Could a Washington agency offer employee medical coverage only where a carrier served or only to union members in 1965?

Plain-English summary

In 1965, the Washington Attorney General said a state agency could not use a single hospitalization and medical-aid contract that left employees or a permissible employee category without coverage solely because the carrier did not serve their area. The same applied to a single contract available only to members of a particular employee organization. The AG said an agency could offer a limited plan alongside other contracts providing substantially equivalent rates, coverage, and benefits to everyone in the relevant employee group. (Official opinion)

The opinion did not approve a particular future contract. It said individual insurance terms and circumstances would have to be known to decide whether an agency’s choice was arbitrary or discriminatory.

Currency note

This opinion was issued in 1965. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a single carrier exclude employees outside its service area?
Not as the agency’s only plan for the affected employees, according to the AG.

Could a plan require membership in a specific employee organization?
The AG said such a limited plan could be offered if other substantially equivalent contracts covered the employees otherwise excluded.

Did the AG require identical plans from all carriers?
No. It called for substantially equivalent rates, coverage, and benefits through the available contracts.

Background and statutory framework

A legislator asked about geographic and employee-organization limits in agency medical-aid contracts. The AG read RCW 41.04.180’s permissive authority to provide coverage with the rule against arbitrary, capricious, or invidiously discriminatory treatment of employees. It applied the same analysis to both restrictions and distinguished one-contract from multiple-contract arrangements.

Citations and references

• The opinion permits the limited plan if the agency provides “substantially equivalent hospitalization and medical aid contracts” through others.
• It says no final determination on a future contract could be made without its facts and circumstances.

Subject

OFFICES AND OFFICERS ‑- STATE ‑- AGENCIES ‑- HOSPITALIZATION AND MEDICAL AID CONTRACTS FOR EMPLOYEES ‑- GEOGRAPHICAL INABILITY OF CARRIER TO SERVICE ALL EMPLOYEES ‑- EMPLOYEE ORGANIZATION...

Source

• Landing page: https://www.atg.wa.gov/ago-opinions/offices-and-officers-state-agencies-hospitalization-and-medical-aid-contracts-employees

Original opinion text

Attorney General John J. O'Connell

OFFICES AND OFFICERS ‑- STATE ‑- AGENCIES ‑- HOSPITALIZATION AND MEDICAL AID CONTRACTS FOR EMPLOYEES ‑- GEOGRAPHICAL INABILITY OF CARRIER TO SERVICE ALL EMPLOYEES ‑- EMPLOYEE ORGANIZATION CONSIDERATION.

(1) An agency cannot enter into a single contract for a hospitalization and medical aid plan that is not available to all its employees or all employees within constitutionally permissible categories because of the inability of the carrier to service all the employees of the agency where the agency executes only one contract. However, an agency may contract for a hospitalization and medical aid plan which is not available to all of its employees or all employees within constitutionally permissible categories because of the inability geographically of the carrier to service all of the employees of the state agency, if the agency provides substantially equivalent hospitalization and medical aid contracts to all its employees or all employees within a certain category under another contract or contracts.

(2) Same: An agency cannot enter into only one hospitalization and medical aid contract that is available to its employees or categories of employees only if the employees belong to a specific employee organization. However, an agency may contract for a hospitalization and medical aid plan which is available to its employees or categories of employees but conditioned upon membership in a specific employee organization, if the agency at the same time provides substantially equivalent hospitalization and medical aid contracts to all its employees or all employees within a certain category under another contract or contracts.

August 30, 1965

Honorable R. Ted Bottiger
State Representative, 28th District
868 South 113th Street
Tacoma, Washington

Cite as: AGO 65-66 No. 34

Dear Sir:

In a letter which we previously acknowledged, you have requested the opinion of this office on questions which we paraphrase as follows:

1. Can a state agency pursuant to chapter 75, Laws of 1963, as amended by chapter 57, Laws of 1965 (RCW 41.04.180 and 41.04.190) contract for a hospitalization and medical aid plan or plans which are not available to all its employees because of the inability geographically of the carrier to service all of the employees of the state agency?

[[Orig. Op. Page 2]]

2. Can a state agency pursuant to RCW 41.01.180 and 41.04.190 enter into a contract with hospitalization and medical aid carriers for a program or programs which are available to employees only if they belong to a specific employee organization?

We answer your questions in the manner set forth in our analysis.

ANALYSIS

Question No. 1:

RCW 41.04.180 provides as follows:

"Any department, division, or separate agency of the state government, and any county, municipality or other political subdivision of the state acting through its principal supervising official or governing body may, whenever funds shall be available for that purpose, provide for all or a part of hospitalization and medical aid for its employees and their dependents through contracts with regularly constituted insurance carriers or with health care service contractors as defined in chapter 48.44 RCW, for group hospitalization and medical aid policies or plans: PROVIDED, That any county may provide such hospitalization and medical aid to county elected officials and their dependents on the same basis as such hospitalization and medical aid is provided to other county employees and their dependents: PROVIDED FURTHER, That the contributions of any department, division or separate agency of the state government and school districts shall be limited to not to exceed fifty percent of any premium therefor, or five dollars per month per employee covered, whichever is less except that such limitation shall not apply to employees employed under chapter 47.64 RCW."

