Don Levit

George: On this message board, there have been several updates regarding HSAs and which states still do not have them. The reason they are not available in these states, is because the accompanying HDHP does not meet the specifications of these states' insurance codes. While I do believe that an insurer could still submit an amended policy, and possibly, get it approved as an experiemental, non conventional plan, apparently insurers have not done so. In my experience, state approval is always needed before an insurer can offer a plan. Are you familiar with the Supremacy Clause? In effect, it states that if there is a conflict between state and federal law, that federal law must supersede state law. This is why I asked the question if this federal law (which I consider to be insurance regulation, such as ERISA is) is a commandment or a suggestion to the states? Don Levit

George: From following the posts in this particular section, I have learned that not all of the states have plans that correspond to the HSA/HDHP federal law. My point here is in questioning whether, if this is true, these states are in violation of the federal law? While states do have the authority to regulate insurance, the laws would be preempted if in violation of federal law, such as ERISA, for example. Don Levit

Folks: Interesting comments. It seems like you two are leaning more toward the legislation focusing on tax and investment policies. I see it more as an attempt on the federal government's part to provide more health insurance options. Is it reasonable to see this as insurance legislation, with a mandate that states make the products available? It seems to me, that even assuming the states perceive this is insurance (federal) legislation, the states still have the authority to ignore it, at their option. Don Levit

Folks: I am curious what your thoughts are on this issue, considering there are still, I believe, a few states that do not have HSAs. Because insurance regulation is left primarily to the states, does a state have the right to not provide for HSAs? Or, would this state action be in violation of federal law? Is the federal law more of a suggestion to the states on how to provide for the insurance needs of its citizens, or an obligation? If one or the other, how can you tell the difference? Don Levit

George: The PHSA stands for the Public Health Service Act. I am not sure to whom this applies, although according to a memorandum from the Dept. of Health and Human Services from Sept. 2002, these associations are applicable to the group and individual markets. I would assume that the people are banded together either individually, or in groups, through some common bond. The VEBA provides a similar function, if more than one employer is involved. Through section 501©(9), employers, in the same line of business across 3 contiguous states, can form an "association," expressly for various health and welfare benefits for its participants. Don Levit

Folks; I am curious about any conflicts you may see between these 2 entities. According to Sec. 2791(d)(3) of the Public Health Service Act, a bona fide association, with respect to health insurance coverage offered in a state, must meet the following requirements: 1. Must have existed for 5 years. 2. Been formed for purposes other than obtaining insurance. 3. A person must not have to prove health to join. 4. Must be a member of the association to obtain insurance. 5. Meets any additional state requirements . A VEBA is formed in order to obtain insurance for the participants. Wouldn't this conflict directly with the first 2 requirements of a bona fide association? Don Levit

mjb: Thanks for providing this interesting case. I believe the court was correct in holding ERM liable as an unlicensed insurer. I am not sure why you mentioned this case, as I don't have any material disagreements with it. One excerpt stated, on p.4, "States may regulate a MEWA which is not fully insured to the extent that the state's regulations are not inconsistent with ERISA." "Inconsistent with ERISA," has been further explained in ERISA, and a DOL Advisory Opinion to mean that the insurer is able to pay claims on a timely basis. In this case, the Idaho MEWA was not fully insured, and there are no specific MEWA laws in Idaho. Nevertheless, Idaho does have the right to apply any and all state laws to regulate the MEWA, in order that the licensed insurer will pay claims on a timely basis. That does not mean, in my opinion, that the Idaho department of insurance is obligated to treat this particular MEWA as a full-fledged commercial insurer. In fact, to chosse to do so makes little or no sense, for a host of reasons, which I will explain if there is any interest in hearing about.

Belgrath: Thanks for the posting. Can you level with us and bit, and tell us what prompted you to share your experience? Shalom, Don Levit

mjb: Sounds interesting. Can you provide the names of the parties? Don Levit

Joel: Thanks for your reply. I am much more familiar with private sector retiree health benefits than those in the public sector. Every court case I have seen discusses whether health benefits vest or not. Not one case that I can recall refers to vesting of how the benefits are paid for. Is anyone familiar with any case in which the employer not only had to provide lifetime benefits, but also had to pay for the benefits in full? Don Levit

mjb: Thanks for your reply. Would there be any state guarantee for DC funds, if part of the contributions were matched by the school districts? Also, if retiree health benefits do not vest, why would the state have to guarantee them? Don Levit

Folks: Because this governmental plan in NJ is not subject to ERISA, it seems like the state assumes the role of fiduciary. Does the state also assume the role of the ultimate guarantor of underfunded defined benefit plans? Would the state offer any guarantees for defined contribution plans? Don Levit

