Honorable Lorraine M. Aronson
Department of Income Maintenance
110 Bartholomew Avenue
Hartford, Connecticut 06106
Dear Commissioner Aronson:
You have requested the opinion of the Attorney General as to whether the Department of Income Maintenance is authorized to enter into contractual arrangements with insurance companies in connection with a demonstration program to be jointly administered by the Department of Income Maintenance and the Insurance Department. Specifically, under the proposed contract, Income Maintenance would advise insurance companies whether payments to insured persons under insurance policies qualify for “asset exclusions” under the program. Income Maintenance would receive a contractual payment from the insurance companies for providing the contracted service. It is the opinion of the Attorney General that the Department of Income Maintenance is authorized to enter into such contractual arrangements provided that the regulations governing the program recognize the availability of a mechanism for obtaining such determinations.
By way of background, 1989 Conn. Pub. Acts 89-352 authorizes a pilot program entitled “Connecticut Partnership for Long Term Care” whereby individuals may purchase long-term care insurance policies from private insurers that have been “precertified” by the Insurance Department and obtain “exclusions” from the asset limits that are otherwise applicable to eligibility for assistance under the Medicaid program to the extent that payments under the insurance policies meet specified requirements for long-term care benefits. If an individual is granted exclusions under the program, assets belonging to the individual in an amount equal to the dollar amount of the exclusions will not be counted in determining his or her eligibility for Medicaid. The purpose of the program is to encourage individuals to purchase long-term care insurance by offering the incentive of allowing Medicaid eligibility to be established without requiring the applicant to “spend-down” his or her resources to poverty levels.
The Insurance Department in accordance with section 3 of the Act, has proposed regulations governing the participation of insurance companies in the program, which proposed regulations were noticed in the Connecticut Law Journal on January 2, 1990. Under the proposed regulations, private insurers that participate in the program must maintain records, that are subject to audit, documenting the extent to which payments under precertified policies qualify for asset exclusions. Income Maintenance will rely on the reports of the insurance companies in determining Medicaid eligibility and will grant Medicaid eligibility to individuals, who would otherwise be ineligible for assistance, based upon reports submitted by participating private insurers that payments were made under precertified insurance policies that qualify for exclusions.
Under the Insurance Department’s proposed regulations, private insurers would be strictly liable for any of their determinations that result in Medicaid eligibility to be granted erroneously. This liability would attach after assistance is granted by Income Maintenance, in reliance upon the erroneous determinations made by insurers when the error is discovered through an audit. Specifically, proposed regulation Section 38-174x-11(k)(3) provides, as a condition of insurance company participation in the program, that:
If an insurer prepares a Service Summary which is used in a Medicaid application for a policyholder, and the client is found eligibile for Medicaid, and the policyholder after receiving Medicaid services is found to be ineligibile for Medicaid solely by reason of errors in the insurer’s Service Summary or documentation of services, the Department of Income Maintenance may require the insurer to pay for services counting towards asset protection required by the policyholder until the insurer has paid an amount equal to the amount of the insurer’s errors; after which the policyholder, if otherwise eligibile, shall qualify for Medicaid coverage.
You have informed us that the purpose of the proposed contractual arrangement is to create a mechanism by which participating insurance companies could avoid the potential adverse fiscal impact of errors to which they are exposed under the foregoing proposed regulations. Under the proposed contractual arrangement, insurance companies could request a determination from the Department of Income Maintenance as to whether a payment under a precertified policy qualifies for an exclusion under the program before the payment is made. In return for a contractual fee, Income Maintenance would agree to make such determinations and would further agree that any determination made by Income Maintenance under the terms of the contract would be binding upon Income Maintenance. The determination could not be subsequently challenged in audit, provided that required documentation was submitted to Income Maintenance at the time of the contractual determination.
This option is permissible under the proposed regulations. Specifically, pursuant to Section 38-174x-11(1) of the regulations as proposed by the Insurance Department in the Connecticut Law Journal, January 2, 1990 notice, insurance companies could obtain contemporaneous determinations, as of right, from the Department of Income Maintenance. These determinations would not be subject to further review in audit provided that specified documentation was properly submitted by the insurer to Income Maintenance at the time of its determination.
It is our understanding that this section of the proposed regulation, as noticed in the Connecticut Law Journal, has been substantially re-written as a result of comments submitted by Income Maintenance to the effect that it is inappropriate for the Insurance Department to bind another state agency (Income Maintenance) to provide a service that necessarily involves the expenditure of funds for staff costs. Income Maintenance suggested that the proposed regulations be amended. It proposes the regulation provide that binding, up-front determinations be available if voluntary, contractual arrangements for the provision of such determinations have been made between Income Maintenance and the insurer, or representatives of participating insurance companies, under which a fee would be paid to Income Maintenance for the determination based on a contract.
It is our understanding that the Insurance Department has not yet formally responded to public comments or proceeded with submission of the proposed regulations to the Attorney General for review for legal sufficiency. Conn. Gen. Stat. e 4-168, e 4-170. However, re-numbered Section 38-174x-10(k)(3) of the most recent re-draft of the proposed regulations that has been provided to us, dated April 10, 1990, responds to the concerns raised by Income Maintenance. Exhibit A, attached. It provides that the availability of binding, “up-front” determination from Income Maintenance is dependent upon Income Maintenance entering into voluntary arrangements with insurance companies to provide such determinations. Therefore, any concern that we might have as a result of one agency binding another agency, absent specific authority, has been addressed by this amendment to the proposed regulations. The draft regulation specifies the requirements necessary to result in binding determinations by Income Maintenance. Essentially, the advice of the Attorney General has been requested on whether Income Maintenance is authorized to enter into such contractual arrangements with insurers, assuming the adoption of regulations consistent with the most recent draft proposal, as outlined above.