In AGO 65-66 No. 1 [[to Prosecuting Attorney, Spokane County on January 6, 1965]], a copy of which is enclosed herein for your convenience, we concluded that a school district, acting pursuant to the foregoing statute, could contract with more than one insurance carrier or health care service contractor and allow each of its employees to choose the plan he or she desired as long as such plan met the statutory requirements. We also concluded that a school district could designate specific categories of its employees to be covered by such group policy or contract to the exclusion of other categories of employees. In addition, we pointed out that such designation or exclusion must not be arbitrary, capricious or invidiously discriminatory. In our opinion, the foregoing is equally applicable to a state agency.

Accordingly, the crux of your first question is whether a hospitalization and medical aid contract entered into by a state agency pursuant to RCW 41.04.180,supra, that is not available to all employees because of the inability of the carrier geographically to service all its employees is, therefore, arbitrary, capricious or invidiously discriminatory action by the agency.

[[Orig. Op. Page 3]]

It is fundamental that agencies of state government must arrive at their decisions by applying logic and reason to the facts and circumstances presented to them. They cannot act arbitrarily, capriciously, nor can they invidiously discriminate in favor of one employee or category of employees against another employee or category of employees.1/ This rule is so broad and general in scope that it cannot be applied unlessall the facts and circumstances surrounding each particular transaction or decision are fully known to the person making the determination. Obviously, a final determination as to any future state agency medical insurance contract cannot be made here because of the myriad number of varying situations that can be presented to a state agency in executing a hospitalization and medical aid contract. Insurance contracts involve complex transactions; the rates, coverage and benefits vary from contract to contract and from company to company. Nevertheless, the alternatives presented to a state agency can be classified into two categories: The agency can execute one contract or more than one. AGO 65-66 No. 1,supra.2/

Where an agency determines to enter into only one contract, we think it is clear that it cannot execute such a contract that would not be available to certain employees or all employees within a certain category,3/ solely because of the inability of the carrier to service all the employees of the agency. There can be little doubt that any agency's exclusion of additional compensation4/ to an employee simply because he or she works or resides in a certain area of the state would be arbitrary and capricious.

[[Orig. Op. Page 4]]

It is a different situation, however, where the agency executes more than one hospitalization and medical aid contract and where the agency provides a contract of hospitalization and medical aid substantially equivalent in rates, coverage and benefits to all its employees or employees within a certain category. In such a situation it would seem to be of little consequence that one of their several contracts was not available to all because of the inability of the carrier geographically to service all employees of the agency. In such an instance, no employee would be disqualified from additional compensation solely because he or she works or resides in a certain area.

Accordingly, we are of the opinion that an agency cannot enter into a single contract for a hospitalization and medical aid plan that is not available to all its employees or all employees within constitutionally permissible categories because of the inability of the carrier to service all the employees of the agency where the agency executes only one contract. However, we believe that an agency may contract for a hospitalization and medical aid plan which is not available to all of its employees or all employees within constitutionally permissible categories because of the inability geographically of the carrier to service all of the employees of the state agency, if the agency provides substantially equivalent hospitalization and medical aid contracts to all its employees or all employees within a certain category under another contract or contracts.

Question No. 2:

We feel that the reasoning used in answering your first question is equally applicable to your second question. In other words, an agency cannot enter intoonly one hospitalization and medical aid contract that is available to its employees or all employees within permissible categories only if the employees belong to a specific employee organization. However, an agency may contract for a hospitalization and medical aid plan which is available to its employees but conditioned upon membership in a specific employee organization, if the agency at the same time provides substantially equivalent hospitalization and medical aid contracts to all its employees or all employees within a certain category under another contract or contracts.

We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

BASIL L. BADLEY
Assistant Attorney General

*** FOOTNOTES ***

1/Smith v. Hollenbeck, 48 Wn.2d 461, 464, 294 P.2d 921 (1956).

2/Of course, since RCW 41.04.180, supra, is merely permissive, an agency can refrain from entering into any contract at all.

3/As we previously stated, an agency is not bound to provide this insurance to all employees. It can categorize the employees but such a category must be based upon reason deduced from the circumstances and transactions presented to them.

4/RCW 41.04.190 provides as follows:

"The cost of any such group policy or plan to any such public agency or body shall be deemed additional compensation to the employees or elected county officials covered thereby for services rendered, and any officer authorized to disburse such funds may pay in whole or in part to any such insurance carrier or health care service contractor the amount of the premiums due pursuant to any such contract."