Spousal Carve Out Rules

[mal]

I have searched the prior posts regarding the imposition of a "spousal carve out" rule by

a self funded health plan. I know some states prohibit such rules for fully insured

plans, but aside from that is anyone aware of any other obstacle that would prevent

a health plan from adopting such a rule?

My reason for asking is that one of our plans has been put on notice that a

suit is forthcoming. I cannot figure out what the basis of such an action would

be.

Any updates would be appreciated.

[Don Levit]

When you say "spousal careve out" rule, are you saying that if the spouse has other coverage, or has other coverage available which the spouse declines, that the group plan does not have to cover the spouse?

If so, this seems to be a "settlor function" of how the plan is designed, or modified.

Why would the states be able to prohibit plan sponsors from doing so, even with fully insured plans?

I see the settlor function, as a business decision, not an insurance decision, which would not be subject to state regulation.

Don Levit

[mal]

Our plan design provides that if a spouse has coverage available through her employer at a cost of less than $150 per month we will pay only on a secondary basis...regardless of whether she actually chooses to enroll in the other plan.

Our plan does not require she enroll in the other plan, nor does it cut her off completely. Instead we act as a secondary payor.

[Guest b2kates]

In a self-funded environment, the plan sponsor has great latitude to define terms of participation. State insurance rules and mandates do not apply to the ERISA plan;

BUT, be careful that you have properly and adequately advised the participant and spouse with proper SPD and communications.

[Don Levit]

b2kates and others:

Do you have an opinion regarding the design of an ERISA plan, even a fully insured plan, being a settlor function, not only not subject to ERISA, but also not being subject to state regulation?

Don Levit

[Guest b2kates]

Don, in general a state can not regulate the fully insured plan at the plan sponsor level.But the state can impose its own mandates on any insurance that is authorized to be issued within the state.

In the past we have been comfortable and successful in precluding the state insurance agency from imposing mandates, by virtue of the ERISA exemption, for any of the self-insured plans which i have represented.

[Guest b2kates]

see latest news:

March 15, 2006 (PLANSPONSOR.com) – In its continued effort to reduce health care costs, Ford Motor Company has announced it will charge for health insurance and dental coverage for worker’s spouses or same-sex domestic partners that are eligible for non-Ford health insurance.

On June 1, workers will begin paying $110 a month for health insurance and $11 a month for dental benefits for their spouses or same-sex domestic partners who have access to other coverage, the Detroit News reports.

According to the Detroit News, additional changes that will be implemented as of June 1 include:

Active salaried workers who opt for the Ford Medical Plan will continue to avoid monthly premiums, but their annual deductibles will increase by nearly 17%.

Workers who select an alternative health plan will see their monthly premiums go up 30 percent on average, while their annual deductibles will rise 33%.

Ford will cap health care spending for retirees and their surviving spouses at the average 2006 level. After that, any increases in insurance premiums will have to be paid entirely by the retirees or their survivors.

Ford spent $3.5 billion on health care expenses in 2005, compared with $3.1 billion the previous year, according to the Associated Press. The automaker has not projected how much it expects to spend on health care this year.

[Don Levit]

b2kates and others:

Assuming that the plan is self insured, could Ford have made those changes if the plan was fully insured?

Don Levit

[Guest budman]

Can anyone verify that a self-funded plan that allows spousal coverage can indeed change the eligibility to exclude coverage for spouses that have other coverage available even if they have opted out of the other coverage? And to MAL, how do you coordinate benefits with the other plan as secondary payor if they opt out of their employer's plan? Do you request benefits from the other employer prior to processing any claims?

[Don Levit]

Budman:

You are asking if the plan sponsor can provide the terms within the ERISA plan itself to exclude spouses who are eligible for other coverage, whether or noy they actually enroll.

To my knowledge, this does not violate federal law.

This is a settlor function of plan design, in which the terms of the plan document would be enforced, unlessx they violated or were inconsistent with ERISA, or other federal law.

I can appreciate your concern, but you are asking the question, as if the ERISA plan document had little protection from state regulators.

