Church Benefits Association Core Lawyer Working Group Continuing Legal Education Retreat Denver, Colorado July 2010

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1 Church Benefits Association Core Lawyer Working Group Continuing Legal Education Retreat Denver, Colorado July 2010 State Health Insurance Laws and Church Plans I. State Regulation of Insurance A. Traditional State Domain Supreme Court assumed that issuing a policy of insurance is not a transaction of commerce, Paul v. Virginia, 75 U.S. 168, 183 (1868), so it is not subject to Federal regulation through the Commerce Clause. B. New Deal Court As Commerce Clause jurisprudence evolved in the 20 th Century, the Supreme Court again faced the question of the nature of insurance transactions, and decided, in United States v. South-Eastern Underwriters Ass n, 322 U.S. 533 (1944), that an insurance company that conducted a substantial part of its business across state lines was engaged in interstate commerce and thereby subject to federal antitrust laws. C. McCarran-Ferguson Act The McCarran-Ferguson Act, 15 U.S.C. 1011, was passed by Congress in 1945 in response to the South-Eastern Underwriters case. 1. The McCarran-Ferguson Act does not itself regulate insurance, nor does it mandate that states regulate insurance. However, it does empower Congress to pass laws in the future that will have the effect of regulating the business of insurance. 2. Moreover, federal acts that do not expressly purport to regulate the business of insurance will not preempt state laws or regulations that regulate the business of insurance. 4. Congress effectuated that purpose through Section 1012, which states: a. State regulation The business of insurance, and every person engaged therein, shall be subject to the laws of the several states which relate to the regulation or taxation of such business. b. Federal regulation - 1 -

2 D. Business of Insurance II. ERISA No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. 2. Courts typically analyze three factors when determining whether a particular commercial practice constitutes the business of insurance: a. whether the practice has the effect of transferring or spreading a policyholder s risk, b. whether the practice is an integral part of the policy relationship between the insurer and the insured, c. and whether the practice is limited to entities within the insurance industry (Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119 [1982]). 3. Common Law Elements of Insurance A generally uniform body of state common law has defined insurance to involve: (i) a party s (the insured s) exposure to risk of loss, (ii) that is assumed by another party (the insurer), (iii) who distributes the risk among a larger group of persons (insureds) having similar risks of loss, (iv) in return for a premium, (v) which is calculated to be adequate to pay losses of the group of insureds with similar risks out of their pooled premium payments. A. Health Plans - Along for the Ride 1. Congress enacted ERISA mainly about concerns for employee pension plans. 2. Some think health plans were an afterthought, but there were some concerns in the business and labor community about state regulation of employee health benefit plans, particularly the lower court decision in the Monsanto case, and Hawaii s prepaid Health Care Act (and California s threatened imitation of that model). III. ERISA Preemption A. Broad Preemption - 2 -

3 514 of ERISA provides that ERISA supersedes any and all state laws insofar as they relate to any employee benefit plan. 1. An employee benefit plan is defined as either an employee welfare benefit plan or an employee pension benefit plan. 2. An employee welfare benefit plan is any plan, fund or program which is established or maintained by an employer or an employee organization (union, etc.) or both for the purpose of providing, either directly or through the purchase of insurance, benefits such as medical, dental, disability, vacation, apprenticeship, etc. (ERISA 3(1)). B. Savings Clause Within this broad pre-emption, however, the act specifically preserves the states right to regulate the business of insurance under what is commonly called the savings clause (ERISA 514(b)(2)(A)). This clause, which provides that nothing in ERISA shall be construed to exempt or relieve any person from any law of any state which regulates insurance, banking or securities, effectively reinforces the states authority to regulate insurance under the McCarran-Ferguson Act. C. Deemer Clause Finally, to protect self-insured plans from the full reach of state regulation, ERISA includes another provision commonly called the deemer clause, ERISA 514(b)(2)(B), that qualifies the savings clause by providing that no employee benefit plan or trust shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be in the business of insurance for the purpose of state regulation. D. MEWAs Under ERISA 514(b)(6), state laws are generally applicable to multi-employer welfare arrangements (MEWAs) whether or not the MEWA is a plan under ERISA. The provision was added to ERISA in 1980 because certain individuals and companies had sought to avoid state insurance laws requiring specified reserve levels, etc. by marketing so-called multiple employer trusts claiming they were employee welfare benefit plans and that state regulation was preempted by ERISA. IV. Church Plans A. Exempt from ERISA Church plans are exempt from the application of Title I and Title IV of ERISA by ERISA 4(b)(2). 1. No ERISA Preemption B. Church Plan Parity and Entanglement Prevention Act - 3 -

