Re: Prescription Drug Benefits
1. May an employer, that had terminated prescription drug coverage under a community rated group accident & health insurance policy and instituted a self-funded prescription drug benefit, subsequently decide to again provide prescription drug coverage through insurance?
2. After such a decision to again insure the prescription drug benefit, may an insurer refuse to provide such prescription drug coverage?
3. May the insurer impose conditions on reinstatement or addition of the prescription drug coverage?
1. An employer may decide to reinstate prescription drug coverage through its insurance policy.
2. The insurer may not refuse to add prescription drug coverage.
3. The insurer may, under extremely limited circumstances, impose a pre-existing condition limitation.
The inquirers firm has a client that is a small group, as that term is defined in New York Insurance Law § 3231(a) (McKinney 2000 and 2003 Supplement), which provides health benefits to its employees through an insurance policy, which includes prescription drug coverage. The client is considering terminating the prescription drug rider and providing the prescription drug benefit through self-funding. The benefit would be administered by a nationally recognized Prescription Benefit Manager (PBM), which would pay claims on behalf of the client utilizing funds specifically transferred to the PBM for that purpose.
The benefits provided by the inquirers client to its employees constitute an employee welfare benefit plan, as that term is defined in the Employee Retirement Income Security Act (ERISA). 29 U.S.CA. § 1002(1) (West 1999). If an employer decides to self-fund benefits for an employee welfare benefit plan, ERISA provides that such self-funding may not be regulated by a state as insurance. 29 U.S.C.A. § 1144(b)(2)(B) (West 1999). If, however, the employer opts to provide benefits through an insurance policy, a state may regulate the contents and conditions of such policy, Metropolitan Life v. Massachusetts, 471 US. 724 (1985).
New York Insurance Law § 3231(a) provides:
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 . . . 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. Any individual, and dependents of such individual, and any small group, including all employees or group members and dependents of employees or members, applying for individual health insurance coverage . . . or small group health insurance coverage . . . must be accepted at all times throughout the year for any hospital and/or medical coverage offered by the insurer to individuals or small groups in this state. . . . 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.
While the New York Insurance Law does not generally require coverage of prescription drug benefits in a group accident and health insurance policy, the Departments Regulation 62, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.7(g) (1999), specifies that a policy may not be considered to be a major medical policy without such coverage. If prescription drug coverage is provided in a policy, specific requirements governing the contents and extent of the coverage apply. See e.g. New York Insurance Law § 3221(l)(16) (contraceptive drugs).
New York Insurance Law § 2101(g)(1) (McKinney 2000) defines:
The term independent adjuster means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster . . . .
New York Insurance Law § 2102(a)(1) (McKinney 2000) prohibits acting as an adjuster without a license. This prohibition extends to acting on behalf of exempt insurers, such as an ERISA employee welfare benefit plan. Accordingly, the PBM, if it has not already done so, may have to become licensed as an independent adjuster.
New York Insurance Law § 3231(h)(1) provides:
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. . . .
Accordingly, no affiliate of an insurer may act as the PBM for the inquirers client.
Since the inquirers client is a small group, as defined in New York Insurance Law § 3231(a), if it desires to reinstate prescription drug coverage, or, if it has changed insurers in the interim, add such coverage, the insurer would have to provide the coverage. While the insurer could, in accordance with that section, impose a pre-existing condition limitation, such limitation would be very restricted. New York Insurance Law § 3232 (McKinney 2000) provides, in pertinent part:
Every . . . group or blanket accident and health insurance policy issued or issued for delivery in this state which includes a pre-existing condition provision shall contain in substance the following provision or provisions which in the opinion of the superintendent are more favorable to the individuals, members of the group and their eligible dependents: (a) In determining whether a pre-existing condition provision applies to a covered person, the group or blanket accident and health insurance policy . . . shall credit the time the covered person was previously covered under creditable coverage, if the previous creditable coverage was continuous to a date not more than sixty-three days prior to the enrollment date of the new coverage. . . .
(b) No pre-existing condition provision shall exclude coverage for a period in excess of twelve months following the enrollment date of coverage for the covered person and may only relate to a condition (whether physical or mental), regardless of the cause of the condition, for which medical advice, diagnosis, care or treatment was recommended or received within the six-month period ending on the enrollment date. . . .
(c) For purposes of this section creditable coverage means, with respect to an individual, coverage of the individual under any of the following: (1) A group health plan; (2) Health insurance coverage; . . . .
. . .
(e) For the purposes of this section the term group health plan means an employee welfare benefit plan (as defined in . . . the Employee Retirement Income Security Act of 1974) to the extent that the plan provides medical care (including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement or otherwise.
Accordingly, there would be very few, if any, circumstances under which the insurer could impose a pre-existing condition limitation.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.