Don Levit

(B) refers to the length of time designated by the plan that an active employee has been a participant in the group medical plan. For example, if the group plan says that an employee who has been in the plan for 5 years, he would be eligible for a retiree medical plan, then that is the stipulated length of time. He would be eligible whether he has "retired" or not. Retired in this instance means simply leaving the employer.

VEBAGURU: I appreciate what you said about the conflict of interest regarding claims and profits. But, that conflict does not make the insurance company a fiduciary. A fiduciary would be accountable to all the participants. One could make the argument, even if the insurance company was a fiduciary, that to deny inappropriate claims helps keep the premiums down for all the participants. Who has the final authority regarding benefit decisions? Who makes the final disposition of denied claims? Having these answers will help determine the fiduciary status. Simply issuing insurance policies has nothing to do with an insurer's fiduciary duties, even if the employer had no say in the benefits. Don Levit

According to the IRS, where an employee is offered a choice between a lower salary and employer-paid health insurance, or a higher salary and no health insurance, he must include the amount of the higher salary in income regardless of his choice. An employee accepting the health insurance, is considered to have received the higher salary, and paid the health insurance premium to the insurance company. Let. Rul.9406002, 9513027. However, as kJohnson pointed out, you may be okay according to the Express Oil Change, Inc. case, in which a federal district court ruled that for employees who accept the insurance, the difference between the higher salary and the lower one is not subject to FICA, FUTA, or income tax withholding. Don Levit

mroberts may be thinking of the recent Supreme Court case which seemed to imply that retiree benefits, if coordinated with Medicare, would be discriminatory, in that the actual benefits would be reduced from the employer (if self insured, or the group insurer if fully insured). Are benefits scaled back to coordinate with Medicare? Don Levit

I want to add a bit of information. Fiduciary status is determined on a case-by-case basis. The insurance company may be a fiduciary, depending upon the degree to which it exercises discretionary control over the assets or administration of the plan. An insurance company does not become a fiduciary simply by performing administrative functions and claims processing within the rules established by the employer. This particular case has nothing to do with reviewing benefit denials or eligibility decisions. So, it looks like no fiduciary status would be applicable here. Don Levit

jcarlos: Where in ERISA do you find that the insurance company has any fiduciary responsibility? Why would the insurer be legally obligated to adjudicate an uncovered expense? Don Levit

GBurns: Thanks for providing the link, which listed the various coalitions. I saw nothing about your posting about the expenses of operating a MEWA. Texas Coalitions: Do you know why self funding was expressly prohibited? I really don't see a huge advantage, particularly over the long run, with this type of an arrangement. I can provide the link to TDI, for the average price of small group insurance, if anyone is interested. Don Levit

I want to resurrect a topic that was killed a while back. Not a bad idea for this time of year. According to the just published article from the DOL, is the following question and answer on p. 20: My group health plan excludes coverage for benefits for a certain health condition (without regard to whether it was preexisting in nature). Is my plan violating HIPAA's nondiscrimination provisions by imposing this exclusion? Group health plans may exclude coverage for a specific disease, limit or exclude benefits for certain types of treatment or drugs, or limit or exclude benefits based on a determination of whether the benefits are experimental or medically necessary, if the benefit restriction is applied uniformly to all similarly situated individuals and is not directed at any individual participants or beneficiaries based on a health factor. (Plan amendments applicable to all individuals in a group of similarly situated individuals and made effective no earlier than the first day of the next plan year after the amendment is adopted are not considered to be directed at individual participants and beneficiaries). Using this explanation for group health plans, I read that the plan sponsor can amend his plan in any way, except for a discriminatory fashion. How would mandated benefit laws that apply to plan issuers have any impact on the plan sponsor? By the way, don't take my word for it. Go to: http://www.dol.gov/ebsa/pdf/hipaaemployer.pdf. Don Levit

GBurns: The case is Metropolitan v MA, 471 U.S. 724 (1985). This case affirmed that a MA statute requiring certain mental health care benefits be provided to any MA resident under a general health insurance policy or an employer health care plan. So, we see that the distinction between ERISA and non ERISA is not significant. It states, "We therefore decline to impose any limitation on the saving clause beyond those Congress imposed in the clause itself and in the "deemer clause" which modifies it. If a state law regulates insurance, as mandated-benefit laws do, it is not preempted. We are aware that our decision results in a distinction between insured and uninsured plans, leaving the former open to indirect regulation while the latter are not. By so doing, we merely give life to a distinction created by Congress in the deemer clause, a distinction Congress is aware of and one it has chosen not to alter." What is that distinction? It is between fully insured and self insured plans. The deemer clause gives life to self insured plans, in that they cannot be regulated by the states, directly or indirectly, except for MEWAs (whether self insured or fully insured). The deemer clause also modifies the saving clause, by disallowing states to regulate self insured plans. The problem here is that this church self insured plan could be deemed a MEWA. And, according to CA law, it would have to cease and desist. No new MEWAs are allowed to form in CA, whether self insured or fully insured (A direct conflict with ERISA, for MEWAs are expressly provided for in ERISA). Don Levit

