Spousal Carve Out Rules

[mal]

I have searched the prior posts regarding the imposition of a "spousal carve out" rule by

a self funded health plan. I know some states prohibit such rules for fully insured

plans, but aside from that is anyone aware of any other obstacle that would prevent

a health plan from adopting such a rule?

My reason for asking is that one of our plans has been put on notice that a

suit is forthcoming. I cannot figure out what the basis of such an action would

be.

Any updates would be appreciated.

[Don Levit]

When you say "spousal careve out" rule, are you saying that if the spouse has other coverage, or has other coverage available which the spouse declines, that the group plan does not have to cover the spouse?

If so, this seems to be a "settlor function" of how the plan is designed, or modified.

Why would the states be able to prohibit plan sponsors from doing so, even with fully insured plans?

I see the settlor function, as a business decision, not an insurance decision, which would not be subject to state regulation.

Don Levit

[mal]

Our plan design provides that if a spouse has coverage available through her employer at a cost of less than $150 per month we will pay only on a secondary basis...regardless of whether she actually chooses to enroll in the other plan.

Our plan does not require she enroll in the other plan, nor does it cut her off completely. Instead we act as a secondary payor.

[Guest b2kates]

In a self-funded environment, the plan sponsor has great latitude to define terms of participation. State insurance rules and mandates do not apply to the ERISA plan;

BUT, be careful that you have properly and adequately advised the participant and spouse with proper SPD and communications.

[Don Levit]

b2kates and others:

Do you have an opinion regarding the design of an ERISA plan, even a fully insured plan, being a settlor function, not only not subject to ERISA, but also not being subject to state regulation?

Don Levit

[Guest b2kates]

Don, in general a state can not regulate the fully insured plan at the plan sponsor level.But the state can impose its own mandates on any insurance that is authorized to be issued within the state.

In the past we have been comfortable and successful in precluding the state insurance agency from imposing mandates, by virtue of the ERISA exemption, for any of the self-insured plans which i have represented.

[Guest b2kates]

see latest news:

March 15, 2006 (PLANSPONSOR.com) – In its continued effort to reduce health care costs, Ford Motor Company has announced it will charge for health insurance and dental coverage for worker’s spouses or same-sex domestic partners that are eligible for non-Ford health insurance.

On June 1, workers will begin paying $110 a month for health insurance and $11 a month for dental benefits for their spouses or same-sex domestic partners who have access to other coverage, the Detroit News reports.

According to the Detroit News, additional changes that will be implemented as of June 1 include:

Active salaried workers who opt for the Ford Medical Plan will continue to avoid monthly premiums, but their annual deductibles will increase by nearly 17%.

Workers who select an alternative health plan will see their monthly premiums go up 30 percent on average, while their annual deductibles will rise 33%.

Ford will cap health care spending for retirees and their surviving spouses at the average 2006 level. After that, any increases in insurance premiums will have to be paid entirely by the retirees or their survivors.

Ford spent $3.5 billion on health care expenses in 2005, compared with $3.1 billion the previous year, according to the Associated Press. The automaker has not projected how much it expects to spend on health care this year.

[Don Levit]

b2kates and others:

Assuming that the plan is self insured, could Ford have made those changes if the plan was fully insured?

Don Levit

[Guest budman]

Can anyone verify that a self-funded plan that allows spousal coverage can indeed change the eligibility to exclude coverage for spouses that have other coverage available even if they have opted out of the other coverage? And to MAL, how do you coordinate benefits with the other plan as secondary payor if they opt out of their employer's plan? Do you request benefits from the other employer prior to processing any claims?

[Don Levit]

Budman:

You are asking if the plan sponsor can provide the terms within the ERISA plan itself to exclude spouses who are eligible for other coverage, whether or noy they actually enroll.

To my knowledge, this does not violate federal law.

This is a settlor function of plan design, in which the terms of the plan document would be enforced, unlessx they violated or were inconsistent with ERISA, or other federal law.

I can appreciate your concern, but you are asking the question, as if the ERISA plan document had little protection from state regulators.

