How Much Car Insurance Do I Need Under Michigan No-Fault?

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How Much Car Insurance Do I Need?

how much auto insurance do i need

New Michigan Auto Insurance and No-Fault Law

With the new Michigan auto insurance policies upon us, a question a lot of people are asking is how much car insurance do I need to purchase? More specifically, how much PIP coverage do I need and what are my options?

The Michigan no-fault law changed dramatically last year when Governor Whitmer signed sweeping changes into law. Under the old rules, all car insurance policies in Michigan had unlimited medical PIP (personal injury protection) coverage. This meant that if you were injured in car or truck crash, the car insurance would be responsible for paying all hospital and medical bills related to the crash that health insurance would not cover. There was no limitation as this PIP coverage was unlimited.

However, beginning July 1, 2020, auto insurance companies in Michigan can offer limited PIP coverage choices for the first time. Therefore, people can select from a few different options when purchasing auto insurance. These limited PIP coverage options are supposed to dramatically decrease the high cost of car insurance in Michigan, although that remains to be seen.

So what are the PIP coverage options? The following is the run down.

Option 1: Unlimited PIP Coverage:

This is the same as the old policies. This coverage allows a policyholder, and persons covered under this policy (including resident relatives) to receive unlimited allowable expenses for their care, recovery and rehabilitation following a motor vehicle accident.

The advantage of unlimited PIP coverage is it provides services that are simply not covered by health insurance, such as different types of rehabilitation, nurse case managers and attendant care. It provides the most medical coverage and benefits.

  • Mandatory rate reduction – Under the new law, there must be at last a 10% reduction in the cost of PIP coverage per vehicle. This reduction is not based on a percentage reduction the policyholder paid for PIP insurance on May 1, 2019, but on a state average.

Option 2: $500,000

This coverage allows a policyholder to purchase $500,000 worth of PIP coverage.

  • Mandatory rate reduction – An average of 20% or greater per vehicle.

Option 3: $250,000

This coverage allows a policyholder to purchase $250,000 worth of PIP coverage.

  • Mandatory rate reduction – An average of 35% or greater per vehicle.

Option 4: $50,000 – Medicaid

This coverage allows a policyholder to purchase $50,000 worth of PIP coverage, but only if they qualify. To qualify for this option, the applicant or named insured must:

  • be enrolled in Medicaid; and 
  • the person’s spouse and all resident relatives must also be on Medicaid, have other “qualified health coverage”, or have PIP coverage through a different auto policy.
  • Mandatory rate reduction – An average of 45% or greater per vehicle.

Under the law, qualified health coverage means either of the following:

  1. Health and accident coverage that does not exclude or limit coverages for injures related to auto accidents and has an annual individual deductible of $6,000 or less; or
  2. Coverage under both Medicare Parts A and B.

This option may be appealing for folks on limited income. However, there are strict eligibility requirements. In addition, Medicaid does not pay for auto accident related treatment. So folks who choose this option are playing with fire. Once they run out of the $50,000 in coverage following a crash – which happens quick given the crazy high cost of health care – they cannot rely on Medicaid as a back stop.

I would recommend that individuals on Medicaid who want limited PIP coverage select the $250,000 option. The cost difference is almost nothing. And the amount of medical insurance you get from the $250,000 option is 500% greater than the Medicaid option.

Option 5: Medicare Opt-Out

A person may completely opt-out of all PIP coverage if the person satisfies the following two conditions:

  1. The person is covered under both Part A and Part B of Medicare, and
  2. The person’s spouse and all resident relatives covered by the policy has “qualified health coverage” or are covered under another auto policy with PIP coverage. 

Mandatory rate reduction – no premium charge for PIP coverage.

A person choosing this option, and any other persons covered by the same auto policy, will not have any PIP medical coverage. They will have to rely upon Medicare for the payment of auto accident related expenses. And like Medicaid, Medicare does not automatically pay for auto accident treatment.

Again, although this may appear enticing, selecting this option is leaving yourself open to a lot of unnecessary risk. Medicare is inconsistent about paying for auto accident related treatment. And any treatment it does pay, it will want back when there is a settlement on the pain and suffering liability case.

Medicare always wants its pound of flesh. It will assert a lien on all recoveries the plaintiff is entitled to on the pain and suffering claim. And this federal lien is a “super lien”, meaning they get first dibs. This doesn’t happen when PIP pays for the medical bills because the auto carrier cannot assert a lien on the pain and suffering settlement.

In addition, Medicare does not cover a lot of services. This includes long-term care, residential treatment programs, transportation, rehabilitation limits, and other products and services restrictions.

I recommend selecting at least the $250,000 PIP option.

Option 6: $250,000 PIP Opt-Out

This is one of the more controversial options and its complicated. A person can select the $250,000 PIP option, and if the named insured has “qualified health coverage” that covers motor vehicle accident related injuries, and if the named insured’s spouse and any resident relatives have qualified health coverage, then the insurer must offer an exclusion from all PIP benefits, and the premium for PIP benefits must be reduced by 100%.

If the person’s spouse or any resident relatives do not have such health and accident coverage, the PIP premium must be reduced to reflect reasonably anticipated reductions in risk. The statute describes this exclusion as follows: “a person subject to an exclusion under this subsection is not eligible for personal protection benefits under the insurance policy.”

This option won’t be available to most people because most individuals are not eligible. To be eligible, a person must have “qualified health coverage.” Under the rules, qualified health coverage is health and accident coverage that does not exclude or limit coverages for injures related to auto accidents and has an annual individual deductible of $6,000 or less.

