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 December 10, 2003, representing the position of the New York State Insurance Department.

Re: Health Insurance, Continuation Requirement

Question Presented:

Would an employer provided self-funded medical reimbursement plan be subject to the continuation requirements of New York Insurance Law § 4305(e) (McKinney 2000 and 2003 Supplement)?

Conclusion:

No, such a plan would not be subject to the requirements of New York Insurance Law § 4305(e).

Facts:

A foundation (Foundation) is incorporated under the New York Not-For-Profit Corporation Law (McKinney 1997 and 2003 Supplement) and has less than 20 employees. The Foundation has purchased a group insurance contract from an insurer licensed in accordance with New York Insurance Law § 4302(b) (McKinney 2000) covering, after satisfaction of a deductible amount, the medical expenses of its employees. In addition to the insurance contract, the Foundation has instituted a self-funded plan to partially reimburse employees for any insurance deductible they may incur.

Analysis:

Both the group health insurance plan and self-funded plans are employee welfare benefit plans as defined by the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(1) (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 . . . 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, death. . . .

ERISA further provides, 29 U.S.C.A. § 1144 (West 1999):

(a) Supersedure; effective date. Except as provided in subsection (b) of this section, the provisions of this title . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . . This section shall take effect on January 1, 1975.

(b) Construction and application. . . . (2) (A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

(B) Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, . . . or to be engaged in the business of insurance . . . for purposes of any law of any State purporting to regulate insurance companies, insurance contracts . . . .

Accordingly, the Department may not regulate self-funded employee welfare benefit plans.

The Comprehensive Omnibus Budget Reconciliation Act of 1986 (COBRA), Pub. L. No. 99-272, requires that specified group health plans provide continuation coverage upon the occurrence of specified qualifying events. This requirement has been codified as part of ERISA. 29 U.S.C.A. § 1161 et seq. (West 1999 and 2003 Supplement).

The general continuation requirement is set forth in 29 U.S.C.A. § 1161 (West 1999):

(a) In general. The plan sponsor of each group health plan shall provide, in accordance with this part that each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled, under the plan, to elect, within the election period, continuation coverage under the plan.

(b) Exception for certain plans. Subsection (a) shall not apply to any group health plan for any calendar year if all employers maintaining such plan normally employed fewer than 20 employees on a typical business day during the preceding calendar year.

Since the Foundation has less than 20 employees, it is not subject to the COBRA continuation requirement. New York, however, in New York Insurance Law § 4305(e), provides its own continuation requirement:

In addition to the conversion privilege afforded . . . a group contract issued by a hospital service, health service or medical expense indemnity corporation shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his insurance for himself or herself and his or her eligible dependents, subject to all of the group contract's terms and conditions applicable to those forms of benefits and to the following conditions: . . . (7) This subsection shall not be applicable where a continuation benefit is available to the employee or member pursuant to Chapter 18 of the Employee Retirement Income Security Act, or Chapter 6A of the Public Health Service Act.

Since the continuation requirement of New York Insurance Law § 4305(e) operates only with respect to group insurance contracts, it would not be applicable to the self-funded plan established by the Foundation.

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