We previously addressed the passage of Michigan’s Health Insurance Paid Claims Assessment Act (“Act”), which imposes a 1% tax on claims paid by health insurance carriers, and the subsequent legal challenge to that law by the Self-Insurance Institute of America (“SIIA”) in SIIA v. Snyder.  On August 31, 2012, the district court for the Eastern District of Michigan held that ERISA did not preempt the application of that tax to self-insured health plans. 

ERISA § 514 preempts state laws that “relate to” an employee benefit plan.  The district court held that the Act did not relate to a plan, relying primarily on the Supreme Court’s decision in De Buono v. NYSA-ILA Medical and Clinical Services Fund, 520 U.S. 806 (1997).  That case upheld a state tax that applied to all health care facilities, even those owned by ERISA plans. 

The district court used a two-part test for determining whether a state law “relates to” an ERISA plan – does the state law “refer to” ERISA plans or does it have “a connection with” ERISA plans. 

With respect to the first prong, the court interpreted the “reference to” standard narrowly, and held that although the Act clearly referred to ERISA plans since it specifically mentioned them, reference alone was not sufficient, and the statute must also impose an impermissible burdensome effect on ERISA plans.  The court determined that there was no impermissible burden on ERISA plans because the Act did not single them out for treatment different from other entities that pay health care claims for Michigan citizens receiving medical care in Michigan. 

With respect to the second prong of the “relates to” test, the district court noted that a state statute has a “connection with” ERISA plans if it mandates (or effectively mandates) something, and if that mandate falls within the area that Congress intended ERISA to control exclusively. 

The court held that the Act clearly mandated something – a 1% tax on all paid claims.  However, the court determined that even though the state tax was inconsistent with one of the goals of ERISA’s preemption provision (nationally uniform administration of ERISA benefit plans), the state tax was not preempted because it was assessed after the claims were processed and paid, and thus it did not upset or interfere with the actual claims process.

Because of its resolution of the “relates to” question, the court did not address the other arguments made by the parties relating to the “deemer clause” and the “insurance savings clause,” or the argument that the state law should not be preempted because it was passed to further the objectives of a federal law (the Medicaid Act).

It is likely that this decision will be appealed and we will continue to watch and report on any developments.