Duggan faces uphill fight for cheaper car insurance

Detroit Mayor Mike Duggan has spent more than a year working with actuaries and experts from the state's insurance industry, trying to fulfill a major campaign promise: find a way to offer lower-priced auto insurance to residents who now pay the nation's highest premiums.

Duggan called it the most complicated issue he has ever worked on. But now he has to win over critics in the Legislature and others questioning the feasibility of his proposal, introduced last week, that would allow Detroit drivers to opt out of unlimited lifetime health care for catastrophic car-crash injuries and choose lower-benefit plans that he says could shave $1,000 off the average annual Detroit car insurance premium that Duggan pegged at $3,400, but a national survey put at $5,000.

Duggan calls the idea an "honest choice." Give drivers the option of D-Insurance, which would cap catastrophic injury care at $275,000, with the remainder of any other lifetime health care costs provided by drivers' health insurance plans, from Medicare and Medicaid to employer-provided insurance or plans purchased through Affordable Care Act exchanges.

Detroiters would have the option of keeping their higher-priced plans with Michigan's unique and costly long-term health care benefits, or paying for lower-priced auto insurance that would provide a more basic level of lifetime care for people with severe brain and spinal injuries.

"How does this play out in the long run?" said Laura Watroba, spokeswoman for the Michigan Health and Hospital Association, which represents hospitals and health care systems across the state and has been battling efforts in the Legislature to reduce benefits as a way of reining in the cost of catastrophic care coverage in Michigan's no-fault insurance system. "And what are we looking at for the immediate relief verses the long-term implications?"

But Duggan will have to sell the Legislature on his plan. Some of those lawmakers are already raising red flags, saying Detroiters would end up with lesser insurance compared with suburban and outstate drivers. Several lawmakers who represent Detroit are leery of the idea — and of trusting the insurance industry to pass on savings to consumers.

State Rep. Brian Banks, D-Detroit, called the plan "second-rate, watered-down insurance." State Rep. Stephanie Chang, D-Detroit, said she doesn't want to see Detroiters with inferior coverage.

State Rep. LaTanya Garrett, D-Detroit, said she "will continue to be a proponent of rate relief without reduced coverage, and we will continue to monitor the mayor's plan."

But Duggan warned against writing off the proposal too easily.

"If Detroit legislators tell people they're going to vote against a $1,000 cut because they don't want them to have the choice, I think the people of the city will let them know what they think," the mayor said last week after unveiling the plan at a community forum. "I'm saying Detroiters should have a choice. You can keep your $3,400 policy, or you can choose to do what people can do in almost any other state. ... I think most Detroiters will want the choice."

Duggan said the main reason insurance is so expensive is because of unlimited personal injury protection provided by auto insurers, not health insurers, and that auto insurance companies pay three times as much for the same care that major health insurers provide at lower costs through negotiated discounts.

Adding to that, Duggan said, are lawyers and doctors who specifically target Detroit drivers who've been in car accidents, encouraging them to seek out treatment from health care providers that get paid more than they'd get from health insurance — because auto insurers are footing the bill.

Duggan proposes a cap of $250,000 for hospitalization after a crash and $25,000 for follow-up care. After that cap is reached, all other health care costs would be borne by health insurance plans, not auto insurers.

Duggan said those factors push auto insurance costs for Detroiters to an average of $3,400, compared with $1,700 for the suburbs.

Cutting caps questioned

But Wayne Miller, an adjunct law professor at Wayne State University who wrote a textbook used by three Michigan universities that have courses on Michigan's no-fault law, said he's not convinced that merely reducing lifetime caps on health coverage will bring about the savings Duggan suggests they will. Miller said the insurance industry has continually resisted providing actuarial and other data to the public, and hasn't been willing to guarantee cost savings are passed along to consumers.

"When the insurance industry doesn't want to give data, it's because, presumably, the numbers don't favor them," Miller said. He said that when pressing insurers to justify costs even as the industry resists opening its books, it's best to use the axiom, "Trust, but verify."

Miller and others say that what's at risk with opting out of the unlimited catastrophic claims coverage are the unique benefits Michigan's insurance system provides, from intensive rehabilitation therapy for people with spine and closed-head brain injuries to allowing, in some cases, pay for family members who stay home to provide care to loved ones with severe injuries. Medicare, Blue Cross and other health insurance plans don't provide that level of benefit, said Miller, who's also a lawyer who represents catastrophic injury victims, their families and service providers, including hospitals, doctors and rehabilitation facilities.

"I see this as devastating to the population with catastrophic spinal and brain injures," he said. "And that's not hyperbole. That's really why no-fault has been such wonderful legislation for those populations."

The level of coverage

But as Duggan notes, no other state mandates the kind of coverage Michigan does. The next closest state, in terms of coverage, is New Jersey, which is capped at $250,000. Most states don't require drivers to have any added health insurance through their auto insurance policies.

Duggan said an analysis conducted for him found that, of insurance premiums in Detroit, 44% of the costs are related to personal injury protection, greater than the costs of collision and theft coverage combined, and that's the only area of cost savings he believes he can get the Legislature to approve. He said Republican lawmakers won't budge on issues such as using ZIP codes to determine rates, as insurers now do, because it could be seen as forcing suburban and outstate motorists to subsidize higher costs in urban areas.

Given that the high cost of Michigan's current no-fault system is "failing many people" because it's pricing them out of insurance, Duggan's idea is a "bold and creative plan," said Terry McElroy, executive vice president of AAA Michigan. He said AAA would need to do more analysis to determine how much cost savings would materialize, but he doesn't believe Duggan's estimates are unreasonable.

McElroy said that, if D-Insurance were approved, AAA would be committed to passing any savings along to customers through rate relief.

"Most, if not all, insurers would do the right thing and pass it along," McElroy said. "No fault is complex. It's going to take some time to understand how the mayor's plan would work in the broader context."

Peter Kuhnmuench, executive director of the Insurance Institute of Michigan, an insurance trade association that represents property and casualty insurers, said Duggan's plan doesn't differ greatly from one that his group has tried to introduce in Lansing before, modeled after low-cost insurance policies for lower-income drivers offered in New Jersey and California.

"I think it's important to see, with the lower-priced product, how much do we move the needle in getting more people insured?" Kuhnmuench said.

That's important, he said, because if Detroit can significantly reduce the number of uninsured drivers in the city — estimated at 50% or more — that increases the number of drivers in insurance premium pools, resulting in lower insurance rates for all drivers.

"It's becoming increasingly unaffordable, not only for urban residents, but for everybody," Kuhnmuench said. "Let's test the theory out and see how much it's going to work."

Contact Matt Helms: 313-222-1450 or mhelms@freepress.com. Follow him on Twitter: @matthelms.