Financial Architects - October 2019

WHAT’S CHANGING IN AUTO INSURANCE LAW?

CURRENT AUTO INSURANCE LAW The Michigan Catastrophic Claims Association (MCCA), a private nonprofit and unincorporated association, was created by the state legislature in 1978. Michigan’s unique, no-fault auto insurance law provides unlimited lifetime coverage for medical expenses that result from auto accidents. The MCCA reimburses no-fault auto insurance companies for each personal injury protection (PIP) medical claim paid in excess of $555,000. All auto insurance companies operating in Michigan are assessed to cover the catastrophic medical claims occurring in Michigan. Those assessments are generally passed on to auto insurance policyholders. The 2018–2019 assessment is $192 per vehicle and is planned to go up for 2020. WHAT WILL CHANGE? As promised, for the next eight years, drivers will have five choices in regard to the medical insurance coverage provided by auto insurance, ranging from keeping the current system of unlimited lifetime benefits to opting out entirely from PIP coverage. Depending on the selection made, a premium reduction for the coverage is guaranteed. However, there is no guarantee that insurance companies cannot increase premium charges for other coverages provided by the policy. The new law also puts new fee schedules in place for medical providers who, under the current law, have been able to charge much higher prices for treatment of auto-crash victims than patients whose health care bills are being paid for by Medicare or workers’ compensation. In addition, insurance companies will not be allowed to use zip codes or credit scores when calculating premiums. However, they can still use designated territories and credit reports. Other nondriving factors that historically offered discounts for drivers meeting the criteria, such as gender, education, or marital status, will be removed. It is conceivable to believe that many individuals who desire coverage identical to what they have now could see premiums increase. PROBLEMS WITH THIS LAW Health care facilities that treat auto accident patients, including centers for traumatic brain or spine injuries, will be reduced to billing 55% of current billable rates. This

could reduce the number of facilities willing to treat certain critical injuries or reduce the quality of care provided.

Prior to the economic collapse of ‘07 and ’08, the No. 1 reason for bankruptcy was the cost of medical care. Without adequate insurance, we could see an increase in personal liability lawsuits, bankruptcy, and Medicaid participants for all parties involved in an accident. Currently, the federal government spends 90 cents of every $1 collected in tax on Social Security, Medicare, Medicaid, and interest on our national debt. The social programs paid for by the working class are already unsustainable, and an increase in Medicaid spending could prompt higher taxation. Cost of health insurance will most definitely be affected. Health insurance companies in Michigan will now have to determine the exposure for including auto accident injuries for those who reduce PIP limits or waive it altogether. It is very possible to see the savings achieved on the auto insurance premium offset by increases in health insurance premiums. WHAT NOW? Insurance companies that are still willing to do business in Michigan will have until July 2020 to adjust their current offerings and premiums accordingly in order to comply with the new rules. Until the actuarial data is deciphered and decisions are made at the executive level of each company, we will be left to wonder what the outcome will look like. One thing is certain: The current changes bring to light the importance of understanding whether or not the policy you pay for is fully protecting your current and future assets. An annual or semiannual review with your insurance and financial advisor is recommended to address coverage concerns or potential gaps. Financial advisors who take a holistic approach are generally better advocates for their clients’ overall personal and financial well-being. Financial Architects, Inc. of Farmington Hills, Michigan, is one such firm that takes a step-by-step approach to help reduce risk and potentially increase wealth for their clients.

Sources: 1. Mitch Albom: The Ugly Truth About Michigan’s No Fault Reform Bill - Published 12:00 a.m. ET June 2, 2019 | Updated 8:02 a.m. ET June 3, 2019 - Detroit Free Press 2. Michigancatastrophic.com/ - Michigan Catastrophic Claims Association Website

The information contained in this newsletter is derived from sources believed to be accurate. You should discuss any legal, tax, or financial matters with the appropriate professional. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Registered Representatives offer Securities through The O.N. Equity Sales Company, Member FINRA/SIPC (www.FINRA.org/ and www.SIPC.org). Investment Advisory Services offered through O.N. Investment Management Company and FAI Advisors, Inc., Financial Architects, Inc., and FAI Advisors, Inc. are not subsidiaries or affiliates of The O.N. Equity Sales Company or O.N. Investment Management Company. We have representatives currently registered in the following states: AL, AZ, CA, CO, DC, FL, GA, IL, IN, LA, MD, ME, MI, MN, MS, MO, NC, NJ, NV, NY, OH, OR, PA, SC, TX, VA, WA, and WI.

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