Administrative services provided in connection with a noninsured benefit plan

Issued and entered February 5, 1982 by Nancy A. Baerwaldt, Commissioner of Insurance

Public Act 189 of 1981 (PA 189) clarifies the legal status of administrative services provided by an insurer in connection with a noninsured benefit plan. Until the passage of PA 189, there existed some disagreement over the extent of insurers' corporate powers and the tax treatment of contracts for administrative services. PA 189 amended Section 5208 of the Insurance Code, which is MCLA 500.5208; MSA 24.15208, and added Section 5208a, which is MCLA 500.5208A; MSA 24.15208a.

Subsection 5208(3), which describes the taxation requirements for services performed in connection with a noninsured benefit plan, supersedes the memo of June 3, 1971, entitled "Premium Taxation and Regulation of Certain Insurance Plans in Michigan," which was sent by the Commissioner of Insurance to all insurance companies licensed in Michigan.

Subsection 5208(4) requires an insurer to report with the annual statement the amount of business it has conducted as services performed in connection with a noninsured benefit plan. Beginning with the 1981 annual statement, this information shall be filed on a special form entitled Statement of Noninsured Benefit Plan Business Activity, which was included in the forms with instructions for filing 1981 annual statements in Michigan. Subsection 5208(4) also requires that the Commissioner submit to the Legislature on April 1, 1985, a report of the impact of PA 189 on employers and covered individuals, and similar activities under the provisions of law, and in consultation with the Revenue Commissioner the total financial impact on the State of Michigan. In order to prepare this report, the Commissioner of Insurance finds it necessary to collect additional information from insurers. Therefore, the attached form with instructions, entitled Addendum to Statement of Noninsured Benefit Plan Business Activity, has been developed to enable the Commissioner to collect information needed to prepare the report to the Legislature. This Addendum shall be attached to the Statement of Noninsured Benefit Plan Business Activity and filed with the 1981 annual report. If the 1981 annual report has already been filed, this form should be mailed to Michigan Insurance Bureau, Box 30220, Lansing, Michigan 48909, ATTENTION: Financial Analysis Division.
In ensuing years, the information requested in the Addendum will be incorporated into the Statement of Noninsured Benefit Plan Business Activity for as long as the information in the Addendum is required.

It should be noted that Subsection 5208(5) of PA 189 protects employees from liability to providers of medical services in case of bankruptcy of a noninsured benefit plan for which administrative services are provided in accordance with Section 5208. Providers shall become creditors of the plan for claims incurred and subject to payment under the plan, unless the claim has been paid directly to the employee.

It should also be noted that Section 5208a incorporates many of the protections which have been provided to consumers of insurance by the Uniform Trade Practices Act, MCLA 500.2001 through 500.2050; MSA 24.12001 through 24.12050.

Subsection 5208a(8) requires that an insurer providing services in connection with a noninsured benefit plan shall provide in the service contract a provision that the person contracting for the services shall notify each covered individual what services are being provided, the fact that individuals are not insured or are only partly insured, which party is liable for payment of benefits, and of future changes in benefits. Consistent with this requirement, insurers who write excess loss coverage and issue certificates to employees shall clearly state in the certificates which part of the benefit plan is insured.

Subsection 5208(2)(b) provides that insurers may write specific or aggregate loss insurance in connection with a noninsured benefit plan. Excess loss policies are required to be filed pursuant to Section 2236 of the Insurance Code, MCLA 500.2236; MSA 24.12236. However, Subsection 2236(6) provides that the Commissioner by order may exempt policies from the filing requirements when the filing and approval are not desirable or necessary for the protection of the public. In the Exemption Order of 1981, the Commissioner ordered that group disability policies are exempt from filing because filing and approval are not necessary for the protection of the public. Therefore, any excess loss policies which are group disability policies are exempt from filing. Excess loss casualty policies, however, are not exempt and shall be filed.

This bulletin is effective immediately.

1981 ADDENDUM STATEMENT OF NONINSURED BENEFIT PLAN BUSINESS ACTIVITY

To be attached to the Statement of Noninsured Benefit Plan Business Activity and filed with the 1981 Annual Statement. If Annual Statement has already been filed, please mail this form to: Michigan Insurance Bureau, Box 30220, Lansing, Michigan 48909, ATTENTION: Financial Analysis Division.

Name of Company _____________
Address ____________________
NAIC Group Code __________ NAIC Company Code __________
Total number of administrative service contracts in connection with a
noninsured benefit plan during 1981 ______________

__________________

Signature of Person Completing this Form

Please print or type name and title of
person whose signature appears above:
Date: ___