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August
29, 2011
Michigan Legislature
Limits Medical Health Care Costs For Public Employers<=
span
style=3D'font-size:10.0pt;font-family:"Arial","sans-serif";color:=
black'>
by Marshall W=
. Grate
On August 24, 2011,=
the
Michigan Legislature enacted Senate Bill 7, entitled the Publicly
Funded Health Insurance Contribution Act (the "Act"), w=
hich
limits the amount that public employers pay toward employee medic=
al
benefit plans for plan coverage years beginning after January 1,
2012. The Governor is expected to sign the Act into law.
Application<=
/span>
The Act has broad a=
pplication
and implications for public employer medical benefit plans.<=
/o:p>
- Applies to all pu=
blic
employers in the state, including local units of government,
political subdivisions, intergovernmental, metropolitan, or
local department, agency, or authority; a school district,
public school academy, or intermediate school district;
community colleges or junior colleges.
- It applies to all
public employees employed by public employers, including ele=
cted
officials.
- The term
"medical benefit plan" includes plans established
through a carrier, a voluntary employees beneficiary associa=
tion
(VEBA) or plans established by o=
ne or
more public employers that provides for the payment of medic=
al
benefits.
- The term
"medical benefits" includes "but is not limit=
ed
to hospital and physician services; prescription drugs, and
related benefits." (Earlier versions of the Senate Bill=
7
specifically mentioned dental or optical benefits, but the f=
inal
version did not).
Cap or 80/20
Option
The Act limits the =
cost
for a public employer's medical benefit plan by one of two method=
s.
1. The first method, which is t=
he
default option, imposes a hard cap on the public employer's costs=
for
medical benefit plans.
- For a single-pers=
on
coverage, the public employer's cost is capped at $5,500 ann=
ually;
$11,000 annually for an individual and spouse; and $15,000
annually for family coverage.
- The annual cost
includes payments for reimbursement of co-pays, deductibles,
payments in health savings accounts, flexible spending accou=
nts,
or similar accounts used for health care costs. The total am=
ount
of the public employer's cost for medical benefit plans cann=
ot
exceed the $5,500 cap times the number of employees with sin=
gle
coverage; $11,000 times the number of individual and spouse
coverage; and $15,000 times the number of employees with fam=
ily
coverage.
- The State Treasur=
er
is authorized to adjust the amount of the caps by October 1 =
of
each year for medical benefit plan coverage years beginning =
with
the succeeding calendar year based on the medical care compo=
nent
of the United States Consumer Price Index for the most recent
twelve-month period for which data is available.<=
/span>
- A public employer=
may
allocate its payments for medical benefit plan costs among i=
ts
employees and elected officials "as it sees fit." =
For
example, provided the public employer's aggregate cost stays
within the capped limits, a public employer has the discreti=
on
to contribute 90% of the annual medical benefit costs for one
group of employees and only 70% for another group.
2. The second method requires a
majority vote of the governing body of a public employer.
- This option limits
the public employer's cost to no more than eighty percent (8=
0%)
of the total annual cost of all medical benefit plans=
it
offers or contributes for its employees and elected official=
s.
- Annual cost has t=
he
same definition as used for the default cap approach. <=
/o:p>
- As with the hard =
cap,
a public employer may allocate the employees' share of the t=
otal
annual costs of medical benefits among employees "as it
sees fit," provided its aggregate insurance costs does =
not
exceed the 80% annual cost threshold.
- However, elected
officials of the public employer are required to pay twenty
percent (20%) or more of the total annual cost of a medical
benefit plan.
Effect on
Existing Contracts<=
/p>
The Act applies to =
all
"medical benefit plan coverage years" that begin on or
after January 1, 2012.
- Public employers
should review their insurance policies and consult with their
insurance carriers, insurance representatives and labor coun=
sel
to determine the "medical benefit plan coverage year&qu=
ot;,
as the term is not defined in the law. This plan coverage ye=
ar
may be the same as the public employer's plan year under the
federal Patient Protection and Affordable Care Act (PPACA).
- For a collective
bargaining agreement or other contract that is in effect on =
the
effective date of the Act, the hard cap or the 80/20 option =
does
not apply to that group of employees until the contract expi=
res,
but the requirements do apply to any extension or renewal of=
the
expired contract. The effective date is at present undetermi=
ned,
at least until the Governor signs the bill.
- The Act provides =
that
all collective bargaining agreements or contracts that are
executed on or after September 15, 2011, cannot be inconsist=
ent
with the hard cap or the 80/20 requirements.
- The Act specifica=
lly
authorizes a public employer to make payroll deductions from=
the
employees' compensation for the employee's costs of a medical
benefit plan.
The Opt-Out
Option
A local unit of gov=
ernment
may exempt itself from requirements of the Act by a two-thirds vo=
te
of its governing body. The two thirds vote must be taken for each
year of the exemption. Since the definition of a "local unit=
of
government" does not include public school districts,
public school academies, or intermediate school districts, this
opt-out provision is not available to them.
Penalties
There are severe
penalties if a public employer fails to comply with the Act. The
Department of Education is authorized to assess a public school
employer a penalty equal to ten percent (10%) of each payment of =
any
funds that are received under the State School Aid Act. Other pub=
lic
employers that fail to comply will experience a reduction by ten
percent (10%) of their state appropriations under 2011 PA 63.
Collective
Bargaining Obligation<=
/p>
The law under the
Public Employment Relations Act (PERA=
) is
very clear that medical benefits are a mandatory subject of
bargaining. There is no companion legislation amending PERA to treat medical benefits as a prohibi=
ted
subject of bargaining. The public employer is still obligated und=
er PERA to collectively bargain over the natur=
e of
medical benefits and the type of any insurance policy providing t=
hose
benefits. The Act does mandate that a collective bargaining agree=
ment
or contract must include terms that are consistent with the hard =
cap
and/or the 80/20 option. Since an employer may allocate its payme=
nt
for medical benefit plan costs among its employees "as it se=
es
fit" in regard to either a hard cap or the 80/20 option, the=
Act
does appear to confer discretion on the public employer to make
allocations of its plan costs for either the hard cap or 80/20
option, but any definitive analysis as to collective bargaining
obligations with respect to the 80/20 and opt-out options will be
dependent on rulings from the Michigan Employment Relations
Commission and appellate courts
If you have any
questions regarding the Publicly Funded Health Insurance Contribu=
tion
Act, please consult with your Clark Hill attorney.
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