4 1. Under the Church Plan Parity and Entanglement Prevention Act of 1999, P.L , (the Parity Act ), church plans are deemed to be maintained by a single employer and thereby exempt from state insurance laws regarding licensing, solvency and minimum funding requirements. 2. The Parity Act provides that its purpose is to clarify the application to a church plan that is a welfare plan of State insurance laws that require or solely relate to licensing, solvency, insolvency, or the status of such plan as a single employer plan. 3. Church plans are not MEWAs that are subject to state insurance regulations. The Parity Act resolved the unlicensed MEWA worry that plagued church plans for years. 4. However, are self-funded church plans in the business of insurance? 5. One could argue that the federal Parity Act allows church plans to provide health insurance benefits without being licensed as an issuer or insurance company under state law. 6. Section of the Parity Act leaves some room for states to regulate self-funded church plans, but one must carefully read the general provision, definitions, applicability, and authority of department sections of state insurance codes to ascertain such exemption. 7. Some state insurance codes exempt all self-insured plans. V. Helpful State Laws Certain states have enacted laws that specifically exempt self-funded church plans from their insurance codes and regulations. See Appendix I. 1. Florida: Florida General Laws Minnesota: Minnesota Statutes 2005, 317A Oregon: Oregon Revised Statutes South Dakota: South Dakota Codified Laws Texas: Tex. Rev. Stat. art 1407a (particularly Sec. 8) VI. Troublesome State Laws A. Assertive Jurisdiction - 4 -

5 Many states, such as Missouri, New Mexico, North Carolina, Rhode Island, Tennessee and Wisconsin have insurance laws, based on an NAIC model, that assert jurisdiction over any entity that provides coverage of health benefits in the state. (See, e.g., Mo. Rev. St ; NMSA 59A-15-16). See Appendix I. The model language for these laws presumes that any entity paying for health benefits is subject to the jurisdiction of the insurance department, unless the entity can prove to the department that it is subject exclusively to the jurisdiction of another state agency or the federal government. B. Broad Definitions Kentucky, for example, defined insurer to mean any insurance company; health maintenance organization; self-insurer or multiple employer welfare arrangement not exempt from state regulation by ERISA; provider-sponsored integrated health delivery network; self-insured employer-organized association, or nonprofit hospital, medicalsurgical, dental, or health service corporation authorized to transact health insurance business in Kentucky. C. New York The Insurance Department of New York has issued more than one Opinion Letter asserting that it is the State of New York s view that its insurance code applies to selfinsured church plans. D. Idaho Self-Insured Plan Statute (see Appendix V) Idaho has a broad statute that deems selfinsured plans to be in the business of insurance, and therefore subject to the jurisdiction of the state, to the extent not preempted by ERISA, unless the plan registers with and pays a fee to the state. E. State Fee Laws 1. NYHCRA A fee per covered life, which provides coverage to low-income residents, applies to TPAs, even for services to self-funded group plans, and even TPAs located outside New York. 2. Oklahoma Law New law imposes a 1% fee on every health care claim paid by a health carrier which is defined to include self-insured plans using a TPA. F. State Mandates 1. Autism Coverage Laws For example, Kentucky requires any group health benefit plan shall provide coverage of an individual between the ages of one (1) through twenty-one (21) years of age, as required by subsection (2) of this section, for the diagnosis and treatment of autism spectrum disorders. To the extent that the diagnosis and treatment of autism spectrum disorders are not already covered by a health insurance policy, coverage under this section shall be included in health benefit - 5 -

6 plans (which includes self-insured plans not exempted by ERISA) that are delivered, executed, issued, amended, adjusted, or renewed within the state on or after thirty (30) days after the effective date of this Act. 2. Extended Dependent Coverage Laws (to the extent they exceed the PPACA s new extended coverage requirement). 3. Continuation Coverage Laws a. Some appear to apply to the employer rather than the plan or issuer (California, Kentucky). Andrew Q. Hendren Associate General Counsel General Board of Pension and Health Benefits of The United Methodist Church (847) AHendren@gbophb.org - 6 -

7 Appendix I State Statutes Statutory Exemptions Florida Florida General Laws Church benefit plans and church benefit board.-- (1) For purposes of this section, church benefits board means an organization as described in 414(e)(3)(A) of the Internal Revenue Code of 1986, as amended, that: (a) Has the principal purpose or function of administering or funding a plan or program for providing retirement benefits or welfare benefits for the ministers or employees of a church or a conference, convention, or association of churches. (b) Is controlled by or affiliated with a church or a conference, convention, or association of churches. (2) If authorized by its members or as otherwise provided by law, a domestic or foreign nonprofit corporation formed for a religious purpose may provide, directly or through a separate church benefits board, for the support and payment of pensions and benefits to its ministers, teachers, employees, trustees, directors, or other functionaries and to the ministers, teachers, employees, trustees, directors, or functionaries of organizations controlled by or affiliated with a church or a conference, convention, or association of churches under its jurisdiction and control and may provide for the payment of pensions and benefits to the spouse, children, dependents, or other beneficiaries of such persons. (3) A church benefits board may provide for the collection of contributions and other payments to aid in providing pensions and benefits under this act and for the creation, maintenance, investment, management, and disbursement of necessary annuities, endowments, reserves, and other funds for such purposes. Payments may be received from a trust fund or corporation that funds a church plan as defined by 414(e) of the Internal Revenue Code of 1986, as amended. (4) A church benefits board may provide certificates or agreements of participation and debentures and indemnification agreements to its program participants as appropriate to accomplish its purposes, may act as trustee under a lawful trust committed to it by contract, will, or otherwise, and may act as agent for the performance of a lawful act relating to the purposes of the trust. (5) A church benefits board, directly or through an affiliate wholly owned by the board, may agree to indemnify against damage or risk of loss: (a) Its affiliated ministers, teachers, employees, trustees, functionaries, and directors and their families, dependents, and beneficiaries

