State insurance regulation of a marketed health program

U.S. Department of Labor, Employee Benefits Security Administration
Advisory Opinion 2003-03A
February 13, 2003

[Recipient address omitted]

Dear Mr. Claro:

This responds to your letter, on behalf of American Heartland Health Administrators, Inc. (AHHA), regarding the application of title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA).(1) Specifically, your request raises issues as to whether, and under what circumstances, AHHA may be subject to the provisions of ERISA.

The information provided to this Office for consideration included the following. AHHA is in the business of designing, marketing, and administering a pre-packaged program of medical and health benefits. The AHHA program, marketed through a network of insurance agents and other individuals, includes a prototype plan document, a preferred provider organization for the provision of services or treatment, as well as utilization review and medical care management services, and a "reinsurance" agreement pursuant to which the "reinsurance company" agrees to accept 100% of the subscribing employers' liability under the plan. The package also includes an administrative service agreement, pursuant to which AHHA agrees to provide claims paying and other services for subscribing employers. Under the prototype plan document and administrative service agreement, employer and participant contributions are to be paid to AHHA, which then is responsible for forwarding "premiums" to the "reinsurance company."

On the basis of the information provided, it is the view of the Department that neither AHHA nor the "reinsurance company" constitutes an employee benefit plan within the meaning of ERISA section 3(3). Nonetheless, AHHA, and possibly the "reinsurance company," may be fiduciaries of ERISA-covered plans, established by employers subscribing to the AHHA program, by virtue of having and exercising authority or control with respect to the assets of such plans or exercising discretionary authority or responsibility in the administration of such plans (see ERISA section 3(21)(A)(i) and (iii)). As a fiduciary, AHHA would be subject to ERISA's fiduciary standards (see ERISA section 401 et seq.). In this regard, you have inquired about several cease and desist orders issued by the Texas Department of Insurance that prohibit AHHA and the selected "reinsurance company" from, among other things, taking any actions concerning funds which have been collected, received or derived in the course of unauthorized business of insurance in Texas. You interpret these orders as prohibiting AHHA from forwarding premiums to the reinsurance company, and ask whether compliance with the orders would cause AHHA to violate its fiduciary duty to act in accordance with the documents and instruments governing the plans.

Section 404(a)(1) of ERISA requires, among other things, that fiduciaries discharge their duties prudently and solely in the interest of plan participants and beneficiaries. Section 404(a)(1)(D) of ERISA provides that fiduciaries shall discharge their duties "in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with provisions of this title [title I] and title IV." (Emphasis supplied.) It is the view of the Department that section 404(a)(1) forbids fiduciaries from following plan documents if doing so would be imprudent. Under the circumstances described in your submission and related materials, it would be imprudent in the Department's view for a fiduciary to use plan assets to tender premiums to an unlicensed insurer that is subject to a cease and desist order, issued under applicable state insurance law, which prohibits the insurer's receipt of those premiums.

With regard to state regulation of AHHA and the selected "reinsurance company," we note that section 514(b)(2)(A) of ERISA saves from preemption under section 514(a) state laws regulating insurance. Specifically, that section provides, in pertinent part, that "nothing in this title [title I] shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities."  Although section 514(b)(2)(B) provides that neither an ERISA-covered plan nor any trust established under such plan may be deemed to be an insurance company or to be engaged in the business of insurance for purposes of any state law purporting to regulate insurance companies or insurance contracts, neither AHHA nor the selected "reinsurance company" is such a plan or trust.

In addition, section 514(b)(6)(A) of ERISA allows state insurance regulation of employee benefit plans that are multiple employer welfare arrangements (MEWAs) subject to the limitations set forth in subparagraphs (A)(i) and (A)(ii) of that section. The limitations on state insurance regulation of multiple employer welfare arrangements in section 514(b)(6) apply only to MEWAs that are employee welfare benefit plans within the meaning of ERISA section 3(1). These limitations do not restrict state insurance regulation of MEWAs or other entities that are not themselves employee welfare benefit plans.

Accordingly, section 514(a) of ERISA would not provide a basis for preempting the application of State laws which regulate insurance to AHHA or the selected "reinsurance company." For your convenience, we are enclosing a copy of Advisory Opinion 92-21A (Oct. 19, 1992) in which the Department reached the same conclusion with respect to a program similar to that offered by AHHA.

This letter constitutes an advisory opinion under ERISA Procedure 76-1 and, accordingly, is issued subject to the provisions of that procedure, including section 10 thereof relating to the effect of advisory opinions.

Sincerely,

John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations

Footnotes

1. You made the same request with respect to Southern Plan Administrators, Inc. (SPA), which either has common ownership with, or is a successor in interest to, AHHA. SPA offers essentially the same programs and services as AHHA. Accordingly, the views expressed herein with respect to AHHA also apply to SPA.