The Office of General Counsel issued the following informal opinion on May 17, 2002, representing the position of the New York State Insurance Department.
Re: Prepaid Medical Services Plan
Does a prepaid medical services plan in which a physician charges a flat yearly fee to patients for medical care constitute insurance?
Yes. Such a prepaid medical services plan would constitute the "doing of an insurance business" under N.Y. Ins. Law § 1101 (McKinney Supp. 2001-2001) and requires a license pursuant to N.Y. Ins. Law § 1102 (McKinney 2000).
A physician would like to charge a flat yearly fee to patients for one year of medical care.
A prepaid medical services plan (the "Plan") in which a physician charges a flat yearly fee to patients for medical care comes within the statutory definition of an insurance business. N.Y. Ins. Law § 1101 (McKinney Supp. 2001-2002) states that the making of any insurance contract constitutes the doing of an insurance business in this state. N.Y. Ins. Law § 1101(a) defines the terms "insurance contract" and "fortuitous event" as follows:
(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer a benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
The benefits that the Plan would provide would be dependent upon the happening of a fortuitous event, that being the need for medical care, which is beyond the control of either party. In the past, the Department has said that the making of a service plan, such as your proposed program, which for a pre-paid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business under N.Y. Ins. Law § 1101 and requires a license pursuant to N.Y. Ins. Law § 1102 (McKinney 2000).
However, a service plan where the pre-paid fee is a membership fee, and certain services occasioned by the happening of a fortuitous event are offered for an additional fee per service but is discounted from the usual fee, does not constitute the doing of an insurance business, and does not require an insurance license so long as the fee per service covers the cost of rendering the service (including reasonable overhead). Additionally, the Department has stated that the prepaid membership fee may include free or nominally priced services, so long as these benefits are of a non-fortuitous nature.
For example, two previously rendered opinions dealt with dental and vision service plans. Generally, these plans have two parts. The first is a free routine annual examination, including routine X-rays in the case of dental programs, incorporated in the cost of the prepaid membership. This is allowed because these services are not occasioned by the happening of a fortuitous event. The second part is the additional service (such as filling a cavity) that is occasioned by the happening of a fortuitous event, available for a discounted fee. While the fees for these services may be discounted, they must cover the cost of the rendition of the services provided.
For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.