits.

Even though No Fault medical benefits are capped at $50,000, New York consumers pay more for auto insurance than do consumers in Michigan, where there is no cap on No Fault medical benefits. New York consumers pay $1,234 for auto insurance whereas Michigan consumers pay $1,100, according to the National Association of Insurance Commissioners and the Insurance Institute of Michigan.

“Irresponsible” and “unrealistic”

A $50,000 cap on No Fault medical benefits is also – in my opinion as an attorney who sees the impact of serious automobile accidents every single day – irresponsible and unrealistic.

Some might dismiss my own opinion because I am an attorney who practices No Fault law. I may be accused of bias.

But The Detroit Free Press said the same, and in fact said it best, when it made the following observation about a so-called No Fault “reform” plan, Senate Bill 514, proposed by Sen. Virgil Smith (D-4th District) in 2011:

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

To read more, please check out my post, “Virgil Smith’s No Fault reform bill is irresponsible and unrealistic.”

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