Michigan drivers will pay $20 more this fiscal year to care for accident victims who have brain damage, paralysis or other catastrophic injuries.
Not the usual suspects such as escalating health care costs or a bad stock market, according to critics. They say the state Supreme Court is to blame.
The court last month voted 4-3 to force the Michigan Catastrophic Claims Association to fully reimburse insurance companies for two brain-damaged men’s round-the-clock nursing care.
The association of no-fault insurers, which was created in 1978 to spread unlimited medical and rehabilitation expenses for severely injured crash victims among all motorists, compensates insurers once claims exceed $460,000.
The MCCA said the amounts charged for hourly nursing expenses for Daniel Migdal and Robert Allen were too high. It argued insurance companies should not be able to pass along “unreasonable” charges to the MCCA, which is funded by an annual fee on drivers’ insurance bills.
The court disagreed, telling the MCCA to pay the expenses since they already had been approved by the insurers.
Republican Justice Robert Young Jr. and two other GOP dissenters called the ruling “an expensive mistake for which every policyholder in Michigan will pay.” The MCCA said it raised the yearly assessment on motorists from $104 to $124 in anticipation of the decision — a 19 percent increase instead of what would have been a 4 percent jump to $109.
The MCCA said it needed $64.5 million more for expenses this fiscal year because of the decision and the group had to keep an extra $629 million in reserves.
“If an insurer makes a bad deal, we’re stuck with the bad deal,” MCCA counsel Joseph Erhardt said.
The four justices who sided with the two insurers, however, called contentions that their ruling would result in higher premiums “highly speculative” and “unfounded.”
“There is no evidence that insurers have engaged or will engage in slack negotiations,” Justice Elizabeth Weaver wrote.
The decision is an example of the importance of last November’s state Supreme Court election, when Democrat Diane Hathaway unseated Republican incumbent Clifford Taylor. Two days before leaving the bench, Taylor joined in a 4-3 ruling in favor of the MCCA. When Hathaway took over, the court reconsidered the case and ruled the other way.
Migdal was 17 when he suffered traumatic brain damage in a 1981 auto accident, leaving him unable to communicate except through eye blinks. He has to be fed through a tube while being cared for at his parents’ home in Brighton.
In 1990, Migdal’s father and the insurer, United States Fidelity Insurance & Guaranty Co., settled a lawsuit to cover Daniel’s attendant care. The insurer agreed to pay $17.50 an hour to care for Daniel at his house — with an automatic 8.5 percent increase in the hourly rate each year for medical inflation.
Michael Migdal created a company to hire nurses and to pay himself for helping to care for his son. He is now getting $89 an hour, adding up to $783,000 for 2009. The MCCA says that, after the nurses are paid, the dad will pocket $500,000 this year alone.
“It’s not our money. It’s the ratepayers’ money,” Erhardt said.
The state insurance commissioner has called the payments “patently excessive.” Migdal’s lawyer has said the inflationary increases seem high in hindsight but were reasonable 20 years ago, and the deal cannot be ignored just because the MCCA dislikes it.
While the case may be an anomaly because many insurers avoid getting locked into such settlements, there are conflicting opinions on how the decision will affect motorists’ premiums.
The justices who ruled against the MCCA _ three Democrats and Weaver, a Republican _ said nothing is stopping the MCCA from denying outrageous expenses by requiring that new agreements get its approval in advance.
Traverse City auto insurance attorney Page Graves, who likes the outcome, said it is a “slap in the face” to suggest insurance companies will have less incentive to negotiate sensible settlements for critically injured motorists, knowing the MCCA ultimately will get the bills.
“They’re going to be very darn careful when writing checks,” he said. “To say they’re suddenly going to lose sight of their job and integrity, that’s just an unwise statement. … We’re dealing with people who need the care most and who need it now.”
But MCCA actuaries predict the ruling will result in significant cost increases over time because insurers will spend less time making sure charges are as low as possible.
“We think there’s going to be creep,” Erhardt said.
The MCCA announced the higher assessment soon after the court decided to reconsider the case, leading the justices who ruled against the MCCA to question whether it took into account ways to prevent unreasonable claims in the future.
State Sen. Glenn Anderson, of Westland, said the MCCA’s decision to raise the fee before seeing the ruling is “indefensible.”
He is among the Democrats who have tried for years to open the MCAA to more public scrutiny.
“The justification for the increase, how they arrived at that, should be something consumers know can be reviewed,” Anderson said.
Legislation that would add public members to the MCCA board and require the MCCA to comply with the Open Meetings Act and Freedom of Information Act has stalled because Republican lawmakers oppose it.
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