Big Auto Insurance Savings Proposed: Companies: Let Drivers Pick Their Medical Coverage

By Chris Christoff, Detroit Free Press

Jul. 18--LANSING -- Insurance companies are pushing to revamp Michigan's only-one-in-the-nation no-fault law that requires all motorists to carry unlimited medical coverage -- a mandate insurers say drives up rates for everyone.

Some key legislators seem to be more willing than in previous years to revisit the issue.

Allowing motorists to buy as little as $50,000 in medical coverage -- and putting strict limits on medical fees doctors and hospitals can charge for injured motorists -- would cut auto insurance premiums by 20% or more, according to the Insurance Institute of Michigan, which released a study on the savings Tuesday.

Buying medical coverage up to $200,000 would save the average motorist 18%, the study reported.

"We think that's what our customers want," said Michael Puerner, vice president for Hastings Mutual Insurance Co.

A coalition that includes doctors and hospitals, trial lawyers and the AARP strongly opposes any change to the state law. They say it would boost insurance company profits while leaving severely injured motorists without enough medical coverage, forcing them on welfare rolls or into bankruptcy. People who have medical insurance through employers or are on Medicaid or Medicare are effectively double covered under the state plan.

In 11 other states with no-fault auto insurance, New York has the highest coverage at $50,000, while others, such as Kentucky at $1,000, are much lower, the study reported.

A proponent in Legislature

One who is open to changing the status quo in Michigan is Rep. Virgil Smith, D-Detroit, chairman of the House Insurance Committee, which is considering legislation to give motorists a choice of less medical coverage. Another bill would limit medical fees for accident victims to the same fees paid for workers compensation claims under state law.

Smith said there's not yet enough support in the Legislature for lowering auto insurance medical coverage. He said for drivers in Detroit, where auto insurance rates are sky-high, any relief would be welcome.

State Farm Insurance conducted a separate study that shows a typical Detroit auto owner would save $400 a year on a $2,800 insurance policy by choosing $50,000 medical coverage, instead of unlimited medical. A $250,000 medical plan would save that auto owner $165 a year, the State Farm study found.

Michigan is the only state that requires unlimited coverage for all auto insurance policies. Motorists pay a flat fee for a statewide fund that covers medical care for those who are catastrophically injured in accidents.

The fee, which changes from year to year, is currently $123 per vehicle, as set by the Michigan Catastrophic Claims Association, a nonprofit agency run by the insurance industry. The rates are based on the number of catastrophic injuries and estimated costs of treating the patients.

Those who purchased less than unlimited medical coverage would not pay the fee for the catastrophic injury fund under the insurance industry plan. They also would not be covered by that fund if they were severely injured. The proposed change would create a situation in which occupants of two cars in a serious accident might have different levels of medical coverage.

In 1992, voters soundly defeated a statewide ballot issue to limit auto medical coverage to $250,000.

"Why lower the bar? It is the model system in the country," said Kevin McKinney, spokesman for the Coalition Protecting Auto No-Fault, or CPAN. "We would like to preserve that system. Auto insurance rates are high in urban areas, but not because of medical costs."

A CPAN report in June criticized insurance companies for excessive profits -- a claim the companies disputed. Industry critics have long complained that insurance rates based on where motorists live -- so-called territory rating -- result in unfairly high rates in poorer, urban areas like Detroit.

1 in 5 drives without insurance

Since 1992, medical costs have soared and have helped put auto insurance out of reach for some, mainly in low-income urban areas, insurance companies say. Medical coverage accounts for about one-third of the cost of typical auto insurance. About 17% of Michigan motorists drive illegally, failing to get insurance, according to the Insurance Institute of Michigan. That number is much higher in metro Detroit.

"If you lower the cost of the product, more people will be able to afford it," said David Field, regional counsel for Allstate Insurance Co.

Field and other insurance executives said Tuesday that giving motorists choice of medical coverage would stabilize auto insurance rates in Michigan. They said 94% of medical claims under auto insurance cost less than $50,000, but the cost of treating a small percentage of severely injured motorists drives up insurance costs for everyone.

Some motorists are wary

Scott Alan Davis, housing director for Vanguard, a Detroit community development firm, said he's wary of any plan that would reduce medical coverage, even if it cuts auto insurance rates.

"Who is it really benefiting? It's not for the people," he said. "So many people don't have health insurance, and if they're in a bad accident, $50,000 would be absorbed in a week, at most. It creates a greater problem."

Davis, 35, who lives in Detroit, said he pays $3,100 every six months for his two vehicles. He said he fears he'll pay even more when he tells his insurance agent he has moved from the far east side to a Midtown loft.

Judah Isaacs, 43, of Oak Park said he is "very leery" of changing the law. "On one end, if there's truly going to be a savings, that would be wonderful," Isaacs said.

But, he said, maximum or unlimited medical coverage should be available to anyone severely injured in a crash.

"We have to look at really making sure everyone has the same options as everyone else," Isaacs said.

Rep. Bert Johnson, D-Detroit, a House Insurance Committee member, said he would support less medical coverage for motorists only if they have a backup in case they are seriously injured. He said insurance companies should pay for a separate fund to cover medical care for motorists who buy less medical insurance than what will cover them when they are severely injured.

Johnson said the public needs to know how changes in the state's 30-year-old no-fault law would affect them.

"Right now, citizens only know they're unhappy paying the amount of money they pay for insurance," Johnson said.

Contact CHRIS CHRISTOFF at 517-372-8660 or [email protected].

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