Michigan Law Imposes 1% Assessment on All Paid Claims Under Self-Insured And Fully-Insured Health Plans
MyHealthGuide Source: Mary V. Bauman, Miller Johnson Attorneys and Counselors, 8/25/2011, Miller Johnson Article
Article recommend by John H. Eggertsen, Esq., Eggertsen Consulting, P.C., www.jhelaw.com
Currently, Michigan imposes a 6% use tax on Medicaid HMOs and plans providing Medicaid mental health services. The purpose of the use tax is to finance the state’s share of Medicaid. The federal government has indicated it will bar Michigan from continuing this financing approach. As a result, Michigan needed to repeal the use tax and come up with a replacement revenue stream. New Legislation
Enter Michigan Senate Bills 347 and 348. The legislation replaces the 6% use tax with a 1% assessment on all “paid claims” under fully-insured and self-funded employer group health plans. For this purpose, “paid claims” mean reimbursements by the plan for medical, prescription drug and dental claims with dates of service on or after January 1, 2012 with respect to residents of Michigan receiving services in Michigan. Reimbursements under medical FSAs, HSAs and HRAs are not included.
The assessment is to be paid by insurers and third party administrators (TPAs) on a quarterly basis. The insurers and TPAs can pass the 1% assessment cost back to employers and they are expected to do so. The assessment applies to plans of both public sector and private sector employers.
The new law sunsets on January 1, 2014. Since the funding obligation will not go away, the Michigan legislature will either have to extend the law or come up with alternative financing.
ERISA Preemption
The federal law known as ERISA preempts state laws that relate to employee benefit plans (except for state insurance laws which are “saved” from preemption). There is a strong argument that this new law is preempted by ERISA with respect to self-funded group health plans of private sector employers (which are subject to ERISA). As a result, the new law should not be enforceable with respect to paid claims under ERISA self-funded group health plans. However, at this point, there does not appear to be an employer or industry group prepared to mount such a legal challenge.
Next Steps
Michigan employers should revise their health plan budget projections to account for the new 1% assessment. Employers should also discuss with their insurers/TPAs how the insurer/TPA plans to collect the assessment from the employer. There are a couple of limitations on the 1% assessment in the final version of the legislation. First, the 1% assessment may not exceed $10,000 per insured individual or covered life annually. In other words, significant claims paid with respect to any one individual will be disregarded. Second, insurers/TPAs will be entitled to a proportional credit if the state collects more than $400 million per year. Employers should make sure there is a mechanism for the insurer/TPA to share these potential favorable adjustments with the employer.
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