Don Levit

Chloe: From what I understand you saying, we are discussing 2 types of employee discrimination. The first deals with hiring and firing issues; the second with an employer's ability to structure a plan with health and wellness incentives. Both of these areas are under state jurisdiction, except for those issues in which the federal laws would preempt state laws. Why would HIPAA not preempt state laws which were written before the health and wellness incentives were provided under federal legislation? Even if one could make a legal case for state authority, how would we address the federal legislation regarding a bona fide wellness program? We wouldn't merely say, "Well, this federal legislation is nothing other than a suggestion, would we?" Don Levit

George: HIPAA provides 4 requirements for a bona fide wellness program: 1. The total reward for complying must be no more than 20% of the total cost of the coverage. 2. The reward must be available to all similarly situated individuals. 3. The program must be reasonably designed to promote good health or prevent disease. 4. Materials describing the terms of the program must disclose alternatives to comply with the standards. Don Levit

Chloe: I am curious if you have any other information regarding some states prohibiting these types of incentives. I understand there are specific federal guidelines for appropriate bona fide wellness programs. What legal authority would states have to justify abolishing this type of federal incentive plan? Don Levit

George: The employer can offer a plan that is not subject to ERISA, even an employee welfare benefit plan. mjb cited Labor Reg. 2510.3-1 (j). Why don't you look that up, and explain to us how this is not applicable? These group or group type insurance progreams are expressly excluded from ERISA coverage. They also can provide welfare benefits that are not available to the public. Here is another instance where commercial insurers and self insured plans such as those offered by MEWAs have federal authority to provide innovative policies. Don Levit

mjb: You are not crazy. I am with you all the way. Although I am not so sure I am a good reference for you, according to some members of this group. In my opinion, it is a plan, for there is ongoing administration. But, it is not an ERISA plan, as mjb so adequately explained. The administration of checking to make sure the policy exists is mandated by the revenue ruling cited by mjb. Don Levit

Mary: I just want to get some clarification. Are you saying that the firm you work for will offer only one plan, that of a self funded arrangement on a nationwide basis? If so, I am curious what led your firm to this change? My personal opinion is that you would have a responsibility to alert the participants who would be effected between May 12 and July 1, and for those effected until July 1 of 2007, just to be safe. A self funded plan need not abide by state mandated benefits, unless they happened to mirror the federally mandated benefits. Don Levit

Brett: Real funny, you little ......... Okay, now this ERISA preemption stuff is hard to get a handle on. It's been litigated for over 20 years, so I doubt we can wrap this up today. But, if we work together, we can make some progress. Maybe we need a bit of a breather. Let me know when you feel more comfortable about sticking to the message, not the messenger. Believe me, the message is a bit more important than the messenger. Don Levit

Steve and Jeanine: One thing I forgot to mention. Metropolitan v. Massachusetts was a case between an insurer and a state. It was not between a plan sponsor and a state. Does anyone know of a federal case in which the 2 parties were a plan sponsor of a fully insured plan and a state? Don Levit

Jeanine: How do you know you must provide for benefits that are mandated by Ohio? How do you know that you cannot provide benefits that are prohibited? I wonder if your state has a nonconventional policy provision, which could allow for this. I am not saying that your commissioner would do this. The question is "Has this type of negotiation ever been attempted for fully insured plans?" Is there a state law in Ohio which prohibits this type of dialogue? Don Levit

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.

Budman: Have you considered 2 separate group plans? Why not have an underlying, limited benefits primary plan, whose benefits vary directly with the contributions made? Benefits can grow each year, depending on contributions and claims, per participant. The secondary plan will have a deductible, per participant, based on the total coverage of the primary plan. In order to have 2 plans, the HSA may not be available, but you could look at other tax-advantaged entities, such as a Roth IRA. Don Levit

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

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

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

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

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

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

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

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

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

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

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

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

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