OAG 3-17

¶ 12.

The second question posed is whether the statutes allowing the Board to offer self-insured plans to municipalities would violate article VIII, section 3 of the Wisconsin Constitution. That section states, as relevant here: “the credit of the state shall never be given, or loaned, in aid of any individual, association or corporation.” Wis. Const. art. VIII, § 3.

¶ 13.

The Wisconsin Legislature “has plenary power except where forbidden to act by the Wisconsin Constitution.” Libertarian Party v. State, 199 Wis. 2d 790, 801, 546 N.W.2d 424 (1996). Statutes are presumed constitutional. Id.
When determining constitutionality, the Wisconsin Supreme Court is the final arbiter of the meaning of provisions in Wisconsin’s Constitution. State v. Beno,
116 Wis. 2d 122, 134–36, 341 N.W.2d 668 (1984).

¶ 14.

The Wisconsin Supreme Court has interpreted article VIII, section 3 on multiple occasions. The court has explained that “[t]his section prohibits the state from granting its credit in aid of a private business.” Libertarian Party,
199 Wis. 2d at 821. However, “this section says nothing about grants of cash or subsidies, or the provision of services.” Id. Thus, it does not prohibit programs such as “unemployment compensation, welfare, and tuition grants.” Id. at 822.

¶ 15.

The court has explained that “the only purpose of this provision is to prohibit the state from acting as a surety or guarantor of the collateral obligation of another party. It is the promise by the state as a guarantor to answer for the debt of another that is proscribed by the state constitution.” State ex rel. Thomson v. Giessel, 271 Wis. 15, 29, 72 N.W.2d 577 (1955). The section forbids creating an “enforceable legal obligation on the part of the state to pay the obligations of [corporations],” where, in the event of default, the State would be legally obligated “to pay all or any portion of the sums that are borrowed by the . . . corporations for use by those corporations.” Thomson, 271 Wis. at 31–32. Thus, the constitutional provision was violated where state funds were advanced to the national American Legion corporation as “security” for “performance of [a local American Legion corporation’s] obligation under a contract made between it” and the national entity. State ex rel. Am. Legion 1941 Convention Corp. of Milwaukee v. Smith, 235 Wis. 443, 461,
293 N.W. 161 (1940). Those concerns about extending the State’s credit to guarantee debts of a corporation are absent here.[7]

¶ 16.

Self-insurance offered to municipal employers thus would not violate article VIII, section 3 of the Wisconsin Constitution, as interpreted by the Wisconsin Supreme Court, because it does not extend “credit” in the sense that the State acts as a guarantor of a private entity’s debt. Rather, administering a self-insurance program for public employees, like other programs the State administers, is akin to the “provision of services” that does not implicate the constitutional provision.
See Libertarian Party, 199 Wis. 2d at 821.[8]

¶ 17.

That conclusion is especially appropriate because the group health plans are designed to be self-funded. The programs authorized by chapter 40 are funded through premiums from public employers and employees that, in turn, are used to pay for healthcare. The Board may either contract with an insurance company to provide that service or may offer a self-insured plan where it collects premiums and pays medical claims directly. In either case, the statutes contemplate that “[r]evenues collected for and balances in the accounts of a specific benefit plan shall be used only for the purposes of that benefit plan.” Wis. Stat. § 40.01(2). The statutes further provide for “[s]eparate group health . . . accounts” and that “any insurance benefit to be paid directly by the fund and reimbursements of 3rd parties for benefits paid on behalf of an insurance plan shall be charged to the corresponding account established for that benefit plan.” Wis. Stat. § 40.04(9). When “excess moneys” are collected, they may be used “to establish reserves to stabilize costs in subsequent years” and, if a deficit were to occur, it is eliminated by “increasing the premiums, contributions or other charges applicable to that benefit plan.” Wis. Stat. §§ 40.03(6)(e), 40.04(1).
In one model, payments are made to an insurance company that then pays claims and, in the other, claims are paid directly, but the underlying funding relationship with municipalities is, for present purposes, essentially the same. Both models are funded through premiums, and neither is the giving of State “credit” as the Wisconsin Supreme Court has interpreted the term.

¶ 18.

I conclude that, because the Board may offer any group health insurance plan on a self-insured basis, and municipalities are authorized to offer Board plans, a municipality may offer a self-insured plan if offered by the Board. Further, under the precedent, article VIII, section 3 of the Wisconsin Constitution poses no bar because offering self-insured plans does not extend the State’s “credit.”

Very truly yours,

            BRAD D. SCHIMEL

            Wisconsin Attorney General

BDS:ADR:mlk

1

http://www.etf.wi.gov/faq/gib_self_ins.htm#self-insurance (last visited Aug. 8, 2017).

2

The Legislature created Wis. Stat. § 40.03(6)(a) with 1981 Wis. Laws, ch. 96, § 24, and
Wis. Stat. § 40.51(7) with 1985 Wis. Act 29, § 741.

3

The provision governs procedures only for employers “other than the state,” as the preceding subsection governs plans offered by the State as an employer. Wis. Stat. § 40.51(6).

4

For the sake of brevity, this opinion refers to these employers as “municipal” employers.

5

Although the statutes do not prevent municipalities’ participation, the Department of Employee Trust Funds “may by rule establish different eligibility standards or contribution requirements for [municipal] employees and employers.” Wis. Stat. § 40.51(7)(a).

6

Wisconsin Stat. § 40.03(6)(L) states that the Board must notify the joint committee on finance that it intends to execute a contract for self-insurance plans for state employees, and provides that the committee may decide whether to authorize it. That section does not state a separate procedure if a municipal employer elects to offer self-insured plans under
Wis. Stat. § 40.51(7)(a). It may be that the Legislature only requires review of state employee self-insurance because of the State’s role as employer and its possible effect on State budgeting.

7

The analysis here is based on the understanding that, for purposes of the insurance plans, the State’s relationship with the municipal employees would mirror its relationship with State employees, in that the State would not be a third-party guarantor of an insurance program run by a municipality but rather would directly administer the plan.

8

The same 1987 Attorney General opinion discussed above states in passing that barring municipalities from self-insured plans “avoids the potential of creating an obligation on the part of the state to pay the debt of another, which is prohibited by article VIII, section 3 of the Wisconsin Constitution.” 76 Op. Att’y Gen. at 315. That assertion is unsupported by any reasoning or discussion of the Wisconsin Supreme Court precedent.