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Health Insurance Issued by County Agency


Christine Roberts

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County Agency administers publicly funded health care plans serving County residents. It is a creature of state law and its board is chosen by County Board of Supervisors.

The Agency devises a health insurance product directed at a sub-class of employees of another, unrelated County Agency. The Agency is also considering offering the health insurance coverage to other County employees, to School Board employees, to its own employees, and to members of the public.

Is it safe to assume:

1) that offering the health insurance to employees of the sponsoring Agency would be an employee welfare benefit plan that is exempt from ERISA Title I as a governmental plan?

2) that offering the health insurance to members of the public would not implicate ERISA but would instead fall within the state's insurance laws, under ERISA's savings clause?

3) that offering the health insurance to other governmental employees (e.g., employees of the School Board and the County) would not implicate ERISA but would instead fall under the state's government code provisions governing benefits for civil servants?

Or is it also possible that the Agency sponsoring the health insurance could be deemed to be an "employer" of non-Agency governmental employees, either under by acting "indirectly in the interests of an employer" under ERISA Sec. 3(5), or under common control/controlled group principles under the "good faith" standard set forth in IRS Notice 95-48?

Any advice/commentary welcomed.

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What is the relevance of "employer" regarding members of the public? Members of the public are not even necessarily non-Agency governmental employees, they might not even be employed.

What is the mandate of the state statute that allows this health care plan to be set up?

The problem might more be that the offering of coverage to the employees has to be done as an employer, whereas members of the public, not being employees, would not be able to participate in an employer sponsored plan. I do not think that even a state staute can change this requirement of the IRC. Not meeting the IRC requirements should create tax liabilities for the plan participants. There might be no 106 or 105 exclusions available.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Assuming that state ins law permits covering of other persons, there is no requirement that a health ins policy be limited to employees in order for the employer contributions & benefits to be excluded from the employees income because IRC 105 and 106 apply to any employee whose employer contributes to a health ins plan. For example, an employer health plan can cover non employees such as self employed persons but the self employed person does not have the amounts excluded from income under IRC 106. The cost of the coverage for non employees will be included as income.

mjb

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Thanks for the comments.

The scenario that is likely to transpire here is that the Agency, which is an express instrumentality of the County will offer either HMO, PPO, or individual coverage to employees of a separate County agency. It is likely that the coverage will be obtained from an insurer but the Agency will administer the benefits, similar to the way it administers federally funded health benefits to County residents. It is likely or possible that some eligible individuals (again, employees of a separate County agency) will themselves qualify for the federally- and state-funded programs that the Agency administers in its normal course of business.

So in sum you have one County Agency providing individual and group coverage for employees of a separate County agency. It is possible that the Agency will want to make this same type of coverage available for certain of its own employees but that is only a possible side-effect of the initial offer of coverage to employees of a separate County agency.

The governing statutes allow the County Agency to provide insurance under certain provisions of the government code.

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mbozek,

Your post seems to have contradictions.

The cost of coverage for non-employees is either excluded or included, it cannot be both. Your first sentence versus your last sentence with some of the second thrown in.

Christine,

What happened to the members of the public?

What does "administer the benefits" mean in an insured health plan?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns, the County Agency is trying to determine if there will be ERISA implications in its offer of insurance to several different types of groups, one being member of the public, one being its own employees, one being other County employees. The administration scheme would be similar to an ASO arrangement for an insurer, where the insurer provides admin only not the coverage.

Cleary ERISA would not be involved if member of the public were the only participants.

And if the only participants were Agency employees and/or other people directly or indirectly employed by the County, ERISA would seem to be initially implicated but the governmental plan exemption would likely apply.

The more complex issues come in envisioning a scheme were Agency/County employees are covered, but the insurance is also offered to members of the public.

If the two type of benefit were completely separate, possibly the Agency/County arrangement could be an exempt governmental plan, and the benefits provided to members of the public could be an insurance product, only, not a "plan"?

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I have tried very hard to understand but seem to be having a problem.

You first stated "the coverage will be obtained from an insurer but the Agency will administer the benefits" then you posted "the insurer provides admin only not the coverage."

As a result I cannot determine whether you want a self-funded plan or a fully insured plan which is an important issue.

There is a similar situation regarding who will get the coverage.

There is also a question regarding the govermental employees, for example:

You posted "one being its own employees, one being other County employees." This implies that the employees of this County Agency are not county employees, which would be a very unusual situation. Employees at County Agencies are invariably county employees. I have never seen a case where they were not.

In a nutshell I cannot determine what it is that you want to offer and to whom.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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G Burns, sorry for the confusion.

The Agency would administer the insured benefit.

It would not be a situation where an insurer does admin without selling a policy.

I just used the "Administrative Services Only" or ASO arrangement as an analogue but it was unnecessarily confusing.

Agency employees would be County employees.

The insurance benefit would be available first to County employees (including Agency employees) then possibly to members of the public.

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