With Senate Bill 248 the Michigan Legislature is attempting to address a number of problems with the auto insurance market in the state. Michigan’s no-fault system creates misaligned incentives, resulting in auto insurance rates that are among the highest in the nation. There is also a larger question of why we treat severe injuries from car accidents differently than we treat the similar injuries from other types of accidents.
The unlimited personal injury protection provision in the current no-fault system creates an incentive to provide very expensive care, rather than provide affordable and effective treatment aimed at quickly restoring the victim to health. This typically results in medical bills charged to PIP insurance that are significantly and inexplicably greater than those charged to other insured methods, such as Medicare or workers’ compensation. In an earlier study it was found, for example, that a neck MRI in Detroit paid for by no-fault cost $3,258, while the same procedure paid for by workers’ compensation insurance was $769.
The reason for this is that if you suffer a severe spinal injury in a car accident, there is no limit to the charges incurred in treating you. But if you suffer the same injury by falling off a ladder, there is. Realistically, what we do in Michigan is to tax motorists to cover catastrophic, auto-related injuries without any constraints on the cost of treatment. This is done in a convoluted fashion, through a per-vehicle assessment that funds the Michigan Catastrophic Claims Association.
But the state is considering some reforms with Senate Bill 248, and these are a move in the right direction. One positive aspect of Senate Bill 248 is that it is reintroducing a discussion of why the state is such an outlier in the way its auto insurance market operates and how to deal with the lack of affordability of insurance in places like Detroit. Michigan is only one of 12 states to have no-fault auto insurance and is the only state to have unlimited PIP. New York has the second highest PIP limit of $50,000.
There are provisions of the bill that will act to reduce insurance costs. Among these are attempts to set limits on rates. Of course, as with any attempts to set prices, there are likely to be unintended consequences. The movement from the MCCA to a new entity will provide more transparency, but it will probably be more subject to political pressures with regard to both claims and assessments.
The establishment of an insurance fraud program will, if operated effectively, reduce fraud, lowering treatment costs and insurance premiums and catastrophic claims assessments. Limits on certain payments for attendant care will have some effect on the incentives to provide more care than is necessary.
Overall, Senate Bill 248 will probably result in lower auto insurance costs for car owners in Michigan. However, policymakers should also consider moving away from a no-fault insurance system and establishing limited PIP coverage, just like every other state in the country. When it comes to insuring the costs of catastrophic injuries, we should treat them the same, regardless of how they were incurred.
Analytical thinking is essential in policy debates
With so many complex policy issues, how do we decide which are worthy of our support or deserve to be opposed? Environmentalism, my specialty, is rife with policy initiatives that are often based on emotional appeal, rather than well-reasoned articulations of facts.
As a boy, I read Isaac Asimov’s science fiction classic “Foundation” series that featured psychohistory and symbolic logic. I was fascinated by how the Foundation applied symbolic logic to political documents and treaties to interpret what was really being said. In one situation, the Foundation reduced the fine print of a five-page treaty to two statements: “Obligations of Anacreon to the Empire: None! Powers of the Empire over Anacreon: None!”
Reasoning is an acquired skill that can be learned, developed and honed. With all this information at our fingerprints, we ought to be better able to reason our way to conclusions than ever before. But it’s still difficult to reason — to think clearly and logically — because we are easily persuaded by appeals to our emotions. Plus, some groups benefit from us not reasoning well, preferring that we embrace selective facts and selective history; preferring that we succumb to faulty or twisted logic or slogans; preferring that we stay in ideological silos.
Learning to reason well starts with the humility to accept that we don’t have all the answers, with receptivity to new information and new arguments, and with the relentless pursuit of verifiable evidence, historical precedence and data that support the reasoning process.
Being receptive to new information and perspectives means setting aside visceral responses, accepting the possibility that someone we dislike might make a sound argument, or that someone we like might be making a flawed argument. In both cases, we ought to stay focused on what’s being asserted and how this assertion is supported, and be on the lookout for sloganeering, logical errors, selective facts, or the abuse of proportionality.
