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Nov 2012
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November 28, 2012

From the Capitol - November 2012

Big Issues To Be Decided In Lame Duck

The Michigan House and Senate have a lot of work ahead of them before the current legislative session wraps up at the end of the year. Here’s a rundown of pending legislation.

Blue Cross & Blue Shield’s Conversion

The Snyder Administration and Blue Cross & Blue Shield of Michigan (BCBS/M), the largest commercial health insurer in the state, announced in September that an agreement in concept had been reached that would allow BCBS/M to convert from a public trust to a not-for-profit mutual insurance company. The plan calls for BCBS/M to contribute “up to $1.5 billion” during the next 18 years to an as-yet-to-be-created charitable foundation with a mission to improve the health of Michigan’s citizens. BCBS/M would also lose its state tax exemption, estimated to be worth $100 million annually.

As a benevolent public trust, BCBS/M has always been subject to Attorney General oversight.  Converting to a not-for-profit mutual company would remove that oversight, which has competitors and policyholders concerned because the Blues control an overwhelming 70% market share.

Another concern is the lack of a valuation. A valuation would determine the actual worth of the assets. Normally, such a conversion would change the ownership of the assets. In this case, ownership would shrink, going from the people of Michigan to only the new entity’s policyholders. But Senate Bills 1293 and 1294 would create a “hybrid” that would allow BCBS/M to convert to a mutual company while assets remain with the public.

Also, retirees want to know what a conversion would mean for the “Medigap” subsidy that BCBS/M currently pays as part of its social mission. Medigap is insurance coverage for expenses not covered by Medicare. The Medigap subsidy paid by BCBS/M ranges from $180 to $200 million annually. Last year, the Attorney General reached an agreement with BCBS/M that allows the subsidies to remain in effect for another 5 years. And what happens after 5 years? The legislation calls for the new BCBS/M to provide Medigap funding, but the pool of money would be smaller and seniors would be means tested to determine if they qualified.

Finally, there is concern about unleashing a “deregulated giant” without appropriate constraints. In the past, BCBS/M used “most favored nation” (MFN) clauses in provider contracts, which allowed a shift in Medicaid and Medicare shortfalls to other insurance carriers. Consequently, other health insurers and health plans are insisting on amendments to the legislation that would ban the use of MFN clauses and would prohibit this type of cost shifting.

The Governor wants this legislation on his desk before the Legislature adjourns. To keep the bills on schedule, the Senate passed them last month and sent them to the House. The House Insurance Committee has held three lengthy hearings and may hold a vote yet this week. Undoubtedly, the House will make a number of changes, but if the full House votes in early December, the Senate will have time to concur.

The PPT Phase-Out For Businesses:

The personal property tax (PPT) has been a fixture in Michigan for more than 100 years. It is a tax on business that assesses items such as manufacturing equipment, furniture, tools, machines and other portable personal property used in business operations. The tax is collected annually by local units of government that have come to rely on the revenue for education, community programs, transportation programs and public safety. In 2010, the PPT was estimated at $1.9 billion statewide. However, many believe the tax is just another impediment to business growth in the state, especially given the fact that Michigan has the highest PPT of any surrounding state.

Opponents of doing away with the PPT say the loss of revenue would have dire consequences for cities, school districts, libraries, parks, mass transit and public safety.

Still, PPT reform has long been a goal of the Michigan Manufacturers’ Association and the Michigan Chamber of Commerce. When the GOP took a two-thirds majority in the state senate in 2010, one of the priorities was to take care of this issue. However, the GOP majority had to overcome a serious political problem -- how should it replace the revenue to local governments?  At first, local governments were adamantly opposed. Their opposition stalled any initial momentum for repeal.

Then local government associations were willing to accept a rollback of the PPT if there was a guaranteed source of replacement revenue. And they wanted the guarantee to be enshrined in the state constitution. Both senate leadership and the Administration did not agree to that guarantee, but talks ensued into 2012 about other ways to recoup lost revenue.

Finally there appeared to be an agreement. The legislation – the lead bill in the package is Senate Bill 1065  —  was amended to require the reimbursement of local taxing units for revenue lost as a result of the expansion of exemptions.  In sum, the bills would:
  • Provide an exemption, beginning December 31, 2012, for commercial and industrial property if the taxable value of all such property owned by the taxpayer is less than $40,000 in the local tax collecting unit
  • Beginning December 31, 2015, provide for an exemption for “eligible manufacturing personal property” purchased after December 31, 2011
  • Beginning December 31, 2015, provide for an exemption for “eligible manufacturing property” that had been subject to or exempt from taxation for 10 years
  • Provide that currently exempt personal property remain that way until the previously mentioned exemption dates have occurred
  • Require the Department of Treasury, beginning this fiscal year, to determine the amount of revenue loss to local governments from the PPT exemptions
  • Beginning in FY 2015-2016, require Treasury to estimate the amount by which revenue lost due to the additional exemptions exceeded 2% of the localities’ general fund revenue in FY 2011-2012
  • Create the PPT Reimbursement Fund
  • Require the Legislature to appropriate to the Fund each year the amount lost, as determined by Treasury
  • Require Treasury to pay each year, beginning in FY 2012-2013, to local units from the Fund the amount lost, as determined by Treasury
  • Express an intent that the amount appropriated be derived from anticipated revenue when various certified business tax credits have expired
With these changes, the Senate passed the package in May over the objections of many in local governments that didn’t quite buy the notion of replacing lost revenue with a promise to dedicate funds for such a purpose. The requirement that a future legislature appropriate sufficient funds to reimburse local governments was really more of an expression of intent because one Legislature cannot bind a future Legislature.