You seem to be implying that there is as little freedom in designing ERISA plans, whether self insured or fully insured, as an individual deciding the plan terms of an individual policy from a commercial insurer.

Don Levit

[Guest Steve72(b)]

Don, I think we've had this discussion before. You are correct that a state cannot dictate plan design to an employer for a fully insured or self insured plan, however, it is an academic point. The state can mandate to insurers within its jurisdiction that any policy (including a group health insurance policy) provide benefits as mandated by that state. If the employer wanted to design a benefits plan in a way that did not comply with those mandates, it would be unable to fund those benefits using an insurance policy because no insurer would sell an illegal product.

The state regulates the insurer, not the employer. ERISA explicitly does not preempt generally applicable state insurance law.

[Don Levit]

Steve (and others):

Thanks for your reply.

From an academic standpoint, is there any difference between a fully insured ERISA plan, and a fully insured non-ERISA plan, in relation to how the employer (or individual) could structure the plan?

Don Levit

[GBurns]

Yes.

In a nutshell, in a fully insured plan, an employer is limited by what is available from the insurers, and the insurers are limited by what has been approved by the state or what is practical for them to seek approval on, whereas in a self insured plan the limitations depend on what the limitations are and the effect on the overall viability of the plan, keeping in mind any federal mandated items.

[Don Levit]

George:

Thanks for your reply.

I really am not asking about the differences between a fully insured plan and a self insured plan.

I am asking if there are any academic differences regarding how a fully insured ERISA plan can be structured by the employer, as compared to how a fully insured non ERISA plan (for example, an individually owned policy) can be structured by the individual?

Don Levit

[leevena]

I amsorry, but what does "academic differences" mean?

[Don Levit]

Leevena:

What I mean to say by that is, from a practical standpoint, is a fully insured ERISA plan any different from a fully insured non ERISA plan, as far as the employer or individual being able to structure the plan to fit his needs (mandated benefits, etc).

Don Levit

[Guest Steve72(b)]

The ERISA plan itself, no, there is no practical difference. Both are solely subject to Federal law. However, you never get to that point. In order for a plan to be fully insured, you need to have an insurance contract. You can design a plan any way you want (within Federal law), but you will not be able to make it fully insured if every insurer refuses to sell you a contract to meet the terms of that plan.

[GBurns]

Don,

You are still not understanding that there is a difference between the employer's ERISA plan and the health benefits coverage (fully insured or self funded).

[Don Levit]

George:

Thanks for your reply.

I believe there is a distinct difference between an ERISA plan, and how it is funded.

That is why there are different levels of action, depending on whether we are looking at the employer level of designing the plan (including modifying the plan), and the level of funding the benefits.

I believe Steve said that the employer has the freedom to structure his plan similarly, regardless if the plan is self insured or fully insured.

On this I agree.

Steve also said that insurers are prohibited from providing policies that are not approved by the states.

On this I agree.

I was trying to point out that ERISA provides employer freedoms in designing plans. These same freedoms are not provided to individuals that purchase fully insured plans, outside of the ERISA arena.

Using that rationale, one would think that fully insured ERISA plans have an avenue that fully insured non ERISA plans do not have: plan sponsors requesting that insurers offer modified policies, tailored more to the needs of the employees of that particular employer.

While insurers cannot modify plans without the plan sponsors first initiating the request, there is nothing prohibiting insurers from taking the sponsors' requests to the departments of insurance for their approval or decline, right?

Don Levit

[Guest Steve72(b)]

If by"there is nothing prohibiting insurers from taking the sponsors' requests to the departments of insurance for their approval or decline", you mean that the insurer can advocate for a change in state insurance law, sure.

However, the fact that the contract being offered is a group policy issued to an ERISA plan has no bearing on whether state insurance legislation (including mandated benefits) will apply.

[GBurns]

Don,

Maybe we are just not understanding the language and terminology that you use.

What difference does ERISA make to the funding of a Plan?

Why do you think that "ERISA provides employer freedoms in designing plans" ? How does ERISA do this?

