Don Levit

This discussion is a very interesting one. Aside from what can legally be done, there is also the "humanitarian" aspect. On the one hand, I can understand an employer requiring employees to enroll, if they do not have comparable coverage. There are minimum participation requirements to meet for the group insurance to even be available. The humanitarian aspect comes into play, when employers and insurers choose to act in ways that make liitle sense. For example, those insurers that choose to disregard other comparable coverage, and count those employees as eligible to participate, are acting inhumane, in my opinion. Those employers that require employees with other comparable coverage to enroll anyway, are being inhumane, in my opinion. Legally, the employer's plan will not violate the nondiscrimination rules if benefits under the plan are offset by benefits paid under another plan. Ethically, however, if that situation exists, some financial adjustment should be made for those having other coverage which is primary. Don Levit

Quint. Thanks for your question. The health insurance issue, to have some sense of resolution, will result in market and consumer driven policies that are permanent and affordable. With all the different special interests competing for attention and dollars, I have serious reservations whether we can come to any significant progress. If we do not, and there is an even more significant federal involvement, this will be an unfortunate indicator of self interest run amok. Sure, self interests exist. That is part of our survival instinct. However, to the degree this self interest escalates out of proportion, the common welfare suffers. Eventually, even those with significant financial reserves will feel the side effects. If we can't resolve the insurance issue, which is relatively simple if people work together, how will we resolve much more complex problems? Don Levit

I have been in life and health insurance sales since 1980. The last few years I have studied state and federal regulation of health insurance. I have come to the conclusion that the state departments of insurance know much more about state regulation than the federal regulation of health insurance. Without getting into what preempts what, I hope to use this "confusion" as an opportunity to do some innovative financing of permanent affordable group type products. I believe it is vitally important that we really give a lot of thought to making the market advantageous for all the players. If we don't get this mess cleared up, I fear it will be an indication of our unwillingness to straighten out even more difficult problems. I am very concerned about the type of environment my kids will be living in. Don Levit

Very good question, of which I have a couple of comments. Two letter rulings may be helpful. Let. Rul. 9006051 states that a rebate as described in 1.501©(9)-4© is not a reversion as defined in sec. 4976(b)(1). This refers to a return of excess insurance premiums to their payor, based on mortality or morbidity experience, is not prohibited. In this letter ruling, premiums were contributed by the employers and the employees. The rebates went to the employers, who paid a pro rata share to the contributing employees. Also, in letter ruling 9214030, it stated that sec. 1.501©(9)-4© said that the rebate of excess insurance premiums to the persons whose contributions were applied to such premiums, does not constitute prohibited inurement. The rebates from the Medicare drug subsidy are not based on morbidity experience. And, according to these rulings, only the excess over the insurance premium can be rebated. So, we are back to square one. Is the subsidy a rebate? If so, is it taxable to the employer, if the premiums were deducted? I am looking to enlightenment from others to your very good question.

Larry: Excuse me. I meant 5x pool and 100x specific group. The specific group's experience seems to have 20 times the effect of the entire pool's experience. Don Levit

Larry: When you speak of 5x specific group experience, and 100x pool experience, are you suggesting that this particular insurer gives substantial weight to the group's experience, compared with that of the entire pool? Is this relatively standard, to give such a small percentage of the increase depending on the entire pool's experience? Also, is this blending of the 2 experiences an insurance company's decision, or are they regulated by the states? I am under the impression that in many states, there is a multiple, like the highest group cannot be charged more than 4 times the premium of the lowest group. Don Levit

I am wondering if the employer reimburses the employees for the after-tax premiums paid by the employees, if this may qualify under the 1961 revenue ruling, as deductible by the employer and non taxable to the employee? Don Levit

He never spoke of not rolling over unused funds. This feature can be advantageous if the following scenario was legally possible. Let us assume an employee has an HRA, in which there are no limits on unused balances. After 5 years, he has no claims, and $15,000 in his HRA. This amount exceeds the deductible, and the out of pocket expenses before the insurance kicks in. Could this particular employee have a deductible of $15,000, without the plan being discriminatory? If so, his group premium is lower, and, at least theoretically, this difference in premium could be available in cash or other benefits. Don Levit

If you are looking at a plan that would only be used when needed, would not have to be funded, and in which only a small number of employees would actually use, why not consider an HRA? Can you supply specific figures? What is the deductible now? What amount are you considering raising it to, in which the employer will fund? Don Levit