Once in the House, the Republican majority did not want to consider legislation which critics say hurts local governments and gives yet another tax break to businesses. Now that the election is over, the GOP will, in all likelihood, act on the package.

Late yesterday, the Lt. Governor unveiled a plan that would not make local governments dependent upon an annual appropriation from the legislature to cover any shortfall in revenue occasioned by the rollback. Under his plan local governments that lost at least 2.5% of their real property revenue would be eligible for up to 80% of what they had received from the personal property tax for services — except for fire, police and ambulance.

Rather than coming from a legislative appropriation, the funds would come from between 1 and 1.5 cents of the 6 cent use tax on internet and catalogue sales. Those funds would first go to a newly created authority that would then disburse the funds to qualifying local governments.  However, earmarking part of the sales tax would require statewide voter approval to comply with the State Constitution. In order to fully fund police, fire and ambulance services, local governments would still have the option to impose an “essential services assessment.”

The Lt. Governor will go into greater detail when he makes his presentation today before the House Committee on Tax Policy. So far, reaction from most local governments has been negative.

Renewal Of Claims Tax:

Last year, the Legislature reluctantly enacted a 1% tax on paid medical claims. The tax replaced a 6% use tax imposed on Medicaid health plans and certain Medicaid providers in order to raise enough revenue for the state’s match to draw down federal dollars for the state Medicaid program. To continue the Medicaid program at current levels, Michigan needed to raise $400 million. The federal match would be $800 million.

The federal Center for Medicare and Medicaid Services (CMS) had informed the Snyder Administration that the 6% use tax would probably not be acceptable in the future as a revenue source for federal matching funds. Consequently, the Legislature enacted an across–the-board 1% tax on most paid medical claims. Passage was not easy. Michigan’s major employers and self insurers groups viewed it  as yet another burden on business.

After the third quarter of 2012, state officials realized that the claims tax was not raising the $400 million needed to sustain the current federal match and lawmakers would have to dip into the general fund budget and/or the budget stabilization (rainy day) fund. The reasons for the shortfall include affected parties not being aware of the obligation and self insurers saying their contracts did not provide for it.

In an effort to rectify this situation, Sen. Roger Kahn, chair of the Senate Appropriations Committee, introduced Senate Bill 1359, which allows the Department of Treasury to increase the 1% tax rate until the “base need” of $400 million is met.

Passage of the measure may prove somewhat easier in the Senate than in the more conservative House. But large employers and self insurers will vehemently oppose a tax rate that could ultimately be more than 1%. Also, some will argue that the bill unlawfully delegates legislative authority to the executive branch.

No-Fault Insurance Changes:

Nearly 40 years ago, the Michigan Legislature enacted a comprehensive no-fault auto insurance law that says payment of auto accident claims would not, in most instances, be determined by fault. 

The law also provides for unlimited medical and rehabilitation benefits, known as personal injury protection (PIP) insurance. For years, auto insurance companies have complained about the high cost of unlimited PIP benefits, citing the large increases in health care costs. Companies also claim that unlimited PIP benefits lead to higher costs for consumers and make the Michigan auto insurance market much less competitive than the rest of the nation.

After years of having the unsympathetic Democrats controlling the Governor’s office or at least one of the houses of the legislature, the auto insurance industry finally saw an opportunity to obtain some relief with the GOP in control.

Last year, House Bill 4936 was introduced by Pete Lund of Shelby Township, chair of the House Insurance Committee. The bill repeals the unlimited PIP provision of the no-fault law and instead gives consumers a choice of three options for benefits. An insured would have a choice of PIP coverage of:
  • A maximum of $500,000
  • A maximum of $1 million
  • A maximum of $5 million
The plaintiff’s bar, along with health-care providers and consumer groups, oppose the limitations for many reasons. The reasons include protection of the insured against financial hardship and  preventing a person from going on Medicaid (with its less beneficial rate for providers), thus putting an even greater strain on the social safety net.

The bill also would amend the Michigan Catastrophic Claims Association (MCCA), which currently pays medical and rehabilitation claims that exceed $500,000. Consumers pay into the MCCA  as part of their premium. The MCCA would be divided into two accounts --  the MCCA Account, which  would only apply to losses from accidents before July 1, 2012, and the  Excess PIP Account, which would apply to losses from accidents occurring on or after July 1, 2012. For the losses in the latter category, insurers would be responsible for the first $500,000 but would be indemnified by the MCCA for 90% of the loss from $500,000 to $1 million and 100% of the loss in excess of $1 million.

