As this blog has previously reported, business groups in
Michigan signed off on the legislation last year noting it was part of a larger
budget deal that was not as bad as possible alternatives. ERISA
preemption concerns were outweighed by the belief that self-insured employers
could absorb the new tax without much disruption.
Then in August of this year, a federal district court in Michigan dismissed an ERISA preemption lawsuit, which contended that the administrative obligations imposed by the Act are unlawful.
Game over? Well,
not exactly.
An appeal of the District’s court ruling has just by
filed with the Sixth Circuit Court Appeals and incorporates some very strong
arguments to justify a reversal. And
this time, the self-insurance industry will have an unlikely ally in this legal
fight – organized labor.
What has not been widely recognized is that the tax
applies to self-insured Taft-Hartley plans and the ERISA preemption argument is
even stronger as it relates to these plans.
So it is a positive development that at least two Taft-Hartley plans are
expected file amicus briefs next week.
But while more pressure is being applied in Federal
Court, things are heating back up in the Michigan State Legislature to make the
tax significantly more onerous.
The Act was structured based on the assumption that it
would raise $400 in annual revenue from all payers. Of
course, government budgeting is often suspect and Michigan bureaucrats have
lived up to this reputation. Through the
first half of 2012, the state collected only $109 million from the health
claims tax, which means the annualized estimate is short nearly $200 million.
So it should not come as any surprise that the Michigan
Legislature is now considering a proposal during a lame duck session to
significantly hike the tax. SB 1359,
introduced earlier this month, would allow for an unlimited and variable rate
on the claims tax so that it would float up and down to ensure that the tax
generates $400 million annually. The
bill would also eliminate the proportional credit/refund provision should the
tax collect more than the $400 million target amount.
Interestingly, state business groups who provided tacit
approval to the tax last year have now launched an aggressive lobbying effort
to defeat the proposed 2.0 version. We’ll
see if labor groups join the cause.
While it’s certainly encouraging that there is strong
push back against SB 1359, the opposition remains focused on the economic
argument. Yes, this is clearly important but arguably
not as important as the ERISA preemption issue.
We’ll concede that the most self-insured employers in
Michigan have figured out how to comply with this new tax obligation, but multi-state employers will also tell you that if other
states implement a similar tax scheme this would greatly complicate compliance
efforts. In turn, this could make the
self-insurance option much less attractive – a particularly troubling
development in the post-ACA world where self-insurance offers a critical safe
harbor.
Look around. Most
states have budget challenges, especially as it relates to health care
obligations. If the Michigan tax
withstands legal and legislative challenges then we should not be surprised if
other states attempt the same approach.
So the stakes are high in Michigan as it is now ground zero in the ERISA preemption fight.
Enjoyed reading your blog. Thanks for sharing.
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PPI Claims Made Simple
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