I agree with mbozek about no express protection for non ERISA plans. The Supreme Court implies that the key is self insured, versus fully insured, as opposed to ERISA v non ERISA. I don't have the case at my fingertips, but can get it for purposes of this discussion. I wonder if that CA law passed in 1999 was ever contested in a federal court? To say that self insured plans should be subject to all the regulation of a fully insured, commercial plan is comparing an apple tree to an entire orchard (still apples to apples, though). This contradicts the deemer clause, in substance, if not in form. The other alternative is to become subject to ERISA. If that was the case, wouldn't this plan, technically, be a MEWA? By the way, are any of you aware that CA bans any new MEWAs from forming, according to a state law passed in 1995? Isn't that prohibition in direct conflict with ERISA? Makes me wonder about the legality of that 1995 law. Don Levit

Whether the plan is an ERISA plan or not, it is self funded. Why would the state be able to dictate to a self funded plan, the benefits it must include. The only entity that can require benefits, is the federal government, for only the DOL (and Treasury) has regulatory authority. Don Levit

The 401(k) can be used to fund retiree medical costs, at least those costs that exceed 7.5% of AGI. These distributions can be deducted, thus making the withdrawals a wash for tax purposes, like those of an HSA. Don Levit

I do know of an authority that may not be helpful. First, though, just because the network coverage is different does not mean it is less than the other network. And, even if it was, maybe the in or out of network coverage can have higher percentages of coverage to help make up the difference. Your example involves a union, so I do not know how the Supreme Court case of Kentucky Assn. of Health Plans v. Miller of April, 2003 would affect it. This case affirmed that any willing providers laws are legal, for providers cannot be discriminated against, if wlling to accept the same terms of those in the network. "No longer may Kentucky insureds seek insurance from a closed network of health-care providers in exchange for a lower premium. The AWP provision substantially affects the type of risk pooling arrangements that insurers may offer." Don Levit

The dividends would not be guaranteed, and certainly would change from year to year, in the amount and who was to receive them. What I am asking is would it be discriminatory to provide a low claims family, say, $1,000 in dividends and a high claims family, no dividends? Would it be discriminatory to provide similar dividends for families with similar medical expenses, regardless of age, or premiums paid? Does any one know of any court cases that could substantiate or disprove this practice? Don Levit

Let's toss this idea around a bit. With the $25,000 deductible, shared by the employee and employer, at $10,000 and $15,000 respectively, is there a way to provide "dividends" at the start of the next year for the lower claim users, from a portion of the significant premium savings, without being "discriminatory." For example, those having medical expenses between $10,000 and $25,000 get lower dividends. Those incurring medical expenses of $10,000 or less, get higher dividends. Don Levit

This scenario brings up another question. What if the deductible was $25,000 per family? Of that deductible, $10,000 is assumed by the employee and the following $15,000 is assumed by the employer. Would there be any discriminatory issues for those employees whose costs did not exceed $10,000 versus those whose costs were between $10,000 and $25,000? Don Levit

Thanks for providing this story. Sometimes, a good deed can multiply, as your story describes. Sally's response to her friend regarding how the watch was to be used was "timeless." She meant it for good; that was all that was truly important. Don Levit

It did become law. The only reason I know that, though, is that I live in the Lone Star state. As far as the Tx Insurance code, you can check out Subchapter B, Articles 26.11 through 26.16. One provision, specifically in Article 26.12 says a cooperative may not self-insure or self-fund any health benefit plan or portion of a plan. I wonder if that is a legal prohibition. I wonder why this was added, for MEWAs are allowed in TX, and the self funding reserves are fairly reasonable. Don Levit

g8r: You wrote that I said there is an ERISA preemption for insured plans, but no ERISA preemption for self funded plans. If I said that, I was incorrect. ERISA preempts the plans, however they are funded. Of course, the preemption is from state regulation, not federal regulation. The preemption, I believe, is complete in the mandated benefits area, other than the four federally required mandated benefits. Can anyone cite the federal regulation which states that ERISA preempts one type of funded PLAN over another type of funded PLAN? You really may want to read the Metropolitan case. I have other comments to make about other excerpts, but I will only do so by popular demand. Oh by the way, do you know why talk is cheap? Because the supply exceeds the demand. GBurns: I read over the link, but not the case itself. This was a self funded plan which was not regulated by the state, but was subject to federal regulation. The mandated benefit was required to be in the policy, because the court ruled it violated federal discrimination laws. Assuming the court was correct, this does not bolster your idea of states being able to regulate self funded plans. Don Levit

Jeanine: Thanks for your reply. I am curious if any one knows if this type of "off the rack" arrangement has ever been "tested" in court between a plan sponsor and a state? It certainly seems, at least from this list, that no one is aware of it being done. Don Levit