What does this mean? This means a person must have health insurance that covers auto accident related treatment, with no limitations or exclusions. The reality is almost all health insurance policies, from HAP to Priority Heath to most Blue Cross plans have limitations on auto accident treatment. With the rise of self-insured ERISA policies, including Blue Cross Blue Shield of Michigan, almost all health insurance carriers have exclusions or limits on the payment of auto accident related injuries. Therefore, a person with such a plan is not eligible to opt-out of PIP coverage.

In addition, individuals should be aware that health insurance is not nearly as robust as PIP coverage as far as the types of treatment available, such as the number of PT sessions permitted, chiropractic appointments permitted, out-of-pocket costs, prescription reimbursement and other expenses.

Last, like Medicare and Medicare, if health insurance pays on a car accident claim, it will assert a lien on the negligence pain and suffering case. So if you recover $50,000 in a settlement resulting from a car accident, and Blue Cross asserts a $40,000 lien, almost your entire settlement gets washed away because most of the money is going back to Blue Cross. This does not happen if PIP pays the medical bills because a PIP carrier – like State Farm or Allstate – cannot assert a lien on a negligence settlement.

There is a lot to consider when purchasing car insurance in Michigan. The new PIP options provide some choices that did not exist before. But it is important to be smart about the purchase. Car insurance is not all the same. The cheapest policy is not usually the best policy.

It is important to go over the options with your insurance agent slowly, and to make an informed decision. Unfortunately, it is this author’s opinion that many car insurance agents don’t really know the rules as well as they should and will try to sell the cheapest insurance possible to make a sale. In reality, taking into consideration the cost savings and benefits, most individuals should purchase no less than $250,000 in PIP coverage.

If you have any questions about the new PIP coverage options, or the new Michigan no-fault in general, please give the car accident injury lawyers at the Law Offices of Lee Steinberg, P.C. a call.

Our team of car accident injury attorneys and staff are standing by ready to assist. The call is free and there is never a charge ever until we win your case. Call us at 1-800-LEE-FREE (1-800-533-3733).  

Video Transcript

Hey. This is Eric Steinberg from the Law Offices of Lee Steinberg. One of the things I wanted to talk about to you right now is the change in the Michigan No-Fault Law that’s going to be occurring July 1st, 2020. Beginning in July, new auto insurance policies are going to be issued by all auto insurance companies. These new insurance policies are going to have the ability to have PIP choice, which means a choice in the amount of medical coverage that you can purchase. Right now, every single no-fault policy has unlimited PIP, or personal injury protection coverage. It’s been like that since the early 1970s. 

For the first time ever, there’s going to be the option to limit the amount of PIP, P-I-P, coverage that you want. Now what’s P-I-P coverage? P-I-P coverage is the medical expenses or allowable expenses that your own insurance company has to pay as a result of a car accident. So if you get involved in car accident, even if you’re at-fault for causing it, your own insurance company has to pay the medical expenses that come out of that accident. That includes surgeries, hospital bills, rehabilitation expenses, anything. Right now, there’s no limitation. The auto insurance company has to pay all of those expenses that health insurance doesn’t cover. Starting in July, auto insurance companies are going to be able to offer limitations on that.

So what are those limitations going to look like? Well there’s a few different options. One of them is the unlimited option. You can purchase that option where you’re still going to have unlimited PIP. Another option is going to be a $500,000.00 cap, where auto insurance companies, like State Farm or Allstate, are still going to have to pay up to $500,000.00 of PIP benefits. Another option is going to be 250,000. That’s where, I think, most people might end up. That’s the minimum amount of PIP coverage that you can buy, except for some exceptions, which I’m going to get into in a second. So for 250,000, that would be a coverage for, again, medical expenses as well as lost wages and other P-I-P benefits up to that $250,000.00 amount.

Now there’s some people who are going to qualify for less than $250,000.00 in PIP coverage, if they want to purchase that. 

In addition, besides the people who can get $250,000, there’s also going to be individuals who can get less than that. That includes people who are on Medicare. So if you’re on Medicare and everybody else in your household is on Medicare, you can actually opt out of purchasing all PIP coverage. Now there’s certain eligibility requirements. You need to talk to your insurance agent about that, but that is going to be an option. Now, the negatives are pretty severe here. Medicare doesn’t cover a lot of the same treatments that no fault PIP coverage does. Medicare also hates paying auto insurance. It really doesn’t … You’re not going to get preapproval. It doesn’t mean that you’re going to automatically be able to treat where you normally could treat currently. So, you have to be careful about selecting that option, but it is going to be an option for certain Medicare beneficiaries. They will be able to opt out of PIP coverage altogether.

In addition, if you have a health insurance policy, like a private health plan that covers all auto accident related injuries without any limitations or exceptions, you can also opt out of purchasing PIP no-fault coverage. Now, this is very interesting to know. Just because you have Blue Cross Blue Shield or HEP doesn’t mean that you can opt out a PIP. In fact, almost all Blue Cross plans and all HEP plans, HEP plans, I’m sorry, and priority health and other plans have exceptions and have limitations for the payment of auto accident related injuries. Because of that, you’re not going to qualify and you’re not going to be able to opt out. It’s incumbent to make sure that your insurance agent knows this and that your insurance agent is purchasing the right coverage for you.

You can call up your health insurance and find out if they have exceptions, but in general, they all do. So, the number of people who are going to be able to opt out of not paying any PIP coverage because they have Blue Cross or private health insurance should be pretty low. And in those situations, again, you can go back to purchasing 250,000, 500,000 or unlimited PIP benefits. That’s a brief overview of the new PIP options. You can go to our website 1800leefree.com for additional information. You can also give me a call at 1 (800) LEE-FREE. Just ask for Eric +1 (800) 533-3733. Just ask for me, I’ll be happy to explain the law and the options to you. And we’ve got a new frontier, so to speak, coming here in Michigan, starting in July and going forward.