The Personal Injury Protection (PIP) portion of Michigan auto insurance changed (effective July 2, 2020) enabling consumers to choose the amount of medical coverage provided by their auto insurance policy. Prior to the change, by law, Michigan auto insurance policies were required to provide unlimited, lifetime coverage for any medically necessary services resulting from injuries sustained in an auto accident.
The previous unlimited, lifetime medical coverage was reflected in two separate charges on your Michigan auto policy:
- Personal Injury Protection (PIP), and
- Michigan Catastrophic Claims Association (MCCA) surcharge
If you were injured in an auto accident the first $580,000 of covered medical expenses were funded by the PIP portion of your premium with any payments in excess of that amount funded through the MCCA.
All individuals purchasing or renewing a Michigan auto insurance policy now have the option to continue unlimited, lifetime medical coverage OR to reduce or even opt out of medical coverage from their auto policy.
The PIP coverage options now available are:
- Unlimited, lifetime coverage
- Reduce PIP coverage to $500,000 (per person, per accident)
- Reduce PIP coverage to $250,000 (per person, per accident)
- Reduce PIP coverage to $250,000 with specified or all individuals excluded *
- Reduce PIP coverage to $50,000 (Medicaid only option) *
- Opt-out of PIP medical coverage (Medicare only option) *
* Options 4 – 6, where one or more members of a household elect minimum coverage ($50,000 is the lowest coverage option available for individuals covered by Medicaid) or to opt out of medical coverage entirely on an auto policy, may require documentation of separate medical coverage through Medicaid, Medicare Parts A & B, or “Qualified Health Coverage” (QHC). QHC would be separate health insurance that has an annual individual deductible of $6,000 or less and does not limit coverage for injuries related to auto accidents.
Proof of qualified health coverage should include the full names and dates of birth of all individuals covered under a policy, a statement as to whether coverage provided constitutes “qualified health coverage” or that coverage does not exclude coverage for motor vehicle accidents, and reflect an annual deductible of $6,000 or less per covered individual.
Consumers should consult their health insurer to request proof of qualified health coverage. The Department of Insurance and Financial Services (DIFS) has issued guidance urging health insurers to develop a document that indicates whether a person’s coverage is “qualified health coverage” for purposes of auto insurance – so health insurer’s should be expecting and prepared for this type of document request. For individuals covered by Medicaid or Medicare a copy of a Medicaid or Medicare card would serve as proof of required health coverage.
What do the PIP (medical coverage) choices mean to me?
It is important to note any consumers choosing to reduce or opt out of medical coverage provided by their auto insurance policy will be making a trade-off: Reducing coverage to reduce premiums will increase the risk of needing to rely on other resources to pay for medically necessary services if an individual is injured in an auto accident.
While car safety has improved over the years, an auto accident remains the highest probability type of accident where an individual may suffer serious, life-altering injuries. In 2018 alone, the Michigan Catastrophic Claims Association paid out over $1.2 billion in total claims payments. As noted earlier the MCCA only begins paying for individual medical claims when they exceed a threshold (currently $580,000) paid directly by the involved auto insurance company. Of those MCCA payments made in 2018 over 55% were for attendant care or long term residential care for individuals severely injured in an auto accident.
Additionally, consumers with Qualified Health Coverage may be taking on significantly higher risk of out-of-pocket expenses when relying on that coverage for medical expenses related to injuries sustained in an auto accident. Auto insurance offers the broadest coverage for any medically necessary services resulting from an auto accident.
Individuals relying primarily or solely on other health insurance for injuries sustained in an auto accident would be subject to any applicable annual deductible and co-payments of that health plan. They would also be subject to any conditions, limitations, or exclusions for certain categories of expenses that most people don’t consider before suffering a serious injury. These limitations may include whether the health insurance would pay to have a home or vehicle modified if, for example, injuries confined an individual to a wheelchair, how many visits the health insurer would pay for if an individual needs physical or vocational therapy, how much would be paid if an individual needed assistance with activities of daily living or required some type of assisted living or nursing home care.
Consumers also need to consider what would happen if they lose their health insurance?
Many individuals and families still rely on health insurance obtained through an employer. If an individual is seriously injured in an auto accident they could wind up losing their job and, as a result, losing their health insurance. They could be faced with the prospect of finding and purchasing other health insurance at a time when they are least able to do so.
What are the savings for reducing PIP coverage?
