Editorial: Gov. Snyder's auto insurance reform offers little savings to drivers

Story originally appeared on Freep.

Michigan needs insurance reform badly: Statewide, rates are among the highest in the nation, and in Detroit, where as many as 50% of drivers are believed to be without insurance, rates are outrageous.

But Gov. Rick Snyder’s proposition to change Micigan’s no-fault insurance system can’t really be called reform.

Snyder’s proposal, announced Thursday, would save each Michigan driver $125 a year. That’s $10 a month. And in exchange for these paltry savings, Snyder would dismantle a safety net that is the best in the nation.

Snyder is proposing changes to a unique component of Michigan auto insurance: personal injury protection. In our state, insurers cover claims for auto-related injuries up to $500,000; costs exceeding $500,000 are paid — with no cap — by the Michigan Catastrophic Claims Association. Drivers fund the MCCA with a $175 annual fee, set to increase to $186 on July 1.

The MCCA has said its system is unsustainable and has justified its rate increases by saying the system can’t afford to pay the claims made. Yet it has refused to publicly release financial information to prove its assertions. A group called the Coalition Protecting Auto No-Fault has sued the MCCA to make that information public; a judge ordered the MCCA to release the records, but the association is appealing that decision.

Snyder’s plan would phase out the association, replacing it with a nonprofit, and would cap benefits at $1 million. Further costs would be paid by Medicaid, which is facing its own shortfall; that budget hole would be filled by an insurance premium and the extension of a 1% tax on some medical insurance claims. The governor says that even with the changes he’s proposing, Michigan’s system is still the most generous in the nation.

But Snyder offers no evidence to suggest that this reform would result in any significant reduction in costs for Michigan drivers.

And there is evidence aplenty to suggest that eliminating unlimited care for catastrophic injuries could have a devastating impact on Michiganders.

A 2011 study by Public Sector Consultants — coincidentally, the firm once helmed by Bill Rustem, Snyder’s director of strategy — found that 94% of personal-injury claims were less than $50,000. The average cost of the .5% of claims exceeding $400,000, the study found, was $1.4 million.

Capping benefits at $1 million would affect a small number of people. But those dollars could mean the difference between a lifetime of invalidism and rehabilitation and a return to functionality.

Moreover, the data that would justify such changes haven’t been made public.

That’s where this needs to start.

If the MCCA is unsustainable, if that system truly needs reform, if Snyder’s proposed changes could bring the cost of auto insurance down by more than $10 a month, show us the numbers.

Then we’ll talk.