Understanding the Changes to Michigan's No-Fault Auto Insurance System

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Michigan’s unique no-fault auto insurance system saw some serious changes starting July 1, 2020. Drivers across the state had some important choices to make on their insurance coverage, which could mean adjustments to both personal injury protection (PIP) and liability coverage. Some have touted the changes as a way for drivers to save money on their auto insurance premiums. However, these choices will dramatically reduce the care most accident victims have access to in the event of a crash. The changes will also make way for lawsuits that could go beyond insurers and hit at-fault drivers personally.

Let’s start with the basics. Michigan drivers have two types of coverage that we’ve had since 1974, when our no-fault system was created:

  • Liability coverage: This type of coverage protects us in case we injure somebody else, and that person makes a claim against us. This coverage compensates the victim for the injuries that we caused. So if you get sued, that liability coverage protects you and your assets.
  • Personal injury protection: This coverage protects you if you get hurt in a car accident. It pays your medical bills, your lost wages up to a limit, hospital stays, physical therapy, and any help that you might need as a result of the accident. PIP coverage is very broad and includes any type of treatment care accommodation that you need due to your injuries.

Up until July 1, 2020, PIP coverage had no limit: It covered you for life. Well, that is changing.

Now, you are able to buy less coverage if you think that is the best thing for you and your family. You can continue to buy the unlimited coverage, but you can also buy smaller denominations of personal injury coverage. This change in PIP coverage will also affect your need for liability coverage.

At Christensen Law, we want to make sure drivers understand how these new insurance choices could impact you and your family in the event of an accident. Below are some of the frequently asked questions we are hearing from people across Michigan.

No Fault Law Changes

You can still buy the unlimited PIP coverage, which is what we strongly recommend. You can also choose:

  • $500,000 of PIP coverage
  • $250,000 of PIP coverage
  • $50,000 of PIP coverage, if you’re on Medicaid

Think of the incredible cost increases in medical care we have seen over the past generation. It doesn’t take long to burn through $50,000. It really doesn’t take that long to burn through $250,000 or $500,000 if you have suffered a serious injury that requires hospitalization and follow-up care.

Also think about your family. Think about the others who are going to be in the car with you and who are covered by your policy. Whatever amount you purchase, that is the amount that’s available for everybody in the car.

So although you can lower your PIP coverage, your safest choice to protect you and your family is to continue with the unlimited care.

There is another provision in the new law related to health insurance. If you’re covered by health insurance, say through your work, you can opt out of buying PIP coverage entirely if you confirm that your health insurance covers car accidents. (Beware: In Michigan, a lot of health coverage doesn’t cover car accident injuries. So you need to confirm that it will cover you if you are thinking about opting out.)

PIP coverage is much broader than any type of commercial health insurance. No-fault PIP coverage covers everything from:

  • Medical bills
  • Mileage to and from doctors’ appointments, therapy visits, etc.
  • Medical transportation if you don’t have a vehicle
  • Nursing care at home
  • Attendant care (including reimbursement for family or friends performing this role)
  • Home modifications for accessibility, for example, if you end up in a wheelchair

In fact, in Michigan, if you live in a mobile home or other housing that can’t be modified to be accessible, the insurance company will buy or build you a new home if you have unlimited PIP.

In short, there’s no health insurance policy that comes remotely close to providing the benefits that a Michigan PIP provides.

You need to talk with your insurance agent. What are the savings that are being offered to reduce the amount of PIP coverage? Does that really mean that much to you, if you are going to save $25 a year to give up all those great benefits? You also need to evaluate your assets because part of the new changes involves the need for liability coverage. Your agent can help you consider all these factors.

Well, if you look at your car insurance now, you will see how much you pay for PIP. There should be a line item on the insurance paperwork that you get with your bill that says how much you pay for personal injury protection.

As of July 1, the new law required the insurance companies to reduce what they charge for PIP coverage across the board:

  • If you opt for unlimited PIP coverage, you will receive a 10% discount.
  • If you opt for $500,000 in PIP coverage, you will receive a 20% reduction.
  • If you opt for $250,000 in PIP coverage, you will receive a 35% reduction.
  • If you are on Medicaid and take the $50,000 in PIP coverage, you will receive a 45% reduction.

