Following the US Supreme Court’s decision in Gobielle v. Liberty Mutual Insurance Co. that reaffirmed the ERISA preemption doctrine, on March 7, the Court granted certiorari on the decision by the Sixth Circuit Court of Appeals in Self-Insurance Institute of America v. Synder, remanding the matter back to the Sixth Circuit for further consideration in light of Liberty Mutual.

The Sixth Circuit’s Decision in Self-Insurance Institute of America v. Synder

The SIIA case involves Michigan’s Health Insurance Claims Assessment Act, which imposes a 1% tax on all “paid claims” by “carriers” or “third party administrators” to healthcare providers for services rendered in Michigan for Michigan residents. Included within the scope of “carriers” subject to the tax are ERISA health plans—both insured and self-insured. SIIA is a group of entities that are themselves self-insured or represent the self-insured. SIIA sought a declaratory judgment in federal district court on the basis that the tax violates ERISA’s preemption doctrine as it applies to ERISA plans. The district court refused to issue the declaratory judgment, and the Sixth Circuit affirmed that denial. The issue is potentially of broad applicability, given that as many as 18 states may have comparable tax structures.

The Sixth Circuit’s decision clearly rests in part on a theory that seems discredited by Liberty Mutual. In particular, the Sixth Circuit found that the ERISA preemption doctrine does not apply in part because the court found that the Michigan tax did not interfere with the administration of ERISA plans, viewing any administrative burden imposed on the plans to be incidental to the plans’ operations. In light of the strong language in Liberty Mutual that state law impingements on plan operations by means of incremental reporting requirements involve core ERISA functions that are accordingly subject to ERISA preemption, this portion of the Sixth Circuit’s approach may be subject to modification on remand.

However, the Sixth Circuit’s rejection of SIIA’s position also rested on broader grounds relating to imposition of broad-based taxes that fall on ERISA plans as well as other parties. The Sixth Circuit went out of its way to distinguish the Second Circuit’s decision in Liberty Mutual, not just on the ground that the Sixth Circuit takes a narrower view of the scope of the preemption doctrine, but also in part based on the Sixth Circuit’s view that the Michigan tax is actually less intrusive than the Vermont reporting requirements. More fundamentally, the Sixth Circuit relied on prior Supreme Court decisions holding that broad based state taxes on hospital bills are not preempted, since such taxes involve a traditional area of state regulation (see, for example, DeBuono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806 (1997), distinguished by Justice Kennedy in Liberty Mutual).

Challenges for SIIA on Remand

On remand, SIIA will be challenged with distinguishing that line of Supreme Court cases finding that preemption does not apply to state tax impositions unless some sort of special connection to ERISA plans is shown. SIIA’s petition for certiorari to the Supreme Court attempted to make those arguments in two ways. First, SIIA argues that the Michigan tax imposes “hardly an incidental, de minimis burden on the responsibilities of ERISA administrators,” especially as to the requirement of deciding which claims are paid, and which paid claims involve Michigan residents. Second, SIIA tries to distinguish DeBuono and other tax cases by claiming that the Michigan tax statute “deliberately targets fiduciaries for regulation precisely because they handle large payment streams for health care services on behalf of beneficiaries and saddles them with burdensome compliance, payment and reporting requirements for the State’s convenience.” This argument will no doubt be repeated to the Sixth Circuit on remand.

Potential Outcome in Light of Liberty Mutual

While it never pays to predict court decisions, the Liberty Mutual decision would not seem to present compelling support for the Sixth Circuit to reverse its reliance on the preemption tax decisions. Either way the Sixth Circuit decision goes, the matter will likely return to the Supreme Court for review. The Court could certainly deny certiorari. If the Court were to take the case, there seems a good chance for a 4-4 split on the matter. Based on Liberty Mutual, we would imagine Justices Ginsburg and Sotomayor (dissenters in Liberty Mutual) to support Michigan’s position, as well as perhaps Justices Breyer and Kennedy (who were in the majority on DeBuono and, as noted in our prior discussion, Justice Breyer’s concurrence in Liberty Mutual announces a theory that may not support preemption in the Michigan case), with the remaining justices perhaps likely to support SIIA’s position (though even this is speculative, especially as to Justice Thomas). In the event of a 4-4 split, the Sixth Circuit’s decision would effectively be affirmed.