8 (b) A church, or a convention, conference, or association of churches, or an organization that is controlled by or affiliated with a church or a convention, conference, or association of churches. (6) Money or other benefits that have been or will be provided to a participant or a beneficiary under a plan or program of retirement income, relief, welfare, or employee benefit provided by or through a church benefits board is not subject to execution, attachment, garnishment, or other process and may not be seized, taken, appropriated, or applied as part of a judicial, legal, or equitable process or operation of a law other than a constitution to pay a debt or liability of the participant or beneficiary. This section does not apply to a qualified domestic relations order or an amount required by the church benefits board to recover costs or expenses it incurred in the plan or program. (7) If a plan or program under this act contains a provision prohibiting assignment or other transfer by a beneficiary of money or benefits to be paid or rendered or of other rights under the plan or program without the written consent of the church benefits board, a prohibited assignment or transfer or an attempt to make a prohibited assignment or transfer is void if made without that consent. (8) The Florida Insurance Code does not apply to a church benefits board that has operated more than 5 years in its state of domicile and has more than $2 million in reserves. This exemption extends to the programs, plans, benefits, activities, or affiliates of the church benefits board. A church benefits board may qualify for this exemption if an authorized representative of the church benefits board submits to the office an affidavit stating that the church benefits board meets or exceeds the requirements of this section. If the office believes the information provided on the affidavit is inaccurate, the office has the burden of proving that the church benefits board fails to meet the requirements of this section. (9) Church benefits boards may not issue life insurance policies. Minnesota 317A.909 CORPORATIONS FOR RELIGIOUS PURPOSES. Subdivision 1. Benefits for members. When authorized by its members or otherwise, a corporation formed for a religious purpose may provide directly or through a church benefits board for: (1) support and payment of benefits to its ministers, teachers, employees, or functionaries and to the ministers, teachers, employees, or functionaries of a nonprofit organization affiliated with it or under its jurisdiction; (2) payment of benefits to the surviving spouses, children, dependents, or other beneficiaries of the persons named in clause (1); (3) collection of contributions and other payments; or (4) creation, maintenance, investment, management, and disbursement of necessary endowment, reserve, and other funds for these purposes, including a trust fund or corporation that funds a church plan as defined in section 414(e) of the Internal Revenue Code of 1986, as amended through December 31,

9 Subdivision 2. Insurance laws not applicable. The insurance laws of this state do not apply to the operations of a corporation under subdivision 1. Subdivision 3. Property exempt from taxation. Except for property leased or used for profit, personal and real property that a religious corporation necessarily uses for a religious purpose is exempt from taxation. Subdivision 4. [Repealed, 2005 c 10 art 2 s 5] Subdivision 5. Church benefits board. A church benefits board is an organization described in section 414(e)(3)(A) of the Internal Revenue Code of 1986, as amended through December 31, 1988, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits for the employees of a church or a convention or association of churches, if the organization is controlled by or associated with a church or a convention or association of churches. Oregon Persons completely exempt from application of Insurance Code The Insurance Code does not apply to any of the following to the extent of the subject matter of the exemption: (3) A religious organization providing insurance benefits only to its employees, which organization is in existence and exempt from taxation under section 501(c)(3) of the federal Internal Revenue Code on September 13, South Dakota South Dakota Codified Laws No provision of this title applies with respect to: (7) Any church plan, as defined in section 414(e) of the Internal Revenue Code of 1986, as amended through December 31, 1999, and section (3)(33)(C)(i) of the Employee Retirement Income Security Act of 1974 (29 U.S. C. 1002(33)(C)(i)); or any church benefits board, as described in section 414(e)(3)(A) of the Internal Revenue Code of 1986, as amended through December 31, 1999, and section (3)(33)(C)(i) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(33)(C)(i)); Texas Art. 1407a. CHURCH BENEFIT PLANS AND CHURCH BENEFITS BOARDS. Definition Sec. 1. In this Act church benefits board means an organization as described in Section 414(e)(3)(A) of the Internal Revenue Code of 1986 (26 U.S.C. Section 414(e) ) that: (1) has the principal purpose or function of administering or funding a plan or program for providing retirement benefits, welfare benefits, or both for the ministers or employees of a church or a conference, convention, or association of churches; and - 9 -

