It sounds to me like they're self funded. If that's the case, they can basically do whatever they want.
Many self funded companies/agencies contract insurance companies as TPA's (third party administrators). They're a pain in the butt to administer as the policies are written by the company but theyre gravy contracts as the insurance company has 0 risk - pay as told and get a check each month.
Sad part is people curse the insurance company not realizing they just pay the claims and not write the policies.
I use to audit the TPAs for Cigna many years ago. One of the better known private (not state supplemented) university hospitals here is self funded.
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