Slashing Michigan’s auto insurance costs is the first priority for state Republican legislators this session.
When Republicans introduced Senate Bill 1 on Jan. 15, they promised “long-overdue reforms,” including crackdowns on medical fraud, changes to personal injury protection, and potential modifications to Michigan’s no-fault system, said Sen. Aric Nesbitt (R‑Lawton), the bill’s primary sponsor and a 2001 Hillsdale grad.
“Michigan drivers are sick and tired of paying the highest auto insurance rates in the country,” Nesbitt said. “It’s time we modernized the system, reduced fraud and costs, and provided better options for consumers.”
For the last five years, Michigan has had the highest prices for car insurance in the nation. In 2018, Michigan drivers dolled out an average $2,239 for auto insurance — 64 percent higher than the national average premium, according to a Insure.com study.
“It affects our seniors, it affects kids getting into the workforce, and it affects the poor in ways that are unconscionable to me,” said Sen. Lana Theis, (R‑Brighton), chair of the Senate Insurance and Banking Committee. “I had a senior call me, telling me that I made him choose between his food and medicine, or driving… He wanted me to fix it. I have been unable to do so, and it’s a huge burden.”
Michigan’s no-fault system dates back to 1973, when legislators hoped to lower the costs and delays of lawsuits resulting from car accidents. Today, only 11 other states have no-fault auto insurance, and Michigan alone offers unlimited personal injury protection. Its closest rival, New York, caps personal injury protection at $50,000 per person.
Reforming auto insurance has been debated for decades: Legislators have introduced more than 450 bills about auto insurance since 2001, according to Michiganvotes.org.
Sen. Bill 1 aims to break the stalemate. Nesbitt said he was open to “any and all ideas” to drive down costs, including “major reforms” to the no-fault system. He intends to give motorists the option to choose a cheaper, limited personal injury protection.
“You drive down the costs by doing comprehensive reforms. Everything needs to be on the table,” Nesbitt said. “We need to give drivers the ability to choose the best personal injury coverage that best meets their needs and their budget.”
Nearly half of Detroit’s budget for auto insurance feeds personal injury protection, according to a 2015 Pinnacle Actuarial Resources analysis. Michigan’s personal injury protection covers a sweeping range of care for injured accident victims, from hospital expenses to lost wages to funeral services.
Some economists blame Michigan’s unlimited personal injury protection for rampant medical inflation, while Republican legislators call it a “blank check” for hospitals to exploit.
“Everyone knows that when there is a blank check, at the other end, costs are going to go up dramatically,” Theis said. “We need to pull that blank check out of the system.”
Medical providers sometimes charge auto insurers two or three times more than health insurers. Auto insurers coughed up $5,300 for a MRI in Detroit, while the identical procedure cost $1,000 at other hospitals or just $500 under Medicare, according to an 2017 investigation by the Detroit Free Press.
“There is no pricing, so there is no transparency,” said Hillsdale College Professor of Economics and Public Policy Gary Wolfram. “And that’s the basic problem: People respond to incentives. If you tell the hospital, ‘We’ll pay you $4,000 for the MRI,’ they are going to charge $4,000 for the MRI.”
Nesbitt and Theis hope to slash these costs by introducing a no-fault fee schedule, which would set fixed prices for medical providers, and by allowing drivers to opt out of unlimited, lifetime personal injury protection and into a reduced-price, reduced-coverage plan.
But the defenders of the no-fault system denounce trimming unlimited personal injury protection. Any overhauls of personal injury protection or the no-fault system will face the powerful Coalition Protecting Auto No-Fault, the lobbying arm of medical providers, plaintiff attorneys, and patients.
“In the past, these proposals failed because eventually people realized what these proposals are all about — depriving people of care,” said CPAN spokesperson Steve Sinas. “The idea that no-fault is this fundamentally flawed thing, that it is burdening our state, that it must be fundamentally changed, is not true.”
Sinas said he would welcome reforms that would introduce a fee-schedule, attack fraud, and reduce litigation. Two out of every five lawsuits in Michigan courts are filed over auto accidents, according to Crain’s.
In Hillsdale County, where residents ranked transportation as a top concern, the cost of auto insurance hurts those who struggle with generational poverty the most. The sky-high premiums likely push them into driving without insurance, said Community Action Agency Hillsdale County Manager Clint Brugger.
“There are a lot of people for whom it is a burden to find money in their budget to pay their insurance,” said Rep. Eric Leutheuser, (R‑Hillsdale), a 1982 Hillsdale grad. “I’ve had people tell me that if insurance rates go up any higher, they don’t know what they’re going to do.”
As of 2015, one in five drivers didn’t have car insurance in Michigan, slotting the Wolverine state in fourth place for uninsured drivers, according to an Insurance Research Council study.
“Chances are, if you need to get to work and you don’t have the means to be able to make your car insurance payment, you’re going to drive without,” Brugger said. “You don’t want to lose your job, that would just put you further behind.”
Republican legislators hope that by pushing reforms through Congress, they can lower the cost of living for Michiganders.
“I know people who grew up in Hillsdale County, whose friends are here, but who are living over the border because auto insurance is cheaper. It’s unacceptable — I want those people to stay here,” Leutheuser said. “And if we can lower the costs of living, we can help them stay in Michigan.”