A recent federal appellate court decision upholding a 2011 Michigan law that imposes a 1% tax on health care claims raises concerns for employer plans. In the court's view, the Michigan law is not preempted by ERISA, which generally exempts employer plans from similar law. Unless and until there is further action challenging the law, Michigan will continue to collect the tax, now lowered to 0.75% on claims, from insurers and administrators of self-funded plans in Michigan until it expires at the end of 2017. Though it only affects employers with employees in Michigan who receive care in the state, the decision could embolden more states to follow suit in taxing employer plans to raise revenues for state programs like Medicaid.
Opposed by employer groups in the state and nationally, as well as unions, the law has a complicated legal history. In July, the federal 6th Circuit Court of Appeals revisited its earlier decision after the US Supreme Court ordered it to do so in the wake of a recent high court decision that overturned a Vermont law on the grounds that it violated ERISA, the federal law that generally preempts state laws affecting employer plan administration or relating to them. After a second review, the 6th Circuit reaffirmed its earlier decision and sided with the state against the Self-Insurance Institute of America, the plaintiff. The court argued that unlike the Vermont law, which required employers to report detailed information about claims and plan members, and directly impinged upon employers’ plan administration and interfered with their ability to administer their plans uniformly across the nation, the collection of the tax only requires incidental reporting and record-keeping and does not impose a substantial burden on employer plans.
It is unclear whether the case will be appealed to the Supreme Court since the plaintiff is still deciding on a course of action. Unfortunately, as state Medicaid budgets come under increasing strain, similar taxes on health care claims could be attractive options for other states to consider. Reportedly at least one other state, Illinois, is considering a similar tax and more are likely to follow. The good news, if there is one at all, is that if more states enact similar taxes, it is more likely that someone will challenge one in another appeals court circuit and the Supreme Court may be asked to look into the matter again. The National Business Group on Health will monitor state attempts to enact similar laws, opposes state efforts to tax employer plans or impose administrative burdens on them and supports strong ERISA preemption of such actions.