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ERISA and reduction in benefits


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Kirk:

I am not writing about ERISA preempting state laws governing insurance, specifically laws that mandate benefits for insurance companies.

I am writing about states being able to regulate ERISA plans themselves, the employers' ability to decide which benefits to include when establishing a plan, and how they choose to amend their plans, once established.

The words I wrote come straight out of the Supreme Court decision Travelers, 514 U.S. at 659-660.

I would appreciate your (and others) reviewing that case before providing a "rebuttal."

By the way, I agree with your statement that ERISA does not preempt insurance companies. It does preempt state departments of insurance from dictating or restricting employers' choices of plan benefits or plan administrative structures.

I do have other cases, including from the Supreme Court, that further solidify my premise.

What am I suggesting? I am suggesting that employers and insurers have a lot more flexibility to develop innovative plans, with employers, not insurers, providing the impetus. Insurers can amend the plans to correspond with the employers' wishes, if the parties can reach a financial agreement. The changes made are settlor decisions, not fiduciary decisions, which means the state is not involved (preempted).

Don Levit

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Don: The type of plan you are describing is a self funded plan where the employer hires the insurer to pay claims under a health care plan in which the employer decides what the benefits are. The employer and insurer sign an administrative services agreement which is not an insurance policy subject to state insurance law. In an ASA the employer agrees to pay the cost of all benefits plus a fee to the insurer for administering the plan. In a self funded plan all state insurance laws mandating minimum benefits are preempted because the employer retains the risk of paying the benefits and the plan is not an insurer subject to state ins laws.

As discussed by Kirk, if the employer provides benefits under the plan through an insurance policy in which the employer shifts the risk of paying benefits to the insurer in return for paying a premium, state insurance laws will determine what minimum benefits are covered under the policy. If the employer provides health benefits under an IRC section which is funded by purchasing a high deductible insurance policy where the insurer assumes the risk of paying the benefits in return for a premium from employer or employee the policy will be subject to state ins. law requirements.

mjb

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mbozek:

I understand your explanation of state insurance law, and how it applies for fully insured policies.

You wrote that state insurance laws will determine what minimum benefits are required for the policy. I agree with you.

However, state insurance laws are completely preempted for determining minimum benefits for the ERISA plan that the employer establishes and maintains.

The key words are fully insured "policies" versus ERISA "plans."

Again, please read the Travelers Supreme Court case, before offering your "rebuttal."

I know my premise is a bit radical, but I can support it with Supreme Court cases, as well as ERISA law.

I am hoping to present the other "evidence," but we are spending time discussing what has customarily been done, and not looked at the Travelers case.

Do you need me to provide the link for the case?

Don Levit

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As noted by Kirk, the US Sup Ct in Met life case, 471 US 724, Part IIIB specifically disposed of your argument when it held that a mandatory benefit provision (e.g., providing treatment for mental illness) which was required under state insurance law for any group health insurance contract issued in MA was not preempted by ERISA because requiring minimum benefits is part of the business of insurance which was preserved under ERISA 514(b)(2)(A). The Travelers case did not modify the Met life decision. While your statement that state ins laws are preempted by ERISA 514(b)(2)(B) as to what the minimum benefits must be under the terms of the Employers plan is correct, it applies only if the employer self funds the plan, instead of providing benefits under an insurance policy subject to state law.

mjb

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I am hoping to present the other "evidence," but we are spending time discussing what has customarily been done, and not looked at the Travelers case.

(METAPHOR ALERT!)

We aren't at the poker tables here, so why not lay all your cards on the table. If your hand is as good as you maintain, there will be no reason for anyone to try and call your bluff.

...but then again, What Do I Know?

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Not so fast, not so fast, WDIK!

We are discussing the Travelers case now. After that, I hope we can get to the other Supreme Court case I mentioned.

I just posted a response on the HSA message board entitled, "HSAs can be allowed in every state, without enabling legislation."

