Arthur J. Gallagher & Co., an Itasca, Ill.-based international insurance brokerage and risk management services firm, has acquired Spokane-based VEBA Service Group LLC, a medical-benefit company.

The terms of the transaction weren't disclosed. Under the new ownership, the regional operation based here will do business as VEBA Service Group, a division of Gallagher Benefit Services Inc.

VEBA Service Group helps employers set up and maintain trusts for health-reimbursement accounts. Through such arrangements, an employer puts aside money in a trust for its employees to use to pay medical expenses that aren't covered by insurance or to pay health insurance premiums after they retire.

Founded 28 years ago, VEBA Service Group has specialized in serving government, higher education, and school district clients primarily in the Pacific Northwest. The company has 22 employees, 15 of whom work at its Spokane office at 906 W. Second, on the fourth floor of the Freeman Center.

In addition to the Spokane headquarters, the VEBA regional operation include offices in Kennewick, Sumner, and Vancouver, Wash. Longtime company principal Mark Wilkerson and all of VEBA's employees are expected to remain working at their respective offices, under the direction of Norbert Chung, a Gallagher Western Region executive vice president.

VEBA's expertise in health-reimbursement accounts made it attractive to add into Gallagher's services as an employee-benefits brokerage and consulting operation, Gallagher President and CEO J. Patrick Gallagher Jr. says in a press release.

Gallagher & Co., which is a publicly traded company with the New York Stock Exchange symbol AJG, has operations in 17 countries and offers services in more than 110 countries through a network of correspondent brokers and consultants.

Health reimbursement accounts, also known as health-reimbursement arrangements (HRAs), are initiated by the employer and typically serviced by a third-party administrator. VEBA provides expertise in establishing and maintaining such accounts, gathering its revenue from consulting fees, but it doesn't serve as a third-party administrator that handles claims. However, VEBA often remains involved in educating and enrolling employees, Wilkerson says.

"We help employers set up these plans," he adds. "We continue to maintain contact to answer questions as they arise."

Many of the trusts that VEBA Service Group has assisted in establishing serve multiple employers. For example, the VEBA Trust for Public Employees started in 1984 holds funds for all Washington state universities, community colleges, state agencies, and more than 280 school districts that have health-reimbursement arrangements.

It also helped establish a separate HRA VEBA Trust for Public Employees in 1990 serving public employees in Washington, Idaho, and Oregon.

These two multiple-employer benefit trusts serve more than 80,000 people in the Pacific Northwest, with more than $400 million in combined assets. The company has additional employer clients statewide, and it also works with employers in Oregon, Idaho, California, and Indiana.

VEBA stands for Voluntary Employees' Beneficiary Association, a term used to describe 501(c)9 tax-exempt status. The term health-reimbursement arrangement was coined by the Internal Revenue Service in 2002 when clarifying the rules governing such accounts.

Medical expenses for which money in those accounts can be used include insurance co-payments, prescription drugs, dental- or vision-care expenses, and insurance premiums for an employee or family members. HRAs are similar in benefit to health-savings accounts, but differ in that they are funded exclusively by an employer, rather than any sort of optional payroll deductions by employees.

Wilkerson's father, Russ, and a partner, Bill Laney, started VEBA Service Group in 1984 as a division of their insurance and investment company. Mark Wilkerson and Peter Laney, Bill Laney's son, eventually bought out their dads' shares in the company.

In 2006, Wilkerson bought Laney out.

"We'll continue to do business as usual and tap into the resources that Gallagher as a large national company can offer," Wilkerson says. "We'll continue to grow our services."