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Guest Steve72(b)
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

The practice doesn't violate state insurance law. However, your entire argument (as I understand it) has been that an insurer can provide a "special" group health policy which does not meet one or more statutory requirements for a group health policy because that policy is being offered to an ERISA plan. This is not an "experimental policy", it is an attempt to get an exclusion from the rules applicable to such policies.

No state insurance commissioner will permit a group policy to be sold in its state which does not meet the requirements applicable to group policies.

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Steve:

Thanks for your reply.

Apparently, I did not make myself clear.

An insurer can offer an experimental policy, only with the approval of the state department of insurance.

My premise is that the negotiation can take place between the insurer and the employer, a premium can be provided, and, if accepted, can be presented to the department of insurance for approval or disapproval.

The fact that it is an ERISA plan provides a bit more credibility for the employer and the insurer to ask for the department's approval.

This is because, according to ERISA, plan sponsors do have the legal right to structure their plans, in accordance with federal law.

This option, to my knowledge, is not available for non ERISA plans, on a fully insured basis.

Don Levit

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Guest Steve72(b)
The fact that it is an ERISA plan provides a bit more credibility for the employer and the insurer to ask for the department's approval.

This is because, according to ERISA, plan sponsors do have the legal right to structure their plans, in accordance with federal law.

I was with you right up until this point. The only reason this would be so would be if ERISA preempted state insurance law, which it does not. The fact that there is an ERISA plan present would have no bearing on the ability or willingness of the insurance department to grant an exception to existing law.

Note that I understand the point you are makeing about an experimental policy not being an "exception", however, it is inaccurate. Any group health policy which does not comply with the rules applicable to group health policies must, by necessity, be an exception to those rules.

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Steve:

Thanks for your reply.

Since when does ERISA not preempt state insurance law?

I thought there were a slew of cases that dealt with ERISA preemption.

In this particular case, ERISA does not preempt the state department of insurance from regulating the commercial insurer.

It does preempt the state from regulating the plan sponsor, however, even with a fully insured plan.

I hope we will not argue that point, as I do seem to have your agreement.

Yes, an experimental policy is an exception to the typical group policy.

But, it is an exception granted by the law.

In this case, the exception proves the rule!

Don Levit

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Guest Steve72(b)
Steve:

Thanks for your reply.

Since when does ERISA not preempt state insurance law?

Since 1974.

ERISA § 514(b)(2):

(2) (A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

(B) Neither an employee benefit plan described in section 4(a), which is not exempt under section 4(b) (other than a plan established primarily for the purpose of providing death benefits), nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies . . ..

It does preempt the state from regulating the plan sponsor, however, even with a fully insured plan.

I hope we will not argue that point, as I do seem to have your agreement.

I agree with that. However, we are not talking about any regulation regarding the plan sponsor.

Yes, an experimental policy is an exception to the typical group policy.

But, it is an exception granted by the law.

In this case, the exception proves the rule!

Don Levit

No. It is an exception which may be provided by law. Your argument again requires that an exception to existing insurance law be granted by the insurance department. The experimental policy provisions permit an insurer to ask for such an exception.

You have argued that the fact that an ERISA plan exists will sway the insurance commissioner to grant an exception. There is no support for this assertion. On the contrary, based on my dealings with insurance departments, the opposite would likely be true.

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Steve:

Thanks for your reply.

I agree with you that state departments of insurance are not willing, generally, to use the experimental policy exception, whether the plan is an ERISA plan or not.

My dealings with regulators has been centered around their understanding of state regulation of insurance as being rather exclusionary, to the point they are not that familiar, or even concerned about any conflicts with federal law.

I am not making an issue of complete preemption or even partial preemption.

I agree that states have the ability to regulate commercial insurers, as well as self funded MEWAs.

I am stating that departments of insurance have some latitude for exploring innovative ways to provide insurance, whether through fully insured ERISA plans, or self insured ERISA plans.

