ERISA and reduction in benefits

[Guest Simon self funded]

Hello. I've been reading the posts here for awhile but haven't seen

this addressed.

We have a self funded plan that is subject to ERISA. Our plan document allows the plan administrator to amend the plan from time to time as necessary.

1. Can these changes only be made at renewal?

2. What prohibits a plan from making a plan change that would target a specific employee? For example an employee needs a type of organ transplant and the plan administrator amends the plan to not cover this type transplant. All I can find is that the employees must be notified within 60 days of such a change. Is there a law that prohibits an employer (plan administrator) from doing this?

Thank you.

[SoCalActuary]

A cynic would say that you are conspiring to withhold benefits provided under the plan in an attempt to discriminate against a disabled person.

I am not a lawyer, so my comments are not intended to get you into trouble. However, this is a public forum, and your comments are not protected communications nor deliberations.

[Kirk Maldonado]

My recommendation is that you retain competent ERISA counsel to advise you on those matters before you proceed any further.

I would also like to concur in the remarks of SoCalActuary that it is not a good policy to post questions like that in a public forum.

[Don Levit]

The DOL regulations state any plan amendment must apply to all individuals, and made effective no earlier than the first day of the first plan year after the amendment isadopted. If donein this manner, this is not to be considered to be directed at individual participants and beneficiaries.

Don Levit

[Guest Simon self funded]

Whoa... I think my comments were misconstrued.

I'm the cynic and wondered what protections a participant had if something like this happened. I know insured plans are very heavily regulated by the state departments of insurance, and I know they are usually consumer friendly. It just doesn't seem like employees under a self funded plans have much protection.

[Don Levit]

Whether self insured or fully insured, the plan sponsor has the right once a year to amend the plan. Health plans are voluntary - they can be established, modified, or terminated, at the sponsor's discretion.

A participant has no more protection from this happening, if the plan is fully insured.

Don Levit

[Guest nicoletrail]

A self-funded ERISA plan can be amended at any time by either the board of trustees or whoever it is that has been appointed as the decision maker on the fund. They can amend it at anytime - not just once a year. Health benefits in an ERISA self-funded plan are not vested benefits. Until a participant incurs a claim, the participants in the plan have no right to expect that the benefits they have today will be the same a 2 or 3 months from today. As long as they are given sufficient notice of the change (usually 30 days), the party appointed to make plan decisions can eliminate or add benefits whenever they want.

With regard to eliminating a benefit in order to deprive one particular participant in the plan of that benefit, there are all kinds of laws that prohibit this - IF it can be proved which is not as easy as it sounds. The courts give a LOT of deference to the plan trustees or employer who sponsors the plan.

[Don Levit]

Self funded plans are still subject to DOL oversight.

The DOL regulation I cited about amending once a year applied to ERISA plans, so I "assumed" it was including self funded plans.

Can you cite where self funded ERISA plans would not be subject to DOL scrutiny in the matter of how often plans can be amended?

Don Levit

[Guest nicoletrail]

"Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans."

Lockheed Corp. v. Spink, 517 U.S. 882 (1996)

When amending the plan, the plan sponsor or employer is not even considered to be a fiduciary. It is one area where the fiduciary duty doesn't apply. It is a "settlor function" to which the stringent requirements imposed on fiduciaries don't apply.

There does have to be language in the plan allowing amendments and most plans have a standard clause that says they can be amended at anytime for any reason. The plan also have to give adequate notice of the amendment. If they satisfy those 2 things and the amendment doesn't fall into one of the very limited exceptions (see below), they could, theoretically, amend the plan once a week.

The main exception to the rule is where the participant's right to the benefit accrued prior to the amendment. In general, once the participant has satisfied the plan terms for incurring and submitting their claim, it has become "vested" - but, until then, the employer or sponsor can amend any portion of the plan for any reason (as long as it's not discriminatory or otherwise illegal), anytime. There is also an exception which applies to retirees.

As far as the DOL goes - don't get me wrong - the DOL can ALWAYS stick their nose into matters. And you are right, ERISA health plans - both self funded and fully insured - are governed by the DOL regs. But those regs don't change the rule that a plan can be amended at anytime.

[Steve72]

You're both right, IMHO. Plans can certainly be amended at any time. However, amendments which target individuals are prohibited by the HIPAA nondiscrimination rules.

