The New No-Fault Law: Think Twice Before Changing Your Coverage

You may have heard the commercials…"Only pay for what you need!" "PIP reform means you have the freedom to select a PIP coverage that best represents your needs and budget." "Protection that's made for you." All from the insurance industry urging consumers to shop for price on their premium dollar, cap and shift the big-dollar risk away from the insurance company. Never once do the insurance companies recommend attaining similar savings by doing other things like increasing the amount of your collision deductible. What's more important: taking the risk that you may have to spend $2,500 more to get the physical damage to your car fixed, or keeping your unlimited lifetime medical benefits intact?

Michigan auto-insurance reforms went into effect on July 1, 2020, and the big prize that the auto insurance companies won in that legislative battle were the reforms to PIP coverage. “PIP” is Personal Injury Protection insurance, which covers the medical expenses that you or your passengers incur when injured in a car crash. With the reforms, Michigan motorists now have the ability to choose to carry less medical coverage for themselves and their passengers. However, Michigan drivers should be extremely careful when choosing any coverage other than “Unlimited PIP”!

For decades in Michigan, drivers were entitled to get, and auto insurance companies were required to provide unlimited PIP benefits when drivers and their passengers were hurt in a crash. As long as the treatment was “reasonable,” “reasonably necessary,” and “related” to the care, recovery, or rehabilitation of an injury sustained in a car crash, auto insurers were required to pay for that treatment – even if it was required for the rest of the injured person’s life or cost millions of dollars. With the new reforms, Michigan motorists will have several options for PIP coverage, ranging from continuing with uncapped lifetime PIP coverage (which will be the most expensive), down to an opt-out from PIP altogether if the insured can demonstrate that they have other health and accident insurance that (1) extends to auto-related injuries, and (2) provides a minimum $250,000 worth of lifetime PIP benefits for the insured, the insured’s spouse and all resident-relatives. Motorists looking for the cheapest auto-insurance they can get, will be drawn to this option.

No one has a crystal ball that enables them to know what their “needs” will be if they or one of their passengers become seriously injured in an automobile crash. No one plans to get involved in a car crash, but the fact remains that driving a car is likely the most dangerous thing most of us do on any given day. According to the Michigan State Police, there were over 312,000 car crashes in the State of Michigan in 2018 alone. Of those, over 75,000 resulted in reported injuries at the scene and 905 were fatal. These statistics are even more grim than they seem at first glance as it is not uncommon for a person to not realize they are hurt at the scene of the crash, only to find serious neck or back conditions once the adrenaline and shock wears off.

With these risks in mind, it’s important to consider some of the reasons you should think twice before reducing your PIP coverage.

Relying on Private Health Insurance Could Prove to Be Catastrophic:

Motorists must be aware that choosing to opt out of PIP coverage could prove to be a catastrophic mistake. People who are catastrophically injured in car crashes often require a life time of medical treatment that amounts to millions of dollars. Some may feel as though they are sufficiently protected from this risk because they have health insurance through their employer. Why pay for additional medical insurance through your auto-carrier if your employer already provides it?

There are several reasons why you may want to do so. For example, your employer-provided health insurance may be a high-deductible plan. Additionally, your health insurance from work may only co-insure medical expenses incurred out of a managed-care network. Or, your employer may be self-insured for medical insurance, with an insurance company contracted to serve as the third-party administrator to handle the processing of claims, and the plan may expressly exclude from coverage expenses incurred as a result of a motor vehicle crash. In other words, just because you have employer-provided health insurance does not mean that you won’t still be facing thousands of dollars of medical expenses resulting from a car crash.

Also, insurance provided through your employer may be subject to significant changes without your control. Your employer may choose to change its benefits plan, altering your insurance, at almost any time. Further, as the recent pandemic has taught us, you can be laid off or terminated at any time, for reasons far outside your control. If you are seriously hurt in a crash, become unable to work and cannot afford COBRA, you could ultimately end up losing the coverage you were otherwise relying on. If you find yourself in one of these scenarios after opting for reduced PIP coverage, you could find yourself holding the bag and stuck with insurmountable medical debt.

