Michigan Health Plan Tax Lawsuit Tests Business Community Priorities

A lawsuit filed last week in Federal Court seeking a declaration that Michigan�s Health Insurance Claims Assessment Act is preempted by the Employee Retirement Income Security Act (ERISA) will certainly test existing legal precedent, but perhaps the more interesting test will be how the business community responds.

This blog previously reported that officials from one prominent business organization in the state had no intention of pushing back against the legislation at the time citing both internal and external political concerns. That said, they suggested that there would likely be �private� support of a legal challenge from within their organization if in fact the law was challenged.

It will be interesting to see how this �leading from behind� approach plays out. In a conversation with my source shortly before the lawsuit was filed, it was noted that Michigan self-insured employers are now starting to pay more attention to the law and what it means to them.

More specifically, this blog has learned that one prominent multi-state self-insured employer based in Michigan calculated its yearly projected expenses to comply with new law to be more than $250,000. Of course, the administrative headaches are just a bonus.

But even with such a direct adverse impact on their company, senior company executives remain guarded about expressing opposition to the new law.

Now that the legal flaws of new law have been laid bare in the detailed complaint filed against the state and word is starting to get out about its practical impact, we�ll see if any heads pop up out of the foxholes.

And while the this legal challenge is important to self-insured employers in Michigan and to other entities that pay healthclaims for Michigan residents for services received within the state, its significance extends more broadly.

Michigan is not the only state that is strapped for cash and looking for new revenue streams. If its new health plan tax law goes unchallenged, this will likely embolden other states to consider this same approach and the cornerstone of ERISA preemption will be greatly compromised, and with it, the viability of self-insured health plans.

I suspect that if Michigan self-insured employers in large numbers estimated the financial impact to their balance sheets if they were forced to switch to fully-insured health plans and publicly communicated this to policy-makers and business association leaders early on this train would have been pulled off the track before arriving at the courthouse door.

The state has declined to comment on the lawsuit thus far but is required to file a formal legal response in the next 30 days so it will soon become clear how they intend to fight this challenge.

Perhaps the business community may yet demonstrate some clarity with regard to where it stands.

A Tale of Two Domiciles...Revisted

We suggested a narrative earlier this year that two southern captive insurance domiciles would be worth watching to compare and contrast based on insurance commissioner appointments in each state. Let�s review.

The captive industry in South Carolina fell on hard times during the regime of Insurance Commissioner Scott Richardson who left office at the end of 2010. When newly-elected Governor Nikki Haley named David Black as his replacement in February, this blog reflected the puzzlement expressed by many industry and political insiders.

Mr. Black was a largely unknown quantity aside from being the CEO of an inconsequential life insurance company.

But the sparse resume and lack of ART industry credentials didn�t deter Governor Haley from appointing Mr. Black and pronouncing him as a savior. Consider her comments when naming him to the position where she said �Understanding the importance of your industry, I chose David Black to lead the Department of Insurance. He has the energy and capability to revitalize the captive industry for our state.�

As it turned out, he had neither

Earlier this week, Mr. Black abruptly announced his resignation to his staff via e-mail giving no specific reason for his decision.

So now Governor Haley has a chance for a second bite of the apple to get it right. This means naming someone to the position who is willing and capable to shake up the bureaucracy within the department and establish a firewall between the regulation of traditional insurance companies and alternative risk transfer programs, as originally envisioned by former commissioner Ernie Csiszar more than a decade ago.

A tall order for sure and we�ll be watching.

A very different story continues to play out in nearby Tennessee where Governor Bill Haslam tapped Julie Mix McPeak to head up the insurance department in that state.

This blog noted that Ms. McPeak had both the credentials and reputation to turn heads within the ART marketplace when word of her appointment surfaced. But her future success was not assured.

The first order of business as it related to the ART industry was to shepherd a bill through the Legislature that made comprehensive updates to the state�s captive statute. This effort proved more difficult than expected but Ms. McPeak was up to the task and that legislation, which she helped draft, was signed into law.

Since that development, she has been working methodically to assemble a top notch regulatory team and now most of the key positions have been filled and she introduced these individuals at an industry event earlier this month.

So armed with a progressive captive stature and a regulatory team inspired to transform Tennessee into a premiere captive insurance domicile, the stage has now been set for her to make it happen.

But let�s not get ahead of ourselves as there are certain to be pitfalls ahead as the domicile finds its footing under Ms. McPeak�s leadership in 2012. That said, the fact that leadership is on display is certainly refreshing for those vested in the growth of the ART marketplace.

This tale of two domiciles will continue.

NAIC Provides Forum for Ivory Tower Attack on Self-Insurance

The National Association of Insurance Commissioners (NAIC) has never been known as an organization where the self-insurance/alternative risk transfer industry is treated fairly, but its penchant for bias became even more visible this past week. Worse yet, this bias is now being fomented by an �ivory tower� expert.

