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 22, 2003, representing the position of the New York State Insurance Department.

Re: Employer Sponsored Health Insurance

Questions Presented:

1) Must an employer sponsored group accident & health insurance policy, where the policyholder requires no employee contribution, cover all employees?

2) If so, what is the basis of the requirement?

3) If the employer requires a contribution, no matter how small, may an employee than opt out?

Conclusions:

1) Yes, coverage of all employees is required under those circumstances.

2) The requirement was imposed by the Legislature in order to prevent employers from discriminating among employees.

3) Yes, any requirement by the employer for an employee contribution will allow an employee to opt out of the offered coverage.

Facts:

This was a general inquiry and no facts were provided.

Analysis:

New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2004 Supplement) provides, in pertinent part:

No policy of group accident, group health or group accident and health insurance shall be delivered or issued for delivery in this state unless it conforms to one of the following descriptions: (A) A policy issued to an employer or to a trustee or trustees of a fund established by an employer, which employer or trustee or trustees shall be deemed the policyholder, insuring with or without evidence of insurability satisfactory to the insurer, employees of such employer, and insuring, except as hereinafter provided, all of such employees or all of any class or classes thereof determined by conditions pertaining to the employment or a combination of such conditions and conditions pertaining to the family status of the employee, for insurance coverage on each person insured based upon some plan which will preclude individual selection. . . . The premium for the policy shall be paid by the policyholder, either from the employer's funds, or from funds contributed by the insured employees, or from funds contributed jointly by the employer and employees. If all or part of the premium is to be derived from funds contributed by the insured employees, then such policy must insure not less than fifty percent of such eligible employees or, if less, fifty or more of such employees. . . . (emphasis added)

The regulation effecting this requirement, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) (1999), provides:

Conditions pertaining to employment under section [4235] of the Insurance Law includes geographic situs of employment, earnings, method of compensation, hours, and occupational duties.

The above listing is illustrative and is not intended to be an exhaustive compilation of all valid conditions pertaining to employment.

When the predecessor to New York Insurance Law § 4235(c)(1)(A), New York Insurance Law § 221(2)(a) (Taylor 1940), was first enacted, in order to prevent adverse selection, all eligible employees had to be covered. The distinction between those policies that were employer pay all and those that had employee contribution was first introduced, for group life insurance, by 1947 N.Y. Laws 324 to conform New York law to the requirements of the Taft-Hartley Act, 61 Stat. 136 (1947), and carried over to group health insurance by 1948 N.Y. Laws 709.

Since the original enactment through the recodification of 1984 N.Y. Laws 367, in order to eliminate the possibility of employer discrimination by only providing coverage to healthy employees, the Department has required that, if there is no employee contribution, all eligible employees must be covered.

The provision of health insurance by an employer constitutes a welfare benefit plan as that term is defined under the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(1) (West 1999). While ERISA generally preempts state laws, 29 U.S.C.A. 1144(a) (West 1999), insurance laws are excepted from the preemption. 29 U.S.C.A. § 1144(b)(2)(A). This provision has been construed to allow state insurance laws to apply to insured plans, notwithstanding that they may affect an ERISA welfare benefit plan. Metropolitan Life Insurance Company v. Massachusetts, 471 U.S. 724 (1985).

Given the language of New York Insurance Law § 4235(c)(1)(A), it is the position of the Department that any required employee contribution, no matter how minimal, requires opting out of coverage by the employee.

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