10 (2) is controlled by or affiliated with a church or a conference, convention, or association of churches. Pensions and Benefits Sec. 2. If duly authorized by its members or as otherwise provided by law, a domestic or foreign nonprofit corporation formed for a religious purpose may provide, directly or through a separate church benefits board, for the support and payment of pensions and benefits to its ministers, teachers, employees, trustees, directors, or other functionaries and to the ministers, teachers, employees, trustees, directors, or functionaries of organizations controlled by or affiliated with a church or a conference, convention, or association of churches under its jurisdiction and control and may provide for the payment of pensions and benefits to the spouse, children, dependents, or other beneficiaries of those persons. Contributions Sec. 3. A church benefits board may provide for the collection of contributions and other payments to aid in providing pensions and benefits under this Act and for the creation, maintenance, investment, management, and disbursement of necessary annuities, endowments, reserves, and other funds for those purposes. Payments may be received from a trust fund or corporation that funds a church plan as defined by Section 414(e), Internal Revenue Code of 1986 (26 U.S.C. Section 414(e) ). Documents and Agreements Sec. 4. A church benefits board may provide certificates or agreements of participation and debentures and indemnification agreements to its program participants as appropriate to accomplish its purposes, may act as trustee under a lawful trust committed to it by contract, will, or otherwise, and may act as agent for the performance of a lawful act relating to the purposes of the trust. Indemnification Sec. 5. A church benefits board, directly or through an affiliate wholly owned by the board, may agree to indemnify against damage or risk of loss: (1) its affiliated ministers, teachers, employees, trustees, functionaries, directors, and their families, dependents, and beneficiaries; and (2) a church, a convention, conference, or association of churches, or an organization that is controlled by or affiliated with it or with a church or a convention, conference, or association of churches. Protection of Benefits Sec. 6. Money or other benefits that have been or will be provided to a participant or a beneficiary under a plan or program of retirement income, relief, welfare, or employee benefit provided by or through a church benefits board is not subject to execution, attachment, garnishment, or other process and may not be seized, taken, appropriated, or applied as part of a judicial, legal, or equitable process or operation of a law other than a constitution to pay a debt or liability of the participant or beneficiary. This section does

11 not apply to a qualified domestic relations order or an amount required by the church benefits board to recover costs or expenses it incurred in the plan or program. Assignment Sec. 7. If a plan or program under this Act contains a provision prohibiting assignment or other transfer by a beneficiary of money or benefits to be paid or rendered or of other rights under the plan or program without the written consent of the church benefits board, a prohibited assignment or transfer or an attempt to make a prohibited assignment or transfer is void if made without that consent. Insurance Code Not Applicable Sec. 8. The Insurance Code does not apply to a church benefits board or its programs, plans, benefits, activities, or affiliates. Applicability Sec. 9. Except as provided by Title 8, Business Organizations Code, this Act does not apply to a church benefits board to which the Business Organizations Code applies. Troublesome Statutes Idaho See Appendix V Kentucky A-005 Definitions for subtitle. (22) "Health benefit plan" means any hospital or medical expense policy or certificate; nonprofit hospital, medical-surgical, and health service corporation contract or certificate; provider sponsored integrated health delivery network; a self-insured plan or a plan provided by a multiple employer welfare arrangement, to the extent permitted by ERISA; health maintenance organization contract; or any health benefit plan that affects the rights of a Kentucky insured and bears a reasonable relation to Kentucky, whether delivered or issued for delivery in Kentucky, and does not include policies covering only accident, credit, dental, disability income, fixed indemnity medical expense reimbursement policy, long-term care, Medicare supplement, specified disease, vision care, coverage issued as a supplement to liability insurance, insurance arising out of a workers' compensation or similar law, automobile medical-payment insurance, insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance, short-term coverage, student health insurance offered by a Kentucky-licensed insurer under written contract with a university or college whose students it proposes to insure, medical expense reimbursement policies specifically designed to fill gaps in primary coverage, coinsurance, or deductibles and provided under a separate policy, certificate, or contract, or coverage supplemental to the coverage provided under Chapter 55 of Title 10, United States Code, or limited health service benefit plans; (27) "Insurer" means any insurance company; health maintenance organization; self-insurer or multiple employer welfare arrangement not exempt from state regulation by ERISA; provider-sponsored integrated health delivery network; self-insured employer-organized

