The Office of General Counsel issued the following opinion on February 12, 2002, representing the position of the New York State Insurance Department.
RE: Use of Credit Card for Payment of Premium - N.Y. Ins. Law §4224(b)(1) (McKinney 2000)
May a licensed insurer that sells health insurance products in this state include the option to pay the premium by credit cards for its policies that are sold on a direct response basis but not for its products that are sold by the insurers agency force?
Yes. This would not violate N.Y. Ins. Law §4224(b)(1) (McKinney 2000) because all individuals in the same class would be treated equally.
No facts were provided. The inquiry is general in nature.
N.Y. Ins. Law § 4224(b)(1) (McKinney 2000) provides:
(b) No insurer doing in this state the business of accident and health insurance, as specified in paragraph three of subsection (a) of section one thousand one hundred thirteen of this chapter, and no officer or agent of such insurer and no licensed insurance broker, and no employee or other representative of such insurer, agent or broker shall:
(1) make or permit any unfair discrimination between individuals of the same class in the amount of premiums, policy fees, or rates charged for any policy of accident and health insurance, or in the benefits payable thereon, or in any of the terms or conditions of such policies, or in any other manner whatsoever;
By its terms, this section is designed to insure that equal terms are fixed in policies to policyholders of like classes. In effect, this serves to prohibit such practices as hidden rebates or preferential treatment with respect to the cost of the policy or benefits allowed so that all policyholders that fall within the same class will pay alike and will be treated alike.
In an opinion dated December 13, 2000 issued to the Life Insurance Council of New York, this Office stated that:
Under N.Y. Ins. Law § 4224(a)(1), a "class" may appropriately be all applicants for, and insureds under, a particular policy. Further, as the statute prohibits unfair discrimination between individuals of the same class and of equal expectation of life in the amount of premiums charged for life insurance and annuity contracts, or in the dividends or other benefits payable or " in any terms and conditions thereof", use of different terms and conditions for different policies is not prohibited provided such terms and conditions are consistent with regard to a particular policy and not otherwise contrary to law.
Relying on this principle, a distinction was made between a policy sold on a direct response basis and the same policy sold by an agent, with each being treated as a separate product. The opinion then went on to state:
A life insurer is free to set its own appropriate underwriting standards, including type of underwriting, i.e., regular (full) underwriting, simplified underwriting or guaranteed issue, which may or may not include different underwriting for different products, without violating N.Y. Ins. Law § 4224(a)(1) as long as such underwriting standards have a factual and rational basis, are grounded in generally accepted insurance and actuarial principles, and are not contrary to law.
Although the December 13, 2000 opinion interpreted N.Y. Ins. Law § 4224(a)(1) (McKinney 2000), which addresses the issue of unfair discrimination with regard to life insurers, the language in N.Y. Ins. Law § 4224(b)(1) (McKinney 2000), concerning health insurers, is very similar. Thus, the above stated opinion that "a class may appropriately be all applicants for, and insureds under, a particular policy" is equally applicable to health insurance policies. Accordingly, all insureds who have a particular health insurance policy sold on a direct response basis may constitute a class and insureds who have the same health insurance policy, except that it was sold by the insurers agency force, may constitute a different class.
In view of the above, and consistent with the December 13, 2000 opinion, an insurer may choose to accept credit cards only for its direct response business without violating N.Y. Ins. Law § 4224 (McKinney 2000), provided that the offer of the credit card option is made to all members of the class and is not otherwise contrary to law.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.