The Magazine

A Test Drive for Obamacare

Michigan’s auto insurance nightmare.

Nov 21, 2011, Vol. 17, No. 10 • By ELI LEHRER
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Despite fines and mandates designed to encourage people to buy insurance, Michigan has one of the highest uninsured motorist rates in the country—almost 17 percent according to the Insurance Research Council. (States with larger uninsured motorist populations have large numbers of illegal immigrants and/or lax mandates.) And the Michigan numbers would look even worse if auto theft hadn’t dropped, the state’s shrinking, aging population hadn’t brought down the accident rate, and severely cut-back police departments in the fiscally troubled state hadn’t stopped generating records for many nonserious accidents.

Although state laws and enforcement procedures relating to insurance fraud differ so much as to make precise state-to-state comparisons difficult, it’s clear that fraud is threatening to swamp the state’s system. The National Insurance Crime Bureau reports that Michigan has seen its number of potentially fraudulent claims almost double since 2008. Michigan had almost as many suspect claims as vastly larger Texas. 

Even relatively inexpensive claim types where fraud was virtually unknown a few years ago—broken auto glass, most prominently—have seen suspicious claims skyrocket more than 1,000 percent. (The state, which has cut its workforce deeply, just doesn’t investigate most claims that insurers suspect.) There’s no single cause for this, but one factor stands out. The existence of unlimited benefits from auto insurers makes it a lot more attractive and lucrative for the criminally inclined to bilk auto insurers, particularly since the government almost never pursues criminal charges against the individuals who work with the professional fraudsters.

But fraud isn’t the only problem. The costs of legitimate automobile-related doctors’ bills also have soared out of control. In Detroit, a single neck MRI that costs $484 for Medicare and $768 on the state’s workers’ comp fee schedule will run $3,260 if an auto insurer picks up the bill. And reimbursement rate differentials for everything from emergency room visits to shoulder surgery are just as large. In 2010, auto-insurance-related medical costs were easily the highest in the country. The typical no-fault claim in Michigan ran a little over $35,000, more than twice as high as in any other state. As a result, auto insurers have advocated applying the workers’ comp fee schedule to their claims. But they have faced vociferous opposition from nearly every medical lobby in the state—physicians’ assistants to brain doctors to everyone in between—who form the core of the well-funded Coalition Protecting Auto No Fault. 

Given that medical industries have actually grown and created jobs in Michigan even as every other sector in the state has shrunk, the hospitals and doctors have the upper hand in many cases. Indeed, the Coalition Protecting Auto No Fault, which forthrightly defends these sky-high payments as necessary to preserving the state’s medical system and the jobs it creates, has even fought modest efforts that would let auto insurers audit bills. 

There’s at least some chance the forces opposing change have the majority of the population on their side. An effort to reform the system in the early 1990s—when the problems were far less serious—got overturned in a referendum. The legislation now pending includes provisions that would stop it from going directly before voters, and, despite near--universal Republican distaste for the current system at the highest levels, opponents seem to have the votes to stop even the Republican legislature from advancing aggressive reforms that would end unlimited benefits and impose a workers’ comp fee schedule on medical providers.

Michigan’s auto insurance system, of course, is far from a carbon copy of President Obama’s health care reform plan. But its current ills could well presage the future of the health care system in ways that don’t cater to any side’s cherished myths. Conservatives should take heed that vastly reducing the involvement of lawyers in the system, as nearly all doctors have long wanted to do in health care, has proven utterly ineffective as a cost control measure. The same goes for faith that simple competition between providers will control costs: Michigan residents (like people almost everywhere else in the country) have many companies willing to sell them auto insurance in the individual market, but this competition has not produced affordable options.

There’s even more for liberals to worry about: Michigan is also a place where an “individual mandate” to purchase a comprehensive benefits package has proven unsuccessful and where insurance mechanisms of any kind have collapsed in poor areas. And one major issue, the enormous recent increase in fraud, offers a caution for people of all political persuasions.

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