The Office of General Counsel issued the following opinion on October 2, 2003 representing the position of the New York State Insurance Department.
Re: Discount Health Plan
Does a prepaid medical/dental services plan in which the health care providers have contractually agreed to provide services at a discounted rate to service plan members who pay a fee to join, constitute insurance?
Yes. Such an arrangement would constitute the doing of an insurance business under N.Y. Ins. Law § 1101 (McKinney Supp. 2003) and require a license pursuant to N.Y. Ins. Law § 1102 (McKinney 2000), except if the fee per service paid by the members to the service providers covers the providers cost of delivering the service, including the reasonable overhead.
The inquirer wants to know if a prepaid medical/dental services plan in which health care providers have contractually agreed to provide services at a discounted rate to service plan members who pay a fee to join, constitutes insurance. The inquirer would like to offer for sale to consumers, a card with which the consumer can obtain discounts on health/dental services through a network of health care providers who have contracted to provide these services at a discounted rate to card holders.
N.Y. Ins. Law § 1101(a) (McKinney Supp. 2003) defines the terms "insurance contract" and "fortuitous event" as follows:
(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.
N.Y. Ins. Law § 1101(b)(1) (McKinney Supp. 2003) further states that ". . . any of the following acts . . . shall constitute doing an insurance business . . .: (A) making, or proposing to make, as insurer, any insurance contract,. . . ".
Generally, a prepaid medical services plan (the "plan") in which health/dental service providers offer health care at a discount to people who paid a membership fee to join the plan, would constitute the doing of an insurance business because the benefits that the plan would provide would be dependent upon the happening of a fortuitous event, that being the need for medical or dental care, which is beyond the control of either party. In the past, the Department has opined that the making of a service plan, which for a prepaid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business under N.Y. Ins. Law § 1101(a) (McKinney Supp. 2003) and requires a license pursuant to N.Y. Ins. Law § 1102 (McKinney 2000). This is because the medical care provider bears the risk of incurring a loss if the cost of the services provided exceeds the paid fees.
However, a service plan where there is a prepaid membership fee, and certain services occasioned by the happening of a fortuitous event are offered for an additional fee per service but is discounted from the usual fee, does not constitute the doing of an insurance business, and does not require an insurance license by the Department so long as the fees cover the cost of rendering the service (including reasonable overhead). Additionally, the Department has stated that the prepaid membership fee may include services at no or a nominal separate charge, so long as these benefits are of a non-fortuitous nature.
For example, a routine annual examination, including routine X-rays in the case of dental programs, would not be prohibited because these services are not the result of a fortuitous event. Any additional service for treatment of specific medical problems that arise fortuitously may be performed at a discounted rate, but it must cover the cost of providing the service including reasonable overhead. Additional opinions that discuss prepaid medical/dental services plans are available on the Departments website at www.ins.state.ny.us.
This opinion is limited to an interpretation of the New York Insurance Law and does not interpret any other law that may control the inquirers proposed program.
For further information one may contact Senior Attorney Susan Dess at the New York City Office.