November 3, 1995
Ms. Evelyn B. Terry General Counsel The North Carolina Teachers’ and State Employees’ Comprehensive Major Medical Plan 4509 Creedmoor Road, Suite 102 Raleigh, North Carolina 27612
Re: Advisory Opinion to Evelyn B. Terry, General Counsel, the North Carolina Teachers’ and State Employees’ Comprehensive Major Medical Plan, from the Office of the Attorney General, Administrative Division, Service to State Agency Section, Concerning the Application of Certain Prohibitions Contained in N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d) to the Proposal to Include Supplemental Life Insurance, Accidental Death and Dismemberment Insurance, and Supplemental Disability Insurance in the Statewide Flexible Benefits Program Created by Executive Order No. 66.
Dear Ms. Terry:
We are writing in response to your letter of October 10, 1995, to Attorney General Michael F. Easley. In that letter, you noted that, pursuant to Executive Order No. 66, the State of North Carolina is currently in the process of establishing a Statewide Flexible Benefits Plan, to be known as "NC Flex," for State employees. You stated that Coopers and Lybrand, in their "Study of Flexible Benefits Plans for State Employees," questioned whether NC Flex could offer a medical spending account without violating the directives of N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d), which authorize NC Flex and which expressly exclude from coverage under the flexible benefits plan "those benefits provided to employees [and officers] under [Article 1A of Chapter 120 of the General Statutes, and] Articles 1, 3, and 6 of Chapter 135 of the General Statutes." [The provisions in brackets are contained in N.C. Gen. Stat. § 143-34.1(d) only.] You asked for an opinion as to whether Executive Order No. 66 overrides the provisions of N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d) such that inclusion of a medical spending account in NC Flex is allowable despite the prohibitions contained in these two statutes.
The quoted provisions of N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d) prohibit NC Flex from duplicating the benefits provided by the Legislative Retirement System of North Carolina, the Teachers’ and State Employees’ Retirement System of North Carolina, the Teachers’ and State Employees’ Comprehensive Major Medical Plan, and the Disability Income Plan of North Carolina. The reason for this prohibition is readily apparent: each of these plans is designed to provide basic benefits of uniform design to the employees covered by it. Moreover, participation in each of the plans is mandatory (except to the extent that N.C. Gen. Stat. § 135-39.5B allows for employees to enroll in an alternative prepaid hospital and medical benefit plan approved by the Executive Administrator and Board of Trustees of the Major Medical Plan in consultation with the Committee on Employee Hospital and Medical Benefits). Additionally, each of these plans is funded, in whole or in part, by employer contributions made by the State of North Carolina, through its various departments and agencies. It is certainly in the State’s best interest not to have optional employee benefit plans that duplicate or compete with the benefits offered by these plans. Nor is it in the best interests of employees to contribute to flexible compensation and benefit options that merely duplicate the benefits thEy already receive from the Statesponsored plans.
The question remains, then, whether the medical spending account that is planned for inclusion in NC Flex will duplicate the benefits offered by Chapter 135, Article 3, of the North Carolina General Statutes. In our opinion, it will not. As the medical spending account has been described by you, by Coopers and Lybrand, and, in a separate request for an opinion on this subject from Ronald G. Penny (Director of the Office of State Personnel), the medical spending account to be included in NC Flex will provide benefits over and above rather than duplicate those benefits provided under Chapter 135, Article 3, of the General Statutes. It will do this by filling in gaps in coverage and by reimbursing the employee for out-of-pocket expenses, including deductibles, coinsurance, and co-payments. Accordingly, inclusion of the a medical spending account in NC Flex will not, in our opinion, violate the prohibitions contained in N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d). This being so, Executive Order No. 66 does not override the provisions of N.C. Gen. Stat. §§ 116-17.2 and 143-34.1(d) by providing for a medical spending account, but rather is consistent with those statutes.
We would note also that our understanding of Cooper and Lybrand’s study is that their concern was not that the direct benefits offered by the medical spending account would duplicate medical benefits provided by Chapter 135, Article 1. Rather, it appears that their concern is that, in their opinion, N.C. Gen. Stat. § 135-40(c) and (d), which allow employee-paid premiums to be paid through payroll deduction on a pre-tax basis, may prohibit NC Flex from offering any other medical benefits on a pre-tax basis. We do not believe, however, that this is a correct interpretation of N.C. Gen. Stat. § 116-17.2 and 143-34.1(d) or of N.C. Gen. Stat. § 135-40(c) and (d). The prohibition against duplication of benefits contained in N.C. Gen. Stat. § 116-17.2 and 143-34.1(d) applies, we believe, only to the actual, direct benefits provided in the specified Articles. Payment of premiums through payroll deduction on a pre-tax basis is an incidental benefit allowed by N.C. Gen. Stat. § 135-40; it is not an actual, direct benefit provided by the Teachers’ and State Employees’ Comprehensive Major Medical Plan. Accordingly, we do not believe that N.C. Gen. Stat. § 116-17.2 and 143-34.1(d), when read in conjunction with N.C. Gen. Stat. § 135-40(c) and (d), in any way prevent NC Flex from providing a medical spending account on a payroll deduction, pre-tax basis.
We trust that this fully answers your questions on this matter. Please do not hesitate to contact us if we can be of any further assistance.
Ann Reed Senior Deputy Attorney General
Alexander McC. Peters
Special Deputy Attorney General