The Multiple Traps of Massachusetts’ PIP Deductibles

When an auto insurance agent discusses your no-fault "personal injury protection" (PIP) coverage, it's best to listen carefully. Numerous insurance companies are trying to get policyholders to purchase insurance with a PIP deductible. Unfortunately, few policyholders understand the impact this switch could have on them if they get into a serious Massachusetts car accident — and few insurance agents explain the dangers.

A PIP Deductible Is Self-Insurance

In Massachusetts, PIP coverage is mandatory and covers up to $8,000 of medical bills and lost wages. When you choose a PIP deductible, you basically agree to insure yourself for all or part of that $8,000. If you choose an $8,000 PIP deductible, for example, the first $8,000 of your medical bills and lost wages following a car accident are YOUR problem. Your insurance will not pay a penny of that amount.

Massachusetts Medical Payments Coverage (Med Pay)

Insurance companies often convince clients to take a PIP deductible and buy Med Pay coverage. Med Pay insurance coverage pays for the medical expenses an injured person incurs after a serious car accident. However, Med Pay does not kick in until after the PIP deductible is paid.

For example, let's say someone (we'll call her "Sally") chose an $8,000 PIP deductible and $5,000 in Med Pay. She probably made this decision believing that she would have $13,000 in medical bill coverage or that her auto insurance company would pay her first $5,000 in medical bills if she got into a car accident. Months later, Sally is involved in a Boston auto accident. Her medical bills total $10,000. She files a claim with her insurance company. Her insurance company tells her that she has chosen the PIP deductible and that she must pay the first $8,000 of her medical bills out of her own pocket. Med Pay will only cover the additional $2,000 in medical bills.

Recovering Compensation From the Insurance Company of an At-Fault Driver

Normally, if you are involved in a car accident, the insurance company of the car you are in will initially pay your PIP claim, even if the other driver was at fault. However, the PIP insurer will be reimbursed its payments by the at-fault driver's insurance company. This is called subrogation.

Payments made by PIP are therefore NOT paid directly to the injured person by the at-fault driver's insurance company, because the at-fault driver's insurance company is already reimbursing the PIP insurer, and the at-fault driver's insurance company obviously will not pay the same bills twice.

What happens if you chose a PIP deductible? Unfortunately, when resolving your injury claim against the at-fault driver's insurance company, everything will work as though the at-fault insurance company paid your insurance company PIP money, even though, in fact, that never happened. Therefore, that portion of the claim will STILL not be paid to you.

For example, if Sally was injured by a distracted driver (we'll call him "Mike"), Sally would still have to pay $8,000 out of pocket and only receive $2,000 in Med Pay plus any pain and suffering damages from Mike's insurance company. She can't get the $8,000 her PIP insurer never paid, even from Mike's insurance company. Because of how her deductible works, Mike's insurance company gets to treat her claim as if they paid her PIP insurer the $8,000, even though they didn't. This is a rather good windfall for Mike's insurance company, isn't it?

Health Insurance and the PIP Deductible

If you have private health insurance, your health insurance would cover your medical damages, including your PIP deductible. However, private health insurance gets to be reimbursed any money it pays if you receive compensation from the other party. This means that you may have to pay back your health insurance out of your pain and suffering award!

For example, if Sally had an $8,000 PIP deductible and she had $5,000 worth of medical bills, her health insurance would initially cover the $5,000. However, if she brought a personal injury claim and received $2,000 in pain and suffering, she would have to pay all $2,000 back to her health insurance company. Her PIP deductible would not only prevent her from receiving financial damages for her medical bills — it would also take away her entire personal injury award. She would be left with nothing.

Bottom Line: Don't Fall Into the PIP Deductible Trap!

Many insurance providers neglect to fully explain the full picture of PIP insurance and a consumer's right to elect against the PIP deductible. The PIP deductible is a large benefit to them.

So what's in it for you? Not much. Generally, electing a PIP deductible allows you to pay a lower month-to-month insurance premium because of the steep out-of-pocket deductible in the event of a motor vehicle accident. You pay a few hundred dollars less now, but can lose thousands if you get into an accident.

Whether or not to take the PIP deductible is your choice as the auto insurance consumer; it's not the insurance company's choice. And choosing a PIP deductible is never a good choice.