Don Levit

One item I forgot. Do you feel single employer self funded plans provide the necessary oversight, being subject only to regulation by the DOL? Isn't that one of the reasons we had all those insolvent MEWAs, since up until 1983 they were subject only to federal regulation? Don Levit

How would you feel if the MEWA was partially self funded, with stop-loss insurance for the catastrophic claims? Why would this be less secure than a single employer who does the same? I would think the ability to spread risk would be a benefit for employers, particularly under the 10-or-more employer plans. As you probably know, there is not experience rating in these arrangements, so that the trust fund operates more like an insurance mechanism, than a pure funding mechanism. As an aside, non exempt function income would include income not actuarially needed for paying claims in a particular year, right? Don Levit

I was thinking of the UBIT as it applies to 10-or-more employer plans, of which the VEBA could be used as a funding mechanism. If the amounts set aside in this arrangement exceed the fund's account limit, the excess is taxed as unrelated business income. Whether insurance commissioners consider ERISA's purposes in deciding which state laws apply to self funded MEWAs is certainly up to them. Rather than focusing on that as a requirement, I personally feel that would be good policy, for self funded MEWAs are part of ERISA. When you state that MEWAs are inappropriate for self funding medical benefits, are you referring to the form itself, or the substance? The form is nothing other than a single employer arrangement multiplied by 1, 2, 10, etc. If you are referring to the substance of a multiple employer plan, my bias is that these plans can be structured to be more accountable than single employer plans. This is because single employer plans have virtually no fiduciary responsibility to the participants to ensure that claims will be paid in a timely manner. Don Levit

But discretion has not been granted by statute. Discretion to the states has been granted up to this time, by the DOL. The statute says that states are to use discretion in not passing laws that are inconsistent with ERISA. I am merely saying that, by law, the states do not have the right to regulate MEWAs, without considering the regulations in light of ERISA. So, we are back to what states have traditionally done in regulating MEWAs since 1983. In your opinion (or others out there), would it be appropriate for commissioners to consider not only state regulations' effects regarding ERISA, but other federal laws. For example, VEBAs have strict guidelines regarding the amount of reserves they can accumulate. Anything exceeding this amount is subject to an excise tax. Many states have reserve laws which could very well trigger the UBIT. Not only would this be costly to the VEBA, reducing the amount of benefits for the participants. But also, the premiums would have to be higher, in order to accumulate these reserves. This would seem to be in violation of the trustees' responsibility to provide solely for the interest of the participants. I am suggesting that states need to consider the impact their laws have, in relation to federal laws that also exist. What do you think? Don Levit

The authority is the Rev. Rul. you cited. The employee pays his premium with after-tax money. The employer reimburses the employee, and deducts it as a medical expense. The employee does not have to then report the premium as income. As I recall, the Rev. Rul. dealt with 3 different situations, all involving one policy. I don't think it involved more than one individual policy. Whereas you don't have that situation, maybe someone else would know if there would be discrimination for reimbursing different amounts for different individual policies. My guess is this would be part of one's salary, just as group insurance is. Single employees get "less" of a monetary benefit than those with a spouse or children. Don Levit

Vebaguru: You are correct about the Secretary of Labor being able to assert federal preemption. But in Section 514, it specifically says that only those state laws which are consistent with ERISA may be applied to MEWAs. So, those laws which are inconsistent with ERISA may not be applied. To me, it seems that the purposes for establishing ERISA are important. For example, one purpose for establishing ERISA was to encourage employers to establish pension and welfare plans. Along those lines, state laws should serve the same purpose. What do you think? Don Levit

Multiple employer VEBAs are considered MEWAs, and as such, would be regulated by the states. According to Section 514(b)(6)(A)(ii), any law of any state which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title. I know there is a separate section which outlines the purposes of ERISA. Are they included in Title 1? If not, wouldn't it be prudent to consider the outline of purposes for ERISA in determining whether any state laws were "inconsistent" with ERISA? Don Levit

