You asked a series of questions regarding health care reform in Connecticut. Specifically, you asked us to address the following:

1. the legality of putting into one benefit program recipients of federally-funded health programs and people covered under state-sponsored health care programs;

2. the legality of “tiering” health care coverage for different groups of people who are pooled together under the same plan (e. g. , provide different levels of benefits based on the a person's classification as a state employee, a municipal employee, a Medicaid recipient);

3. whether the state can exercise an option to self-insure the health care coverage it offers employees and retirees at any time, or if it must wait until the existing fully-insured contracts (e. g. , with Anthem, ConnectiCare), expire before pursuing this option; and

4. if the state would lose federal funding if it were to make provider reimbursement rates under HUSKY equal to those under private health insurance plans.

The Office of Legislative Research is not authorized to render legal opinions and this report should not be considered one.

SUMMARY

It appears that putting participants of federally-funded health programs, such as Medicaid (e. g. , the HUSKY program in Connecticut), and state-sponsored benefit programs (e. g. , state employee benefit plan, municipal employee health insurance program (MEHIP)), is not specifically prohibited but would likely require federal approval. Such an arrangement also presents numerous challenges, as we discuss below.

Similarly, tiering benefit levels is not specifically prohibited. Tiering benefits refers to establishing different benefits, plan terms, or both, for the eligible groups (e. g. , state employees, municipal employees, Medicaid recipients, private sector employees) that together comprise one pool for underwriting and rating purposes. However, government plans are exempt from certain federal laws (e. g. , ERISA) that apply generally to employee benefit plans. If enrollment in a government plan is opened up to private sector employees, the plan may lose its status as a government plan. If that happened, among other possible implications, the plan would have to comply with additional federal laws.

Should the state choose to convert from fully-insured health plans (e. g. , insurance purchased from an insurance company or HMO) to a self-insured plan (i. e. , a plan that is not backed by an insurance policy), it would be allowed to terminate its existing contracts with insurers if it is in the state's best interest to do so, provided it gives a termination notice at least 60 days before the effective date of the termination, under existing contractual provisions.

Lastly, Connecticut would not lose federal funding if it were to change reimbursement rates paid to health care providers that serve Medicaid recipients (e. g. , to increase them to average reimbursement rates available in the commercial market).

MERGING HUSKY AND STATE-SPONSORED BENEFIT PROGRAMS

There appears to be no state law that prohibits merging federally-funded (e. g. , Medicaid) and state-sponsored (e. g. , employee health plan) benefit programs. However, Medicaid is a federal-state matching program that operates under federal rules and oversight by the Centers for Medicaid and Medicare Services (CMS). It funds health services for qualified elderly, disabled people, children, and families and is paid for by both the federal and state governments.

In general, a state needs approval from CMS, known as a waiver, to make changes to the Medicaid program if the federal rules do not permit the program changes desired. For example, Rhode Island recently obtained CMS' approval for a “global Medicaid waiver” that permits it to make significant changes to the Medicaid program it offers residents. (See below for a further discussion of Rhode Island's global Medicaid waiver. )

Aside from the issue of a federal waiver, there appear to be many practical obstacles that may deter a state from combining a Medicaid program with state-sponsored benefit programs. For example, there are numerous differences between Medicaid and Connecticut's state-sponsored plans (e. g. , funding, benefits, provider networks and reimbursement amounts, eligibility, underwriting criteria, administration). Decisions on how to combine different plans (e. g. , which elements to keep from one or the other, which participants would be offered which benefits and terms, how to merge data reporting systems) would be difficult at best. Implementation and roll-out would need to be carefully planned and would likely need to occur in stages over a period of time.

Another concern with combining the programs is that, except for any federal waivers granted that say otherwise, Medicaid is an entitlement program, meaning people are covered if they are eligible (e. g. , income is sufficiently low) and there are no limits on how many people may enroll or how much government must spend on the program. The state-sponsored benefit programs are not entitlements; they are employee benefit plans, also called welfare plans, under which the state, as plan sponsor, can determine eligibility rules, coverage amounts, and funding caps.

Informal Comments from DSS

In a brief, informal communication with OLR, Mr. David Parella of Connecticut's Department of Social Services noted that combining the Medicaid and state-sponsored programs into one would be difficult.   He believes (1) there have been court cases brought against states that have tried to combine programs in such a way; (2) collective bargaining units representing employees may have concerns about such a pooling arrangement; and (3) CMS would likely frown upon an agreement that tied Medicaid benefits to non-Medicaid participants. (We have not conducted research to identify court cases at this time. Please contact OLR for additional research if desired. )

Finally, Mr. Parella believes the furthest states have been able to take this type of idea has been requiring joint purchasing, under which the participant populations are kept separate for underwriting and benefit purpose but the administrative contracts are linked (e. g. , California, Minnesota). Such a joint purchasing concept was included in the state's Charter Oak Health Plan program design by tying HUSKY and Charter Oak contracts. Since Charter Oak's inception, the contracts were “delinked. ”

For related information, see OLR Research Report 2008-R-0615, HUSKY and Medicaid.

Rhode Island Global Medicaid Waiver

CMS recently approved Rhode Island's request for a global Medicaid waiver. Through this waiver, the federal government agreed to relax its Medicaid rules, giving Rhode Island unprecedented authority to modify benefits, eligibility, enrollment, payment, and delivery arrangements without federal approval of a state plan amendment. In exchange, the state agreed to operate the Medicaid program within the constraints of a fixed and capped budget.

Under the terms of the waiver, the federal government will no longer match state expenditures. Instead, it will award Rhode Island an annual block grant. In return, the state will limit its Medicaid expenditures to 23% of its overall state budget, which is the amount it spent on Medicaid in 2007. The waiver caps all federal and state spending on the program at $ 12. 1 billion over five years.