12 association, or nonprofit hospital, medical-surgical, dental, or health service corporation authorized to transact health insurance business in Kentucky; Missouri Missouri Revised Statutes As used in sections to the following words and terms mean: (1) Insurer, all insurance companies, reciprocals, or interinsurance exchanges transacting the business of insurance in this state; (5) Insurance company or insurer, any person, reciprocal exchange, interinsurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business of insurance, including health services corporations, health maintenance organizations, prepaid limited health care service plans, dental, optometric and other similar health service plans, unless their exclusion from this definition can be clearly ascertained from the context of the particular statutory section under consideration. Insurer shall also include all companies organized, incorporated or doing business pursuant to the provisions of chapters 375, 376, 377, 378, 379, 381 and 384, RSMo. Trusteed pension plans and profit-sharing plans qualified pursuant to the United States Internal Revenue Code as now or hereafter amended shall not be considered to be insurance companies or insurers within the definition of this section; Notwithstanding any other provision of law to the contrary, and except as provided in this section, any person or other entity which provides coverage in this state for medical, surgical, chiropractic, physical therapy, speech pathology, audiology, professional mental health, dental, hospital, or optometric expenses, whether such coverage is by direct payment, reimbursement, or otherwise, shall be presumed to be subject to the jurisdiction of the department of insurance, unless the person or other entity shows that while providing such services it is subject to the jurisdiction of another agency of this state, any subdivision thereof, or the federal government This section [continuation] shall only apply to those persons who are not subject to the continuation and conversion provisions set forth in Title I, Subtitle B, Part 6 of the Employment Retirement Income Security Act of 1974 or Title XXII of the Public Health Service Act, as said acts were in effect on January 1, New Mexico New Mexico Statues Annotated 59A Jurisdiction over health care benefits providers presumed. Notwithstanding any other provision of law and except as provided in the Health Care Benefits Jurisdiction Act [59A to 59A NMSA 1978], any person who provides coverage in this state for health benefits, including coverage for medical, surgical, hospital, osteopathic, acupuncture and oriental medicine, chiropractic, physical therapy, speech pathology, audiology, professional mental health, dental or optometric expenses, whether such coverage is by direct payment, reimbursement or otherwise, shall be presumed to be subject to the provisions of the Insurance Code and the jurisdiction of the superintendent unless the person provides evidence satisfactory to the superintendent

13 that he is subject exclusively to the jurisdiction of another agency of this state or the federal government. Rhode Island TITLE 27 Insurance CHAPTER Jurisdiction to Determine Jurisdiction of Providers of Health Care Benefits Purpose. The purpose of this chapter is to give this state "jurisdiction to determine jurisdiction" of providers of health care benefits; to indicate how each provider of health care benefits may show under what jurisdiction it falls; to allow for examinations by this state if the provider of health care benefits is unable to show it is subject to another jurisdiction; to make a provider of health care benefits subject to the laws of this state if it cannot show that it is subject to another jurisdiction; and to disclose to purchasers of health care benefits whether or not the plans are fully insured Authority and jurisdiction of director of business regulation. Notwithstanding any other provision of law, and except as provided in this section and in (a)(5), any person or other entity which provides coverage in this state for medical, surgical, chiropractic, physical therapy, speech pathology, audiology, professional mental health, dental, hospital, or optometric expenses, whether that coverage is by direct payment, reimbursement, or otherwise, shall be presumed to be subject to the jurisdiction of the director of business regulation, unless the person or other entity shows that while providing the services it is subject to the jurisdiction of another department of this state, any subdivision of this state, or the federal government How to show jurisdiction. A person or entity may show that it is subject to the jurisdiction of another department of this state, any subdivision of this state, or the federal government, by providing to the director of business regulation the appropriate certificate, license, or other document issued by the other governmental agency that permits or qualifies it to provide those services Examination. Any person or entity which is unable to show that it is subject to the jurisdiction of another department of this state, any subdivision of this state, or the federal government, shall submit to an examination by the director to determine the organization and solvency of the person or the entity, and to determine whether or not the person or entity complies with the applicable provisions of this title and chapter 62 of title Subject to state laws. Any person or entity unable to show that it is subject to the jurisdiction of another department of this state, any subdivision of this state, or the federal government, shall be subject to all appropriate provisions of this title and of chapter 62 of title 42, regarding the conduct of its business Disclosure. Any production agency or administrator including, but not limited to, any insurance producer licensed under chapter 2.4 of this title, which

