What is coordinated and uncoordinated no-fault coverage?
Under the Michigan no-fault system, there is a concept called “coordination of benefits” that applies. Basically, an insured person must purchase one of two types of policies: “uncoordinated benefits” or “coordinated benefits.”
If the insured buys an uncoordinated benefits policy, the no-fault insurance company must pay no-fault benefits, even though similar benefits may be payable to the injured person under a health insurance policy.
If the insured person purchases a coordinated benefits no-fault policy, then the no-fault insurer is only obligated to pay 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, like Blue Cross Blue Shield, health maintenance organizations (HMOs) and preferred provider organizations (PPOs).
Because a coordinated benefits policy costs less than an uncoordinated policy, the majority of Michigan auto insurance consumers have purchased (either knowingly or unknowingly) coordinated no-fault coverage.
Coordinated no-fault policies are specifically allowed under MCL 500.3109a. This section of the law states that a coordinated 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.
The Mechanics of No-Fault Coordination of Benefits
Conflicting Coordinated Policies
Sometimes an injured person will be insured under a coordinated no-fault policy and a health insurance policy that also has language which coordinates its coverage with other health and accident coverages, such as no-fault insurance. When that happens, the two policies are conflicting, with each attempting to make itself secondary to the other coverages.
The Michigan Supreme Court has held that where there are two conflicting coordination of benefits clauses, the conflict is resolved in favor of the auto no-fault insurance company, thereby making the health insurance primary and the auto no-fault insurance secondary. See Federal Kemper Ins Co v Health Ins Admin, 424 Mich 537 (1986).
However, where the no-fault policy is uncoordinated and the health insurance policy is coordinated, the no-fault policy is primary, and the health insurance policy is secondary. See Smith v Physicians Health Plan, Inc, 444 Mich 743 (1994).
Sometimes an injured person has an uncoordinated no-fault policy and an uncoordinated health insurance policy. In that situation, neither of the two policies will be able to coordinate with any other coverages. Therefore, this can create a potential “double-dip” situation where medical expenses are payable under both policies.
Michigan courts have held that where both the no-fault policy and the health insurance policy are uncoordinated, the injured person is legally permitted to double recovery (payment under each policy) as a higher premium was theoretically paid to obtain two uncoordinated coverages. See Haefele v Meijer, Inc, 165 Mich App 485 (1987).
Coordinated No-Fault Coverage and ERISA Health Plans — A Different Rule
Many individuals receive their health insurance through their employment, under an employer self-funded health plan established pursuant to the Employee Retirement Income 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 and if the plan contains a coordination of benefits clause making it secondary to auto no-fault coverage, the courts have enforced such provisions even when 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 health insurance, the no-fault plan will be primary, and the ERISA plan will be secondary. See Auto Club Ins Ass’n v Frederick & Herrud, 443 Mich 358 (1993).
The result may be different, however, if there is some ambiguity in the language of the ERISA plan. See Auto-Owners v Thorn Apple Valley, 31 F3d 371 (6th Cir. 1994).
Special Concerns for Patients with Coordinated No-Fault Policies and Managed Care Health Plans
There are special rules for consumers who are insured under a coordinated no-fault policy, and who are also members of HMOs, if they seek treatment outside 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 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 the HMO. See Tousignant v Allstate Ins Co, 444 Mich 301 (1993).
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 MCL 500.3107(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 insurance company would be obligated to pay for that chiropractic treatment. See Sprague v Farmers Ins Exch, 251 Mich App 260 (2002).
The Tousignant decision dealt with patients who had health coverage through an HMO plan. However, some no-fault insurers have attempted to extend the Tousignant decision to patients who have health insurance coverage through 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.
Currently, no Michigan appellate court has specifically approved such an extension of the Tousignant holding to PPOs. Nevertheless, great caution should be used in these situations.