The Office of General Counsel issued the following informal opinion on January 2, 2002, representing the position of the New York State Insurance Department.
RE: Fee Sharing Arrangements.
May a plan administrator share its service fee with an insurance agent?
Yes, under certain circumstances, a plan administrator may share its service fee with an insurance agent.
A plan administrator designs, administers and implements large "group health self-insured programs." In this regard, it processes, investigates and settles claims. It establishes and administers a claim utilization review process. It reviews provider billing for accuracy and negotiates and settles disputed bills with providers. It creates claim forms and coverage booklets and sets benefit levels and defines benefits in conjunction with existing and/or negotiated benefit levels. The agent refers the clients to the plan administrator and resolves client/administrator relations and problems. In return, the plan administrator desires to share its service fee with the agent. The question is whether this fee sharing arrangement is permissible under the Insurance Law.
It is unclear what the inquirer means by "group health self-insured programs." Although the inquirer refers to these programs as being self-insured, the term "self-insurance" is actually a misnomer since the employer is insuring the risks of its employees, as opposed to its own risks. We assume that these are employee welfare benefit plans governed by the federal Employee Retirement and Income Security Act (ERISA, 29 U.S.C. §§1001-1461), which preempts the New York State Insurance Law. As such, these plans are provided by an exempt insurer, who is not subject to the provisions of the Insurance Law.
N.Y. Ins. Law § 2101(a)(McKinney 2000) defines the term "insurance agent" as follows:
(a) [a]ny authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker . . .
In the present case, the agent refers the clients to the plan administrator and resolves client/administrator relations and problems. In this regard, the agent is acting in an administrative capacity, and is not acting as an agent within the meaning of N.Y. Ins. Law § 2101(a)(McKinney 2000). Thus, these administrative activities are not governed by the Insurance Law and the plan administrator may share its service fee with the agent.
However, the inquirer also stated that part of the plan administrators duties involve the investigating and settling of claims. We assume that the plan administrator is appropriately licensed as an independent adjuster to perform these activities.
N.Y. Ins. Law § 2102(a)(McKinney 2000) expressly requires licensing to act as an insurance adjuster in New York. Note that licensing as an independent adjuster is required even if the adjuster is acting on behalf of an exempt insurer. With respect to such adjusting activities, the plan administrator may not share its service fee with the agent, unless the agent is also appropriately licensed as an independent adjuster.
For further information, you may contact Attorney Pascale Joasil at the New York City office.