Auto insurance reformers: Get rid of no-fault
“I think on the House floor, it’s got a snowball’s chance in hell (of passing),” said state Rep. Aaron Miller, a Sturgis Republican and one of the sponsors of the legislation to repeal the no-fault law. “I’m not unrealistic about its chances — I don’t thin k it has any chance.”
The odds of Michigan flipping a switch in 2020 with a completely different auto insurance law may seem low.
But experiences in other states could be instructive as to how Michigan policymakers proceed with addressing this vexing issue seen as a deterrent to talent attraction, particularly in Detroit where auto insurance premiums are often twice what drivers in the suburbs pay.
In 38 states with tort laws, drivers injured in a car accident have to sue the other motorist to get their hospital and rehabilitation bills paid.
Personal injury attorney Thomas Waun said drivers in tort states have much lower-cost auto insurance, but at a price.
“It can take two years in litigation. It takes much longer where fault’s not an issue,” said Waun, managing partner in the Flint office of Johnson Law PLC. “You don’t have any ability to recover your wages, you can’t pay your bills and it becomes a real economic problem, even if you have a viable claim down the road.”
Unlike Michigan’s uncapped personal injury protection (PIP) benefits, most tort laws have limited medical coverage that the other driver can recover in litigation — and the dollar amounts can vary wildly by driver, said Paul Heaton, an adjunct economist at the Rand Corp.
“It might be $50,000, it might be $1 million,” said Heaton, who has researched the nationwide decline of no-fault laws that were widely adopted in the 1970s. “And beyond that, the injured individual is kind of out of luck, at least through the auto insurance.”
Under a tort system, when the limited liability coverage under the auto insurance is exhausted, drivers typically turn to their health insurance to cover hospital stays, surgeries and rehabilitation.
“Everything would shift to health insurance, as a practical matter,” said Jim Lynch, vice president of research and education for the Insurance Information Institute, a Washington, D.C.-based industry group. “Whatever health coverage you have, that’s the coverage you have.”
Colorado abandoned its no-fault insurance law in 2002 in favor of a tort system and has seen a shift in who pays.
In the subsequent four years, the percentage of drivers relying on Medicare or Medicaid government health insurance to pay for auto accident claims more than doubled to nearly 14 percent, according to a 2008 study commissioned by the Centennial State’s governor that year.
The combined percentage of drivers classified as “self-pay” or charity care also doubled to nearly 29 percent of all claims, according to the study.
The Colorado study found that between 2002 and 2006, auto insurers went from paying three-quarters of all hospital bills for injured drivers to about half.
“Were Michigan to enact these laws, there’s going to be a shift to private health insurers and uncompensated charity care that’s borne by the medical providers,” Heaton said.
The tort legislation introduced last week in the Michigan House would establish a minimum bodily injury coverage of $20,000 for an individual and $40,000 for the entire accident.
Drivers could choose to buy additional medical coverage to protect themselves in the event they hit and injure another motorist, Lynch said.
Because Michigan’s auto insurance law provides medical treatment for drivers regardless of who caused the crash, it was envisioned to reduce the amount of personal injury litigation.
But over time, through a series of court rulings, there’s been a skyrocketing number of lawsuits over the scope of medical care, lost wages and other benefits.
A Crain’sanalysis of state courts data found there was a 163 percent increase in the number of first-party lawsuits between drivers or their doctors and auto insurance companies between 2007 and 2016.
In Macomb County, the number of no-fault cases shot up 165 percent during that decade-long period, while Oakland County’s number of lawsuits rose by 82 percent.
The lawsuits have added an untold cost to the more than $3 billion in medical claims that Michigan drivers seek each year from auto insurers.
“No-fault was designed with the mindset that we’re going to get rid of the litigation,” Heaton said. “As a practical matter, we’re not getting rid of the litigation.”