You seem to be implying that there is as little freedom in designing ERISA plans, whether self insured or fully insured, as an individual deciding the plan terms of an individual policy from a commercial insurer.

Don Levit

[Guest Steve72(b)]

Don, I think we've had this discussion before. You are correct that a state cannot dictate plan design to an employer for a fully insured or self insured plan, however, it is an academic point. The state can mandate to insurers within its jurisdiction that any policy (including a group health insurance policy) provide benefits as mandated by that state. If the employer wanted to design a benefits plan in a way that did not comply with those mandates, it would be unable to fund those benefits using an insurance policy because no insurer would sell an illegal product.

The state regulates the insurer, not the employer. ERISA explicitly does not preempt generally applicable state insurance law.

[Don Levit]

Steve (and others):

Thanks for your reply.

From an academic standpoint, is there any difference between a fully insured ERISA plan, and a fully insured non-ERISA plan, in relation to how the employer (or individual) could structure the plan?

Don Levit

[GBurns]

Yes.

In a nutshell, in a fully insured plan, an employer is limited by what is available from the insurers, and the insurers are limited by what has been approved by the state or what is practical for them to seek approval on, whereas in a self insured plan the limitations depend on what the limitations are and the effect on the overall viability of the plan, keeping in mind any federal mandated items.

[Don Levit]

George:

Thanks for your reply.

I really am not asking about the differences between a fully insured plan and a self insured plan.

I am asking if there are any academic differences regarding how a fully insured ERISA plan can be structured by the employer, as compared to how a fully insured non ERISA plan (for example, an individually owned policy) can be structured by the individual?

Don Levit

[leevena]

I amsorry, but what does "academic differences" mean?

[Don Levit]

Leevena:

What I mean to say by that is, from a practical standpoint, is a fully insured ERISA plan any different from a fully insured non ERISA plan, as far as the employer or individual being able to structure the plan to fit his needs (mandated benefits, etc).

Don Levit

[Guest Steve72(b)]

The ERISA plan itself, no, there is no practical difference. Both are solely subject to Federal law. However, you never get to that point. In order for a plan to be fully insured, you need to have an insurance contract. You can design a plan any way you want (within Federal law), but you will not be able to make it fully insured if every insurer refuses to sell you a contract to meet the terms of that plan.

[GBurns]

Don,

You are still not understanding that there is a difference between the employer's ERISA plan and the health benefits coverage (fully insured or self funded).

[Don Levit]

George:

Thanks for your reply.

I believe there is a distinct difference between an ERISA plan, and how it is funded.

That is why there are different levels of action, depending on whether we are looking at the employer level of designing the plan (including modifying the plan), and the level of funding the benefits.

I believe Steve said that the employer has the freedom to structure his plan similarly, regardless if the plan is self insured or fully insured.

On this I agree.

Steve also said that insurers are prohibited from providing policies that are not approved by the states.

On this I agree.

I was trying to point out that ERISA provides employer freedoms in designing plans. These same freedoms are not provided to individuals that purchase fully insured plans, outside of the ERISA arena.

Using that rationale, one would think that fully insured ERISA plans have an avenue that fully insured non ERISA plans do not have: plan sponsors requesting that insurers offer modified policies, tailored more to the needs of the employees of that particular employer.

While insurers cannot modify plans without the plan sponsors first initiating the request, there is nothing prohibiting insurers from taking the sponsors' requests to the departments of insurance for their approval or decline, right?

Don Levit

[Guest Steve72(b)]

If by"there is nothing prohibiting insurers from taking the sponsors' requests to the departments of insurance for their approval or decline", you mean that the insurer can advocate for a change in state insurance law, sure.

However, the fact that the contract being offered is a group policy issued to an ERISA plan has no bearing on whether state insurance legislation (including mandated benefits) will apply.

[GBurns]

Don,

Maybe we are just not understanding the language and terminology that you use.

What difference does ERISA make to the funding of a Plan?

Why do you think that "ERISA provides employer freedoms in designing plans" ? How does ERISA do this?

