HSAs are allowed in every state, even without enabling legislation

[Don Levit]

As many of you know, the Treasury Department has extended until the end of 2005, for states to enact legislation providing for HSAs. While states do have authority for state tax policy, and they do have authority to regulate licensed insurers - states have no authority to regulate the structure of ERISA plans. For example, if a plan sponsor wished to offer an HSA along with the qualifying HDHP, he can do so.

The only benefits that are mandated for ERISA plans are the four benefits mandated by the federal government. Aside from these requirements, any state mandated benefits are completely preempted by ERISA.

Because of this complete preemption, licensed insurers need not be concerned about legal ramifications for providing only those benefits asked for by the plan sponsors.

While required to offer all state mandated benefits, the plan sponsor can pick and choose which to accept, if any, and be charged only for those benefits he contracts for.

Any thoughts?

Don Levit

[Guest DWL]

"states have no authority to regulate the structure of ERISA plans"

True as to 49 states; not true as to the 50th. See ERISA s. 514(b)(5). National companies doing business in Hawaii sometimes miss that.

[Don Levit]

DWL:

Are you saying then, that employers can sponsor HSAs without any legislatures passing enabling legislation?

If so, would the commercial insurers be able to provide the benefits for HSAs and the qualifying HDHPs without having the "appropriate" policy form approved by the departments of insurance?

Don Levit

[GBurns]

An HSA is different from the HDHP.

HDHPs can come in 2 forms, individual coverage or employer sponsored coverage.

Since individual HDHP policies are insurance policies they are all subject to state Insurance laws and are not preempted by ERISA.

Employer sponsored coverage will most likely be a group insurance policy. Group insurance policies are insurance policies. Insurance policies are state regulated and not preempted by ERISA.

However, the employer plan itself is an ERISA Plan even if the underlying component might not be. This leaves it to question ans to what and where ERISA preempts. A situation not to different from what has occurred with employer sponsored health plans that are fully insured, namely the Plan versus the coverage. It is not clear there and it should not be clear with this either.

In addition, According to the DoL Field Assistance Bulletin HSAs are generally not subject to ERISA, even if employers contribute to them. Note that there are actions that employers could take that could make their HSAs subject to ERISA, but this should be rare.

So even if the HDHP could be ERISA the HSA most likely is not.

Even then, all HDHP are insurance policies and some Dept of Insurance has to approve it at least in the home state and it must be filed with the stae of residence of the applicant. The state of residence of the applicant does not have to allow the sale of that product to their residents or by their state licensed agents. This is no different treatment than that which ia afforded to all health insurance plans that are sold whether to individuals, small groups or large groups. Section 238 or whatever authorized HSAs does not change the law nor does it expand ERISA preemption in this area.

[Don Levit]

The structure of ERISA plans is determined completely by the plan sponsor. Indeed, he can adopt, amend, or terminate the plan at any time. Deciding what benefits to include is not a fiduciary act; rather, it is a settlor act, simply an administrative business decision.

So, too, is the response of an insurer to an employer a business decision, not a fiduciary decision.

What the insurer and the plan sponsor of an ERISA plan finally may agree to are between private parties. The state department of insurance has no say as to what benefits a plan sponsor must include in his plan.

The insurer must offer the policy forms which are approved by the state department of insurance for the group ERISA plan.

However, as a business decision, neither the insurer nor the plan sponsor need get approval from the state for any amendments to the approved policy form.

My rationale is that ERISA plan strcture is completely preempted, and thus, the state department cannot legally interfere.

I have many documents, including Supreme Court cases, to back my premise.

Don Levit

[GBurns]

"The insurer must offer the policy forms which are approved by the state department of insurance for the group ERISA plan." Neither the policy form nor the DOI approval has anything to do with the group ERISA plan

I think you misunderstand what a policy form is. A policy form is not the paper document, it is the structure, rates, coverage, limitations, exclusions, marketing material etc etc that comprise the particular offering.

"neither the insurer nor the plan sponsor need get approval from the state for any amendments to the approved policy form" ANY amendment or change to an approved item MUST be resubmitted for approval.

This no different from a Court Order, it stays as is and you cannot make a change, only the judge can. Aside from being so, which you can easily check with your state insurance dept, it is also logical, If the insure rcould unilaterally or arbitrarily change whatever whenever, the approval process would be meaningless.

