The new Michigan Health Insurance Claims Assessment Act imposes a 1-percent tax on “paid claims” for health-related services of employer-sponsored health and welfare plans.

Employer plan sponsors with employees in Michigan may see their administration fees increase due to a new tax on third-party administrators (TPAs) that became effective on January 1, 2012. Under the Health Insurance Claims Assessment (HICA) Act, which was signed into law in September 2011, TPAs, insurance carriers and HMO providers are required to pay an assessment on health care claims paid for Michigan residents who received health-related services in Michigan. This law is being challenged on Employee Retirement Income Security Act (ERISA) preemption grounds.

Who Must Pay?

The HICA tax affects insurance carriers (including HMOs and stop loss insurers), TPAs and group health plan sponsors. Certain plans are exempt from the tax, including Medicare Advantage plans, Medicare prescription drug plans and plans covering federal employees, but Medicare supplemental insurance is not exempt. In addition, the tax is not assessed on services provided in Michigan to non-Michigan residents or to claims paid for services to Michigan residents that are rendered outside of the state. Under HICA, TPAs are directly responsible for paying the tax on behalf of self-insured group health plans. A TPA is not prevented from passing the tax assessment on to its plan sponsor clients. However, in the FAQ issued by the Michigan Department of Treasury make it clear that a TPA is liable for paying the tax and will be assessed a penalty for failing to pay the tax, even if the TPA cannot recover those amounts from the plan sponsor. If a TPA fails to pay the tax, HICA indicates the plan sponsor could ultimately be liable for the tax and any penalties, but it is unclear at what point the tax and penalties would be levied against the plan sponsor.

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