New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on April 20, 2001, representing the position of the New York State Insurance Department.

RE: Health Benefit Continuation Requirements for a Church Plan

Question Presented:

Is a church plan that pays for health claims of its employees or their beneficiaries from church funds, and which uses an insurer to administer its group health plan, subject to the health benefit continuation requirements contained in N.Y. Ins. Law §§ 3221(m) and 4305(e) (McKinney 2000)?

Conclusion:

A church plan that pays for health claims of its employees or their beneficiaries from church funds, and which uses an insurer to administer its group health plan, is not subject to the N.Y. Ins. Law §§ 3221(m) and 4305(e) (McKinney 2000) health benefit continuation requirements provided that the covered employees do not make contributions to the plan pursuant to N.Y. Ins. Law § 1108(e) (McKinney 2000).

Facts:

The term "church plan" is defined in 29 U.S.C.A. § 1002(33)(A) and (C) (West 1999), in pertinent part, as:

(A)…a plan established and maintained (to the extent required in clause (ii) of subparagraph (B) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1986.

(C) For purposes of this paragraph –

(i) A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

N.Y. Ins. Law § 3221(m) (McKinney 2000) states, in relevant part:

A group policy providing hospital, surgical or medical expense insurance for other than accident only shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his hospital, surgical or medical expense insurance for himself or herself and his or her eligible dependents, subject to all of the group policy’s terms and conditions applicable to those forms of benefits…

N.Y. Ins. Law §4305(e) (McKinney 2000) states, in relevant part:

In addition to the conversion privilege afforded by subsection (d) of this section, a group contract issued by a hospital service, health service or medical expense indemnity corporation shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his insurance for himself or herself and his or her eligible dependents, subject to all of the group contract’s terms and conditions applicable to those forms of benefits…

XYZ Law Firm ("XYZ") states that it represents a group health plan that is exempt from the COBRA health benefit continuation requirements because it is considered a church plan under section 3(33) of ERISA. ERISA is the acronym for the federal Employee Retirement Income Security Act of 1974, which is codified at 29 U.S.C. § 1001, et seq. ERISA sets minimum standards regarding the establishment and maintenance of private sector employee benefit plans. COBRA is the acronym for the federal Consolidated Omnibus Budget Reconciliation Act of 1985. The health care continuation requirements under COBRA are contained within ERISA, and are codified in Part 6 of Title I of ERISA. See also 29 U.S.C. § 1161, et seq. In general terms, under COBRA a health care plan participant that has lost coverage due to a "triggering event" (i.e., termination of employment) has the right to maintain coverage for a statutorily defined period, at his or her own expense, at the group rate charged the employer.

XYZ further states that the church plan is exempt from the N.Y. Ins. Law §§ 3221(m) and 4305(e) (McKinney 2000) health benefit continuation requirements because it is a "self-insured plan." By the term "self-insured" XYZ means that the health plan claims are paid directly from church funds and not by a commercial insurer. (Although XYZ refers to the health plan as being "self-insured", the sponsor of the plan is not insuring its own risks but is insuring the risks of its employees; hence, it is an insurer, and is not "self-insured".)

XYZ also notes that a licensed insurer administers the plan and that the church plan essentially "rents" the insurer’s network of providers.

Analysis:

Generally speaking, a self-insured employer’s health plan is subject to ERISA and not the New York Insurance Law. 29 U.S.C.A. § 1144(a) and (b)(2)(B) (West 1999) state, in relevant part, that:

(a) …the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title…

(b)(2)(B) Neither an employee benefit plan described in section 1003(a) of this title, which is not exempt under section 1003(b) of this title…nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer…or to be engaged in the business of insurance…for purposes of any law of any State purporting to regulate insurance companies, insurance contracts…

29 U.S.C.A. § 1003(a) (West 1999) states:

(a) Except as provided in subsection (b) of this section and in sections 1051, 1081, and 1101 of this title, this subchapter shall apply to any employee benefit plan if it is established or maintained

(1) by any employer engaged in commerce or in any industry affecting commerce; or

(2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or

(3) by both.

However, an employer’s plan that is defined as a church plan is exempt under ERISA, and is subject to the New York Insurance Law. 29 U.S.C.A. §§ 1003(b)(2) and 1144(b)(2)(A) (West 1999) state:

§ 1003

(b) The provisions of this subchapter shall not apply to any employee benefit plan if --

(2) such plan is a church plan (as defined in section 1002(33) of this title) with respect to which no election has been made under section 410(d) of Title 26;

§ 1144(b)(2)(A)

Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

As earlier noted, 29 U.S.C.A. § 1144(b)(2)(B) states (in relevant part and with emphasis added) that:

Neither an employee benefit plan described in section 1003(a) of this title, which is not exempt under section 1003(b) of this title…shall be deemed to be an insurance company or other insurer…or to be engaged in the business of insurance…for purposes of any law of any State purporting to regulate insurance companies, insurance contracts…"

Thus, an employee benefit plan described in section 1003(b), such as a church plan, is deemed to be an insurance company, an insurer, or engaging in the business of insurance for purposes of the New York Insurance Law.

In XYZ’s inquiry it made reference to PL 106-244, which has been codified at 29 U.S.C.S. § 1144a (Law. Coop. 2001), seemingly to support its contention that a church plan that pays for health claims directly from church funds is exempt from the health benefit continuation requirements of the New York Insurance Law; however, it does the contrary:

(d) Enforcement Authority. Notwithstanding any other provision of this section, for purposes of enforcing provisions of State insurance laws that apply to a church plan that is a welfare plan, the church plan shall be subject to State enforcement as if the church plan were an insurer licensed by the State.

Thus, 29 U.S.C.S. § 1144a does not divest New York of its jurisdiction over church plans with respect to the N.Y. Ins. Law §§ 3221(m) and 4305(e) (McKinney 2000) health benefit continuation requirements.

A church plan that pays health claims directly from church funds is generally prohibited from using an insurer to administer its plan. N.Y. Ins. Law §§ 3231(h)(1) and 4317(e)(1) (McKinney 2000) provide the following identical wording:

Notwithstanding any other provision of this chapter, no insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of small groups, which, if they purchased insurance, would be subject to this section. No insurer, subsidiary of an insurer or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to small groups which, if they purchased insurance, would be subject to this section.

Association groups are prohibited in like manner pursuant to N.Y. Ins. Law §§ 3231(g) and 4317(d) (McKinney 2000). Additionally, N.Y. Comp. Codes R. & Regs. tit. 11, § 360.9 (2000), which refers specifically to the purchase of hospital or medical/surgical insurance coverage, supports the prohibition against using an insurer to administer a self-insurer’s plan.

However, a church plan that does not require contributions to be made by covered employees is exempt from the New York Insurance Law, including N.Y. Ins. Law §§ 3231(h)(1) and 4317(e)(1) (McKinney 2000), pursuant to N.Y. Ins. Law § 1108(e) (McKinney 2000), which states:

Any corporation, organized under the laws of any state, solely to provide gratuitously for support or relief of the priests, clergy or ministers of any religious denomination, or their dependents, is exempt from all provisions of this chapter, except that any such corporation, created by special act of incorporation of this state, which by the provisions of such act is subject to the requirements of examination by, and making annual reports to, the superintendent, shall be subject to the provisions of article three of this chapter relating to examinations and statements or reports by insurers. (emphasis added.)

For further information you may contact attorney Sally Geisel at the New York City Office.