Cut-Rate Insurance

In her first policy win after five months in office, Gov. Gretchen Whitmer signed a bill that lowers auto insurance rates without calling for public hearings. The lack of transparency would have rooted out problems affecting businesses, catastrophically injured patients, and caregivers.
Cut-Rate Insurance illustration
Illustrations by James Yang

As Michigan regulators and insurers prepare to roll out drastic no-fault insurance reform on July 1, critics and supporters of the legislation seem able to agree on one fact: Neither side yet knows for sure whether motorists will see significant relief from paying the highest premiums for auto insurance in the nation.

Some legal and insurance industry experts believe years of clamoring for lower auto insurance rates may have blurred the reality that motorists who choose cheaper levels of coverage offered by the new law will be settling for much less protection than they had under the no-fault regimen.

The state’s national reputation as the gold standard for care of the catastrophically injured also will take a hit, say lawyers and those who provide care to people severely injured in auto accidents.

The formula for calculating any savings on premiums won’t begin to come into focus until May, after the insurance companies operating in the state file a required declaration with the Michigan Department of Insurance and Financial Services documenting the cost of insurance they sold last year. Any savings motorists may receive will be a percentage of those sales.

Businesses that require employees to drive company cars or their own vehicles for their jobs likely will find their insurance bills going up, not down. As a result, affected companies will need to add medical liability coverage for their drivers, or anyone they may injure in an accident.

“One thing to remember about no-fault is that it was an immunity statute, and drivers of vehicles were immune from liability for medical expenses,” says Arthur Liss, a partner of Liss Seder Andrews, a law firm in Bloomfield Hills that specializes in no-fault insurance claims for clients with significant brain and spinal injuries.

“If you’re an employee driving a vehicle owned by your employer, the coverage you get is what your employer purchased. So, are the employers going to purchase lower-limit policies that provide lower no-fault limits for their employees, or are they going to provide higher limits of coverage? Those are decisions employers will now have to make.”

One provision of the new law puts the responsibility for personal injury protection coverage squarely on an employer. If someone is injured while occupying an employer-provided vehicle and is drawing personal injury benefits under the employer’s policy, the coverage limits selected by the employer will apply to the victim regardless of whether the injured person’s own insurance had higher limits.    

Nicholas S. Andrews, a partner at Liss Seder Andrews, points out that in Michigan, anyone involved in an auto accident can sue the person who was at fault for causing the accident.

“You’re not suing for your medical expenses. You’re suing for pain and suffering, and policies purchased by drivers and by businesses covered that eventuality,” Andrews says. “What the policies didn’t need to cover, because it wasn’t going to be a liability for the owner of the vehicle, were medical expenses. Now it could be.”

Jason Moon, a spokesman for Gov. Gretchen Whitmer, says various options motorists can chose for coverage for individuals and businesses under the new law will reduce insurance costs.

“As with individual policies, there is no indication that any costs related to additional liability coverage on commercial auto policies could offset the overall savings related to personal injury medical coverage,” he writes. “Businesses will be able to choose body injury limits that best suit their company’s needs.”

While the savings motorists may enjoy remain hard to discern, a new fee schedule for hospitals, doctors, caregivers, and providers who treat severely injured accident survivors dictate they can only bill insurers up to 55 percent of their rates.

Operators of some clinics and facilities that treat those victims say cuts that deep will drive them out of business. In-home attendant care for survivors also will be trimmed. That benefit will be capped at 56 hours per week for family members and associates. These reductions are intended to cut costs for insurers — who, in turn, will reduce the premiums motorists pay.

Critics of Michigan’s high auto rates blame the costs on the state’s no-fault insurance guarantee of uncapped lifetime medical benefits for individuals who suffer catastrophic injuries in auto accidents.

Their insurance companies, up to a cut-off point of $580,000, pay for the cost of treatment for severely injured drivers with no-fault insurance coverage. Insurance payments above that amount are reimbursed by the Michigan Catastrophic Claims Association (MCCA), a private, nonprofit unincorporated association created by the Michigan Legislature in 1978. All Michigan drivers with insurance pay an annual fee of $220 into the fund.

