Insurance Agents – Warning! Michigan No-Fault Reform Is Coming

Here Is What You Need to Know

On June 11, 2019, Governor Whitmer signed the most comprehensive change to Michigan car accident law in over 40 years. The new law completely changed the Michigan No-Fault Law enacted in 1973. The new law provides for various PIP coverage options, a mandatory increase in BI coverage, changes to which insurance carrier is responsible for paying Michigan car accident claims, changes to the MACP and MCCA, and other reforms. 

What Changes Under the Michigan No-Fault Law?

PIP Choice – Different Options of PIP Coverage

As a review, Personal Injury Protection (PIP) coverage pays allowable expenses for the care, recovery and rehabilitation of an injured person accidentally injured in a motor vehicle accident. PIP coverage also includes the payment of lost wages for up to 3 years, and the payment of replacement services (household chores) for up to 3 years from the date of the accident. PIP coverage also provides survivor’s benefits which are paid to the dependents of a covered person, and funeral expenses. 

Under the new law, no longer will all no-fault policies have unlimited PIP coverage. Starting July 2, 2020, policyholders can choose from a few different options, depending on their eligibility status and other factors. 

As an informed insurance agent, it is vital you understand the details of these new options, especially the small nuances. Not adequately protecting your customers by selling them the wrong policy will lead to unhappy clients, and worse potential professional liability against you and your employer/company. 

Let’s take these options in order: 

Option 1: Unlimited PIP Coverage
This is the same as present-day 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 provision of services that are not covered by health insurance, such as different types of rehabilitation, nurse case managers and attendant care.

Mandatory rate reduction – An average of 10% or greater per vehicle. This reduction is not based on a percentage reduction the policyholder paid for PIP insurance on May 1, 2019. Rather, the rate reduction is based on the “average reduction per vehicle from the premium rates for PIP insurance coverages that were in effect for the insurer on May 1, 2019.” This means folks won’t really receive a full 10% savings. 

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. Again, this does not mean the policyholder will save 20% on the cost of their PIP coverage. 

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. Again, this does not mean the policyholder will save 35% on the cost of their PIP coverage. 

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. Again, this does not mean the policyholder will save 45% on the cost of their PIP coverage.  

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. 

Commentary: If none of these qualifications are met, the customer cannot choose this option. As I will explain below, very few health insurance policies pay auto accident related expenses. In fact, with the rise of self-insured ERISA policies, including Blue Cross Blue Shield of Michigan, almost all health insurance carriers have exclusions or limits for the payment of auto accident related injuries. 

Option 5: Medicare Opt-Out
A customer 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.  

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

• Mandatory rate reduction – no premium charge for PIP coverage. 

Commentary: Remember, Medicare only must pay for Medicare-covered services to enrollees who opt out of PIP medical benefits. As DIFS Bulletin 2020-05-INS states“the enrollee will remain financially responsible for coinsurances, copayments, deductibles, and for any services Medicare does not cover.” 

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. 

And remember this as well. When Medicare pays money to a beneficiary on an injury case, it wants its pound of flesh. It will assert a lien on all recoveries the customer is entitled to on the pain and suffering claim. And this federal lien is a “super lien”, meaning they get first dibs. This does not happen currently because Medicare liens are paid by the PIP carrier. 

Option 6: $250,000 PIP Opt-Out
This is one of the more controversial options and its complicated. A customer 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.” 

If a person loses their qualified health insurance, they must notify the insurer within 30 days. Within those 30 days, if an excluded person is injured in a motor vehicle accident, that person receives PIP coverage through the Michigan Assigned Claims Plan up to $2,000,000. 

Commentary: This is going to be an option for some customers. It provides a way to save money on auto insurance by opting out of PIP. But there are a number of pitfalls and things to consider. First, as explained below, very few individuals have “qualified heath coverage.” Second, customers 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.

WARNING

Before you sell a policy to a customer that allows them to opt-out of PIP coverage entirely, or sell a $50,000 Medicaid policy to a customer, you better make sure the customer and applicable resident relatives actually have “qualified health coverage.” As defined, qualified health coverage is “health and accident coverage that does not exclude or limit coverage for injures related to auto accidents.” MCL 500.3107d(7)(b).