The fact that you and I have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so.

Don Levit

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Steve

Don somehow has arrived at the understanding that you " have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so." Can you clarify this? I must have missed where you stated or implied this.

Don,

The fact that a plan is either an ERISA or a Non-ERISA has no bearing on what state regulators can do or are willing to do. An employer, in fact most if not all employers, most likely have ERISA plans. If this ERISA plan provides the benefits or coverage through an insurance policy, then, in general, the state insurance regulators have jurisdiction over that insurance policy. They still do not have jurisdiction over the employer's plan. Being an ERISA plan has nothing to do with the insurance policy. ERISA does not mean that the employer's plan is self funded.

Insurance is not provided "through fully insured ERISA plans, or self insured ERISA plans". It is the benefits (coverage) source that is provided through insurance or self insurance.

The state regulators have no latitude to explore innovative ways to provide insurance, it simply is not within their jurisdiction nor scope. I also do not see waht innovative ways to provide insurance has to do with innovative ways to provide employee health benefits. Insurance is not benefits and vice versa.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest Steve72(b)
Steve:

Thanks for your reply.

I agree with you that state departments of insurance are not willing, generally, to use the experimental policy exception, whether the plan is an ERISA plan or not.

My dealings with regulators has been centered around their understanding of state regulation of insurance as being rather exclusionary, to the point they are not that familiar, or even concerned about any conflicts with federal law.

I am not making an issue of complete preemption or even partial preemption.

If you are not making an issue of preemption, then your assessment of the state regulator's position makes no sense. ERISA does not preempt state regulation, so there is no conflict with state law. State law entirely governs insurance.

I agree that states have the ability to regulate commercial insurers, as well as self funded MEWAs.

I am stating that departments of insurance have some latitude for exploring innovative ways to provide insurance, whether through fully insured ERISA plans, or self insured ERISA plans.

The fact that you and I have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so.

Don Levit

....Then, again, you are arguing that insurance departments have the ability to make an exception to the law. Fine, but what has this got to do with the ERISA preemption argument you posed earlier?

GBurns:

Steve

Don somehow has arrived at the understanding that you " have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so." Can you clarify this? I must have missed where you stated or implied this.

If I implied that I had had discussions of this type with insurance commissioners, it was unintentional. My dealings with such departments have left me with the impression that, for the most part, they are aware of the ERISA world and the general concept of Federal preemption and nonetheless, are aware that their jurisdiction over insurance is superior. I don't think you'd be posing a novel (or successful) argument to them that a group policy is for an ERISA plan, so should be excepted from the law.

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Steve,

Thanks for clearing that up. I could not find where you even implied such a thing.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Steve:

Thanks for your reply.

I bring up the ERISA issue not to say that state law is superior to federal law or vice versa.

I brought up the ERISA issue to demonstrate there is some tension between the plan sponsor to design his plan versus the state department of insurance to regulate the commercial insurer.

From what I understand, both you and George agree with me that the sponsor has the legal right to structure his plan, yet the state department of insurance has the authority to regulate the insurer.

There is no tension if the plan is self funded, for the state has no authority to regulate the "insurer" in this instance.

There is tension, when the insurer and the plan sponsor are not the same entity.

Due to the presence of this tension, I am suggesting the states honor the conflicts and complexity presented.

To say that state law entirely governs insurance within an ERISA plan, without taking this tension into account, is absurd, in my opinion.

For the states to say that state law is superior is one thing.

To say that state law governs, as if there is no federal application whatsoever is irrational.

Don Levit

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George:

Thanks for your reply.

You wrote that the state regulators have no latitude to explore innovative ways to provide insurance.

You are correct in that states typically don't initiate these type of endeavors.

But, states do have the right through their codes of insurance to regulate expermental plans.

