Michigan has become the newest state to institute an assessment on paid health care claims. Michigan Senate Bill No. 348, effective August 24, 2011, creates the “Health Insurance Claims Assessment Act” and initiates a 1% assessment on paid health claims. Employer-sponsored group health plans may be wondering about the impact of this Act and whether it is preempted by ERISA. The Act directly assesses insurance companies and third party administrators, rather than group health plan sponsors. However, the Act will likely cause an increase in the amount health plan sponsors pay for coverage since the assessment will likely be passed on to the plan sponsor.
The Act broadly defines the “paid claims” that are assessed the 1% surcharge. Eligible “paid claims” include actual payments made to a health and medical services provider or reimbursed to an individual by a third party administrator, excess loss or stop loss carrier, a property or casualty carrier, or any other type of carrier, including an insurer, health care corporation, or group health plan sponsor. Under the Act, paid claims include payments:
- made under a service contract for administrative services;
- cost-plus or noninsured benefit plan arrangements;
- for health and medical services provided under group health plans; and
- for individuals, nongroup, and group insurance coverage to residents of Michigan that affect the rights of an insured person in Michigan and bear a reasonable relation to Michigan, even if the coverage is not delivered, renewed, or issued for delivery in Michigan.
Several categories of payments are exempted from the definition of paid claims including:
- claims-related expenses;
- certain payments under an incentive compensation arrangement
- claims for specified payments under forms of insurance other than health insurance (e.g. homeowners or automotive insurance);
- claims for services provided to a nonresident of Michigan or for services provided outside the state to a Michigan resident;
- claims paid for federal employees or payments made by Medicare, Medicaid, and the Veterans Administration;
- FSA reimbursements; and
- Co-pays, deductibles, and other healthcare costs paid by an individual.
The Act also sets up a reporting and payment schedule, along with record-keeping requirements. Each carrier and third party administrator with eligible paid claims must file a return and payment for the preceding quarter on April 15, July 15, October 15, and January 15 of each year.
The 1% assessment may decrease for 2013 and later years. If the amount collected in 2012 exceeds $400 million, then the assessment rate for 2013 will be reduced to the rate that would have resulted in the collection of $400 million in 2012.
Challenges based on ERISA preemption to the Health Insurance Claims Assessment Act may be difficult to sustain due to New York State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 645 U.S. 645 (1996). While addressing a state-mandated surcharge on patients covered by certain commercial insurers, and not a general tax on all health care claims, the Court’s analysis is likely applicable to the Michigan assessment. The Court determined that the surcharge was not preempted since it did not duplicate federal regulation of employee benefit plans by a state. The Court narrowed preemption to state laws that either mandate benefit structures and administration or differ from ERISA’s enforcement mechanisms. Based on this holding, Michigan’s 1% paid claim assessment will likely not be preempted by ERISA since it does not directly affect enforcement, methods of administration, or types of benefits.