Will you go to that message board, so I need not retype it? Or, is there some way it can be automatically transferred? I use 2, maybe 3 fingers to type, and I'm getting pretty tired.

Don Levit

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Don,

I already gave you a link to www.hsainsider.com and suggested that you read and learn, but apparently you refuse to read and understand anything.But, I will try another time.

The IRS issued Notice 2004-43: http://www.hsainsider.com/treasury/treasury_17.pdf

Notice the title "HSA State Mandate Relief ......."

As stated in the Notice, its purpose was to give transitional relief (to those who wanted to get an HSA) in states where a HDHP was not available because of State law.Look at the first section on page 1 titled "Purpose".

Notice the 3rd bullet under "Background".

We have tried to explain to you what state insurance law covers, now here is the IRS.

Do you think that the IRS does not know whether state law is applicable to HDHPs for HSAs?

Now give up, this is now ridiculous.

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:

Roy Ramthun at the Treasury Department is interested in my premise regarding HSAs for ERISA plans, regardless if the states allow them.

As you probably know, Roy is the main fellow in this area, along with William Sweetnam.

We can review that material at some point, but the key item now is the Metropolitan case. Go to the other message board, for HSAs, and look at my response in the link entitled, "HSAs can be allowed in every state, without enabling legislation."

Don Levit

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I am interested in hearing Jeff Foxworthy. Why? Not for philosophy but for Humor! He probably is being courteous and treating you similarly.

There is no point going to the other Board.

Apparently you do not read or understand anything that anyone sends you or tells you, so I have no interest in continuing this pointless discussion.

This makes me miss MoeHoward2.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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FWIW, I suggest that you go to Roy Ramthun to fully explore your "premise" and ask him to post it here. I, for one, don't have any idea what your "premise" might be because you refuse to define it. Last night, you said we were "discussing" the Travellers case, then a few hours later the "key item" became the Metropolitan case. Now, we're supposed to flip between 2 different boards to try to understand your "premise." In the meantime, you seemingly refuse to read the responses to your rambling posts, which, for my money appear to address the issues that you seem to be trying to raise. I don't often agree with the sentiments expressed by GBurns (as opposed to his substantive posts, which I find very helpful), but in this case he's on the money. Make your point or find a new topic.

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J2D2:

I finally will get to make my point using the Metropolitan Supreme Court case stated previously.

I also hope to use the Travelers case to further solidify my premise.

I also have federal regulations to back up my points.

But, first, let's go to the Metropolitan v. Massachusetts case, in the Supreme Court.

It can be found at 471 U.S. 724.

There are several sections I hope to look at.

Let's first understand, however, that I believe ERISA plans are ERISA plans, whether self insured or fully insured.

I use the definition of an employee welfare benefit plan, which includes benefits that are reimbursed by insurance, or otherwise. The distinction between self insured ERISA plans and fully insured ERISA plans has everything to do with who is responsible for paying claims,and nothing to do with the plan itself.

The plan's existence is determined solely by the employer who sponsors it.

Now, to the Metropolitan v Mass. case.

This case is between Metropolitan on one side and the state of MA on the other.

It is not between an ERISA plan sponsor and the state.

Because of that, I happen to agree with the decison: that insurers do need to include mandated benefits in the policies they sell. But, that is only part of he story.

Let's go to footnote 14.

Section 47B (the mandated state mental health benefits) also requires benefit plans that are self insured to provide the mandated mental health benefits. In light of ERISA's deemer clause, which states that a benefit plan shall not be deemed an insurance company for purposes of the insurance saving clause, MA has never tried to enforce 47B as applied to benefit plans directly, effectively conceding that such an application of 47B woiuld be preempted by ERISA's preemption clause.

In a part of its decision that is not challenged here, the Supreme Judicial Cort held that that part of 47B which applies to insurers is severable from the preempted provisions pertaining directly to benefit plans. See 385 Mass, at 601-602, 433 N.E.

2d, at 1225.

