Opinion 2004 - 8
INSURANCE -- Health Insurance
(reserve fund for)
GENERAL MUNICIPAL LAW §§6-n, 6-p; 92-a; MUNICIPAL HOME RULE LAW §10: A village may not establish a reserve fund for direct cash reimbursements by the village for health care benefits of its officers and employees.
This is in response to your inquiry concerning a village that provides health care benefits for its employees and their families through insurance coverage and, in addition thereto, reimburses employees for health care expenses not covered by insurance. You ask whether the village may establish a reserve fund to accumulate monies for the non-insured expenses.
Municipal corporations are authorized to provide a medical, surgical and hospital insurance plan for their officers and employees, and retired officers and employees, and their families pursuant to General Municipal Law, §92-a. The power to purchase insurance for health care benefits pursuant to General Municipal Law, §92-a has been held to imply the power to "self-insure" for that purpose (Rice v Cayuga-Onondaga Healthcare Plan, 190 AD2d 330, 599 NYS2d 344; 1982 Opns St Comp No. 82-197, p 250; see also General Municipal Law §92-a, applicable to a public corporation that "self-funds" medical, surgical and hospital benefits). Based on section 92-a, we have expressed the opinion that a municipal corporation may supplement medical insurance coverage by direct cash reimbursements for specified non-covered health care expenses (1982 Opns St Comp No. 82-74, p 90).
Neither section 92-a, however, nor any other statute, authorizes the establishment by an individual municipal corporation of a reserve fund for direct cash reimbursements to officers and employees for health care expenses (Opn No. 82-74, supra; 1980 Opns St Comp No. 80-487, unreported). Further, we have expressed the opinion that a village may not, by local law, provide for the establishment of a reserve not authorized by State statute (1996 Opns St Comp No. 96-4, p 7; 1980 Opns St Comp No. 80-710, p 195).
By contrast, we note that article 47 of the Insurance Law (§4701 et seq., added L 1994, ch 689) generally provides, among other things, for the regulation and certification by the State Superintendent of Insurance of "shared funding" municipal cooperative health benefit plans, established or maintained pursuant to a municipal cooperation agreement authorized by article 5-G of the General Municipal Law (see Insurance Law, §4702[d], [e]). Article 47 generally requires that at least five municipal corporations participate in the plan and that there be at least two thousand "covered employees" (Insurance Law §4704[a], ). Pursuant to Insurance Law §4706, the governing board of the cooperative health benefit plan is required to establish a reserve fund containing amounts necessary to satisfy contractual obligations and liabilities of the plan.
In addition, we note that General Municipal Law §6-n, which authorizes municipal corporations to establish "insurance reserve funds", does not provide authority for a reserve fund for self-funded health care benefits. Expenditures from the fund generally may be made for any loss, claim, action or judgment for which the municipal corporation is authorized or required to purchase or maintain insurance, "except those kinds of risks for which insurance is authorized pursuant to paragraph … three … of subsection (a) of section one thousand one hundred thirteen of the insurance law …" (General Municipal Law §6-n[a]). Section 1113(a)(3) of the Insurance Law relates to accident and health insurance.1
Accordingly, a village may not establish a reserve fund for direct cash reimbursements by the village for health care benefits of its officers and employees.
October 12, 2004
David J. O'Connor, Esq., Village
1 General Municipal Law §6-p also does not provide authority for the proposed reserve fund. Section 6-p authorizes the establishment of an "employee benefit accrued liability reserve fund" by municipal corporations for the payment of certain accrued "employee benefits" due an employee upon termination of service. "Employee benefits" is defined for this purpose to mean the authorized cash payment of the monetary value of accrued and accumulated but unused and unpaid sick leave, personal leave, holiday leave, vacation time, time allowances granted in lieu of overtime compensation and any other forms of payment for accrued but unliquidated time earned and payable upon termination of service (General Municipal Law §6-p[b]).