October
19, 2011 <=
/p>
<=
/o:p>
Michigan Enacts Health Care Cla=
ims
Tax
On
September 20, 2011, Michigan Governor Rick Snyder signed into law=
the
Health Insurance Claims Assessment (HICA)
Act, which establishes a 1% tax on certain paid health care claims
beginning January 1, 2012. The HICA
Act replaces the current 6% Use Tax on Medicaid managed care
organizations. The Michigan Legislature enacted the HICA Act based on anticipated action by the
federal Centers for Medicare and Medicaid offices prohibiting the=
Use
Tax as a means of generating State revenue to be used as a match =
for
federal Medicaid funds.
=
Who
Pays the Tax?
Insurers
and third-party claims administrators for self-funded plans will =
be
directly responsible for payment of the tax. Employers/plan
sponsors, however, should be aware that the =
HICA
Act will likely cause an increase in the cost of coverage as it is
anticipated that insurers and third party administrators will pass
the cost onto the plan sponsor.
=
What
"Paid Claims" Does the Tax Cover?
The
HICA Act defines "paid claims&qu=
ot; as
actual payments made to a health and medical services provider or
reimbursed to an individual by a carrier (including an insurer, H=
MO
or group health plan sponsor), third party administrator, or exce=
ss
loss or stop loss carrier. Paid claims include the followin=
g:
- Payments
under a service contract for administrative services;
- Cost-plus
or noninsured benefit plan arrangements;
- Payments
for health and medical services provided under a group health
plan;
- Claims
for services in Michigan by a pharmacy benefits manager;
- Individual,
nongroup, and group insurance co=
verage
for Michigan residents in Michigan that affect the rights of=
an
insured in Michigan and bear a reasonable relation to Michig=
an,
regardless of whether the coverage is delivered, renewed, or
issued for delivery in Michigan.
Certain
categories of payment specifically exempted from the definition of
paid claims include the following:
- Claims-related
expenses;
- Payments
made to a qualifying provider under an incentive compensation
arrangement if the payments are not reflected in the process=
ing
of claims submitted for services rendered to specific covered
individuals;
- Claims
for specified payments under forms of insurance, other than
health insurance, such as disability and auto insurance;
- Claims
paid for services outside of Michigan or services for
nonresidents;
- Claims
paid under a federal employee health benefit program, Medica=
re,
Medicare Advantage, Medicare Part D, Tricare, by the Veterans
Administration, and for high-risk pools established pursuant=
to
the Patient Protection and Affordable Care Act;
- Reimbursements
under a flexible spending arrangement, a health savings acco=
unt,
an Archer medical savings account, a Medicare Advantage savi=
ngs
account, or other health reimbursement arrangement;
- Co-pays,
deductibles, and other health and medical services costs pai=
d by
an individual.
=
What
Are the Payment Requirements?<=
/p>
Insurers
and third party claims administrators will begin to accrue the ta=
x on
January 1, 2012. Returns must be filed with the Michigan
Department of Treasury and payments must be made on April 30=
th,
July 30th, October 30th, and January 30th
of each year for the preceding calendar year quarter.<=
/span>
The
tax may not exceed $10,000 per insured individual or covered life
annually. Additionally, the base collection amount is set at
$400 million and will be adjusted annually according to a medical
inflation rate. If the annual collections exceed the inflat=
ion
adjusted base amount, a proportional credit will be refunded to
insurers and third party administrators.
The
insurer or third party administrator is responsible for developin=
g a methodology
for the collection of the tax, but its policy must adhere to the
following criteria, as outlined in the legislation:
- Application
must be uniform within a line of business;=
- Use
of health status or claims experience of an individual or gr=
oup
as an element or factor of the methodology is prohibited;
- The
amount collected from groups with uninsured or self-funded
coverage must be determined as a percentage of actual paid
claims;
- The
amount collected must reflect only the assessment levied and=
not
include amounts such as related administrative expenses.
=
Is
the Tax Preempted by ERISA?
There
is some uncertainty as to whether this tax may be preempted by the
Employee Retirement Income Security Act of 1974, as amended (&quo=
t;ERISA"), which preempts any state laws=
that
relate to employee benefit plans. The U.S. Supreme Court has
generally held that ERISA preemption =
only
applies when state laws mandate benefit structures or administrat=
ion
or provide for enforcement mechanisms different than those in ERISA. The U.S. Supreme Court has not
specifically ruled on a general tax on all health care claims, and
therefore, it is possible that the tax will be challenged on these
grounds in the future.
You
can obtain a copy of the HICA Act on =
the
Michigan Legislature's website by clicking here.
If you have =
any
questions please contact:
Edward C. Hammond at (248) 988-1821-edhammo=
nd@clarkhill.com
or Kristi R. Gauthier at (248) 988-5854-kgauthi=
er@clarkhill.com.