Attached is the governor's description of the waiver, which is available at http: //www. governor. ri. gov/documents/Waiver_Facts. pdf.

The state's waiver application detailed some program changes that it intends to make, including a requirement that all children enroll in Medicaid managed care plans. Other potential changes are not yet known.

The waiver allows Rhode Island to end the agreement (1) with six months notice to CMS or (2) immediately if a catastrophe should occur, such as a natural disaster or an epidemic.

The Rhode Island General Assembly is currently considering legislation that (1) requires the governor to obtain the legislature's approval of proposed changes to the Medicaid program through 2013 and (2) creates a task force to oversee implementation of the global Medicaid waiver.

TIERING BENEFITS WITHIN A PLAN

There appears to be no law that prohibits different subsets of plan participants from receiving different benefits, other than federal requirements that prohibit unfair discrimination in favor of highly compensated employees.

In general, when a plan sponsor develops a benefit plan, it determines who is eligible and for what coverage. The eligibility and coverage levels may be broken out a variety of ways. For example, full-time employees may receive benefits that differ from those part-time employees receive, or home office employees may receive benefits that differ from those a field office or subsidiary receives.

ERISA

The federal Employee Retirement Income Security Act (ERISA, U. S. Code Title 29) governs certain activities of most employers who maintain employee welfare benefit plans and preempts many state laws in this area.

ERISA-covered welfare benefit plans must meet a wide range of (1) fiduciary, reporting, and disclosure requirements and (2) benefit requirements (including benefits required under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), Health Insurance Portability and Accountability Act (HIPAA), Mental Health Parity Act, Newborns' and Mothers' Health Protection Act, and Women's Health and Cancer Rights Act).

ERISA, however, does not apply to a “governmental plan,” which it defines as “a plan established or maintained for its employees by the government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. ” The question then becomes, does a plan currently meeting this definition lose its status as a governmental plan, thereby subjecting itself to the full requirements of ERISA, including federal oversight, if it adds private sector employees to the plan.

U. S. DOL Opinion Concerning ERISA Applicability.

In 1999, the California School and Legal College Services of the Sonoma County Office of Education (the office) requested an advisory opinion from the U. S. Department of Labor (DOL) concerning the applicability of ERISA. Specifically, it asked if allowing 28 private sector employees to participate in the California Public Employees' Retirement System (CalPERS) would adversely affect the status of CalPERS as a “governmental plan” within the meaning of ERISA.

In its opinion, DOL stated that “governmental plan status is not affected by participation of a de minimis number of private sector employees. However, if a benefit arrangement is extended to cover more than a de minimis number of private sector employees, the Department may not consider it a governmental plan” under ERISA (U. S. DOL Advisory Opinion 1999-10A, July 26, 1999, which is available at http: //www. dol. gov/ebsa/regs/AOs/ao1999-10a. html). DOL further noted that its opinion related solely to the application of ERISA's provisions and “is not determinative of any particular tax treatment under the Internal Revenue Code. ” It advised the office to contact the Internal Revenue Service to clarify tax treatment of the proposed arrangement.

SELF-INSURING THE STATE EMPLOYEE HEALTH PLAN

The State began self-insuring employee pharmacy benefits as of July 1, 2008, but fully-insures its medical plans through insurance contracts with insurers (e. g. , Anthem, ConnecticCare). We asked the comptroller's office for information related to switching the medical plans from insured to self-insured arrangements. Connecticut's contracts with the various insurers permit the state to terminate the contract with 60-days notice if it is in the state's best interest, according to Ms. Karen Buffkin, General Counsel.

Ms. Buffkin noted that to switch to self-insurance, the state would commence an RFP process to advertise, select, and negotiate an “administrative services only” contract with one or more companies. This process could take approximately three or four months to complete. Additional time would be necessary before the plan's effective date to complete the transition to self-insurance (e. g. , to prepare and distribute new benefit description booklets, develop procedures to monitor claims experience, establish claim reserves).

Ms. Buffkin also pointed out that if the state were to self-insure, it may also consider purchasing a stop-loss insurance policy. Stop-loss insurance shifts a portion of the plan's risk (i. e. , liability) to an insurer. With a stop-loss policy in place, a plan sponsor is responsible for paying am amount due on a claim up to a specified amount. Any additional amount due becomes the stop-loss insurer's responsibility.

Memorandum of Understanding with SEBAC

In 2008, the state and the State Employees Bargaining Agent (SEBAC) entered into a memorandum of understanding concerning certain health care issues. Among other things, the MOU permitted the state to self-insure pharmacy benefits effective July 1, 2008. It gives the state sole discretion to provide these benefits in the future on an insured, self-insured, or other appropriate basis. It specifies that such a decision “shall not be appealed or arbitrated in any forum by SEBAC, any constituent union or state employee” (Section 2(A), MOU dated March 20, 2008).

Related Information

For related information, see the following OLR Research Reports:

1. 2008-R-0108, Contractual Obligations Regarding the Opening of the State Employee Health Insurance Pool to Municipalities;

2. 2008-R-0067, State Employee Health Insurance Programs Open to Local Government Employees; and

3. 2008-R-0039, Massachusetts Act Opening State Health Plan to Municipalities.

CHANGING PROVIDER REIMBURSEMENT RATES

Connecticut would not lose federal funding if it were to make provider reimbursement rates paid under HUSKY equal to provider reimbursement rates under commercially-available health insurance plans. The federal government reimburses Connecticut 50% of what it has spent on Medicaid, regardless of the specific provider reimbursement rates. In general, Medicaid reimbursement rates are lower than those in the commercial market. Thus, an increase in rates would likely impact the state budget.

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