New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on April 1, 2003, representing the position of the New York State Insurance Department.

Re: Employer Sponsored Group Health Insurance, Waiver of Coverage

Issue:

Where an employer requires no contribution by employees to cover themselves, but does require contribution by employees for coverage of dependents, may an employee waive employer-sponsored health insurance?

Conclusion:

Such a waiver is not permissible.

Facts:

The organization (the "Association") offers its employees the option of two types of coverage: (1) a contract issued by a Health Maintenance Organization and (2) a policy issued by a commercial insurer that is a managed care health insurance contract within the definition of New York Insurance Law § 4801(c) (McKinney 2000). Both forms of coverage are provided under a New York contract.

The Association pays the entire premium for coverage of employees. If an employee desires to cover his or her dependents, the employee is required to pay the full difference in cost between individual coverage and family coverage.

The Association has an employee that desires to receive services from a health care provider who is not in the network of either the HMO or the insurer that has contracted with the Association. Under either of the contracts issued to the Association, if the employee seeks treatment from a non-participating health care provider, she would be subject to a financial penalty. If, however, the employee were covered as a dependent under her spouse’s coverage and not covered under the Association coverage, she could receive services under the spouse’s coverage without financial penalty. Accordingly, she desires to waive any coverage under the Association’s program.

By letter of July 20, 1988, the Association had previously been informed that New York Insurance Law § 4235(c)(1)(A) (McKinney 1985) precluded a waiver of health coverage, if the employer paid the entire premium for the coverage. This inquiry poses the question of whether the above prohibition is still effective.

Analysis:

The provision of health insurance by an employer constitutes a welfare benefit plan as that term is defined under the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(1) (West 1999). While ERISA generally preempts state laws, 29 U.S.C.A. 1144(a) (West 1999), insurance laws are excepted from the preemption. 29 U.S.C.A. § 1144(b)(2)(A). This provision has been construed to allow state insurance laws to apply to insured plans, notwithstanding that they may affect an ERISA welfare benefit plan. Metropolitan Life v. Massachusetts, 471 U.S. 724 (1985).

New York Insurance Law § 4235(c)(1)(A) (McKinney 2000), which has not been modified since the 1988 letter, authorizes the issuance of group accident & health insurance through:

A policy issued to an employer or to a trustee or trustees of a fund established by an employer, which employer or trustee or trustees shall be deemed the policyholder, insuring with or without evidence of insurability satisfactory to the insurer, employees of such employer, and insuring, except as hereinafter provided, all of such employees or all of any class or classes thereof determined by conditions pertaining to the employment or a combination of such conditions and conditions pertaining to the family status of the employee, for insurance coverage on each person insured based upon some plan which will preclude individual selection. . . . The premium for the policy shall be paid by the policyholder, either from the employer's funds, or from funds contributed by the insured employees, or from funds contributed jointly by the employer and employees. If all or part of the premium is to be derived from funds contributed by the insured employees, then such policy must insure not less than fifty percent of such eligible employees or, if less, fifty or more of such employees. (emphasis added).

New York Insurance Law § 4235(f)(1) provides:

Any policy of group accident, group health or group accident and health insurance may include provisions for the payment by the insurer of benefits for expenses incurred on account of hospital, medical or surgical care . . . for the employee or other member of the insured group, his spouse, his child or children, or other persons chiefly dependent upon him for support and maintenance. . . .

New York Insurance Law § 4801(c) defines:

a ‘managed care health insurance contract’ or ‘managed care product’ shall mean a contract which requires that all medical or other health care services covered under the contract, other than emergency care services, be provided by, or pursuant to a referral from, a designated health care provider chosen by the insured (i.e. a primary care gatekeeper), and that services provided pursuant to such a referral be rendered by a health care provider participating in the insurer's managed care provider network. . . .

New York Public Health Law § 4401 (McKinney 2002) defines:

(1) ‘Health maintenance organization’ . . . means any person . . . who enters into an arrangement, agreement or plan . . . which propose to provide or offer, or which do provide or offer, a comprehensive health services plan.

(2) ‘Comprehensive health services plan’ . . . means a plan through which each member of an enrolled population is entitled to receive comprehensive health services in consideration for a basic advance or periodic charge. A plan may include the provision of health care services which are covered by the organization at the election of enrollees by health care providers not participating in the plan . . . provided, however, that in no event shall an enrollee elect to have a non-participating provider serve as the enrollee's primary care practitioner responsible for supervising and coordinating the care of the enrollee.

(3) ‘Comprehensive health services’ means all those health services which an enrolled population might require in order to be maintained in good health . . . . Such term may be further defined by agreement with enrolled populations providing additional benefits necessary, desirable or appropriate to meet their health care needs.

Under either a managed care health insurance contract or an HMO contract, where the contract allows services to be secured from health care providers who are not in the insurer’s network (point of service), it may be financially advantageous to utilize a participating health care provider. It has been represented that the Association’s contracts have such provisions.

N.Y. Comp. Codes R. & Regs. tit. 11, § 52.23(n)(3) (1995) sets forth rules for coordination of benefits between plans:

The order of benefit payments is determined using the first of the following rules which applies: (i) the benefits of a plan which covers the person as an employee, member or subscriber (that is, other than as a dependent) are determined before those of a plan which covers the person as a dependent; . . . .

It has been represented that both the Association’s contracts and any contract covering the employee’s spouse have coordination of benefit provisions in compliance with the above.

It is the position of this Department that where the employer requires any contribution by the employee towards his or her coverage, the employee may waive coverage. If, however, the employer only requires an employee contribution toward dependent coverage, then the employee may not waive his or her coverage. This interpretation creates parity between employees with dependents and those without dependents.

Under the circumstances of the Association’s program, since the program is non-contributory as to employee coverage, a waiver by employees, as to their own coverage, would be prohibited by New York Insurance Law § 4235(c)(1)(A). Employees could, of course, waive coverage of dependents. In the case of the employee in question, after she has received any applicable payment from the insurer or HMO under the Association’s program, she may submit any remaining items to her spouse’s insurer.

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