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 August 1, 2003, representing the position of the New York State Insurance Department.

RE: Municipal Cooperative Health Benefit Plans, New York Insurance Law Article 47 (McKinney 2000).

Questions Presented:

1. Is there a statutory time limit on the existence of a Municipal Cooperative Health Benefit Plan (MCHBP) or the effectiveness of its Municipal Cooperation Agreement?

2. In determining the composition of the Governing Board of the MCHBP, are the only relevant requirements those imposed by New York Insurance Law Article 47?

3. In a MCHBP composed of school districts, is it permissible for the Superintendent of a district to serve on the Governing Board?

4. May the fiscal officer of a constituent municipality also serve as the chief fiscal officer of the MCHBP?

5. Must funds, other than surplus and reserve funds, for MCHBPs be kept in separate bank or investment accounts?

Conclusions:

1. While New York General Municipal Law § 119-o(2)(j) McKinney 1994) may limit the term of a Municipal Cooperation Agreement to 5 years, the Agreement may be renewed for subsequent 5 year periods. The existence of an MCHBP, however, may be perpetual.

2. The only operative requirement for composition of the Governing Board of an MCHBP is found in New York Insurance Law Article 47.

3. The Superintendent of a local school district may serve on the Governing Board of an MCHBP.

4. The fiscal officer of a constituent municipality may also serve as the chief fiscal officer of an MCHBP.

5. So long as the funds of a MCHBP, other than surplus and reserve funds, are segregated on its books of account, they may be maintained in a common bank or investment account.

Facts:

The inquirer has been informed by another attorney that the operations of an MCHBP are also subject to the New York General Municipal Law (McKinney 1999 and 2003 Supplement) and the New York Local Finance Law (McKinney 2001 and 2003 Supplement). The inquirer believes that requirements imposed by New York Insurance Law Article 47 are self-contained with respect to the issues he raised.

Analysis:

Background

New York General Municipal Law Article 5-G (McKinney 1994) has, since 1960, authorized municipal corporations, including school districts, to enter into contracts to jointly perform their functions, including the provision of health benefits on a self-funded basis to employees. New York General Municipal Law § 6-n(2)(a) (McKinney 1994) authorizes municipalities to establish reserve funds to pay expenses that would otherwise be covered by insurance. That statute specifically excepts accident & health insurance from the subjects for which a reserve fund could be established. Accordingly, municipal corporations had to finance health benefit payments from current appropriations without additional reserve or surplus funds to cover unexpected contingencies.

Notwithstanding the above limitations, some municipal corporations did establish joint employee benefit funds. It was held, Rice v. Cayuga-Onondaga Healthcare Plan, 190 App. Div. 2d 330, 599 N.Y.S. 2d 344 (4th Dept. 1993), that, while the municipal corporations, in this case school districts, had the authority to join together, the joint entity had no juridical or fiscal existence and only the employing municipal corporation was an appropriate party in litigation.

Legislation was introduced, passed by the Legislature, and approved by the Governor, 1994 N.Y. Laws 698, enacting New York Insurance Law Article 47, which authorizes joint municipal cooperative agreements with respect to employee health benefits.

Term of a MCHBP

The attorney with whom the inquirer had the conversation has cited New York General Municipal Law § 119-o(2)(j) for the proposition that the existence of a MCHBP and its Municipal Cooperation Agreement may only extend for a period of five years.

New York General Municipal Law § 119-o(2) provides, in pertinent part:

An [inter-municipal] agreement may contain provisions relating to: . . . (j) Procedure for periodic review of the terms and conditions of the agreement, including those relating to its duration, extension or termination. The duration of an agreement hereinafter entered into, unless otherwise provided by law, may extend up to a maximum term of five years. . . . Nothing herein contained shall prevent or prohibit either the renewal of agreements upon conclusion of the terms established, or amendments, modifications, clarifications, or cancellations of agreements prior to conclusion of the terms established.

. . .

It is a maxim of statutory construction that legislative intent is to be determined from the language used. Shoreham-Wading River Central School District v. Town of Brookhaven, 107 App; Div. 2d 219, 486 N.Y.S. 2d 277 (2d Dept. 1985). While New York Insurance Law Article 47 does not specify the term of a MCHBP or of a Municipal Cooperation Agreement, the Legislature has clearly indicated that the life of MCHBPs may extend beyond five years.

New York Insurance Law § 4714 (McKinney 2000) provides:

For municipal cooperative health benefit plans that provided medical, surgical or hospital services on or before January first, nineteen hundred ninety-three pursuant to a municipal cooperation agreement authorized under article five-G of the general municipal law, the reserve and surplus requirements in section four thousand seven hundred six of this article may be phased in over a period of up to five plan years . . .

It would have made no sense for the Legislature to have allowed a MCHBP that existed prior to the enactment of New York Insurance Law Article 47 to meet otherwise applicable requirements through a phase-in period of up to five plan years, only to then automatically terminate.

