Michigan Auto Insurance Reform: How Does it Effect You?
Understanding the Changes and How They Affect You
The following post is for informational purposes only and should not be relied upon for guidance and should not be considered as formal advice for any situation. I would urge you to contact your auto insurance agent or your financial advisor and attorney when reviewing your personal no-fault auto insurance reform strategy.
With my disclaimer out of the way, we felt it necessary to conduct webinars and provide other written content pertaining to MICHIGAN‘s auto insurance reform and its impact on health insurance for group, individual medical insurance, and individuals covered by Medicare and or Medicare Advantage plans.
We have been getting calls for years from individuals on corporate group insurance plans serviced by our agency regarding the coordination of health insurance benefits with their no-fault policies in order to save premium. Please note we do not sell umbrella insurance, auto insurance or property and casualty insurance, so we have no selfish motive to recommend any strategy. It has always been the agency stance that people should carefully consider all benefits under no-fault before coordinating or limiting their coverage.
The Reform is Here
On July 2, 2020 the new Michigan no-fault law takes effect, signed by Governor Whitmer last May. Individuals are going to have the opportunity to reduce their personal injury protection, otherwise known as “PIP”, to lower their premiums.
The citizens of Michigan have been asking for reform to lower auto insurance premiums for years and now they have the opportunity. The choices that are available to individuals now can generate savings, but they also represent, in many cases, a reduction of coverage. It’s our opinion that people should carefully consider the coverage reduction and its possible impact on covered individuals under the policy. Should people make no decision, it’s likely the auto carrier they’re currently insured with will renew their policy with the full PIP coverage which will remain unlimited.
The following table indicates the theoretical discounts that may be available to policyholders under each variant of the personal injury protection:
Be advised that the $50,000 level is limited to those on Medicaid, and the full waiver is only available to those covered by Medicare as well as those covered by a qualified health insurance plan.
Insurance Claims
The following diagram shows a representation of coverage afforded by the current unlimited Michigan no-fault coverage:
The circle on the left indicates primary medical benefits that would be rendered to someone that is injured in an auto accident.
The circle on the right lists other benefits afforded to them such as loss of income and important things such as durable medical equipment, wheelchair vans, home modifications, vehicle modifications, unlimited custodial care, and physical and occupational therapy. The benefits in the circle are not limited to those described.
One concern about lowering the coverage level to the $250,000 amount, for example, would be a hospital claim that runs $300,000 after an auto accident. The seemingly large benefit under PIP of $250,000 would be absorbed by the hospital and the individual’s regular health insurance would have to pay the remaining $50,000. So far so good, the injured motorist would not be out very much out-of-pocket expense at this point; however, all the additional PIP benefits in the circle on the right would be rendered useless as they’ve already spent their $250,000 budget under medical portion of their claim.
According to actuaries, there may be a less than a 2% chance someone will go above the $500,000 level, and therefore significantly utilize the unlimited amount. For many who buy these policies, this is a remote chance, but for those who are affected it will have massive implications.
Some seniors will have significant reductions in their auto insurance premiums by waving PIP completely. They will be the ones that have the benefits outlined in the following diagram whereby only their auto injury medical will be covered by their Medicare benefits. Medicare benefits tend to be generous but will not provide many of the things in the circle on the right that will be lost due to waiving the PIP.
Seniors with very low net worth and income may find this to be an attractive situation as they will likely enjoy savings at the risk of losing the PIP benefits. There will be many sad situations in the wake of accidents with a case of a senior who waves their PIP coverage. Only time will tell if this was a good decision for those who wave PIP.
For those individuals who will be waiving their PIP completely and are not a Medicare recipient, they will need to produce proof from their health insurance company that they will be covered with an acceptable policy. These individuals of course will forgo the circle on the right and solely rely on the medical benefits presumably provided by their insurance carrier if employed. It will be very interesting to see how the employer sponsored plans will fare with this additional substantial medical burden placed upon them.
Further Considerations
Under the current law most auto insurance agents are recommending that people visiting Michigan, and riding in automobiles insured in the state of Michigan by Michigan residents, check with their auto insurance carriers to see how their personal injuries will be handled as they will not be covered under the PIP enjoyed under the current law. It’s unclear what medical protection they will have in the event of an accident, “most likely relying on their carrier and the provisions for out-of-state travel.”
Another large concern is adult children not living in the household. This has to be carefully monitored as they will have to obtain their own PIP policies and likely will no longer enjoy a family discount.
Finally, for those citizens who have been fortunate enough to accumulate high net worth, or those not wanting their future income to be garnished by a lawsuit, will need to explore umbrella coverage to protect themselves against drivers who may be underinsured now with reform.
It’s my understanding, that should one be at fault in an auto accident, for example losing control on an icy road and injuring someone else they will likely face litigation if the injured parties aren’t well insured. In this example, if someone was to be wounded and had the $50,000 PIP coverage and needed substantial medical treatment and years and years of rehabilitation, care maintenance, wheelchair vans, etc., they will not have enough money provided by the insurance company and will have to litigate for it.
Umbrella coverage can help alleviate this threat and can be purchased as a rider on homeowners or renter’s insurance policies. Many of our clients that have accumulated assets will be urged by us to explore this with their property and casualty insurance agent. We are not a licensed agency that provides such coverage; however, we find it necessary to recommend this as a course of normal financial planning advice. For more information please see our website tab under health insurance dealing with auto insurance reform.
The preceding blog post is for informational purposes only and should not be relied upon for guidance and should not be considered as formal advice for any situation.
I would urge you to contact your auto insurance agent or your financial advisor and attorney when reviewing your personal no-fault auto insurance reform strategy.
Resources:
Michigan State Bulletin - Official Notice
BCBN BCN Customer - Auto-Insurance Frequently Asked Questions
BCBS BCN Auto Changes - Group Insurance - Frequently Asked Questions
Michigan Auto Insurance Healthcare Effects - PowerPoint
The above is for informational purposes only and should not be relied upon for guidance and should not be considered as formal advice for any situation. I would urge you to contact your auto insurance agent or your financial advisor and attorney when reviewing your personal no-fault auto insurance reform strategy.