The new Michigan auto insurance law guarantees eight years of reductions of 10% to 100% on the average PIP premium charged by insurance companies (as of May 1, 2019) depending on the level of medical coverage selected. These reductions are not specific to you and your individual policy and do not guarantee that the total cost of a person’s auto insurance policy will go down.
As the law also implemented additional changes banning some rating factors including gender, marital status, home ownership, occupation, education and zip code the effect of the required PIP rate reduction on overall insurance rates will vary between insurance companies depending on how each insurer adjusted their rates taking into account these additional changes. With each insurer the reductions for the average cost of the medical portion of auto insurance premiums are required to be:
- Option 1 – Unlimited PIP coverage: 10% reduction in PIP rates
- Option 2 – $500,000 PIP coverage: 20% reduction in PIP rates; eliminate MCCA fee
- Option 3 – $250,000 PIP coverage: 35% reduction in PIP rates; eliminate MCCA fee
- Option 4 – $250,000 PIP coverage with exclusions: 35 to 100% reduction in PIP rates depending on number of individuals excluded from coverage; eliminate MCCA fee
- Option 5 – $50,000 PIP coverage: 45% reduction in PIP rates; eliminate MCCA fee
- Option 6 – Medicare Opt-out: 100% reduction in PIP rates; eliminate MCCA fee
For the unlimited PIP coverage option the MCCA charge would still be applicable, however that charge is decreasing from $220 per vehicle, per year to $100.
When will I be able to change my coverage?
The new law takes effect July 2, 2020 for both new Michigan auto insurance policies and auto policies renewing on or after that date.
For policies renewing on or after July 2, 2020 insurance companies will mail a packet to the policy owner in advance of the renewal date outlining the new coverage options along with forms to be completed and returned IF the policy owner desires a change in coverage. If a policy owner does not proactively choose to reduce or eliminate medical coverage their auto policy would renew maintaining unlimited, lifetime medical coverage.
Whether an existing policy may be changed after July 2nd and before the next renewal date will be up to each individual insurance company. You should check with your insurance agent or company if you are interested in changing your coverage before your policy comes up for renewal.
What if my health insurance changes in the future?
One of the more daunting aspects of the Michigan auto insurance reforms are they require a higher level of awareness by consumers of the relationship between their health insurance and the medical coverage portion of their automobile insurance.
If a consumer opts out of medical coverage under their auto policy because they have other qualified health coverage (QHC) they need to be aware that, unlike auto insurance, health insurance stops paying when a policy ends or is canceled. If a person who opted out of medical coverage on their auto policy loses qualified health coverage, they must notify their auto insurer within 30 days of loss of coverage. A person who has not obtained qualified health coverage or added PIP medical coverage to their auto policy within 30 days will not be entitled to any PIP benefits.
Consumers should also be aware if they select the minimum $50,000 coverage (Medicaid) or opt out of medical coverage entirely on their auto policy they may be required to provide documentation proving they are maintaining other qualified health coverage at each renewal.
Are there any additional changes taking effect July 2nd?
Yes, consumers will also now be faced with an additional change and choice pertaining to Bodily Injury Liability coverage. Liability is coverage provided by your own auto policy protecting you, financially, if you are legally responsible for injuring someone else in an auto accident.
With the ability for consumers to choose limited amounts of medical coverage on their auto insurance there is an increased likelihood a serious injury claim could exhaust their medical coverage. What happens then? There is an increased probability an at-fault driver in an auto accident may be sued by any person(s) they injured to pay for medical expenses.
Recognizing the increased potential for lawsuits the auto insurance reforms enacted by the legislature also require the default, and state recommended minimum, amount of bodily injury liability coverage to be provided by an auto policy to be $250,000 per person, $500,000 per accident.
Lower limits of bodily injury liability coverage remain available, although selecting a lower limit of coverage requires a written request and acknowledgement an individual understands the increased risks of carrying less liability coverage than is recommended.
With an increased risk of lawsuits it would be prudent for consumers to consider purchasing as much liability insurance as they can reasonably afford to protect themselves financially.
What do you recommend?
While it was not perfect system, a significant benefit of Michigan No-Fault Auto Insurance prior to the reforms taking effect July 2, 2020 was individuals covered by a Michigan auto insurance policy were assured, if they were seriously injured in an auto accident, that any and all medically necessary services for their treatment, over the course of their life, would be covered.
