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Protecting yourself after changes to no-fault insurance

Michigan legislators are considering changing insurance benefits for people badly injured in auto accidents.  The sponsors of the legislation say it will lower the price of auto insurance.  Some analysts say it will mean people who are severely hurt won’t get the care they need and argue in the end won’t save much money at all.

Paul Green didn’t know what would happen when his son was catastrophically injured in a car accident.  The crash caused severe head injuries.  He ended up in the hospital for six months.  The bill: $2.5 million.  And when Green’s son started rehabilitation, he didn’t know letters from numbers.  When he went to fill a glass of water, he didn’t know which way to turn the glass to fill it.  It would take years of rehabilitation to relearn almost everything.

That’s when Paul Green finally understood what he was getting when he paid for Michigan’s no-fault Personal Injury Protection.

 That insurance covered the hospital bills, the medication, the rehabilitation and other care Green’s son would need for years to come.

Green says he can’t imagine what would have happened without that insurance coverage.

“What am I going to do? How am I going to live? I mean, am I going to onto welfare program so I can take care of my son and, you know – I don’t know. With this insurance in place, it’s the most wonderful thing in the world.”

But the insurance industry, some legislators,  and Governor Snyder’s Insurance Commissioner say the no-fault Personal Injury Protection is not sustainable.  It’s too generous.  Payments to medical providers need to be cut back.  And people severely hurt in the future should not get those unlimited lifetime benefits that are right now considered reasonable and necessary. 

Backers of the legislation say one of the reasons for the legislation to change the no-fault insurance is the growing number of people who have illegally dropped coverage.  The insurance industry says it’s grown from about 11% of auto owners to nearly 20%.  They blame insurance rates that are too high and the down economy.

Kyle Logue is a professor of law at the University of Michigan.  He teaches about insurance and the law.  He says as auto-owners drop coverage, there’s less money for the companies to cover claims.

“They want to lower overall insurance rates so that they can increase the size of their customer base.”

Now, the Personal Injury Protection, or PIP, portion of auto insurance is not that much higher than the national average.  According to 2008 data from the Insurance Information Institute it’s about 5% higher or $23 a year.  Other portions of Michigan auto insurance premiums are much higher than the national average- Collision is 30% higher. Comprehensive coverage is 13% higher.

Professor Logue says the industry is likely focusing on the Personal Injury Protection portion because it’s easier to change than trying to reduce the number of accidents, theft, or other kinds of auto claims.

And I should make it clear, Logue thinks we should be talking about whether to continue this generous kind of coverage for catastrophic injuries.  But, we should also be getting more and better information about what kind of savings we might be getting and what kind of benefits we might be losing.

He’d like an apples-to-apples comparison of what would happen to someone in a catastrophic injury under the current system and under the proposed system.

“Then let’s compare what the cost would be for those two things and then compare what the benefits would be if they happen to wind up suffering from one of these injuries and let’s see what we’re getting for our money. And I haven’t seen that yet.”

As we’ve reported before, the insurance industry concedes that potentially people won’t get the same level of care they do now from their auto insurance.  But the industry notes private health insurance or government health programs would pick up much of the cost.  And an accident victim could sue to recover costs.

Kyle Logue says that means some of the cost picked up be the current no-fault system would have to be picked up somewhere else.

“So, the Blue Crosses and Blue Shields of the world would see their premiums go up and the taxes that are required to cover Medicare and Medicaid expenses would have to go up eventually. And so one interesting question would be is there a complete offset?  Right? Would the amount of reduction in premiums in auto insurance be replaced by the increase in health insurance premiums?”

It’s not clear.  Because payouts for medical care would be reduced, the primary Personal Injury Protection coverage would last longer, but even then it’s not likely to cover all the necessary care.

Jane Powers is a researcher at Public Sector Consultants.  She put together a study for the Michigan Brain Injury Provider Council.  She says the data she was able to gather on costs to treat someone with a brain injury didn’t include all of the medical expenses, but looking at in-patient costs and rehabilitation for the first year and then the average long term costs, it amounted to twice the minimum level of insurance that will be available under the proposed legislation.

“We’re looking at more than $1 million over a lifetime just on those costs alone.”

And that’s the average.  Some accident victims will need care that costs much, much more.

And Powers noted something else.  Again, as we’ve reported in the past, the insurance industry mentions with many people already covered by health insurance, this is duplicative coverage.  Powers says private health insurance is already tapped first in many catastrophic auto accidents.  And it won’t last forever.

“They’re not going to be able to work. Their private insurance is going to disappear because it’s most likely through their employer and connected to that employment. So, their private insurance will eventually disappear. They will be in a position where they have to exhaust all of their personal resources and their family assets. And eventually, then, they will end up eligible to go on to Medicaid.”

And Powers suggests there will be more uncompensated care by hospitals and doctors which means health care costs for everyone else will likely go up.

So, if these changes are passed by the legislature, what should you do to protect yourself?

First, to get anything close to the current coverage, you’ll likely have to buy the highest Personal Injury Protection available, $5 million worth of coverage.

But, since it’s likely most auto-owners will buy the minimum there’s another risk. 

Let’s say you spill your steaming hot coffee in your lap, blow through a stop sign and you cause and accident that hurts someone else.  They don’t have enough money to cover their medical bills, so they sue you.  You might need more coverage than your insurance automatically offers, so expect to pay more for enough coverage to protect you from a multi-million dollar lawsuit.

Saving the $11 a month you pay for the current Personal Injury Protection system could end up costing you in other ways. 

While the insurance industry says we’ve got to do something about this “unsustainable” no-fault Personal Injury Protection auto insurance right now because the costs will only become greater in the future, some experts say the timing for that decision might be premature.

We really don’t know what’s going to happen with healthcare in America over the next few years.  The Congress passed and the President signed into law a healthcare restructuring plan that will dramatically change how many people will have health insurance in the future.  It’s not unreasonable to think that that might reduce the burden on the fund that pays for catastrophic auto injuries and there might not be a financial crisis at all in the future.

Lester Graham reports for The Environment Report. He has reported on public policy, politics, and issues regarding race and gender inequity. He was previously with The Environment Report at Michigan Public from 1998-2010.
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