On September 20, 2011, Michigan's governor signed the Health Insurance Claims Assessment Act ("HICA"). Effective January 1, 2012, certain health insurance carriers and third-party administrators will be required to pay an assessment on specified paid health care claims. The revenue generated by HICA will be used to bolster Michigan's Medicaid program. It is anticipated that an additional $400 million dollars will be generated by HICA. Currently, HICA is scheduled to expire on January 1, 2014.
Who is impacted by HICA?
HICA applies to all carriers, third-party administrators and stop-loss carriers doing business in Michigan, with some exceptions:
- federal Medicare plans
- federal Veterans Administrations
- fee-for-service Medicaid plans
Additionally, small carriers in Michigan that have less than $18 million in surplus and capital are eligible for a special reduced assessment of 0.1% of paid health claims.
How much is the assessment under HICA?
HICA establishes a 1% assessment on eligible paid health claims that are incurred in Michigan by Michigan residents. HICA has an individual limitation of $10,000 per individual and an overall limit on total revenue collected in any year of $400 million (as adjusted for inflation). Any amounts in excess of the overall cap are to be applied to subsequent yearly assessments due from applicable entities.
What is an eligible paid health claim under HICA?
HICA defines paid claims to include actual payments made to a health and medical services provider or reimbursed to an individual by a third party administrator, excess loss or stop loss carrier, a property or casualty carrier, or other carrier, defined as including:
- an insurer or health maintenance organization
- a health care corporation
- a nonprofit dental care corporation
- a specialty prepaid health plan
- a group health plan sponsor, including an employer, an employee organization, and the association, committee or board of trustees that establishes or maintains a plan
Eligible paid claims include payments:
- made under a service contract for administrative services
- for cost-plus or noninsured benefit plan arrangements
- for health and medical services provided under group health plans
- for individuals, non-group, and group insurance coverage delivered to residents of the state that affect the rights of an insured person in the state and bear a reasonable relation to the, regardless of whether the coverage is delivered, renewed, or issued for delivery in the state
Paid claims do not include:
- claims-related expenses
- payments made to a qualifying provider under an incentive compensation arrangement (if the payments are not reflected in the claims submitted for payment)
- claims paid by carriers or third-party administrators for vision, specified accident, specified disease, accident-only coverage, credit, disability income, long-term care or Medicare supplement
- claims paid for services rendered to a nonresident of Michigan or for services rendered to a resident of Michigan outside of the state of Michigan
- the proportionate share of claims paid for services rendered to a person covered under a health benefit plan for federal employees, Medicare, Medicare Advantage, Tricare, and Veteran Administration
- reimbursements made under FSAs, HRAs HSA, Archer MSA, and Medicare Advantage MSAs
- costs paid for cost-sharing requirements, such as co-pays and deductibles
How is the assessment collected?
All payments under HICA are required to be remitted to the Michigan Department of Treasury via Electronic Funds Transfer ("EFT"). Quarterly payments are due April 30, July 30, October 30 and January 30 of each year for the previous quarter's assessable paid claims. The first filing and payment will be due April 30. 2012, for paid claims in the calendar quarter January 1 through March 31, 2012 Assessable paid claims should include claims on an incurred basis, rather than a paid basis.
In order to be registered to make payments by EFT, entities must complete and submit Form 4926, Electronic Funds Transfer Application - Health Insurance Claims Assessment to the Michigan Department of Treasury. An annual return is also required to be filed using an online interface to e-file directly to the Michigan Department of Treasury. The first annual return for tax year 2012 is due February 28, 2013. Affected entities are required to maintain their records of assessment returns filed and paid for four years after the return is filed/assessment is paid.
What are the penalties for non-compliance with HICA?
If a required entity does not remit payment, file appropriate returns or maintain adequate records, the Michigan Department of Treasury may estimate the amount of assessment due. Additionally, if a required entity fails to remit an assessment when due, punitive actions may result. Such penalties may include suspension or revocation of the entity's insurance license by Michigan's Commissioner of Financial and Insurance Regulation.
Where can I access the necessary forms?
Additional information, forms, and updates are available on the State of Michigan Treasury's Web site at www.michigan.gov/businesstaxes.
Although HICA requires the assessments to be paid by health insurance carriers and third-party administrators, group health plans are likely to be impacted as well. HICA allows for the cost of assessment to be "passed on" to the health plan via increased premiums or administrative fees. In all probability, carriers and TPAs will shift the financial burden of the assessment on to the plan sponsors through increased costs. Group health plans in Michigan will need to work with their carrier and/or TPA to ensure that reporting and payment of the assessment will be managed appropriately and to discuss any potential increase in costs to the group health plan.