Professor Timothy Stoltzfus Jost is the designated �consumer representative� on the NAIC�s ERISA (B) Subgroup , which is tasked with developing various policy recommendations related to how states should adapt their insurance regulations to better coordinate with PPACA implementation. The esteemed professor is not shy in sharing his opinion that smaller self-insured group health plans, facilitated by stop-loss insurance, should be made extinct.

During the Workgroup�s last conference call, Professor Jost presented a formal statement entitled The Affordable Care Act and Stop-Loss Insurance. This scholarly work was quite the hit piece on self-insurance disguised with big words, extensive footnoting and misleading legal references.

His central thesis is that smaller employers should not be allowed to self-insure because they do so primarily to escape state regulation, and going forward to sidestep new PPACA regulation. He also pushes the dubious argument that self-insured plans contribute to adverse selection (see my earlier blog post on this subject).

Virtually all of Professor Jost�s points can and will be rebutted privately and publicly as this NAIC policy development process moves forward, but first let�s take some time to consider the source.

He is currently a law professor at the Washington and Lee University of Law, with multiple other academic appointments dating back to 1979. Along the way, he has written several books and academic papers on the subject of health care with titles such as The Threats Facing our Public Health Care Programs and a Rights-Based Response; and Health Care at Risk: a Critique of the Consumer-Driven Movement.

And by the way, he is a graduate of the University of California at Santa Cruz. In case you are not familiar with this school, it makes U.C. Berkley look like a bastion of conservatism.

So what about private sector experience over his 35 year career? You guessed it, zero. How about past experience as a regulator who at least could interact with the private sector? No again. What we have here is the classic liberal elite academic who looks at the world through prisms of theory and ideology.

Professor Jost holds himself out to be a patient�s rights advocate and clearly views the NAIC as a forum to present his �ivory tower� perspective. OK fine, there�s certainly room for a diversity of qualified opinions as part of the policy development process.

The problem is that while Professor Jost may well have valid perspectives to contribute on true consumer (patient) protection issues, he�s out of his league in commenting on how health care delivery should be financed.

Moreover, if he was truly concerned about the ability of individuals to receive quality, affordable health care, Professor Jost should actually be a proponent of self-insured health plans (regardless of size) because these plans generally do a better job on both counts as compared to the fully-insured marketplace.

It appears the professor is in need of some timely continuing education.

RRG Legislation Snagged by Dodd-Frank Creation

After some initial good progress in moving federal legislation to modernize the Liability Risk Retention Act (LRRA), a new rhetorical roadblock has been raised.

The Risk Retention Modernization Act (H.R. 2126) includes a dispute resolution provision whereby RRGs who believe they are being illegally regulated in non-domiciliary states can access the equivalent of a federal arbitration process as an alternative to initiating costly legal action.

An earlier version of the legislation provided that this dispute resolution mechanism would be administered within the Treasury Department due to technical jurisdiction requirements, but left discretion Treasury to fit this function in as part their exiting organizational chart.

Fast forward to the recent passage of the Dodd-Frank financial reform legislation, which among other things created a new Federal Insurance Office (FIO) to be housed within the Treasury Department. As a result of this development, the current version of the legislation specifically designates FIO as the entity responsible to arbitrate RRG disputes with state regulators.

Supporters of the legislation have always known that there would be some push back in Congress from members concerned that such a dispute resolution would infringe on the authority of state insurance regulators. Of course, the opposite is actually true and this position has gained traction in recent months.

But just as the policy argument has largely been settled, at least one member of Congress key to the legislation�s eventual message has raised a new concern. In a meeting earlier this week to discuss the legislation, Rep. Judy Biggert (R-IL), chairwoman of the House Subcommittee of Capital Markets within the House Financial Services Committee, voiced strong concerns about this new responsibility assigned to the FIO.

Her objection was not really specific to RRG regulation, but rather reflects a broader view held by many Republicans that the FIO is being given too much authority. In hindsight, this objection was not particularly surprising.

While PPACA has garnered the lion share of public attention for those critical of government expanding its regulatory reach, the distaste for Dodd-Frank is significant among most Republican members of Congress. As a result, any manifestation of this law, such as the FIO, can spark a reflexive push back as demonstrated by Rep. Biggert�s comments.

It is important to note that this new wrinkle does not mean that H.R. 2126 cannot pass. The lobbying process on Capitol Hill is inherently complicated and this is just the latest example.

In the end, if the case can be made that the practical advantages this legislation offers to small and mid-sized companies trump more abstract political concerns, the LRRA will be successfully modernized.

Stay tuned for additional inside reports on how this legislation is progressing on Capitol Hill.

Regulatory Overreach Compromises Workplace Safety Initiatives

In case you had any doubt that the current public debate over the scope of federal regulation is more about political ideology rather than practical reality, look no further than OSHA�s ramped up oversight of workplace safety issues.

