Federal opinion undermines state’s health-pool concept

The U.S. Department of Labor has advised the Malloy administration that opening Connecticut’s state employee and retiree health plan to nonprofits and small businesses could jeopardize the legal protections it now enjoys as a government plan.

The advisory opinion sought by Gov. Dannel P. Malloy could undermine a health care pooling bill passed last year and an expansion proposed by House Speaker Christopher G. Donovan, D-Meriden, that is now awaiting action in the House.

The legislature last year passed a law opening the plan to employees of nonprofits, beginning Jan. 1, 2013. The bill pending in the House would add employees of small companies, beginning Jan. 1, 2014.

A third aspect of the pooling concept — opening the state plan to municipalities — is unaffected by the opinion. The state comptroller’s office is marketing the state plan to cities and towns.

Malloy sought the opinion Sept. 29, 2011, but the administration received no response until Monday. For Donovan, one of the state’s biggest backers of the pooling concept as a way to bring down the costs of health coverage, the timing of the receipt is awkward, at best.

The annual legislative session that ends Wednesday at midnight is his last as speaker. Donovan is running for Congress and will not be returning to the state House of Representatives next year.

Donovan said he and his staff are analyzing the advisory opinion issued by Susan Elizabeth Rees, a senior official in the federal Department of Labor’s Office of Regulations and Interpretations.

Andrew McDonald, the governor’s general counsel, declined to comment on the opinion.

At issue in the opinion is whether opening the state plan to thousands of private-sector workers would subject the state to the complex requirements private plans face under ERISA, the Employee Retirement Income Security Act.

“As a general matter, it would be historic,” said state Comptroller Kevin Lembo, a backer of the pooling concept. “As far as I can tell, I can’t find another state that has voluntarily given up” the exemption from ERISA.

Some of the ERISA requirements would be no great burden to the state. Lembo said the state already meets the law’s administrative standards on reporting and benefits design.

But Lembo said there are larger, more complex questions that arise from the prospect of the state’s having to meet ERISA rules.

What does it mean from a legal perspective when someone wants to sue the state plan? Does the state get dragged into court by any member? What are fiduciary responsibilities? Who is the fiduciary?

“We don’t have those complications” outside of ERISA, Lembo said.

The federal government allows governmental plans to accept a small or de minimis number of private-sector workers without jeopardizing its ERISA exemption.

The state plan now covers 100,000 state employees and retirees, plus their dependents, who are included in the 100,000 population number. The potential population of nonprofit employees is 175,000.

The question Malloy posed focused on the nonprofits covered by the 2011 law, not the small businesses that would be eligible under the bill proposed this year.

“The Department would view the participation of private nonprofit employers in the Connecticut State Plan described in your letter as more than de minimis, and, therefore, such participation would adversely affect the status of the State Plan as governmental under ERISA,” Rees wrote.

Malloy did not estimate how many of the 175,000 nonprofit employees might sign up for the state plan, nor did he ask if the state could protect its ERISA exemption by capping participation by private employees at a certain level.

Lembo, who was the state healthcare advocate before being elected comptroller in 2010, said his responsibility as comptroller is to protect the state plan, even though he believes pooling is good public policy.

Under the 2011 law, Lembo has the discretion to refuse to open the state plan to private employees if the ERISA exemption is jeopardized. As a practical matter, the state-employees bargaining coalition or the administration also could block it.

The comptroller’s office oversees the state’s health and retirement plans, a major cost of state government.

“We’re scrambling to launch the municipal piece. It’s big. It’s complicated. As a theoretical matter, it’s a good thing based on scale and pricing,” he said.

About a dozen municipalities are weighing the state’s plan. One positive effect, whether they sign up or not, is that the added competition of the availability of the state plan appears to be driving down the initial quotes offered by some private insurers, Lembo said.

“Just the specter of this thing is causing the carriers to sharpen their pencils,” Lembo said. One community saw a proposed 11 percent increase reduced to 1.8 percent, he said. “That’s a good impact.”

Coming as the U.S. Supreme Court is reviewing the constitutionality of the Affordable Care Act, both praised and reviled as Obamacare, the advisory opinion is fuel for a continuing debate about the role of government in health care in general, Lembo said.

“If the court upends the federal health care law, does more flexibility get pushed to the states?” Lembo asked. “Even Republicans are back to saying it should be state-based. Maybe we’ll have more flexibility.”