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Steven Gursten
Steven Gursten
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Debunking the Top 4 Myths about Michigan No Fault insurance

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The battle has begun. Last Thursday, the committee started hearings on possible No Fault Auto Insurance Reform in Michigan. I was following the hearings and tweeting some of my observations based upon the questions and answers being given. On this note, how sad to watch R. Kevin Clinton, Michigan’s insurance commissioner, testify at the hearing. He has apparently forgotten he is no longer working for the insurance industry, based upon his own startling ignorance as to how claims are actually being handled and misstatements such as the one that he believes auto insurance companies “usually pay bills in full.”

Today, based upon the hearing last Thursday, I'd like to debunk four common myths that are being spread by the insurance industry as part of their agenda to foist No Fault insurance "reform."

They get away with this because the reality is that many Michigan drivers – and even Michigan lawyers – don’t fully understand what No Fault is, how No Fault benefits (also known as PIP or Personal Injury Protection benefits) work if they are seriously injured in a motor vehicle accident, or how it provides accident victims with unlimited, necessary lifetime medical coverage if they need it. So to set the record straight, let’s pop some urban myths.

Myth 1: Michigan’s No Fault medical benefits are excessive compared to other states

To try to make its point that Michigan’s guarantee of necessary lifetime medical care is excessive, the auto insurance industry compares Michigan to New York.

In New York, No Fault medical benefits are capped at $50,000. But the comparison is misleading as it does not take price into account.

That’s most likely because New York’s auto insurance, with its $50,000 cap on No Fault medical benefits, costs more than Michigan auto insurance with its unlimited, lifetime No Fault medical benefits.

And it has been this way for some time. Going back as far as 2002, auto insurance in New York has cost at least $100 more per year than in Michigan, according to data from Insurance Institute of Michigan, which is based on figures from the National Association of Insurance Commissioners.

Myth 2: Auto insurance is overpriced compared to neighboring states

Comparing Michigan to Minnesota, Wisconsin, Illinois, Indiana and Ohio is like comparing apples to oranges.
With regard to Minnesota, the only other No Fault state in this group, it is true that Michigan auto insurance premiums are slightly higher.

But comparing Michigan’s guarantee of unlimited, necessary lifetime No Fault medical benefits — which could run into the millions of dollars — to Minnesota’s $20,000 cap, it’s clear that Pete Kuhnmuench, Executive Director of the Insurance Institute of Michigan, was right when he said “[m]otorists in this state are getting a bang for their buck when it comes to protecting themselves in the case of a traffic crash.” (IIM press release, 12/2/2009) To read more positive things Kuhnmuench has said about Michigan No Fault, click here.

Recent comments by Lynne McChristian, a spokesperson for the Insurance Information Institute (III), provide the right perspective for considering the price difference between Michigan and the other four states, all of which rely on tort systems (lawsuits) for resolving auto accident-related medical benefits claims.

In an interview with the South Florida Sun-Sentinel about the possibility of Florida dropping its No Fault auto insurance system and moving to a tort system, the Ms. McChristian identified the following “negatives for the consumer”

  • Slower handling of claims
  • Delays in receiving medical treatment
  • More lawsuits.

Remember, Michigan turned to a No Fault insurance system in 1973 because the previous tort system resulted in thousands of small lawsuits. Most of the small lawsuits were for for medical bills and wage loss, and threatened to shut down the courts.

Myth 3: Michigan auto insurance rates are high because No Fault medical claim costs are increasing

This is not true.

The auto insurance industry in Michigan claims that No Fault medical claims costs are skyrocketing. In a recent press release, the Insurance Institute of Michigan stated on its website that “during the last 12 years, the average auto insurance Personal Injury Protection (PIP) medical claim rose more than 224% …”

Based on that statement, you might assume that auto insurance premiums in Michigan increased by a proportionate amount.

Not so much.

The most recent available information shows that Michigan auto insurance premiums are only approximately 5% higher than they were in 2002, according to data from the Insurance Institute of Michigan (IIM), which is based on figures from the National Association of Insurance Commissioners (NAIC).

Further, rates are even lower now than they were in 2003, 2004 and 2005, according to the IIM and NAIC data:

  • 2010 average Michigan auto insurance premium: $1,073.52
  • 2005 average Michigan auto insurance premium: $1,088.97
  • 2004 average Michigan auto insurance premium: $1,128.16
  • 2003 average Michigan auto insurance premium: $1,088.15
  • 2002 average Michigan auto insurance premium: $1,018.57

For more information, read “The truth about Michigan auto insurance rates.”

Myth 4: Medical providers are overcharging Michigan No Fault for their services

The auto insurance industry often claims that doctors and hospitals charge more for their services when a No Fault insurer is paying, rather than a health insurer or the workers' compensation system. The best retort to this statement was provided by Oakland County Executive L. Brooks Patterson in a recent open letter that he posted on the Oakland County website.

Mr. Patterson’s observation on why auto insurance companies should be required to pay more has gone unchallenged from the insurance industry to date. Below is Mr. Patterson’s comments on the subject of alleged No Fault “overcharging:"

“Auto insurance providers also claim that they pay more for medical services than other providers such as Blue Cross and Medicare and further claim that they should pay the same rate. Some simple facts are that Blue Cross and Medicaid represent a larger scale of business to the medical industry than auto insurance. Also, Blue Cross and Medicare provide preapproval for medical services, allow for electronic medical billing and provide payment within several days by direct deposit. This gives the medical providers’ confidence that they will be paid in a timely manner and reduces the cost of doing business.”

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“By comparison, auto insurance companies do not provide preapproval for medical services, do not allow for electronic medical billing and often refuse to pay their bills and/or force the medical provider to retain legal representation in order to get their invoices paid. This causes great uncertainty by the medical providers that they will be paid at all for legitimate medical services that have already been rendered and increases the cost of doing business.”

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“This topic is analogous to people with different credit scores wanting the same interest rate from a bank. Blue Cross and Medicare have the equivalent of a great credit score and auto insurance has the equivalent of a poor or low credit score. It’s unrealistic to think that these different entities could (or should) qualify for the same rate when one has a history of paying their bills promptly and the other has a reputation for slow payment at best and no payment without legal intervention in many well documented cases.”

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