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In 2003, Michigan enacted the Small Employer Group Health Coverage Act, MCL 500.3701 et seq
. The act regulates group insurance provided to small employers, defined as those with two to 50 employees. As a condition of transacting business in Michigan, all small employer group health insurance carriers must offer all of their policies to all small employers, the act requires. The act limits the reasons a small employer carrier may refuse to renew a policy and significantly limits the permissible rating factors in setting premiums. The act also includes provisions designed to encourage individual employees to participate in employer-sponsored group health insurance. In addition to the express requirements for small employer group health plans or policies, the act provides that carriers may require small employers to satisfy other “reasonable requirements” that are “not inconsistent” with the act. MCL 3707(1).
Priority Health, a Michigan licensed HMO, requested a declaratory ruling from the commissioner of the Office of Financial and Insurance Services on the question of whether HMOs may require a minimum employer contribution level for premiums as a condition of coverage for group health insurance policies issued under the act. Priority Health asserted that HMOs and insurers had a “longstanding practice” of requiring employers to make minimum contributions to the cost of health benefits plans covering their employees. Priority Health requires that an employer must pay either 75 percent of the single premium amount or 50 percent of the total premium amount, at the option of the employer. Priority Health stated that it applied this requirement uniformly to all small employer group applicants.
But the insurance commissioner determined that the employer-mandated contributions in Priority Health’s insurance policies were “unreasonable” and “inconsistent” with the act’s provisions. Under the guaranteed renewal provisions of the act, a carrier may refuse to renew a policy only for fraud by the employer or covered employee, failure to make payment, noncompliance with the minimum participation requirements, or if the carrier no longer offers the policy or the employer has moved out of the geographic area. Because failure to pay a specified employer percentage of the premium is not a basis to refuse to renew a policy, the commissioner concluded that issuing such a policy would be unreasonable and inconsistent with the provisions of the act because the policy would violate the guaranteed renewal provisions.
Priority Health appealed to the circuit court, which affirmed the insurance commissioner’s ruling. The commissioner’s interpretation of the act was not arbitrary and capricious, the circuit court said. The court primarily relied on the definition of the term “premium” as used in the act, which does not specifically define the premium charged by the carrier to include a minimum contribution by the employer. The Court of Appeals affirmed the circuit court in a published per curiam opinion, and held that a provision in an insurance policy under the act that required the employer to make a minimum mandatory contribution toward the premium was unreasonable and inconsistent with the act. Priority Health appeals.