There is nothing wrong with any insurer taking any requested modifications to any Dept Of Insurance for approval. But that insurer has to decide whether to use Riders or a new Policy with which to file the application. But even before that the insurer has to determine the actuarial impact and rates etc. Before any of this is done the insurer has to decide if it is worth the effort in the first place considering the considerable costs involved and the time lag. The end result is that it will be very rare, if ever, that this is done. It is just not practical to accomodate ad hoc employer requests for modification of existing policies.

[Don Levit]

Steve:

I am not stating that the insurer can advocate for a change in state insurance law.

An insurer can submit an amended policy to the state department of insurance for its approval or disapproval, based on the desires of the plan sponsor.

This is not changing insurance law.

On the contrary, commissioners generally have the right to approve or disapprove of experimental policies.

Can you cite a federal court case, in which this practice was disallowed?

Don Levit

[Don Levit]

George:

ERISA makes no difference regarding self insured plans versus fully insured plans.

That is the point I am trying to make.

The distinction made by the Supreme Court about 20 years ago was not arrived at by the wording in ERISA.

It was actually quite a stretch for the Supreme court to arrive at that distinction, in my opinion.

Actually, ERISA does not apply directly to how plan sponsors design their plans, for this is a settlor function, not a fiduciary finction. It is a business decision, not an insurance decision.

An employer does not act in the capacity of a fiduciary because it is not exercising any discretionary authority or discretionary control respecting management of a plan under the definition of a fiduciary in ERISA section 3(21)(A). Thus, employers or other plan sponsors generally have the complete discretion to adopt, modify, or terminate employee benefit plans without acting in the capacity of a fiduciary. DOL Opinion letter to John N. Erlenborn, 13 Pens. Rep. (BNA) 472 (March 13, 1986), Lockheed Corp. v. Spink, 517 U.S. 882 (1996).

Don Levit

[Guest Steve72(b)]

Steve:

I am not stating that the insurer can advocate for a change in state insurance law.

An insurer can submit an amended policy to the state department of insurance for its approval or disapproval, based on the desires of the plan sponsor.

This is not changing insurance law.

On the contrary, commissioners generally have the right to approve or disapprove of experimental policies.

Can you cite a federal court case, in which this practice was disallowed?

Don Levit

...But the commissioner will not approve a policy which violates state insurance law.

I fail to see why a Federal case would be necessary to show that state law governs insurance. McCarran Ferguson and ERISA 514(b)(2)(A) make that clear.

George:

ERISA makes no difference regarding self insured plans versus fully insured plans.

That is the point I am trying to make.

The distinction made by the Supreme Court about 20 years ago was not arrived at by the wording in ERISA.

It was actually quite a stretch for the Supreme court to arrive at that distinction, in my opinion.

Actually, ERISA does not apply directly to how plan sponsors design their plans, for this is a settlor function, not a fiduciary finction. It is a business decision, not an insurance decision.

Again, it is correct that the sponsor can design the plan any way he wants (within the bounds of Federal law). However, the sponsor must then determine how to fund it. This can be done by a variety of methods. If the sponsor wishes to fund the plan via insurance, then it can only do so by purchasing a legal insurance contract. An insurance contract that violates state law is, by definition, illegal.

An employer does not act in the capacity of a fiduciary because it is not exercising any discretionary authority or discretionary control respecting management of a plan under the definition of a fiduciary in ERISA section 3(21)(A). Thus, employers or other plan sponsors generally have the complete discretion to adopt, modify, or terminate employee benefit plans without acting in the capacity of a fiduciary. DOL Opinion letter to John N. Erlenborn, 13 Pens. Rep. (BNA) 472 (March 13, 1986), Lockheed Corp. v. Spink, 517 U.S. 882 (1996).

Don Levit

The "fiduciary/settlor" distinction is immaterial to the issue here. Regardless of the "hat" the sponsor is wearing, state law governs the availability of insurance contracts.

[Don Levit]

Steve:

I agree with you that state law governs the availability of the contracts that can be offered by commercial insurers.

Are you familiar with experimental policies?

Of the several state insurance codes I have read, they all allow for them.

