On Thursday, April 16, Michigan’s Senate passed Senate Bill 248, a bill that proposes major changes to Michigan’s no-fault auto insurance system. The bill includes reforms that would generally create more transparency in a new association created to replace the Catastrophic Claims Association (who calculates the annual per vehicle catastrophic claims assessment paid by insured car owners), create an auto insurance fraud authority, set attendant care pay limits, and potentially reduce the prices paid for auto accident claims to medical providers. New language also strives to ensure that rates for automobile insurance are not “excessive,” but it is probable that consumers will only see insurance rate and vehicle assessment relief if savings from changes to medical spending are passed to consumers by auto insurers and by the new association that handles catastrophic claims.
In 2013, Citizens Research Council issued a report, Medical Costs of No-fault Automobile Insurance, which analyzes the medical costs associated with the state’s auto insurance system. Medical costs typically make up 30 percent of nationwide auto insurance premiums. The CRC report identifies some reasons why Michigan’s medical costs associated with auto insurance may be higher than necessary; several of the reforms in SB 248 address the points raised in CRC’s report.
Michigan is one of 12 states with either mandatory or optional no-fault insurance. As part of Michigan’s no-fault insurance, drivers are required to purchase personal injury protection (PIP). PIP provides coverage for unlimited medical costs of an injured party in an accident, regardless of fault. These include direct medical care, but may also pay for facility or in-home attendant care if medically necessary. Michigan’s coverage also pays up to 85 percent of the income the injured party would have earned had the driver not sustained an injury in the accident and injured parties are entitled to up to $20 per day in replacement household services (such as housekeeping and yard work) if they are unable to perform these services themselves.
These features of Michigan’s auto insurance law remain intact in SB 248. What SB 248 does address is the reimbursement prices paid for medical and hourly attendant care services for injured parties.
Reimbursements to Medical Providers
In regards to prices charged for medical services, the Michigan Insurance Code currently states that providers “…may charge a reasonable amount for the products, services and accommodations rendered. The charge shall not exceed the amount the person or institution customarily charges for like products, services and accommodations in cases not involving insurance.” This language, which is retained in SB 248, has been held to mean that auto insurers must pay the amount customarily charged and not the amount customarily received. This distinction is important because some payers (but not all) for medical services do pay, or are able to negotiate, discounted rates- namely Medicaid, Medicare, and private health insurers.
The impact that this language has on the amount auto insurers and the Michigan Catastrophic Claims Association (MCCA) pays for medical services on behalf of parties injured in auto accidents may be quite significant. CRC’s report includes a medical fee comparison showing that for the 15 most common charges, Detroit’s no-fault reimbursement exceeds workers’ compensation reimbursements by anywhere from 13% for a 25-minute office visit to 335% for a neck CT scan.
The language and legal interpretation of the Insurance Code may explain why providers’ claims for reimbursement for medical care related to auto accidents are 24 percent higher in Michigan than in other states, when holding the amount of care constant. CRC’s report outlines a number of policy options that would reduce medical costs related to no-fault, many of which could be implemented without impacting the quality or quantity of care provided to those injured in auto accidents. Some of these options include: introducing a fee schedule for auto insurers, similar to that required for workers’ compensation; designating the health insurer as primary payer for auto accident related medical expenses and the auto insurer as the secondary payer; and allowing auto insurers to pay the amount customarily received or allowing auto insurers to pay the same prices as health insurers.
Senate Bill 248 implements one of these policy options: allowing auto insurers and the catastrophic claims association to pay the same amount that the provider receives from other payers (excluding Medicare and Medicaid) for similar services. While maintaining the language allowing providers to charge the amount they customarily charge for similar services, new language follows that effectively allows insurers and the association paying for catastrophic claims to pay similar rates as private health insurers. Regarding the charge, new language states: “If parties are unable to reach an agreement, the insurer or corporation…is not required to pay an amount that exceeds the average amount the person or institution accepts from all sources for like products, services, and accommodations.” It goes on to exclude from the average other cases involving PIP, as well as Medicaid and Medicare rates.
Attendant Care Pay Limits
Senate Bill 248 also addresses spending related to in-home attendant care. Of major note is a limitation on the payment for in-home attendant care provided by a family or household member to $15.00 per hour, regardless of the care provided or licensure of the attendant. CRC’s report identified attendant care as an expense driving spending by the MCCA, the association that currently pays for catastrophic claims. For the period covering July 1, 2010 through June 20, 2012, roughly 21.8 percent of MCCA loss payments were for family attendant care. Providers of these services have the same legal right as other providers to receive the entire amount they bill. As such, prices for attendant care vary widely. The current statute only requires that that charges be “reasonable.”
Analysis of Proposed Law
The changes to auto insurance proposed in SB 248 represent a significant departure from the current law which sets no specific rates and generally leaves it to providers to charge reasonable rates for services. The reduced spending for medical care related to auto injuries that would undoubtedly occur should SB 248 be passed by the House and signed into law, would be significant mostly for the new association that would handle catastrophic claims in excess of $545,000. Reduced spending here could reduce the per vehicle assessment charged to insured motorists by the association. This amount is currently $186 per vehicle. Auto insurers would also see savings but there are currently no provisions in the bill that ensure those savings are passed on to consumers through lower premiums.