For example, in the Texas Insurance Code, Title 28, Part 1, Chapter 3, Subchapter S, Rule 3.3081, Nonconventional Coverage, it states, "The commissioner may authorize approval of a policy that does not correspond with one of the categories of this title (relating to Minimum Standards and Benefits) if such policy is to be determined to be experimental in nature or coverage that in the commissioner's opinion will fulfill a reasonable public need."

Don Levit

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Regulating insurers and insurance policies has nothing to do with developing or designing insurance policies. Regulating insurance policies has nothing to do with designing employee benefits including health insurance benefits.

I do not understand what you mean by "experimental policies" and am not able to find it as you cited. Can you provide a link so that I can see what it might mean rather than speculate? The links that I use to read the Texas Insurance Code are:

http://www.capitol.state.tx.us/statutes/i1.toc.htm

http://www.capitol.state.tx.us/statutes/in.toc.htm

In neither of these can I find any mention of "experimental" policies.

I am also at a loss to understand what you mean and see as "tension".

As far as self insured health plans are concerned, whatever exists between plan sponsors and state regulators, exists to almost the same extent between plan sponsors and Federal regulators and regulations. A self insured health plan does not exist in a vacuum and have a free to do as it pleases mandate. There are regulations there too which also include coverage and benefits mandates along with other restrictions.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest Steve72(b)
I brought up the ERISA issue to demonstrate there is some tension between the plan sponsor to design his plan versus the state department of insurance to regulate the commercial insurer.

From what I understand, both you and George agree with me that the sponsor has the legal right to structure his plan, yet the state department of insurance has the authority to regulate the insurer.

There is no tension if the plan is self funded, for the state has no authority to regulate the "insurer" in this instance.

There is tension, when the insurer and the plan sponsor are not the same entity.

Due to the presence of this tension, I am suggesting the states honor the conflicts and complexity presented.

Ah. I see. However, there is no "tension" as you put it between Federal and state law. Even if Federal law had no strictures whatsoever on plan design (which is not true), the fact that there was no Federal regulation does not mean that there is a conflict with state law.

To say that state law entirely governs insurance within an ERISA plan, without taking this tension into account, is absurd, in my opinion.

For the states to say that state law is superior is one thing.

To say that state law governs, as if there is no federal application whatsoever is irrational.

Don Levit

Rationality aside, since we are dealing with legislatures here, it is perfectly appropriate in the world of insurance contracts (including group health contracts) to state that state law governs, and there is no Federal application. In fact, that is precisely what McCarran Ferguson states. The only exception to this would run exactly the opposite to your argument:

Where there is a Federal restriction on plan design (e.g., the Mental Health Parity Act), no group policy will be offered which violates this restriction. this is not because the insurer suddenly becomes subject to Federal law. it is becasue employers would be barred from purchasing any such contract, so there is no market.

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George:

You are correct that regulation of policies and design of policies are two separate actions.

State regulation and federal regulation of self insured plans are very different.

There is no state regulation of self insured plans.

There is very little federal regulation of self insured plans, but there is, of course, more federal regulation than state.

The coverage and benefit mandates are minimal.

Steve:

If you wish to stick to your state law governs insurance regulation, please go right ahead.

I don't think you are correct in that thinking in every situation.

And, even if you were, state regulators would be more prudent to not only be aware of federal regulation, but to keep that in mind when making regulatory decisions.

In your example of the mental health parity law, who is barring the employers from purchasing a policy which did not correspond to it?

Don Levit

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Here's how I understand it. ERISA plan sponsors have the ability to provide whatever benefits they want, within very limited federal law. Once they establish a health plan, they have to decide how they are going to pay for benefits. They can self-fund or they can purchase insurance. The state in which they are located is going to determine what type of insurance (and benefits) they can purchase. Although this isn't the case in the original posting let me give an example to explain my view. Company has a health plan. They purchase an insurance policy that doesn't doesn't cover grandchildren born to unmarried minor dependents. Company promises coverage, perhaps because of union contract. The plan states it covers, insurance policy states it doesn't. Plan still must offer coverage but insurer doesn't. In this case I would say the plan is on the hook and must self-fund. Is there conflict? Of course. However, that doesn't change the terms of the insurance policy that the plan purchased.