New York Insurance Law § 4713(a) (McKinney 2000) provides:

In any case in which the governing board of a municipal cooperative health benefit plan determines that there is reason to believe that the plan will terminate, the governing board shall so inform the superintendent and submit a plan for the superintendent's approval for winding up the plan's affairs in an orderly manner designed to result in timely payment of all benefits, in such form and manner as the superintendent may prescribe.

If the Legislature had intended that a MCHBP would, pursuant to New York General Municipal Law § 119-o(2), automatically terminate at the end of five years, it would have inserted provisions concerning dissolution reflecting that eventuality.

Further, New York Insurance Law § 1103(a) (McKinney 2000) provides that licenses issued to domestic insurers shall have no expiration date. Based upon that statute, all the Certificates of Authority issued by the Department to MCHBPs have had no termination date.

Accordingly, it is the Department’s view that a MCHBP will exist until either the constituent municipalities decide to terminate it or the Superintendent of Insurance invokes New York Insurance Law Article 74 (McKinney 2000. As to the Municipal Cooperation Agreement, while it may have a term of only 5 years, there is nothing in the New York General Law preventing renewal for subsequent 5 year terms.

Composition of MCHBP’s Governing Board

This same attorney has cited an Opinion of the State Comptroller, 1982 Op. State Compt. 109, for the proposition that the Governing Body of a MCHBP comprising school districts should be composed of members of the constituent Boards of Education or School Boards. The inquirer disagrees and believes that New York Insurance Law Article 47 provides the relevant criteria.

New York Insurance Law § 4705(a) (McKinney 2000) provides, in pertinent part:

The municipal cooperation agreement, under which the municipal cooperative health benefit plan is established and maintained, and any amendment thereto, shall be approved by each participating municipal corporation by majority vote of each such corporation's governing body, and shall: . . . (8) establish a governing board to be responsible for the management, control and administration of the municipal cooperative health benefit plan, provided any municipal cooperative agreement to establish such a plan which is entered into after the effective date of this article shall provide that unions which are the exclusive collective bargaining representatives of employees who are covered by such health benefit plan shall be entitled to representation on such governing board.

Assembly Bill 11724 (Mr. Englebright), which became 1994 N.Y. Laws 698, originally provided that New York Insurance Law § 4705(a)(8) would simply establish the Municipal Cooperation Agreement as the means of selecting the Governing Body. It was at the request of a number of municipal unions that the requirement for union representation was inserted. The legislative history of 1994 N.Y. Laws 698 does not contain any other indication as to requirements concerning the composition of the Governing Body of a MCHBP.

The Opinion cited in support of the contention that members of the Board of Education or School Board of constituent school districts must compose the Governing Body of the MCHBP was issued prior to the enactment of New York Insurance Law Article 47 and was in response to an inquiry by an Assistant Superintendent of a school district as to whether a Board of Cooperative Education Services could participate in the joint purchase of health insurance. In those particular circumstances, The State Comptroller opined that such participation was statutorily permitted.

The State Comptroller further opined as to what should be contained in a Municipal Cooperation Agreement in accordance with New York General Municipal Law Article 5-G. In addition, the State Comptroller opined that it would be inappropriate, because the duties of a Trustee of a Board governing cooperative agreements for health insurance are inconsistent with their functions, for a teacher or ordinary employee to serve on such a Board. The language of the Opinion that presumably is relied upon by the attorney states: "An officer of each participating school district should be named as a trustee".

The State Comptroller’s opinion is limited to the factual circumstances presented and, since the provisions of New York Insurance Law § 4705 are specific as to the composition of the Governing Board, there are no interstices to be filled by interpretation, as was the case with New York General Municipal Law Article 5-G, one of the statutory sources for the 1982 Opinion of the State Comptroller. Accordingly, it is the view of the Department that New York Insurance Law § 4705 is self-contained as it deals with composition of the Governing Board of an MCHBP. In any event, "officer", as utilized in the State Comptroller’s Opinion, would also appear to encompass Superintendents and Deputy Superintendents of school districts.

Identity of MCHBP’s Fiscal Officer

This same attorney, citing New York Local Finance Law § 2.00(5)(e) contends that the fiscal officer of a constituent municipality may not serve as the chief fiscal officer of an MCHBP. Again the inquirer disagrees.

New York Insurance Law § 4705(a)(6) provides that the Municipal Cooperation Agreement shall:

designate the fiscal officer of a participating municipal corporation to be the chief fiscal officer of the municipal cooperative health benefit plan.

New York Local Finance Law § 2.00(5) (McKinney 2001) provides, in pertinent part:

The term ‘chief fiscal officer’ shall mean: . . . (e) In the case of school districts, the chairman or president of the school board; in the case of common school districts having a sole trustee, such trustee. . . .

Since New York Local Finance Law § 2.00(5) describes the "chief fiscal officer" of specified governmental bodies and does not purport to generally define all chief fiscal officers for all purposes, it is not inconsistent with New York Insurance Law § 4705(a)(6). Accordingly, New York Insurance Law § 4705(a)(6) alone governs the identity of the chief fiscal officer of a MCHBP composed of school districts, and it specifically provides that the Municipal Cooperation Agreement shall "designate the fiscal officer of a participating municipal corporation to be the chief fiscal officer of the municipal cooperative health benefit plan." New York Insurance Law § 4705(a)(6).

