‘Millions of Dollars’: New auto insurance law threatens Munson’s bottom line
by Rick Haglund
Michigan hospitals – including Munson Healthcare – will likely take a financial hit from a new auto insurance law that will replace the state’s 48-year-old no-fault insurance system.
Meanwhile, it’s unclear how much consumers will save under the new law, which takes effect July 2 and is designed to cut Michigan’s highest-in-the-nation auto insurance rates.
“Providers will certainly take a hit. It will be in the millions of dollars for Munson,” said Gabe Schneider, director of government relations at Munson Healthcare.
The biggest impact likely won’t be felt by the nine-hospital Munson system and other hospitals in the state until next year.
A complex fee structure tied to Medicare reimbursement levels that takes effect on July 1, 2021 will cut the amount hospitals can charge auto insurers to treat patients injured in crashes. Reimbursement levels gradually decline from between 200-240% of Medicare rates in 2021, to between 190-230% of Medicare rates in 2023, according to Crain’s Detroit Business. Hospitals with level 1 and 2 trauma centers receive the higher rates.
Hospitals have long complained that Medicare reimbursements are inadequate to cover rising treatment costs. About 60% of Munson’s patient population is covered by Medicare or Medicaid, which has even lower reimbursement rates than Medicare.
Southfield-based Beaumont Health, one of the largest hospital systems in the state, has said the changes in reimbursement rates will result in the loss of tens of millions of dollars in trauma care revenue. Beaumont officials said the revenue cut will likely force it to close some emergency trauma centers among its eight hospitals in metro Detroit.
Schneider said Munson has no plans at present to cut trauma services.
Another area of worry for Munson is a potential jump in uncompensated care in treating patients who have inadequate auto and health insurance, or in some cases no health insurance. The Trump administration eliminated the mandate under the Affordable Care Act that all Americans purchase health insurance or pay a fine.
“More broadly than (caps on reimbursement rates) is our concern about consumers being underinsured that could lead to more uncompensated care,” Schneider said.
As a result, Munson is teaming with the Michigan Health and Hospital Association to roll out a consumer auto insurance education program in April. But the program could be delayed because of coronavirus restrictions, said association spokeman John Karasinski.
Munson will provide educational materials to its employees and do community outreach through its blog, social media and traditional media. The health care system also will work with local independent insurance agents to inform consumers about changes in the law.
A January survey by the hospital association found most consumers know little about the new law. Just 12 percent of 1,005 Michigan motorists surveyed said they were “very familiar” with the law, while 53 percent said they had “just heard of it” or were “not at all familiar” with it.
“We most likely as consumers aren’t going to turn to a hospital for information about auto insurance,” Schneider said. “We’ll be working with independent agents to help consumers make good decisions.”
Under the new law, motorists will no longer be required to purchase unlimited personal injury protection (PIP) coverage, usually the most expensive part of the premium. Michigan is the only state that requires unlimited PIP coverage.
Motorists can choose to purchase lesser amounts of PIP coverage. Some coverage options require consumers to coordinate their health and auto policies for PIP coverage, or be eligible for Medicaid, a government health insurance program that services the poor. Those eligible for Medicare, government health insurance for those at least 65 years old, can opt out of PIP coverage.
In addition, the Michigan Catastrophic Claims Association fund, which pays for claims above insurance company limits, is lowering its per vehicle fee from $220 to $100 on July 1. Those who opt out of unlimited PIP coverage are exempt from paying the fee.
Local insurance agents say potential savings are unclear because the state has yet to approve new insurance rates. Under the new law PIP rates must be rolled back, ranging from a 10% reduction for unlimited coverage to 45% for $50,000 worth of coverage.
But the cost of the bodily injury liability portion of the premium is likely to rise because the law requires a substantial increase in the amount of protection consumers must purchase.
“It’s like squeezing a balloon,” said David Ford, owner of Ford Insurance Agency in Traverse City. “You might save in the PIP portion, but pay more in other parts of the policy.”
Local agents say they likely won’t be able to quote prices for a new policy until sometime in May. Several said they are recommending clients keep their current coverage for the time being. “Our recommendation is to keep the full PIP,” said Don Nowka, principal at Bay View Insurance in Traverse City. “The next best thing is long-term care policies, but those are expensive. There is no better coverage you can buy (than PIP).”
PIP coverage also is superior to long-term medical coverage paid by Medicare, Nowka said. He and Ford also recommend motorists consider purchasing an umbrella policy of at least $1 million to cover potential lawsuits that could arise from auto accidents in which there are serious injuries.
Under the current no-fault law there was little reason to sue an at-fault party for medical coverage because everyone had unlimited PIP coverage. That changes under the new law, which he and Nowka said is likely to result in more auto injury litigation.
“I think everybody agrees that the law is fairly complicated and changes the no-fault system to move back toward a tort system,” Ford said. “It’s a drastic change.”
Policyholders will be sent forms from their insurance carriers over the next several months that allow them to make changes in the policies. “It will be a little bit of a confusing time, but we’ll get through it,” Nowka said.
More information is available at michigan.gov/autoinsurance.