Board of Directors and Reasonable Health Insurance
NCUA is somewhat ambiguous of what it considers reasonable health insurance and has addressed this issue on a case-by-case basis. Along the way, NCUA has issued several NCUA Legal Opinion Letters that may provide some clues into what NCUA may consider appropriate health insurance coverage. A credit union finds its authority to provide health insurance to its board of directors in section 701.33(b)(2)(ii). Section 701.33(b)(2)(ii) allows a credit union to provide
…reasonable health, accident and related types of personal insurance protection, supplied for officials at the expense of the credit union: Provided, that such insurance protection must exclude life insurance; must be limited to areas of risk, including accidental death and dismemberment, to which the official is exposed by reason of carrying out the duties or responsibilities of the official's credit union position; must cease immediately upon the insured person's leaving office, without providing residual benefits other than from pending claims, if any; except that a credit union must comply with federal and state laws providing departing officials the right to maintain health insurance coverage at their own expense.
Emphasis Added.
However, the question that looms is what is considered reasonable health insurance. In NCUA Opinion Letter 94-0435, NCUA addresses the “reasonable” question. The 94-0435 Letter finds health insurance is reasonable so long as its “reasonable in coverage and ceases immediately upon the insured person’s leaving office.” The same letter offers several instances where NCUA has found a credit union has provided reasonable health insurance in the past.
Few legal opinions have been issued regarding permissible insurance benefits for FCU officials. See Letter from E.F. Callahan, NCUA Chairman, to James C. Barr, Executive Vice President and Director, Credit Union National Association, Inc., dated July 29, 1982 (permitting "24 hour" accident insurance coverage) (the "1982 Letter," attached); Letter from Steven R. Bisker, NCUA Assistant General Counsel, to Larry T. Wilson, President/CEO, IBM Coastal Employees FCU, dated May 11, 1987 (permitting personal liability insurance coverage)(attached); and Letter from Hattie M. Ulan, NCUA Assistant General Counsel, to Steven Davidson, Regional Manager, DBS Agency, Inc., Re: Accidental Death and Dismemberment Insurance for FCU Directors and Committee Members, dated October 13, 1989 (permitting accidental death and dismemberment insurance coverage) (attached). As a whole, these opinions do indicate that an FCU can purchase reasonable insurance policies for FCU officials for risks reasonably covered by such policies
While NCUA provides some context to what may be considered reasonable in Letter 94-0435, NCUA Legal Opinion Letter 94-0902 maintains “[t]he…provision [of health insurance] is reasonable [based on] all the facts and circumstances of a particular case by the board of an [federal credit union], with the direction, oversight, involvement, and supervision of the appropriate [NCUA] Region.” Ultimately, the determination of what is considered reasonable and what type of insurance a credit union may offer is likely left to a risk-based assessment made by a credit union using the guidance NCUA has provided through its legal opinion letters and conversations with NCUA regional offices.
On the other hand, the coverage of some health-related costs by a federal credit union may be considered impermissible. For example, NCUA considers any reimbursed out-of-pocket medical expenses which fall outside of the offered insurance as prohibited compensation. The reimbursement of out-of-pocket medical expenses runs counter to section 701.33(b)(1) that provides a federal credit union may only compensate one board officer. NCUA showed concern relating to this issue in NCUA Legal Opinion Letter 02-1203 that discussed whether federal credit unions may cover uninsured medical expenses, co-payments, and deductibles. NCUA found section 701.33(b)(2)(ii) allows federal credit unions to provide insurance, but the reimbursement of any out-of-pocket or uninsured medical expenses is considered prohibited compensation because these reimbursements fall outside the provision of insurance.
The adoption of insurance plans with comprehensive coverage may eliminate the need for the reimbursement of out-of-pocket expenses so long as the insurance is reasonable and within the bounds of safety and soundness. For example, NCUA Legal Opinion Letter 06-0932 found it reasonable and permitted the inclusion of disease management insurance in comprehensive insurance coverage. NCUA Legal Opinion Letter 02-1203 found a federal credit union “may adopt an insurance plan with comprehensive coverage that limits or eliminates expenses for co-payments, deductibles, eyeglasses, or dental care, as long as it is reasonable and within the bounds of safety and soundness.” Once again, a credit union will likely have to make a risk-based assessment to determine what is considered reasonably “comprehensive.”
Federal credit unions will likely have to make a risk-based decision on what type of insurance may be considered reasonable based on the specific factual circumstance, the reasonableness of coverage and amount, the credit union’s own safety and soundness, and the specific NCUA guidance, while also ensuring health-related costs covered by the credit union do not amount to the prohibited compensation of a board member. While guidance does exist that may provide some clarity to what is considered reasonable, a credit union may still want to consult with the credit union’s NCUA Regional office to determine whether the specificity of the credit union’s plan meets NCUA’s framework.
In addition, a member of NAFCU’s Regulatory Compliance team wrote an earlier compliance blog on additional expenses that may be reimbursed.
If there are any additional questions, please feel free to contact NAFCU’s Regulatory Compliance team at compliance@nafcu.org.