The Office of General Counsel issued the following informal opinion on September 24, 2002, representing the position of the New York State Insurance Department.
Re: Multiple Employer Welfare Arrangement, Evasion of Community Rating Requirement
Issue:
May an employer evade the community rating requirements for small group health insurance, New York Insurance Law §§ 3231 and 4317 (McKinney 2000), through membership in a Multiple Employer Welfare Arrangement (MEWA)?
Conclusion:
No, the arrangement as proposed would be violative of the above-cited sections of the New York Insurance Law.
Facts:
A small group, as that term is defined in New York Insurance Law §§ 3231(a) (McKinney 2000) and 4317(a) (McKinney 2000), is presently insured under a policy or contract that is community rated. The group has been approached by an insurance agent from ABC Financial proposing it purchase a product to be issued by Health Service Incorporated (HSI). It has been represented that the rates for coverage under the HSI product, which would not be community rated, would represent a substantial savings over the rates presently being charged to the group.
As proposed, the employer would join an entity called DEF Service Employees Ltd. (DEF), which has a "collective bargaining agreement" with another entity, Employees Local Union (LOCAL). LOCAL has purchased a group contract from HSI. In addition to entering into a "collective bargaining agreement" with LOCAL, the employer would pay $14 per employee per month to DEF as an "administrative" fee.
The employer has no common interest with any of the other participants in the DEF-LOCAL arrangement. The agent is candid that the sole purpose of the arrangement is to allow small groups to avoid the otherwise applicable community rating requirements.
Analysis:
New York Insurance Law § 4317(a), applicable to Health Service Corporations, such as HSI, provides:
No individual health insurance contract and no group health insurance contract covering between two and fifty employees . . . 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 contract is community rated and, notwithstanding any other provisions of law, the underwriting of such contract involves no more than the imposition of a pre-existing condition limitation as permitted by this article. Any individual, and dependents of such individual, and any small group, including all employees or group members and dependents of employees or members, applying for individual or small group health insurance coverage must be accepted at all times throughout the year for any hospital and/or medical coverage, including Medicare supplemental insurance, offered by the corporation to individuals or small groups in this state. Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. . . . For the purposes of this section, community rated means a rating methodology in which the premium for all persons covered by a policy or contract form is the same, based on the experience of the entire pool of risks covered by that policy or contract form without regard to age, sex, health status or occupation.
New York Insurance Law § 3231(a), applicable to commercial insurers, has a similar requirement.
Section 18 of 1992 N.Y. Laws 501, which added, inter alia, New York Insurance Law § 3231 and 4317, provided:
Notwithstanding any other provision of law, and specifically those sections of this act that may be applicable to labor organizations or insurers thereof, nothing contained in this act shall be applicable to organizations, associations or trusts maintained pursuant to one or more collective bargaining agreements, including, but not limited to, any trust which qualifies as a Taft Hartley Trust pursuant to Title 29 of the United States Code.
For the reasons indicated below, this Department does not believe that the agreements to be entered into by DEF/LOCAL would constitute bona fide collective bargaining agreements. Thus, Insurance Law §§ 3231 and 4317 would be applicable.
In order to effectuate the requirements of Insurance Law §§ 3231(a) and 4317(a), this Department promulgated N.Y. Comp. Codes R. & Regs. tit. 11, § 360.8(e)(1) (2000) (Regulation 145), which provides:
A policy issued to an association group covering at least one participating group member with 50 or fewer employees or members exclusive of spouses and dependents requires the insurer to charge the same community rate to all association members.
An Association Group is defined in N.Y. Comp. Codes R. & Regs. tit. 11, § 360.2(a):
Association Group means a group defined in Section 4235(c)(1)(B), (D), (H), (K), (L) and (M) of the Insurance Law, including but not limited to an association or trust of employers, if the group includes one or more member employers or other member groups which have 50 or fewer employees or members exclusive of spouses and dependents. A group containing individual members of an association will be considered an association group having member groups of 50 or fewer members.