You also seem to be not able to differentiate between a plan, its benefits and ist coverage. Maybe reading Treaas Regs 1.105-5 might help you to understand the big differences.

An accident or health plan is the arrangement made by the employer to provide benefits to the employee. It may be either insured or noninsured. That is why there are fully insured plans and there are self insured plans. An insured plan passes the risk to an insurer by purchasing an insurance policy. What the policy covers is whatever was approved by the state. If the employer wants custom coverage, the insurer will submit that custom design to the state DOI for approval.

ERISA governs the arrangement which is referred to as the Plan. The state governs the insurance policy which is the coverage.

Under certain circumstances ERISA can have some preemption on some issues. In a self funded plan where there is no insurance ERISA logically rules.

[Don Levit]

GBurns wrote the employer plan itself is an ERISA plan. This leaves it to question as to what and where ERISA preempts.

I disagree. Congress intended ERISA to preempt at least 3 categories of state law that have a connection with an ERISA plan.

One of those catgories is laws that mandate employee benefit structures or their administraton.

These mandated benefit laws do not apply to ERISA plans, whether self insured or fully insured.

The question then may arise, "If there are no state mandated benefits for ERISA plans, what benefits can the plan sponsors offer?"

The level of benefits to be provided is within the control of the privateparties creating the plan, Alessi, 451 U.S. at 511 (finding it is private parties not the Government, that control the level of benefits; Waller, 120 F.3d at 140 (finding ERISA leaves the level of plan benefits conferred to the private parties creating the plan), and employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans. Curtiss-Wright Corp., 514 U.S. at 78.

Seems to me that employers have the freedom to design their plans in any way. The insurer, if fully insured, has the right to accept or reject the employer's proposed plan, for it is the private parties, not the Government, that control the level of benefits.

For that reason, any "amendments" to a policy form must be "appoved" by the state departments of insurance, for their discretion is this matter is completely preempted.

Don Levit

[JDuns]

Where the underlying high deductible health plan is partially or fully insured, the state insurance laws will govern the benefits provided. To the extent that the state law mandates insurance coverage that would cause a plan not to be treated as a high deductible health plan for purposes of the HSA rules, after 2005 the purchase of an insured HDHP in that state would cause participants to be ineligible for HSAs. An insurer in those states could not offer non-compliant policies.

If an employer chooses to self insure their HDHP, whether or not a insurer assists with the administration, ERISA pre-empts the state mandates and the employer is free to design their plan to comply with the requirements to enable the plan participants to be eligible for HSAs.

[Don Levit]

This discussion seems to be centering around what is legal versus what is traditionally done.

I agree with JDuns about the states' traditional authority to regulate insured plans, at least once they are established.

It is in the employer's ability to establish and structure his ERISA plan, whether self insurd or fully insured, that I am calling attention to.

Would those who are interested in this topic agree with me that ERISA preempts state laws that that dictate or restict choice of plan benefits or plan admnistrative stuctures?

If you do agree, are you saying there is an exception to this preemption? Maybe the preemption should have an additional statement to state that ERISA preemption is triggered by state laws that dictate or restrict choice of plan benefits, UNLESS THE STATE ARBITRARILY WANTS TO EXCLUDE CERTAIN PLAN STRUCTURES OR BENEFITS.

Don Levit

[mbozek]

ERISA preempts state laws that regulate the plan as an insurer, not state regulation of the terms of the ins. policy issued to the plan. E.g. Mass. ins. law requiring that employer health plans cover ex-spouse of employee is not preempted when applied to HMO but is preempted as to a self funded plan. State ins law could prevent insured HSA from being offered in state if there is no ins. policy available which can be used to fund HSA.

[Don Levit]

mbozek:

Thanks for your reply.

Please interpret for me, then, my last sentence in the prior post. Is my interpretation of the ERISA preemption correct, as regards to the capital letters that complete the sentence? Again, I am not asking for you to state what the traditional powers of state regulation have been. We are well aware of how things are. I am questioning how things should be according to this particular ERISA preemption.

Don Levit

[JDuns]

Would those who are interested in this topic agree with me that ERISA preempts state laws that that dictate or restict choice of plan benefits or plan admnistrative stuctures?

