The Office of General Counsel issued the following informal opinion on April 7, 2003, representing the position of the New York State Insurance Department.
Re: Out-of-State Multiple Employer Welfare Association (MEWA), Operations in New York
1. May a MEWA that is domiciled and licensed in another state provide coverage to New York employer groups?
2. If not, is there a procedure to license or authorize such a MEWA in New York?
3. May a self-funded New York employee welfare benefit plan join with an out-of-state MEWA to jointly purchase stop-loss insurance?
1. An out-of-state MEWA may not provide coverage to New York employer groups.
2. A MEWA that is not fully insured may not operate in New York. New York would regulate the insurer providing coverage to a fully insured MEWA.
3. A self-funded New York employee welfare benefit plan may not purchase stop-loss coverage in New York if that would result in an evasion of New Yorks coverage and rating requirements.
The inquirers firm is counsel to a MEWA that is domiciled and licensed in another state and that has been approached to provide health coverage to the employees of members of a New York association composed of a number of employers. The inquirer further indicates that several self-funded employee welfare benefit plans covering a single New York employer desire to join with the inquirers client in purchasing stop-loss coverage.
Health benefits provided by employers constitute a Employee Welfare Benefit Plan, as defined in the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1002(a) (West 1999):
The terms employee welfare benefit plan and welfare plan mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, . . . .
Such benefits may be provided either through the purchase of insurance or through self-funding by the employer. New York Insurance Law § 4235(c)(1)(B) (McKinney 2000) authorizes the issuance group policy of accident & health insurance, inter alia:
A policy issued to a trustee or trustees of a fund established by, or participated in, by the employer members of a trade association, which trustees shall be deemed the policyholder, for the sole benefit of the employees of such employers, the policy must conform subject to the following requirements: (i) The policy may be issued only if: (I) the association has been in existence for at least two years and was formed for purposes principally other than obtaining insurance, . . . (ii) The persons eligible for insurance under the policy shall be all of the employees of the participating employers, or all of any class or classes thereof determined by conditions pertaining to their employment. (iii) The premium for the policy shall be paid by the trustee or trustees either from funds contributed by the employers or by the employees; or funds contributed jointly by the employers and the employees. . . . (iv) The policy must cover at least fifty employees at date of issue. (v) The insurance coverage under the policy must be based upon some plan precluding individual selection either by the employees or by the policyholder or the employer.
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New York Insurance Law § 1101(a) (McKinney 2000 and 2002 Supplement) defines doing an insurance business:
In this article: (1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer 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.
New York Insurance Law § 1102 (McKinney 2000) prohibits the doing of an insurance business without a license from this Department, unless the entity is otherwise exempt from the requirement of obtaining a license.
The provision of health benefits to employees by an employer under a self-funded plan would, in the absence of ERISA, be considered the doing of an insurance business within the meaning of New York Insurance Law § 1101 (McKinney 2000) and, unless otherwise exempted under the Insurance Law, require a license from this Department. New York Insurance Law § 1102 (McKinney 2000). However, since ERISA provides, 29 U.S.C.A. § 1144(b)(2)(B) (West 1999), that employer welfare benefit plans are not to be considered as insurers under state law, the exception to the general ERISA preemption for state laws regulating insurance, 29 U.S.C.A. § 1144(b)(2)(A), is not applicable and this Department may not require such self-funded plan to be licensed.
Congress has, however, provided an exception to the ERISA exemption from state laws for employee welfare benefit plans for MEWAs, 29 U.S.C.A. § 1144(b)(6):
(A) Notwithstanding any other provision of this section-- (i) in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides-- (I) standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and (II) provisions to enforce such standards, and (ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.
(B) The Secretary [of Labor] may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii), individually or by class, multiple employer welfare arrangements which are not fully insured. . . .
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(D) For purposes of this paragraph, a multiple employer welfare arrangement shall be considered fully insured only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a State.
A MEWA is defined, 29 U.S.C.A. § 1003(40)(A):
The term multiple employer welfare arrangement means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained-- (i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association.
The Secretary has not heretofore exempted any MEWAs from being subject to appropriate state laws.
There is no provision in the New York Insurance Law for licensing or other recognition of MEWAs that are licensed or certified in other jurisdictions. If an association that would constitute a MEWA under ERISA provides benefits to the employees of its members and the plan is fully insured, this Department would enforce applicable reserve and contribution standards in its regulation of the insurer. If the MEWA
were not fully insured, pursuant to New York Insurance Law § 1102, the association would have to be licensed by this Department.
Stop-loss insurance is defined and regulated by New York Insurance Law § 4237-a (McKinney 2000), in pertinent part:
(b) "Stop-loss insurance" means an insurance policy whereby the insurer agrees to pay claims or indemnify an employer for losses incurred under a self-insured employee benefit plan in excess of specified loss limits for individual claims and/or for all claims combined, or any similar arrangement.
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(d) No stop-loss insurance contract shall be issued or renewed if issuance of the policy would be prohibited by section three thousand two hundred thirty-one, section three thousand two hundred thirty-four, section four thousand three hundred seventeen or section four thousand three hundred twenty of this chapter.
New York Insurance Law § 3231 (McKinney 2000), regulating policies of commercial insurers, provides, in pertinent part:
(a) No individual health insurance policy and no group health insurance policy covering between two and fifty employees or members of the group exclusive of spouses and dependents, hereinafter referred to as a small group, providing hospital and/or medical benefits, including medicare supplemental insurance, shall
be issued in this state unless such policy is community rated and, notwithstanding any other provisions of law, the underwriting of such policy involves no more than the imposition of a pre-existing condition limitation as permitted by this article. . . . For the purposes of this section, community rated means a rating methodology in which the premium for all persons covered by a policy or contract form is the same based on the experience of the entire pool of risks covered by that policy or contract form without regard to age, sex, health status or occupation.
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(h) (1) Notwithstanding any other provision of this chapter, no insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of small groups which, if they purchased insurance, would be subject to this section. No insurer, subsidiary of an insurer, or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to small groups which, if they purchased insurance, would be subject to this section.
New York Insurance Law § 4317(McKinney), regulating contracts of not-for-profit insurers and all Health Maintenance Organizations, has similar provisions.
New York Comp. Codes R. & Regs. tit. 11, § 360.8(e) (2000), promulgated to effectuate New Yorks community rating and open enrollment statutes, provides that if any employer member of an association has less than 50 employees, the entire association must be community rated.
New York Insurance Law § 3234 (McKinney 2000), regulating policies of commercial insurers, provides:
No insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of a group which denies or limits benefits for a specific disease or condition or for a procedure or treatment unique to a specific disease or condition in a manner which would be inconsistent with this chapter or regulations
promulgated by the superintendent had the group purchased insurance. No insurer, subsidiary of an insurer, or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to groups which deny or limit benefits for a specific disease or condition or for a procedure or treatment unique to a specific disease or condition in a manner which would be inconsistent with this chapter or regulations promulgated by the superintendent had the group purchased insurance. . . . Nothing herein shall be construed to mandate the inclusion of specified benefits in an employer group plan, if such plan is not subject to the provisions of this chapter.
New York Insurance Law § 4320 (McKinney 2000), regulating contracts of not-for-profit insurers and HMOs, has similar prohibitions.
Accordingly, if the stop-loss policy held or contemplated by the inquirers client contains provisions that would constitute an evasion of applicable New York prohibitions, it could not cover the New York employer through its being issued for delivery in New York.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.