However, those rules state specifically that an amendment made effective as of the beginning of the plan year will not violate the HIPAA nondiscrimination rules. Therefore an employer can adopt an amendment that would otherwise be prohibited if it is effective as of the beginning of the next plan year.

Note that this is a safe harbor for ERISA only. As has been alluded to, there are other laws (ADA, for example) that may prevent the employer from taking this action. The application of such rules would be dependent upon the particular facts.

[Don Levit]

Nicole:

You cited Lockheed v. Spink.

Would this case refer to ERISA plans which are fully insured, as well as self insured?

Specifically, assume an employer wants to offer an HSA. In order to do so, he must offer the qualifying HDHP. State law has not been changed to allow insurers to market this plan.

Can the plan sponsor amend his plan to correspond with the HSA/HDHP legislation and still fully insure his plan?

Don Levit

[Kirk Maldonado]

Don Levitt:

You stated:

The DOL regulations state any plan amendment must apply to all individuals

Could you provide a citation to that regulation for us?

[Don Levit]

Kirk:

I can fax you the page that I kept. I do not have the link. Maybe someone could offer that to you?

My E-mail is donaldlevit@aol.com

[GBurns]

"Can the plan sponsor amend his plan to correspond with the HSA/HDHP legislation and still fully insure his plan?"

Yes the benefits plan can be amended to offer an HSA/HDHP but that has nothing to do with fully insuring his plan. It is the coverage that is fully insured NOT the benefits plan.

[Don Levit]

GBurns wrote, The coverage is fully insured, not the benefits plan.

If that is the case, what is the plan?

How can one have a benefits plan, but it not be insured in

some way?

Don Levit

[Don Levit]

I will attempt to answer my own question using ERISA definitions, not some subjective whim or opinion, of what a plan is.

An employee benefit plan is established or maintained by an employer or an employee organization for the purpose of providing benefits to participants and their beneficiaries.

Court decisions have held that an employee benefit plan will be subject to ERISA if one can ascertain the intended benefits, the procedure for obtaining those benefits, the source of funding, and the intended beneficiaries.

I will be happy to provide the cases, if you wish.

Now, please tell me how you can separate the plan and the benefits?

Without the benefits, you have no plan.

Without the plan, you have no benefits.

Now, which came first, the benefits or the plan?

Don Levit

[GBurns]

You have not used "ERISA definitions". Without quoting and/or citing all you have done is give your own interpretation, opinion, whim and fantasy.

There are no cases that you can cite that would support much of anything that you have posted. That you would want to post cases without first covering the governing IRC, Treas Regs, DoL Regs indicates a lack of understanding, which is what I have been trying to point out to you.

The Plan, its supporting documents (the PD and SPD etc), the scope of benefits, the coverage medium (fully insured (PPO, HMO etc) or self insured) and the provider are all separate items with separate principles, procedures, rules and regs.

I do not have the time this weekend to explain benefits basics to you and hope that someone else will make the effort.

[Don Levit]

GBurns:

I will be the first to admit that I have a lot more to learn about ERISA. And, It is helpful to review the basics, in order to remain sharp.

My definition of an "employee benefit plan" comes from ERISA Sections 3(1), 3(2), and 3(3).

The court cases are Scott v. Gulf Oil Corp., 754 F.2d 1499 (9th Cir. 1985); Donovan v Dillingham, 688 F.2d 1367 (11th Cir. 1982); Elmore v. Cone Mills Corp., 23 F.3d 855 (4th Cir. 1994).

From these basics, remember, we are trying to ascertain if an employer has the freedom to design his plan and negotiate with an insurer regarding the plan's structure.

Don Levit

[GBurns]

That is not what the discussion is. I replied to your posted question:

"Can the plan sponsor amend his plan to correspond with the HSA/HDHP legislation and still fully insure his plan?

Don Levit "

From there you went off in a tangent with irrelevant references and opinions etc. In particular regarding plan, benefits and insurance coverage.

It is easy to understand the diferences, The definition of an accident and health plan starts with Treas Regs 1.105-5 which also explains that the "arrangement" can be insured or not insured. Which in plain language means that the "arrangement" or plan can have coverage that is either fully insured or self funded thereby indicating that there is a differentiation between the 2 items "plan" and "coverage".

Benefits is easy, there are health, medical, STD, LTD, dental, vision, DCAP, PTO etc etc etc. of which not all are accident and health nor are all insureable.

What the extent of coverage, limitations, pre-xs etc provided for each benefit depends on what the plan wishes to do.

