Request By:
Mr. James O. Martin
City Manager, City of Fulton
P.O. Box 305
Fulton, Kentucky 42041
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter stating that the cities of Fulton and Hickman and Fulton County are studying a self-insured health plan for their employes. They are interested in establishing a joint, self-insurance plan for the purpose of funding health benefits for their employes. You have presented four questions to this office for consideration, the first two of which are as follows:
"Can a city of the fourth class enter into a self insurance health plan?
Can the Fulton County Fiscal Court enter into such a plan?"
We direct your attention to KRS 79.080(2) which provides as follows:
" Cities of all classes, counties and urban-county governments and the agencies of cities, counties and urban-county governments are authorized to establish and operate plans for the payment of retirement, disability, health maintenance organization coverage or hospitalization benefits to their employes, and health maintenance organization coverage or hospitalization benefits to the immediate families of their employes. Such a plan may require employes to pay a percentage of their salaries into a fund from which coverage or benefits are paid, or the city, county, urban-county government or agency may pay out of its own funds the entire cost of the coverage or benefits. A plan may include a combination of contributions by employes and by the city, county, urban-county government or agency into a fund from which coverage or benefits are paid, or it may take any form desired by the city, county, urban-county government or agency. Each city, county, urban-county government or agency may make rules and regulations and do all other things necessary in the establishment and operation of such a plan. " (Emphasis supplied.)
In McQuillin Mun. Corp. (3rd Ed.), Vol. 3, § 12.173, the following appears:
"Although such a law may be held invalid if it is uncertain, an act empowering a municipality to contribute premiums on group life and hospital insurance policies of officers or employees who desire to take out the insurance is not unconstitutional as granting the municipality power to increase the compensation of public officers, servants or employees during their term of office or as an attempt to authorize the municipality to lend credit or grant public money in aid of individuals."
In Riddlestorffer v. Rahway, 82 N.J. Super. 36, 196 A.2d 550 (1963), the Court, in holding that the payment of medical benefit premiums by a city serves a public purpose and is not a donation of public money in violation of the New Jersey Constitution, also said at page 555 of its opinion:
"The trend of decisions in most jurisdictions where the payment of group insurance premiums has been contested is to uphold such expenditures as being for a public purpose and therefore constitutional, and not an attempt to lend credit or grant public money in aid of individuals."
We concluded in OAG 80-354, copy enclosed, that a city of the fourth class could, pursuant to KRS 79.080(2), provide its employes with a hospitalization plan. A city could not, however, extend the coverage of such a plan to include city officers as KRS 79.080(2) is limited to employes and the immediate families of those employes. See OAG 81-191 and OAG 79-20, copies enclosed. In OAG 81-188, copy enclosed, we said that a county could pay the costs of hospitalization insurance coverage for its employes but it is for the courts to determine whether paying such costs for the immediate families of county employes is an expenditure of public money for a public purpose.
Your third question is, "Can the three units of government cooperatively offer such a plan to their employees?"
The Interlocal Cooperation Act (KRS 65.210 to 65.300) provides in part that any powers, privileges or authority exercised or capable of being exercised by a city or county individually may be exercised and enjoyed jointly with other cities and counties. Since cities and counties have the authority under KRS 79.080(2) to establish and operate, individually, plans for the payment of hospitalization benefits, they may, under the authority of the Interlocal Cooperation Act, operate such plans jointly with other cities and counties. We are enclosing a copy of OAG 79-309 dealing with the Interlocal Cooperation Act. You should consult with the attorneys for the governmental entities involved in connection with the preparation of an agreement under the Act which must ultimately be approved by the Attorney General.
Your last question is as follows:
"Would there be any restraints or legal controls as to the benefits offered by the plan or incentives offered for performance? For example, could such a plan offer monetary incentives to the employees if the plan was financially successful?"
While KRS 79.080(2) provides in part that the plan may take any form desired by the city and county and necessary rules and regulations may be adopted in the establishment and operation of such a plan, there are limitations as to how and for what purposes governmental units may expend their funds. If by monetary incentives you are referring to payments of cash to the governmental employes, such a practice, in our opinion, would not be proper. The governmental units may pay the actual costs of the hospitalization insurance plan. If the program is successful, the benefits to the employes should be reflected in terms of lower rates or expanded coverage but not in terms of cash payments to employes.