The Self-Insurance Institute of America has lost a round in its battle against a state-imposed tax on ERISA health plans. In a new ruling, the 6th U.S. Circuit Court of Appeals held that Michigan’s health care claims tax withstood SIIA’s preemption arguments, because the law doesn’t interfere with the parts of plan administration reserved exclusively for ERISA. Computing and paying the tax was not seen as affecting the core health-plan functions ERISA is supposed to rule. The case is SIIA v. Snyder, No. 12-2264 (6th Cir., Aug. 4, 2014).
Background
With the goal of generating revenue to fund Michigan’s Medicaid program, the law at Mich. Comp. Laws §§ 550.1731–1741, imposes the following requirements:
- Paid claims: It imposes a 1-percent tax on paid claims by insurers, group health plans and third-party administrators for services rendered in Michigan for Michigan residents
- Recordkeeping: Insurers and plans must submit quarterly returns with the Michigan Department of the Treasury; make records and documents available for the government to verify; develop and implement a compliant method of collecting the tax.
SIIA argued that the claims tax: (1) interferes with ERISA plan administration; (2) imposes administrative burdens in addition to ERISA; and (3) interferes with the relationships between ERISA-covered entities. SIIA sought a declaration that ERISA preempted the act, and a ban on the act’s enforcement against ERISA-covered entities.
A federal district court concluded that the act did not “‘relate to’” ERISA-governed health plans; it was a law of “general applicability;” did not have an impermissible connection with plans; and because of that, it did not trigger ERISA express preemption.
The appeals court agreed, first stating that “areas of traditional state concern” were not intended to be preempted. And in order for preemption to operate, the appeals court continued, a state law must have a sufficiently close “connection with” or “reference to,” an ERISA plan. In other words, to preempt a tax (an area of traditional state concern), the statute would have to be aimed at a realm that Congress intended to be the exclusive purview of ERISA. But the Michigan claims tax was not such a statute.
Core ERISA Goals Must Be Impacted
Creating extra work, expense and a certain amount of strategic inconvenience is not sufficient to trigger preemption, the court said, adding that for preemption to operate, a state law must impinge on the primary functions of ERISA health plans, such as determining employee eligibility, claims processing, benefits payments and amounts spent on benefits.
The court stated that a valid state intrusion into a core ERISA function warranting preemption would be something imposing state disclosure and reporting obligations with participation, vesting, and funding requirements, because those are things within ERISA’s realm of protecting participants and beneficiaries from insolvent or abusive funds and plans.
But the claims tax’s recordkeeping and reporting burdens did not operate on that level, so they would not be preempted. On the other hand, reporting burdens to undergird state control over a plan’s standards of financial solvency, for example, would be preempted because they offend a core goal of ERISA, the court said.
Furthermore, the court noted that preemption is not designed to prevent a burden of any kind from being added to an ERISA plan by a state law. Rejecting SIIA’s position, the court stated:
[U]nder SIIA’s logic, states would not be able to require ERISA-covered entities to submit any paperwork or preserve any records in any circumstances. As a result, ERISA would preempt any state laws requiring ERISA-covered entities to submit income-tax returns, property tax returns, or employment records. We have said, time and again, that ERISA does not reach so far.
The court rejected SIIA’s other arguments that the law changes the relationship between plan administrators and beneficiaries by forcing plans to verify beneficiaries’ state of residency and that it forces insurers and TPAs to devise a method to collect the tax, which in turn could require revisions to plan documents. In the latter case, the court said plan documents do not need to be changed in order to collect the tax.
Accordingly, the appeals court affirmed the district court’s dismissal of SIIA’s claims. For more of the latest news on employer-sponsored group health plans, go to http://hr.complianceexpert.com/news.