As George expressed, insurers can apply for amended policies to suit the needs of their customers.

How would this practice violate state insurance law?

Don Levit

[Guest Steve72(b)]

Steve:

I agree with you that state law governs the availability of the contracts that can be offered by commercial insurers.

Are you familiar with experimental policies?

Of the several state insurance codes I have read, they all allow for them.

As George expressed, insurers can apply for amended policies to suit the needs of their customers.

How would this practice violate state insurance law?

Don Levit

The practice doesn't violate state insurance law. However, your entire argument (as I understand it) has been that an insurer can provide a "special" group health policy which does not meet one or more statutory requirements for a group health policy because that policy is being offered to an ERISA plan. This is not an "experimental policy", it is an attempt to get an exclusion from the rules applicable to such policies.

No state insurance commissioner will permit a group policy to be sold in its state which does not meet the requirements applicable to group policies.

[Don Levit]

Steve:

Thanks for your reply.

Apparently, I did not make myself clear.

An insurer can offer an experimental policy, only with the approval of the state department of insurance.

My premise is that the negotiation can take place between the insurer and the employer, a premium can be provided, and, if accepted, can be presented to the department of insurance for approval or disapproval.

The fact that it is an ERISA plan provides a bit more credibility for the employer and the insurer to ask for the department's approval.

This is because, according to ERISA, plan sponsors do have the legal right to structure their plans, in accordance with federal law.

This option, to my knowledge, is not available for non ERISA plans, on a fully insured basis.

Don Levit

[Guest Steve72(b)]

The fact that it is an ERISA plan provides a bit more credibility for the employer and the insurer to ask for the department's approval.

This is because, according to ERISA, plan sponsors do have the legal right to structure their plans, in accordance with federal law.

I was with you right up until this point. The only reason this would be so would be if ERISA preempted state insurance law, which it does not. The fact that there is an ERISA plan present would have no bearing on the ability or willingness of the insurance department to grant an exception to existing law.

Note that I understand the point you are makeing about an experimental policy not being an "exception", however, it is inaccurate. Any group health policy which does not comply with the rules applicable to group health policies must, by necessity, be an exception to those rules.

[Don Levit]

Steve:

Thanks for your reply.

Since when does ERISA not preempt state insurance law?

I thought there were a slew of cases that dealt with ERISA preemption.

In this particular case, ERISA does not preempt the state department of insurance from regulating the commercial insurer.

It does preempt the state from regulating the plan sponsor, however, even with a fully insured plan.

I hope we will not argue that point, as I do seem to have your agreement.

Yes, an experimental policy is an exception to the typical group policy.

But, it is an exception granted by the law.

In this case, the exception proves the rule!

Don Levit

[Guest Steve72(b)]

Steve:

Thanks for your reply.

Since when does ERISA not preempt state insurance law?

Since 1974.

ERISA § 514(b)(2):

(2) (A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

(B) Neither an employee benefit plan described in section 4(a), which is not exempt under section 4(b) (other than a plan established primarily for the purpose of providing death benefits), nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies . . ..

It does preempt the state from regulating the plan sponsor, however, even with a fully insured plan.

I hope we will not argue that point, as I do seem to have your agreement.

I agree with that. However, we are not talking about any regulation regarding the plan sponsor.

Yes, an experimental policy is an exception to the typical group policy.

But, it is an exception granted by the law.

In this case, the exception proves the rule!

Don Levit

No. It is an exception which may be provided by law. Your argument again requires that an exception to existing insurance law be granted by the insurance department. The experimental policy provisions permit an insurer to ask for such an exception.

You have argued that the fact that an ERISA plan exists will sway the insurance commissioner to grant an exception. There is no support for this assertion. On the contrary, based on my dealings with insurance departments, the opposite would likely be true.

[Don Levit]

Steve:

Thanks for your reply.

I agree with you that state departments of insurance are not willing, generally, to use the experimental policy exception, whether the plan is an ERISA plan or not.

My dealings with regulators has been centered around their understanding of state regulation of insurance as being rather exclusionary, to the point they are not that familiar, or even concerned about any conflicts with federal law.