Being able to recognize erroneous logic is an important first step in learning how to reason better. Planes fly; birds fly; therefore, planes are birds. This is a simplistic example, though you might be surprised at how often similar arguments are proposed with straight faces. Because some fraternities act abusively toward women (planes), many people were inclined to believe the false Rolling Stone story about the University of Virginia fraternity (birds), ignoring the lack of evidentiary support for the accusation.
Another common reasoning mistake is to begin with sound data, but ignore the absence of facts linking this sound data to conclusions. I came across this issue in a Wall Street Journal article that purported to connect frog population decline to global warming. Here was my response:
When science records what it observes, when it measures phenomena, and when it faithfully and accurately models that data, its finding are valid, useful and reliable. But when scientists, however well-informed, offer speculation based on these observations, measurements and models, credibility and reliability are diminished, sometimes drastically. Thus, the observation that the frog population worldwide is declining, corroborated by measurements, in combination with models that purport to demonstrate global warming is not (yet) sufficient to assert the title of your article (“Study Finds Global Warming Is Killing Frogs”). This conclusion is speculative, as it is based on the assumption that warmer temperatures at higher elevations in Costa Rica are responsible for the viability of the fungus that is infecting the frogs.
Proportionality is an important consideration too. Learn to recognize a faulty argument along the following lines: The United States sometimes executes innocent men, Hitler executed innocent men, and therefore, the United States and Nazi Germany are equally bad.
“Belief in the Law of Small Numbers,” by psychologists Daniel Kahneman and Amos Tversky, revealed that statistical inferences are often based on sample sizes too small to support conclusions. According to Kahneman, “We pay more attention to the content of the messages than to information about their reliability … a view of the world that is simpler and more coherent than the data justify.” Kahneman also warns, in “Thinking, Fast and Slow,” against focusing on a specific attribute, such as benign climate, and using it to arrive at a broader conclusion. For example, Californians, despite the better weather, reported they weren’t any more satisfied with their lives than Michiganians.
The goal of learning to reason well is not to turn us into emotionless calculating machines. Living well is more than reasoning well. Even so, learning to reason well is an essential skill to help us decide important matters in a way that better corresponds to reality and truth.
“Early Warning System” for overspending school districts
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Senate Bill 233, Revise vehicle trade in tax break detail: Passed 37 to 1 in the Senate
To revise a 2013 law that exempts from sales tax the value of a trade-in when buying a motor vehicle, titled watercraft or recreational vehicle, so that it also applies to purchases made from out of state dealers. Under the 2013 law the tax exemption will supposedly be phased in over 24 years.
House Bill 4325, Establish overspending public school “early warning system”: Passed 60 to 49 in the House
To require school districts to submit their annual budget projections and assumptions to the state each July, and require intermediate school districts to declare whether they concur with the projections and assumptions. Non-concurrence would trigger a detailed reporting and oversight process. The intention of this and related bills is to create an “early warning system” for school districts with financial problems.
House Bill 4328, Authorize withholding state money from overspending school districts: Passed 58 to 51 in the House
To give the Department of Treasury the authority to withhold state school aid payments from an overspending school district that fails to submit an acceptable “deficit elimination plan,” or that then falls more deeply into financial trouble.
House Bill 4329, Authorize emergency manager for chronically overspending school district: Passed 59 to 50 in the House
To authorize appointment of an Emergency Manager for a public school district that fails to comply with an “enhanced deficit elimination plan” required by House Bill 4327 for a district whose regular deficit elimination plan failed to fix the problem.
House Bill 4331, Increase municipal and school “emergency loan” funding: Passed 64 to 45 in the House
To increase from $50 million to $100 million the amount allocated through 2018 for “financial emergency” loans from the state to public school districts, and increase from $35 million to $85 million the amount of such loans to local governments.
SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit www.MichiganVotes.org.
No evidence that Michigan's program is worth the cost
Ken Droz, former director of communications for the Michigan Film Office, responded to an op-ed I co-authored about Michigan's film incentive program. Unfortunately, he levels criticisms and makes claims without citing any facts.
The block quotes below are the assertions he makes in a MLive article, and are followed by my response:
I have seen and studied all the data published, including that much-cited Tax Foundation treatise and can tell you it consists mainly of ideology driven rhetoric and cherry picked facts to support pre-existing opinions.
