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Captive Insurers' Concerns over Regulations May Be Mitigated by Ruling

Court Ruling Gavel
March 21, 2016

The inclusion of employee benefits within captive insurance companies continues to draw a lot of attention. Several sessions at the recent Captive Insurance Companies Association (CICA) 2016 International Conference were dedicated to this topic. In one of these sessions, "The Evolving Horizons of Employee Benefit Captives," presented on March 8, it was learned that, to date, only about 30 companies have successfully secured a prohibited transaction exemption (PTE) from the US Department of Labor.

The reluctance of certain organizations to look closely at utilizing their captives in this regard may, in part, rise from the issue of conflicting federal and state regulations.

A recent US Supreme Court ruling may help to mitigate this concern. On March 1, 2016, the Supreme Court handed down an opinion in Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936 (U.S. 2016). The background in this case concerns a 2005 Vermont law that required certain public and private entities to provide data regarding the amounts paid for medical claims that was then compiled into a state healthcare database. The law defined health insurers to include self-insured benefit plans and third-party administrators (TPAs). Liberty Mutual challenged the law on behalf of its group health plan, which, according to the case record, was self-funded and regulated under the Employee Retirement Income Security Act (ERISA) of 1974 as an "employee welfare benefit plan."

In essence, Liberty Mutual argued that ERISA preempts the Vermont statute. With its ruling, the Supreme Court struck down the Vermont law, enforcing the rule that ERISA generally renders inoperative state laws that relate to employee benefit plans.

See a more detailed analysis of the background and the ruling.

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