I am not making an issue of complete preemption or even partial preemption.

I agree that states have the ability to regulate commercial insurers, as well as self funded MEWAs.

I am stating that departments of insurance have some latitude for exploring innovative ways to provide insurance, whether through fully insured ERISA plans, or self insured ERISA plans.

The fact that you and I have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so.

Don Levit

[GBurns]

Steve

Don somehow has arrived at the understanding that you " have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so." Can you clarify this? I must have missed where you stated or implied this.

Don,

The fact that a plan is either an ERISA or a Non-ERISA has no bearing on what state regulators can do or are willing to do. An employer, in fact most if not all employers, most likely have ERISA plans. If this ERISA plan provides the benefits or coverage through an insurance policy, then, in general, the state insurance regulators have jurisdiction over that insurance policy. They still do not have jurisdiction over the employer's plan. Being an ERISA plan has nothing to do with the insurance policy. ERISA does not mean that the employer's plan is self funded.

Insurance is not provided "through fully insured ERISA plans, or self insured ERISA plans". It is the benefits (coverage) source that is provided through insurance or self insurance.

The state regulators have no latitude to explore innovative ways to provide insurance, it simply is not within their jurisdiction nor scope. I also do not see waht innovative ways to provide insurance has to do with innovative ways to provide employee health benefits. Insurance is not benefits and vice versa.

[Guest Steve72(b)]

Steve:

Thanks for your reply.

I agree with you that state departments of insurance are not willing, generally, to use the experimental policy exception, whether the plan is an ERISA plan or not.

My dealings with regulators has been centered around their understanding of state regulation of insurance as being rather exclusionary, to the point they are not that familiar, or even concerned about any conflicts with federal law.

I am not making an issue of complete preemption or even partial preemption.

If you are not making an issue of preemption, then your assessment of the state regulator's position makes no sense. ERISA does not preempt state regulation, so there is no conflict with state law. State law entirely governs insurance.

I agree that states have the ability to regulate commercial insurers, as well as self funded MEWAs.

I am stating that departments of insurance have some latitude for exploring innovative ways to provide insurance, whether through fully insured ERISA plans, or self insured ERISA plans.

The fact that you and I have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so.

Don Levit

....Then, again, you are arguing that insurance departments have the ability to make an exception to the law. Fine, but what has this got to do with the ERISA preemption argument you posed earlier?

GBurns:

Steve

Don somehow has arrived at the understanding that you " have had little success convincing them of their latitude to do so is more of a dearth of their willingness to dialogue, rather than their legal inability to do so." Can you clarify this? I must have missed where you stated or implied this.

If I implied that I had had discussions of this type with insurance commissioners, it was unintentional. My dealings with such departments have left me with the impression that, for the most part, they are aware of the ERISA world and the general concept of Federal preemption and nonetheless, are aware that their jurisdiction over insurance is superior. I don't think you'd be posing a novel (or successful) argument to them that a group policy is for an ERISA plan, so should be excepted from the law.

[GBurns]

Steve,

Thanks for clearing that up. I could not find where you even implied such a thing.

[Don Levit]

Steve:

Thanks for your reply.

I bring up the ERISA issue not to say that state law is superior to federal law or vice versa.

I brought up the ERISA issue to demonstrate there is some tension between the plan sponsor to design his plan versus the state department of insurance to regulate the commercial insurer.

From what I understand, both you and George agree with me that the sponsor has the legal right to structure his plan, yet the state department of insurance has the authority to regulate the insurer.

There is no tension if the plan is self funded, for the state has no authority to regulate the "insurer" in this instance.

There is tension, when the insurer and the plan sponsor are not the same entity.

Due to the presence of this tension, I am suggesting the states honor the conflicts and complexity presented.

To say that state law entirely governs insurance within an ERISA plan, without taking this tension into account, is absurd, in my opinion.

For the states to say that state law is superior is one thing.

To say that state law governs, as if there is no federal application whatsoever is irrational.

Don Levit

[Don Levit]

George:

Thanks for your reply.

