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Guidance - Improving Local Government Health Insurance Options


Local governments and municipal corporations are exploring ways to reduce employee health benefit costs.  This guidance seeks to explain the requirements for municipalities considering cooperative health risk sharing agreements (Muni Coops), and to clarify some misconceptions about the requirements.  The Department of Financial Services (DFS) is eager to work with municipalities considering a Muni Coop or looking for other avenues to address rising costs for employee health coverage.

Underlying Medical Costs: The Primary Culprit. Of course, the main driver of health insurance price increases is the rapidly escalating cost of underlying medical care.  Governor Cuomo has directed numerous initiatives to help lower health care cost increases by improving access to better quality care.  New York’s successful implementation of the Affordable Care Act (ACA) has added over one million newly insured, reducing the uninsured from approximately 10% to 5% of New Yorkers.  Another initiative, the State Health Innovation Plan (SHIP), is working to pay doctors, hospitals and other providers to keep patients healthy, rather than paying these providers a fee for each service which creates a financial incentive to provide more expensive care even if that care is not the best choice to keep patients most healthy.

In addition, Governor Cuomo passed a landmark initiative to help reduce drug costs through a Drug Utilization Review Board that sets a benchmark price for certain exorbitantly priced drugs.  And more.

Muni Coops as One Alternative.  Municipalities may consider using Muni Coops to help:  share the costs of self-funding employee health benefit plans; provide an alternative approach to stabilize health claim costs; lower per unit administration costs; and enhance negotiating power with health providers by spreading such costs among a larger pool of risks.

Muni Coops are health risk-sharing agreements that permit municipal corporations to combine to self-fund health benefits for their employees.  Many municipalities have considered forming a Muni Coop but have raised concerns that some of the statutory requirements to do so act as a barrier to that objective.  This guidance seeks to clarify some of the key statutory requirements in Article 47 which governs Muni Coops.

Forming a Muni Coop Under Article 47

Formation Requirements:  Article 47 specifies criteria for forming a Muni Coop, but DFS has flexibility:

However, there is language in the law that allows for flexibility with respect to the required reserve for claims and claims related expenses (reported but not yet paid, and incurred but not yet reported).  The statute grants DFS authority, if merited, to approve a lesser reserve for claims and claims related expenses if a qualified actuary for the Muni Coop can demonstrate, to the Superintendent’s satisfaction, that a lesser amount will be adequate.

The law provides for flexibility here as well.  DFS has the authority to waive the requirement for stop-loss insurance, in whole or in part, or modify the maximum retention amounts or attachment points for stop-loss insurance if the Muni Coop can make a satisfactory case for doing so.  DFS actuaries review any request for a stop-loss waiver.  While this may be difficult to establish for a new Muni Coop, it can be used after formation and the Muni Coop has sufficient claims experience.

Governance & Union Representation:  Article 47 requires some union representation on the governing board.  Insurance Law § 4705(a)(8) provides that the Muni Coop agreement:

establish a governing board to be responsible for the management, control and administration of the municipal cooperative health benefit plan, provided any Muni Coop agreement to establish such a plan which is entered into after the effective date of this article, shall provide that unions which are the exclusive collective bargaining representatives of employees who are covered by such health benefit plan shall be entitled to representation on such governing board.

The actual amount of union representation on the governing board is negotiated by the respective municipal corporations and the unions during the cooperative formation process.

DFS Report on Muni Coops:  DFS has posted a 2011 report on the Department’s website entitled “Municipal Cooperative Health Benefit Plans - Impact of Claim Reserve Requirements.”  This report may be helpful for municipal corporations investigating whether to form a cooperative.  The report may be found at the following link:

Alternative to Forming a Muni Coop Under Article 47

Permissible Groups: DFS also reminds municipal corporations that group health insurance coverage is still an alternative to participating in a Muni Coop under Article 47 of the Insurance Law.  A municipal corporation could consider purchasing group accident and health insurance policy either directly or as a participant in a trust arrangement.

Updated 02/13/2018

Department of Financial Services


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