Local Government Alternatives for Health Coverage
FAQs about Municipal Cooperatives
Q. How can municipalities (school districts, cities, towns, villages, etc.) share the costs of providing health benefits to employees?
A. Municipal Cooperative Health Benefit Plans formed under Article 47 of the Insurance Law (“Muni Coops”) are health risk-sharing agreements that permit municipalities to combine to self-fund health benefits for their employees. They allow municipalities to: share, in whole or part, the costs of self-funding employee health benefit plans; provide an alternative approach to stabilize health claim costs; lower per unit administration costs; and enhance negotiating power with health providers by spreading such costs among a larger pool of risks.
Q. How do municipalities form a Muni Coop?
A. Municipalities must apply for a Certificate of Authority with DFS. DFS staff is available to meet with municipalities and their representatives to discuss the process and answer any questions.
Q. What are the requirements for forming and operating a Municipal Coop?
A. Appropriate safeguards are necessary to help keep Muni Coops from exposing municipalities and their taxpayers to unpredictable and potentially catastrophic liabilities. Minimum standards regarding benefits and participation can better assure that Muni Coops will continue to act responsibly and provide coverage for high-cost conditions and high-cost individuals.
Generally, Muni Coops must meet the following requirements: be comprised of at least 3 participating municipalities; contain a minimum of 2,000 covered employees (includes retirees, but not dependents); operate in accordance with a municipal cooperation agreement; have sufficient personnel and facilities, purchase stop-loss insurance (insurance that protects against large claim losses); submit sufficient premium equivalent rates; have an acceptable claims review and dispute resolution processes; meet statutory reserve requirements; and issue plan documents, including the summary plan description (the document given to employees which explains the benefits available and how to utilize them) which is filed with and approved by DFS.
Q. What if the municipalities are not able to meet the statutory reserve requirements?
A.Muni Coops must have reserves adequate to satisfy all contractual obligations and liabilities. This includes a reserve for payment of unpaid, IBNR and claim expenses: 25% of expected incurred claims plus expenses for plan year.
However, the law provides that a lesser reserve level for claims and claims related expenses may be approved if a qualified actuary for the Muni Coop can justify it to DFS’ satisfaction. DFS will work with the Muni Coop on finding a balanced and reasonable reserve level that ensures adequate funding to pay promised benefits while recognizing fiscal limitations of local government.
Q. Is there any flexibility regarding the stop-loss coverage?
A. Yes. The law requires the Muni Coop to acquire stop-loss coverage issued by a licensed insurer with an aggregate attachment point not greater than 125% of expected claims and a specific stop-loss attachment point no greater than 4% of expected claims, however, DFS has the authority to waive stop-loss requirement, in whole or in part, or modify the maximum retention amounts or attachment points for stop-loss insurance if the Muni Coop can demonstrate adequacy. (This flexibility is generally reserved for established Muni Coops, since several years of claims experience are needed to make an acceptable demonstration to DFS.)
Q. Are there any geographic requirements for the Muni Coop?
Q. Does each municipality have to have a certain number of covered lives?
A. No. There is NO minimum size requirement that each participating municipality consist of a certain number of covered lives. A Muni Coop must have at least 3 different municipal corporations and have at least 2,000 covered lives total (including retirees, not including dependents). It is the overall total among the 3 municipalities that must meet the 2000 life threshold.
Q. What benefits do Muni Coops provide to their employees?
A.Muni Coops are required to provide their employees with all the New York mandated benefits applicable to large group coverage issued by an Article 43 Corporation.
Q. Can a Muni Coop use a third-party to administer the benefits and still self-fund?
A. Yes. A Muni Coop can contract with an insurance company or another entity to be a third-party administrator (TPA) even though it is self-funding its health benefits. The TPA would handle the administration of the benefits, payment of claims, etc., on behalf of the Coop.
Q. What role do employee unions play in Muni Coops?
A.Employee unions which are the exclusive collective bargaining representatives of employees who are covered under the Muni Coop are entitled to representation on the Muni Coop Governing Board. There is no statutory provision that sets the number of Board seats required for union representatives. The number of Governing Board seats filled by union representatives is negotiated by the municipalities and the unions during the Muni Coop formation process.
Q. What alternatives are available to municipalities besides a Muni Coop?
A. Group health insurance coverage is still an alternative to participating in a Muni Coop. A municipality could consider purchasing group accident and health insurance policy either directly or as a participant in a trust arrangement.
If several municipalities were to establish or participate in a multiple employer trust arrangement, coverage for the municipalities’ employees could be obtained through the purchase of a group accident and health insurance policy issued to the trustee of the trust by an authorized insurer. See Insurance Law § 4235(c)(1)(D).
IMPORTANT NOTE RELATING TO GROUP SIZE: Any small group employer members (100 employees or less) participating in the multiple employer trust must be classified as small groups for rating purposes and the remaining large group employer members must be classified as large group members for rating purposes. See Insurance Law §§ 3231(g)(1) and 4317(d)(1). The small group rates are based upon the claims experience of all of a particular insurer’s small group business. This is different than the rating methodology for Muni Coop health benefit plans by which all of the member employers of the cooperative are assessed based on the experience of the cooperative as a whole, without regard to age, sex, health status, or occupation of those covered under the plan. See Insurance Law §§ 4702(a) and 4705(d)(5)(B).
Q. Some large municipalities already self-fund employee health benefits on their own. Why can’t a small municipality simply join their plan?
A. It is true that some large municipalities (101+ employees) are providing health benefits for their employees through self-funded health benefit plans, in conjunction with stop-loss coverage, outside of Article 47.
However, New York law provides that no municipality shall enter a cooperative health plan (i.e., pooled risk) on a shared-funding basis unless it does so in accordance with Article 47 of the Insurance Law. See Insurance Law § 4705(a)(8). In addition, Insurance Law §§ 3231(h) and 4317(e) prohibit the sale of stop-loss insurance to small groups (100 employees or less).
Accordingly, any cooperative plan in which a municipality seeks to self-fund health benefits must be implemented in accordance with Article 47.
Q. Are municipal corporations able to request their claims experience from their insurance carriers to see if a Muni Coop is a viable option?
A. Insurance Law §§ 3231(d)(2) and 4317(d)(3) require insurance carriers to provide specific claims information to a municipal corporation, upon request, for the purpose of forming or joining a municipal cooperative under Article 47.