For years, the fund has been criticized for its opaque operation and its lack of transparency. No state official, from the governor on down, has ever seen its balance sheet. Nor is it subject to the state’s Freedom of Information Act.

Michigan auto insurance cost

According to the MCCA’s latest annual report, issued in December 2019, the fund had assets of $21.9 billion and liabilities of $20.6 billion, resulting in a surplus of $1.3 billion. There are more than 18,000 accident victims now drawing benefits from the fund.

At the same time, a March 2019 study by the University of Michigan in Ann Arbor showed state drivers paid an average of $2,600 annually for car insurance — almost double the national average. For Detroiters, the insurance burden is even more onerous, with average premiums topping $5,414.

Moving forward, on July 1 drivers can choose from a tiered menu of choices for personal injury insurance coverage at $50,000, $250,000, or $500,000. There also is an option for unlimited lifetime medical coverage, similar to no-fault as it now exists, but the cost has not yet been determined. The annual $220 MCCA fee will be removed from motorist’s bills with the first three choices, and drops to $100 for drivers who want to keep unlimited no-fault benefits. The MCCA fund will continue to pay benefits for policies issued before July 2, 2020, and for those who keep unlimited no-fault medical benefits.

Drivers who are on Medicare, or have commercial health insurance that covers auto accidents with a per-person deductible no higher than $6,000, can choose to opt out of no-fault medical benefits altogether.

The $50,000 level is restricted to drivers who are covered by Medicaid and whose spouse and family members are also on Medicaid, or have other health insurance or personal injury coverage through a different policy.

This level of coverage would result in an average reduction of “45 percent or greater per vehicle,” the law states. The $250,000 and $500,000 options are available to anyone, without limitations, with 35 percent and 20 percent reductions per vehicle. Lifetime unlimited policies will see an average reduction of 10 percent. The percentages stay in effect for eight years after the law goes into effect.

Drivers who opt out of no-fault personal injury protection benefits in favor of their own health insurance will get a 100 percent savings on that portion of their auto insurance bill.

“Under the new law drivers can lower their premiums because they will be able to choose a PIP medical coverage level appropriate for their needs and budget. Drivers who select PIP medical coverage less than unlimited will see meaningful savings,” the governor said in a statement.

The governor’s comment also points out that insurance companies will be required to reduce state-wide average personal injury medical premiums for eight years, while the $220 fee per car for no-fault coverage will go away for all motorists except those who continue with unlimited coverage. Drivers in that category will pay $100 under the new law.

At first glance, reductions as high as 45 percent would seem substantial.

However, Lansing-based lawyer Stephen H. Sinas, one of the authors of a comprehensive, 26-page analysis of the new law circulating in legal circles, says the 45 percent, 35 percent, and 20 percent cuts aren’t what they first appear to be. The percentages will be based on the average cost of no-fault insurance that the insurer sold across the state of Michigan, he explains.

Even a number of legislators who voted for the reform appear confused about possible savings.

“Some are saying look at your (personal policy declaration) sheet and see what you’re paying and reduce it by 45 or 35 or 20 percent — that’s not true,” Sinas says. “It’s an average of what State Farm, or one of the big companies, sold their insurance for across the state of Michigan.”

State taxpayers could wind up underwriting costs for some motorists who choose the lowest tier of coverage. According to the nonpartisan Senate Fiscal Agency, the $50,000 Medicaid-backed auto insurance policies would shift $70 million in additional Medicaid costs to the state over 10 years.    

Steven Gursten, principal of Michigan Auto Law in Farmington Hills, who has written extensively on the nuances of the reform bill, points out that the percentages of savings apply only to the no-fault personal injury portion of a motorist’s insurance bill. That portion of the bill represents 35 percent to 44 percent of the total cost of the premium the driver pays. Comprehensive and collision coverages to repair or replace vehicles cost much more than personal injury protection and are unaffected by the reform.

“It’s reasonable to expect (that) for most drivers who currently find auto insurance to be unaffordable, this new Michigan no-fault law will fail to make any meaningful difference,” Gursten said in a posting on his Michigan Auto Law website.

