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Groups Sue Over Michigan Discretionary Clauses

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The American Council of Life Insurers and America’s Health Insurance Plans are taking Michigan insurance regulators to court over the regulators’ efforts to regulate large group health and large group disability policy contract terms.

The ACLI, Washington, and AHIP, Washington, have filed a suit in the U.S. District Court for the Western District of Michigan contending that the Michigan Office of Financial and Insurance Services has no authority to ban use of discretionary clauses in policies purchased by employers with 50 or more employees.

The ACLI and AHIP are asking the district court for a declaratory judgment stating that any efforts to apply the discretionary clause ban to group insurance plans with 50 or more members are preempted by the Employee Retirement Income Security Act of 1974.

The ACLI and AHIP also are seeking an injunction preventing OFIS from enforcing the rules.

The Michigan OFIS began prohibiting use of discretionary clauses March 1.

Critics of the clauses say the clauses appear to give insurers unlimited ability to interpret insurance policy terms.

Supporters say discretionary clauses merely give insurers and plan administrators extra flexibility within strict limits established by federal and state laws and regulations.

ERISA, a law that preempts state regulation over benefit plans for employers with 50 or more employees, in an effort to protect employers from the cost of coping with variations in state benefits laws, gives the U.S. Department of Labor exclusive jurisdiction over discretionary clauses in group health and group disability policies, the ACLI and AHIP write in their complaint.

Letting the Michigan regulations stand unchallenged would erode the ability of employers to offer affordable, uniform health and disability benefits in multiple states, the groups say in a statement issued to announce the suit.

“At a time when we should be encouraging employers to sponsor and maintain employee benefit plans, the Michigan rules would have just the opposite effect,” ACLI President Frank Keating says in the statement.


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