Section 3A. A city, town, county, except Worcester county, or other subdivision of the commonwealth, when providing hospital, surgical, medical, dental and other health care coverage as authorized by this chapter, and subject to the adequacy of a claims trust fund as hereinafter described, may, in lieu of or in addition to entering into the insurance policies, agreements, or contracts described in this chapter, enter into an administrative services or other contract with one or more insurance companies, nonprofit hospital, medical or dental service corporations organized under chapter one hundred and seventy-six A, chapter one hundred and seventy-six B, or chapter one hundred and seventy-six E, or with one or more health care organizations, or with one or more third-party administrators or other entities to organize, arrange, or provide for the delivery or payment of health care coverage or services, whereby the funds for the payment of claims of eligible persons, including appropriate service charges of the insurance carrier, third party administrator or other intermediary, shall be furnished by the respective subdivision from the claims trust fund for the payment by such intermediary to the health care vendors or persons entitled to such payment in accordance with the terms and provisions of said contract. Subject to the adequacy of a claims trust fund, as hereinafter described, a city, town, county, except Worcester county, or other subdivision of the commonwealth may itself provide all or a portion of the administrative services authorized by this section without contracting with an insurance company, third party administrator or other intermediary for such services. If deemed by the city, town, county, except Worcester county, or other subdivision to be in the best interests of the subdivision and its active and retired employees and their eligible dependents, the respective subdivision may enter into such service type contracts for a period not to exceed five years.

Funds made available by appropriations by the city, town, county except Worcester county, or other subdivision of the commonwealth for purposes of this chapter on the basis of the contributory share of the subdivision as set forth and applicable therein shall, upon authorization by the subdivision, be transferred from said appropriation account by the treasurer and shall be deposited from time to time by the treasurer in a separate fund to be known as the claims trust fund. Notwithstanding the provisions of section fifty-five of chapter forty-four, the treasurer shall be the custodian of said fund and may deposit the proceeds in national banks or invest the proceeds by deposit in savings banks, cooperative banks or trust companies organized under the laws of the commonwealth, or invest the same in such securities as are legal for the investment of funds of savings banks under the laws of the commonwealth or in federal savings and loan associations situated in the commonwealth. Any interest or return of premium or claims advance, excluding dividends applicable to section eight or eight A, shall be added to and become part of the fund. The treasurer shall invest and reinvest as aforesaid such funds to the extent not required for current disbursement as determined by the subdivision. Any interest liability incurred as the result of processing a tax anticipation loan authorized by section four of chapter forty-four, and directly related to the establishment or the continuance of the aforesaid claims trust fund, shall be chargeable to said fund. The treasurer shall take measures that will assure a sufficient balance at all times in said fund to make prompt payment for incurred and unpaid claims and other related liabilities. The subdivision insofar as practicable shall prepare annually or sooner a schedule for the treasurer which shall be an estimate of the amounts of anticipated monthly disbursements to be made from said fund and shall as frequently as necessary authorize disbursements therefrom in accordance with the terms and conditions of the contracts authorized by this section.

Where an annual or earlier accounting of administrative service charges, claims paid, and claims incurred and unpaid, under a contract authorized by this section to the subdivision, discloses that payment from the fund has resulted in the contributions of the subdivision and its employees and retirees toward a previously established total monthly premium or rate has been shared on a ratio inconsistent with the share of the contributions as provided from time to time by applicable sections of this chapter, the subdivision shall adjust future contributions toward the total monthly premium or rate to compensate for the inconsistency. Payment to the subdivision by the employees, retirees and surviving spouses of their contribution toward the total monthly premium or rate shall be to the extent and manner as required in the applicable sections of this chapter.

Any city, town, county, or other political subdivision of the commonwealth maintaining a claim trust fund under this section shall cause an audit of that fund to be made annually. The audit shall determine whether the accounting for the fund is in accordance with generally accepted accounting principles, including accrual for claims that have been incurred but not paid as of the conclusion of the fiscal year. The audit may be performed as part of the annual audit of the city, town, county, or other political subdivision. The amount of any deficit in a claims trust fund, if not otherwise provided for, shall be raised in the next fiscal year's tax rate for a city or town, or be provided in the next fiscal year's budget for any other political subdivision and credited to the claims trust fund. Nothing in this paragraph shall eliminate the requirement of the preceding paragraph with respect to adjusting the future ratio of monthly premium contributions of the subdivision and its employees and retirees to achieve a previously established ratio or ratios of monthly premium contributions.