What happens if governmental or private insurance benefits are also payable?

Frequently, persons injured in automobile accidents not only have no-fault PIP benefits, they also have health insurance and, sometimes, eligibility for benefits under some governmental program.  These situations create questions that are addressed by the governmental benefits setoff and coordination of coverage provisions set forth in §3109(1) and §3109a of the Act.  The highlights of these issues are discussed briefly below.

A. Governmental Benefits Setoffs

1. THE BASIC CONCEPT—Under the Michigan No-Fault Act, a no-fault insurer is permitted to reduce PIP benefits by any governmental benefits paid or payable to the injured person. This governmental benefit setoff provision is set forth in §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 cannot is often a complicated issue.  In interpreting the language of §3109(1), the Michigan Supreme Court has held that “benefits” are “provided or required to be provided” if the benefits pass this two-part test: 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.   Some governmental benefits have “flunked” this two-part test and, therefore, cannot be set off against no-fault benefits.  For example, the $225 “death benefit” payable under the U.S. Social Security Act cannot be offset against the no-fault funeral and burial expense benefit, because the death benefit was payable as a result of the person’s death and not payable to cover actual costs incurred for funeral and burial expenses as required under §3107(1)(a).  It should be noted that in situations where a claimant is receiving survivors’ loss benefits that include replacement services and is also receiving government benefits that are subject to setoff, the calculation of the setoff can be complicated under Michigan appellate case law.

2. TYPES OF GOVERNMENTAL BENEFITS RESULTING IN SETOFFS—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 survivors’ benefits; (3) workers’ compensation benefits; and (4) certain kinds of veteran or military benefits.

3. MEDICARE RECIPIENTS—Unlike other types of governmental benefits, Medicare benefits are not payable for any expense that is compensable under an automobile no-fault insurance system. Therefore, a no-fault insurer cannot take the position that an auto accident victim must first turn to Medicare for payment of auto-related medical expenses because 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 a no-fault insurer, 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.  That being said, those Medicare patients who have opted out of no-fault coverage are permitted to submit their auto-related medical expenses to Medicare.  However, Medicare will not cover many of the services and expenses that no‑fault insurance would have paid.  In addition, Medicare may demand reimbursement if the patient subsequently obtains a bodily injury liability settlement.

4. 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 No-Fault Act is not medically indigent and, therefore, not eligible for Medicaid benefits for that particular expense.  Accordingly, the no-fault insurer 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‑related medical expenses to Medicaid for payment.  If the Medicaid program mistakenly pays medical expenses that should have been paid by the no-fault insurer, Medicaid has powerful reimbursement rights similar to the Medicare program referenced above.  However, those persons who have purchased less than uncapped PIP benefits, as allowed under the 2019 legislative amendments, who then incur medical expenses exceeding their PIP coverages and who are otherwise qualified for Medicaid, may turn to the Medicaid program for payment of auto‑related medical expenses.

B. Coordination of No-Fault With Other Health and Accident Coverage

1. THE BASIC CONCEPT—The No-Fault Act allows a person to purchase either an “uncoordinated benefits” or a “coordinated benefits” no-fault insurance policy. If the insured purchases an uncoordinated benefits no-fault insurance policy, the no-fault insurer is obligated to pay no-fault benefits even though similar benefits may be payable to the injured person under another health insurance policy.  On the contrary, if the insured person has purchased a coordinated benefits no‑fault insurance policy, the no-fault insurer is obligated to pay only those expenses and benefits that are not paid by other applicable health or accident insurance coverage.  In other words, a no-fault benefits policy that is coordinated is secondary to traditional health insurance plans such as Blue Cross/Blue Shield, health coverage through health maintenance organizations (HMOs), and health coverage through preferred provider organizations (PPOs).  In light of the fact that the premium charged for a coordinated benefits policy is less than the premium for an uncoordinated policy, the majority of Michigan auto insurance consumers have purchased (either knowingly or unknowingly) coordinated no-fault coverages.  The statutory section that permits coordinated no-fault policies is §3109a, which states that a coordinated no‑fault policy is coordinated only with respect to the person named in the policy, the spouse of the insured, and any relative of either domiciled in the same household.  Therefore, unless the injured person falls into one of those three categories, no-fault benefits payable under such a coordinated policy cannot be coordinated with other health coverages.  Auto insurance companies are not required to sell coordinated auto no‑fault policies.  However, if they do sell such a policy, the premium must be, to some extent, less than the premium charged for non‑coordinated no‑fault coverage.