Residents of Detroit may also be disappointed in any overall relief.

Michigan auto insurance resources

“In Ingham County, where I live, I don’t pay anywhere near what people in Detroit are paying for no-fault, and my cost will be based on what my insurance company’s average is. So clearly, Detroiters aren’t going to get the same break I get,” Sinas says. “If they’re paying $3,000 per year and I’m paying $1,500 and the (insurance company) average is $2,225, and that’s the number we’re getting our reduction from, I’m getting more of that when you apply my $1,500 than the person in Detroit paying $3,000.”

First-term House Rep. Krya Harris Bolden (D-Southfield), one of only 19 Democrats in the House and Senate to vote against the insurance bill last May, says the formula of a statewide average to calculate rollbacks was one of the main reasons she voted against the measure.

“If I’m already paying higher than the state average, what rate relief am I going to see off my bill?” she asks. “How are people that are most impacted — people in southeast Michigan, and particularly in Detroit — what reductions are they going to see based on these average, quote-unquote, rollbacks?”

Before she ran for office, she says she was an insurance defense attorney and a court staff lawyer who reviewed hundreds of no-fault cases.

“I know our no-fault system like the back of my hand, and I felt there were a lot of loopholes insurance companies could take advantage of in this bill. I think it’s a very dangerous road to go down for our democracy when we’re passing a 150-page bill without public vetting, so I was a ‘no’ vote based on the process.”

She welcomes the banning of the non-driving discriminatory factors insurers previously used to drive up rates. The range of criteria included charging women more than men, charging widows more than widowers, and basing rates on marital status, ZIP codes, credit scores, homeownership, education, and crime statistics.

Harris Bolden says, however, that even though ZIP codes can’t be used to redline consumers, the new law allows insurers to create “geographic territories” which could encompass a neighborhood, a census tract, or a larger area. With the new law, insurance companies will continue to discriminate. While credit scores are banned, insurance companies can substitute variations such as credit histories or “insurance scores” to set rates.       

“Those are major, major, loopholes that clearly get around the actual intent of the bill,” Harris Bolden says.

And for a governor who campaigned on transparency and representative government, there were no public hearings or proper vetting of the bill before votes were taken. In addition, there are unintended omissions, such as the treatment of motorcyclists — an oversight Harris Bolden hopes to correct in a bill she has recently submitted to the House.

Bikers involved in an accident are bound by the limits of the insurance policy of the driver of the vehicle in the crash, even if the rider has his or her own unlimited lifetime coverage, she says.

“These are people who will need substantial care, and if you’re leaving (that care) to someone else’s insurance that has a cap, then the motorcyclist would be limited to that cap, even if they’re paying for lifetime unlimited coverage,” she says.

While everyone looks to July 1 to see how auto rates shake out, providers and stakeholders treating the severely injured have been staging rallies and marches at the State Capitol and are lobbying the governor and lawmakers. Some have filed lawsuits.

Tammy Hannah, president and CEO of the nonprofit Origami Brain Injury Rehabilitation Center in Mason, southeast of Lansing, says if the fee schedule goes through in 2021 as the law specifies, her center would be forced to close its 28-bed inpatient facility.

In Ann Arbor, John Cornack, CEO of the Eisenhower Center, a prominent brain injury rehabilitation clinic, says the fee reduction will close the company and put its 161 patients out on the street.

Hannah and Cornack say there are no comparable facilities to take in those patients.

“That would be tragic, as those individuals would have to find another placement — and every similar provider in the state of Michigan would be in the same boat,” Hannah says. “Those residents would have to transfer to either psychiatric hospital beds, where they would unlikely qualify for admission, or they would need to transition to a skilled nursing facility that isn’t equipped to take care of individuals with brain injuries. (Those types of facilities) have neither the resources nor the specialization to care for someone who has a brain injury.”

Origami is joint venture with Michigan State University’s Osteopathic School of Medicine and Peckham Inc., a Lansing-based nonprofit vocational rehabilitation organization that provides job training opportunities for persons with significant disabilities.

