OFFICES AND OFFICERS ‑- STATE AGENCIES ‑- INSURANCE ‑- HOSPITALIZATION AND MEDICAL AID CONTRACTS FOR PUBLIC EMPLOYEES AND CERTAIN ELECTED OFFICERS ‑- NECESSITY FOR EACH AGENCY TO BE POLICYHOLDER

OFFICES AND OFFICERS ‑- STATE AGENCIES ‑- INSURANCE ‑- HOSPITALIZATION AND MEDICAL AID CONTRACTS FOR PUBLIC EMPLOYEES AND CERTAIN ELECTED OFFICERS ‑- NECESSITY FOR EACH AGENCY TO BE POLICYHOLDER.

Under RCW 41.04.180, a state agency or political subdivision may provide hospitalization and medical aid for its employees and their dependents by means of payments pursuant to contract with a regularly constituted insurance carrier or health care service contractor of premiums payable on group hospitalization or medical aid insurance plans covering such employees without itself being the policyholder provided that (a) in the case of a state agency or school district, the payments do not exceed 50% of the total premium, or $5.00 per month per employee covered; and (b) comparable coverage under other plans is made available by the agency or political subdivision for such of its employees within the general class to be covered as are not enrolled in the particular group disability insurance program.

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                                                                   June 22, 1966

Honorable R. Ted Bottiger
State Representative, 28th District
868 South 113th Street
Tacoma, Washington

                                                                                                                Cite as:  AGO 65-66 No. 90

Dear Sir:

            By letter previously acknowledged you have requested an opinion of this office on a question which we paraphrase as follows:

            Does RCW 41.04.180 authorize a state agency or political subdivision to provide hospitalization and medical aid for its employees and their dependents by means of payments pursuant to contract with an insurance carrier of a portion of the premiums payable on group hospitalization or medical insurance plans covering such employees where the contracting state agency or political subdivision is not itself the policyholder?

            We answer your question in the affirmative subject to the qualifications set forth in our analysis.

             [[Orig. Op. Page 2]]

                                                                     ANALYSIS

            RCW 41.04.180 (§ 1, chapter 75, Laws of 1963, as amended by § 1, chapter 57, Laws of 1965) provides as follows:

            "Any department, division, or separate agency of the state government, and any county, municipality or other political subdivision of the state acting through its principal supervising official or governing body may, whenever funds shall be available for that purpose, provide for all or a part of hospitalization and medical aid for its employees and their dependents through contracts with regularly constituted insurance carriers or with health care service contractors as defined in chapter 48.44 RCW, for group hospitalization and medical aid policies or plans:  Provided, That any county may provide such hospitalization and medical aid to county elected officials and their dependents on the same basis as such hospitalization and medical aid is provided to other county employees and their dependents:  Provided further, That the contributions of any department, division or separate agency of the state government and school districts shall be limited to not to exceed fifty percent of any premium therefor, or five dollars per month per employee covered, whichever is less except that such limitation shall not apply to employees employed under chapter 47.64 RCW."

            The employer's contributions toward payment of insurance premiums under authority of this section are expressly declared by RCW 41.04.190 to be,

            ". . . additional compensation to the employees or elected county officials covered thereby for services rendered, . . ."

            Since its enactment in 1963, this legislation has been the subject of a considerable number of attorney general's opinions.  A brief resume of these prior opinions (copies enclosed) would seem helpful in answering your present inquiry.

             [[Orig. Op. Page 3]]

            First to be noted is AGO 63-64 No. 45, in which we concluded that the beneficial coverage of the legislation is available‑- in terms of employer participation in the payment of premiums ‑-only as to subordinate employees of state agencies or departments, or political subdivisions, and not as to the elected officials thereof.  In response to this conclusion, the legislature amended RCW 41.04.180,supra, by adding to it the proviso relative to county elected officials and their dependents‑-see, § 1, chapter 57, Laws of 1965,supra; cf. § 2, chapter 57, Laws of 1965.

            Accordingly, our conclusion in AGO 63-64 No. 45, supra, should, to this extent, now be regarded as modified.