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Jeanine:

You add a very interesting element to this discussion.

This is an area that continues to evolve, particularly in relation to domestic partner benefits and same sex benefits.

When a plan wishes to provide for benefits that the state does not provide for, how does one do so in a fully insured plan?

Why does the choice have to be self funded, instead of fully insured in your case?

Why not provide a fully insured plan, and self fund the benefits you described?

Don Levit

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Steve:

I am glad you brought up the Mental Health Parity Law.

As you know, this provision was recently extended by the DOL until Dec. 31, 2006.

You can find the appropriate material at http://edocket.access.gpo.gov/2006/pdf/06-2655.pdf.

Here is an interesting excerpt: The MHPA provisions in ERISA generally apply to all group health plans other than governmental plans, church plans, and certain other plans. These provisions also apply to health insurance issuers that offer health insurance coverage in connection with such group health plans.

I wonder why the DOL differentiates between group health plans and health insurance issuers?

By the way, regarding the MHPA, are you saying that the reason that employers cannot offer plans that do not correspond to this provision is not due to federal regulation of insurance?

Then, what is it due to? The market? Employee demand?

Don Levit

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George:

You asked for the link to the nonconventional coverage provision in the Texas code.

It is actually found in the Texas Administrative Code, which is a compilation of all state agency rules in Texas. There are 16 titles in the TAC. Each title represents a category and relating agencies are assigned to the appropriate title.

Title 28 is "Insurance."

Go to: http://www.sos.state.tx.us/tac/index.shtml.

Click on the link at the bottom, above "Text Only."

Then click Title 28, Part 1, Chapter 3, Subchapter S.

Don Levit

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Guest Steve72(b)
Steve:

If you wish to stick to your state law governs insurance regulation, please go right ahead.

I don't think you are correct in that thinking in every situation.

And, even if you were, state regulators would be more prudent to not only be aware of federal regulation, but to keep that in mind when making regulatory decisions.

McCarran Ferguson

In your example of the mental health parity law, who is barring the employers from purchasing a policy which did not correspond to it?

Don Levit

The Federal government bars the employer from sponsoring a plan which does not comport to Federal law. It does not directly regulate the insurer.

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Thanks, Steve, for the link to McCarran Ferguson.

As you know, ERISA was enacted after McCarran Ferguson.

And, ERISA is a federal law that regulates the business of insurance.

That is why states need to do more than give lip service to ERISA, and court cases based on its application.

Don Levit

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Guest Steve72(b)
Thanks, Steve, for the link to McCarran Ferguson.

As you know, ERISA was enacted after McCarran Ferguson.

And, ERISA is a federal law that regulates the business of insurance.

That is why states need to do more than give lip service to ERISA, and court cases based on its application.

Don Levit

ERISA Section 514(b)(2) (quoted above) says specifically that ERISA does not regulate the business of insurance.

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Steve:

You are right. Section 514(b)(2) includes the famous, or infamous, savings and deemer clauses, which speak directly to the "tension" I was writing about earlier.

The savings clause reserves to the states the right to regulate the insirance business and persons engaged in that business. The deemer clause makes it clear that a state law regulating insurance may not consider an employee benefit plan to be an insurance company to establish jurisdiction over such a plan.

So, in a fully insured ERISA plan, we have the state unable to regulate the plan itself, for the plan is not considered to be an insurance company (in the business of insurance).

However, the savings clause gives the states the right to regulate the commercial insurer, who is considered to be in the business of insurance.

So, while a plan sponsor has the right to design his plan without state mandates, for example, the insurer cannot sell him a fully insured plan without the state mandates.

