Don Levit

Kirk: Good point. My only comment is that, instead of discriminating due to health status, the employer is discriminating due to "affordability" status. I have thought for a while that the laws are too focused on discrimination due to health, that the end result is to discourage the healthy and not so wealthy from participating in group plans. Why not have the total premium for each employee be one that is negotiable? Assuming the employer subsidy is the same, have the total benefits be in direct proportion to the total premiums. VEBAs can be set up this way. Don Levit

Group insurance arrangements are also sponsored by employers. I read "group" in this section of the Kansas regulations to mean a group of employees. By the way, you can find this regulation in the Kansas Benefits Model Regulation, K.A.R. 40-4-34. Not only must an employer be the sponsor; it must be actively involved as the sponsor. The fact that these plans may not exist may not mean they cannot work. I am only suggesting a route that is different from the plans out there. Don Levit

Kirk: Very good question. How about this: Plans may not require an individual to pay a premium or contribution greater than that for a similarly situated individual based on a health-status related factor. IRC Section 9802(b)(1)

Kirk: This is like a soap opera with 2 stories going at the same time. Keeps this thread interesting! I see the employer subsidy issue of various amounts being similar to the HSA comparability rules. How can the employer provide different dollar subsidies for employees, if, for example, the premium, per employee, is the same? Don Levit

gdburns: Group-type arrangements are sponsored by employers or employee organizations, whether MEWAs or single employers. Because of this, the plans can qualify as ERISA plans. They are allowed tax deductions as well. Due to significant employer involvement, the terms and conditions can be tailored to the needs of the employees. I do not know of any of these arrangements in the marketplace. However, these regulations are in many states' insurance codes. Again, I mention this as a way to alert people they may have options for innovation and creativity, possibly without new laws needing to be passed. Don Levit

Kirk: On first thought, I tend to agree with gd burns. On second thought, however, if you use the "standard" classification of HCEs, if you discriminate against them, would this be acceptable? I am aware that in some situations, this would be kosher. Don Levit

gdburns: You have said quite a bit here, so I will try to limit it to more specifics. "Group-type plans" are found in many state insurance codes. Their definitions pretty much mirror that of the NAIC. For example, to take Kansas' insurance code, since you seem to have an affinity to be there: "Group-type contracts are contracts which are not available to the general public and can be obtained and maintained only because of membership in or connection with a particular organization or group. These "group-type" contracts are distinguished by 2 factors: (1) they are not available to the general public, but may be obtained only through membership in, or connection with, the particular organization or group through which they are marketed; and (2) they can be obtained only through such affiliation." Of course, these plans can be fully insured or self insured. Don Levit

gdburns: I agree with you that insurance companies are primarily responsible to their stockholders. The departments of insurance, however, should be more sensitive to the public interest, as well as to the interests of insurance companies. The expensive costs you mentioned regarding filing should be streamlined, IMO, for "experimental" policies. These plans would be amended policies (at least amended from the standard group plans available for sale). By the way, do you (or others) have any idea how departments of insurance handle group-type plans? These plans, by definition from the NAIC, are intended to be those NOT offered to the public. Happy Thanksgiving to all! Don Levit

gdburns: I agree with you that insurance companies have nothing to do with plans. Their function is with policies, not ERISA plans. It is not the insurers' function to merely offer policies that the state has approved to ERISA plan sponsors. It is the insurers' function to offer policies that are of value to the plan sponsor, which may well be policies that do not match the state's approved guidelines. What the state requires of the insurer to offer has little relation to what the plan sponsor can choose to provide for the employees. This state "approved version" can serve as a good starting point for discussions. Indeed, for both the insurer and the sponsor, there needs to be a "give and take" process. In that situation, if the "negotiation" is successful, the insurer would need to ask for authorization to sell the amended version. What is stopping an insurer from doing so, as well as prohibiting the insurance commissioner from approving the amended version? Don Levit

gdburns: That is an excellent idea you brought up, about units of coverage. This is the type of plan I am envisioning, where, for example, each unit represents x amounts of dollar benefits. These dollars can be used for all covered benefits above the deductible. We have currently, with group plans unable to base premiums on health status, a community-rated premium. This premium would be similar to buying various "units" of coverage. Don Levit

gdburns: This particular church plan is self insured. The plan sponsor is able to determine the benefits and price accordingly. He would still be subject to not discriminating due to health status. So, for example, assume the plan is set up with a $5,000 deductible, with $50,000 of benefits per year. The premium turns out to be "x" for each employee, with the employer paying half. If one employee pays nothing, he ends up with half the benefits (or, its actuarial equivalent). Don Levit

gdburns: I was thinking of the small groups, in which the premiums do not vary due to health status. Each employee has the same premium, for example, for employee only coverage. The insurer has provided a community rate, in which x amounts of benefits are provided. If an employee pays none of the premium, of which half is paid by the employer, what is stopping the insurer from offering a plan of one-half the benefits? You will probably respond that the insurer cannot do this, due to state insurance regulations. As you know, ERISA plans have various parties. Which party would be the insurance company? As that party, if applicable, would it have the right to structure the plan? Or, would its rights under an ERISA plan be merely to fund the benefits selected by the plan sponsor due to its party status as a sponsor? Don Levit

GBurns: You may want to look at Rev. Rul. 2002-3. It can be found at: http://www.irs.gov/pub/irs-drop/rr-02-3.pdf. It states, "The salary reduction used to pay for health insurance premiums under M's (the employer) payroll arrangement could be done with or without employee elections. If an employee elects salary reduction pursuant to Sec. 125, the coverage is excludable from gross income under Sec. 106 as employer-provided accident or health coverage. When M applies the amount of employees' salary reduction to pay health insurance premiums, the premium payments are made by M, not the employees, and are excludable from the employees' gross income under Sec. 106 because they are paid by M. If the premium payments were instead actually paid by the employees out of the employees' salaries, the salary amount from which the payments were made would not be excludable from the employees' gross income." If the 60% of premium payments were made inside the cafeteria plan, it seems that discrimination would be a concern. Don Levit

