Livengood: Michigan's auto insurance law guaranteed Cadillac medical care. New law ended the warranty. - Crain's Detroit Business

General Motors Co. guarantees customers a three-year, 36,000-mile bumper-to-bumper warranty on every vehicle the Detroit automaker sells.

But what if in the second year of the warranty, the government arbitrarily capped the reimbursement payments for GM dealerships by nearly half and forced them out of business?

Technically, the customer would still have their warranty. But it's hard to fulfill that warranty when there's no mechanic.

That's essentially what the Michigan Legislature and Gov. Gretchen Whitmer have done to some 18,000 Michigan residents who were catastrophically injured in auto accidents, often through no fault of their own.

Auto insurance companies literally sold consumers the Cadillac of medical coverage for auto injuries through the Michigan Catastrophic Claims Association, a fund with $23 billion in driver fees sitting in the bank that's supposed to pay for lifetime care of the most critically injured motorists and pedestrians.

After July 1, the billions of dollars will still be in the fund. But the insurance industry-run MCCA will have to pay certain post-acute providers only 55 percent of their average charges from Jan. 1, 2019 — if those providers are actually still in business.

"That's what the MCCA was — a warranty. And now they don't even want to honor it," said Paul Semian, owner of Progressions LLC, the operator of five group homes for motorists with brain and spinal cord injuries.

Because Semian's group home rehab isn't covered by Medicare, its $425-per-day residential care services falls under the 55 percent rate cap. He's planning to shutter his five group homes that house 52 clients and lay off 180 employees in Oakland and Macomb counties.

"There's so many ways to fix this without blowing it up," Semian said.

Blowing up Michigan's unique auto insurance scheme is just what lawmakers set out to do in an effort to get more drivers paying for insurance and to rein in the fastest growing portion of insurance premiums, Personal Injury Protection or PIP.

From the personal injury attorneys to the fly-by-night MRI clinics, there were some bad actors in the system that became easy targets for Detroit Mayor Mike Duggan and other politicians to blame for Michigan's astronomically high car insurance rates.

Before the new law took effect in July 2020, every Michigan motorist was required to purchase an auto insurance policy that included lifetime medical coverage for their injuries.

These were head-to-toe lifetime warranties, paying for intense rehabilitation and round-the-clock in-home care that regular commercial health insurance and Medicare don't pay for.

The Republican-authored law effectively ended the warranty by capping payments to certain medical providers whose services don't have a Medicare billing code at 55 percent of what they were charging in January 2019. Other providers, such as hospitals, got their charges capped at 200 percent of Medicare under the new law.

Most of the medical providers who built up a business around the no-fault auto insurance system say they will close their doors July 1 when payments get slashed by 45 percent.

Lawmakers and Whitmer, who signed the legislation, are no longer honoring the warranty people purchased under the assumption that if they were ever hurt, they would get a certain level of care regarded as second-to-none in the country.

Even drivers who have elected to maintain unlimited medical insurance coverage have seen their warranties rewritten by lawmakers (or, more accurately, by insurance industry lobbyists).

If your son or daughter were in a horrific accident tomorrow and suffered temporary paralysis, they may still be entitled to unlimited medical care.

But that access to care could be greatly diminished after July 1 if there is no longer a network of medical providers and therapists to teach them how to walk again.

"We're all a drive away from being in that position," said Greg Kirk, owner of Onward Therapy Services LLC in Troy, which does physical and occupational rehab exclusively with auto accident victims inside gyms and community centers. "They are screwed."

Because Kirk "put all my eggs in the no-fault basket," he's telling his patients Onward Therapy Services will be out of business July 1. The 45 percent rate cut is simply too much for Kirk to absorb, he said.

"I don't think people understand the ramifications of what's going to happen," Kirk said.

The new law's provider rates have the potential to unleash chaos on the marketplace. In Lansing-speak, this is known as the law of unintended consequences.

Ironically, the 2019 law may ultimately reward some of the alleged price-gougers whom legislators were targeting.

Home health care companies, rehab centers and physical therapists who charged the most in January 2019 will be able to squeeze out the highest payments under the new payment cap, which is nothing more than government price-fixing in the private insurance market.

"The organizations that they did want to punish are going to succeed. It makes no sense," said Bill Buccalo, CEO of Rainbow Rehabilitation Centers, a Livonia-based company that operates 30 adult foster care group homes for catastrophically injured motorists.

Like any new law, there will be loopholes — and lots of litigation to come over the use of said loopholes to get around the rate cap.

Some companies are discussing the possibility of merging with the firms that had the highest charges, in order to survive, Buccalo said.

"It's a lot of unnecessary reorganization of businesses," Buccalo said.

Others are considering starting new companies altogether as the law only speaks to what existing medical providers charged on Jan. 1, 2019.

The law seems silent on what a new home health care agency or rehab group home that wasn't in business on New Year's Day in 2019 could charge.

The final version of Senate Bill 1 was rammed through the Legislature on Friday, May 24, 2019, in order to deliver the legislation to Whitmer at the Mackinac Policy Conference the following week.

Before its passage, the Democratic governor had expressed reservations about no-fault reform that heavily favored the insurance carriers.

When she ultimately signed the bill to great fanfare on the porch of Mackinac Island's Grand Hotel, Whitmer noted the irony of making sweeping changes to auto insurance on and island where cars are banned.

It was a good joke to lighten the mood after Republican lawmakers, Detroit Mayor Mike Duggan and Quicken Loans chairman Dan Gilbert backed the governor into a corner on this issue.

Vetoing the bill would have been politically perilous given that voters have been clamoring about the high cost of auto insurance for years, particularly in Wayne, Oakland and Macomb counties, where the majority of Whitmer's 2018 voters reside.

It may take years to know whether the law ultimately drove down the cost of insurance.

But some early data on auto insurance premiums suggests it hasn't moved the needle yet in Detroit, where drivers pay astronomical rates — or go uninsured.

A new study conducted by The Zebra car insurance price comparison website found annual premiums in Detroit for a 30-year-old male driving a 2016 Honda Accord EX hovered around $5,072, almost twice the statewide average. The Zebra's study looked at rates between September and December 2020 after the new law took effect and drivers could start opting out of unlimited medical coverage.

The early data doesn't bode well for Duggan's promise that the law would dramatically reduce car insurance rates in the Motor City.

The medical providers facing a terminal haircut on July 1 argue there are other ways to wring out savings for the auto insurance carriers, such as adding mandatory medical deductibles to PIP premiums.

"No organization can sustain a 45 percent cut in revenue when your margins are in the single digits," Buccalo said. "It's that simple."

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