Chances for passage of this measure are less than 50-50, but anything can happen in lame duck.

ON THE HORIZON:

Late last year, the Republican-controlled state Senate passed Senate Bill 693, legislation creating a state health care insurance exchange called MIHealth Marketplace. Exchanges were mandated by the controversial and hotly debated Affordable Care Act (ACA), often referred to as “Obamacare.” When the legislation arrived in the House, leadership refused to even consider it until the U.S. Supreme Court decided on the constitutionality of the ACA. After the Court upheld the ACA, more pressure was exerted on the Michigan House to pass Senate Bill 693 because federal deadlines for implementation of a state exchange were fast approaching.

The House held hearings, but did not act. Members figured the matter would become moot if the Republican presidential nominee, who had promised to move toward repeal of the ACA, and a Republican Congress were elected. This, of course, did not happen, although the GOP retained control of the U.S. House. In the meantime, the Snyder Administration applied to be part of a federal-state partnership to create and operate an insurance exchange. It believed such a partnership was better than allowing the federal government to unilaterally dictate how an exchange would work.

Just after the reelection of President Obama,  the U.S. Department of Health and Human Services extended the deadline for committing to a state-created and operated exchange. Recently, Michigan Speaker of the House Jase Bolger indicated that while he was still opposed to the ACA and its mandate of a health care exchange, having one created and operated by the state was far better than allowing the federal government to assume the role. While opposition in principle to the entire ACA still runs strong among many in the House GOP Caucus, the House will probably act to pass Senate Bill 693 because it is the least offensive alternative available.

Medical Malpractice:

A package of bills introduced earlier this year would amend Michigan’s Revised Judicature Act pertaining to medical malpractice cases. Senate Bills 1115, 1116, 1117 and 1118 would, among other things:
  • Excuse a health care professional or facility from medical malpractice liability for conduct that amounted to the exercise of professional judgment (physician judgment rule)
  • Prevent a plaintiff from recovering financially for a chance to receive a better result
  • Reduce past and future economic damages and future health care costs by collateral source payments
  • Reduce the total judgment amount by all settlements paid by all defendants and by a percentage of the plaintiff’s fault
  • Establish criteria for expert witnesses who are not licensed health-care professionals
  • Limit the period of time allowed for bringing a medical malpractice action on behalf of a deceased person
The plaintiff’s bar and patient’s rights groups have for years opposed these and other efforts to tighten medical malpractice procedures. Proponents counter that Michigan faces an impending physician shortage and in order to encourage young physicians to stay in Michigan the state’s medical malpractice laws should be comparable with other jurisdictions.

Late yesterday, after discussions with the plaintiff's bar and the Michigan State Medical Society, the Senate Insurance Committee voted to send 3 of the 4 bills to the Senate Floor. Senate Bill 1116, which called for the "physician judgment rule," was not included.

Educational Achievement Authority:

Companion House and Senate Bills (HB 6004  and SB 1358) would establish the Education Achievement Authority (EAA). The EAA would be a public body that would oversee and regulate a separate statewide school district, called the reform district. The head of the reform district, designated as the chancellor, would have the powers of a school district superintendent. The reform district would be composed of schools whose student achievements were within the lowest 5% of Michigan schools for three straight years. Once test scores improved enough to lift a school out of the bottom 5%, the school could leave the reform district. While in the reform district, teacher contracts obtained thorough collective bargaining would be cancelled.

The bills also require a statewide inventory of vacant school buildings, which would be made available to charter or non-public schools for purchase or lease. Distressed school districts and teachers’ unions oppose the bills. For teachers unions, the nullification of collective bargaining agreements will be a sore spot.

Chances are this legislation will not make it to the Governor’s desk this year.

Detroit’s Lighting Authority:

House Bill 5688 would create the Municipal Lighting Authority Act and allow one or more units of government to form an authority to own and operate a lighting system. The bill was introduced at the behest of the Mayor of Detroit to remove this responsibility from the already financially strapped city. A Lighting Authority would be allowed to borrow money and issue revenue bonds and notes.

The bill passed the House and was set for passage in the Senate until some senators who represent Detroit objected. They believe, as does much of the opposition to the legislation, that the city is already relinquishing control of too many functions. Proponents counter by arguing the city cannot afford a lighting system and passage of the legislation would enhance public safety.

The political and turf battles involved with this issue may be its undoing.

Legislation that would create one regional transportation authority for Detroit and southeast Michigan has been batted about for years. The Governor, business groups and many southeast Michigan communities are supportive. However, the sticking point has traditionally been membership to the authority’s board and how much influence each member will have. The main bill in a package of bills, Senate Bill 909, allows Wayne, Oakland, Macomb and Washtenaw Counties to each have 2 representatives on the board, with one member appointed by the Governor and one appointed by the Mayor of Detroit.

The Senate approved the package of bills this week and referred them the House Transportation Committee.

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