You wrote that the state regulators have no latitude to explore innovative ways to provide insurance.

You are correct in that states typically don't initiate these type of endeavors.

But, states do have the right through their codes of insurance to regulate expermental plans.

For example, in the Texas Insurance Code, Title 28, Part 1, Chapter 3, Subchapter S, Rule 3.3081, Nonconventional Coverage, it states, "The commissioner may authorize approval of a policy that does not correspond with one of the categories of this title (relating to Minimum Standards and Benefits) if such policy is to be determined to be experimental in nature or coverage that in the commissioner's opinion will fulfill a reasonable public need."

Don Levit

[GBurns]

Regulating insurers and insurance policies has nothing to do with developing or designing insurance policies. Regulating insurance policies has nothing to do with designing employee benefits including health insurance benefits.

I do not understand what you mean by "experimental policies" and am not able to find it as you cited. Can you provide a link so that I can see what it might mean rather than speculate? The links that I use to read the Texas Insurance Code are:

http://www.capitol.state.tx.us/statutes/i1.toc.htm

http://www.capitol.state.tx.us/statutes/in.toc.htm

In neither of these can I find any mention of "experimental" policies.

I am also at a loss to understand what you mean and see as "tension".

As far as self insured health plans are concerned, whatever exists between plan sponsors and state regulators, exists to almost the same extent between plan sponsors and Federal regulators and regulations. A self insured health plan does not exist in a vacuum and have a free to do as it pleases mandate. There are regulations there too which also include coverage and benefits mandates along with other restrictions.

[Guest Steve72(b)]

I brought up the ERISA issue to demonstrate there is some tension between the plan sponsor to design his plan versus the state department of insurance to regulate the commercial insurer.

From what I understand, both you and George agree with me that the sponsor has the legal right to structure his plan, yet the state department of insurance has the authority to regulate the insurer.

There is no tension if the plan is self funded, for the state has no authority to regulate the "insurer" in this instance.

There is tension, when the insurer and the plan sponsor are not the same entity.

Due to the presence of this tension, I am suggesting the states honor the conflicts and complexity presented.

Ah. I see. However, there is no "tension" as you put it between Federal and state law. Even if Federal law had no strictures whatsoever on plan design (which is not true), the fact that there was no Federal regulation does not mean that there is a conflict with state law.

To say that state law entirely governs insurance within an ERISA plan, without taking this tension into account, is absurd, in my opinion.

For the states to say that state law is superior is one thing.

To say that state law governs, as if there is no federal application whatsoever is irrational.

Don Levit

Rationality aside, since we are dealing with legislatures here, it is perfectly appropriate in the world of insurance contracts (including group health contracts) to state that state law governs, and there is no Federal application. In fact, that is precisely what McCarran Ferguson states. The only exception to this would run exactly the opposite to your argument:

Where there is a Federal restriction on plan design (e.g., the Mental Health Parity Act), no group policy will be offered which violates this restriction. this is not because the insurer suddenly becomes subject to Federal law. it is becasue employers would be barred from purchasing any such contract, so there is no market.

[Don Levit]

George:

You are correct that regulation of policies and design of policies are two separate actions.

State regulation and federal regulation of self insured plans are very different.

There is no state regulation of self insured plans.

There is very little federal regulation of self insured plans, but there is, of course, more federal regulation than state.

The coverage and benefit mandates are minimal.

Steve:

If you wish to stick to your state law governs insurance regulation, please go right ahead.

I don't think you are correct in that thinking in every situation.

And, even if you were, state regulators would be more prudent to not only be aware of federal regulation, but to keep that in mind when making regulatory decisions.

In your example of the mental health parity law, who is barring the employers from purchasing a policy which did not correspond to it?

