Under the Michigan Health Insurance Claims Assessment Act (HICA Act) (P.A. 142 of 2011), third-party administrators, carriers and self-insured entities are required to pay assessments on the amount of health care claims paid by them. This assessment will be used by the State in funding its Medicaid program. Presumably, the payers will seek to pass these assessments on to their clients, which include health care benefit plans under the Employee Retirement Income Security Act (ERISA).

An organization representing entities involved with self-insured health care benefit plans filed a complaint against various Michigan authorities, seeking a declaration that the HICA Act was preempted by ERISA and, in addition, violates the supremacy clause of the United States Constitution. In arguing for preemption, the complaint asserted that the HICA Act imposes administrative burdens and fees that conflict with ERISA and undermine ERISA’s interest in uniform nationwide administration of ERISA plans. The complaint also referenced the fact that the HICA Act expressly referred to ERISA plans in its text.

The US District Court for the Eastern District of Michigan held that the HICA Act is not preempted by ERISA. The court determined that the HICA Act, which assesses the tax only after a coverage decision has been made and a claim has been paid, does not impermissibly “relate to” ERISA plans, as it has neither a prohibited “reference to” nor “connection with” ERISA plans. It is well-established in the case law that a state law must have one of those two relationships to ERISA plans to trigger preemption.

With respect to the “reference to” test, the court found that the HICA Act “does not act exclusively on ERISA plans or single them out for different treatment.” Instead, ERISA plans are one of numerous claims-paying entities that are subject to the HICA Act, so that ERISA plans are not singled out, and the impermissible “reference to” was not present.

Turning to the “connection with” test, the court stated that the HICA Act “does not mandate any particular benefit structure or bind administrators to certain benefit choices,” and thus does not have an impermissible “connection with” ERISA plans. In reaching its decision, the court relied on US Supreme Court and lower court decisions noting that laws that do not mandate particular structures for or decisions about the processing of claims and disbursement of benefits are not preempted, even if they may impose burdens on the administration of ERISA plans or increase the cost of providing benefits to covered employees. In this analysis, the court referenced a US Supreme Court decision holding that a state’s general tax on hospitals—including hospitals owned by ERISA plans—was not preempted.

Based on these “reference to” and “connection with” analyses, the court concluded that the HICA Act was not preempted by ERISA. Having completed its ERISA analysis, the court, in a footnote, rejected the plaintiff’s supremacy clause argument “for the same reasons.”

If the District Court’s holding is upheld on appeal, other states may seek to impose similar levies, which could be expected to be passed on to plans.

Self-Insurance Institute of America, Inc. v. Snyder, 2:11-cv-15602-JAC-DRG (E.D. Mich. Aug. 31, 2012).