The Office of General Counsel issued the following opinion on September 3, 2003 representing the position of the New York State Insurance Department.
Re: Licensing of Third Party Administrator as an Independent Adjuster.
Is a third party administrator required to become licensed as an independent adjuster under the New York State Insurance Law where it processes employee applications for reimbursement from flexible spending accounts that are governed by Internal Revenue Code § 125 (2003)?
No. A third party administrator is not required to become licensed as an independent adjuster under the New York State Insurance Law to perform such activities.
ABC Co. performs third party administration of flexible spending accounts that are governed by Internal Revenue Code § 125 (2003), such as Health Care Reimbursement Accounts, Dependent Care Reimbursement Accounts and Transportation Management Accounts.
Internal Revenue Code § 125 (2003) governs cafeteria plans or employee funded flexible spending arrangements. These are separate written benefit plans maintained by an employer for the benefit of its employees in which all participants are employees. Each participant has the opportunity to select among two or more benefits consisting of cash and qualified benefits that are nontaxable.
Generally, employees estimate how much their out-of-pocket expenses will be throughout the year for things such as health care (that is not covered by their health insurance plan), dependent care and transportation. The employer then withholds the estimated amount from the employees paycheck and deposits it into a master account in the name of the employer. The amount contributed by the employee is tax-free. Throughout the year, employees submit applications to the employer and are reimbursed for their expenses. The funds contributed to the account do not carry over to the next calendar year. Thus, if the employee does not use the funds contributed to the account by the end of the year, the funds are kept by the employer.
ABC Co. performs third party administration of these types of accounts on behalf of the employer by processing applications for reimbursement and forwarding a check to the employee. It does not collect insurance premiums or adjusts claims.
At the outset it is important to note that there is no licensing or registration requirement for third party administrators as such under the New York Insurance Law. However, any person or entity, including a third party administrator, that performs functions that require licensing as an independent adjuster (or any other type of license under the Insurance Law) must be accordingly licensed.
N.Y. Ins. Law § 2102(a)(1)(McKinney 2000) provides, in pertinent part, that:
(a)(1) No person, firm, association or corporation shall act as an . . . insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
N.Y. Ins. Law § 2101(g)(1)(McKinney 2000) defines the term "independent adjuster", in pertinent part, as follows:
(g)(1) [A]ny 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 . . .1 (emphasis added).
Thus, in accordance with the above, entities that investigate and adjust claims that arise under insurance contracts issued by insurers must be licensed as independent adjusters.
In the present case, the employer is not acting as an insurer in providing flexible spending accounts to its employees, because the accounts are directly funded by the employees for their anticipated out-of-pocket expenses. The employer is not paying any claims submitted by its employees, but is merely providing them with a vehicle through which they can pay their own expenses. Moreover, the activities that ABC Co. performs are not related to the investigating and adjusting of claims arising under insurance contracts issued by an insurer. Therefore, such activities would not come within the purview of 2101(g)(1) and ABC Co. would not have to become licensed as an independent adjuster in New York.
The scope of this opinion is limited to licensing requirements under the Insurance Law. Licensing may be required pursuant to the New York General Business Law or some other New York statute. ABC Co. was directed to contact the New York State Department of State for further information.
For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.
1 Although the statute lists exemptions from this licensing requirement, none of them are applicable to this inquiry.