The Plan has a Plan Document and supporting material such as SPD. Again showing a differentiation between Plan and Plan Document.

I am trying to point out that there are various components that are each separate, even if related, and each with their own rules etc.

[Don Levit]

GBurns:

Let us assume that I agree with your premise that each part of the plan is related, yet separate, and that each has separate documents.

Would you agree that for the plan to exist, that each separate piece must exist?

If that is true, is this statement true or false?

The plan sponsor can amend his plan to correspond with the HSA/HDHP legislation, and still fully insure his plan?

Please explain why, in your opinion, the statement is true or false?

I look forward to learning of your comments, as well as any others who are following this discussion.

Don Levit

[GBurns]

"Would you agree that for the plan to exist, that each separate piece must exist?"

True, but that is not an issue.

"The plan sponsor can amend his plan to correspond with the HSA/HDHP legislation, and still fully insure his plan?"

True, but can only "fully insure" if there are HDHP qualified insurance coverage available. Availability depends on whether or not the State has approved any products.

But then again that is not the issue.

[Don Levit]

GBurns and any others:

A follow-up to the last T-F question.

Is this statement true or false?

Please state the reason for your answer.

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

Don Levit

[GBurns]

"plan benefits or plan adnministrative structures" are not insurance coverage issues.

The fact that the Plan has medical and dental is not an ERISA issue.

The fact that the medical has a $20 copay instead of a $5 is not an ERISa issue.

The fact that the plan decides to use an HMO instead of a PPO is not an ERISa issue.

The fact that BCBS does not have a particular Dr in its provider network is not an ERISA issue.

The fact that the plan must have Mental Health Parity is not an ERISA issue.

[Don Levit]

Whether the plan has medical or dental benefits, co-pays, and how it is insured are ERISA issues, for the employer has the freedom to decide how the plan is structured. State laws that dictate or restrict choice of plan benefits or administrative structures are completely preempted by ERISA. They are completely preempted, whether the plan is self insured or fully insured.

What does complete preemption mean? It means that the state has to remove itself from how the employer wishes to design his plan. It may not dictate or restrict his choices. Only the 4 federally mandated benefits can dictate or restrict his choices.

I understand and appreciate where GBurns is coming from. For years, I too believed that self insurance was the only way to attain this freedom.

Years of cases dealing with ERISA preemption have given employers these abilities.

Unfortunately, by custom, we have been imprisoned for so many years, that to think otherwise, well, it's just too good to be true!

By the way, I have several other federal documents and Supreme Court cases which support my premise.

Don Levit

[Kirk Maldonado]

Don:

Your last post rasied a host of issues. I will only deal with one. You said:

State laws that dictate or restrict choice of plan benefits or administrative structures are completely preempted by ERISA. They are completely preempted, whether the plan is self insured or fully insured.

That is incorrect. ERISA does not preempt state laws governing insurance. ERISA Section 514. Thus, for example, states can enact laws or adopt regulations that mandate that all health insurance policies issued in the state provide certain benefits. This was upheld in the U.S. Supreme Court decision of Metropolitan Life Insurance Co. v. Massachusetts, 475 U.S.724 (1985).

[Don Levit]

Kirk:

I am not writing about ERISA preempting state laws governing insurance, specifically laws that mandate benefits for insurance companies.

I am writing about states being able to regulate ERISA plans themselves, the employers' ability to decide which benefits to include when establishing a plan, and how they choose to amend their plans, once established.

The words I wrote come straight out of the Supreme Court decision Travelers, 514 U.S. at 659-660.

I would appreciate your (and others) reviewing that case before providing a "rebuttal."

By the way, I agree with your statement that ERISA does not preempt insurance companies. It does preempt state departments of insurance from dictating or restricting employers' choices of plan benefits or plan administrative structures.

I do have other cases, including from the Supreme Court, that further solidify my premise.

What am I suggesting? I am suggesting that employers and insurers have a lot more flexibility to develop innovative plans, with employers, not insurers, providing the impetus. Insurers can amend the plans to correspond with the employers' wishes, if the parties can reach a financial agreement. The changes made are settlor decisions, not fiduciary decisions, which means the state is not involved (preempted).