I, too, believe that insurers are severable from ERISA plans. That is why the state mandated benefits do not apply to ERISA plans, whether self insured or fully insured.

If that is true, and we certainly have not established that yet, it can have profound effects on employers being able to tailor their benefit plans to their needs. No longer will they be dictated to from the states, the plans they are allowed to have.

Rather, the "rack" plans can be amended, if the private parties, the ERISA plan sponsor and the insurer, can come to an agreement.

Don Levit

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You keep ignoring the distinction between self funded and insured plans which the Sup Ct. made in the Met Life Case. If an ERISA plan provides benefits by self funding, state min. benefits provisions under the ins law do not apply and the er can enter into any arrangement with an insurer. If the benefits are provided under an insurance contract where the insurer guarantees payment of benefits in return for a premium then state minimum benefits must be provided because ERISA does not preempt state regulation of insurance companies.

mjb

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You keep ignoring the distinction between self funded and insured plans which the Sup Ct. made in the Met Life Case. If an ERISA plan provides benefits by self funding, state min. benefits provisions under the ins law do not apply and the er can enter into any arrangement with an insurer. If the benefits are provided under an insurance contract where the insurer guarantees payment of benefits in return for a premium then state minimum benefits must be provided because ERISA does not preempt state regulation of insurance companies.

mbozek is 100% correct.

To look at it another way, the sponsor of an insured plan is (legally) free to offer a benefit plan that does not comply with state mandated benefits...there is no law preventing that.

However, no insurer would ever sell such a contract to the employer, because to do so would violate state insurance law. Therefore, it is impossible.

Self funded arrangements are not subject to state insurance law because they are not insurance companies.

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Steve 72:

Well, at least we have arrived at the point, it seems, that employers need not offer benefits that correspond with state mandated benefits, even in fully insured plans.

The question is, will licensed insurers be reprimanded for offering plans which do not provide all the benefits?

Way back in this post, it was commented that amendments to the plans were settlor functions, not fiduciary functions.

The employer is not liable for any changes he makes, as long as it is done once a year, and it does not discriminate for health reasons. I know Steve 72 agrees with that, right?

Well, changes to the "rack" policy are settlor changes, with no fiduciary responsibility, either to the participants, or to the state. It is simply a business decision.

I know of no case that prohibited a plan sponsor from fully insuring his plan, selecting some or none of the state mandates, the insurer and plan sponsor agreed in a private negotiation to the deal, with no state involvement, and the insurer lost its license.

Do you?

I believe that plan sponsor initiated changes are completely exempt from state involvement.

And, that is why, I believe, insurers can safely work with plan sponsors designing "off-the-rack" plans.

I believe that insurers choose not to tailor packages for employers, because they are not willing to do so.

They are, I believe, able to do so.

Am I convinced of my position? No, I am not.

But, I have much more material to support it.

If those on the list are not interested in going further, I certainly respect that.

There may be others who have some doubts on the certainty of their positions.

As Voltaire said, "Doubt is painful, certainty is absurd."

For those who think they know it all, I have only one thing to say.

I am only interested in knowing what you learn after you thught you knew it all.

Those of you who wish to correspond "offline," my E-mail is donaldlevit@aol.com.

If this is the end of our discussion, I want to thank all of those who participated.

You have helped me to develop my presentation to the DOL, for a possible advisory opinion.

Don Levit

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Just what part of the met life case dont you understand? Met life was sued by the Mass Atty general to enforce the mandated benefits required under Mass ins law The sup ct upheld the right to require mandated benfits in insured plans. Insurers wont violate state ins laws because they dont want to pay fines and risk the loss of their license to sell ins. This is the end.

mjb

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Don:

You are missing that there are two entities with potential liability here. The employer can make the change. However, if the insurer agrees to sell a non-compliant contract to the employer, then it is violating state insurance law. Nothing in Met Life changes that.

