Self-Insurance Institute of America challenges Michigan health care tax

DETROIT—The Self-Insurance Institute of America Inc. has filed a lawsuit challenging a new Michigan law that is to start assessing a 1% tax on paid health care claims after Jan. 1, 2012.

The tax, which is being used to help fund the state's Medicaid program, would be paid by insurers offering fully insured plans and by third-party claims administrators and stop-loss insurers in the case of self-funded plans. The assessment would be paid quarterly starting April 15, 2012.

Certain plans are exempt from the tax, including Medicare Advantage plans, Medicare prescription drug plans and plans covering federal employees. In addition, the tax under S.B. 348 would not be assessed on services provided in Michigan to non-Michigan residents.

The tax, intended to generate $400 million in annual revenues for the state, is to replace a 6% use tax on Medicaid health maintenance organization and other plans providing Medicaid mental health services that was barred by the federal government.

If the revenue collected exceeds $400 million annually, insurers, TPAs and stop-loss insurers would receive a credit against their assessments due the next year.

ERISA pre-emption

In its suit filed Wednesday in U.S. District Court for the Eastern District of Michigan, the SIIA alleges that the tax violates the federal Employee Retirement Income Security Act. It seeks an injunction against implementation and enforcement of Michigan's Health Insurance Claims Assessment Act.

In an Aug. 31 letter to Michigan Gov. Rick Snyder before he signed it into law, SIIA warned of the potential legal challenge.

“The lawsuit is consistent with the association's ongoing commitment to protect self-insured employers, captive insurance companies and their business partners from unlawful regulation,” SIIA Chief Financial Officer Mike Ferguson said in a statement. “State policymakers, in particular, should be aware that SIIA is prepared to litigate when they overstep their regulatory authority.”

SIIA is a trade association representing companies that sponsor and administer self-funded ERISA welfare plans, including plan sponsors and TPAs who function as plan administrators and fiduciaries.

Other states' laws

Other states with similar taxes include Maine, which is phasing out its tax in 2014, Massachusetts and New York state. So far, none has been challenged in court.

In an email, Mr. Ferguson said the New York and Massachusetts laws, which assess a surcharge on hospital bills, also may be pre-empted by ERISA, but said SIIA has elected to take on the Michigan law first “because we believe it has it is the most blatant recent case of state law running afoul of ERISA.”

He added that the Michigan law “imposes significant new requirements on how applicable claims payments are administered. ERISA does not permit states to regulate how self-insured plans are administered. The more a state law affects plan administration issues, the more likely it will be deemed to be pre-empted. Conversely, if it only has an economic impact, then courts are less likely to deem a state law to be pre-empted.”