Self-insured welfare plans and state insurance law

P/OPINION 75-128


                                                                514


                          June 20, 1975


Dear           :

This is in response to your letter to the Secretary of
Labor asking whether (State) law relating to self-insured
health and medical plans has been preempted by the Employee
Retirement Income Security Act of 1974. We believe that it
has been.

As you described the (State) law in your letter and in a
telephone conversation with            of my staff, it
requires employers who have established self-insured
plans for their own employees to meet requirements for
insurance companies. Clearly the (State) law is preempted
under section 514 of ERISA unless it is saved from preemption
by paragraph 514(b)(2). This paragraph preserves State laws
regulating insurance, but provides in pertinent part:

       "Neither an employee benefit plan…nor any
       trust established under such plan, shall be
       deemed to be an insurance company or other
       insurer…for purposes of any law of any
       State purporting to regulate insurance
       companies, insurance contracts…"

We believe this provision is not susceptible to an
interpretation under which the (State) law would be
saved from preemption. Section 514 (b)(2) adopts
a distinction between insurance and employee benefit
plans similar to a line of state cases typified by
State ex rel. Farmer v. Monsanto Company, 517
S.W. 2d 129 (Mo. 1974). In that case the court held
that a company which provides benefits directly to its
own employees and their dependents is not in the
insurance business. To be covered under the Missouri
law, said the court, the company must be in the business
of selling insurance to persons other than its own
employees. It is our opinion that Congress established
a similar rule when it adopted the above-quoted language
in the statute.
2

P/OPINION 75-128

In your conversation with          you suggested two
reasons why Congress might have wished to preserve
the (State) law from preemption. The first is that
ERISA does not provide any assurance that welfare
benefits will be paid as promised, and thereby leaves
room for the (State) law which, by requiring insurance
companies to have capital and surplus, does provide
such assurance. Although it is true that ERISA does
not require employee welfare benefit plans to be funded
(ERISA §301 (a) (1)), this does not mean that there is
no Federal assurance that benefits will be paid as
promised. Other provisions of ERISA provide some
assurances of this type. However, the exemption of
welfare plans from funding requirements reflects an
affirmative congressional decision that they not be
required to be funded. See e.g. 120 congressional record
(daily ed. Aug. 22, 1974).

The second reason you cited was that (State) depends upon
the revenue it derives from the insurance tax on plans.
We do not believe that this factor affects the basic
nature of the preemption required by section 514 of ERISA.

Sincerely,