Investments of a MCHBP and their Custody

New York Insurance Law § 4706 (McKinney 2000) provides:

(a) Notwithstanding any provision of law, the governing board of a municipal cooperative health benefit plan shall establish a reserve fund, and the plan's chief fiscal officer shall cause to be paid into the reserve fund the amounts necessary to satisfy all contractual obligations and liabilities of the plan, including: (1) a reserve for payment of claims and expenses thereon reported but not yet paid, and claims and expenses thereon incurred but not yet reported . . . (2) a reserve for unearned premium equivalents; (3) a claim stabilization reserve; (4) a reserve for other obligations of the municipal cooperative health benefit plan; and (5) a surplus account, established and maintained for the sole purpose of satisfying unexpected obligations of the municipal cooperative health benefit plan in the event of termination or abandonment of the plan . . . .

(b) The moneys in the plan's reserve funds and surplus account shall be deposited in one or more banks or trust companies designated by the governing board in accordance with the municipal cooperation agreement, in one or more separate segregated accounts, subject to investment in obligations specified in the general municipal law or education law (as applicable) for investment of moneys in reserve funds or as otherwise expressly permitted by the superintendent. . . . (emphasis added)

(c) The plan's chief fiscal officer shall account for the plan's reserve funds separate and apart from all other funds of the municipal cooperative health benefit plan . . . .

(d) The plan's chief fiscal officer, within ninety days of the end of each fiscal year, shall furnish a detailed report of the operations and condition of the plan's reserve funds to the governing board.

(e) An expenditure from the plan's reserve funds shall be made only for the payment of benefits and other obligations of the municipal cooperative health benefit plan or expenses incurred in administering such plan.

. . .

In accordance with New York Insurance Law § 4706(b), all funds of a MCHBP must be segregated from the funds of any of the constituent municipal corporations. While the statute does not contain a specific provision on the subject, it is implicit that a Tax Identification Number (TIN) separate from any of the constituent municipal corporations is required for such an account, since the funds would not otherwise be segregated from those of the constituent entity. So long as the MCHBP has a separate TIN, that TIN may be utilized for all bank and investment accounts.

New York Insurance Law § 4706(b) provides that all reserve funds and the surplus account, which must be segregated from all other funds of the MCHBP, may be maintained in a single bank account, provided that the books of account of the MCHBP separately allocate amounts to the respective purposes. All other funds of the MCHBP may be maintained in another single bank account, again provided that the books of account of the MCHBP separately allocate amounts to their respective purposes.

As to investments, where again in accordance with New York Insurance Law § 4706(b) the surplus and reserve funds must be segregated from other funds, New York General Municipal Law §§ 11(4) and (6) provide:

4. Notwithstanding any other provision of law, the governing board of a local government may authorize the aforementioned officers to turn over the physical custody and safekeeping of the evidences of the investments made pursuant to this section to (a) any bank or trust company incorporated in this state, or (b) any national bank located in this state, or (c) any private banker duly authorized by the superintendent of banks of this state to engage in business here. . . . The said officers may direct such bank, trust company or private banker to register and hold any such evidences of investments in its custody, in the name of its nominee. Such officers may deposit or authorize such bank, trust company or private banker, to deposit, or arrange for the deposit of any such evidences of investments with a federal reserve bank or other book-entry transfer system . . . . The records of any such bank, trust company or private banker shall show, at all times, the ownership of such evidences of investments, and they shall, when held in the possession of such bank, trust company or private banker be, at all times, kept separate from the assets of such bank, trust company or private banker. All evidences of investments delivered to a bank, trust company, or private banker pursuant to this subdivision shall be held . . . pursuant to a written custodial agreement . . . . . . .

6. Except as may otherwise be provided in a contract with bond or note holders, any moneys of a political subdivision authorized to be invested pursuant to this section may be commingled for investment purposes; provided, however, that any investment of commingled moneys shall be payable or redeemable at the option of the owner within such time as the proceeds shall be needed to meet expenditures for which such moneys were obtained . . . . The separate identity of the sources of such funds shall at all times be maintained and income received on moneys commingled for the purpose of investment shall be credited on a pro rata basis to the fund or account from which the moneys were invested.

The reference to the General Municipal Law and Education Law in New York Insurance Law §§ 4705(b)(3) and 4706(b) merely provide a specification of acceptable investments, subject to expansion by the Superintendent of Insurance. There is no intention to incorporate the custody rule set forth therein. However, the custody rules set forth in the General Municipal Law are similar to those imposed upon insurers.

Accordingly, if the investments are maintained in the custody of the MCHBP or of one of the constituent municipal corporations, they must be kept separate and apart from the investments of any of the constituent municipal corporations. If the investments are held pursuant to a custodian agreement or in a book entry system, they may be appropriately commingled, provided that there is sufficient detail on the books of account of the custodian or book entry system to identify the investments of the MCHBP.

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