Since auto insurance provided unlimited, lifetime medical coverage it also limited the likelihood and types of damages for which you could be sued if you had the misfortune of seriously injuring someone else in an auto accident.
The reforms taking effect in July of 2020 significantly change both of those areas of Michigan auto insurance.
Early calls from our clients indicate, of those individuals desiring to reduce or eliminate medical coverage from their auto policy, most either seem to think “I have pretty good health insurance, so I don’t need medical coverage on my auto policy” or “$500,000 or $250,000 sounds like a decent amount of coverage”.
The reality is health insurance policies are typically 60 to 80 pages, or more, in length and have extensive terms, conditions, and limitations that the average consumer doesn’t understand or even consider as they haven’t had to think about what services they may need if they were seriously injured in an auto accident. There are a wide range of medical services you may need, if you were injured in an auto accident, beyond traditional hospital and medical expenses including modifications to your home or vehicle, special transportation, physical and vocational rehabilitation, in-home attendant care, or care at a private facility.
The most comprehensive coverage available for these types of medical services is through an auto insurance policy providing unlimited, lifetime medical coverage and it is our recommendation clients maintain that level of coverage. Unlimited, lifetime coverage is the only way to be assured you would have coverage for any and all medically necessary services, over the course of your life, if you were seriously injured in an auto accident.
The amounts of reduced medical coverage ($500,000 or $250,000) are ridiculously low. If you were seriously injured in an auto accident requiring transportation by ambulance to a hospital, being hospitalized for even a few days requiring treatments and/or surgeries, and then needing some type of rehabilitation you could quick exhaust either of those amounts of coverage.
What happens when people with limited medical coverage exhaust their coverage?
A significant concern many consumers should consider resulting from the auto insurance reforms is their increased likelihood of being sued.
Accidents can and do happen, even to the safest of drivers, and if you were responsible for injuring someone else in an accident there is now a significant risk you may be sued for the injured person’s medical expenses. As noted previously the reforms increased the recommended minimum liability coverage, although even those limits are not likely to be sufficient if you were legally responsible for medical expenses for someone seriously injured in an auto accident. It is our recommendation to increase the liability portion of your auto policy to the highest level of coverage available and to consider purchasing additional liability coverage through an umbrella policy.
How do I complete Michigan Selection of Personal Injury Protection (PIP) forms?
Every insurance company is utilizing a form that was designed by the State of Michigan to inform consumers of their Personal Injury Protection (PIP) coverage options as well as to select and certify their requested coverage. The document employs formal and technical language that may be difficult to understand. The following is a simplified summary of the options:
Any consumer, regardless of whether they have separate health insurance or what type of coverage that health insurance provides, may freely choose options 1 through 3 consisting of:
- Option 1: Unlimited medical (PIP) coverage
- Option 2: $500,000 medical (PIP) coverage
- Option 3: $250,000 medical (PIP) coverage
Consumers with Qualified Health Coverage (QHC) who desire to opt out of medical (PIP) coverage for a named insured, spouse, and/or any resident relative(s) would select:
- Option 4: $250,000 medical (PIP) coverage
And identify, on the form, each individual excluding (or opting out of) medical (PIP) coverage from their auto insurance policy.
For a named insured covered by Medicaid the lowest level of coverage available (and uniquely available to them) is:
- Option 5: $50,000 medical (PIP) coverage
Again, this option is solely for an applicant or named insured enrolled in Medicaid. To be eligible for this option any spouse and all resident relatives must have qualified health coverage, be enrolled in Medicaid, or be covered by another auto policy with PIP medical coverage.
For a named insured covered by Medicare the appropriate selection to exclude (opt out) of medical coverage under their auto insurance policy would be:
- Option 6: No medical (PIP) coverage
Perhaps the most confusing aspect is Option 6: No medical (PIP) coverage. This option is NOT for individuals who have Qualified Health Coverage other than Medicare to select if they want to opt out of medical (PIP) coverage altogether on their auto policy. Those individuals would select Option 4 and then specifically list all individuals to be excluded. The primary reason for the two different methods for opting out of coverage has to do with Option 6 will prompt some language in an auto policy being amended to address specific Medicare requirements.
For options 4 through 6 where individuals are either opting out (excluding) medical (PIP) coverage or selecting the lowest level of coverage available for individuals covered by Medicaid consumers should confirm whether any additional documentation is required. If a renewal packet was mailed directly from the insurance company there should be a cover letter specifying any additional requirements.