14 advertises, sells, transacts, or administers the coverage in this state described in and which, under , is unable to show that it is subject to the jurisdiction of another department of this state, any subdivision of this state, or the federal government shall, if that coverage is not fully insured or fully covered by a domestic insurance company incorporated by the general assembly and subject to chapter 1 of this title, or a foreign insurance company licensed to do business in Rhode Island and subject to chapter 2 of this title, non-profit service corporation, as defined in chapters 19, 20, 20.1, or 20.2 of this title, or nonprofit health service corporation incorporated by the general assembly or a health maintenance organization licensed under chapter 41 of title 27, advise every purchaser, prospective purchaser, and covered person of the lack of insurance or other coverage. Any administrator which advertises or administers the coverage in this state described in and which, under , is unable to show that it is subject to the jurisdiction of another department of this state, any subdivision of this state, or the federal government, shall advise any production agency of the elements of the coverage including the amount of "stop loss" insurance in effect. Tennessee Part definitions. As used in this part, unless the context otherwise requires: (1) Company or insurer means any life or health insurance company, fraternal benefit society, nonprofit health service corporation, nonprofit hospital service corporation, nonprofit medical service corporation, prepaid health plan, dental care plan, vision care plan, pharmaceutical plan, health maintenance organization, and all similar type organizations; and (2) Policy or policy form means: (A) Any policy, contract, plan or agreement of life or health insurance, including credit life insurance and credit health insurance, delivered or issued for delivery in this state by any company subject to this part; (B) Any certificate, contract or policy issued by a fraternal benefit society; and (C) Any certificate issued pursuant to a group insurance policy delivered or issued for delivery in this state. Also: Tennessee Attorney General Opinions and Wisconsin Scope. This chapter applies to every employee welfare fund covering any person employed in this state, except: (1) To the extent that applicable federal law excludes the operation of state law. (2) Funds and plans with no benefits involving risks like those in insurance, as determined by the commissioner by rule

15 Declaration of policy. It is declared to be the policy of this state that employee welfare funds are of great benefit to employees and their families and that their growth should be encouraged; that the establishment and management of such funds vitally affect the well-being of millions of people and are in the public interest; and that such funds should be supervised by the state to the extent necessary to protect the rights of employees and their families, without imposing burdens upon such funds which might discourage their orderly growth and without duplicating the supervisory responsibilities presently vested in any state agencies Definitions. As used in this chapter, unless the context requires otherwise: (1) Employee benefits means one or more benefits or services for employees or their families or dependents, or for both, including, but not limited to, medical, surgical or hospital care or benefits, benefits in the event of sickness, accident, disability or death, benefits in the event of unemployment, or retirement benefits. (2) Employee welfare fund means any trust fund or other fund established or maintained jointly by one or more employers together with one or more labor organizations, solely by any employer or labor organization or jointly by employers or jointly by labor organizations, whether directly or through trustees, to provide employee benefits, by the purchase of insurance or annuity contracts or otherwise, and to which is paid or contracted to be paid anything, other than income from investments of such fund, by or on behalf of any employer doing business in this state or for the benefit of any persons employed in this state. (3) Trustee means any person, firm, association, organization, joint stock company or corporation, whether acting individually or jointly and whether designated by that name or any other, who or which is charged with or has the overall management of any employee welfare fund Registration. The trustee of every employee welfare fund which covers any person employed in this state shall register such fund with the commissioner within 3 months after it becomes subject to this chapter. The registration shall be in such form and shall contain such information relating to the organization, operations and affairs of such fund as is prescribed by the commissioner Examinations; authorization. (1) The commissioner may examine into the affairs and actuarial status of any employee welfare fund as often as he or she deems it necessary. To that end the commissioner may establish regular programs of examinations of funds at the intervals he or she determines. (2) The trustees of every employee welfare fund shall be responsible for the maintenance of accurate records of its books and accounts in conformance with generally accepted accounting principles

16 Appendix II New York Department of Insurance Opinions STATE OF NEW YORK INSURANCE DEPARTMENT 25 BEAVER STREET NEW YORK, NEW YORK The Office of General Counsel issued the following informal opinion on April 20, 2001, representing the position of the New York State Insurance Department. RE: Health Benefit Continuation Requirements for a Church Plan Question Presented: Is a church plan that pays for health claims of its employees or their beneficiaries from church funds, and which uses an insurer to administer its group health plan, subject to the health benefit continuation requirements contained in N.Y. Ins. Law 3221(m) and 4305(e) (McKinney 2000)? Conclusion: A church plan that pays for health claims of its employees or their beneficiaries from church funds, and which uses an insurer to administer its group health plan, is not subject to the N.Y. Ins. Law 3221(m) and 4305(e) (McKinney 2000) health benefit continuation requirements provided that the covered employees do not make contributions to the plan pursuant to N.Y. Ins. Law 1108(e) (McKinney 2000). Facts: The term "church plan" is defined in 29 U.S.C.A. 1002(33)(A) and (C) (West 1999), in pertinent part, as: (A) a plan established and maintained (to the extent required in clause (ii) of subparagraph (B) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of (C) For purposes of this paragraph (i) A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches. N.Y. Ins. Law 3221(m) (McKinney 2000) states, in relevant part:

