In Rev. Rul. 2014-15, 2014-22 I.R.B. 1, issued May 8, the IRS held that a certain arrangement in which employers fund their retiree health benefits through a wholly owned subsidiary was insurance and that the issuer qualified as an insurance company.
The facts involved a public company that maintained a single-employer voluntary employees' beneficiary association (VEBA) and made contributions to the VEBA to provide health benefits to retirees. The employees would file claims with the VEBA, which, in turn, contracted with a third-party insurer to pay that company premiums to reimburse the VEBA for satisfying the claims.
The third-party insurer attempted to manage the costs of the premiums by paying premiums to a subsidiary of the public company for reinsurance. Although the arrangement fundamentally was two single contracts involving entities controlled by the public company, the risks represented a wide array of retiree health claims, and the insurance company that paid the premiums was a third party. Regarding the subsidiary, the IRS ruled that there was risk-shifting and risk distribution, and that the subsidiary's arrangement with the third-party insurer was insurance. Accordingly, the subsidiary qualified as an insurance company.
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