These types of private health insurance policies are rare. You better get a declaration from that health insurance company asserting they do not exclude or limit coverage for auto accidents. Otherwise the sale of a policy that opt-out of PIP to that consumer runs afoul of the Michigan no-fault law and you are opening up yourself to liability. 

Under MCL 500.3107d(2), an applicant requesting a policy that opts out of PIP coverage must “provide to the insurer a document from the person that provides the qualified health coverage stating the names of all persons covered under the qualified health coverage.” 

But for the insurance agent, this does not go far enough. The customer should know whether or not their health insurance will actually cover them in the event of a car accident, without limitation. If the health insurance plan does not do this, they cannot purchase a No-PIP Coverage policy. 

I have personally read dozens and dozens of Summary Plan Descriptions (SPD) from various health insurance companies from all over the country. I have read dozens upon dozens of plan documents as well. Rarely do I find a private health insurance plan that does not exclude, or limit in some way limit, the payment of auto accident related claims. 

So Be Careful.

DIFS Forms:

Under the new law, all customers must be presented with form documents prepared by the Department of Insurance and Financial Services (DIFS) that state, in a conspicuous manner, the “benefits and risks associated with each coverage option. The DIFS forms can be found here. 

The DIFS form for PIP coverage and BI coverage must provide a way for the customer to mark the form to acknowledge that he or she has read and understands the options available. The form must allow the customer to mark his or her selection of PIP coverage and requires “ the applicant or named insured to sign the form .” 

Attendant Care Riders and Limitations:Insurance companies that sell polices with limits of $50,000, $250,000, or $500,000 are also obligated to sell attendant care riders. MCL 500.3107c(8). These riders provide for attendant care coverage that is above the PIP coverage limit. Attendant care is nursing care paid to friends, family members or nursing facilities following a serious car accident. This is something you should ask your customers about and allow them to make the decision on whether to purchase a rider. 

The new law also provides limitations on attendant care. Attendant care provided by family and friends at the patient’s home is limited to 56 hours per week. Previously, there was no limitation. MCL 500.3157(10).

BODILY INJURY (BI) COVERAGE CHANGES

One of the biggest changes to the Michigan automobile law is the change to bodily injury limits. For decades, the minimum BI coverage in Michigan was $20,000/$40,000. Beginning on July 2, 2020, that is no longer the case. 

Under the new law, the default bodily injury liability insurance coverage is now $250,000 per person and $500,000 per accident. Customers can select a smaller amount of liability coverage, but in no event can anyone select less than $50,000/$100,000. 

To select BI coverage that is less than 250/500, the policyholder will have to initial and sign a form provided by DIFS. The form is provided for your convenience here. 

I would read the DIFS form carefully, and so should your customers. They need to understand the ramifications of not having enough BI coverage going forward. The DIFS form specifically lays out some of the risks of being underinsured, including: 

• Assets can be seized, or a lien may be placed on a home;
• Wages may be garnished;
• Driver’s license may be suspended. 

Under the old law, because we lived in a world of unlimited PIP, individuals who caused accidents did not have to worry about paying the medical expenses that arose out of the Michigan car crash. Those days are over. 

Once the PIP coverage is exhausted for an injured person, that claimant can now go after the at-fault party’s BI coverage for all outstanding medical expenses, future expenses, lost wages and other economic damages. For the first time, claimants can sue an at-fault driver and owner for excess economic damages. As you can imagine, cases involving serious injuries will leave your customers with huge exposure. 

It is this author’s opinion that any customer with even a minimal amount of assets should purchase at least the 250/500 BI policies . Allowing them to select lesser coverage is not sound professional guidance. The cost of BI coverage is almost always less expensive that other forms of coverage, such as collision. I can tell you that attorneys on both sides of the aisle – plaintiff and defense – are rushing to their agents asking for higher BI limit and even umbrella coverage to protect themselves. The risks are too great. 

