The Office of General Counsel issued the following opinion on April 25, 2001 representing the position of the New York State Insurance Department.
RE: Financial Statement Filings and Accounting Practices and Procedures, Prepaid Health Service Plans
1. Is a Prepaid Health Service Plan (PHSP) required to file Annual and Quarterly Statements with the Insurance Department?
2. Will the Insurance Department defer application of, N.Y. Comp. R. & Regs. Tit. 11, §83 et seq (2001) (Regulation 172), as it affects PHSPs, until filings covering the second quarter of 2001 are due?
1. No, all filings should continue to be made with the Department of Health. Such filings, however, in accordance with the desires of the Department of Health, must comply with the standards established in Regulation 172.
2. No, this Department does not have the authority to grant such a deferral.
The inquirer represents the New York State Coalition of PHSPs, which is composed of 14 health plans sponsored by public and not-for-profit hospitals and community health centers. The issue is whether the Regulation to codify Statutory Accounting Principles (SAP) for insurers, Regulation 172, first promulgated on December 29, 2000 and re-promulgated on March 21, 2001, both times on an emergency basis, is applicable to PHSPs.
The Commissioner of Health is authorized by New York Public Health Law §4403-a (McKinney 2001) to issue a Certificate of Authority to PHSPs and to establish standards applicable to their operation:
(1) The commissioner may issue a special purpose certificate of authority to a provider, applying on forms prescribed by the commissioner, seeking to offer a comprehensive health services plan on a prepaid contractual basis either directly, or through an arrangement, agreement or plan or combination thereof to an enrolled population, which is substantially composed of persons eligible to receive benefits under title XIX of the federal social security act or other public programs.
3. The commissioner shall not issue a special purpose certificate of authority unless the applicant has demonstrated to the commissioner's satisfaction that the requirements of this article and any regulations promulgated pursuant thereto have been met and will continue to be met, provided, however, that the commissioner may waive one or more of such requirements, or portions thereof, pertaining to financial risk, if he determines that such waiver will serve to promote the efficient provision of comprehensive health services and that the proposed plan will provide an appropriate and cost-effective alternative method for the delivery of such services in a manner which will meet the needs of the population to be served.
New York Public Health Law §4403 (McKinney 2001) establishes the requirements to be met before the Commission of Health may issue a Certificate of Authority to a Health Maintenance Organization. That statute provides, in pertinent part:
(1) The commissioner shall not issue a certificate of authority to an applicant therefor unless the applicant demonstrates that: (c) it is financially responsible and may be expected to meet its obligations to its enrolled members.
In accordance with the authority of New York Public Health §4403(2) and based upon the authority of New York Public Health Law §4403(1)(c), the Commissioner of Health has promulgated a regulation regarding the filing of Annual and Quarterly Statements by HMOs, N.Y. Comp. R. & Regs. tit. 10, §98-1.16 (2001). In accordance with the authority of New York Public Health Law §4403-a(3), the Commissioner of Health has determined that PHSPs should file Annual and Quarterly Statements only with the Department of Health. This determination was verbally conveyed to this Department and, I understand, to the PHSPs.
Regulation 172, by its terms, is applicable, with one exception not relevant here, to all organizations that file an Annual Statement with the Insurance Department, including HMOs. The Commissioner of Health has determined that, in order to properly supervise the financial conditions of organizations holding Certificates of Authority pursuant to New York Public Health Law Article 44, all filed Annual and Quarterly Statements should be prepared on a consistent basis. This determination was also conveyed to this Department and, I understand, to the PHSPs.
Accordingly, although Annual and Quarterly Statement should be filed only with the Department of Health, they are to be prepared in accordance with SAP, as explicated in Regulation 172. The next iteration of Regulation 172 will clarify the obligations of PHSPs.
The Chief Financial Officers of PHSPs informed the inquirer that, since the financial statements heretofore filed with the Department of Health have been prepared on the basis of Generally Accepted Accounting Principles on a less detailed form, it will take some time to understand SAP as explicated in Regulation 172 and prepare the appropriate Statements. Accordingly, the inquirer requested on behalf of PHSPs, that the time for submitting the first Quarterly Statement pursuant to Regulation 172 be postponed until filing of the Quarterly Statement for the second quarter of 2001.
As was previously indicated, the obligation of PHSPs to submit Annual and Quarterly is imposed by the Commissioner of Health. Any request to defer applicability of Regulation 172 to PHSPs should be addressed to the Department of Health.
For further information, you may contact Principal Attorney Alan Rachlin at the New York City Office.