Saving Michigan No-Fault
Back in April of 2015, Detroit Mayor Mike Duggan proposed an auto insurance plan that he said would save his constituents, the citizens of the City of Detroit, significant money on their auto insurance.
We have heard it criticized, by persons knowledgeable in the field, such as attorney David Christensen, in his recent Crain's Detroit article, "Duggan's 'D-Insurance' Would Hurt More Than Help". Mr. Christensen points out that any cost savings from implementing the plan are illusory, if they exist at all. Worse for Detroiters, and others in Michigan "eligible" for this scheme, insurance coverage available to such folks is vastly reduced, which in turn, will lead to other consequences as horrible as they are unintended.
As Mr. Christensen points out, " After an auto accident, Detroiters would be entitled to a mere $250,000.00 in "critical care" and a paltry $25,000.00 in continuing care. This cap applies to the total bills for everyone in the vehicle insured by that policy. According to the April 15, 2015 Detroit Free Press article, Mayor Duggan's estimates of available insurance coverage are about the same.
Mayor Duggan goes on to say that after the $275,000.00 cap in hospitalization and after-care is reached, remaining medical costs would be borne by drivers' private health insurance providers, Medicare, Medicaid, etc. Mr. Christensen points out in his Crain's article that if Mayor Duggan's "D-Plan" is implemented, Detroiters with this lower tier of coverage may not even be able to sue the at-fault driver for any shortfall. Instead of the same care everyone else in Michigan receives, Detroiters with catastrophic injuries will end up on the Medicaid rolls, with substandard care.
Candidly, I have concerns with Mayor Duggan's proposal, that David Christensen has articulated far better than I could. It is entirely conceivable that the so-called "reforms" sought so aggressively by the insurance industry represent a solution in search of a problem. Whatever their protestations of poverty, Michigan auto insurers are doing quite well, thank you. One need only see what these insurers spend on lobbying, executive salaries, and the plush amenities and appointments in their home offices to see that indeed, these are the salad days in the auto insurance business. That said, rightly or wrongly, the insurance industry has pushed this issue to a political tipping point. No-Fault advocates need to recognize this reality.
In the same April 15, 2015, Detroit Free Press article Mayor Duggan himself is quoted as saying that the anticipated premium savings from this policy might be as high as $1,000.00 per year, or just about one-fifth of the $5,000.00/year that the average Detroiter is forced to pay.
With great respect to Mayor Duggan, that works out to $83.33/month. That is not much, when we have to consider the gasoline that Detroiters need to put into their cars every month, to get jobs that are likelier to exist in the suburbs, than they are around the corner. $83.33/month works out to $2.78/day, which is not much, when one considers the cost of heat in the wintertime, the cost of groceries year round, and so on.
Detroiters need relief, as do our other lower-income friends and neighbors around the state. They need meaningful relief, and $83.33 does not cut it, particularly when we consider how drastic the cuts will be to insurance benefits at just the time when that help will be needed. Moreover, $83.33 in rate relief will be a drop in the bucket, when folks get shifted into Medicare/Medicaid, and everyone's taxes will be increased to finance the increased claims.
Right now, Michiganders have been offered only two choices. The first is Mayor Duggan's approach, which is to throw pennies at the problem, and to pat ourselves on the back, despite solving nothing. The other choice is to stick our heads in the sand, plea to the morality of our neighbors in not cutting benefits to the less fortunate, and ignore the sad reality of just how much political sway insurance companies hold in this state.
We have a third choice: we can do something meaningful for our lower income friends and neighbors, that preserves the genius of Michigan No-Fault, which brings in new business to insurance companies, and which gets us past the current impasse. By spending no more than we are right now.
How many motorists would need this relief, and what can we do for them?
In 2013, the last year for which data was available, there were 6,986,587 licensed drivers in Michigan, out of a population that year of 9,898,000. That means that 70.58% of our population that year, consisted of licensed drivers.
In 2013, the population of Detroit was 688,701. In order to estimate the number of licensed drivers in the City of Detroit, we apply the same 70.58% to that population figure, and get 486,125, as the number of licensed drivers in the City, during 2013. We are told that as many as half of those licensed Detroit drivers are uninsured, meaning that if half were uninsured in 2013, 243,062 licensed Detroit drivers were uninsured that year. For the sake of this discussion, let us round up that figure to 250,000.