Cut-Rate Insurance illustration

Origami has been serving adolescents and adults with brain injuries since 1997.

Hannah says the facility has 130 employees who work with 500 clients annually, or an average of 80 to 90 persons weekly. The partnership with Michigan State University provides direct access to the latest rehabilitation techniques, clinical research, and on-call physician support.

She says the center’s annual profit is set at an average of 6 percent to 8 percent, a margin that’s fair and reasonable to treat the 85 percent to 90 percent of its outpatient clients and complies with Medicare’s reimbursement guidelines. The center works with 30 different types of payers, including the Michigan no-fault program.

“We set our rates based on, for instance, working with Medicare, Blue Cross, and workmen’s comp, and all of those already have fee schedules, so we’ve long set our rates based on working with those funders and charging them the same rates,” she says. “Medicare and our commercial insurance don’t recognize the level of care in our residential program, and they don’t pay for residential programming.”

Hannah says she and other providers had a half-an-hour meeting with Gov. Whitmer, and she admitted that the reform bill is flawed and needs further work. Through her spokesman, Jason Moon, the governor acknowledges part of Hannah’s contention.

“The goal is to maintain access to care, while curtailing unreasonable or excessive charges. There are ongoing discussions about the potential impact of the new fee schedule on post-acute care and ways to ensure access to care,” according to Moon’s statement.

“I’m feeling optimistic, but I’m scared and nervous because right now nothing is in writing. But the verbal communications have been positive,” Hannah says. “I’m hopeful we can come together with a solution that the governor and legislators will be happy with, and providers can continue to conduct business.”

Cornack says the new law is anti-business and the fee schedule essentially amounts to price-fixing. Some say court challenges may delay the act.

“(The law) will have a devastating impact, not only on providers and local economies, but on access to necessary medical care,” he says. “As rehabilitation clinics are forced out of business, catastrophically injured survivors will have nowhere to go but nursing homes, where they won’t receive all the necessary care they need to thrive and lead fulfilling lives.”

Eisenhower is among the complainants in a lawsuit filed last October in Ingham County Circuit Court against Citizens Insurance Co. of America and USAA Casualty Insurance Co. The lawsuit, brought by Sinas Dramis, a law firm in Lansing, challenges the constitutionality of the fee schedules and in-home health care reductions, among other factors.

Ellen Andary of East Lansing and Philip Krueger of Ann Arbor, survivors of traumatic brain injuries suffered in auto accidents, are the other parties to the lawsuit. Andary, who’s insured by USAA Causality, and Krueger, who’s covered by Citizens Insurance, were protected by no-fault policies that the lawsuit says guaranteed them lifetime care.

Andary’s vehicle was hit by a drunk, wrong-way driver, and since 2015 she has required 24-hour round-the-clock care by family members and her husband, Dr. Michael Andary, a physician who specializes in treating brain injuries. The new fee schedule reduces those hours of in-home attendant care to eight hours daily, or 56 hours per week.

Krueger, now 47 and permanently disabled, was 18 and a passenger in a pickup truck that was involved in a crash. He is treated at the Eisenhower Center and would be affected by the 55 percent billing change under the new law.

The lawsuit says the new fee schedule promises to further reduce Eisenhower’s invoices by 52.5 percent by July 2023. Such cuts would create an unsustainable situation for the Eisenhower Center and threatens Krueger’s access to services and accommodations for his care and recovery, according to the court filings.

Stephen Sinas, a principal at Sinas Dramis, says he expects other parties to join the lawsuit. Meanwhile, the state has asked the court to dismiss the matter. A hearing in the case is set for May.

Erica Coulston, a spinal injury survivor and co-founder of the Walk The Line recovery clinic for the severely injured in Southfield, says frustration over high insurance rates has some motorists believing that if they have health care insurance, they don’t need no-fault coverage.

“The truth is that private insurance, Medicare, even workman’s comp, don’t cover what auto no-fault covers,” she says. “It’s not just doctor visits and medication; it’s durable medical equipment, medical supplies, attendant care, transportation, home renovations, therapy, vocational services, and cognitive therapy. What the no-fault system really does is allow people to focus on recovering and rehabilitating themselves. At a time when some are saying, ‘Rely on your health insurance,’ health insurance is paying for less and less.”

