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 October 11, 2001, representing the position of the New York State Insurance Department.

Re: Insurer’s Denial of Coverage to Uncompensated Director

Questions Presented:

May an insurer deny group health coverage to an uncompensated director in circumstances where the group is community rated and subject to open enrollment?

May an insurer deny group health coverage to an uncompensated director in circumstances where there is no open enrollment?

Conclusions:

Where a group health contract is subject to open enrollment, an insurer may not deny group health coverage to a director if the employer seeks to include the director in the group, regardless of whether such director receives monetary compensation or not.

With regard to those groups not subject to open enrollment, an insurer may deny coverage to a director based on N.Y. Ins. Law § 4235(d)(1) (McKinney 2000), which states that the term "employee" may, but is not required to, include directors. Therefore, if an insurer has an underwriting rule that it does not consider directors to be employees for purposes of group health coverage, such insurer may legitimately deny coverage to directors. In addition, pursuant to N.Y. Comp. Codes, R. & Regs., tit.11, § 52.18(f) (1999) (Regulation 62), an employer may impose additional conditions for employees to be eligible for health coverage by setting forth classes of covered employees based on conditions of employment such as "earnings" and "method of compensation," which could result in denial of coverage to uncompensated directors.

Facts:

The question is general in nature.

Analysis:

N.Y. Ins. Law § 3231(a) (McKinney 2000) imposes underwriting restrictions on insurers issuing policies to small groups, i.e., those with 50 or fewer insured lives, excluding spouses and dependents.

N.Y. Ins. Law § 3231(a) (McKinney 2000), states in relevant part:

… no group health insurance policy covering between two and fifty employees or members of the group … shall be issued in this state unless such policy is community rated….

Pursuant to that section, an insurer may not impose underwriting requirements on insureds in small groups which is known as open enrollment. To effectuate that section, the Superintendent promulgated N.Y. Comp. Codes, R. & Regs., tit.11, § 360.3(a) (1995) (Regulation 145 ) which provides, in pertinent part:

No insurer may restrict or limit eligibility for individual or small group policies except in the following ways: … (2) [a]n employer’s required time period of employment before coverage under the employer’s plan takes effect.

(3) A required number of work hours to qualify as an employee, not to exceed 20 hours per week.

N.Y. Comp. Codes, R. & Regs., tit.11, § 360.3(a) (1995) (Regulation 145) permits the issuance of small group policies to cover certain classes of employees based on conditions (like the time period of employment), but only if the employer is requesting a distinction based on such classes. If an insurer otherwise makes such distinction, it would violate the open enrollment requirements.

Therefore, under open enrollment, an insurer may not deny group health coverage to a director if the employer seeks to include that director in the group, regardless of whether such director receives monetary compensation or not. An employer may, however, impose conditions, such as number of hours worked, on eligibility for coverage, so that uncompensated employees, such as directors, are excluded.

With regard to non-open enrollment group contracts, an insurer may, under specific circumstances, deny coverage to a director. N. Y. Ins. Law § 4235(c)(1)(A) (McKinney 2000), which outlines the permissible group requirements, states:

(c)(1) No policy of group accident, group health or group accident and health insurance shall be delivered or issued for delivery in this state unless it conforms to one of the following descriptions:

(A) A policy issued to an employer or to a trustee or trustees of a fund established by an employer, which employer or trustee or trustees shall be deemed the policyholder, insuring with or without evidence of insurability satisfactory to the insurer, employees of such employer, and insuring, except as hereinafter provided, all of such employees or all of any class or classes thereof determined by conditions pertaining to the employment or a combination of such conditions and conditions pertaining to the family status of the employee, for insurance coverage on each person insured based upon some plan which will preclude individual selection. However, such a plan may permit a limited number of selections by employees if the selections offered utilize consistent plans of coverage for individual group members so that the resulting plans of coverage are reasonable. The premium for the policy shall be paid by the policyholder, either from the employer’s funds, or from

funds contributed by the insured employees, or from funds contributed jointly by the employer and employees. If all or part of the premium is to be derived from funds contributed by the insured employees, then such policy must insure not less than fifty percent of such eligible employees or, if less, fifty or more of such employees. (emphasis added).

Further, N. Y. Ins. Law § 4235(d)(1) (McKinney 2000) provides in relevant part:

(d)(1) In this section, for the purpose of insurance hereunder:…"employees" as used in subparagraph (A) of paragraph one of subsection (c) hereof may also include the directors of the employer and of subsidiary or affiliated corporations of a corporate employer. (emphasis added).

As mentioned in a previous opinion, directors of an employer are not required, but are eligible to be insured under a group health policy by virtue of the fact that N.Y. Ins. Law § 4235(d)(1) (McKinney 2000) provides that the term "employee" may, but is not required to, include directors. As such, an insurer that has an underwriting rule that directors are not considered to be employees for purposes of group health coverage, may legitimately deny coverage to such directors.

Further, N.Y. Comp. Codes, R. & Regs., tit.11, § 52.18 (1999) (Regulation 62) sets out the rules relating to content of forms for group insurance. Specifically, N.Y. Comp. Codes, R. & Regs., tit.11, § 52.18(f) (1999) (Regulation 62) entitled "conditions of eligibility", states in pertinent part:

(f) Conditions pertaining to employment … includes geographic situs of employment, earnings, method of compensation, hours, and occupational duties. (emphasis added).

Pursuant to Regulation 62, an insurer or employer may impose additional conditions for employees to be eligible for health coverage by setting forth classes of covered employees based on conditions of employment. Conditions of employment such as "earnings" and "method of compensation" may be grounds for denying health coverage to uncompensated directors.

Please note that the employer’s plan may be subject to the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. §§ 1001 et seq. (West 1999). Therefore, ERISA may be relevant to the inquiry.

For further information you may contact Attorney D. Monica Marsh at the New York City Office.