The Office of General Counsel issued the following opinion on January 5, 2006, representing the position of the New York State Insurance Department.
Re: Group Health Insurance: Coordination of Benefits
May an insured Taft-Hartley Fund deny primary coverage for the spouse of an insured union member who has coverage under a self-funded Taft-Hartley Fund?
The right of the insured fund to deny primary coverage is dependent upon both N.Y. Comp. Codes R. & Regs. tit. 11, § 52.23 (2004) and the provisions of the insurance policy.
The inquirers client is a union-management welfare fund that has purchased a group policy of health insurance from a commercial insurer. The policy provides family coverage for those insureds who have dependents. One of the covered union members has a spouse who participates through employment in a self-funded union-management welfare fund. The client is in receipt of a claim from the union member for medical services provided to the members spouse.
Since the client believes that it should be secondary, because the services were provided to a dependent of the union member, it approached the other union and requested that its self-funded plan provide the primary coverage. The other union responded that it does not have an "insurance" plan, but a reimbursement plan under which the plan provided that it would be secondary to any other available coverage. The other union also indicated that, because its plan is self-funded, it is not bound by the Coordination of Benefits (COB) rules set forth in N.Y. Comp. Codes R. & Regs. tit. 11, § 52.23.
The COB provisions of the insurance policy issued to the client provide, in pertinent part:
Plan is any of the following that provides benefits or services for or because of, medical, dental or vision care to a member: . . . (2) union welfare plans, employer organization plans, or labor-management trusteed plans, . . . .
When there is a basis for a claim under this Policy and another Plan, this Policy is a Secondary Plan which has its benefits determined after those of the other Plan, unless: (1) the other Plan has rules coordinating its benefits with those of this Policy; and (2) both those rules and this Policys COB Rules require that this Policys benefits be determined before those of the other Plan.
This Policy determines its order of benefits using the first of the following rules which applies: (1) Non-Dependent/Dependent. The benefits of the Plan which covers the individual as an employee, Person or subscriber (that is, other than as a Dependent) are determined before those of the Plan which covers the individual as a Dependent. . . . .
COB applies to this Policy when, when in accordance with the Order of Benefit Determination Rules, this Policy is a Secondary Plans to one or more other Plans. In that event, the benefits of this Policy may be reduced under this COB provision. . . . The benefits of this Policy will be reduced when the sum of: (1) the benefits that would be payable for the Allowed Expenses under this Policy in the absence of this COB provision, and (2) the benefits that would be payable for the Allowable Expenses under the other Plan, in the absence of provisions with a purpose like that of this COB provision, whether or not claim is made, exceed those Allowable Expenses in a Claim Determination Period. . . . .
The Summary Plan Description distributed to union members in accordance with the requirements of the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1999 and 2005 Supplement) describe the COB provisions in simplified language in a manner that is consistent with the policy language.
Since the inquirer believes it would be unfair to require the client to pay as primary through the insurer for the dependent of a member who has primary coverage through another fund, the inquirer has drafted an addition that he would like the insurer to include in its COB provisions:
If you are a Dependent and are covered by a Plan for reimbursement of Medical Expenses by any Entity, Organization, Insurer or Fund which receives contributions from your employer, then such Entity, Organization, Insurer or Fund shall be treated as Primary, and any term, condition or limitation of payment by the Entity, Organization, Insurer or Fund will be disregarded and be of no force and effect upon the Secondary position of the [Local] Welfare Fund.
The inquirer has requested the Insurance Departments views.
The provision of health benefits by a union-management fund constitutes an employee welfare benefit plan as defined in the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(1) (West 1999). Such funds were authorized under the Labor-Management Relations Act (Taft-Hartley Act), 61 Stat. 136 (1947), as an exception to the general prohibition then enacted on financial transactions between employers and unions. 29 U.S.C.A. § 186(c) (West 1998) provides:
(c) Exceptions. The provisions of this section shall not be applicable . . . (5) with respect to money or other thing of value paid to a trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer, and their families and dependents (or of such employees, families, and dependents jointly with the employees of other employers making similar payments, and their families and dependents): Provided, That (A) such payments are held in trust for the purpose of paying, either from principal or income or both, for the benefit of employees, their families and dependents, for medical or hospital care, pensions on retirement or death of employees, compensation for injuries or illness resulting from occupational activity or insurance to provide any of the foregoing, or unemployment benefits or life insurance, disability and sickness insurance, or accident insurance; (B) the detailed basis on which such payments are to be made is specified in a written agreement with the employer, and employees and employers are equally represented in the administration of such fund, together with such neutral persons as the representatives of the employers and the representatives of employees may agree upon and in the event the employer and employee groups deadlock on the administration of such fund and there are no neutral persons empowered to break such deadlock, such agreement provides that the two groups shall agree on an impartial umpire to decide such dispute, or in event of their failure to agree within a reasonable length of time, an impartial umpire to decide such dispute shall, on petition of either group, be appointed by the district court of the United States for the district where the trust fund has its principal office, and shall also contain provisions for an annual audit of the trust fund, a statement of the results of which shall be available for inspection by interested persons at the principal office of the trust fund and at such other places as may be designated in such written agreement; and (C) such payments as are intended to be used for the purpose of providing pensions or annuities for employees are made to a separate trust which provides that the funds held therein cannot be used for any purpose other than paying such pensions or annuities . . . .
