The Office of General Counsel issued the following opinion on April 4, 2003, representing the position of the New York State Insurance Department.
Re: Group Accident & Health Insurance, Sole Proprietors
1) Is the coverage authorized by 2002 N.Y. Laws 557 considered group coverage?
2) Would purchase of such coverage affect eligibility for Medicare?
1) Such coverage is considered group coverage.
2) Any determination on eligibility for Medicare would have to be made by the United States Department of Health & Human Services.
Many of an organizations clients qualify for Medicare because of disability. Medicare does not provide prescription drugs, which many of the clients require. While the clients may purchase Medicare supplement policies, which do provide prescription drug coverage, such policies need only provide coverage for prescription drugs up to a maximum of $3,000 per calendar year. N.Y. Comp. Codes R. & Regs tit. 11, § 52.22(d)(6)(vii) (2002). Accordingly, such clients who have prescription drug expenses in excess of $3,000 per year desire to purchase additional coverage.
The organization is aware that Federal law prohibits it from purchasing individual health insurance after becoming Medicare-eligible. The organization advises such individuals to purchase any required individual coverage prior to the commencement of eligibility for Medicare. The organization also understands that Medicare beneficiaries may participate in employer-sponsored group insurance that is acquired after becoming Medicare-eligible.
The organization requested clarification as to whether its clients may take advantage of the new legislation, 2002 N.Y. Laws 557.
Individuals who are collecting Social Security because of disability are entitled to Medicare, after they have been collecting Social Security disability benefits for 24 months. 42 U.S.C.A. § 426(b) (West 1982 and 2002 Supplement). There are, however, restrictions on the purchase of individual health insurance by those eligible for Medicare, 42 U.S.C.A. § 1395ss(d)(3)(A)(i) (West 1992 and 2002 Supplement):
It is unlawful for a person to sell or issue to an individual entitled to benefits under part A or enrolled under part B of this title . . . (I) a health insurance policy with knowledge that the policy duplicates health benefits to which the individual is otherwise entitled under this title . . . (III) a health insurance policy (other than a medicare supplemental policy) with knowledge that the policy duplicates health benefits to which the individual is otherwise entitled, other than benefits to which the individual is entitled under a requirement of State or Federal law
However, individuals covered under existing group coverage may retain such coverage. 42 U.S.C.A. § 1395y(b)(2)(A)(i) (West 1992 and 2002 Supplement).
New York Insurance Law § 3231 (McKinney 2000 and 2003 Supplement), amended by 2002 N.Y. Laws 557 and regulating commercial insurers, provides, in pertinent part:
(b) Nothing herein shall prohibit the use of premium rate structures to establish different premium rates for individuals as opposed to family units or separate community rates for individuals as opposed to small groups. If an insurer is required to issue a contract to individual proprietors pursuant to subsection (i) of this section, such policy shall be subject to subsection (a) of this section [open enrollment and community rating]. . . .
(i)(1) If an insurer issues coverage to an association group (including chambers of commerce), . . . the insurer must issue the same coverage to individual proprietors which purchase coverage through the association group as the insurer issues to groups which purchase coverage through the association group; provided, however, that an insurer which, on the effective date of this subsection, is issuing coverage to individual proprietors not connected with an association group, may continue to issue such coverage provided that the coverage is otherwise in accordance with this subsection and all other applicable provisions of law.
(2) For coverage purchased pursuant to this subsection, individual proprietors shall be classified in their own community rating category, provided however, prior to January first, two thousand six, the premium rate established for individual proprietors purchased pursuant to paragraph one of this subsection shall not be greater than one hundred twenty percent of the rate established for the same coverage issued to groups.
(3) An insurer may require members of the association purchasing health insurance to verify that all employees electing health insurance are legitimate employees of the employers . . .In order to be eligible to purchase health insurance pursuant to this subsection and obtain the same group insurance products as are offered to groups, a sole employee of a corporation or a sole proprietor of an unincorporated business or entity must (A) work at least twenty hours per week, (B) if purchasing the coverage through an association group, be a member of the association for at least sixty days prior to the effective date of the insurance policy, and (C) present a copy of the following documentation to the insurer or health plan administrator on an annual basis: (i) NYS tax form 45-ATT, or comparable documentation of active employee status; (ii) for an incorporated business, the prior year's federal income tax Schedule C for an incorporated business subject to Subchapter S with a sole employee, federal income tax Schedule E for other incorporated businesses with a sole employee, a W-2 annual wage statement, or federal tax form 1099 with federal income tax Schedule F; or (iii) for a business in business for less than one year, a cancelled business check, a certificate of doing business, or appropriate tax documentation; and (iv) such other documentation as may be reasonably required by the insurer as approved by the superintendent to verify eligibility of an individual to purchase health insurance pursuant to this subsection.
New York Insurance Law § 4317 (McKinney 2000 and 2003 Supplement), regulating Not-For-Profit Health Service Corporations and all Health Maintenance Organizations, was similarly amended by 2002 N.Y. Law 557.
An insurer, which did not previously insure sole proprietors, may limit its coverage of sole proprietors to those who secure such coverage through a qualifying association. In Circular Letter No. 27 (December 18, 2002), accessible at www.ins.state.ny.us, this Department informed insurers that:
The effective date of the group policy itself should not be relevant. Insurers may require the sole proprietor to have been a member of the association for at least sixty days prior to the date the sole proprietors coverage under the association or chamber policy would become effective.
Supplement No. 1 to Circular Letter No. 27, issued on March 31, 2003, accessible at www.ins.state.ny.us, provides, inter alia,:
Insurers may, at their discretion, impose a lesser time frame or waive the sixty day membership requirement in its entirety, so long as such action is uniformly applied to all sole proprietors applying for coverage through an association group. . . .
If an insurer previously issued its small group coverage to sole proprietors at the same premium rate charged to other small groups it may continue to do so.
While this Department considers the coverage to be group in nature, whether purchase of the coverage would be in violation of the strictures under Federal law is a determination to be made by the United States Department of Health & Human Services.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.