Kirk: You are absolutely correct. I am not steeped in ERISA as you and others are. My academic knowledge is certainly no substitute for actual practice in ERISA regulation. However, my ignorance of actual practice may be an asset, for I am suggesting an "amendment" to the policy sale process, which has probably never been done or legally tested: the ability of an employer to tailor his policy to something other than what is provided "off the rack," without the state's approval. Mandated benefits were initially legislated in order to avoid adverse selection, and to more economically provide for a state's health and welfare. However, with more employers not buying what is offered, mostly due to economic issues, it is necessary, I believe, for employers to come up with their own combinations of benefits and prices, which are negotiated between private parties. You and other practicioners can state what you believe is legal, and what you know is customarily done. But, you cannot with certainty tell me my theory is illegal, for it has never been tested, to my knowledge, between a plan sponsor and a state. The Metropolitan case was between a licensed insurer and the state. It was not between a plan sponsor (who the deemer clause states is not an insurer or in the business of insurance) and a state. Don Levit

Steve 72: Well, at least we have arrived at the point, it seems, that employers need not offer benefits that correspond with state mandated benefits, even in fully insured plans. The question is, will licensed insurers be reprimanded for offering plans which do not provide all the benefits? Way back in this post, it was commented that amendments to the plans were settlor functions, not fiduciary functions. The employer is not liable for any changes he makes, as long as it is done once a year, and it does not discriminate for health reasons. I know Steve 72 agrees with that, right? Well, changes to the "rack" policy are settlor changes, with no fiduciary responsibility, either to the participants, or to the state. It is simply a business decision. I know of no case that prohibited a plan sponsor from fully insuring his plan, selecting some or none of the state mandates, the insurer and plan sponsor agreed in a private negotiation to the deal, with no state involvement, and the insurer lost its license. Do you? I believe that plan sponsor initiated changes are completely exempt from state involvement. And, that is why, I believe, insurers can safely work with plan sponsors designing "off-the-rack" plans. I believe that insurers choose not to tailor packages for employers, because they are not willing to do so. They are, I believe, able to do so. Am I convinced of my position? No, I am not. But, I have much more material to support it. If those on the list are not interested in going further, I certainly respect that. There may be others who have some doubts on the certainty of their positions. As Voltaire said, "Doubt is painful, certainty is absurd." For those who think they know it all, I have only one thing to say. I am only interested in knowing what you learn after you thught you knew it all. Those of you who wish to correspond "offline," my E-mail is donaldlevit@aol.com. If this is the end of our discussion, I want to thank all of those who participated. You have helped me to develop my presentation to the DOL, for a possible advisory opinion. Don Levit

J2D2: I finally will get to make my point using the Metropolitan Supreme Court case stated previously. I also hope to use the Travelers case to further solidify my premise. I also have federal regulations to back up my points. But, first, let's go to the Metropolitan v. Massachusetts case, in the Supreme Court. It can be found at 471 U.S. 724. There are several sections I hope to look at. Let's first understand, however, that I believe ERISA plans are ERISA plans, whether self insured or fully insured. I use the definition of an employee welfare benefit plan, which includes benefits that are reimbursed by insurance, or otherwise. The distinction between self insured ERISA plans and fully insured ERISA plans has everything to do with who is responsible for paying claims,and nothing to do with the plan itself. The plan's existence is determined solely by the employer who sponsors it. Now, to the Metropolitan v Mass. case. This case is between Metropolitan on one side and the state of MA on the other. It is not between an ERISA plan sponsor and the state. Because of that, I happen to agree with the decison: that insurers do need to include mandated benefits in the policies they sell. But, that is only part of he story. Let's go to footnote 14. Section 47B (the mandated state mental health benefits) also requires benefit plans that are self insured to provide the mandated mental health benefits. In light of ERISA's deemer clause, which states that a benefit plan shall not be deemed an insurance company for purposes of the insurance saving clause, MA has never tried to enforce 47B as applied to benefit plans directly, effectively conceding that such an application of 47B woiuld be preempted by ERISA's preemption clause. In a part of its decision that is not challenged here, the Supreme Judicial Cort held that that part of 47B which applies to insurers is severable from the preempted provisions pertaining directly to benefit plans. See 385 Mass, at 601-602, 433 N.E. 2d, at 1225. I, too, believe that insurers are severable from ERISA plans. That is why the state mandated benefits do not apply to ERISA plans, whether self insured or fully insured. If that is true, and we certainly have not established that yet, it can have profound effects on employers being able to tailor their benefit plans to their needs. No longer will they be dictated to from the states, the plans they are allowed to have. Rather, the "rack" plans can be amended, if the private parties, the ERISA plan sponsor and the insurer, can come to an agreement. Don Levit

GBurns: Roy Ramthun at the Treasury Department is interested in my premise regarding HSAs for ERISA plans, regardless if the states allow them. As you probably know, Roy is the main fellow in this area, along with William Sweetnam. We can review that material at some point, but the key item now is the Metropolitan case. Go to the other message board, for HSAs, and look at my response in the link entitled, "HSAs can be allowed in every state, without enabling legislation." Don Levit

Not so fast, not so fast, WDIK! We are discussing the Travelers case now. After that, I hope we can get to the other Supreme Court case I mentioned. I just posted a response on the HSA message board entitled, "HSAs can be allowed in every state, without enabling legislation." Will you go to that message board, so I need not retype it? Or, is there some way it can be automatically transferred? I use 2, maybe 3 fingers to type, and I'm getting pretty tired. Don Levit