If you are considering reducing your PIP coverage it is important that you understand the details of your employer-provided health insurance, and whether medical treatment for auto-related injuries are excluded under that coverage. It is also important that you review that information periodically during the year, in case coverage changes and necessitates a change in your PIP coverage. Unlike enrollment periods for changes employer-provided coverage, you can change your PIP coverage at any time.

Limited PIP will impair your recovery for damages against a negligent driver:

Another reform that has gotten little news coverage is the elimination of third-party tort immunity for excess medical expenses caused by at-fault drivers. For decades in Michigan, the No-Fault Act provided that even if someone seriously injures you through their negligent driving, your medical bills would be covered by your own auto insurance. However, you could pursue the negligent driver for “non-economic damages” such as pain and suffering. Usually, the defendant in those cases is able to pay through their auto-insurance’s “bodily injury” liability coverage.

Under the new law, victims of car crashes who incur medical expenses in excess of their chosen lifetime cap for PIP benefits can also sue the at-fault driver for reimbursement for those excess medical expenses. However, typically what victims are actually able to get from the at-fault “other driver” will be limited to the amount of “bodily injury” liability coverage that driver had at the time. Under the current law, Michigan motorists must carry third-party bodily injury liability coverage with a minimum of $50,000 per person and $100,000 per accident. If you have selected reduced PIP coverage under the new law and your medical bills exceed your PIP coverage, the negligent driver’s insurance coverage will go toward medical bills, instead of compensating you for the pain and suffering that he or she caused.

Consider a scenario where you are sitting at a red light at a complete stop. You have your seatbelt on, with your hands on the wheel and eyes forward. Out of nowhere, a drunk driver slams into the back of your car at an excessive speed, pushing you into the intersection and seriously injuring you. You are cut from your car and rushed by helicopter to the nearest hospital where you undergo multiple surgeries and have a lengthy rehabilitation stay. Your treatment and emergency interventions may cost well over $300,000.00. If you’ve capped your No-Fault Benefits at a lifetime of $250,000.00 and the drunk driver had only the minimum $50,000.00 in bodily injury liability coverage, you likely will not receive a penny in tort recovery for your pain and suffering. Not only that, but you will be on your own to pay for any additional medical treatment you need during the rest of your life.

You can avoid this potential problem by making a better decision on your PIP coverage.

Savings on Capped PIP Policies are a False Economy:

When the No-Fault reforms were passed in 2019, legislators hailed the reforms as necessary to reduce the costs of auto insurance, making it more affordable for Michigan drivers. To be sure, auto insurance companies have been gouging Michiganders (especially Detroiters) for years. The law provides for mandatory reductions in premiums charged for PIP for those who select reduced coverage. However, the law does not mandate the same rate rollbacks for the collision coverage part of your premium. PIP premiums typically account for less than half of the premium charged on the average insurance policy, and the collision coverage often represents the biggest part of premium. In other words, a 50% reduction in the PIP portion of your premium will not translate to a 50% overall premium savings.

Ultimately, motorists should look beyond the simple calculation of “what is the cheapest” and truly consider what they are purchasing with those premiums. Is a reduction of a few hundred dollars a year in auto insurance worth the risk of being catastrophically injured and facing medical bankruptcy? With what you are giving up in benefits, these savings often present a false economy. An analogy may help paint the picture: you could choose to pay $1,000.00 a month to buy a brand-new Italian sports car, or you could pay $850.00 a month for an old junker.

There are other ways to save money on auto insurance premium costs without reducing PIP coverage. One way to reduce your auto insurance premium is to increase the deductible on your comprehensive and collision coverage. Raise your deductible for comprehensive and collision to $2,500, so that you are self-insuring the first $2,500 for repairing your car. For the same amount of cost savings, it is better to risk going out of pocket for $2,500 to fix your car, instead of capping your PIP benefits.

Ultimately, as consumers, motorists should be wary of simply picking the cheapest option – even if they think that they have private health insurance that will cover them in a loss. As illustrated above, this may not always be the case, and the risks often vastly outweigh the rewards. Unless you are independently wealthy, or are in a position where the only choice is to choose lesser coverage, the best choice is to retain unlimited PIP while you can.