There are many independent studies on film incentive programs; nearly all find negative economic effects. Dr. Robert Tannenwald, a professor at Brandeis University, reviewed the literature in 2010 for the left-leaning Center on Budget and Policy Priorities, finding “not much bang for too many bucks.”
It's true the program does not pay for itself from tax revenue generated. One major point overlooked however, is that like other public assets such as schools, state parks, and transportation — all money losers — the film incentives were not designed as a fiscal tool to create revenue.
Film incentive programs are not “public assets.” They are a transfer of wealth from taxpayers to the film industry.
[Film subsidies] benefit the state in other ways by a) stemming the massive brain drain of our youth, b) diversifying the state's economy, lessening automotive dependency, c) creating jobs, and d) enhancing tourism. And guess what? It was succeeding on every front.
Droz provides no evidence for any of these claims. Altogether, there are only about 1,500 film jobs in Michigan, according to the Bureau of Labor Statistics. Even if all of these jobs were a direct result of the program and all film employees came from other states, it would amount to a drop in the bucket for the state's economy.
[A]s conceived, the rebate percentages would come down — as they have been — as infrastructure developed and a capable indigenous workforce grew, thereby increasing revenue toward neutral status.
This is a leap — government reports consistently show the film incentive programs falling well short of "neutral status."
As I noted recently: “A few years ago, Michigan’s Senate Fiscal Agency found that the program returned only 11 cents per dollar spent to taxpayers. Louisiana spent $198.6 million and got back $27 million in tax revenue according to the state (13.6 cents per dollar spent). The Massachusetts Department of Revenue found that their incentive generated less than 14 cents on the dollar in 2012 (the latest year figures were available).”
The fact is most movies produced with incentive funds are made independently without studio backing, without which would never even get made.
This one is true, and often cited by subsidy proponents. But while there are more smaller films receiving money, the bulk of the spending from the program goes to the big studio projects. In 2014, most of Michigan’s film incentive budget ($35 million) went to Batman v. Superman. In 2013, most of the funding ($40 million) went to Oz: The Great and Powerful.
Michigan taxpayers have spent half a billion ($500,000,000) on a transient industry that takes the money and runs. With a tight budget and the need for more road funding, Michiganders can no longer afford this expensive luxury.
Cost may be much more expensive than originally assumed
The Foundation for Government Accountability has just published a report on state enrollments under the Obamacare Medicaid expansion. Here’s what the authors say about Michigan:
When Republican Governor Rick Snyder lobbied the Michigan legislature to adopt his Obamacare Medicaid expansion plan, he too sold it on the promise of low and predictable enrollment. His office predicted no more than 477,000 able-bodied adults would ever sign up, with 323,000 signing up in the first year.
But more able-bodied adults enrolled in ObamaCare expansion in the first three months than the state thought would sign up during the entire year. Despite the fact that Michigan did not expand Medicaid eligibility until April, nearly 508,000 adults signed up by the end of 2014, far more than the state thought would ever enroll. Enrollment continues to climb, with nearly 582,000 able-bodied adults signing up by April 2015.
Like Michigan, many states accepted the Medicaid expansion because lawmakers were afraid to stand between their local hospital cartels and hundreds of millions of dollars in “free” federal money (statewide more than $3 billion annually for Michigan).
But starting in 2020 Michigan will have to pick up 10 percent of the total cost. The newly compiled figures suggest that this may cost a lot more than members of the House and Senate anticipated when they voted to take the money.
In 2013 the Senate Fiscal Agency, using similar assumptions to those of the Snyder administration, projected that the state would have to come up with $385 million in 2021 to cover its share. Supposedly this would be partially offset by savings realized from offloading some mental health and prisoner health care costs onto the federal budget, but given the actual enrollment figures reported by FGA, those plans may need to be revised.
Read the rest of the piece at Bridge.
Grand Valley State University scores second-highest on the state’s “performance funding” measurements and Wayne State University scores the lowest. By most objective measures, the former is doing a better job than the latter — but WSU still gets far more money from taxpayers.
