United States: Michigan Enacts Health Insurance Claims Assessment

Michigan has enacted the Health Insurance Claims Assessment (HICA) Act, which is applicable to certain paid claims arising from health and medical services provided on or after January 1, 2012.¹ The HICA replaces a use tax that was assessed against certain insurance carriers that provided Medicaid services in Michigan.² The primary purpose of the HICA Act is to draw down federal matching funds to help fund the Michigan Medicaid program.

Entities Subject to Tax

The HICA Act imposes an assessment of 1 percent on the paid claims of a carrier or third)party administrator (TPA) for health and medical services.³ Per the HICA, a "carrier" is defined to include: insurers and health maintenance organizations (HMOs) regulated under the Michigan Insurance Code, a health care corporation regulated under the Michigan Nonprofit Health Care Corporation Reform Act, specialty prepaid health plans, and group health plan sponsors.⁴

In October 2011, the Department sent several thousand letters to companies that the Department identified as "possibly" being subject to the HICA, including companies considered by the Department to be "insurers" and "TPAs." It is uncertain as to whether all of these companies receiving the letters actually qualify as insurers and TPAs subject to the HICA, though companies receiving the letter are required by the Department to submit a letter of explanation as to why they are not subject to the HICA.

Considering the reach of the statute, it is possible that the HICA could apply to the following companies:

• Health care insurers and HMOs. An insurer or HMO regulated under the Insurance Code of 1956, with the Office of Financial and Insurance Services (OFIS) being the regulating body.⁵
• Blue Cross Blue Shield, and potentially other nonprofit healthcare corporations regulated under the Nonprofit Health Care Corporation Reform Act of 1980. Nonprofit healthcare corporations including a "nonprofit hospital service corporation" and a "medical care corporation" that are regulated under the Nonprofit Health Care Corporation Reform Act of 1980 (also known as the Blue Cross Blue Shield Act).⁶
• Nonprofit dental care corporations. A nonprofit dental care corporation which can be formed by three or more Michigan residents to provide nonprofit dental plans could come under the HICA if also paying medical claims.⁷
• Medicaid managed care organizations. A specialty prepaid health plan is defined as a Medicaid managed care organization under Michigan law.⁸
• Group health plan sponsors, including employer and employee organization self%funded plans. The HICA potentially can apply to any employer that has a self)insured plan. If a TPA is administering that plan, the TPA could be considered to be the entity subject to the assessment, but hierarchy requirements in the HICA could apply to determine which entity would be subject to the assessment.⁹
• Licensed and unlicensed TPAs. In line with the Department's broad view of the types of companies to which the HICA is applicable, based on the issuance of notices by the Department in October 2011, licensed TPAs (those subject to the Third Party Administrator Act of 1984) as well as any unlicensed TPAs otherwise meeting the requirements of the HICA could be subject to the HICA.¹⁰

Paid Claims and Exemptions

"Paid claims" are the actual payments, net of recoveries, made to a health and medical services provider or reimbursed to an individual by a carrier, TPA or excess loss or stop loss carrier.¹¹ The paid claims included in the assessment are only for services provided to Michigan residents who receive the services in Michigan. Claims)related expenses, general administrative expenses and payments made to a qualifying provider under an incentive compensation arrangement should be excluded when calculating the HICA.

Additionally, not all paid claims are subject to the HICA.¹² These exemptions include:

• Amounts covered by patient co)pays and deductibles;
• Claims paid under workers' compensation, disability income, automobile insurance, homeowners' insurance and other similar insurance plans;
• Claims paid under a federal employee health benefit program, Medicare, Medicare Advantage, Medicare Part D, Tricare, by the U.S. Veterans Administration and for certain high)risk pools; and
• Reimbursements to individuals under a flexible spending arrangement, a health savings account, certain medical savings accounts, or other health reimbursement arrangements authorized under federal law.¹³

The HICA is a quarterly assessment.¹⁴ Each carrier with paid claims subject to the HICA is required to file a return with the Michigan Department of Treasury on April 30, July 30, October 30, and January 30 for the preceding quarter.¹⁵ With every return filed, an electronic funds transfer (EFT) is required to be made to the Department. Carriers must complete and submit an EFT application prior to filing the first return by April 30, 2012.¹⁶

