Federal Judge Hears Arguments on Health Care Claims Tax

June 12, 2012 – Lawyers representing the Self-Insurance Institute of America, Inc. (SIIA) today faced off with Michigan state lawyers in United States District Court for the Eastern District of Michigan over that state’s recently enacted Health Insurance Claims Assessment Act.

SIIA has sued the state of Michigan contending that the law is preempted by the Employee Retirement Income Security Act (ERISA). The hearing focused on the state’s motion to dismiss the association’s lawsuit.

The Act imposes a one percent (1%) tax on all paid health care claims for Michigan residents for services incurred in the state of Michigan. Self-insured group health plans and TPAs are subject to the tax.

At the conclusion of oral arguments the judge announced that he will take the matter under advisement and will let the parties know of his decision in the next three weeks. Highlights of the oral arguments are as follows:

1. Tax Relates to ERISA Plans
   1. Whether any state tax that directly taxed ERISA plans (not just the plan sponsor or TPA) has ever withstood an ERISA preemption challenge? The State argued yes, SIIA lawyers questioned the accuracy of this statement
   2. Whether any cases have said that the protections of ERISA preemption for plan administration somehow cease after benefits have been paid? The State stated yes, SIIA disagreed (State has yet to provide any citations to support this contention).
   3. How much of an administration burden will the tax impose? The Judge seemed to have an interest in that question and SIIA lawyers observed that it could be his easiest way out for the moment. Saying that the State’s motion is denied because he needs more facts.
   4. The State emphasized the Mackey case more than before, essentially saying that the Supreme Court has allowed state laws to stand that significantly impact the administration of ERISA plans.
2. Insurance Savings clause.
   1. The State keeps insisting that TPAs are in the insurance business so taxing them is saved from preemption. SIIA lawyers strongly disagreed, noting that TPAs are agents of plans and that many cases, including SIIA cases in Texas and Florida, have already rejected this argument.
3. Deemer Clause.
   1. The State keeps insisting that only self-funded ERISA plans that are self-administered get the benefit of this clause. SIIA lawyers pointed out the fallacy of this position.
4. Section 514(d) (Medicaid) Exception.
   1. The State spent almost no time on the ERISA 514(d) Medicaid defense (raised by Amici), preferring “a more narrow ruling” from the Court.

Watch for additional reporting soon on this developing story. This litigation has been possible by the financial support of SIIA members who have contributed to the association’s Legal Defense Fund. Contribution information can be accessed on-line at www.siia.org/legaldefense, or by calling 800/851-7789.