Remember, these discounts are only to the charge for your PIP coverage, not your entire auto insurance bill.

Those are the discounts that are written into the new law, but they are only there for eight years. Then the insurance companies can hike those prices right back where they were before.

No, the discount only applies to personal injury protection, not your entire policy. So you are going to get a temporary (at the most, eight-year) discount for giving up many fantastic benefits. Your PIP coverage is going to come down a little, but on the other hand, you have to buy more bodily injury coverage because you can get sued for more, so that’s going to go up.

If you don’t make a different selection, your company will continue your unlimited PIP.

Your PIP coverage will be a line item on the bill or the declaration sheet that comes with your bill and lists every type of coverage you have. You will see an amount of coverage for bodily injury, personal injury protection, collision coverage, etc. If you don’t have the denomination of PIP coverage that you think you need, call immediately and change your coverage.

Yes, there are significant changes with the new law. Since 1974, the minimum amount of insurance that a person had to have in the event that the driver injured or killed another person was $20,000. That $20,000 in liability coverage would not go very far to compensate somebody who has a life-altering or fatal injury. But, prior to this change, accident victims had their own unlimited PIP coverage to protect them from medical expenses and lost wages for three years.

With the new law, the standard bodily injury coverage went up to $250,000. However, you can buy less ─ as little as $50,000 in coverage.

Why is this important? Because liability coverage is linked to the new PIP situation where not everyone has unlimited PIP coverage anymore. There are a lot of people who are going to buy the least amount of PIP coverage they can. This means that if they get hurt in an accident, their medical bills are going to exceed the amount of insurance they have to cover them.

Let’s say somebody opts for $250,000 in PIP coverage, but their medical bills after an accident are $1 million (which is not uncommon). That person is then out of pocket $750,000 because they took the lower amount of PIP. What happens? Well, the new law allows accident victims to turn to the at-fault driver and include that claim in their lawsuit.

Ultimately, this means drivers have increased exposure to larger lawsuits if they are at fault for an accident. Now you can get sued for the victim’s past and future medical bills, so you need more liability coverage. Previously, since 1974, victims could not sue the at-fault driver for medical bills because their own PIP insurance paid for them.

You need to consider your assets and consider your future and protect yourself. You want to get as much bodily injury protection, or liability protection, as you can. It’s very inexpensive, and it’s an important way to protect yourself and your family.

The pricing difference between purchasing $250,000 in coverage and $500,000 in coverage is minimal. It’s a great investment. You’ve potentially saved yourself from paying $250,000 of your own money in a car accident lawsuit for a slight increase in your monthly premium.

Yes, the at-fault driver now is liable for those extra medical bills when the insurance coverage is exhausted. So you want to have insurance that will protect you so you don’t become personally exposed to paying out of your own pocket.

Unfortunately, that situation is going to happen a lot, and these folks are going to end up on Medicaid. They are going to be limited to what Medicaid provides in terms of rehabilitation. Sadly, it’s very meager.

For example, accident victims who are in excellent brain injury rehab facilities right now, being restored to a high degree of independence, are going to end up in just nursing homes without rehab. So the outlook is not good. People will be bankrupted by their medical bills.

This is very common. If you don’t have a car and don’t live with a relative who has insurance, you still have access to coverage if you are hit by a vehicle as a pedestrian. But you have less coverage than you did before the law changed.

For pedestrians, the state has an organization called the Michigan Assigned Claims Facility that will place you with a Michigan auto insurance company for free after an accident. Drivers pay for that in their premiums, but pedestrians don’t have to pay anything.

Pedestrians used to be granted the same coverage that all other people in Michigan had, which was unlimited for life. However, the new law reduces that. The coverage is limited to $250,000 of medical care.

There is an important provision in the new law that seeks to control medical care costs. That will become effective in July 2021. There will be fee schedules put into place, with the government telling providers what they can charge.

Previously, doctors, hospitals, and other care providers could charge whatever the local customary and reasonable amount was. So that would vary depending on where you are in the state.

