Health Benefit Plans for Colleges and Universities

[Don Levit]

What type of state regulatory laws would apply to governmental plans, such as tax-exempt colleges and universities? Specifically, regarding VEBAs funding health benefits for employees of these organizations, would the state department of insurance regulate reserves and surplus levels for the self funded portion of these plans? Or, would that regulation be subject only under the auspices of the DOL?

Don Levit

[mbozek]

Why would an employer exempt from taxation adopt a veba when there is no taxation on income of amounts held by the instituton to pay such benefits? A tax exempt college can hold reserves to pay health benefits in its general account. State laws governing insurance would be applicable if a govt employer established a VEBA.

[Don Levit]

Would state laws be applicable if several colleges and universities (all public) pooled their resources into one fund? I spoke with the deputy chief counsel of one of the state departments of insurance. I am purposefully not using specifics, in order to protect the privacy of the various parties. He stated this would be a MEWA, that would be subject to state regulation.

I do not have much experience with government plans. I thought they were not subject to state regulation if self funded.

The MEWA litigator of this department of insurance said that in his state, certain municipalities can band together, and not be subject to state laws. However, this does not apply to colleges and universities, according to this individual.

If anyone can cite any applicable regulations, I would appreciate it.

The VEBA is not as significant, for it is simply a funding mechanism. I am asking if this arrangement would be a MEWA, and if so, is it subject to state regulation, if self funded. I am looking for some kind of objective verification as to the "truth."

Thanks for your attention.

Don Levit

[GBurns]

Shouldn't it be "The MEWA litigator of this department of insurance " who should be asked for the specific rules etc, first? He/she would be the best person to support whatever their position is. We would be speculating not knowing their reasoning nor even knowing which state it is etc.

[Don Levit]

He was merely stating what his state traditionally has done. There was no explanation as to why the municipality "MEWA" was not subject to state regulation, other than the department reviewed the situation and concluded that. I am fairly sure if I inquired, he would provide the supporting material. He was very helpful, and we talked for about 30 minutes.

I do know they are very wary of MEWAs (with good reason).

I will say this, though. This particular state regulates self funded MEWAs to be licensed insurers, which is a good thing. When he mentioned that all the laws of the state may be applied to regulate a MEWA, I asked him: "Does that mean your state must apply every state law to a self funded MEWA, including surplus and reserve requirements, regardless of the number of participants and the liabilities assumed?"

He said that his department does have discretion, and that my particular situation, if this consortium wishes to continue, would be reviewed on a case-by-case basis.

Don Levit

[Locust]

It's entirely a state thing, so some of our normal MEWA concepts may not work.

Normally, you wouldn't have a MEWA unless there were unrelated employers, and I would think that all state entities would be considered a single employer.

The more relevant issue is what state law applies. Government entities are restricted to exercising the acts specifically authorized by statute. In my state there are rules that apply to municipalities, counties, hospital authorities etc. that say exactly what these entities can and cannot do. There are personnel rules, and restrictions on investments, including insurance.

There may be restrictions on insurance - such as you can't buy insurance except for certain purposes and from certain types of insurers. You may have an issue with this type of restriction.

There may also be restrictions on what 2 or more entities can do together. For example, counties may not be allowed to consolidate their personnel departments, or their police departments. State law often allows "consortiums" where two or more entities get together to do something - such as a Regional Authority, etc.

It really comes down to what the state law says - no ERISA or federal issues.