While the plan sponsor has the ability to tailor his plans to his liking (using only the federally mandated benefits, for example), he better be big enough to self insure.

To me, this is "tension," in that freedom is given with one hand, and taken away with the other.

Around 1985, I believe in the Travelers v. Massachusetts case, the Supreme Court "resolved" the savings and deemer clauses by saying that states can regulate fully insured ERISA plans, and states cannot regulate self insured ERISA plans.

This ruling needs to be revisited, in my opinion, for neither the savings nor the deemer clauses have the words self funded in them.

There is a better way to resolve this paradox of the savings and deemer clauses than "arbitrarily" splitting ERISA plans by the way they are funded.

Don Levit

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Guest Steve72(b)
To me, this is "tension," in that freedom is given with one hand, and taken away with the other.

I honestly don't see how you can call this "tension". There is no inconsistency. Federal law does not say that an employer can design the plan any way it wants. It simply does not impose limits on the employer. It is very different for the law to be silent than for it to make an affirmative and contrary statement.

Around 1985, I believe in the Travelers v. Massachusetts case, the Supreme Court "resolved" the savings and deemer clauses by saying that states can regulate fully insured ERISA plans, and states cannot regulate self insured ERISA plans.

This ruling needs to be revisited, in my opinion, for neither the savings nor the deemer clauses have the words self funded in them. There is a better way to resolve this paradox of the savings and deemer clauses than "arbitrarily" splitting ERISA plans by the way they are funded.

Don Levit

You've oversimplified the case, in my opinion. Travelers says that ERISA does not preempt insurance regulation. Insurance regulation, not surprisingly, regulates the business of insurance. The distinction between self funded and fully insured is far from "arbitrary". Fully insured plans purchase a contract from an insurer in the business of insurance. Self insured plans do not.

I also note that your argument has changed. You are now arguing that the law should be changed, not that it currently permits fully insured plans to be structured in the manner you have discussed. I can see a policy argument for that, but the law is crystal clear (which is unusual in this area).

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Jeanine:

You add a very interesting element to this discussion.

This is an area that continues to evolve, particularly in relation to domestic partner benefits and same sex benefits.

When a plan wishes to provide for benefits that the state does not provide for, how does one do so in a fully insured plan?

Why does the choice have to be self funded, instead of fully insured in your case?

Why not provide a fully insured plan, and self fund the benefits you described?

Don Levit

If the plan wants to add a benefit they can ask the insurer to add it. The insurer will then adjust the premium. However, they can't ask the insurer to not provide a state-mandated benefit nor provide a benefit prohibited by the state. Your response raises another issue in states (such as Ohio) who have amended their Constitutions to provide that no benefits inur to same-sex marital partners. So, in that case, we could not file a policy that defined "spouse" any different than what the state Constitution defines it as. We could of course agree to provide domestic partner benefits and adjust the premiums accordingly (if necessary.)

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Steve:

Federal law does say that an employer can design his plan any way he wants, and only in relation to federal law.

Before a plan is put into effect, in the design stage, ERISA says through the deemer clause, that the employer is not beholden to state standards, such as mandated benefits.

In Metropolitan v. Massachusetts, 471 U.S. 724 (1985), it states, "But 514(b)(2)(A) provides that, with one exception, nothing in ERISA shall be construed to exempt or relieve any person from any law of any State which regulates insurance. The one exception is found in 514(b)(2)(B), which states that no employee-benefit plan shall be deemed to be an insurance company, or other insurer or to be engaged in the business of insurance for purposes of any law of any State purporting to regulate insurance companies or insurance contracts."

Notice the words "no employee benefit plan." It does not say no self insured employee benefit plan; it just states no employee benefit plan is subject to state regulation.

States cannot regulate the plan directly, regardless of how it is funded.

States can regulate insurers, which indirectly effect benefit plans.

States provide insurers an exception to the mandated benefits, through nonconventional coverage, if approved by the insurance commissioner.

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