I see no problems with your proposal. I assume you are alluding to any discrimination issues? What your company is doing is what should be duplicated much more: reimbursing those individuals who have initiated their own health insurance program. My only concern is possible "reverse" discrimination. Since this employee would not "participate" in the HRA, would this be an issue, due to comparability of contributions? Don Levit

Danny: This is indeed good news, in more ways than one, for church groups. Thanks so much for your reply. I will be in touch with you. Don Levit

Are church plans that are partially self funded regulated differently than employers in the private "commercial" sector? Would it make a difference if there was more than one church in the same denomination as to how it might be regulated by the states? Don Levit

The employer can certainly provide an increase in salary, if an employee already has the medical benefits through his own policy. There really should not be any adverse selection. The insurance company and the employer will (or should) verify that coverage is available. The existince of an individual policy will not count against the mandatory participation % the insurance company will require. Why would the individual policy partcipant lose his coverage if he develops a condition? I understand all individual policies must be guaranteed renewable. Don Levit

That revenue ruling will discuss the employer refunding the employee for making after-tax payments to the insurance company, all on a non taxable basis for the employee. If you wish to simply provide a payroll deduction for the employees, you can do so according to 29 C.F.R. Section 2510.3-1 (j). A case you may want to refer to can be found at http://pacer.ca4.uscourts.gov/opinion.pdf/042370.U.pdf. Refer to p.5-6. Don Levit

You pose an interesting premise, particularly on the part where all have the same benefits, except HCEs have larger deductibles, and thus, lower benefits. To discriminate against HCEs is acceptable discrimination. But, the case is not as clear cut, for you seem to imply that all HSA contribitions are made by the employees, and in this case, all HCEs. I think one could make a case this may be discriminatory, in that one could contribute over $10,000 per year, if he had a family. Of course, if this was set up, although the HCE may indeed have over $20,000 in his HSA at the end of the second year, his deductible would be around $10,500 (depending on the inflation index). In that scenario, even if the employer agreed to cover the first $10,500 of non HCEs expenses, the HCEs would still have (if family coverage, with the highest deductible) over $20,000 in a tax-advantaged account, of which non HCEs would have zero. Aside from the discussion about HSAs, what are you actually trying to accomplish? Don Levit

Jeanine: I was assuming the medical expense was a covered expense. There are times, of course, when whether it is covered or not can be questionable. I was also assuming there was enough money in the account to pay for the expense. More importantly, the legal question is Does the insured have the right to negotiate for an automatic withdrawal from his HSA, regardless of what the insurance contract may state, or what is the traditional way of handling claims below the deductible? My position is that the HSA is a very different trust account, which, legally, provides the insured the freedom of paying cash from the HSA at the time of service, if he chooses do so. Certainly, the administrative costs are lower, without having the claim administered. I understand this would be "invading your space," but I still wonder what might be the "official" legal position. Don Levit

The HRA is a separate self-funded account, yet, I believe, it is considered an ERISA plan. In that situation, there would be fiduciary responsibility to the participants for providing low cost reimbursements. However, the HSA is typically not considered an ERISA plan, although it is coupled with a qualified HDHP. In that situation, I would assume there is no fiduciary liability, for, technically, the employee has complete control over the funds. This may be a stretch, but I believe if the insured pays cash to the provider, the amount paid should go toward the deductible, whether it is below or above the actual negotiated price. Any thoughts? Don Levit

Vebaguru: Are you saying that the insurers who provide the coverage above the deductible are not typically applying the network negotiated prices below the deductible? This would seem foolish, if the network prices are below what the HRA ends up paying? Don Levit

In Kentucky Association 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 preemption; 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. Both of Kentucky's AWP laws apply to all HMOs, including HMOs that do not act as insurers but instead provide only administrative services to self insured plans. Petitioners maintain that the application to noninsuring HMOs forfeits the laws' status as laws which regulate insurance. We disagree. These noninsuring HMOs would be administering self insured plans, which we think suffices to bring them within the activity of insurance for purposes of Sec. 1144(b)(2)(A).

