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Health claims tax upheld again; will other states enact one?

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A federal appeals court's decision to once again uphold a Michigan law that imposes a 1% tax on paid health claims could lead other states to try to impose such a tax, benefit experts warn.

The state law, intended to provide about $330 million a year in new revenue to help fund Michigan's Medicaid program, was challenged by the Self-Insurance Institute of America Inc. soon after it passed in 2011.

The Simpsonville, South Carolina-based SIIA argued that the Michigan law violates the Employee Retirement Income Security Act, which pre-empts state and local laws that relate to employee benefit plans.

In 2014, the 6th U.S. Circuit Court of Appeals in Cincinnati upheld a federal judge's ruling that the law has no effect on plan administrators.

The SIIA then appealed to the U.S. Supreme Court, which in March ordered the appeals court to reconsider its decision. That was after the high court struck down on ERISA pre-emption grounds a Vermont law requiring employers turn over health claims information to the state.

But in its latest ruling on the case last week, the 6th Circuit stuck to its earlier ruling that ERISA does not pre-empt the Michigan tax on health claims.

The Michigan law “does not directly regulate any integral aspects of ERISA,” the three-judge appeals court panel ruled unanimously.

While the law requires plan administrators and insurers liable for the tax to keep accurate records, “these provisions are not direct regulation of employee benefit plans. Rather, they are peripheral requirements that do not warrant pre-emption,” Judge Karen Nelson Moore wrote for the court.

Some say that may lead other revenue-hungry states to consider similar measures.

“States are at their wits' end in how to boost Medicaid funding. This ruling could spark interest in the (Michigan) approach,” said James Gelfand, senior vice president of health policy at the ERISA Industry Committee in Washington.

But lawmakers are likely to act only if the Supreme Court reconsiders the Michigan case, said Joseph Ronan, senior counsel at Morgan, Lewis & Bockius L.L.P. in Philadelphia.

Still, state lawmakers may be reluctant to impose a health claims tax out of concern that insurers would boost rates to offset the higher costs, said Nancy Ross, a partner at Mayer Brown L.L.P. in Chicago.

SIIA President and CEO Mike Ferguson said in a statement Tuesday that the organization is weighing whether to seek another Supreme Court review.