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ERISA Challenge to Michigan’s Health Insurance Claims Tax is Rejected

health insurance claims taxOn August 31, 2012, a federal district court ruled that the Michigan Health Insurance Claims Assessment Act is not preempted by the federal Employee Retirement Income Security Act.  The act imposes a 1% tax on paid health insurance claims for services rendered in Michigan to residents of Michigan.  The tax is assessed against commercial insurers, HMOs, nonprofit health and dental corporations, Medicaid managed care organizations, specialty prepaid health plans, third-party administrators, and group health plan sponsors.  The act, which took effect on January 1, 2012 and expires on December 31, 2013, authorizes the state to collect up to $400 million in revenues each year, which are used to fund the Michigan state share of the Medicaid program.  When combined with the federal multiplier, the tax will generate $2.4 billion in funding for Michigan’s Medicaid program.

The Self-Insurance Institute of America filed a federal court action against the State of Michigan.  The Institute’s complaint alleged that the tax could not be imposed on claims paid by group health plans and third party administrators because it was preempted by ERISA.  ERISA generally preempts state laws that “relate to” any employee benefit plan governed by ERISA.

The federal court rejected the Institute’s arguments.  First, the court held that the act imposes a tax of general applicability and, as a result, does not impermissibly “relate to” ERISA plans.  Requiring group plans and TPAs to pay the tax on paid claims did not meaningfully affect decisions by employers whether to offer health benefits to employees or which services would be covered. 

The court also held that the act did not impose administrative burdens that would interfere with the structure of ERISA plans or affect the benefits offered to group members.  A purpose of ERISA preemption is to permit national uniformity in benefits administration and to protect plans against a patchwork of state laws.  The court concluded that the administrative requirements on group plans and third party administrators that are necessary to comply with the act did not impair ERISA’s policy of establishing “standard procedures to guide processing of claims and disbursement of benefits.”  

Foster Swift filed an amicus curiae brief in this matter on behalf of the Michigan Health and Hospital Association, Michigan State Medical Society, Michigan Osteopathic Association and Small Business Association of Michigan.  The amicus brief supported the State of Michigan’s position that ERISA does not preempt the Act.      

For further information, please contact Richard Kraus, who represented MHA, MSMS, MOA and SBAM in this case.  He can be reached at 517-371-8104 or by using the form below.  Foster Swift’s health care law and employee benefits practice groups have been active in advising clients regarding compliance with the Michigan health claims tax.

Categories: Employee Benefits, Insurance, Tax

Photo of Richard C. Kraus

has 30 years of experience in the area of health care law, with special emphasis on licensing investigations and disciplinary actions. His representation of individual health care professionals as well as hospitals, health systems, long term care facilities and multi-practitioner clinics, provides an understanding of clinical and business realities in health care as well as legal and regulatory requirements.

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Best Lawyers® 2021

Congratulations to the attorneys of the Health Care practice group at Foster Swift Collins & Smith, PC for their inclusion in the Best Lawyers in America 2021 edition. Firm-wide, 44 lawyers were listed. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation and as lawyers are not required or allowed to pay a fee to be listed; inclusion in Best Lawyers is considered a singular honor. Health Care practice group members listed in Best Lawyers are as follows:

To see the full list of Foster Swift attorneys listed in Best Lawyers 2021, click here.