            A short time after issuance of this opinion we advised, by letter dated June 26, 1964, that no legal obstacle exists to utilization of the authority granted by the subject statute to provide group hospitalization benefits for state civil service employees.  Next, in AGO 63-64 No. 122, we noted the distinction made in our state insurance code between group disability insurance (see RCW 48.21.010) and disability insurance under a franchise plan (see RCW 48.20.350).  We concluded that only the former type of coverage could be provided under authority of statute.  We said:

            ". . . Chapter 75, Laws of 1963, refers to group policies or plans.  As previously pointed out in this opinion the term 'group' as it is used in the insurance code, Title 48 RCW, describes a certain type of disability policy or plan that differs from any other policy or plan such as insurance issued under a franchise plan.  Accordingly, we conclude that the statute permits a state department or political subdivision, including a school district, to contract for and to make premium payments toward hospitalization and medical aid insurance for its employees only if such insurance is or has been issued as a group policy or plan."

            Then, in AGO 65-66 No. 1, we were asked several questions (specifically relating to school districts) which caused us to consider for the first time the possibility of simultaneous use by a given employer of more than one approach or plan in  [[Orig. Op. Page 4]] order to meet the divergent needs of various classes of its employees.  We concluded that such an approach is permissible so long as each plan meets all the requirements of the governing statute.  We further advised that an employer, under authority of the statute, may designate specific categories of its employees to be covered by group hospitalization or medical aid plans to the exclusion of other categories of employees, so long as the categories thus established by the employer are not arbitrary, capricious, or invidiously discriminatory.

            The reasoning of this last opinion, in turn, became the basis for AGO 65-66 No. 34, in which we opined that an employer may lawfully contribute toward premium payments for a group hospitalization or medical aid plan which is available only to those of its employees who reside in a certain geographical area, or who are members of a specific employee organization, but only if the employer also contracts for substantially equivalent coverage for the benefit of employees within the same category who are not geographically or by reason of employee organization membership qualified to participate in such conditional plans.

            In summary, then, it is to be seen that we have looked upon the subject statute, RCW 41.04.180,supra, as affording the various state agencies, departments, and political subdivisions a considerable degree of flexibility as to the particular approach each such public employer deems most appropriate to meet the needs and desires of its employees.  We have regarded this to be the true intent of the legislature, subject only to the following conditions:

            (1) The hospitalization or medical aid coverage must be afforded by insurance which is or has been issued as a group policy or plan, as defined in the insurance code‑-AGO 63-64 No. 122, supra; and

            (2) If coverage under a particular plan is available only to certain employees within a general class to be covered by reason of factors not bearing a reasonable relationship to their employment status or characteristics, then the employer must provide comparable coverage through alternative plans or approaches for the benefit of such excluded employees within the general class‑-AGO 65-66 No. 34, supra.

            With reference to the requirement that coverage must be afforded by insurance which is or has been issued as a group  [[Orig. Op. Page 5]] policy or plan, we find that the term "group disability insurance" is defined in our state insurance code, RCW 48.21.010, as follows:

            "Group disability insurance is that form of disability insurance provided by a master policy issued to an employer, to a trustee appointed by an employer or employers, or to an association of employers formed for purposes other than obtaining such insurance, covering, with or without their dependents, the employees, or specified categories of the employees, of such employers or their subsidiaries or affiliates, or issued to a labor union, or to an association of employees formed for purposes other than obtaining such insurance, covering, with or without their dependents, the members, or specified categories of the members, of the labor union or association, or issued pursuant to RCW 48.21.030.  Group disability insurance shall also include such other groups as qualify for group life insurance under the provisions of this code."

            Summarized, group disability insurance, as thus defined, consists of three elements:

            (1) a master disability insurance policy;

            (2) covering a group of employees;

            (3) which is issued to

                        (a) an employer, or

                        (b) a trustee appointed by employers, or

                        (c) an association of employers for purposes other than obtaining such insurance, or

                        (d) a labor union, or

                        (e) an association of employees formed for purposes other than obtaining such insurance.

             [[Orig. Op. Page 6]]

            The question you raise is whether a state agency or political subdivision may utilize RCW 41.04.180,supra, to provide hospitalization or medical aid for its employees and their dependents by means, among others, of a contractual arrangement with a group disability insurance carrier which has issued a master policy covering employees of the contracting agency where the master policy has been issued to a policyholder other than the contracting agency itself.