Don Levit

[mbozek]

Don: The type of plan you are describing is a self funded plan where the employer hires the insurer to pay claims under a health care plan in which the employer decides what the benefits are. The employer and insurer sign an administrative services agreement which is not an insurance policy subject to state insurance law. In an ASA the employer agrees to pay the cost of all benefits plus a fee to the insurer for administering the plan. In a self funded plan all state insurance laws mandating minimum benefits are preempted because the employer retains the risk of paying the benefits and the plan is not an insurer subject to state ins laws.

As discussed by Kirk, if the employer provides benefits under the plan through an insurance policy in which the employer shifts the risk of paying benefits to the insurer in return for paying a premium, state insurance laws will determine what minimum benefits are covered under the policy. If the employer provides health benefits under an IRC section which is funded by purchasing a high deductible insurance policy where the insurer assumes the risk of paying the benefits in return for a premium from employer or employee the policy will be subject to state ins. law requirements.

[Don Levit]

mbozek:

I understand your explanation of state insurance law, and how it applies for fully insured policies.

You wrote that state insurance laws will determine what minimum benefits are required for the policy. I agree with you.

However, state insurance laws are completely preempted for determining minimum benefits for the ERISA plan that the employer establishes and maintains.

The key words are fully insured "policies" versus ERISA "plans."

Again, please read the Travelers Supreme Court case, before offering your "rebuttal."

I know my premise is a bit radical, but I can support it with Supreme Court cases, as well as ERISA law.

I am hoping to present the other "evidence," but we are spending time discussing what has customarily been done, and not looked at the Travelers case.

Do you need me to provide the link for the case?

Don Levit

[mbozek]

As noted by Kirk, the US Sup Ct in Met life case, 471 US 724, Part IIIB specifically disposed of your argument when it held that a mandatory benefit provision (e.g., providing treatment for mental illness) which was required under state insurance law for any group health insurance contract issued in MA was not preempted by ERISA because requiring minimum benefits is part of the business of insurance which was preserved under ERISA 514(b)(2)(A). The Travelers case did not modify the Met life decision. While your statement that state ins laws are preempted by ERISA 514(b)(2)(B) as to what the minimum benefits must be under the terms of the Employers plan is correct, it applies only if the employer self funds the plan, instead of providing benefits under an insurance policy subject to state law.

[WDIK]

I am hoping to present the other "evidence," but we are spending time discussing what has customarily been done, and not looked at the Travelers case.

(METAPHOR ALERT!)

We aren't at the poker tables here, so why not lay all your cards on the table. If your hand is as good as you maintain, there will be no reason for anyone to try and call your bluff.

[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

[GBurns]

Don,

I already gave you a link to www.hsainsider.com and suggested that you read and learn, but apparently you refuse to read and understand anything.But, I will try another time.

The IRS issued Notice 2004-43: http://www.hsainsider.com/treasury/treasury_17.pdf

Notice the title "HSA State Mandate Relief ......."

As stated in the Notice, its purpose was to give transitional relief (to those who wanted to get an HSA) in states where a HDHP was not available because of State law.Look at the first section on page 1 titled "Purpose".

Notice the 3rd bullet under "Background".

We have tried to explain to you what state insurance law covers, now here is the IRS.

Do you think that the IRS does not know whether state law is applicable to HDHPs for HSAs?

Now give up, this is now ridiculous.

[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

[GBurns]

I am interested in hearing Jeff Foxworthy. Why? Not for philosophy but for Humor! He probably is being courteous and treating you similarly.

There is no point going to the other Board.

Apparently you do not read or understand anything that anyone sends you or tells you, so I have no interest in continuing this pointless discussion.

This makes me miss MoeHoward2.

[J2D2]

FWIW, I suggest that you go to Roy Ramthun to fully explore your "premise" and ask him to post it here. I, for one, don't have any idea what your "premise" might be because you refuse to define it. Last night, you said we were "discussing" the Travellers case, then a few hours later the "key item" became the Metropolitan case. Now, we're supposed to flip between 2 different boards to try to understand your "premise." In the meantime, you seemingly refuse to read the responses to your rambling posts, which, for my money appear to address the issues that you seem to be trying to raise. I don't often agree with the sentiments expressed by GBurns (as opposed to his substantive posts, which I find very helpful), but in this case he's on the money. Make your point or find a new topic.

[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

[mbozek]

You keep ignoring the distinction between self funded and insured plans which the Sup Ct. made in the Met Life Case. If an ERISA plan provides benefits by self funding, state min. benefits provisions under the ins law do not apply and the er can enter into any arrangement with an insurer. If the benefits are provided under an insurance contract where the insurer guarantees payment of benefits in return for a premium then state minimum benefits must be provided because ERISA does not preempt state regulation of insurance companies.