17 A group policy providing hospital, surgical or medical expense insurance for other than accident only shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his hospital, surgical or medical expense insurance for himself or herself and his or her eligible dependents, subject to all of the group policy s terms and conditions applicable to those forms of benefits N.Y. Ins. Law 4305(e) (McKinney 2000) states, in relevant part: In addition to the conversion privilege afforded by subsection (d) of this section, a group contract issued by a hospital service, health service or medical expense indemnity corporation shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his insurance for himself or herself and his or her eligible dependents, subject to all of the group contract s terms and conditions applicable to those forms of benefits XYZ Law Firm ("XYZ") states that it represents a group health plan that is exempt from the COBRA health benefit continuation requirements because it is considered a church plan under section 3(33) of ERISA. ERISA is the acronym for the federal Employee Retirement Income Security Act of 1974, which is codified at 29 U.S.C. 1001, et seq. ERISA sets minimum standards regarding the establishment and maintenance of private sector employee benefit plans. COBRA is the acronym for the federal Consolidated Omnibus Budget Reconciliation Act of The health care continuation requirements under COBRA are contained within ERISA, and are codified in Part 6 of Title I of ERISA. See also 29 U.S.C. 1161, et seq. In general terms, under COBRA a health care plan participant that has lost coverage due to a "triggering event" (i.e., termination of employment) has the right to maintain coverage for a statutorily defined period, at his or her own expense, at the group rate charged the employer. XYZ further states that the church plan is exempt from the N.Y. Ins. Law 3221(m) and 4305(e) (McKinney 2000) health benefit continuation requirements because it is a "self-insured plan." By the term "self-insured" XYZ means that the health plan claims are paid directly from church funds and not by a commercial insurer. (Although XYZ refers to the health plan as being "self-insured", the sponsor of the plan is not insuring its own risks but is insuring the risks of its employees; hence, it is an insurer, and is not "self-insured".) XYZ also notes that a licensed insurer administers the plan and that the church plan essentially "rents" the insurer s network of providers. Analysis: Generally speaking, a self-insured employer s health plan is subject to ERISA and not the New York Insurance Law. 29 U.S.C.A. 1144(a) and (b)(2)(b) (West 1999) state, in relevant part, that: (a) the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title (b)(2)(b) Neither an employee benefit plan described in section 1003(a) of this title, which is not exempt under section 1003(b) of this title nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer or to be engaged in the business of

18 insurance for purposes of any law of any State purporting to regulate insurance companies, insurance contracts 29 U.S.C.A. 1003(a) (West 1999) states: (a) Except as provided in subsection (b) of this section and in sections 1051, 1081, and 1101 of this title, this subchapter shall apply to any employee benefit plan if it is established or maintained (1) by any employer engaged in commerce or in any industry affecting commerce; or (2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or (3) by both. However, an employer s plan that is defined as a church plan is exempt under ERISA, and is subject to the New York Insurance Law. 29 U.S.C.A. 1003(b)(2) and 1144(b)(2)(A) (West 1999) state: 1003 (b) The provisions of this subchapter shall not apply to any employee benefit plan if -- (2) such plan is a church plan (as defined in section 1002(33) of this title) with respect to which no election has been made under section 410(d) of Title 26; 1144(b)(2)(A) Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities. As earlier noted, 29 U.S.C.A. 1144(b)(2)(B) states (in relevant part and with emphasis added) that: Neither an employee benefit plan described in section 1003(a) of this title, which is not exempt under section 1003(b) of this title 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, insurance contracts " Thus, an employee benefit plan described in section 1003(b), such as a church plan, is deemed to be an insurance company, an insurer, or engaging in the business of insurance for purposes of the New York Insurance Law. In XYZ s inquiry it made reference to PL , which has been codified at 29 U.S.C.S. 1144a (Law. Coop. 2001), seemingly to support its contention that a church plan that pays for health claims directly from church funds is exempt from the health benefit continuation requirements of the New York Insurance Law; however, it does the contrary: (d) Enforcement Authority. Notwithstanding any other provision of this section, for purposes of enforcing provisions of State insurance laws that apply to a church plan that is a welfare plan, the church plan shall be subject to State enforcement as if the church plan were an insurer licensed by the State

