Michigan Self-Insured Health Plans are Impacted by Auto Insurance Changes
Beginning July 1, 2020, self-insured health plans face changes due to amendments to Michigan’s automobile insurance laws. There are steps that plans can take to limit liability. Below is a summary of the changes and options for moving forward in light of these changes.
Currently, when individuals in Michigan purchase auto insurance, it must include unlimited personal insurance protection (PIP). The unlimited coverage ensures that any medical costs related to an accident are covered. However, many who have this unlimited PIP through their auto insurance also have health benefits through a self-insured employer plan. When this occurs, there should be a coordination of benefits (COB) between the auto policy and the self-insured health plan. For self-insured health plans, COB provisions are of particular importance because claims are paid from the plan sponsor’s general assets, which can directly impact the plan sponsor’s bottom line. The self-insured health plan has several options for how to draft COB language. The most prominent are:
- Paying primary: To the extent the medical expense is covered by the plan, it will pay the expense in accordance with the Plan, and only then would other insurance, such as auto insurance, make a payment.
- Paying secondary: The plan will pay only to the extent other insurance, such as auto insurance, does not pay the medical expense.
- Exclusionary: Plan terms may exclude all expenses arising out of an automobile accident.
Because auto insurance law currently requires the policyholder to have unlimited PIP, many self-insured health plans are drafted to provide secondary coverage, effectively meaning they will pay nothing for auto accident related medical expenses.
This brings us to the recent changes in Michigan auto insurance law. Beginning July 1, 2020, individuals will no longer be required to have unlimited PIP. Rather, they will be given a choice between:
- Continuing unlimited PIP
- Reducing PIP coverage to $500,000 or $250,000
- Reducing PIP coverage to $50,000, if the individual is covered by Medicaid and any spouse or dependent are covered by other PIP (perhaps through their own policy), Medicaid or qualified health coverage (which would include employer provided coverage that covers auto-related injuries) or
- Reducing PIP coverage to $0, if covered by Medicare Parts A and B and any spouse or dependents are covered by other PIP or qualified health coverage.
While these options may or may not reduce premiums on the policyholder’s auto insurance, they all will pose increased risk to self-insured health plans. For example, if an employee covered by a self-insured health plan with a COB provision that makes the plan secondary reduces their PIP coverage to $250,000 and then gets into a major auto accident, the plan could be on the line to pay thousands of dollars, where it would have paid virtually nothing prior to the law change.
Options for Self-Insured Health Plans
Self-insured health plans have a few options to address these changes. If a self-insured health plan has chosen to be secondary, it should use this change in the law to reassess if that is still the right choice. That is, self-insured health plans could choose to remain secondary and accept the increased risks.
Some of the risk of being secondary can be reduced by excluding coverage (for auto accident injuries only) for those who do not have auto insurance. This will help protect against the largest claims (where there is no auto insurance) and will impact only those few employees who are willing to drive without the state mandated auto insurance. Excluding auto related injuries for those who do not have auto insurance entails amending the plan to state that auto-related expenses are no longer being covered for those participants.
Another option would be to remove the COB language regarding auto insurance or specify in the plan documents that the plan is primary. Under either of these options, the plan would pay first, with the increased costs associated with that change.
There are two additional paths, one that should be avoided and another that should be pursued only with additional discussion and analysis with your benefits counsel. The first path, which should be avoided, is to place a dollar limit on the amount it will pay towards auto-related medical expenses. This is because the Affordable Care Act (ACA) prohibits annual and lifetime limits on benefits and any cap would likely be seen as an impermissible limit of annual or lifetime benefits. The second path, which should be used only after discussion and analysis with your benefits counsel is excluding all auto-related accident injuries. This exclusion would apply regardless of whether the individual has auto insurance. This path requires further analysis due to concerns it could be interpreted as an annual or lifetime limit. As with the more limited exclusion above, moving from a secondary to exclusionary position would require that the plan be amended and participants and those helping to administer the plan will also need to be informed.
In addition, if the plan has stop-loss coverage, the plan sponsor should make sure the insurer will accept any changes to the plan’s COB provisions.
Self-insured health plans should consider taking the following steps before the July 1, 2020 effective date of the changes to PIP in Michigan:
- Review plan documents to determine what, if any, COB provision exists.
- Determine if any changes to the COB provision is appropriate.
- To the extent changes are desired, coordinate with the stop-loss insurer, legal counsel and plan administrator to implement the changes and amend the plan documents.
- Inform participants of when, if any, auto-related medical expenses are covered by the plan.