Government Setoffs

Government Setoffs

Basic Concept

Under the Michigan No-Fault Act, a no-fault insurance company is permitted to reduce no-fault PIP benefits by any governmental benefits paid or payable to the injured person. This governmental benefit setoff provision is set forth in Subsection 3109(1) of the statute, which states: “Benefits provided or required to be provided under the laws of any state or federal government shall be subtracted from the personal protection insurance benefits otherwise payable for the injury.”

The question of what kind of governmental benefit can be set off against PIP benefits, and what may not, is often a complicated issue. The courts have adopted a two-fold test that must be met before a governmental benefit can be subtracted from PIP benefits: first, the governmental benefit must be payable as a result of the auto accident, and second, it must serve the same purpose as the no-fault benefit. See Jarosz v DAIIE, 418 Mich 565 (1984).

Some governmental benefits have “flunked” this two-part test and, therefore, cannot be set off against no-fault benefits. For example, the $225.00 “death benefit” payable under the U.S. Social Security Act cannot be offset against the no-fault funeral and burial expense benefit. See Gier v Auto-Owners Ins Co, 244 Mich App 336 (2001).

In the case of Wood v Auto-Owners, 469 Mich 401 (2003) the Michigan Supreme Court adopted a specific formula for calculating no-fault survivor’s loss benefits in cases where claimants are receiving governmental benefits and a portion of the survivor’s loss benefit represents replacement services. Subject to this formula, the Court ruled that governmental benefits cannot be set off against that part of no-fault survivor’s loss benefits that represents replacement services.

Types of Governmental Benefits Resulting in Setoff

The courts have issued many decisions regarding the governmental benefit setoff provision of the Act and have held that, depending upon the facts of the case, the following kinds of governmental benefits can be deducted from PIP benefits: 

(1) Social Security disability benefits;
(2) Social Security survivor’s benefits;
(3) Workers’ Compensation benefits;
(4) certain kinds of veterans or military benefits.

Medicare Benefits

Unlike other types of governmental benefits, Medicare benefits are not payable for any expense that is compensable under an automobile no-fault insurance system. A no-fault insurance company may not take the position that an auto accident victim must first turn to Medicare because the federal law prohibits Medicare from paying benefits to persons insured under a no-fault system. Therefore, an accident victim should never knowingly submit, nor permit a treating medical provider to submit, any medical expenses to Medicare for payment if the expenses are otherwise covered under the Michigan No-Fault Act.

If Medicare mistakenly pays medical expenses that should have been paid by no-fault insurance, the Medicare program has the legal right to seek reimbursement from a variety of sources, including the responsible no-fault insurer, the medical provider receiving the Medicare payment, and under certain circumstances, even the patient. This is an area that requires great caution for both patients and providers.

Medicaid

As with Medicare, persons insured by Medicaid cannot submit auto accident-related expenses to Medicaid for payment if they are covered by auto no-fault insurance. Medicaid only pays the medical expenses of those individuals who are “medically indigent.” A person who is entitled to recover reimbursement for medical expenses under the Michigan No-Fault Act is not medically indigent and, therefore, not eligible for Medicaid benefits for that particular expense. Accordingly, the no-fault insurance company must pay the full amount of all medical expenses even though the accident victim might otherwise be entitled to Medicaid.

As with Medicare recipients, persons insured by Medicaid should not submit, nor allow treating medical providers to submit, auto-accident-related medical expenses to Medicaid for payment. If the Medicaid program mistakenly pays medical expenses that should have been paid by no-fault insurance, Medicaid has powerful reimbursement rights similar to the Medicare program referenced above.