We are dealing with a couple of issues here. First, the question is does this person have other coverage? If so, does the group insurer for his employer honor that other coverage, so that the minimum participation requirement would be inapplicable? If the insurer does not honor the other coverage, this employee's partcipation may be needed to meet the minimum participation requirements that Kirk mentioned. If his coverage is not needed to meet the minimum participation requirements, then he can opt out of his employer's plan. If the employee does not have other coverage, the opt out choice will probably not be available, from the insurer's standpoint. Second, it sounds like the employee does have other coverage. If so, which policy is primary would depend on your state's coordination of benefits rules. If you can provide more detail, I could provide some guidance based on the NAIC guidelines. Whichever policy is secondary, I would try to discuss with the insurer, or the plan sponsor, a reduction in premium, for that insurer would have less risk. Don Levit

Thanks for your detailed reply. The fact that individual policies are not recognized as eligible policies is very disturbing, because individual plans, if pooled properly, could be the way to provide for more affordable, permanent coverage. I find your analysis encouraging, though, because it does seem to be company practice, as opposed to state law, regarding individual policies being able to "qualify." I learned recently that Aetna and UHC in Fl. do not recognize group OR individual policies in Fl. as eligible policies, but that BCBS does. So, apparently, companies can set the guidelines in this area. Did you check with BCBS? Don Levit

Are you saying that the 2 people who had individual policies were still considered eligible? Why would these policies not count towards the minimum participation requirements, which would leave only one person eligible? If these policies were not "comparable" plans to the group plan you were looking at, I could see some justification for not counting towards the 75%. But, again, my question still would be: Is there any regulation in the FL. code which would prohibit insurers from honoring individual policies, even if they don't count towards the 75% minimum? For example, assume an employee bought a mini med plan which pays $50,000 of benefits a year, with a lifetime max of $1,000,000. Could this group insurer still require participation from this employee, but provide a plan exactly like the group plan, with a deductible of $50,000? Don Levit

GBurns: Whether the plan is an ERISA plan, is a federal determination, IMO. Can you provide a link to one state's insurance code that would say differently? Also, could you provide another link in which the state insurance code mandates benefits for the ERISA plan, as opposed to the commercial insurer of the plan? Don Levit

GBurns brings up some additional areas that seem to cloud an already very murky subject. Let me throw out another situation. Let's say that insurers can legally require all employees to be eligible, regardless if they have individual or group policies. What is preventing insurers from honoring those prior coverages, and offering plans for lesser benefits, which, at least, attempt to provide "full" coverage between the 2 plans? Don Levit

Excerpts from link #2: Health insurance that is an INDIVIDUAL policy under state law MAY be subject to the PHS Act, IF the coverage is provided in connection with a GROUP HEALTH PLAN. An INDIVIDUAL insurance policy state law does not prevent it from being characterized as SMALL GROUP COVERAGE for purposes of Title 27. A GROUP HEALTH PLAN is determined upon the facts surrounding the employer's involvement. So, my question is, if the employee has an individual policy which is not provided in connection with a group plan, it does not appear to be subject to the PHS Act. If so, the individual policy does not seem to be characterized as small group coverage. If that is true, how could the issuer require the employee's individual policy to be included in the group participation rule, if it is not a group policy? Don Levit

Those 2 links were very helpful. Thanks for providing them. Some excerpts from link number one: The statute GROUP participation rules does not require that all eligible individuals or employees of an employer be counted in the denominator. If a participation rule does not count all the employees (both insured and uninsured), then a much smaller number of the uninsured GROUP must participate. Example #2: Company A has 5 employees. All 5 are eligible to participate, but 3 have declined, because they have other GROUP coverage. The 75% minimum participation rule is not met by enrolling 2 employees, because only 40% (2 of 5) participate. The issuer may decline to issue SMALL GROUP market coverage to the employer. Issuers are allowed to include individuals who have other coverage within the total number of elgible individuals. We do not believe that the definition of a participation rule in section 2711(e) of the PHS Act precludes an issuer from including individuals with other coverage in the denominator of the minimum participation calculation. Thus, a state law which permits the inclusion of such individuals is not preempted. To be continued with excerpts from the second link. Don Levit

Thanks for providing that provision from the NC code. It doesn't specifically exclude individual policies either from the participation requirements. Although a bit biased, I don't see what the problem would be if the individual plan (non employer sponsored) was at least equal to the basic benefits plan. I am not asking the question about individual policies as an end run around any legislation. I pose the question as a way to provide for more permanent coverage through an individually owned plan. Don Levit

