New York Public Personnel Law: Payment of unreimbursed medical expenses permitted by the Internal Revenue Code via a “Health Reimbursement Arrangement Plan” held not the same as health insurance premiums

April 22, 2011

Payment of unreimbursed medical expenses permitted by the Internal Revenue Code via a “Health Reimbursement Arrangement Plan” held not the same as health insurance premiums

Payment of unreimbursed medical expenses permitted by the Internal Revenue Code via a “Health Reimbursement Arrangement Plan” held not the same as health insurance premiums

Kathleen Rockwell et al v Broadalbin-Perth Central School District, Supreme Court, Fulton County, Judge Joseph M. Sise, Decision [RJI #27-1-2009-05091. Motion #13, April 18, 2011]

The Broadalbin-Perth Central School District was providing active employees and their dependents represented Broadalbin-Perth Teacher’s Association with health insurance. Upon retirement, the District continued to provide the same level of benefit to Association retirees and their dependents.

The District and the Association then entered into a “memorandum of understanding” that modified the District’s Health Insurance Plan. One of the key components of the new plan, and the focus of this litigation, was the creation of a “District-funded Health Reimbursement Arrangement" [HRA] providing for the payment of unreimbursed medical, dental, and other allowable expenses "permitted by the Internal Revenue Code."

The HRA provided for an annual contribution of $500 by the District for each employee in the negotiating unit to the individual’s HRA. It also featured a “rollover” permitting the HRA account to accumulate up to a $10,000 “maximum balance cap.” Upon retirement the plan provided for a one-time $3,000 HRA contribution. While a retiree could submit qualified medical expenses for reimbursement from his or her HRA fund, no additional contributions would be made to their HRA.

Contending that HRA with respect to retirees violated the mandates set out in Chapter 30 of the Laws of 2009,* Rockwell sued the District seeking a court order to compel the District to reimburse the retirees affected by the change for certain medical care expenses they had incurred as a result of the implementation of the HRA program.

The thrust of Rockwell's argument was that District's HRA contribution for retirees violated Chapter 30 insofar as it provided a different level of benefit for retirees than it did for active employees. Judge Sise disagreed.

The court said that HRA accounts only provide a means for active members to pay their unreimbursed medical and other qualified expenses and that the District’s contributions to an HRA account, or the possibility of underwriting the cost of insurance copayments from an HRA account, were not within the scope of, or in violation of, Chapter 30 as claimed by Rockwell.

Further, said the court, Rockwell failed to show that the retirees had sustained any diminution of health insurance benefits greater than those experienced by active employees as a result of the implementation of the HRA for both active employees and retirees of the District.

Indeed, said Judge Sise, the District demonstrated that “even considering the $500 annual HRA contribution … retirees are each still saving an average of $264.17 more per year [in health insurance costs] than each active employee” and dismissed Rockwell's petition.

* Chapter 30 of the Law of 2009 temporarily** extended the provisions of §1 of Chapter 566 of the Laws of 1967, which Chapter, in pertinent part, provided that BOCES and school districts could not diminish the health insurance benefits and employer contributions for such benefits provided to retirees “unless a corresponding diminution of benefits or contributions is effected from the present level … from the corresponding group of [active] employees….”

** N.B. Part B of §14 of Chapter 504 of the Laws of 2009 made this provision "permanent."

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