Solving the PIP Medical Coverage Puzzle

Ever since Michigan’s auto insurance reform took effect in July, drivers have been trying to decide what to do about the personal injury protection (PIP) medical portion of their coverage. Until July 2, Michigan motorists were required to carry Michigan no-fault auto insurance which included “unlimited lifetime medical benefits.” That coverage paid for the policyholder’s “reasonable and necessary” accident-related medical expenses for life, no matter who caused the crash.

While that coverage was a blessing for those who needed it, it also contributed to the high cost of auto insurance in Michigan. A study by the Insurance Research Council ranked Michigan the third least-affordable state in the country for car insurance because of its high claim costs. Last year, the Detroit Free Press reported that the average size of those claims in 2017 was $33,437 ­­— more than double the amount in the next highest no-fault state.

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The reform that took effect last month was an attempt to bring some relief to Michigan residents from the high cost of PIP medical coverage. Now, instead of unlimited PIP medical coverage, auto policy holders have a choice of six different options:

  • Keep unlimited PIP medical coverage. Those who were happy with the previously mandated coverage can choose to keep it and receive an average 10% or greater of the PIP medical rate reduction per vehicle.
  • Limit coverage to $500,000, for an average rate reduction of 20% or greater of the PIP medical rate per vehicle.
  • Limit coverage to $250,000, to take advantage of an average 35% or greater of the PIP medical rate reduction per vehicle.
  • Limit coverage to $250,000 with PIP medical exclusion(s). The exclusion is available for an insured person with non-Medicare health coverage that covers auto accident injuries and/or for household members if they have a qualified health insurance plan that covers auto accident injuries.
  • Limit coverage to $50,000. This results in an average 45% or greater PIP medical rate reduction per vehicle, but policy holders must be on Medicaid to qualify for this option, and their household members must have another auto insurance policy or qualified health insurance plan that will cover auto accident injuries.
  • Opt out. While this results in a 100% rate reduction for the PIP medical portion, the policy holder must be covered under Medicare Parts A and B, and any of their household members must have another auto insurance policy or be covered by a qualified health insurance policy.

Weigh the Pros and Cons Before Making a Decision

Most of the guidance available from the state of Michigan directs residents to their insurance agents to help them decide what’s best for them, and that’s primarily because each individual’s situation is different, according to Lisa Kennedy of the Kennedy Nemier Insurance Agency in Plymouth. We asked Lisa Kennedy to discuss some of the factors that could influence a policyholder’s decision to keep or reduce their PIP coverage.

“Those who opt out because they have Medicare coverage should be sure they understand what and how much will be covered if they are involved in a severe crash,” Kennedy said. For example, Original Medicare will pay the full cost of a skilled nursing facility for up to 20 days. For days 21 through 100, it covers all but a daily coinsurance for certain services, but beyond 100 days, Medicare pays nothing. Car crash victims who need care for the rest of their lives, but who do not have long-term care insurance, will need to assume the cost of their care. Policyholders who are retired and have retirement assets may be forced to spend down those assets to qualify for Medicaid.

Another little-known nuance affects children (such as college students) who may use a vehicle titled in a parent’s name, but have established residency elsewhere. As part of the no-fault reform, which became effective recently, children who have moved away no longer qualify to receive PIP medical coverage under their parent’s policy even if they are listed on the policy as a driver. In addition, if you live with a roommate or partner (someone who is not a spouse or a relative) who drives your car, but does not have insurance, that person won’t have access to your PIP medical coverage in the event of a crash-related injury either. According to Kennedy, the child or non-relative should set up a policy for themselves. They may also be able to a claim under the Michigan Assigned Claims Plan for up to $250,000.

Those who choose to reduce or opt out of coverage should be prepared to fill out a form declaring their intent each renewal. If they have a qualified health plan that will pay a claim before the auto insurance company, they must also have a letter from their health insurer documenting that fact.

Insurance agents working with policyholders attempt to understand their individual clients’ needs and try to educate them so they won’t be surprised if a catastrophic accident occurs, says Kennedy. “My job is to provide all of the options and pricing, to convey everything I have learned, and discuss any known pitfalls result from reduced coverage. But ultimately, it’s my client’s decision, and I will support what they decide,” she says.

Our View

While AMDG Financial does not sell insurance, we do understand how catastrophic illnesses and injuries can affect financial well-being. Unfortunately, where PIP coverage is concerned, there’s no easy way to weigh the benefits of lower premiums against the odds of an accident that may leave you or a family member needing a lifetime of care. You may not need the coverage now, but if you need it in the future, it’s unlikely your premium savings would be enough to cover your needs. Our advice: do your homework and talk to your insurance agent. But be patient; with the volume of questions surrounding Michigan’s insurance reform, it’s likely your agent may be inundated with calls for the foreseeable future.

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