Group says crackdowns elsewhere leaves the state ‘vulnerable’ to more claims, higher costs
Online PR News – 18-April-2012 – Detroit – A recent study from the Insurance Research Council (IRC) shows how medical expenses from a small group of claims have been pushing up costs in Michigan’s entire no-fault system over the past decade, a fact which may play into the larger debate over proposals aimed at removing unlimited medical benefits, according to Online Auto Insurance.
The study analyzed 640 claims closed in 2011, finding that those involving losses greater than $250,000 represented just 1 percent of closed claims cases but 22 percent of total paid claims losses.
Part of the reason that a small set of claims can take up such a large chunk of overall costs is that Michigan's no-fault system includes no limit on coverage, leaving policyholders with lifetime protection for crash-related damages. No other state in the country has such a system.
Industry groups blame the state’s unique no-fault provision for ballooning costs and the scarcity of cheap insurance in Michigan.
"This report provides further evidence of the role that a relatively small number of very large claims play in the increased costs to the entire Michigan no-fault system," Elizabeth Sprinkel, senior vice president of the IRC, said in a statement.
To combat the problem, legislators have introduced reform proposals that eliminate lifetime coverage and instead let consumers choose between up to $500,000, $1 million or $5 million in coverage, but little action has been seen on the bill.
Claims filed under Michigan’s no-fault auto insurance system showed that total losses grew 192 percent between 2002 and 2011, amounting to an average growth of 13 percent a year, according to IRC researchers.
The study analyzed all kinds of losses, including lost wages, but highlighted medical costs as increasingly burdensome for the no-fault system. The share of total claimed losses related to medical expenses has risen for both closed and open catastrophic claims, both of which researchers say have seen more compensation for more procedures and hospital stays.
Of closed cases in the study, the portion of claimants who underwent an MRI doubled from 8 percent in 2002 to 16 percent in 2011, while the number requesting a CT scan increased from 16 percent to 25 percent. The study found that the average charge in 2011 was more than $4,450 for an MRI and $2,720 for a CT scan.
Researchers studying closed claims also found that 76 percent of claimants received some kind of hospital treatment, compared to a nationwide average rate of 61 percent.
Payments for medical care by family members were also popular, according to the study, with almost 60 percent of open claims involving expenses for “attendant care.”
The study, available on the IRC’s website, surveyed seven primary insurers that represented about 55 percent of personal policies in Michigan’s auto insurance market.
The authors did not highlight abuse of the system as being a driver of costs, but Sprinkel hinted that the nature of Michigan's unique no-fault setup may make it a target for criminals aiming to bilk the insurance industry, another fact that might move legislators toward reform.
"[A]s other no-fault states move to crack down … the availability of unlimited benefits in the Michigan system may prove a powerful lure to unscrupulous providers looking to shift their operations to new, more vulnerable markets," Sprinkel said in her statement.
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