Michigan drivers have known for a long time that they pay the highest rates in the country for car insurance although they might not have understood exactly why. Recent legislative changes are now making cheaper rates possible for many drivers all over West Michigan but in order to know if you should take advantage of these changes, it’s important to understand how Michigan car insurance will change on July 2, 2020.
Why Are Michigan Rates So High?
Rates for Michigan drivers have been the highest in the USA in large part because of the mandatory insurance coverage requirement of Personal Injury Protection with unlimited medical coverage on car accident injuries. While these requirements guaranteed many health and recovery benefits to injured drivers, including lost wages, in-home nursing care and specialized medical treatments, they also came at a high cost to insurance companies. This cost was passed onto all Michigan drivers to account for those expensive losses and the problem becomes compounded when drivers drop insurance coverage because they can’t afford it.
These factors made Michigan insurance rates the most expensive in the nation and have created significant economic impacts across the state with Michiganders paying 4.8% of their income on auto insurance premiums which is double the national average of 2.4% of drivers in other states.
What Will Change?
New PIP Coverage Options
Michigan legislators and drivers have spent decades debating how to reduce the financial burden on drivers and a solution was finally signed into law last year. In doing so, they created five different PIP (Personal Injury Protection) options for drivers, allowing them to keep unlimited PIP or choose less coverage for greater discounts. The law requires insurance drivers to reduce the cost of only the PIP portion of car insurance by the following amounts until July 1, 2028.
- Unlimited PIP Coverage (10% reduction) – covers unlimited lifetime car accident injury expenses.
- $500,000 of PIP Coverage (20% reduction) – covers car accident injury expenses up to $500,000.
- $250,000 of PIP Coverage (35% reduction) – covers car accident injury expenses up to $250,000.
- $50,000 of PIP Coverage (45% reduction) – covers car accident injury expenses up to $50,000 & is the lowest option available for Medicaid recipients.
- Out of PIP Coverage (100% reduction) – drivers can opt out of PIP coverage completely only if they have Medicare or a qualifying health insurance plan that covers car accident injuries.
Insurers with no PIP will lose accommodations for an injured person’s care, recovery or rehabilitation which includes but is not limited to:
- Attendant care
- Rehabilitation past the point in which further progress is no longer likely
- Home modifications (e.g. wheelchair ramps into primary residence)
- Auto modifications (e.g. automatic lifts to assist with entry and exit of vehicles)
- Lost wages
More Required Liability Coverage
Michigan’s “no-fault” insurance helps reduce the number of lawsuits between drivers because drivers typically turn to their own insurance provider to cover expenses but they can still be sued if they cause an accident that results in another person’s serious injury or death. That’s where liability coverage comes into play and how recent changes affect it.
Before July 1, 2020: Drivers have to buy a minimum of $20,000 of coverage for one person injured or killed in an accident and $40,000 of coverage for accidents with two or more people injured or killed.
After July 1, 2020: Drivers will be offered a default minimum of $250,000 of coverage for one person injured or killed in an accident and $500,000 of coverage for accidents with two or more people injured or killed. Drivers will be allowed to request and receive reduced minimums of $50,000 and $100,000 respectively.
Certain Personal Information Banned From Pricing
Each state set its own rules for what information insurance companies can or can’t use when pricing auto insurance. This included what kind of car you drive, annual mileage and dozens of other potential factors such as credit history and what level of education you last completed, and insurers used this personal information to calculate how likely a driver is to file a claim. On July 1, 2020, insurers will no longer be able to use gender, marital status, occupation, education, zip code, credit score or residential status to determine your rate. They will still be allowed to use certain information such as payment history and “territories” as an alternative to zip codes.
Limits On Medical Billing
Health care as a whole has become more expensive in the U.S. but medical claims resulting from car crashes are especially prone to price inflation. In fact, one study in Michigan found that while auto insurers sometimes paid more than $3000 for a patient’s MRI, Medicare typically paid $500 for the exact same procedure. That’s in part because Michigan law required insurers to pay whatever is “reasonably necessary” to treat crash victims. Disputes over what’s covered and its cost often end up in court, further driving up the costs of insurance for all Michigan drivers.
But on July 1, 2021, Michigan will institute a new medical fee schedule to cap how much insurers are required to pay for medical services and treatments. The limits would phase in starting at 200%-250% of what Medicare would pay for a medical procedure. The reimbursement rate will drop to 190%-230%, depending on the type of medical facility by 2023.
The Good & The Bad
Lawmakers and drivers alike believe these changes can help reduce the burden of what Michigan drivers are forced to pay for their auto insurance but it’s important to fully understand the changes and risks you now face by choosing less coverage. Remember, drivers pay for PIP coverage so their own auto insurer covers their (and their passengers) injury expenses after an accident. Choosing a lower coverage limit can reduce the cost of your insurance but if you are involved in an accident, your medical expenses will be paid only up to the limit you choose. Always consult your insurance agent to see what they recommend would work best for you.
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