19 Thus, 29 U.S.C.S. 1144a does not divest New York of its jurisdiction over church plans with respect to the N.Y. Ins. Law 3221(m) and 4305(e) (McKinney 2000) health benefit continuation requirements. A church plan that pays health claims directly from church funds is generally prohibited from using an insurer to administer its plan. N.Y. Ins. Law 3231(h)(1) and 4317(e)(1) (McKinney 2000) provide the following identical wording: Notwithstanding any other provision of this chapter, no insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of small groups, which, if they purchased insurance, would be subject to this section. No insurer, subsidiary of an insurer or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to small groups which, if they purchased insurance, would be subject to this section. Association groups are prohibited in like manner pursuant to N.Y. Ins. Law 3231(g) and 4317(d) (McKinney 2000). Additionally, N.Y. Comp. Codes R. & Regs. tit. 11, (2000), which refers specifically to the purchase of hospital or medical/surgical insurance coverage, supports the prohibition against using an insurer to administer a self-insurer s plan. However, a church plan that does not require contributions to be made by covered employees is exempt from the New York Insurance Law, including N.Y. Ins. Law 3231(h)(1) and 4317(e)(1) (McKinney 2000), pursuant to N.Y. Ins. Law 1108(e) (McKinney 2000), which states: Any corporation, organized under the laws of any state, solely to provide gratuitously for support or relief of the priests, clergy or ministers of any religious denomination, or their dependents, is exempt from all provisions of this chapter, except that any such corporation, created by special act of incorporation of this state, which by the provisions of such act is subject to the requirements of examination by, and making annual reports to, the superintendent, shall be subject to the provisions of article three of this chapter relating to examinations and statements or reports by insurers. (emphasis added.) For further information you may contact attorney Sally Geisel at the New York City Office

20 STATE OF NEW YORK INSURANCE DEPARTMENT 25 BEAVER STREET NEW YORK, NEW YORK The Office of General Counsel issued the following informal opinion on October 9, 2001, representing the position of the New York State Insurance Department. Re: Self-Funded Church Plan, Continuation Requirements Issues: 1. Does the Self-Funded Health Benefit Plan operated by the church organization in question have to comply with the requirements of the New York Insurance Law? 2. Is the Plan a "group policy or contract" within the meaning of New York Insurance Law 3221(a) & (m) and 4305(e) (McKinney 2000)? 3. Is the requirement for continuation benefits among those that are applicable to the Plan? 4. Are the continuation requirements under New York law comparable to those imposed by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)? 5. If the Plan were to amend its operations so that employee contributions were no longer required, would it still be subject to the New York Insurance Law? 6. If the Plan were to opt to become subject to the Employee Retirement Income Security Act (ERISA), would it still be subject to the New York Insurance Law? 7. Is the Plan subject to the restrictions and limitations imposed by New York Insurance Law 3231(a) & (h) (McKinney 2000) on insurers functioning as administrators and furnishing stop loss coverage? Conclusion: 1. Under the facts as presented, the Plan is subject to the requirements of the New York Insurance Law. 2. The Plan would be considered by this Department to be a "group policy" within the meaning of New York Insurance Law Since the Plan is not a Health Service Corporation, it would not be considered to be within the purview of New York Insurance Law Continuation benefits are among those that the Plan would have to provide pursuant to New York Insurance Law 3221(m). 4. The continuation requirements under the New York Insurance Law are similar to but not identical with those provided under COBRA

21 5. If employee contributions were no longer required, the Plan would be exempt from the New York Insurance Law. 6. If the Plan were to opt to be subject to ERISA, it would no longer be subject to the New York Insurance Law. 7. Because of the size of the Plan in question, it is not subject to those restrictions. Facts: An organization is a not-for profit organization that is within the definition of "church organization" in the Internal Revenue Code, 26 U.S.C.A. 3121(w)(3)(B) (West 2000) and contributions to which are deductible in accordance with the Internal Revenue Code, 26 U.S.C.A. 501(c)(3). It maintains a Plan to reimburse eligible employees and volunteers, who number in excess of 500, the bulk of whom are domiciled in New York, for amounts expended for health care for themselves and their dependents. The Plan is administered by a third party administrator and pays benefits from funds provided by constituent churches and affiliated entities. While the bulk of the Plan s funds are provided by the constituent churches and affiliated entities from their own internally generated funds, some contribution by eligible employees and volunteers is required. Although the Plan is self-funded, it has purchased reinsurance to reimburse the Plan for amounts expended by the Plan on a particular claim in excess of a specified amount and for amounts expended by the Plan above a specified aggregate for any Plan year. While the Plan does permit former employees and volunteers to continue coverage after termination of active service, at the same cost as if they had continued in active service, the period of time that such a continuation is available is dependent upon the length of previous active service. The continuation period may, in some instances, be less than would be required under either COBRA or the New York Insurance Law. Analysis: New York Insurance Law 3221(m), dealing with policies of commercial insurers, provides, in pertinent part: A group policy providing hospital, surgical or medical expense insurance for other than accident only shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his hospital, surgical or medical expense insurance for himself or herself and his or her eligible dependents, subject to all of the group policy's terms and conditions applicable to those forms of benefits and to the following conditions:... (2) (A) An employee or member who wishes continuation of coverage must request such continuation in writing within the sixty day period following the later of: (i) the date of such termination; or (ii) the date the employee is sent notice by first class mail of the right of continuation by the group policyholder... (3) An employee or member electing continuation must pay to the group policyholder or his employer, but not more frequently than on a monthly basis in advance, the amount of the required premium payment, but not more than one hundred two percent of the group rate for the benefits being continued under the group policy on the due date of each payment