No, The savings clause clearly exempts from ERISA preemption state laws governing insurance. Therefore, plan may not obtain an insurance policy that violates state insurance law. An employer can always avoid the state insurance law by self insuring its plan.

One of the trade-off between self-insuring and fully insuring is that a self-insured plan may offer the benefits desired by the sponsor without worrying about state legislated mandates while a fully-insured plan frees the sponsor from worring about bad claims experience (at least the next premium renewal).

[GBurns]

Don's problem is not being able to see the differences between what is the plan, what is the insurance coverage and what are benefits. As a result he cannot see at which point ERISA become applicable.

[Don Levit]

All right, guys. Let's get to a Supreme Court opinion. I've had enough of our opinions. Let's see what The Supreme Court decided in the Travelers case, Travelers. 514 U.S. at 659-660. It states, The Court rejected the argument that economic imoact alone was sufficient to trigger preemption. ERISA preemption is only triggered by state laws that dictate or restrict choice of plan benefits or plan administrative structures.

This means to me, a complete ERISA preemption that need not look at the savings clause (or even the deemer clause).

If there is a complete ERISA preemption in this situation, state law, or custom, is irrelevant.

Don Levit

[GBurns]

You still miss the differences between the various items.

[Guest DWL]

In response to Don's questions above: "Are you saying then, that employers can sponsor HSAs without any legislatures passing enabling legislation?"

I'm responding only with the narrow point that one state, Hawaii, has an express exemption from ERISA preemption that allows it to require employers to offer health insurance that meets state-law requirements. It's kind of frustrating because it dramatically restricts employers' opportunities to control insurance costs. HSAs and HDHPs are largely irrelevant to us (unless someone convinces the state that an employer-funded HSA/HDHP combination can satisfy the state statute and is able to offer the combination at a price competitive with current insurance options).

[Don Levit]

DWL:

Can you be a bit more specific about Hawaii's express exemption from ERISA preemption? It seems that you are saying that the employers' options for providing insurance are more limited than the other 49 states that have ERISA preemption.

In your opinion, how does the ERISA preemption in the other 49 states allow employers more flexibility for fully insured plans?

Also, can you provide the link for Hawaii's express exemption from ERISA preemption?

Don Levit

[g8r]

Don,

I'm confused by your position. As stated earlier by others, the key is that ERISA does not preempt insured products (although I'm not sure what the issue is in Hawaii). But, for everywhere else, the state can dictate what health insurance policies must provide. An insurance company can't change its policy in violation of the law. Thus, if a state such as NY mandates that mental health benefits be covered with a low or no deductible, in order to do business in the state an insurance company must comply. And, by complying it blows the definition of HDHP for HSA purposes. That's why the IRS provided a transition period - so states can change their laws if they want to.

The only way around the state law is to self-fund the HDHP. Then it's not an insured product subjec to state regulation and ERISA preemption would apply. That's one significant difference between HSAs and MSAs (which were limited to small employers so self-funding wasn't as economically viable).

Unrelated to this is the fact that some states have income tax laws that don't allow exclusions or deductions for HSA contributions. I suspect we may see some changes in this area as well.

[Don Levit]

g8r:

Thanks for your reply.

ERISA does not preempt insured products, is correct.

ERISA preemption is triggered, however, by state laws that dictate or restrict choice of plan benefits or plan administrative structures.

ERISA completely preempts the states from dictating to plan sponsors that they cannot provide qualifying HDHPs, for example, to use with HSAs.

States can prohibit the insurers from marketing these plans to employers, for there will be no policy forms accepted by the departments of insurance that will allow their sale.

However, the states are completely preempted from telling the employers how to design their plans, whether they are self insured or fully insured.

So, what happens when an employer asks an insurer to provide the qualifying HDHP, and the state legislature has not provided the enabling legislation?

The insurer uses the closest available policy form, sends the amendments to correspond with the actual policy issued, and lo and behold, the coverage is available.

What can the state do, legally?

I believe absolutely nothing, for the deal was struck between private parties. The state government could not get involved with the amended form, for it is completely preempted.

The insurer has no fiduciary liability for offering the amended plan.

The only benefits that must be included, whether self insured or fully insured, are the 4 federally mandated benefits.

I can support my premise with several federal douments and Supreme Court cases.

