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 opinion on September 23, 2002, representing the position of the New York State Insurance Department.

RE: Self-Funded Health Plan, Exemption from Insurance Law Requirements.

Question Presented:

Would a self-funded health plan operated by a religious organization that provides benefits to its employees and volunteers be exempt from New York’s insurance regulation by virtue of New York Insurance Law § 4522(a)(3) (McKinney 2000)?

Conclusion:

No, that statute was intended to exempt an organization that provides benefits to its members, not benefits to employees and volunteers who provide services to it. However, if the employees and volunteers are also members, and if the organization provides benefits to its members, those employees and volunteers could also receive the benefits.

Facts:

The inquirer’s client is a not-for profit organization that is within the definition of "church organization" in the Internal Revenue Code, 26 U.S.C.A. §3121(w)(3)(B) (West 2000) and contributions to which are deductible in accordance with the Internal Revenue Code, 26 U.S.C.A. §501(c)(3). It maintains a Plan to reimburse eligible employees and volunteers, who number in excess of 500, the majority of whom are domiciled in New York, for amounts expended for health care for themselves and their dependents. The Plan is administered by a third party administrator and pays benefits from funds provided by constituent churches and affiliated entities. While the majority of the Plan’s funds are provided by the constituent churches and affiliated entities from their own internally generated funds, some contribution by eligible employees and volunteers is required.

By letter of October 9, 2001, we indicated, inter alia, that, since the inquirer’s client was a church plan within the meaning of the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 2000), and had not made the election pursuant to Internal Revenue Code § 410(d) (West 2000) to bring itself within ERISA; it was subject to the requirements of the New York Insurance Law (McKinney 2000). The inquirer now calls attention to New York Insurance Law § 4522(a)(3), which was cited in an April 14, 2000 Opinion of this Office, and inquires whether that statute would exempt its client from the strictures of the New York Insurance Law.

Analysis:

New York Insurance Law § 4522(a) provides, in pertinent part:

Except as provided in subsection (b) hereof the following societies, corporations, unincorporated associations, and other organizations shall be exempt from the provisions of this chapter requiring the obtaining of a license to do an insurance business and from all other requirements of this chapter except those provided in subsections (c) and (d) hereof and except section three thousand two hundred nine and the provisions of article seventy-four of this chapter: . . . (3) Organizations of a religious, charitable, benevolent or fraternal character, which are not organized or maintained primarily for the purpose of providing insurance benefits, and which have not more than fifteen hundred members who are or may be entitled to any insurance benefits unless the organization obligates itself to pay a death benefit of more than five hundred dollars on the death of any one member, or disability benefits of more than three hundred fifty dollars to any one person in any one year, or both. . . .

This provision is situated in an Article regulating fraternal benefit societies.

Section 245 of the former Insurance Law (Baldwin 1939), which regulated fraternal organizations, exempted by name a number of organizations and also provided for exemption for some generally described organizations, including:

(c) organizations of a purely religious, charitable and benevolent description; . . . Provided, however, . . . that organizations described in subdivision (c) which are organized or maintained primarily for insurance or indemnity purposes or have more than one thousand insurance or benefit members or provide for a death benefit of more than five hundred dollars or for disability benefits of more than three hundred and fifty dollars to any one person in any one year, or both, shall not be exempted from the provisions of this chapter.

When the Insurance Law was recodified, 1939 N.Y. Laws 882, it was decided to eliminate exemptions of named organizations and have only general exemptions. Accordingly, New York Insurance Law § 466(1)(c) (Baldwin 1940) provided for the exemption of:

Organizations of a religious, charitable, benevolent or fraternal character, which are not organized or maintained primarily for the purpose of providing insurance benefits, and which have not more than one thousand members who are or may be entitled to any insurance benefits.

The exception to the exemption for organizations that provided death benefits in excess of $500 or disability benefits in excess of $350 was then contained in New York Insurance Law § 466(2). The increase in the number of members that an organization might have, 1956 N.Y. Laws 746, was made at the request of a local lodge of Elks, which had 987 members and 30 applicants.

When the New York Insurance Law was next recodified, 1984 N.Y. Laws 805, there were no substantive changes from the former Insurance Law. The exception that had formerly been contained in New York Insurance Law § 466(2) (McKinney 1983), however, was combined with the exemption of New York Insurance Law § 466(1)(c) and the reconstituted exemption became the present New York Insurance Law § 4522(a)(3).

It is clear from the legislative history of former New York Insurance Law §§ 245 and 466 that the Legislature intended to provide an exemption for small organizations that were akin to fraternal benefit societies and provided payments as a member benefit, and not to organizations that provide benefits to employees and volunteers. While New York Insurance Law § 4522(a) does provide an exemption to some entities that provide benefits to employees, e.g. New York Insurance Law § 4522(a)(2), the inquirer’s client does not fit within any such exemption.

This Department does not believe it was the Legislative intent to extend the exemption to organizations providing benefits to employees and volunteers. Accordingly, if the organization provides benefits to members and the employees and volunteers are members, those employees and volunteers may also receive the benefits. If, however, benefits are not provided generally to members (the definition of which you did not provide), benefits may not be provided only to employees and volunteers.

For further information, you may contact Principal Attorney Alan Rachlin at the New York City office.