In a decision that reflects a recent Supreme Court preemption ruling, the US Court of Appeals for the Sixth Circuit has held that ERISA does not preempt a Michigan law imposing a tax on claims involving health care payments (Self-Ins. Inst. of Am., Inc. v. Snyder, (6th Cir. 2016); see Legal Update, Supreme Court Holds That ERISA Preempts State Health Care Reporting Law).

For analysis of ERISA's preemption provision, including how ERISA preemption applies to more than thirty kinds of state laws, see Practice Note, ERISA Litigation: Preemption of State Laws, part of Practical Law's ERISA Litigation Toolkit.

The Michigan state law at issue imposes a one-percent tax on health claims paid by ERISA group health plans, third-party administrators (TPAs), and other entities for services rendered in the state for Michigan residents. Entities subject to the tax also must submit quarterly returns to the state and maintain accurate and complete records regarding the tax. In general, ERISA's express-preemption provision supersedes state laws to the extent they relate to an employee benefit plan (see Practice Note, ERISA Litigation: Preemption of State Laws: Conflict Preemption Analysis), though the federal courts have struggled to define the limits of this "relates to" rule.

An association representing self-insured health plans, TPAs, stop-loss carriers, and other entities challenged the Michigan law on ERISA preemption grounds. A district court concluded that the law was not ERISA-preempted and the Sixth Circuit affirmed that decision (Self-Ins. Inst. of Am., Inc. v. Snyder, 761 F.3d 631 (6th Cir. 2014)). However, the Supreme Court later granted certiorari, vacated the Sixth Circuit's judgment, and remanded the case for further consideration in light of its March 2016 decision in Gobeille v. Liberty Mut. Ins. Co., 136 S.Ct. 936 (2016)). In Gobeille, the Supreme Court held that ERISA preempted a Vermont law requiring entities, including health insurers and self-funded health plans, to report information related to health care claims and services for inclusion in a state health care database. On remand from the Supreme Court after Gobeille, the Sixth Circuit once again affirmed the district court's dismissal of the suit.

The Sixth Circuit observed that under prior Supreme Court preemption decisions, a law relates to a plan if it has a connection with or reference to the plan (see Practice Note, ERISA Litigation: Preemption of State Laws: General Preemption Rule). The Sixth Circuit rejected the trade association's arguments that the Michigan law related to ERISA plans because it:

The court acknowledged that the Supreme Court's Gobeille decision emphasized that reporting, disclosure, and recordkeeping are central to, and essential parts of, uniform plan administration under ERISA. However, the court interpreted Gobeille to mean that a state law must directly regulate these key functions to be ERISA-preempted. The court noted that the Supreme Court previously upheld certain state tax or surcharge laws against ERISA preemption challenges, including a New York law that imposed a gross receipts tax on the income of medical centers operated by ERISA funds.

Citing Gobeille, the Sixth Circuit recognized a distinction between state laws that:

Specifically, the Sixth Circuit reasoned that the Michigan law:

Also, the court concluded that a residency requirement under the Michigan law did not disrupt the relationship of "ERISA-covered entities" so as to require preemption, because the law defined residency by reference to a plan administrator's existing business records.

Employer/plan sponsors of self-insured health plans may have been optimistic for a different outcome in this case, following the Supreme Court's ruling earlier this year in Gobeille. Under this latest decision involving the Michigan tax on health claims paid, however, plan sponsors should prepare to comply with the law's tax and reporting requirements.