Policy Documents

Medical Costs of No-Fault Automobile Insurance

Citizens Research Council of Michigan –
October 1, 2013

Michigan is one of 12 states with either mandatory or optional no-fault insurance. While successful in meeting some important policy goals, no-fault insurance premiums and associated medical costs have proven to be more expensive than those in all other types of auto insurance systems. Accounting for both higher prices and higher usage, medical claims in Michigan cost auto insurers 57 percent more than claims for similar crashes in other states; consequently, auto- mobile insurance premiums are 17 percent higher on average.

Driving higher costs under no-fault insurance is the practice that auto insurers are the primary payers for auto accident related medical care, whereas health insurers tend to be the primary payers in tort insurance states. This responsibility for payment becomes expensive if and when auto insurers are paying higher prices than health insurers for the same medical services. In Michigan, all payers are charged the same rate for services, but payers often do not pay the full amount charged. The actual amount paid by auto insurers is higher than the amount paid by most other payers.

Auto insurers pay higher rates because they have limited power to negotiate discounts on the rates they are charged.

This report highlights these discrepancies, resulting in Michigan drivers paying some of the nation's highest auto insurance premiums.