HomeMy WebLinkAbout5.F.6. Blue Cross/Blue Shield Refund
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CITY OF SHAKOPEE
Memorandum CO~~!~~f~r
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TO: Mayor and Council
Mark McNeill, City Administrator
FROM: Gregg Voxland, Finance Director
RE: Blue Cross/Blue Shield Refund
DATE: May 8, 2006
Introduction and Background
The City has received $17,916.57 in December 2005 as a refund of
premiums from Blue Cross/Blue Shield related to the tobacco
settlements. BCBS is the former provider of employee group
health for the city. Ms. Remer submitted the application to
claim a refund.
Following the attached advice from Kennedy and Graven, the City
Attorneys, it is proposed to use the funds to pay for health
insurance premiums. The City cost and the employee share would
be reduced for a future premium payment. It is not proposed to
establish an additional short term wellness program that may
create the expectation of continued funding in the future.
The City must use the funds in 2006.
Visioning Relationship
Routine/financially strong.
Action Requested
Move to use the refund of $17,916.57 from Blue cross Blue
Shield, plus interest, to pay group health insurance premiums.
G~OXland
Finance Director
Message Page 1 of2
Gregg Voxland
From: Tietjen, Mary D. [mtietjen@Kennedy-Graven.com]
Sent: Friday, May 05, 2006 2:35 PM
To: Gregg Voxland
Cc: Thomson, James J.; Mark McNeill
Subject: BCBS Refund
5/5/06
Gregg:
I reviewed the information you provided related to the distribution of settlement proceeds from Blue Cross/Blue
Shield to the City. You had two questions: 1) pursuant to the May 11,2005, Dept of Labor ("DOL")
advisory opinion, should the City refund the money to the employees who contributed to the premiums?; or, 2)
should the City use the money to pay future premiums, fund a new wellness program or keep the money for City
use?
The May ii, 2005, DOL opinion deals with policyholders who have an ERISA plan and how settlement payments
are to be characterized and treated under ERISA. Because ERISA does not apply to plans maintained by
government entities, the DOL Advisory opinion does not necessarily apply to the settlement payment rec€!ived by
the City. However, the opinion provides some guidance in that it concludes that a a settlement payment must be
used (under most circumstances) to "pay plan benefits or expenses."
On May 1, 2006, legal counsel for the State Auditor provided a letter opinion to the Fergus Falls School District
that also provides some guidance on your questions. The school district in that situation also received a
settlement payment from Blue Cross. The school board proposed to donate the money to an education
foundation or another non-profit organization; however, the Auditor stated that the school district did not have the
authority to do so. In addition, the Auditor noted that under the Blue Cross class action Settlement Agreement,
the school district, not the employees, was the "class member" and therefore, the school district "should
determine how the proceeds are spent in compliance with the settlement agreement and Minnesota law."
I reviewed the Blue Cross Settlement Agreement and it does not contain any requirements regarding Class
Members' use of settlement payments. The Auditor, however, concluded that even though the DOL opinion is not
directly applicable to government entities, such entities should spend the settlement proceeds in a manner that is
conslstent with that opinion. According to the Auditor, that would mean applying the proceeds toward paying
health insurance premiums or "plan benefit enhancements."
Based on this information, it is my opinion that:
1. The City is the "class member" pursuant to the Blue Cross Settlement Agreement and thus, the City should
retain the funds and decide how to use them rather than refunding the money to the employees.
2. The City has some discretion regarding how to spend the settlement proceeds because the Settlement
Agreement does not contain any requirements or restrictions on how the money should be used.
3. Although the DOL Advisory opinion does not directly apply to the City, it would be prudent to use the
settlement proceeds in a manner consistent with the opinion, including the options you suggested of paying future
premiums or funding a wellness program. I do not believe keeping the settlement proceeds for general City use is
consistent with the DOL advisory opinion.
Let me if you have any other questions.
Mary D. Tietjen
Kennedy & Graven, Chartered
5/8/2006