New York Insurance Law § 4235 (McKinney 2000 and 2002 Supplement) allows group accident & health insurance policies to be issued and delivered in New York only to those groups described therein. Based upon the information furnished, it appears that, if the DEF/LOCAL group is to be considered a permitted group, it would have to be the one described in either New York Insurance Law § 4235(c)(1)(C) or (D):
(C) A policy issued to a labor union, which shall be deemed the policyholder, insuring, with or without evidence of insurability satisfactory to the insurer, members of such union and insuring, except as hereinafter provided all of such members or of any class or classes thereof determined by conditions pertaining to their employment or membership in the union or both for amounts of insurance on each person insured based on a plan precluding individual selection, provided however, such a plan may permit a limited number of selections by members if the selections offered utilize consistent plans of coverage for individual group members so that the resulting plans of coverage are reasonable, and not less than fifty percent of all eligible union or, if less, fifty or more of such eligible members are insured.
(D) A policy issued to a trustee or trustees of a fund established, or participated in, by two or more employers or by one or more labor unions, or by one or more employers and one or more labor unions, which trustee or trustees shall be deemed the policyholder, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions . . . .
For reasons expressed below, this Department does not believe that the DEF/LOCAL group would qualify as a labor union, which, in accordance with New York Insurance Law § 4235(c)(1)(C), may have a group health insurance policy issued to it.
Based upon the information furnished, it does not appear that the DEF/LOCAL group would have in excess of 10,000 insured lives, so it could not have its own community pool pursuant to N.Y. Comp. Codes R. & Regs, tit. 11, § 360.8(a). Accordingly, the policy issued by HSI would have to be community rated utilizing HSIs general community pool.
The benefits provided by DEF/LOCAL would constitute a Employee Welfare Benefit Plan, as defined in the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1002(a) (West 1998):
The terms employee welfare benefit plan and welfare plan mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, . . . .
While ordinarily an employee welfare benefit plan would be exempt from state insurance regulation, and 1992 N.Y. Laws 501 § 18 would also exempt such an insured plan from New Yorks community rating requirements, pursuant to ERISA, 29 U.S.C.A. § 1144(a), a special rule applies to Multiple Employer Welfare Arrangements (MEWA), as defined in ERISA, 29 U.S.C.A. § 1002(40)(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 [of Labor] finds to be collective bargaining agreements, . . .
The special rule applicable to MEWAs is set forth in 29 U.S.C.A. § 1144(b)(6) (West 1998):
(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 . . . .
(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. . . .
There is presently pending a proposed regulation concerning what would constitute a bona fide collective bargaining arrangement, 65 Fed. Reg. 64482 (October 27, 2000). No regulation to confer class exemptions in accordance with 29 U.S.C.A. § 1144(b)(6)(B) has been proposed.
The proposed regulation sets forth 8 criteria, the meeting of 4 of which would create a rebuttable presumption that a bona fide collective bargaining arrangement exists, proposed 29 C.F.R. § 2510.3-40(b)(4). Based upon the information furnished, it does not appear that DEF/LOCAL would meet this test. In addition, proposed 29 C.F.R. § 2510.3-40(c) would provide:
An employee welfare benefit plan shall not be deemed to be established or maintained under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements for any plan year in which: . . . (2) The agreement under which the plan is established or maintained is a scheme, plan, stratagem or artifice of evasion, a principal intent of which is to evade compliance with state law and regulations applicable to insurance; . . .
Thus, based upon the information furnished, it would not appear that the program developed by DEF/LOCAL would qualify as a bona fide collectively bargained arrangement, and thus exempt from New Yorks community rating requirement. For the same reason, this Department would not regard either DEF or LOCAL as a labor union, and thus eligible to purchase a group policy as authorized by New York Insurance Law § 4235(c)(1)(C). As an "association group", the DEF/LOCAL policy would have to be community rated.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.