Consider that Wayne State (20,108) and Grand Valley (20,825) have nearly the same number of resident full-time students — but the former receives more than three times as much money ($191.1 million compared to $64.4 million).
The six-year graduation rate at GVSU is 66 percent compared to 28 percent at WSU. The average student tuition paid per degree awarded at GVSU is $63,722 while Wayne State takes in over $108,000 in tuition per bachelor’s degree.
When the university the state says is doing the second-best in providing value to students is receiving among the least amount of funding per student, there’s something wrong with the formula.
Teacher unions fail challenge to 2012 law
On April 8, 2015, the Michigan Supreme Court handed down an important decision upholding reforms to healthcare benefits for Michigan’s retired public school employees. Although it was specific to just healthcare, it bodes well for any future reforms to public pensions in Michigan.
In 2010, the Legislature passed a reform that was signed into law by Gov. Jennifer Granholm. This law required all current school employees to pay 3 percent of their salaries to fund health benefits for both current and future retirees. This policy contained a fatal flaw — it required current teachers to pay into a fund to benefit other teachers. The Court of Appeals struck this law down as an unconstitutional “taking” of property from certain individuals to give to other individuals. With that in mind, another reform measure was passed in 2012 which was crafted to avoid the important shortcomings of the 2010 law.
The 2012 reform, the Supreme Court recently found, was not unconstitutional, because it did not mandate a 3 percent employee contribution. Rather, it allowed teachers to contribute, or refrain from contributing, to a choice of retirement plans. If they refrained from contributing, they would accrue future pension benefits at a lower rate. The reform has no effect on benefits that have already accrued. Nevertheless, the law was challenged by the state’s two largest teachers’ unions, the Michigan Education Association and the American Federation of Teachers-Michigan.
The unions objected to the employees having to contribute anything to their own retirement health benefits — and instead sought to make the full cost of the retirement benefits fall directly on taxpayers. They wanted to duplicate the successful challenge to the 2010 reform, but the court unanimously (with the exception of the newest justice, Justice Richard H. Bernstein, who did not participate) found that the 2012 reforms passed constitutional muster, as they did not require public school employees to contribute, and it did not require a transfer of money from one group to another.
Although the justices were not called on to decide the wisdom of the reform, they did have to examine whether the retirement reforms were reasonably related to a “legitimate government purpose.” The Court answered:
“It is entirely proper for the state to seek the continuation of an important retirement benefit for its public school employees while simultaneously balancing and limiting a strained public budget. … The state is not generally constrained from modifying its own employee benefits programs to accommodate its fiscal needs.”
In describing the state’s need, the Court cited the accounting numbers produced by the state’s auditors:
“At the close of the 2010 fiscal year, the [state’s public school employees’ retirement system] was underfunded by an estimated $45.2 billion. Of that amount, the retiree healthcare benefits program accounted for approximately $27.6 billion in unfunded liability. … It was hardly unreasonable for the state to have concluded at the time that the [state’s public school employees’ retirement system] was in need of reform and modification.”
With public pension systems crowding out other state spending and teetering on the edge of insolvency (or even bankruptcy, as in the case of Detroit), the Michigan Supreme Court upheld a modest pension reform, which allowed the system to start becoming better funded. And the Supreme Court showed at least one way to enact future, more meaningful, reforms without falling into the unconstitutional pitfalls that befell the 2010 reform attempt.
The case is AFT Michigan and Michigan Education Association v State of Michigan, Case No. 148748.
The total value of property taxes collected in Michigan increased slightly from $12.8 billion in 2013 to $13.0 billion in 2014, a 1.7 percent increase, according to the state’s annual property tax report. This exceeded the 1.0 percent inflation growth for the Detroit metropolitan statistical area over the same period.
While property tax revenue decreased from 2007 to 2012, revenue increased in both 2013 and 2014. Average tax rates increased from 40.47 mills in 2013 to 40.79 mills in 2014 and the aggregate taxable value of all property increased a small amount, from $316.7 billion to $319.5 billion.
