The Problem With Michigan

Yesterday, I explained how Michigan drivers get such a better deal on the “people” portions of auto insurance than basically everyone else in the country.

They may not all think so, because it’s hard to know what sort of deal you have until you’re really hurt or you accidentally hurt someone else. But that’s where the Michigan system shines. (And isn’t that what the people portion of auto insurance is supposed to be all about?) Michigan drivers get virtually unlimited reimbursement for medical and rehabilitation costs, as well as decent wage-loss coverage, and for a significantly lower premium than drivers in most others states pay for far less protection.

In California, for example, drivers pay more money to get just $15,000 of coverage — which is particularly galling when you consider that it is not even $15,000 that covers them, only whomever they happen to hit, and that this $15,000 is then often reduced by legal fees. (Of course, Californians can buy much more coverage if they want. But millions of others, unable to afford even the legal minimal coverage, buy none at all.)

So why don’t all states just follow Michigan’s lead? The short answer, as you’ve heard, is the lawyers. Our misery is their income, and — while they surely wish us no harm — they don’t want to give up that income. Nationwide, it amounts to many billions of dollars a year, and there’s no way they’re going to give it up, any more than tobacco executives were going to admit, decade after decade, that cigarette smoking caused lung cancer.

But what if, for the sake of argument, the lawyers rolled over and let us have whatever auto insurance system we wanted? Would Michigan be perfect?

No. Pretty close (and vastly better than what we have now, so I’d grab it in a minute, if offered), but not perfect. Here’s why:

Poor Michigan Town Struggles With Funerals for 11 Crash Victims

As reported in the New York Times August 4, two mothers and 11 children were riding in a pickup truck July 29, coming back from a hot summer afternoon of swimming. One of the moms, Mrs. Jackson, driving with a suspended license, ran a stop sign. A dump truck rammed into her pickup. The two moms and eight of the kids died instantly, a ninth at the hospital. As of the date of the Times story, the two remaining toddlers were hospitalized in critical condition.

Michigan auto insurance would be terrific if these people had been able to afford to buy it. But as relatively inexpensive as it is, especially given its terrific benefits, not everyone can afford it. “And so in Albion,” reported the Times, “coffee cans and cottage cheese tubs have been turned into collection baskets, the Kmart has donated funeral clothes for the victims, and on Saturday, the Fraternal Order of Eagles lodge drew almost 400 people for a $3-a-plate spaghetti dinner.”

Yes, under Michigan no-fault, survivors and relatives of a horrendous crash like this do retain the right to sue. That’s actually one feature of the Michigan system that adds to its cost. But there are two problems with suing the dump truck driver. First, it wasn’t his fault, so they’d lose. Second, he was poor, too, so even if they won, there’d be nothing to get.

(“[T]he dump truck driver,” reports the Times, “… has a good driving record, is a volunteer firefighter who always worked and never caroused, friends said, and stayed at the crash site for hours helping to find the bodies of the children. He is so devastated he can barely talk about the accident, friends said, though he has paid visits to at least one of the victims’ families.” Well, you hear the lawyers wondering, can’t we sue him for something? Or sue his wife?)

So what’s the answer? How do you make insurance coverage less expensive, so more poor people can afford it?

• One way is to allow them to opt out of the pain-and-suffering-lawsuit portion of it. In Michigan, those suits are limited to only the most severe accidents, but allowing low income people to opt out would still save some money. Better to have unlimited medical and rehab reimbursement, plus good wage-loss coverage, than nothing.

• Another way is to offer low-income people the option to buy a smaller, but still meaningful, benefit. Perhaps a policy with a $50,000-per-person cap, and modest death benefits for tragic cases like this one. Clearly not as good — but less expensive and, again, much better than nothing.

• Yet another way: some sort of subsidy. You could, for example, cover all children under 18 automatically, by law, passing the cost of these cases on to everyone else. Personally, I’d be for that. And the mechanics are easy. (The state would set up an “assigned claims” plan, under which uninsured injured kids got assigned to insurers randomly, in proportion to the amount of business insurers wrote in the state. Insurers would increase their rates accordingly.) But when you talk subsidy, even of injured children, you enter the realm of political philosophy more than economics.

In today’s climate, particularly, the “perfect” auto insurance system may be Michigan’s, with one twist: low-income people would have the option of buying a less generous, less expensive policy, but one they could more likely afford. The sorrow in Albion would have been no less. But financially, at least, things wouldn’t have been quite so bleak.

As usual, if you care about this, spread the word. It may seem hopeless — it may BE hopeless. But this is America, and in America, anything is possible. Even real auto insurance reform.

Tomorrow: Keeping Up with the Super Joneses