The same holds true for UM/UIM coverage options. There is no reason a customer with 250/500 in BI coverage should not have at least the same amount in UM/UIM coverage. This is especially the case if the individual chose a smaller PIP coverage amount or opt-ed out of PIP all together. The UM/UIM coverage can provide much needed protection to pay hospital bills, doctors’ bills and other expenses.

MANAGED CARE OPTIONS

Under the new law, insurance carriers can offer a managed care option to policyholders and named insureds. Per MCL 500.3181, a “managed care option” means an optional coverage selected by an insured at the time a policy is issued that includes, but is not limited to, the monitoring and adjudication of an injured person’s care, the use of a preferred provider program or other network, or other similar option. 

Any managed care option offered by a carrier must be uniform in all areas where the option is available and it must provide a discount “that reflects reasonable anticipated reductions in losses or expenses or both.” MCL 500.3183. Insurance carriers must also offer non-managed care options. 

In addition, the managed care option must apply to the customer who selects the managed care option and any person who resides in an area where the option is available and who is claiming PIP benefits under the policy with the managed care option. MCL 500.3185. The managed care option sold by an insurance carrier can provide for deductibles, co-pays or both. 

To offer this type of option though, PIP benefits will have to be primary and uncoordinated with health coverage for a customer claiming PIP benefits. The PIP benefits must be exhausted by the injured person under the policy before he or she can seek benefits from their health insurance. MCL 500.3187. 

The insurance agent is supposed to have the insured sign an acknowledgement that the insured received a written disclosure statement approved by DIFS. The disclosure statement must (1) provide a summary of the provisions of the managed care option, (2) an estimated discount provided by the option, (3) a general description of the differences between selecting and not selecting a managed care option, and (4) the consequences of claim denial by not following the rules created by the carrier for the option. MCL 500.3188. 

Commentary: This is another major change in the no-fault law. It was a gift to the insurance carriers and many were surprised it was included in the new law. This provision allows the auto insurance carrier to act like an HMO and completely dictate the doctors its customers can see following a crash and the treatment he or she will receive. 

It is unclear at this time which carriers are going to pursue a managed care option. As an insurance agent, I would be very explicit with my customers so they understand what they are getting into when thinking about going this route. 

This is especially true for customers who are not in HMO environments for their normal health insurance. Remember, PIP will be primary in this new world of managed care, and you would be effectively selling them worse medical coverage than they already have! 

It is also unclear what the savings will be for these policies.

FEE SCHEDULES

The new law also institutes fee schedules for the treatment of auto accident related treatment. Although fee schedules don’t begin until July 2021, and this information doesn’t pertain too much to how auto insurance policies are sold, it is important to be aware of what these fee schedules mean. 

For decades auto insurers had to pay a reasonable and customary rate for auto accident treatment. What that meant would fill an entire library, but the short of it is insurance companies could not institute a fee schedule of their own making, or similar fee schedules used by Medicare, Medicare or private health insurers when paying auto accident related charges. That all ended with the passage of the new law. 

Beginning on July 1, 2021, products and services related to the treatment of a motor vehicle accident will be charged based on a fee schedule. The fee schedule for all medical providers that are not Level 1 or Level 2 trauma centers, an indigent center or a freestanding rehabilitation facility, is the following: 

• 200% of the amount payable under Medicare for treatment or training rendered after July 1, 2020 and before July 2, 2022.
• 195% of the amount payable under Medicare for treatment or training rendered after July 1, 2022 and before July 2, 2023.
• 190% of the amount payable under Medicare for treatment or training rendered after July 1, 2023. 

If Medicare does not provide a payable amount for a specific treatment, the provider can charge a certain percentage amount based upon the “charge description master” in effect on January 1, 2019. If the provider did not have a “charge description master” in effect on that date, the provide is eligible to be paid based on the amount it charged for a treatment on January 1, 2019. The percentages are the following: 

• 55% for treatment or training rendered after July 1, 2021 and before July 2, 2022.
• 54% for treatment or training rendered after July 1, 2022 and before July 2, 2023.
• 52.5% for treatment or training rendered after July 1, 2023. 

