Proposed Michigan Law: Governmental Employers & Health Plan Contribution Increases

Currently, there is legislation pending (Michigan Senate Bill No. 7) which would require public employers to contribute no more than 80% toward the cost of health insurance for their employees. If this becomes law, numerous public employees will be required to begin contributing at least 20% toward their health insurance costs. This legislation is written with an effective date of January 1, 2013.

A public employer includes the State of Michigan, “a city, village, township, county, or other political subdivision of this state; any intergovernmental, metropolitan, or local department, agency, or authority, or other local political subdivision; a school district, a public school academy, or an intermediate school district, as those terms are defined in sections 4 to 6 of the revised school code, 1976 PA 451, MCL 380.4 to 380.6; a community college or junior college described in section 7 of article VIII of the state constitution of 1963; or an institution of higher education described in section 4 of article VIII of the state constitution of 1963.” See Michigan Senate Bill No. 7(d).

As a condition for local governments to receive some of their revenue-sharing money, Governor Rick Snyder called for governmental employees to start paying at least 20% of their health insurance premiums, and also proposed less expensive retirement plans. It appears that the push is to have this in effect by October 1st of this year.

If these proposals become law, governmental entities (as well as their employees) will likely have numerous questions, including for example, whether governmental employees could change health plans mid-year or whether they can pay for this increase on a pre-tax basis. The answer to these specific questions depends on the wording of the governmental entity’s cafeteria plan. If the current employer’s cafeteria plan allows, the increase in employee contribution (even if initiated by the employer, ie, not an insurance premium increase) can be paid automatically on a pre-tax basis. The employee could only change to a different health plan offered by the employer if the contribution increase is “significant” and could only drop coverage altogether due to the significant increase if the employer did not offer another benefit package with similar coverage.

Numerous other issues are likely to arise as well and we will keep you posted as to the status of this legislation.

For more information, please contact, Elizabeth Latchana at or 517.377.0826.

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