Don Levit

[jeanine]

Here's how I understand it. ERISA plan sponsors have the ability to provide whatever benefits they want, within very limited federal law. Once they establish a health plan, they have to decide how they are going to pay for benefits. They can self-fund or they can purchase insurance. The state in which they are located is going to determine what type of insurance (and benefits) they can purchase. Although this isn't the case in the original posting let me give an example to explain my view. Company has a health plan. They purchase an insurance policy that doesn't doesn't cover grandchildren born to unmarried minor dependents. Company promises coverage, perhaps because of union contract. The plan states it covers, insurance policy states it doesn't. Plan still must offer coverage but insurer doesn't. In this case I would say the plan is on the hook and must self-fund. Is there conflict? Of course. However, that doesn't change the terms of the insurance policy that the plan purchased.

[Don Levit]

Jeanine:

You add a very interesting element to this discussion.

This is an area that continues to evolve, particularly in relation to domestic partner benefits and same sex benefits.

When a plan wishes to provide for benefits that the state does not provide for, how does one do so in a fully insured plan?

Why does the choice have to be self funded, instead of fully insured in your case?

Why not provide a fully insured plan, and self fund the benefits you described?

Don Levit

[Don Levit]

Steve:

I am glad you brought up the Mental Health Parity Law.

As you know, this provision was recently extended by the DOL until Dec. 31, 2006.

You can find the appropriate material at http://edocket.access.gpo.gov/2006/pdf/06-2655.pdf.

Here is an interesting excerpt: The MHPA provisions in ERISA generally apply to all group health plans other than governmental plans, church plans, and certain other plans. These provisions also apply to health insurance issuers that offer health insurance coverage in connection with such group health plans.

I wonder why the DOL differentiates between group health plans and health insurance issuers?

By the way, regarding the MHPA, are you saying that the reason that employers cannot offer plans that do not correspond to this provision is not due to federal regulation of insurance?

Then, what is it due to? The market? Employee demand?

Don Levit

[Don Levit]

George:

You asked for the link to the nonconventional coverage provision in the Texas code.

It is actually found in the Texas Administrative Code, which is a compilation of all state agency rules in Texas. There are 16 titles in the TAC. Each title represents a category and relating agencies are assigned to the appropriate title.

Title 28 is "Insurance."

Go to: http://www.sos.state.tx.us/tac/index.shtml.

Click on the link at the bottom, above "Text Only."

Then click Title 28, Part 1, Chapter 3, Subchapter S.

Don Levit

[Guest Steve72(b)]

Steve:

If you wish to stick to your state law governs insurance regulation, please go right ahead.

I don't think you are correct in that thinking in every situation.

And, even if you were, state regulators would be more prudent to not only be aware of federal regulation, but to keep that in mind when making regulatory decisions.

McCarran Ferguson

In your example of the mental health parity law, who is barring the employers from purchasing a policy which did not correspond to it?

Don Levit

The Federal government bars the employer from sponsoring a plan which does not comport to Federal law. It does not directly regulate the insurer.

[Don Levit]

Thanks, Steve, for the link to McCarran Ferguson.

As you know, ERISA was enacted after McCarran Ferguson.

And, ERISA is a federal law that regulates the business of insurance.

That is why states need to do more than give lip service to ERISA, and court cases based on its application.

Don Levit

[Guest Steve72(b)]

Thanks, Steve, for the link to McCarran Ferguson.

As you know, ERISA was enacted after McCarran Ferguson.

And, ERISA is a federal law that regulates the business of insurance.

That is why states need to do more than give lip service to ERISA, and court cases based on its application.

Don Levit

ERISA Section 514(b)(2) (quoted above) says specifically that ERISA does not regulate the business of insurance.

[Don Levit]

Steve:

You are right. Section 514(b)(2) includes the famous, or infamous, savings and deemer clauses, which speak directly to the "tension" I was writing about earlier.

The savings clause reserves to the states the right to regulate the insirance business and persons engaged in that business. The deemer clause makes it clear that a state law regulating insurance may not consider an employee benefit plan to be an insurance company to establish jurisdiction over such a plan.

So, in a fully insured ERISA plan, we have the state unable to regulate the plan itself, for the plan is not considered to be an insurance company (in the business of insurance).

However, the savings clause gives the states the right to regulate the commercial insurer, who is considered to be in the business of insurance.

