Michigan Ends No-Fault Auto Insurance Mandate

Published July 24, 2019

Michigan will end its system of “no fault” automobile insurance which forced every driver in the state to purchase expensive coverage.

Gov. Gretchen Whitmer signed into law a bipartisan bill allowing drivers to purchase the level of insurance coverage they choose, instead of requiring them to buy unlimited personal injury policies, on May 30.

“By signing this legislation, we are providing relief to millions of drivers across the state and guaranteeing a better auto insurance system for everyone,” Whitmer stated in a press release.

The average cost for an automobile insurance policy in Detroit is more than $5,000 per year. New premium rates throughout the state will kick in over the next year as policies are renewed.

“Republicans estimate drivers now paying $2,400 a year could save between $120 and $1,200 per year, depending on the level of medical coverage they choose to purchase,” reports the Detroit News May 24.

Unique Requirement

The no-fault system was enacted to diminish litigation over liability claims, says Michael van Beek, director of research at the Mackinac Center for Public Policy.

“No-fault was enacted in 1973,” van Beek said. “The rationale for this type of system was to reduce court costs by putting restrictions on who qualified to sue an at-fault driver, and speed up the process for accident victims to get benefits for medical treatment after an accident.”

There are about a dozen states with no-fault systems that all have lower average premiums than Michigan, van Beek says.

“The reason Michigan’s average premiums are so high is because state law required all drivers to purchase an unlimited amount of medical coverage through their auto insurance,” van Beek said. “This means that there is no limit to the amount of benefits you can get an insurer to pay out for medical treatment related to an auto accident.”

Medical Costs Spiraled

The unlimited medical coverage created an incentive for health care providers to inflate bills to auto insurers, van Beek says.

“It’s well-documented that medical providers charge two, three, four, sometimes ten times more for treatment provided to an accident victim than what they would charge for someone covered by a private health insurer or government program, like Medicaid or Medicare, for the exact same procedure or treatment,” van Beek said.

“As long as you could link the treatment to an auto accident—and court rulings made this easier over the years—you would qualify to have your medical treatments paid for by your auto insurer,” van Beek said.

Providers in Driver’s Seat

Under no-fault, there also were no limits on fees for specific services, van Beek says.

“There was no fee schedule for auto insurance claims, and insurers were not allowed to negotiate prices with medical providers,” van Beek said. “This meant that medical providers could charge whatever they thought they could get away with when treating accident victims.”

 The new system will allow drivers to opt out of personal injury protection for themselves altogether, if they already have health care coverage, van Beek said.

“The new policy allows drivers to choose a lower level of medical coverage and even opt out of buying medical coverage through their auto insurance policy if they have coverage elsewhere,” van Beek said.

‘A Big Improvement’

The new legislation will place some controls on what doctors can charge insurance companies in the event of an auto accident, van Beek says.

“It establishes a fee schedule for services, among other things,” van Beek said. “I’m not sure if this is the best type of auto insurance system, but it will be a big improvement on what we had, and most Michigan drivers will save a lot of money on their premiums as a result.”

The bipartisan legislation is a victory for all Michiganders, Gov. Whitmer said in her press release.

“This historic deal shows that, when we put party aside, we can find common ground on our state’s toughest issues to provide realistic and affordable coverage options for drivers across Michigan,” Whitmer said.

Van Beek agrees.

“The end of no-fault insurance is a huge victory for consumers,” van Beek said.

Ashley Herzog ([email protected]) writes from Avon Lake, Ohio.