            In resolving this issue we should first take note of the fact that the evident purpose of the legislation in question is to authorize state departments and agencies, and political subdivisions, to provide for their employees a particular "fringe" benefit.  Thus, in this sense the legislation is analogous to that relating to public employees' pensions or providing for workmen's compensation.  Our court, like those of most other jurisdictions, has consistently held that such legislation should be liberally construed in order that its beneficial purposes may be reasonably served.  See,Benedict v. Board Police Etc. Comm., 35 Wn.2d 465, 214 P.2d 171 (1950);Peet v. Mills, 76 Wash. 437, 136 Pac. 685 (1913); 3 Sutherland, Statutory Construction, §§ 7206, 7209 and 7210; 3 McQuillin, Municipal Corporations, § 12.143 and cases cited therein.  The rationale underlying this rule of construction is explained in State ex rel. Clemens v. Kern, 215 Ind. 515, 20 N.E. 2d 514 (1939), with particular reference to a police pension act, as follows:

            "The beneficent purpose of the Police Pension Fund Act is apparent.  It is to improve the quality of the public service by holding out to those who adopt it as a career some assurance of a competency upon retirement because of age or disability, in the expectation that more competent persons will be attracted to such positions.  The act was no doubt conceived in the same spirit as other legislation which places police officers under merit or civil service regulations and removes their tenure from the vicissitudes incident to the frequent changing of elective officers.  This court has accordingly held that the law is entitled to a liberal construction in favor of those intended to be benefited thereby. . . ."

            Application of this rule of liberal construction means that wemay not take a narrow or restrictive view of the means by which the  [[Orig. Op. Page 7]] beneficial purposes of RCW 41.04.180,supra, are to be accomplished unless the express language of the statute can be said to leave us no other alternative.  Most certainly, a view of the statute as sanctioning employer participation in the payment of group hospitalization or medical aid premiums only when the particular state department or agency, or political subdivision is itself the policyholder of the master policy in question would be narrow and restrictive in so far as the employees to be benefited are concerned.  Moreover, we might add that this would also be a rather restrictive view from the standpoint of the state and its political subdivisions.  Clearly such a view would prevent the negotiation and acquisition of a group policy by one state agency, such as our state department of general administration, in which participation could then be made available to other state agencies or departments for the benefit of their own employees.  This narrow view would, in short, require each separate department or agency of state government, and each political subdivision, to separately and independently acquire its own master policies of group disability insurance‑- obviously imposing an administrative burden upon the various employers as well as curtailing the beneficial alternatives which might be made available to their respective employees.

            We find nothing in RCW 41.04.180, supra, requiring such a narrow or restrictive view as to the authority of a contracting state agency or political subdivision.  Simply stated, we find nothing in the statute requiring the contracting state agency or political subdivision to be the policyholder of each of the group disability insurance policies (hospitalization and medical aid plans) the beneficial coverage of which the contracting agency determines to obtain and provide for such of its employees as it decides to compensate in this authorized manner.

            Unquestionably, the contributions paid by the state agency or political subdivision to the insurance carrier must be made pursuant to a contract‑-but, as we view it, not necessarily a formal insurance contract.1/

             [[Orig. Op. Page 8]]

            Furthermore, in the case of state agencies or school districts, the contributions can in no event exceed the limitation contained in so much of RCW 41.04.180,supra, as provides that:

            ". . . the contributions of any department, division or separate agency of the state government and school districts shall be limited to not to exceed fifty percent of any premium therefor, or five dollars per month per employee covered, . . ."

            In addition, the group insurance policy which is or has been issued by the carrier must provide coverage for those employees of the contracting agency for whose benefit the agency's contract is made.  Finally, the policy must have been issued by the "regularly constituted insurance carrier or health care service contractor" to one of the several legal policyholders enumerated in RCW 48.21.010, supra.

            However, if these qualifications are met; i.e., given the existence of a legal group insurance contract issued by an insurer to a legal policyholder and covering, among others, employees of the contracting employer, we can see no reason why the state department or agency, or political subdivision in question cannot contract with the insurer in regard to the manner of payment of premiums in such a way as to provide that part of the premiums paid by the department's or agency's employees shall actually be paid by the employer.  In accordance with the foregoing reasoning we would regard this to be correct irrespective of whether the master policy is held by a single state purchasing agency such as the state department of general administration, or by any other legal group policyholder.

            The one additional qualification to be noted and emphasized relates to the second pertinent condition derived from our prior opinions relative to the subject statute; namely, the requirement that if coverage under a particular plan is available only to certain employees within a general class to be covered by reason of factors not bearing a reasonable relationship to their employment status or characteristics, then the employer must provide comparable coverage through alternative plans or approaches for the benefit of such excluded employees within the general class.