Last year, Michigan followed the lead of several other states (e.g., New York, Massachusetts, and Vermont) and levied a one percent tax on the value of all claims paid by every insurance carrier and third party administrator for medical care rendered in Michigan to a Michigan resident. The state intends to use the tax revenue to help pay for healthcare supplied to the indigent, under its Medicaid program.
The Self-Insurance Institute of America, Inc. (SIIA), an organization representing plan sponsors and third-party administrators of self-funded plans, challenged the law in federal court, alleging that ERISA preempts this state law as it relates to self-funded employee benefit plans. ERISA bars the application of state laws that directly or indirectly “relate to” an ERISA plan.
The Court ruled in favor of the state tax, concluding “…it is clear that the Act is aimed not at ERISA plans per se, but rather at a broad array of entities–including ERISA plans–that pay claims on behalf of a Michigan resident for medical services provided by Michigan.” The SIIA intends to appeal this ruling, but faces an uphill battle, based on existing U.S. Supreme Court precedent addressing similar laws.
Meanwhile, Massachusetts recently announced an increase to a similar state tax on services received at hospitals and ambulatory surgical centers. The increase, from 1.75 percent to 1.87 percent, takes effect on October 1, 2012, and will generate additional revenue to reimburse hospitals for care provided to the uninsured. Hospitals and surgical centers will, of course, simply pass this cost on through to health plans that pay these bills.
We anticipate more state governments jumping on the bandwagon and imposing similar taxes on health insurance carriers, third-party administrators, and other related entities to help fill holes in state budgets.