ERISA Preemption of Michigan Paid Claims Assessment Act

We previously posted regarding Michigan’s Paid Claims Assessment Act (the “Act”) which assesses carriers a 1% surcharge on paid health claims. The Act defines carriers to include group health plan sponsors, along with insurance companies and also assesses third party administrators. Thus, it is likely that group health plan sponsors will end up either paying the cost themselves or having it passed onto them by their insurance company or third party administrator.

The Act was approved by the Governor on September 20, 2011.  Since its enactment, several plan sponsors have wondered whether the Act will be preempted by ERISA. The courts will now weigh in on that issue in Self-Insurance Institute of America v. Snyder, No. 2:11-15602 (E.D. Mich. filed Dec. 22, 2011). In that case, the Self-Insurance Institute of America, Inc. (“SIIA”) seeks both a declaration that the Act is preempted by ERISA and an injunction against implementation or enforcement of the Act.

In its Complaint, SIIA alleges that the Act is preempted by ERISA because:

  • It conflicts with ERISA’s federal framework;
  • It relates to ERISA plans; and
  • It interferes with the uniform national administration of ERISA plans, particularly in the areas of record-keeping and reporting.

While we previously provided arguments why the Act may not be preempted by ERISA, we revisited this issue in-depth in light of Snyder. Based on those arguments, we find reasonable support that the Act may be preempted.

ERISA Section 514(a) explicitly preempts state laws that “relate to” ERISA plans. There are two lines of cases regarding whether a state law relates to an ERISA plan. The first, exemplified in Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985), broadly interprets the language in ERISA section 514(a) to preempt state laws that relate in any way to an ERISA plan. The second, exemplified by New York State Conference of Blue Cross and Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655-56 (1995), focuses on whether the state statute creates an inconsistent approach to the national administration of ERISA and whether the state statute is contrary to the legislative intent of ERISA. Even under this narrower line of cases, the Act relates to an ERISA plan since it directly assesses a surcharge on a plan sponsor, and imposes related reporting and recordkeeping requirements.

In Travelers, the Court upheld a state surcharge to hospital charges on patients covered by certain employer-sponsored health care plans. The crux of the Court’s reasoning is that the New York surcharge was not preempted since 1) it was not assessed on plans, but rather participants and insurance companies, and 2) the legislative intent of ERISA was not to bar state regulation of hospital costs. Id. The Court determined that ERISA preempts direct state regulation of ERISA plans and theorized, in dicta, that ERISA may preempt a state law effectually regulating an ERISA plan by producing an acute, but indirect, economic effect on the plan. The Act assesses the 1% charge on a carrier, the definition of which includes not only a health insurance company, but also a group health plan sponsor, including an employer.  This situation is clearly carved out of the exception to preemption provided in Travelers since the Act directly assesses plans if the surcharge is not paid by the insurance company.

Michigan may argue that the Act is “saved” since it is a regulation of insurance and not of ERISA plans themselves. This analysis is flawed for two reasons. First, the Act is not administered by the Michigan Office of Financial and Insurance Regulation, but rather by the state’s Department of Treasury, suggesting that it is intended as a tax and not an insurance regulation. Second, and more importantly, even if it regulates insurance, it would be preempted under the deemer clause since the broad definition of carrier deems a plan sponsor to be equivalent to an insurance company for purposes of paying the surcharge.

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