The requirements of ERISA are not modified for employee welfare benefit plans authorized by the Taft-Hartley Act.
The purchase of group health insurance by Taft-Hartley plans is regulated by New York Insurance Law § 4235(c)(1)(D) (McKinney 2000 and 2006 Supplement), which authorizes:
A policy issued to a trustee or trustees of a fund established, or participated in, by two or more employers or by one or more labor unions, or by one or more employers and one or more labor unions, which trustee or trustees shall be deemed the policyholder, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions, subject to the following requirements: (i) The persons eligible for insurance shall be all of the employees of the employers or all of the members of the unions, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the unions, or to both. (ii) The premium for the policy shall be paid by the trustee or trustees either wholly from funds contributed by the employer or employers of the insured person or by the union or unions, or by both, or jointly from such funds and funds contributed by the insured persons specifically for their insurance or from contributions by the insured persons. . . . (iii) The policy shall insure at least fifty persons at date of issue, except that if part of the premium is to be derived from funds to be contributed by the insured persons specifically for their insurance the policy shall insure at least one hundred employees or members at date of issue. (iv) The insurance coverage under the policy shall be based upon some plan precluding individual selection either by the insured persons or by the policyholders, employers, or unions. . . . (v) With respect to a policy issued to a trustee or trustees of a fund established by one or more labor unions, or by one or more employers and one or more labor unions the proposed insured must submit, and the insurer must obtain, a written certification that a reasonable number of comparative bids have been obtained from different insurers and that such bids have been considered by the trustees before making a decision concerning which bid to accept. Such decision must be made at a trustees' meeting held on a date certain, and a copy of the minutes of such meeting must be attached to such certification.
The requirements for COB provisions in group health insurance policies are set forth in N.Y. Comp. Codes R. & Regs. tit. 11.§ 52.23. In accordance with N.Y. Comp. Codes R. & Regs. tit. 11,§ 52.23(d)(4)(ii) an insured plan may coordinate with a self-funded employee welfare benefit plan. There is no requirement that the self-funded plan have reciprocal COB provisions. The order of benefits set forth by the insurer in its COB provision is consistent with N.Y. Comp. Codes R. & Regs. tit. 11, § 52.23(n). N.Y. Comp. Codes R. & Regs, tit. 11, § 52.23(n)(2):
When there is a basis for a claim under more than one plan, a plan with a coordination of benefits provision complying with this section is a secondary plan which has its benefits determined after those of the other plan, unless the other plan has a COB provision complying with this section in which event the order of benefit determination rules will apply.
Primary and Secondary Plans are defined in N.Y. Comp. Codes R. & Regs. tit. 11, §§ 52.23(g) & (h):
(g) Primary plan--definition. (1) A primary plan is one whose benefits for a person's health care coverage must be determined without taking the existence of any other plan into consideration. A plan is a primary plan if either: (i) the plan either has no order of benefit determination rules, or it has rules which differ from those permitted by this section; or (ii) all plans which cover the person use the order of benefit determination rules required by this section and under those rules the plan determines its benefits first. (2) There may be more than one primary plan (for example, two plans which have no order of benefit determination rules).
(h) Secondary plan--definition. A secondary plan is one which is not a primary plan. If a person is covered by more than one secondary plan, the order of benefit determination rules of this section decide the order in which their benefits are determined in relation to each other. The benefits of each secondary plan may take into consideration the benefits of the primary plan or plans and the benefits of any other plan which, under the rules of this section, has its benefits determined before those of that secondary plan.
N.Y. Comp. Codes R. & Regs, tit. 11, § 52.23(s) specifically deals with your situation:
A plan with order of benefit determination rules which comply with this section (complying plan) may coordinate its benefits with a plan which is excess or always secondary or which uses order of benefit determination rules which are inconsistent with those contained in this section (noncomplying plan) on the following basis: (1) if the complying plan is the primary plan, it shall pay or provide its benefits on a primary basis; (2) if the complying plan is the secondary plan, it shall, nevertheless, pay or provide its benefits first, but the amount of the benefits payable shall be determined as if the complying plan were the secondary plan. In such a situation, such payment shall be the limit of the complying plan's liability . . . .
Accordingly, an insurer issuing a group health insurance policy to an employee welfare benefit plan may validly have a COB provision that makes itself secondary where the dependent of an insured could be primary under another (self-funded) employee welfare benefit plan, notwithstanding that such other plan has provisions which excuse it from making payment. While such a provision would affect the other plan and its beneficiaries, the allowance of such a provision by the Insurance Department would probably fall within the insurance regulatory exception, 29 U.S.C.A. § 1144(b)(2) (West 1999), as construed in Miller v. Kentucky Association of Health Plans, 538 U.S. 329 (2003) from the general ERISA preemption of state laws.
Questions concerning any restrictions that may be imposed by ERISA on such a provision should be addressed to:
Employee Benefit Security Administration
United States Department of Labor
33 Whitehall Street
New York, NY 10004.
For further information please contact Principal Attorney Alan Rachlin at the New York City office.