[Steve72]

You keep ignoring the distinction between self funded and insured plans which the Sup Ct. made in the Met Life Case. If an ERISA plan provides benefits by self funding, state min. benefits provisions under the ins law do not apply and the er can enter into any arrangement with an insurer. If the benefits are provided under an insurance contract where the insurer guarantees payment of benefits in return for a premium then state minimum benefits must be provided because ERISA does not preempt state regulation of insurance companies.

mbozek is 100% correct.

To look at it another way, the sponsor of an insured plan is (legally) free to offer a benefit plan that does not comply with state mandated benefits...there is no law preventing that.

However, no insurer would ever sell such a contract to the employer, because to do so would violate state insurance law. Therefore, it is impossible.

Self funded arrangements are not subject to state insurance law because they are not insurance companies.

[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

[mbozek]

Just what part of the met life case dont you understand? Met life was sued by the Mass Atty general to enforce the mandated benefits required under Mass ins law The sup ct upheld the right to require mandated benfits in insured plans. Insurers wont violate state ins laws because they dont want to pay fines and risk the loss of their license to sell ins. This is the end.

[Steve72]

Don:

You are missing that there are two entities with potential liability here. The employer can make the change. However, if the insurer agrees to sell a non-compliant contract to the employer, then it is violating state insurance law. Nothing in Met Life changes that.

Whether the decision to make a change is a settlor or a fiduciary function has no bearing on the sale of an illegal contract by the insurer. It is not an ERISA issue. ERISA does not pre-empt the state's right to regulate the sale of insurance contracts (including group contracts) within its jurisdiction.

The insurer will not risk liability, and so will refuse to write the contract.

This statement: 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., while legally true, is misleading. Such contracts are illegal to be sold. While the employer would be free from liability, the product will not exist.

[GBurns]

Guys,

Let's give it up. Don will never understand the difference between the benefits plan and the insurance coverage etc. He also will not read anything, not even the Treas Regs so as to understand what an accident and health plan is.

You can lead a horse to water but you cannot make them drink.

Think about it, How bad it must be that we are in agreement? And with the nature and lengths of these threads we have kept it civil.

Let us close it and leave Don to his beliefs.

[Kirk Maldonado]

I agree with Steve72 and Mbozek on the substantive points. I also agree with Gburns that it is good that the regulars on the Message Boards all agreed.

But I don't find that too remarkable because the issue is pretty clear for experienced practitioners. However, it seems like what seems straight-forward to us may not be quite so clear to someone who isn't as steeped in ERISA as we are.

This exchange points out one of the problems of working in our area; which is trying to explain ERISA issues to lay people. Fortunately, the vast majority of my clients only want to know the answer. It is much easier to simply tell them the result than to try to explain than how I got to there.

If they do ask for an explanation, I will ask them before I start "Now this will be long and exceedingly technical, are you sure you REALLY want to hear it?" It is a rare client (usually an in-house counsel) that will voluntarily subject themselves to that. I consider such behavior to be bordering on masochistic.

[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

[jeanine]

As someone who works for a TPA that provides self-funded administration services and insurance products through an insurance company, I can tell you that we can not sell any insurance product that has not been filed with and approved by our state department of insurance. Therefore, any insurance policy sold to a Plan Administrator must contain all state-mandated benefits or it will not be approved for use in this state. To enter into the arrangement you are suggesting as a "test" would mean that we are engaging in unauthorized practices as an insurance company.

[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

[Steve72]

...And I seriously doubt you will find one. It would require an insurance company to sell a policy that it knows is non-compliant. No insurance company is going to risk losing its ability to do business to sell a single contract.

[JDuns]

To try one last time to explain to Don the position of all of the ERISA/insurance experts posting on this question.

An insurer who is licensed to issue issurance policies may only issue policies conforming to state laws. While it is true that the insurer and purchaser of an insurance policy may permissibly agree to a rider changing the pre-approved version of the policy terms, the insurer is not permitted to accept any rider that would cause the policy to violate state law. As noted by many other posters, issuance of such a policy could cause the insurer to lose their license to issue any policies in that state.

Because an insurer may not agree to a rider that would violate state law, the employer/purchaser may not remove the mandated insurance in a rider to an otherwise approved policy.

[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.