This is important to know. The amount medical providers will be able to charge will be lower, in some cases drastically lower, than what they can currently charge . 200% of a set Medicare charge is not a lot and there is a lot of suspicion the new law will push a number of medical providers out of the auto accident market all together. It just won’t be profitable for them to deal with the small reimbursement rates and long waits for payment. 

Because of this new reality, your customers may have issues findings medical providers willing to take on a car accident case. So this is something you should understand now. 

The Michigan Assigned Claims Plan

As you may know, the Michigan Assigned Claims Plan (MACP) acts a last resort for the payment of PIP benefits. Because the new law changes the order of priority rules that govern which insurance carrier is responsible for paying a claim, the MACP will see a huge increase in the number of accidents that come its way. 

Under the new law, if the accident victim does not have auto coverage of her own, is not the named insured on a policy, or is not a resident relative on any auto policy, that claimant must automatically go directly through the MACP. The Plan will then assign an insurance carrier to pay the claim. As such, all “strangers to the policy” will now have to go through the MACP. 

The new law provides a ton of guidelines for MACP claims. 

First, there is a $250,000 cap for all persons claiming benefits through the MACP. MCL 500.3172(7)(a). This is hard cap and includes all individuals who fall under the MACP. 

The only exception to this is a person is injured during the 30-day window in which there is a lapse in qualified health insurance. In that situation, the capped amount is $2,000,000.   

In addition, claimants have a duty to cooperate with the MACP to obtain benefits. This can include submitting to an examination under oath (EUO). A person making a claim through the MACP has 1 year from the date of the accident to do so. MCL 500.3174.

OTHER ITEMS

Michigan Catastrophic Claims Association (MCCA)

The MCCA was created to pay for catastrophic claims that got above a certain threshold. This organization pays for the expenses resulting from a catastrophic claim after a certain dollar amount of payments have been made by the PIP insurer. Currently, that amount is around $580,000. To fund the MCCA, each policyholder pays an annual fee. Last year, this fee was roughly $220.00. 

However beginning July 2020, the MCCA fee will be reduced to $100. This makes sense because most PIP policies will now be below the MCCA threshold. Very few cases will ever get to the MCCA fund level. 

What’s interesting is that under the new law, this reduction in the catastrophic claims fee counts towards the car insurer’s obligation to reduce the cost of medical coverage. 

In other words, the insurance companies are using the $120 reduction in the MCCA fee announced last year and putting it towards the mandatory reduction they must meet this year. Because of this, it is unclear how much the cost of PIP coverage will really decrease, which was the point of the no-fault reform in the first place. 

Out-of-State Residents:

Out-of-state residents can no longer make a claim for PIP benefits when injured in Michigan unless the out-of-state resident is an owner of a vehicle that is registered and insured in Michigan. 

Independent Medical Examinations:

Customers must still submit to IMEs at the discretion of the insurance carrier. However, there are now requirements for who can perform the IMEs. Basically, the evaluation must be performed by a physician that specializes in the same specialty as the physician who provides care to the plaintiff. In addition, if the physician providing the care is board certified in the specialty, the IME doctor must also be board certified in that specialty. MCL 500.3151(2)(a).

REVIEW 

The passage of the new Michigan no-fault on June 11, 2019 has completely changed the sale of automobile insurance in this state. No longer will customers have unlimited PIP. But the choices vary, and the insurance agent must have a detailed understanding of the customers wants, needs and eligibility. The insurance agent should get detailed information from the customer, including health insurance documentation, the names and addresses of residents living with them as well as their health insurance status. 

It is advised to error on the side of caution. Better to sell too much insurance than too little that violates the law. This is especially the case for PIP coverage. Otherwise, an errors and omission claim could be filed. 

If you have any questions, please reach out to me directly. My telephone number is 1-800-LEE-FREE. I’d be happy to conduct a Zoom presentation or telephone conference with your team to better explain the ins and outs of the new law.  

Stay safe!  

Eric Steinberg