Don Levit

[GBurns]

Don,

You have absolutely know knowledge of the insurance regulations in addition to having little understanding of the other issues.

It is pointless for me to try and explain anything with your knowledge level so low. If you had even a basic clue about the insurance regulation issue I might have continued but when this lack is added to your limitations on ERISA and benefits plans in general, it would be pointless.

[Don Levit]

GBurns:

You may be right about my knowledge. But you are wrong about the knowledge of the Supreme Court.

How dare you be so disrespectful towards the highest court in the land!

Don Levit

[GBurns]

I have no idea what you mean by "you are wrong about the knowledge of the Supreme Court" especially since I made no comment or reference to any of their decisions.

The problem here is that you do not understand what the issues are and therefore can neither understand what the Supreme Court or any court has opined nor are you able to understand any of the simple issues that form the basis of the whole issue.

The disrespect, my friend is in your misrepresenting by misunderstanding whatever it is.

PLEASE, someone put Don to rest, for me.

******

The reason why I have not previously refrained from giving you cites and links to explanatory material was because I did not think that you would be able to understand any of them since you are so lacking at the very basic level. But I guess I should at leat point you in some direction. Attached is a simplistic explanation of some of the issues. You will have to go elsewhere for information on insurance regulations and I already told you about the IRC and Treas Regs. In the attached note the references to insurance coverage on Page 52 Items B 7 and 8, page 54 B 6 et seq in particular 15 and 16:

http://www.brownrudnick.com/maze/PDF/BRBI%...uide%209-03.pdf

*********

Also visit www.hsainsider.com

Although you do not have a clue about insurance coverage, if you work through the "HSA Basics", the Q&A and check to see what is available in your own state, you might eventually start to understand soem of the basics.

[mbozek]

Don: I will not discuss your claim that state ins laws are preempted if the ins policy is sold to an ERISA benefit plan (which is without merit since ERISA does not preempt state regulation of insurance policies sold to employers). Since all ins policies must be approved by state ins depts I dont think any insurer would issue an Ins policy to an employer which was not approved by the state ins dept with the provisions required under state law because of the sanctions that would be imposed by the ins dept for issuing a non approved policy, including suspension of its license to sell ins in the state.

[Don Levit]

GBurns:

The reason you disrespect the Supreme Court is the words I used to describe ERISA preemption came straight from the Supreme Court, Travelers, 514 U.S. at 659-660.

The words state ERISA preemption is only triggered by state laws that dictate or restrict choice of plan benefits or plan administrative structures.

This is regards to the welfare benefit plan established by employers, not the insurance policies sold by licensed, commercial insurers.

Please review this case, before providing your "rebuttal."

Employers have control over when they establish policies, when they can modify policies, and when they can terminate policies. The state departments of insurance cannot go to XYZ company and say change your benefits, for they do not fit our policy forms.

Let us assume that XYZ company has a fully insured plan with a licensed insurance company that corresponds to the policy form filed with the department of insurance.

XYZ company says that we want to amend our policy, which they can do without the state department of insurance's approval.

XYZ wants to drop all the state mandates, while retaining the 4 federal mandates.

This decision is a settlor decision (a business, administrative decision, not a fiduciary decision). XYZ company has no fiduciary responsibility to its employees; the insurance company has no fiduciary responsibility to the state department of insurance, other than to submit the amendments to the department.

Because this is a settlor decision, it can be arrived at by the private parties, with no state govrnment being involved (preempted).

Just because this practice is probably not done today, does not mean it is not legal, and is not a viable option.

Employers and insurers can work together to establish more innovative plans, with the employers providing the impetus, for the employers' decisions of plan benefits and structures are preempted.

Don Levit

[GBurns]

As others have so kindly pointed out in the other thread, you do not understand that which you have read in Travellers.

It is pointlees continuing this thread since 2 moderators have provided the answers to the same issues in the other thread.

[mbozek]

Don: I agree with your last post including the last part in which the policy is submitted to the state ins dept as an agreement between the insurer and the employer. However the ins dept will not approve the issue of a policy w/out state mandates and under the Met life decision ERISA does not preempt regulation of the policy provisions under state ins law. If the insurer issues a policy without state mandated benefits it will be subject to sanctions by the state ins. department including suspension of its license to sell ins. because state regulation of insurance companies is not preempted by ERISA.