I read today that Roth 401(k) contributions are similar in concept to Roth IRA contributions, but they are not subject to the Roth IRA income-eligibility cap. Does this mean that there are no "discrimination" issues regarding the percentage of salary each participant contributes? I read through the IRS proposed regulations, and did not get any confirmation of this particular issue. Don Levit

Gary: Your reply seems to support my contention that insurers should have little or no involvement with slowing down HSA withdrawals for medical expenses, whether covered or not covered under the deductible. Assuming the insured can negotiate a cash price equal to or below the network price, if in network or below the out of network price, if out of network, there should be no quarrel from the insurance company. Instead of requiring that the bill first be submitted for repricing, simply allow the insured to pay the fee at the time of service. Any thoughts? Don Levit

As many of you know, if employers meet basic safe harbor requirements, HSAs are not considered an employee welfare benefit plan even when employers contribute to the accounts. The HSA is not part of the health plan. Rather the HSA is a freestanding, individual financial trust that is used to fund health plan expenses. The insurers' involvement in making sure the insured pays the "approved" amount from his HSA slows down the convenience of payment at the time of service. Is this insurer involvement one that is customarily done, rather than legally mandated? Is this insurer "control" codified in any state or federal law? Because the HSA does not need to be under the auspices of the insurer, maybe some of this insurer involvement in covered expenses under the deductible is unwarranted. What do you think? Don Levit

GBurns and any others: If a family cannot afford the total (say, $100), out of pocket costs for a visit to the physician (but can afford the smaller co-pay), how can they afford the total family premiums, which may be $1,000 per month? Isn't it foolish to have the insurance network, with the smaller co-pays, or no co-pays, for in network usage, if the total premiums are uinaffordable? Don Levit

GBurns: One other comment about the article you posted. Jennifer Edwards of the Commonwealth Fund said that "the removal of costly benefits and the implementation of high deductibles do lower insurance premiums. But these changes often make plans unappealing to many consumers who can't afford to spend their own money on routine health care." If the consumer cannot afford to spend their own money on routine health care, how are they supposed to spend any money (theirs' or their employers') on routine premiums? Don Levit

Thanks for your replies. It is difficult to say how commissioners will react to their authority. It depends probably how committed the particular commissioner is to innovation. I simply wanted to point out that for those companies who wish to pursue "fullfilling a reasonable public need," that the insurers may have more freedom for innovation than they lead the public to believe. Maybe more affordable plans have not been introduced, because insurers have chosen not to do so. GBurns, thanks for the article. I agree that simply raising deductibles, lowering benefits, and increasing co-payments is not an arttractive "experiment." I was thinking along the lines of a limited benefits plan, say one that provides $10,000-$25,000 of benefits a year. In 2-5 years, the family could have $50,000 of benefits, which could serve as the deductible for a catastrophic plan. To my knowledge, this type of coverage is not available, on an indemnity basis, for all types of medical expenses. Don Levit

I have read over several insurance codes, and, as I recall, they all had similar provisions which allowed insurers to avoid some, or all, of the state mandated benefits. The code provision for the Texas Department of Insurance, my home state, is In Title 28, Part 1, Chapter 3, Subchapter S, Rule 3.3081 entitled, Nonconventional Coverage. It states, "The commissioner may authorize approval of a policy that does not correspond with one of the categories relating to Minimum Standards and Benefits for Accident and Health Insurance Polcies, if such policy is determined to be a type of coverage that is experimental, or will in the opinion of the commissioner fulfill a reasonable public need and is appropriately and prominently described in the outline of coverage." Then, in Rule 3.3091, it states, "The outline of coverage for policies approved for Nonconventional Coverage shall prominently display, THE POLICY DESCRIBED DOES NOT MEET THE MINIMUM STANDARDS FOR BENEFITS ESTABLISHED FOR BASIC CATEGORIES OF COVERAGE REQUIRED BY THE INSURANCE REGULATORY AUTHORITY OF YOUR STATE." So, when we discussed recently, and at great length, that insurers had to provide state mandated benefits, doesn't this type of provision allow some flexibility for insurers that wish to "experiment" a little? Don Levit

HSAs can be popular, if the cash balance grows along with the deductible. Particularly at the lower deductibles, for every $1000 increase in the deductible, one may save $400 in premiums. Don Levit