Failure to pay an assessment, interest or penalty when due may result in the suspension or revocation of either: (i) the Michigan certificate of authority to transact insurance; or (ii) the license to operate in Michigan.¹⁷

Commentary

At this time, carriers and TPAs should first confirm that they are subject to the HICA, and if so, establish a system that will allow them to track, calculate and file HICA returns. Doing all of this will require a careful review of the provisions of the HICA Act. While the assessment may seem relatively straightforward, there are nuances to capturing and maximizing amounts that are exempt from the definition of "paid claims." In addition, recently released guidance from Treasury highlights certain parts of the HICA that have a particularly broad reach. For example, the HICA applies to non)taxable entities such as school districts and municipalities as long as they are otherwise a carrier, TPA or self) insured entity under the terms of the HICA Act.¹⁸ Treasury clarifies that the HICA applies to paid claims relating to a broad range of services, including vision)related services, dental services, durable medical equipment and prescription drugs purchased through a mail)order pharmacy and delivered to a Michigan resident.¹⁹ TPAs that do not actually "pay" the claims because they use funds directly from their clients' bank accounts are also subject to the HICA.

Footnotes

1 Act 142 (S.B. 348), Laws 2011. Note that the tax is repealed effective January 1, 2014. For more information on the HICA, see www.michigan.gov/businesstaxes .

2 Act 141 (S.B. 347), Laws 2011. This law enacted a March 31, 2012 sunset for the use tax that was imposed on certain insurance carriers.

3 MICH. COMP. LAWS § 550.1733(1). The assessment is capped annually at $10,000 per insured individual or covered life (meaning that paid claims on one insured individual or covered life are not subject to the assessment to the extent that such paid claims exceed $1 million per year). MICH. COMP. LAWS § 550.1733(4). If the assessment collects revenue of more than $400 million in a year, adjusted annually by the medical inflation rate, each carrier and third)party administrator that paid the assessment will receive a proportional credit against their assessment the next year. MICH. COMP. LAWS § 550.1733(6).

4 MICH. COMP. LAWS § 550.1732(a). Thus, this includes self)insured entities.

5 MICH. COMP. LAWS § 550.1732(a)(i).

6 MICH. COMP. LAWS § 550.1732(a)(ii). The Nonprofit Health Care Corporation Reform Act was enacted as Act 350, Laws 1980 and is codified as MICH. COMP. LAWS §§ 550.1101 to 550.1704.

7 MICH. COMP. LAWS § 550.1732(a)(iii).

8 MICH. COMP. LAWS § 550.1732(a)(iv). Under MICH. COMP. LAWS § 550.1732(u), the HICA Act adopts the definition of specialty prepaid health plan that is provided by MICH. COMP. LAWS § 400.109f.

9 MICH. COMP. LAWS § 550.1732(a)(v). If more than one entity may be subject to the assessment, the statute provides a hierarchy to determine which entity is responsible for paying the assessment. MICH. COMP. LAWS § 550.1733(3).

10 See MICH. COMP. LAWS § 550.1732(v).

11 MICH. COMP. LAWS § 550.1732(s). Note that the assessment is only owed once for any single "paid claim," payable by the entity designated by the hierarchy rules.

12 Id.

13 Id.

14 MICH. COMP. LAWS § 550.1734. Taxpayers should use Form 4930, Quarterly Worksheet for Health Insurance Claim Assessment, to calculate their quarterly payment amount. However, they should not send this worksheet to Treasury.

15 Id.

16 Health Insurance Claims Assessment (HICA), Michigan Department of Treasury, Feb. 2012. To register for HICA payments, a taxpayer must file Form 4926, Electronic Funds Transfer Application – Health Insurance Claims Assessment (HICA). This form is available at www.michigan.gov/businesstaxes .

17 MICH. COMP. LAWS § 550.1740.

18 Health Insurance Claims Assessment (HICA) Act FAQs, Michigan Department of Treasury.

19 Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.