[Don Levit]

mbozek:

I agree with you that the insurance company could lose its license, if the state did, indeed, have the authority. And, let me emphasize, that the state may have authority to do so.

First, I want to thank everone, including gburns, for all their contributions.

This discussion is finally getting to the meaty part, so let's chew on a few things.

I want to thank you, mbozek, for providing the Travelers case for us.

I want to focus our attention on this case, for now.

I have a lot to say, but I will only state briefly my position, using this case.

First, let me state my belief that ERISA plans are ERISA plans, whether they are self insured or fully insured. I refer back to the original definition of an employee welfare benefit plan, which includes those reimbursed by insurance or otherwise.

The distinction between insured and self insured plans has everything to do with who is responsible for paying the claims, and nothing to do with the plan itself.

The plan's existence is determined solely whether the employer wishes to start it or discontinue it.

Again, this is my belief, but even gburns would probably say there is some logic involved here!

One last comment before I quote from the Metropolitan case.

This case is between Metropolitan and Travelers on one side, and the state of MA on the other.

It is not between the plans' sponsors and MA.

In footnote 14, it states Section 47B (the mandated 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 purposs of the insurance saving clause, MA has never tried to enforce 47B at benefit plans directly, effectively conceding that such an application of 47B would be preempted by ERISA's preemption clause. In a part of its decision that is not challenged here, the Supreme Judicial Court held that part of 47B which applies to insurers is separable from the preempted provisions pertaining directly to benefit plans. See 385 Mass, at 601-602, 433 N.E. 2d, at 1225.

If benefit plans are self insured or fully insured, then maybe we have discovered something.

What do you think?

Don Levit

[g8r]

I haven't read the case so this may be premature on my part. But, based on what you provided it seems to me that it is consistent with the position of others (and myself) that there is a distinction between insured vs. self-funded plans.

As you stated, there is ERISA pre-emption for insured plans. There is no ERISA pre-emption for self-funded plans. What you suggested with the insurance policy won't work -- the insurance company can't provide coverage unless it complies with the state mandated benefits. Now, if they are self-funded where the insurance company is just a contract administrator, it's a different story. In fact, that's another reason, albeit minor, as to why HSAs might be more popular than MSAs. MSAs were limited to small employers where self-funding typically doesn't make sense (from an economic perspective). For HSAs there is no employer size limit so large companies can self-fund the HDHP and avoid state mandated benefits.

[GBurns]

Some courts treat self funded plans almost like state regulators treat insured plans:

http://www.seyfarth.com/db30/cgi-bin/pubs/...t%206-20-01.pdf

Just like state regulated plans, this court decided that the employer cannot do whatever they want with the benefits.

[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

[GBurns]

I never said that it bolsters the case for states regulating self funded plans. What it does is show that eveb in self funded plans, the employer is not free to do whatever they feel with the benefits.

I certainly wish that you would improve your reading comprehension. Even when something is in a post you do not seem to be able to read it much less understand, for example what I have stated above at the end of the first paragraph is also at the end of my last post explaining the relevance of the link.

The fact that you could not read and understand that, suggests that you might not be able to read and understand the cases nor the issues. This wa also pointed out by another poster.

You now have a number of different posters who have all not only disagreed with your positions, but who have also addressed your inability to understand the issues.

Why not drop the matter and save us all some time? Your time would be better spent learning about the subject matter.

For example after all of this you posted "ERISA preempts the plans, however they are funded". ERISA DOES NOT preempt plans ERISA preempts state law whenever it is appropriate.

This will be my last post.

[Gary Lesser]

It is my understanding that the following states do not conform to the IRC for HSA purposes:

1. Alabama (doesn't use Federal definintion)

2. Arkansas (doesn't use Federal definintion)

3. California (HSA legislation likely in 2005, failed 2004)

4. Kentucky (doesn't yet conform)

5. Maine (may have an add back provision)

6. Massachussetts (doesn't yet conform)

7. Minnesota (doesn't yet conform)

8. Mississippi (doesn't yet conform)

9. New Jersey (doesn't yet conform; but does have exemption for Archer MSA)

10. Pennsylvania (doesn't yet conform)

11. Wisconsin ( (doesn't yet conform)

//END LIST//

I have posted this message separately for responses and have closed this topic - GSL