There is nothing wrong with any insurer taking any requested modifications to any Dept Of Insurance for approval. But that insurer has to decide whether to use Riders or a new Policy with which to file the application. But even before that the insurer has to determine the actuarial impact and rates etc. Before any of this is done the insurer has to decide if it is worth the effort in the first place considering the considerable costs involved and the time lag. The end result is that it will be very rare, if ever, that this is done. It is just not practical to accomodate ad hoc employer requests for modification of existing policies.

[Don Levit]

Steve:

I am not stating that the insurer can advocate for a change in state insurance law.

An insurer can submit an amended policy to the state department of insurance for its approval or disapproval, based on the desires of the plan sponsor.

This is not changing insurance law.

On the contrary, commissioners generally have the right to approve or disapprove of experimental policies.

Can you cite a federal court case, in which this practice was disallowed?

Don Levit

[Don Levit]

George:

ERISA makes no difference regarding self insured plans versus fully insured plans.

That is the point I am trying to make.

The distinction made by the Supreme Court about 20 years ago was not arrived at by the wording in ERISA.

It was actually quite a stretch for the Supreme court to arrive at that distinction, in my opinion.

Actually, ERISA does not apply directly to how plan sponsors design their plans, for this is a settlor function, not a fiduciary finction. It is a business decision, not an insurance decision.

An employer does not act in the capacity of a fiduciary because it is not exercising any discretionary authority or discretionary control respecting management of a plan under the definition of a fiduciary in ERISA section 3(21)(A). Thus, employers or other plan sponsors generally have the complete discretion to adopt, modify, or terminate employee benefit plans without acting in the capacity of a fiduciary. DOL Opinion letter to John N. Erlenborn, 13 Pens. Rep. (BNA) 472 (March 13, 1986), Lockheed Corp. v. Spink, 517 U.S. 882 (1996).

Don Levit

[Guest Steve72(b)]

Steve:

I am not stating that the insurer can advocate for a change in state insurance law.

An insurer can submit an amended policy to the state department of insurance for its approval or disapproval, based on the desires of the plan sponsor.

This is not changing insurance law.

On the contrary, commissioners generally have the right to approve or disapprove of experimental policies.

Can you cite a federal court case, in which this practice was disallowed?

Don Levit

...But the commissioner will not approve a policy which violates state insurance law.

I fail to see why a Federal case would be necessary to show that state law governs insurance. McCarran Ferguson and ERISA 514(b)(2)(A) make that clear.

George:

ERISA makes no difference regarding self insured plans versus fully insured plans.

That is the point I am trying to make.

The distinction made by the Supreme Court about 20 years ago was not arrived at by the wording in ERISA.

It was actually quite a stretch for the Supreme court to arrive at that distinction, in my opinion.

Actually, ERISA does not apply directly to how plan sponsors design their plans, for this is a settlor function, not a fiduciary finction. It is a business decision, not an insurance decision.

Again, it is correct that the sponsor can design the plan any way he wants (within the bounds of Federal law). However, the sponsor must then determine how to fund it. This can be done by a variety of methods. If the sponsor wishes to fund the plan via insurance, then it can only do so by purchasing a legal insurance contract. An insurance contract that violates state law is, by definition, illegal.

An employer does not act in the capacity of a fiduciary because it is not exercising any discretionary authority or discretionary control respecting management of a plan under the definition of a fiduciary in ERISA section 3(21)(A). Thus, employers or other plan sponsors generally have the complete discretion to adopt, modify, or terminate employee benefit plans without acting in the capacity of a fiduciary. DOL Opinion letter to John N. Erlenborn, 13 Pens. Rep. (BNA) 472 (March 13, 1986), Lockheed Corp. v. Spink, 517 U.S. 882 (1996).

Don Levit

The "fiduciary/settlor" distinction is immaterial to the issue here. Regardless of the "hat" the sponsor is wearing, state law governs the availability of insurance contracts.

[Don Levit]

Steve:

I agree with you that state law governs the availability of the contracts that can be offered by commercial insurers.

Are you familiar with experimental policies?

Of the several state insurance codes I have read, they all allow for them.

As George expressed, insurers can apply for amended policies to suit the needs of their customers.

How would this practice violate state insurance law?

Don Levit