Whether the decision to make a change is a settlor or a fiduciary function has no bearing on the sale of an illegal contract by the insurer. It is not an ERISA issue. ERISA does not pre-empt the state's right to regulate the sale of insurance contracts (including group contracts) within its jurisdiction.

The insurer will not risk liability, and so will refuse to write the contract.

This statement: Well, at least we have arrived at the point, it seems, that employers need not offer benefits that correspond with state mandated benefits, even in fully insured plans., while legally true, is misleading. Such contracts are illegal to be sold. While the employer would be free from liability, the product will not exist.

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Guys,

Let's give it up. Don will never understand the difference between the benefits plan and the insurance coverage etc. He also will not read anything, not even the Treas Regs so as to understand what an accident and health plan is.

You can lead a horse to water but you cannot make them drink.

Think about it, How bad it must be that we are in agreement? And with the nature and lengths of these threads we have kept it civil.

Let us close it and leave Don to his beliefs.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I agree with Steve72 and Mbozek on the substantive points. I also agree with Gburns that it is good that the regulars on the Message Boards all agreed.

But I don't find that too remarkable because the issue is pretty clear for experienced practitioners. However, it seems like what seems straight-forward to us may not be quite so clear to someone who isn't as steeped in ERISA as we are.

This exchange points out one of the problems of working in our area; which is trying to explain ERISA issues to lay people. Fortunately, the vast majority of my clients only want to know the answer. It is much easier to simply tell them the result than to try to explain than how I got to there.

If they do ask for an explanation, I will ask them before I start "Now this will be long and exceedingly technical, are you sure you REALLY want to hear it?" It is a rare client (usually an in-house counsel) that will voluntarily subject themselves to that. I consider such behavior to be bordering on masochistic.

Kirk Maldonado

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Kirk:

You are absolutely correct. I am not steeped in ERISA as you and others are.

My academic knowledge is certainly no substitute for actual practice in ERISA regulation.

However, my ignorance of actual practice may be an asset, for I am suggesting an "amendment" to the policy sale process, which has probably never been done or legally tested: the ability of an employer to tailor his policy to something other than what is provided "off the rack," without the state's approval.

Mandated benefits were initially legislated in order to avoid adverse selection, and to more economically provide for a state's health and welfare. However, with more employers not buying what is offered, mostly due to economic issues, it is necessary, I believe, for employers to come up with their own combinations of benefits and prices, which are negotiated between private parties.

You and other practicioners can state what you believe is legal, and what you know is customarily done.

But, you cannot with certainty tell me my theory is illegal, for it has never been tested, to my knowledge, between a plan sponsor and a state.

The Metropolitan case was between a licensed insurer and the state.

It was not between a plan sponsor (who the deemer clause states is not an insurer or in the business of insurance) and a state.

Don Levit

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As someone who works for a TPA that provides self-funded administration services and insurance products through an insurance company, I can tell you that we can not sell any insurance product that has not been filed with and approved by our state department of insurance. Therefore, any insurance policy sold to a Plan Administrator must contain all state-mandated benefits or it will not be approved for use in this state. To enter into the arrangement you are suggesting as a "test" would mean that we are engaging in unauthorized practices as an insurance company.

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To try one last time to explain to Don the position of all of the ERISA/insurance experts posting on this question.

An insurer who is licensed to issue issurance policies may only issue policies conforming to state laws. While it is true that the insurer and purchaser of an insurance policy may permissibly agree to a rider changing the pre-approved version of the policy terms, the insurer is not permitted to accept any rider that would cause the policy to violate state law. As noted by many other posters, issuance of such a policy could cause the insurer to lose their license to issue any policies in that state.

Because an insurer may not agree to a rider that would violate state law, the employer/purchaser may not remove the mandated insurance in a rider to an otherwise approved policy.

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Some courts treat self funded plans almost like state regulators treat insured plans:

http://www.seyfarth.com/db30/cgi-bin/pubs/...t%206-20-01.pdf

Just like state regulated plans, this court decided that the employer cannot do whatever they want with the benefits.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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