Auto insurance, double-dipping pensions, investor guarantees
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Senate Bill 248, Revise mandated no-fault auto insurance personal injury coverage
To replace the Michigan Catastrophic Claims Association (MCCA) with a new state authority that would provide reinsurance to insurance companies for the unlimited personal injury coverage mandated by Michigan’s no-fault law. The bill would place some price controls on services provided to injured individuals under this coverage, and expand a state automobile theft prevention authority to include insurance fraud.
Senate Bill 191, Expand government power to extract more costs from violators: Passed 36 to 1 in the Senate
To add retail fraud and failing to appear in court to the crimes for which a court may order a violator to reimburse the government for expenses related to the incident (such as police wages). Also, to add “transportation costs” to the list of reimbursable costs.
Senate Bill 170, Authorize high school “STEM” diploma: Passed 38 to 0 in the Senate
To authorize granting a high school diploma “endorsement” to a student who completes a specified number of science, technology, engineering and math courses (STEM).
House Bill 4195, Cap government “venture capital investment” program: Passed 107 to 3 in the House on
To prohibit the state from pledging any more future tax revenue to guarantee investor returns under an “early stage venture capital investment” scheme authorized by a 2003 law.
House Bill 4273, Eliminate February election date: Passed 93 to 17 in the House
To eliminate the February election date authorized by a 2003 election consolidation law which required all regular elections in the state to be held on either the last Tuesday in February, or the Tuesday after the first Monday in either May, August, or November.
Senate Bill 12, Allow pension double-dipping by “retired” Attorney General employees: Passed 37 to 0 in the Senate
To allow a retired state employee to simultaneously collect pension benefits and a paycheck for work performed as an Attorney General consultant or expert witness.
SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.
National Public Radio wrong about Mackinac Center study
Editor’s Note: The author made several attempts to contact Steve Inskeep and to request a follow-up story that might provide a fairer treatment of the Mackinac Center’s right-to-work study. We received no response.
April 6, 2015
Mr. Steve Inskeep
In a March 27 on-air exchange with David Wessel of the Brookings Institution on the impact of right-to-work laws, you focused on a “single phrase that was mentioned in a news story earlier this week” (transcript here). This phrase was sourced in the NPR story to a 2013 study coauthored by Dr. Michael Hicks and myself.
Unfortunately, your conversation proceeded to completely mischaracterize this study.
The “single phrase” was this: “Actually, since World War II, income and job growth have increased faster in right-to-work states.”
Wessel initially confirmed this observation with his own look at the data over the last two years. But he then falsely insinuated that our study simplistically asserted causal relationships between RTW and economic outcomes with no effort to control for other factors that may drive economic growth.
David Wessel: “But those correlations do not prove that right-to-work laws are the reason or even a reason that some states added more jobs than others.”
Wessel inferred that several bulleted observations in our opening discussion (see page four) amounted to us claiming conclusive evidence of causation. But even a casual look at our study would reveal these observations as part of the narrative introducing the RTW impact questions the study’s statistical model sought to test.
To be explicit, we sought to test these questions while controlling for “the other things going on,” in Wessel’s words.
Yet the idea that other factors may explain all or part of these economic phenomena was presented by Wessel as if this is a new concept and criticism. Perhaps he skimmed past the section of our study called “The Research Challenges of Right-to-Work,” where among other things we wrote:
A study which examines the role of right-to-work absent such issues as tax policy, weather and other variables that may impact a state’s aggregate economic performance will be unable to tease out the influence of right-to-work laws specifically.
Nevertheless, neither Mr. Wessel nor yourself bothered to mention any of this, much less the carefully constructed model we designed specifically to control for those other variables.
Adding insult to injury you asked Mr. Wessel if there is any “impartial scholarship” on right-to-work laws, as if Dr. Hicks and I had failed to produce as much. This offense was compounded by his throwing the misleading “conservative” label at us.
In answering that question Wessel pointed to two other studies — but neglected to mention both were highlighted in our study’s literature review.
In addition, our empirical research was peer reviewed twice. The second review was done by economists for an academic journal in which our model and its findings are soon to be published.
One would hope that an NPR interview of a Brookings scholar about (alleged) omitted variables would not actually omit important variables itself.
I am disappointed in your coverage and treatment of our right-to-work study. It deserved better and so did your listeners.
Morey Fiscal Policy Initiative