WDIK: Apparently, you know quite a bit, and I have been lowered a bit from my high horse! While we're at it, I hope I am not being too personal, but, what does WDIK stand for? Don Levit

S.O.S. For the pad that cleans dishes, what do the letters stand for? Harry S. Truman What does the "S" stand for? Don Levit

Steve; My first post was trying to point out that if an organization has features of being commercial in nature, they could very well lose their tax exempt status. It makes the playing field an unlevel one for 2 entities to provide similar products, yet one entity receives favorable tax treatment. From the Kentucky v. Miller case, one could reasonably infer that since single employer ERISA plans provide insurance, their regulation should not be preempted. I think the Supreme Court is finally getting it right, after 20 years of arbitrarily saying that single emloyer self insured plans are not subject to state regulation, while multiple employer self funded plans are subject to regulation. Both single and multiple employer self funded plans should be subject to regulation, in my opinion. Did I state otherwise previously? Don Levit

George and Steve: MEWAs are regulated, not because they are in the "business of insurance," but because they are considered insurers who provide insurance. In Kentucky Assn. of Health Plans v. Miller, it states, "ERISA's savings clause does not require that a state law regulate 'insurance companies' or even the 'business of insurance' to be saved from pre-emption; it need only be a 'law which regulates insurance,' and self insured plans engage in the same sort of risk pooling arrangements as separate entities that provide insurance to an employee benefit plan. Any contrary view would render superfluous ERISA's 'deemer clause', which provides that an employee benefit plan covered by ERISA may not '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.'" Don Levit

George: As I understand it, BCBS is losing some of its tax exempt status for it is deemed by the IRS to be "commercial" in nature. Notice 2003-31 states, "Section 501(m) provides that an organization described in 501©(3) or 501©(4) shall be exempt from tax under 501(a) only if no substantial part of its activities consists of providing commercial-type insurance. Section 501(m)(3)(A) provides that the term commercial-type insurance does not include insurance provided at substantially below cost to a class of charitable recipients. Congress adopted 501(m) in 1986 because it was concerned that exempt charitable and social welfare organizations that engage in insurance activities are engaged in an activity whose nature and scope is so inherently commercial that tax exempt status is inappropriate. Congress explained that that the provision of insurance to the general public at a price sufficient to cover the costs of insurance generally constitutes an activity that is commercial." Don Levit

George and others: No! I understand the "business of insurance" to mean a commercial insurer, who is in the insurance business to make a profit. How do you understand the term the "business of insurance"? Would it be simply an ERISA plan that provides medical benefits? No, siree, not in my book, and not in the federal government's book either. That is a plan, which is really neither none of your business, nor that of the business of insurance! Don Levit

oriecat: Thanks for those 2 postings. I especially liked the definitions of a group health plan and a health insurance issuer in the introduction. A group health plan means an employee welfare benefit plan to the extent the plan provides medical care to employees directly or through insurance, reimbursement, or otherwise. A health insurance issuer or issuer means an insirance company that is required to be licensed to engage in the business of insurance in a State and that is subject to State law that regulates insurance. It looks like that, because a plan is not in the business of insurance, (even if it provides insurance, instead of direct reimbursement), the only mandated benefits that apply to the plan would be the federal mandates that George referred to. Right, George? Don Levit

George: I am glad you brought up the issue of federal and state mandates. I kept a copy of the material, because only the federal mandates apply to the ERISA plan. The state mandates apply only to the commercial insurer, who is subject to full state regulation. Don Levit

Larry offers some very valuable advice. All those items should be evaluated. It seems to me, that because the insurer made this offer, one would think it is in the client's best interest not to accept the cash payout. Assuming the lump sum option is not specified in the contract, why couldn't a lump sum be offered by a different insurer? Could a broker obtain offers from other insurers, maybe even a modified viatical offer? Don Levit

Leevena: Is this option listed in the contract? Have you contacted your state department of insurance? Don Levit

Jennifer: Thanks for your reply. In this case, I do not need to search for the other post, for I contacted an individual at the DOL who gave me the reference in the Federal Register. If anyone is interested, I would be happy to provide the link. Don Levit

AMP: Would you agree with Locust that state laws must be considered for fully insured plans to determine if this type of scenario would be permitted? Do you think that there are no discrimination provisions for fully insured plans, precisely because the states DO have laws addressing the iszsue? Don Levit

George: Take a look at another post today on employer matches for 401(k)s. It seems the match can discriminate for lower paid employees, not higher paid employees. No one seems able to address my question regarding employer comparability provisions for HSAs, and how this may relate to discrimination under waid 10's scenario. Locust: I understand fully well the difference between insured and uninsured. You brought up the possible conflicts between state and federal law in reagards to whether the plan can be offered. Do you know of a particular situation, in which this plan has passed legal muster? Don Levit