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Michigan enacts auto no-fault insurance reform to combat high costs

June 21, 2019 · Policy Matters team

Michigan’s governor has signed two bills to help curb high costs in the state’s no-fault auto insurance system. The legislation addresses numerous challenges, including several that impact the services Optum Workers’ Comp and Auto No-fault (OWCA) provides to clients. Most of the reforms go into effect in 2020 or 2021.

Notable reforms pertaining to medical care include:

  • Lower-tiered medical coverage options for personal protection insurance plans and the choice to opt out of purchasing coverage for certain qualified individuals.
  • Medical fee schedule reimbursement caps based on percentages above Medicare rates or discounts off of provider charges.
  • A managed care option
  • Utilization review criteria/standards

New medical coverage options and opting out
Current law provides for unlimited medical coverage. Effective after July 1, 2020, the reform legislation permits an insured to choose one of four personal protection medical benefit coverage limit options:

  • $50,000
  • $250,000
  • $500,000
  • Unlimited

Noteworthy provisions

$50,000 coverage may be chosen if the insured is enrolled in Medicaid and if their spouse and any resident relative has “qualified health coverage,” Medicaid, or insurance that provides personal protection medical benefit coverage. “Qualified health coverage” means Medicare coverage or any other health or accident coverage that does not exclude or limit coverage for injuries related to motor vehicle accidents and that has a deductible of $6,000 or less per individual.

$250,000 coverage requires the insurer to offer an exclusion related to qualified health coverage. This applies if the insured has certain other health and accident coverage and their spouse and any relative living in the same household has qualified health coverage that would cover injuries from an auto accident. Under these circumstances, their premium for personal protection medical benefits would have to be eliminated or reduced, reflecting that not all household members have requisite coverage.

Opting out
In addition, the reform legislation permits an individual to opt out of purchasing personal protection medical benefit coverage. A “qualified person” (a person who has coverage under Medicare Parts A and B) may elect not to maintain coverage if the person's spouse and any resident relative has “qualified health coverage” or personal protection medical benefit coverage under another policy.

Resulting premium reductions
The legislation also requires insurer premium rates for personal protection coverage to be lowered starting next year (and until 2028) and result in average percentage reductions per vehicle according to a sliding scale outlined in the legislation, based on the coverage limit chosen.

Medical Fee Schedules
Michigan, currently, has no medical fee schedules established for auto no-fault claims. The reform legislation implements fee schedule reimbursement caps applying to treatment rendered after July 1, 2021.

Fee schedule reimbursement caps
These caps are based on percentage markups above amounts payable under Medicare, where applicable. If Medicare does not provide a payment amount for the particular treatment, reimbursement to the provider is limited to certain percentages discounted from the provider’s charge description master, in effect on January 1, 2019. If they do not have a charge description master, reimbursement will be a percentage of the average amount charged by the provider as of January 1, 2019 (adjusted annually for inflation). The markups above Medicare and discounts below charge description master start for treatment rendered after July 1, 2021 and decrease annually through July 1, 2023

Exceptions allowing higher reimbursement
Higher reimbursement is allowed for certain categories of providers: specific freestanding rehabilitation facilities, providers that have certain indigent care percentage volumes, and hospitals that are Level I or Level II trauma centers rendering treatment for an emergency medical condition before the injured person was stabilized and transferred. All-in-all, accounting for the higher reimbursement allowed for these excepted providers and planned phased reductions, the Medicare markup percentages range from 190% to 250% above Medicare.

Other reimbursement provisions
These reimbursement caps do not apply to emergency medical services rendered by an ambulance operation. For attendant care rendered in the injured person’s home, an insurer is only required to pay benefits up to the hourly limitation under the state’s workers’ comp law.

Insurers are required to pass on savings realized from the new reimbursement caps. Also, starting in 2022, the Department of Insurance and Financial Services (DIFS) is required to review the effect of changes made pursuant to the fee schedule reimbursement caps.

Managed care option
Managed care is currently not permitted for auto no-fault claims in Michigan except for coordinating benefits with other non-auto payers. The reform legislation now permits a managed care option, which is defined as an optional coverage selected by an insured at the time a policy is issued that includes, but is not limited to, the monitoring and adjudication of an injured person’s care, the use of a preferred provider program or other network, or other similar option.

The managed care option may provide for deductibles and/or co-pays, and an insurer that offers a managed care option is also required to offer personal protection insurance benefits that are not subject to the managed care option. This new option must be uniformly offered in all areas where it is available; must provide a discount that reflects reasonably anticipated reductions in losses, expenses or both; and must not apply to emergency care.

Utilization Review
The reform legislation also requires DIFS to establish criteria or standards for utilization review. Utilization review (UR) is defined as initial evaluation by the payer of the appropriateness of the level and the quality of treatment, products, services, or accommodations, based on medically-accepted standards.

UR procedures are to include:

  • Acquiring necessary records, medical bills and other information;
  • Allowing an insurer to request an explanation for and requiring a provider to explain the necessity or indication for the treatment or services provided; and
  • Appealing UR determinations.

What’s ahead?

There will be much work on the part of the DIFS over the next few months and years to implement these reform provisions. Our Government Affairs team will be monitoring the progress. We encourage our auto clients to pay attention to future developments, and reach out to DIFS with any questions or concerns related to the coming changes.

Several other provisions of the legislation are important for auto insurers but not as impactful to services OWCA provides. Auto clients should familiarize themselves with the bills.

Links to the text of the bills and supplemental information:

Policy Matters