Now on the surface, this may sound like a laudable focus because almost everyone agrees that there is a role for government in making sure that sensible workplace safety standards are established and adhered to. But of course, in this current political climate Obama regulators just don�t know when to say when.

Specifically, OSHA has recently started to subpoena workplace safety audits prepared by workers� compensation self-insurers and insurance carriers. Keep in mind that that these audits are prepared on voluntary basis so that employers/insurers are better able to proactively address any safety deficiencies that may exist. Such audits are particularly important tools for workers� compensation self-insurers because they �own� every dollar saved on payments to injured workers.

Historically, OSHA has not attempted to access such audits because everyone understood that employers would likely stop preparing these risk management tools if they could be used against them in regulatory enforcement and/or legal proceedings.

This precedence has been overturned by a recent federal district court ruling stating that OSHA does have the right to subpoena safety audits and related documentation. Specifically, the ruling in the case of Solis v. Grinnell Mutual Reinsurance Company concluded that audit subpoena are generally enforceable if:

1) They reasonably relate to an investigation within OSHA�s authority;
2) The requested documents are relevant to OSHA�s investigation;
3) The request is not too vague
4) Proper administrative procedures have been followed; and
5) The subpoena does not demand information for an �illegitimate purpose�

According to OSHA�s internal policy regarding voluntary self-audits, the agency will not �routinely� request such audits at the beginning of an inspection, or use the audits to identify hazards to inspect.
But now with a favorable court ruling in their back pocket, it�s very reasonable to expect that OSHA regulators will, in fact, make safety audit subpoenas a routine part of their investigative process.

Of course, and ironically, the real victims are the workers as many employers are likely to curtail such formal audits in response to OSHA�s invasive zeal. Another classic example of �no good deed goes unpunished� apparently embraced by this administration.

Inside Politics in Michigan Demonstrate That Self-Insurance Priorities Are Too Easiliy Dealt Away

Michigan Governor Rick Snyder is poised to sign legislation that would impose a one percent tax on medical claims paid by health plans, including self-insured group health plans. This is big news and is certainly a disturbing development for those concerned about the erosion of ERISA preemption. But there is a more interesting story behind the headlines that is instructive for self-insured employers in other states as well.

In anticipation of this legislative development, I spoke with senior representatives from a leading Michigan employer organization to explore possible response options, including litigation coordination if necessary. When asked specifically what their appetite was for legal action assuming the legislation is signed into law, their answer was pretty clear � �zero.�

Given that this association represents many self-insured employers such strong push back was surprising to say the least. Then the �off the record� discussion began.

It turns out that there had been some significant wheeling and dealing between the Legislature, the governor and the business community in order to craft various budget reform initiatives designed to head off a projected deficit.

My contacts confided in me that their organization is privately opposed to the health plan tax proposal but will not go on record to say so, much less getting involved in possible litigation. They cite two reasons for this seemingly contradictory stance.

First, their membership includes health insurance companies in addition to self-insured employers and they believe an outspoken defense of self-insurers would alienate this other membership constituency. The other rationale is if the boat was rocked on this issue, then some of the other �deals� presumed to be favorable to the employer community could fall apart.

Of course, the big picture was not taken into account. They acknowledge that the immediate negative financial impact for self-insured employers is bad but manageable. Not considered was that if state efforts to tax and/or regulate self-insured health plans are left unchecked, self-insurance may cease to be an attractive option for employers in Michigan and elsewhere, which would effectively trap employers in the traditional health insurance marketplace � a much more ominous situation than being subject to a one percent tax as problematic as that may be.

My contacts appreciated this analysis and agreed that there are, in fact, bigger issues at play. That said, the bottom line is that many within the leadership of their very influential organization would likely applaud an effort to push back against the health plan tax, but this would be private support with no organizational fingerprints.

So there you have it. The very important fight over ERISA preemption has been dealt away in Michigan in favor of other business community priorities that likely are less important to employers from a P&L perspective. It�s uncertain how things will eventually play out in Michigan, but this look behind the curtain on the relationship between state employer organizations and government exemplifies why the self-insurance industry has an ongoing challenge at the state level.

While the ability of employers to self-insure is more significant than most tax and regulatory initiatives (again from a P&L perspective), self-insurance issues simply do not get much attention for state organizations, which tend to have more broad-based legislative agendas. To be fair, this is understandable because these groups generally have diverse membership constituencies and not have the resources to focus on issues that only a single constituency. Moreover, the member representatives do not generally insist that their organization put self-insurance issues front and center.

To the extent that employers can be mobilized to rattle the cages of state business associations to pay more attention to self-insurance issues we may be able to turn �private support� to visible public advocacy on the future threats that are almost certain to arise.

Let the cage rattling begin.