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State tax on paid self-insured claims allowed to stand

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For the second time, a federal appeals court has upheld a 2011 Michigan law that imposes a 1% state tax on paid health care claims for self-insured and other employers.

That law had been challenged by the Self-Insurance Institute of America Inc., which argued that the statute ran afoul of a provision in the Employee Retirement Income Security Act that pre-empts state and local laws related to employee benefit plans.

In 2014, the 6th U.S. Circuit Court of Appeals in Cincinnati, upholding a U.S. District Court ruling, disagreed, saying the Michigan law had no effect on plan administrators.

The SIIA later asked the U.S. Supreme Court to review the ruling, and the high court in March ordered the appeals court to review its decision. That was after the high court struck down — on ERISA pre-emption grounds — a Vermont law requiring employers turn over health care claims information to the state.

But in its latest ruling, issued Friday, the 6th Circuit is sticking to the core of its 2014 decision that ERISA does not pre-empt the Michigan health care claims tax law.

The Michigan statute “does not directly regulate any integral aspects of ERISA,” the three-judge appeals court panel ruled in its decision written by Judge Karen Nelson Moore.

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 did not warrant pre-emption,” Judge Moore added.

The SIIA now is reviewing what, if any steps, the Simpsonville, South Carolina-based trade group will take.

“We are obviously disappointed by the court's ruling and will be reviewing our appeal options,” SIIA President and CEO Mike Ferguson said in a statement Tuesday. “What is very clear is that ERISA pre-emption threats have become increasingly serious, so industry stakeholders should be prepared to respond accordingly.”

The Michigan tax is intended to raise several hundred million dollars a year to fund the state's Medicaid program.