The office of General Counsel issued the following informal opinion on October 24, 2001, representing the position of the New York State Insurance Department.
Re: Leased Employees, Provision of Health Benefits
Would a Professional Employer Organization, in offering health benefits to its employees, be in violation of the New York Insurance Law, especially the law allowing New York to regulate Multiple Employer Welfare Associations (MEWAs)?
Because the subject is governed by the Employee Income Security Act (ERISA), the offering of such coverage would not violate the New York Insurance Law.
The inquirers firm is an insurance broker representing an employee leasing company (the client) located outside of New York that "leases" employees to employers in a number of locations including New York. The client desires to provide health benefits to the individuals that it "leases". The inquirer wants to know whether the provision of such a benefit to individuals who are "leased" to New York employers would violate the New York Insurance Law.
It is assumed that the following extract from Alcott Staff Leasing v. New York Compensation Insurance Rating Board, 224 App. Div 2d 54 at 55-56, 648 N.Y.S. 2d 792 at 793 (3d Dept. 1996) accurately reflects the operations of the client:
[A]n employee leasing arrangement is generally established when a small business (hereinafter the client) utilizes the services of a leasing firm to provide it with workers for a fee or other compensation. The client transfer all or most of its employees to the leasing firm and the leasing firm hires these workers. These same employees are then leased back to the client. Employee leasing firms offer small businesses a way to cut benefit costs and relieve themselves of many administrative burdens.
New York Insurance Law § 4235(c)(1)(A) (McKinney 2000) allows group health insurance coverage through:
A policy issued to an employer which employer 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. 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.
New York Insurance Law § 3231(a) and (h) (McKinney 2000) provides, in pertinent part:
(a) No individual health insurance policy and no group health insurance policy covering between two and fifty employees or members of the group exclusive of spouses and dependents, hereinafter referred to as a small group, providing hospital and/or medical benefits, including medicare supplemental insurance, shall be issued in this state unless such policy is community rated and, notwithstanding any other provisions of law, the underwriting of such policy involves no more than the imposition of a pre-existing condition limitation as permitted by this article....
(h) (1) 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. . . .
New York Insurance Law § 4317(a) and (e) (McKinney 2000) imposes similar restrictions on not for profit health insurance corporations in their dealings with employers with less than 50 employees.
For the purposes of New York Insurance Law § 4235, if an insurance policy were to be secured, the employee leasing company would be deemed to be the employer of the covered employees. For the purpose of New York Insurance Law §§ 3231 and 4317, the number of employees leased to all New York employers by the client is thus the relevant figure in any determination of whether those sections would be applicable. Accordingly, the number of employees "leased" to a particular employer would not be relevant.
New York Insurance Law § 1101(a) (McKinney 2000) defines doing an insurance business and New York Insurance Law § 1102 (McKinney 2000) proscribes the doing of an insurance business without a license. Were the client to self-fund health benefits for its employees, it would usually be considered to be doing an insurance business and have to be licensed.
Based upon the information you submitted, the benefits provided by the client would constitute an "employee benefit plan", as that term is defined in ERISA, 29 U.S.C.A. § 1002(3) (West 1999), and is regulated under ERISA. 29 U.S.C.A. § 1003(a) (West 1999). Generally, ERISA is considered to "supersede any and all State laws insofar as they may now relate to any employee benefit plan", 29 U.S.C.A. § 1144(a) (West 1999), and thus New York Insurance Law §§ 1101 and 1102 would not be applicable.
Congress has established, however, special rules for MEWAs. A MEWA is defined as:
(A)The term multiple employer welfare arrangement means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained-- (i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements,
(B) For purposes of this paragraph--(i) two or more trades or businesses, whether or not incorporated, shall be deemed a single employer if such trades or businesses are within the same control group, (ii) the term "control group" means a group of trades or businesses under common control, (iii) the determination of whether a trade or business is under "common control" with another trade or business shall be determined under regulations of the Secretary applying principles similar to the principles applied in determining whether employees of two or more trades or businesses are treated as employed by a single employer under section 4001(b) except that, for purposes of this paragraph, common control shall not be based on an interest of less than 25 percent, .
29 U.S.C.A. § 1002(40) (West 1999)
The general preemption of 29 USCA § 1144(a) is modified, as to MEWAs:
(A). Notwithstanding any other provision of this section-- (i) in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides-- (I) standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and (II) provisions to enforce such standards, and (ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.
(B). The Secretary may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii), individually or by class, multiple employer welfare arrangements which are not fully insured. Any such exemption may be granted with respect to any arrangement or class of arrangements only if such arrangement or each arrangement which is a member of such class meets the requirements of section 3(1) and section 4 necessary to be considered an employee welfare benefit plan to which this title applies.
(C). Nothing in subparagraph (A) shall affect the manner or extent to which the provisions of this title apply to an employee welfare benefit plan which is not a multiple employer welfare arrangement and which is a plan, fund, or program participating in, subscribing to, or otherwise using a multiple employer welfare arrangement to fund or administer benefits to such plan's participants and beneficiaries.
(D). For purposes of this paragraph, a multiple employer welfare arrangement shall be considered fully insured only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a State.
29 U.S.C.A. §1144(b)(6)
Since this Department considers the employee leasing company to be the employer, the client would not be considered a MEWA and the general ERISA preemption of state regulation would apply. While, this Department could not regulate the plan itself, Insurance Law §§ 3231 and 4317 could restrict the ability of the client to purchase stop-loss coverage, if the number of individuals "leased" to New York employers were less than 50.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.