How many other Michiganders would benefit by "access" to the "D-Plan" suggested by Mayor Duggan? As I sit here and write this article, I do not know, but let us assume that around the state, another 250,000 people would be eligible.
If indeed, these folks do not buy insurance, simply because it is priced too high, then it might make sense to "buy down"' or to help subsidize rates in locations like Detroit.
You say it's never been done? It's going on right now with the Michigan Catastrophic Claims Association, or MCCA for short. The purpose of the MCCA is not to subsidize our low-income neighbors; no, the purpose is to subsidize no-fault insurance companies. It's a good thing we do, too.
The MCCA exists to "buy down" the cost of catastrophic injuries; it is effectively insurance for the insurance companies. It is also effectively a subsidy for no-fault insurers, one we should all be glad is there to help all of us, including the insurance companies. We are all asked to contribute to this pool, that then makes the "care, recovery and rehabilitation" promised to us by the Michigan No-Fault Act, affordable for the insurance companies. Again, that's a good thing.
By helping to manage the cost of catastrophic injuries, the MCCA also enables insurance companies to take care of both the catastrophic and the non-catastrophic needs of a much larger population. It seems to me that it is similarly in the interest of everyone in Michigan from Ishpeming to Grand Rapids to Monroe, from Berrien Springs, to Bloomfield Hills, to Alpena, to "buy down" the premium difference for Detroit, and other low income communities around Michigan, with high rates of uninsured motorists. Moreover, we have a fund, amply financed, that can help us do just that. Right now.
Why should those of us outside Detroit, Muskegon etc. subsidize those folks who live there? Because it is plainly in all of our interest to do so.
On a macro and philosophical level, it seems that Michigan does better when Detroit does better; same with other low-income communities whose stagnation is holding back our State. There are economic studies, I am sure, that would bear out this notion, with hard data.
However, there are more practical reasons. Obviously such a "buy down" would enable folks in those communities to buy insurance. That is if the cost of insurance as it is now, is the only hindrance. What it does for the rest of us is to make sure that there is liability insurance to protect us, in the event we have accidents in Detroit, or with Detroiters.
Where would the money come from for this program? If the MCCA has so much money built up in it, as the facts seem to suggest, then certainly some of that money can be disgorged for this purpose. That seems a better use for the money then either lining the pockets of insurance company executives, or simply sitting there waiting for the bills on the extremely expensive, but relatively few catastrophic cases, represented by a relatively few attorneys, to come in.
How do we know that this money is not all needed for those catastrophic cases? Because we know that billions have accumulated in the MCCA fund, and as we will see below, far more than the likely cost of using some of these monies to support low-income Michiganders, and to save Michigan No-Fault for all of us. The fund is not exactly going bankrupt. Estimates of what is now in the MCCA fund run around the $16 billion mark; that is "billion" with a "B".
Multiplying a $200.00 monthly subsidy times the estimated 500,000 uninsured Michiganders, this would cost the MCCA fund $1.2 billion annually, or less than 8% of the funds now held by the MCCA. If the subsidy were only $150.00/month, the annual cost to the MCCA fund would be $900,000,000, or just under 5.7% of the MCCA fund. Meanwhile, what is going to constitute real rate relief to beleaguered Detroiters -- Mayor Duggan's proposal of $83.33/month (=$2.78/day), or $150.00 to $200.00/month, on bills that now average $416.67?
Rather than jam substandard insurance down the throats of Detroiters, low income people, and ultimately, the rest of us, in exchange for the "magic beans" of $83.33/month, why not give real rate relief to Detroiters and low income people, and leave our massively successful and effective no-fault system alone?
And do so, for no more money than we are paying right now, anyway.
Meanwhile, this is also a huge boon to the insurance industry, because it helps another 250,000 to 500,000 currently uninsured drivers to be able to afford insurance. They get new customers.
And the promise of Michigan No-Fault continues to protect future generations of auto accident victims and their families, as it has now, since 1973.
I believe this idea is worthy of study, if only to make sure it would not work. I think it can.
What do you think? Let me know.