It is good that you are considereing alternatives in order to boost enrollment. Are the premiums the same for each employee, regardless of age? If so, have you considered premiums based on a percentage of salary? Those paying x premiums get y benefits; those paying 5x premiums get 5y in benefits. Don Levit

It would be important to determine where the alleged fault lies. Was this disagreement due to the negligence of a particular fiduciary? If so, the fiduciary, as opposed to the plan, may be personally liable. What is specifically alleged by the plaintiff? Don Levit

A couple of other points come to mind. First, if this is a payroll decision, could it be considered ministerial, and thus not subject to fiduciary concerns? Or, would this be a settlor issue, a business decision, not subject to fiduciary concerns outlined in ERISA? Also, because this person is disabled, does that open up benefits that he can receive, so that nondisabled people would not be discriminated against? Don Levit

This is a very practical concern as well as a compassionate one. Participation problems can be very real, with most insurers requiring 75% participation. Have you considered the idea of using the "community rates" of group insurance for purchasing x amounts of benefits per premiums paid? A person who pays double what one individual pays would get double the benefits? Don Levit

French: Go to: http://www.cahi.org/cahi_contents/issues/article.asp?id=491. Click on Health Insurance Mandates in the States 2004. Bear in mind these mandates apply to health insurers, not plan sponsors, regardless of how the policy is funded. Don Levit

I agree with you. It is very easy to reduce premiums by shifting costs. The problem comes in once the higher deductible levels are reached, say between $2,000-$5,000. At that point, the premium reduction will not be as great for these cost-shifting tactics. To be a good gardener, you must not only love food. You have to hate weeds! Don Levit

Steve: Well, I guess that ends the discussion, since you mentioned the word "illegal." My contention is that insurers and departments of insurance have a lot more flexibility than just deciding betwwen legal and illegal. More innovative, affordable, and permanent products can be introduced by insurers, in my opinion. It is not that I am convinced of the legality of these options. It is that I am convinced of the confusion of the various regulations. This confusion opens up the opportunity of experimenting with different products. If the insurers and departments of insurance CHOOSE to not pursue this path, I certainly respect their decisions. The fact that action is not being taken, is a choice, not because new laws must be passed. Don Levit

When you say that plans may not be regulated, but policies can, I agree with you! The insurance companies are stuck with the terms of the policy, not the plan sponsor. And, this would apply, regardless of whether the plan sponsor of an ERISA plan is self insured or fully insured. There has not been a federal case, to my knowledge, in which the state attempted to compel a plan sponsor to structure the plan in a particular way. There have been federal cases, including the Supreme Ct. case of Metropolitan v. Travelers, in which the state could compel the insurer to offer the benefits. The case did not go into whether a particular plan sponsor had to accept the benefits. Can you cite a federal case in which this was so? Don Levit

You are correct in the general statement that states can regulate insurance. But, as you are probably aware, all generalizations are false. There is an interesting body of law known as ERISA. From that has evolved many federal court cases regarding preemption of state laws regarding ERISA plans. For example, the Suppreme Court ruled in Shaw v. Delta Air Lines in 1983 and FMC Corp. v. Holliday in 1990, that state laws that prescribe specific benefits that an employee benefit plan must afford are preempted. As I recall, an ERISA employee benefit plan can be self insured or fully insured. Therefore, state laws that attempt to structure ERISA plans (however they are funded) are preempted. Now, this of course is my opinion, based on 2 Supreme Court cases. Am I right? Well, I think there is enough conflict and confusion betweeen state and federal legislation, such that state regulators should study the matter a lot closer; certainly a lot closer than the federal government allows us to regulate insurance any way we want. Don Levit

Mary: I understand the predicament the insurer could have in filing a plan without some of the mandated benefits. I have spoken with several state departments of insurance, and they all give the answer that they would not approve a plan without the mandates. There are several states that also have 2 types of mandate provisions. The first is what we are discussing: mandated benefits. The second is known as mandated offerings. Here, the insurer must offer the benefits, but the plan sponsor could refuse some or all of the "mandated offerings." Other than the 4 federally mandated benefits, all mandates are "mandated offerings," in my opinion. I have found the state departments of insurance regulators to know a lot about state regulations. Unfortunately, their knowledge of federal regulations is inadequate, in my opinion. Even more alarming, is their apparent disregard and even disdain for federal regulations. Any apparent conflict or confusion is resolved in favor of state laws, as if the federal laws didn't even exist. Do you have any solutions for hubris? Don Levit

Mary: It is my personal belief (which is fairly radical) that this particular provision is ultimately to be determined by the plan sponsor. The state laws may have these mandates written into the various insurance codes, due to legislation passed by the states. However, this particular provision is not one of the 4 federal mandates that I am aware of. Thus, although the state insurers may have to offer the provision, the plan sponsor does not have to provide for coverage for opposite gender domestic partners (or same sex domestic partners). It is the plan sponsor's ultimate call. Don Levit

I have a client who had an individual BCBS policy. When she was officially declared "disabled," by Medicare, after 2 years of disability, she enrolled in Medicare, including Part B. I received a letter from BCBS that Medicare was the primary payer. From that experience, I reasoned that one could indeed have Medicare and another policy in force. What really upset me was that even though BCBS acknowledged in writing that Medicare was primary, they would not lower my client's premium, due to their lower amount at risk. Don Levit