Starting in July 2021, these providers will be limited to a fee schedule, which in most instances will be basically 190% of what Medicare pays. (Medicare is a low payer across all of the different charging systems that we have.)

This means there will likely be many good healthcare providers that will no longer see accident victims. We hope that doesn’t become the case, but that could be a result.

Yes, you can treat with your own doctor and your own healthcare providers. However, there is one exception. Many insurance companies will now be allowed to have their own system, kind of like an HMO. They will have their own medical providers that they pick, and in exchange for a discount that they’ll offer, you will be required to treat with insurance company doctors who will manage your care. These doctors are employed by the insurance companies, and are not exactly working for you as your own chosen doctor does.

We highly recommend that you stay with or pick your own doctors. Trusting your medical care to an auto insurance company is not in your best interests.

It’s unknown right now. The great fear is that when the price controls take effect, many medical providers will no longer be able to afford to treat car accident patients.

Traumatic brain injury is very common in car accidents. The forces are so great and the brain can be so fragile. With Michigan’s unlimited PIP coverage that we had for 45 years, Michigan developed the best brain injury specialists and the best brain injury rehab clinics in the entire United States. People come from all over the country to treat in Michigan’s brain injury clinics. However, the changes that are coming under the current price controls are unfortunately going to force many of these facilities to close their doors.

Someone who is injured under the new law will only be covered by the amount of personal injury protection that he or she has purchased. Hopefully, it’s unlimited. If it’s less than that, if it’s $500,000 or $250,000, that will probably be gone before the victim is out of the hospital. There may be no money left for rehabilitation. So many people will just not have the ability to attain the same recoveries that victims could in the past.

With facilities closing and brain injury patients running out of money for care, it is going to be a sad situation if it isn’t rectified. There will be thousands of people out of work and worse, thousands of brain injury victims that are going to be on the street, in jail, nursing homes, just sitting there.

There will be more lawsuits, and the lawsuits will be larger. Will they be harder to settle? We don’t foresee that it’s going to make it necessarily harder to settle, but there’s going to be more and the dollar amounts will probably be bigger.

There have been some changes. Up until the new law, insurance companies were able to look at credit scores and ZIP codes to determine how much the insurance was going to cost. They could look at neighborhoods, credit scores, education levels, marital status, home ownership ─ all kinds of factors that have nothing to do with how big of a risk you are while driving. The new law took out some of those factors.

They cannot continue to evaluate, for example, by ZIP code. They can’t use your credit score anymore. They cannot consider if you’re married or if you own a home. So that is fundamentally different. However, they are allowed to consider where you live, the area, just not the ZIP code.

So the new law did not totally get rid of factors that allow discrimination to take place in pricing, which is what led to the premiums being sky high in Detroit. It is an improvement, but not anywhere near a complete solution.

The net result is no break for anybody. The discounts are only on PIP coverage, and will make little difference to your bottom line. In exchange, you have to buy a higher liability coverage, so there goes some of your savings. And it’s all temporary, only over eight years, then the discounts disappear altogether.

An umbrella policy provides coverage on top of your primary insurance policy. So, for example, if you have $500,000 in bodily injury coverage through your auto insurance and you are hit with a $1 million judgment after a car accident, you are exposed to paying $500,000 out of your own pocket. An umbrella policy would provide additional coverage up to $1 million or $2 million, whatever you purchase.

It’s very inexpensive and very smart to purchase an umbrella policy. You need to evaluate your family situation, your property, and your assets that are at risk and take that into consideration. Get as much as you can reasonably afford as you consider those factors.

MCCA stands for Michigan Catastrophic Claims Association. This is a fund of money that all drivers contribute to every year, and it’s on your insurance bill. This is a very large fund ─ over $21 billion ─ that insurance companies turn to when they have paid a certain amount. Once the insurance company has paid the amount required under our current system, then the MCCA begins to cover and pay for the expenses after that. So it is a very large fund of money for those very large claims, and it takes care of people who will need care the rest of their lives. It’s kind of like reinsurance for the auto insurance companies.

There have been occasions where the fund’s investments have been performing so well that the fund ends up with more money than is needed, according to the actuaries. When this happens, rebates are given to the drivers over time.