So, while a plan sponsor has the right to design his plan without state mandates, for example, the insurer cannot sell him a fully insured plan without the state mandates.

While the plan sponsor has the ability to tailor his plans to his liking (using only the federally mandated benefits, for example), he better be big enough to self insure.

To me, this is "tension," in that freedom is given with one hand, and taken away with the other.

Around 1985, I believe in the Travelers v. Massachusetts case, the Supreme Court "resolved" the savings and deemer clauses by saying that states can regulate fully insured ERISA plans, and states cannot regulate self insured ERISA plans.

This ruling needs to be revisited, in my opinion, for neither the savings nor the deemer clauses have the words self funded in them.

There is a better way to resolve this paradox of the savings and deemer clauses than "arbitrarily" splitting ERISA plans by the way they are funded.

Don Levit

[Guest Steve72(b)]

To me, this is "tension," in that freedom is given with one hand, and taken away with the other.

I honestly don't see how you can call this "tension". There is no inconsistency. Federal law does not say that an employer can design the plan any way it wants. It simply does not impose limits on the employer. It is very different for the law to be silent than for it to make an affirmative and contrary statement.

Around 1985, I believe in the Travelers v. Massachusetts case, the Supreme Court "resolved" the savings and deemer clauses by saying that states can regulate fully insured ERISA plans, and states cannot regulate self insured ERISA plans.

This ruling needs to be revisited, in my opinion, for neither the savings nor the deemer clauses have the words self funded in them. There is a better way to resolve this paradox of the savings and deemer clauses than "arbitrarily" splitting ERISA plans by the way they are funded.

Don Levit

You've oversimplified the case, in my opinion. Travelers says that ERISA does not preempt insurance regulation. Insurance regulation, not surprisingly, regulates the business of insurance. The distinction between self funded and fully insured is far from "arbitrary". Fully insured plans purchase a contract from an insurer in the business of insurance. Self insured plans do not.

I also note that your argument has changed. You are now arguing that the law should be changed, not that it currently permits fully insured plans to be structured in the manner you have discussed. I can see a policy argument for that, but the law is crystal clear (which is unusual in this area).

[jeanine]

Jeanine:

You add a very interesting element to this discussion.

This is an area that continues to evolve, particularly in relation to domestic partner benefits and same sex benefits.

When a plan wishes to provide for benefits that the state does not provide for, how does one do so in a fully insured plan?

Why does the choice have to be self funded, instead of fully insured in your case?

Why not provide a fully insured plan, and self fund the benefits you described?

Don Levit

If the plan wants to add a benefit they can ask the insurer to add it. The insurer will then adjust the premium. However, they can't ask the insurer to not provide a state-mandated benefit nor provide a benefit prohibited by the state. Your response raises another issue in states (such as Ohio) who have amended their Constitutions to provide that no benefits inur to same-sex marital partners. So, in that case, we could not file a policy that defined "spouse" any different than what the state Constitution defines it as. We could of course agree to provide domestic partner benefits and adjust the premiums accordingly (if necessary.)

[Don Levit]

Steve:

Federal law does say that an employer can design his plan any way he wants, and only in relation to federal law.

Before a plan is put into effect, in the design stage, ERISA says through the deemer clause, that the employer is not beholden to state standards, such as mandated benefits.

In Metropolitan v. Massachusetts, 471 U.S. 724 (1985), it states, "But 514(b)(2)(A) provides that, with one exception, nothing in ERISA shall be construed to exempt or relieve any person from any law of any State which regulates insurance. The one exception is found in 514(b)(2)(B), which states that no employee-benefit plan shall be deemed to be an insurance company, or other insurer or to be engaged in the business of insurance for purposes of any law of any State purporting to regulate insurance companies or insurance contracts."

Notice the words "no employee benefit plan." It does not say no self insured employee benefit plan; it just states no employee benefit plan is subject to state regulation.

States cannot regulate the plan directly, regardless of how it is funded.

States can regulate insurers, which indirectly effect benefit plans.

States provide insurers an exception to the mandated benefits, through nonconventional coverage, if approved by the insurance commissioner.