By: Jack K. Riashi, Jr., CFP®

Michigan’s new auto insurance reform went into effect on July 1, which essentially changed the unlimited lifetime medical coverage for personal injury protection, or PIP.  There were other reforms, but I want to focus mostly on changes to PIP.  The reform was meant to help lower the costs of auto insurance since Michigan has some of the highest insurance rates in the country.  As a result of the reform, many people are contacting their insurance agents to find out what they should do, and unfortunately, some of them might make changes to their auto insurance that may not be financially smart (more on this later).

Here is some background on the reform:

The reform changed the no-fault insurance system, which was in effect since 1973.  Under the old system, if you were hurt in a car accident, you would make a claim on your own auto insurance, no matter who caused the accident.  The system was designed to lower costs by eliminating the need for suing other drivers to get payment for injuries.

Michigan also previously required that drivers purchase “unlimited lifetime medical benefits” for personal injury protection (“PIP”).  Under that law, people who were injured in an auto accident were entitled to lifetime medical coverage for “reasonable and necessary” medical help for their entire lifetime.  Interestingly, Michigan was the only state with this requirement.

The most important part of the reform has to do with the options people will now have regarding PIP.  These options are as follows:

  1. Unlimited coverage per person per accident. This is the same coverage as before and would be the most expensive option.  This option would reduce premiums about 10% on average.
  2. Up to $250,000 in coverage per person per accident. This option would reduce premiums about 20% on average.
  3. Up to $500,000 in coverage per person per accident. This option would reduce premiums about 35% on average.
  4. Up to $50,000 in coverage per person per accident. You will need to be enrolled in Medicaid and meet other eligibility requirements to select this option.  This might be beneficial for someone on Medicaid since Medicaid has more generous medical coverage than does Medicare.  This option would reduce premiums about 45% on average.
  5. No PIP: Opt out. You will need to have Medicare Parts A & B and meet other eligibility requirements to select this option.  This option might seem to make sense for people age 65 and over, but they have to be careful because Medicare Parts A & B, along with even a supplemental policy like Blue Cross/Blue Shield, may not cover all of the possible medical services that could arise from an auto injury.  This option could save people the most on certain portions of PIP, but you must compare what Medicare covers versus the unlimited medical coverage via your auto insurance policy.

As an example, post-acute care or sub-acute care rehabilitation is covered 100% for as long as required under the unlimited PIP coverage, whereas Medicare covers a maximum of 100 days.  Attendant care (assistance with care and supervision) is 100% covered under unlimited PIP whereas under Medicare, there is limited home healthcare.  There are other differences as well.

 

The Best Option? 

If you do nothing, you will continue to renew at the unlimited no-fault PIP coverage, which may be the best option for a lot of people given its generous medical coverage.  The cost differential among the options may not be as large as people think so rather than just comparing premiums, it may be even more important to assess your own personal financial condition.  If you suffered an auto accident that resulted in catastrophic care, you need to find out if your existing health insurance policy covers that care.  The unlimited medical coverage under PIP may be more generous than your current health insurance, and if that is the case, sticking with the unlimited medical care may be the best choice.

Option 4, which is mostly for Medicaid recipients is another option those recipients must assess.  However, in the case of Medicaid, it covers a wider array of medical services than does Medicare so in this case, the decision may be how much one would save in annual auto premiums by going with Option 4.

Option 5, which applies to Medicare recipients, means if you are age 65 and over and have both parts of Medicare (A & B), then you must assess your financial condition very closely.  The allure of selecting this option is tempting, and it might save people a substantial amount in premium costs. However, if someone under this option suffered a catastrophic injury, Medicare might not cover all of the necessary care.  The situation might be different if one has long-term care insurance since that policy could potentially help pay for a portion of the care if one were confined to skilled nursing care around the clock.  However, many long-term care policies have limited periods of coverage such as three to five years, so review your policies closely.

It is also important to shop around to see who offers the lowest costs for desired coverages.  You can save money in premiums by grouping your homeowners and auto insurance under one insurance company.

In summary, selecting from one of the PIP options might seem easy on the surface, but it would be a good idea to discuss your options very closely with your insurance professional, or better, an independent financial advisor. Here at Bloom Asset Management, we encourage all our clients to bring us their options so we can provide unbiased advice. (We do not sell insurance or any products and do not have any conflicts of interest). If you do not have a financial advisor, then it is important to assess your net worth and understand the impact if you were to suffer debilitating injuries. Will you have enough coverage, or will you suffer financial hardship paying for care out of pocket?

These are difficult questions to ask, as is even imagining an auto injury, but you must ask them.  The easiest decision, and one that might make sense for a lot of people, is making no change and staying with the unlimited medical coverage.