Team Recovery

Michigan’s new no-fault insurance law, which takes effect July 1, could leave auto accident victims out in the cold.

Walk The Line staff
Erica Coulston, center, and the team at Walk The Line in Southfield have helped hundreds of people recover from severe auto-related injuries. // Photo courtesy of Walk The Line

Erica Coulston was 23 years old when she wound up in a local hospital’s emergency room with a catastrophic spinal cord injury she suffered as a passenger in a car involved in an auto accident. Devastated, her mother raced to the hospital and handed over her Blue Cross insurance card as Erica was being admitted. “A few days later a woman came by and said she was a case manager who represented me for my insurance company, and she started telling us all about auto no-fault benefits,” Coulston recalls.

That was 18 years ago. Today, at age 41, Coulston — who’s paralyzed from the chest down — is an inspirational reminder of what survivors of tragic auto accidents can achieve through the unlimited lifetime benefits provided by Michigan’s outgoing no-fault insurance program.

From those earlier moments of despair, Coulston maximized the benefits the no-fault insurance policy provided to rebuild her life and, at the same time, start a family business dedicated to helping other severely injured individuals.

Today, the family-run business she founded in 2007, Walk The Line in Southfield, is a renowned spinal cord recovery therapy clinic where around 45 spinal- and brain-injured clients from across the state and Ohio receive therapy each week. The business is far-reaching. Erica serves as director of programs; her mother, Rita Nader, handles human resources and admittance; her father, Fred, takes care of the financial side of the business; and Ira, her husband of 10 years, is in charge of IT and operations.

Coulston says the idea for starting a clinic came out of her less-than-inspiring experiences in various programs across the country. None offered what she was looking for. “When you have a spinal cord injury or a brain injury, there’s no cure and you’re sort of written off, especially if you don’t show early signs of recovery and improvement,” she says. “I also found I was pigeonholed a little bit, based on my injury and what I was able to do. (Those factors) determined what my therapy and my therapist would do with me. So we decided to do our own thing. We had been to enough places and had an idea of what we wanted.”

Walk The Line started in a small house in Ferndale with three clients, a physical medicine doctor, and a few trainers. With an expansion now underway, the organization’s 12,000-square-foot facility in Southfield resembles a health club with state-of-the-art rehabilitation equipment.

As she wheels herself from one area to another to show a visitor around, it’s easy to detect the friendly enthusiasm of the therapists putting their clients through their paces.

“Everyone who works here is committed to the idea of recovery, whatever recovery means for each individual client,” Coulston points out. “Recovery isn’t always walking again for some people. It isn’t really up to us to figure out what that is. It’s up to us to help that person get to where they want to be, and use all our tools to do that.”

While clients often have spinal cord and brain injuries, Coulston says they’ve served people with strokes, Parkinson’s, and a little girl with spina bifida. “What’s specific for spinal injuries is applicable to most neuroglial illnesses,” she says.

At Walk The Line, 65 percent of clients have no-fault insurance coverage. In July, however, price controls in the new no-fault law will dictate cuts in fee schedules for hospitals, clinics, and other medical providers that treat crash victims covered by no-fault insurance.    

Coulston estimates Walk The Line, already a lean operation with its Medicare-based service fees, will have to absorb a 30-percent to 40-percent hit to its books. While she’s not entertaining thoughts of closing the doors, she is contemplating holding off on future programs and tightening up on existing ones.

Although the new law grandfathered in established benefit recipients, Coulston remains apprehensive about the long-term fate of the Michigan Catastrophic Claims Association fund that pays her benefits.

“With another 40 or 50 years living with this injury and possibly not having the funds available to me, that’s a very scary thought,” she says. “It’s impossible for us to live in this system and not be affected. If my provider goes out of business, I’m affected. If this catastrophic fund gets depleted, or goes away, I’m affected. I’ve planned on living my life, and I depend on it.”