LANSING – Legislative Republicans are shopping a proposal that would link curbs in automobile personal injury protection insurance to fixing a shortfall in what the relatively new tax on health insurance claims raises.

Under the proposal, motorists would no longer pay the annual Michigan Catastrophic Claims Association fee of $175, soon to rise to $186, to fund the system that provides unlimited medical coverage from auto accidents resulting in claims of more than $500,000 and unlimited coverage would end.

A new fee would be established at a lower level than the catastrophic claims fee with the money split up several ways. Some of it would go toward paying new claims between $500,000 and $1 million, the new cap on benefits, through a new Michigan Catastrophic Claims Corporation. There would be a one-year statutory rollback in auto insurance rates. And some, $25 per vehicle, would go toward filling the shortfall in the health insurance claims tax.

That tax, now at 1 percent on all health insurance claims, was supposed to raise $400 million annually. Instead, it is only producing about 60 percent of that amount. The tax, created to replace the 6 percent tax on the state’s Medicaid health maintenance organizations, is designed as a mechanism to raise $1.2 billion toward Medicaid ($400 million from the state with $800 million in federal matching funds).

The tax sunsets January 1, 2014, so the Legislature faces the thorny issue of reauthorizing the tax as well as deciding whether to increase it to generate the $400 million needed or filling the gap from other sources. Strategically, sources following the issue say the idea is to win over more House Republicans on no-fault by avoiding a vote on increasing the claims tax.

Delaney McKinley of the Michigan Manufacturers Association, praised the conceptual framework. Her organization, which was skeptical of the claims tax, opposes increasing it, saying it would place an untenable burden on employers.

“We see this as an innovative approach,” she said of the framework under discussion.

While the concept is still somewhat in the idea phase, McKinley said there is “a decent mass of people that are supportive of this.”

Pete Kuhnmuench, executive director of the Insurance Institute of Michigan, said the goal is to find a plan that can win the reforms insurers seek to the no-fault system.

“Our challenge is to get our no-fault reforms passed and if this facilitates that, if this helps bring additional votes to the table as a package, we’d be support of it,” he said of combining the auto insurance issue with the claims tax. “I think that’s the $60,000 question at this point.”

Rep. Pete Lund (R-Shelby Township), chair of the House Insurance Committee, would not discuss the specifics the legislation now under drafting.

“We are talking with the governor’s office and working on some type of proposal that will solve various issues,” he said when asked about the framework that would involve the claim tax. “We’re still working on all the details, and I’m just not ready to go into details on what the final proposal will or won’t look like.”

However, Lund said officials are “hopefully within a few weeks” of introducing legislation.

Kevin McKinney, the lobbyist for the Coalition Protecting Auto No-Fault, said the new proposal would still undermine the state’s handling of catastrophic injuries from auto accidents.

McKinney questioned who would want to support a new assessment to address a Medicaid shortfall even as liabilities remain to pay for catastrophic injuries.

“I don’t understand how that sells,” he said.

Further, the $1 million cap would increase Medicaid liability with more persons having to turn to Medicaid after the cost of their injuries in an auto accident breaks them financially.

However, McKinney said CPAN is working on some reform to combat fraud, improve affordability, impose a “fair and balanced tort threshold” on when someone injured in an auto accident could sue for noneconomic damages and place some cost containment on providers. He declined to talk the specifics of these items, but said “there is serious discussion going on.”

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