This is a bit off of the subject, but is getting a lot of discussion on a "competing" chat forum. We are discussing minimum participation requirements for group insurance. In Florida, apparently 2 well known insurers do not consider existing individual policies as eligible to participate. In other words, the employees would have to drop their coverage, or the entire group would not meet the 75% minimum participation requirements. Any one out there familiar with thus insurer provision? Don Levit

Actually, I was thinking of the employee paying premiums after tax, and being reimbursed by the employer. Yes, the employer gets a deduction, but that would be based on the revenue ruling from 1961, in my opinion. The employee would not report the reimbursement as income, because the premium was paid with after tax money. However, let us assume that the individual policy is an ERISA plan. As you know, group plan sponsors can have individual and/or group plans. Why would HIPAA and COBRA be applicable to a guaranteed renewable individual policy? You are correct that group plans can not discriminate based on health, but individual plans CAN do so. By its very nature, individual plans will have different premiums for applicants with different health histories. This seems like a catch-22. By the way, I am reading the book by Joseph Heller. Any critiques out there on the book? Don Levit

As I understand the revenue ruling in 1961, which is still very applicable today, the employer can take a deduction as a legitimate business expense for medical insurance premiums. If the policy is initiated while an employee of this particular employer, it is NOT an ERISA plan, generally, if the plan is not endorsed by the employer. Paying premiums would be one factor in the endorsement process. However, because the employer is reimbursing the employee (with proper verification), and not the insurer, this payment should not be a problem. This would be even more pertinent, if the employer had no impact on the selection of a particular policy. I don't see how discrimination plays into this at all, even though one must be very healthy to get the policy initially. How could this be discrimination, particularly if the policy was purchased before coming to the employer? Whether the employee is reimbursed or not, is strictly part of the negotiation process of being hired. I guess you could label it discrimination that some employees have their premiums reimbursed, and others do not (although not accurate legally). You could stretch this to a ridiculous extent to say that reimbursements for dissimilar premiums, or reimbursements for single v. family coverage is discriminatory. If the employer decided to cancel all group insurance, and provide reimbursements for individual plans, would this be prohibited? Don Levit

Many times, storytelling can be a very effective way of receiving inspirational material. The Bible is a very good source, as articulated earlier. Another inspiring book, for me, was "Atlas Shrugged," by Ayn Rand. Don Levit

Would the answer be different if there was a governmental plan defined in 414(d), or in ERISA 3(32)? The ERISA exemption seems to be similar for church and governmental plans. I am working with a consortium of tax exempt colleges and universities. The chief counsel at this particular department of insurance, says that even though ERISA may exempt this consortium, it would be subject to state regulation as a MEWA. Working with the letter of the law in this particular state, self funded MEWAs are not permitted. This particular consortium wishes to self fund part of the benefits in a VEBA trust. Don Levit,CLU,ChFC

He was merely stating what his state traditionally has done. There was no explanation as to why the municipality "MEWA" was not subject to state regulation, other than the department reviewed the situation and concluded that. I am fairly sure if I inquired, he would provide the supporting material. He was very helpful, and we talked for about 30 minutes. I do know they are very wary of MEWAs (with good reason). I will say this, though. This particular state regulates self funded MEWAs to be licensed insurers, which is a good thing. When he mentioned that all the laws of the state may be applied to regulate a MEWA, I asked him: "Does that mean your state must apply every state law to a self funded MEWA, including surplus and reserve requirements, regardless of the number of participants and the liabilities assumed?" He said that his department does have discretion, and that my particular situation, if this consortium wishes to continue, would be reviewed on a case-by-case basis. Don Levit

Would state laws be applicable if several colleges and universities (all public) pooled their resources into one fund? I spoke with the deputy chief counsel of one of the state departments of insurance. I am purposefully not using specifics, in order to protect the privacy of the various parties. He stated this would be a MEWA, that would be subject to state regulation. I do not have much experience with government plans. I thought they were not subject to state regulation if self funded. The MEWA litigator of this department of insurance said that in his state, certain municipalities can band together, and not be subject to state laws. However, this does not apply to colleges and universities, according to this individual. If anyone can cite any applicable regulations, I would appreciate it. The VEBA is not as significant, for it is simply a funding mechanism. I am asking if this arrangement would be a MEWA, and if so, is it subject to state regulation, if self funded. I am looking for some kind of objective verification as to the "truth." Thanks for your attention. Don Levit

What type of state regulatory laws would apply to governmental plans, such as tax-exempt colleges and universities? Specifically, regarding VEBAs funding health benefits for employees of these organizations, would the state department of insurance regulate reserves and surplus levels for the self funded portion of these plans? Or, would that regulation be subject only under the auspices of the DOL? Don Levit