New Michigan law will increase employers health plan costs
The Michigan legislature has passed a new law that will impose a 1 percent assessment on all paid claims under fully insured and self-funded employer group health plans beginning in 2012.
Currently, Michigan imposes a 6 percent 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, which is federally mandated health coverage for low-income individuals. 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.
Enter Michigan Senate Bills 347 and 348. The legislation replaces the 6 percent use tax with a 1 percent 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 Jan. 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 on a quarterly basis. The insurers and TPAs can pass the 1 percent assessment cost back to employers and are expected to do so. The assessment applies to plans of both public sector and private sector employers.
The new law sunsets Jan. 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.
The federal law known as ERISA (Employee Retirement Income Security Act) 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.
Employers should revise their health plan budget projections to account for the new 1 percent assessment. Employers should also discuss with their insurers/TPAs how they plan to collect the assessment from the employer. There are a couple of limitations on the 1 percent assessment in the final version of the legislation. First, the 1 percent 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.
Mary V. Bauman is an employee benefits attorney at Miller Johnson. She has been practicing law for 25 years and chairs the firm’s health care reform team.