2. CONFLICTING COORDINATION CLAUSES—Sometimes a person will purchase coordinated no-fault coverage and then discover that their health insurance policy also has a coordination of benefits provision. In that situation, the two coordination provisions may be in conflict, wherein each insurer is attempting to elevate the other insurer into the primary pay position and place itself into the secondary pay position.  The Michigan Supreme Court has addressed this situation and has held that if the auto no‑fault policy has a coordination of benefits clause that elevates health insurance into the primary pay position, and the health insurance policy has a coordination clause that attempts to elevate the no‑fault insurer into the primary pay position, the auto no‑fault policy “wins” and is only required to pay medical expenses that have been incurred and not paid by health insurance.

3. ERISA HEALTH PLAN COMPLICATIONS—Many individuals are insured through their employment under an employer self-funded health plan established pursuant to a federal law known as the Employee Retirement Insurance Security Act (ERISA). ERISA plans are different than traditional health insurance coverage such as Blue Cross Blue Shield.  If the injured person is insured under an ERISA plan, there can be confusion over whether the auto or health insurer is primarily responsible to pay medical bills.  That is, if the ERISA plan contains a coordination of benefits clause making it secondary to auto no-fault coverages, the courts have enforced such provisions even where the no-fault plan also has a coordinated benefits provision.  In other words, where a no-fault policy is coordinated and an ERISA plan is coordinated, unlike the situation with ordinary health insurance, the auto no-fault plan will be primary and the ERISA plan will be secondary.  The result may be different, however, if there is some ambiguity in the language of the ERISA plan.  Such confusion can be avoided by purchasing an uncoordinated auto insurance policy.

In addition, because of the complex interplay between federal and state law, ERISA health plans have special “lien” rights that other health insurers do not have. Specifically, in some situations, an ERISA health plan may be able to assert a lien against the patient’s bodily injury tort liability claim. Again, this potential problem can be avoided by purchasing an uncoordinated auto insurance policy.

4. MANAGED CARE HEALTH PLAN COMPLICATIONS—Consumers who are insured under a coordinated no-fault policy and who also are members of HMOs are confronted with special rules if they seek treatment outside of the HMO program.  The Michigan Supreme Court has held that if the service or treatment is available within the HMO and the patient seeks the service or treatment outside of the HMO without following proper procedures to obtain HMO approval, the no-fault insurer is not obligated to pay for any of the cost of the service or treatment obtained outside of the HMO.  This rule, however, should only apply where the specific medical service is available within the HMO program.  Where it is not, the no-fault insurer should not be released from its obligation to pay for treatment, if the treatment is otherwise “reasonably necessary” under 3107(1)(a).  For example, if chiropractic treatment was deemed “reasonably necessary” under §3107(1)(a) and chiropractic services were not available through a patient’s HMO, the patient’s no-fault insurer would be obligated to pay for that chiropractic treatment.

Although earlier court decisions dealt with patients who had health coverage through HMO plans, some no-fault insurers have attempted to extend the concepts in those cases to patients who have health insurance coverage with preferred provider plans (PPOs). In other words, if a patient has health insurance that will pay the full cost of a particular service if rendered by a participating provider, a coordinated no-fault insurer may attempt to deny payment of all or some of the medical expenses that the patient incurs by treating with a non-participating provider. As of the present date, no appellate court has specifically approved this approach.  Nevertheless, great caution should be used in these situations.

5. UNCOORDINATED PIP POLICIES – Although not as common as coordinated policies, many Michigan citizens have purchased uncoordinated no-fault coverage.  They have done so either because they do not have health insurance available to them, or because they want to avoid some of the complexities and pitfalls associated with coordinated coverages.  As previously stated, an uncoordinated no-fault policy pays benefits without regard to whether there are other private insurance coverages.  An uncoordinated policy makes life a great deal simpler for auto accident victims.  That is because victims drawing benefits from uncoordinated policies do not have to deal with both health and PIP insurers at the same time.  In addition, in most cases, victims who draw benefits from uncoordinated policies do not have to worry about a PIP insurer placing a lien against their tort liability claim.

Finally, uncoordinated policies create the possibility that, in certain limited circumstances, an injured person may have the legal right to “double-dip” and have medical expenses payable under the PIP policy as well as the health insurance policy.  In recent years, the appellate courts have considerably narrowed when a double-dip situation can, if ever, occur.  However, if a PIP policy and a health insurance policy are both truly uncoordinated and have no language whatsoever prohibiting duplication of benefits, an injured person theoretically remains entitled to a double recovery on the basis that a higher premium was paid to obtain two uncoordinated coverages.  However, in a recent case, the Supreme Court set forth very significant limitations on the right to double-dip in the case of a motorcyclist who was injured when he was struck by an automobile.  In that situation, due to the language of the health insurance policy and the fact that the injured person was drawing benefits under a policy purchased by someone else, there was no right to double-dip.