Our first concern with the proposed contractual arrangement arises from the fact that, under the terms of the proposed contract, the Department of Income Maintenance would provide a service on behalf of insurance companies and would receive a contractual fee in return for the service. Typically, a state agency enters into contractual arrangements in order to obtain the assistance of the private sector in carrying out a governmental function–for which service the agency agrees to pay a contracted fee. The proposed contractual arrangement with the insurance industry, under which Income Maintenance would provide a service and receive a contractual fee in return, is unusual and necessitates a review of the authority of the agency to enter into such arrangements.
The basic authority of agencies to contract stems from Conn. Gen. Stat. e 4-8 which provides, in part, that, “each department head may enter into such contractual arrangements, in accordance with established procedures, as may be necessary for the discharge of his duties.” The proposed contractual arrangements are in connection with the Connecticut Partnership for Long Term Care, which Income Maintenance is authorized to administer pursuant to 1989 Conn. Pub. Acts, 89-352. Furthermore, you have determined that such contractual arrangements are necessary, at least under the terms of proposed regulations, in order to enroll insurance companies in the program. Accordingly, it is the opinion of the Attorney General that you are authorized to execute the proposed contracts, in accordance with established state procedures, since the proposed contract relates to, and is necessary for, the discharge of your statutory responsibilities. Conn. Gen. Stat. e 4-8; 1989 Conn. Pub. Acts, 89-352.
The fact that Income Maintenance would be providing a service, and receiving a fee in return, does not alter our opinion that you are authorized to enter into the proposed contract(s) which have been determined to be necessary to the discharge of your duties. The fact that money is paid to Income Maintenance under the terms of the proposed contractual arrangement does not affect your authority to enter into contractual arrangements that are determined to be necessary to the discharge of your duties. Conn. Gen. Stat. e 4-8.
This opinion is supported by the balance of the text of Conn. Gen. Stat. e 4-8 which provides, in pertinent part, that “(s)ubject to the provisions of section 4-32, and unless otherwise provided by law, each department head is authorized to receive any money, revenue or services from the federal government, corporations, associations or individuals, including payments from the sale of printed matter or any other material or services.” The foregoing language clearly contemplates that state agencies, acting by and through agency heads, are authorized to receive payment from the sale of services that are necessary to the discharge of the agency’s statutory responsibilities.
A second issue that arises from the proposed contractual arrangement is whether the contract is inconsistent with the requirements of state law. As noted supra, the proposed regulations of the Insurance Department, as noticed in the Law Journal, would hold insurers strictly liable for errors which result in Medicaid eligibility being granted erroneously.
An agency may not enter into contratual arrangements which are contrary to state law. Stratford v. Loral 134, IFPTE, 201 Conn. 577, 590 (1986); Muschany v. United States, 324 U.S. 49, 64-68, 65 S. Ct. 442 (1945); 17 Am. Jur. 2d, Contracts, e 216; 81 C.J.S. States, e 156; 1985 Conn. Op. Atty. Gen. 13 (1985). Accordingly, Income Maintenance may not, by contract, waive the liability of insurers for erroneous determinations that is imposed by a regulation, assuming its adoption. State v. Metrusky, 140 Conn. 26, 30 (1953) (The Commissioner of Welfare had no authority to waive an obligation so imposed by law); Elida v. Harmon Realty Corporation, 177 Conn. 218, 224 (1979)(” … no obligation of a contract can extend to the defeat of legitimate government authority”).
Any inconsistency with state law is avoided, however, if the regulations governing the program recognize the availability of a contractual procedure whereby insurance companies can obtain binding rulings from Income Maintenance prior to audit. In that case, the binding determination is part of the statutory program, administered in accordance with duly promulgated regulations. Furthermore, regulations governing the program could lawfully limit the availability of a binding determination to situations where a fee prescribed in the regulations is paid by the insurer, or to situations where voluntary contractual arrangements are made with Income Maintenance for the provision of such determinations.
The April 10, 1990 draft of the proposed regulations, Exhibit A, includes a revised proposed section 38-174x-10(k)(3) which provides that, “The Commissioner of Income may enter into voluntary arrangements with offerors of precertified long term care insurance policies under which the Commissioner would issue binding determinations as to whether or not services qualify for asset protection.” The proposed regulation proceeds to indicate that, “[w]hen the procedures described below are followed in all material respects (in accordance with voluntary arrangements), the written determinations of the Commissioner of Income Maintenance’s designee concerning whether services qualify for asset protection shall be binding upon the Department of Income Maintenance in all subsequent actions….” We have suggestions to clarify the language of the proposed regulations which will be provided by separate cover; however, the inclusion of a provision in the regulations governing the program that is generally consistent with the re-drafted proposed section 38-174x-10(k)(3) is sufficient to authorize Income Maintenance to enter into the proposed contractual arrangements.
Accordingly, it is the opinion of the Attorney General that you are authorized to enter into contractual arrangements with insurers on behalf of the Department of Income Maintenance providing for binding determinations, prior to audit, as to whether payments under long-term care insurance policies qualify for asset protection under the “Connecticut Partnership for Long Term Care” provided that the regulations governing the program recognize the availability of a mechanism for obtaining such determinations.
If the regulations governing the program do not recognize the availability of the procedure for obtaining binding determinations, it is the opinion of the Attorney General that you are not authorized to enter into such contractual arrangements on behalf of Income Maintenance since the contracts would be inconsistent with the terms of the regulations that are proposed to govern the program.
Very truly yours,
CLARINE NARDI RIDDLE
Assistant Attorney General