The Office of General Counsel issued the following opinion on January 7, 2004, representing the position of the New York State Insurance Department.
Re: Self-Funded Health Benefit Plans, Regulation of Stop-Loss Insurance
1. In addition to Actuarial Letter 5 (June 27, 1985), does New York regulate stop-loss insurance issued to self-funded health benefit plans?
2. Have any other jurisdictions imposed mandates on stop-loss insurance?
1. New York Insurance Law § 4237-a (McKinney 2000 and 2004 Supplement) specifically regulates stop-loss insurance. In addition, other portions of the New York Insurance Law (McKinney 2000 and 2003 Supplement) restrict the issuance of stop-loss policies.
2. Yes, other jurisdictions do impose mandates on stop-loss insurance policies.
Since this was a general inquiry, no facts were presented.
On June 27, 1985, the Department issued an Actuarial Information Letter informing the insurance industry of existing requirements for stop-loss insurance policies issued to self-funded health benefit plans. Some of the requirements were that:
1. The insurer must undertake to ensure that statutorily mandated benefits be covered under the employers plan;
2. The insurer must agree to ensure that statutory conversion policies be provided, either by them or by another insurer;
3. Notice must be given to employees if and when the insurer becomes liable for runoff claims. We will accept a policy provision which requires the employer to pass along material provided by the insurer for such purposes . . .
5. The insurer must take full primary responsibility for the payment of all employer plan claims incurred but not yet paid at date of termination of the policy, unless one of two conditions occurs . . . .
In June 1992, Travelers Insurance Company commenced an action in the United States District Court for the Southern District of New York against the Governor, as well as the Superintendent of Insurance and Commissioner of Health, alleging that the surcharge on payments made by commercial insurers to hospitals pursuant to New York Public Health Law § 2807-c(1)(b) (McKinney 1992), as well as the additional surcharge imposed by 1992 N.Y. Laws 55, § 348 and codified in New York Public Health Law § 2807-c(11)(i) (McKinney 1992), was preempted by the Employee Retirement Income Security Act (ERISA), more specifically 29 U.S.C.A. § 1144(a) (West 1992), insofar as it affected employee welfare benefit plans, as that term is defined under ERISA. The insurer also alleged that the Actuarial Letter, because of the strictures of New York Executive Law § 102 (McKinney 1985) and State Administrative Procedure Act Article 2 (McKinney 1985), had no regulatory authority and that, if the court should determine the Actuarial Letter had regulatory authority, insofar as it affected the obligation of the insurer vis a vis self-funded employee welfare benefit plans, it was also preempted by ERISA.
Subsequent to the commencement of the action, several other insurers and insurance trade associations intervened as plaintiffs and the New York State Association of Blue Cross and Blue Shield Plans, whose members benefited from the surcharges, intervened as a defendant. After extensive briefing, the court in Travelers Insurance Company et al v. Cuomo et al, 813 F. Supp. 998 (S.D.N.Y. 1993), determined that the surcharges were preempted by ERISA and that the above quoted portions of the Actuarial Letter were also preempted by ERISA. The remaining portions of the Actuarial Letter were preserved by the "insurance savings clause" of ERISA. 29 U.S.C.A. § 1144(b)(2)(A).
After an appeal, the determination of the District Court was, with one exception, affirmed. Travelers Insurance Company et al v. Cuomo et al, 14 F.3d 708 (2d Cir. 1993). The Court of Appeals determined that the District Court had erred in holding that a portion of the Actuarial Letter was preserved by the insurance savings clause:
4. The insurer should maintain full runoff reserves. If the policyholder holds his own reserves, the insurer's claim reserves are to be replaced by a terminal premium payable immediately upon termination.
The determination of the Court of Appeals regarding the surcharges was appealed to the United States Supreme Court. In New York State Conference of Blue Cross and Blue Shield Plans v. Travelers Insurance Company, 513 U.S. 1108 (1995), the Court reversed the Circuit Court. Since no appeal was taken from the determination affecting the Actuarial Letter, the reversal by the United States Supreme Court did not effect a revival of the Actuarial Letter with respect to ERISA plans. However, with respect to those plans that are excluded from ERISA coverage, 29 U.S.C.A. § 1003 (West 1995), primarily church and governmental plans, the substantive requirements of the Actuarial Letter were unaffected.
New York Insurance Law § 4237-a provides in relevant part:
(b) Stop-loss insurance means an insurance policy whereby the insurer agrees to pay claims or indemnify an employer for losses incurred under a self-insured employee benefit plan in excess of specified loss limits for individual claims and/or for all claims combined, or any similar arrangement.
(c) A stop-loss insurance policy delivered, issued for delivery, or entered into in this state shall clearly describe: (1) the entire money or other consideration for the policy; (2) the time at which the insurance takes effect and terminates; (3) the specified per-claim, per-employee, or aggregate amount of claims above which payment or reimbursement is to be made by the insurer; and (4) the payments to be made by the insurer once the specified stop-loss thresholds have been exceeded.
(d) No stop-loss insurance contract shall be issued or renewed if issuance of the policy would be prohibited by section three thousand two hundred thirty-one, section three thousand two hundred thirty-four, section four thousand three hundred seventeen or section four thousand three hundred twenty of this chapter.
New York Insurance Law § 3231 (McKinney 2000 and 2004 Supplement), applicable to policies issued by commercial insurers, provides:
(a) No individual health insurance policy and no group health insurance policy covering between two and fifty employees or members of the group exclusive of spouses and dependents, hereinafter referred to as a small group, providing hospital and/or medical benefits. . . shall be issued in this state unless such policy is community rated and, notwithstanding any other provisions of law, the underwriting of such policy involves no more than the imposition of a pre-existing condition limitation as permitted by this article. . . . For the purposes of this section, "community rated" means a rating methodology in which the premium for all persons covered by a policy or contract form is the same based on the experience of the entire pool of risks covered by that policy or contract form without regard to age, sex, health status or occupation.
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(h) (1) Notwithstanding any other provision of this chapter, no insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of small groups which, if they purchased insurance, would be subject to this section. No insurer, subsidiary of an insurer, or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to small groups which, if they purchased insurance, would be subject to this section. . . .
New York Insurance Law § 4317 (McKinney 2000 and 2004 Supplement) imposes similar requirements on not-for-profit insurers, primarily Blue Cross/Blue Shield plans.
New York Insurance Law § 3234 (McKinney 2000), dealing with policies of commercial insurers, provides:
No insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of a group which denies or limits benefits for a specific disease or condition or for a procedure or treatment unique to a specific disease or condition in a manner which would be inconsistent with this chapter or regulations promulgated by the superintendent had the group purchased insurance. No insurer, subsidiary of an insurer, or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to groups which deny or limit benefits for a specific disease or condition or for a procedure or treatment unique to a specific disease or condition in a manner which would be inconsistent with this chapter or regulations promulgated by the superintendent had the group purchased insurance. . . . Nothing herein shall be construed to mandate the inclusion of specified benefits in an employer group plan, if such plan is not subject to the provisions of this chapter.
New York Insurance Law § 4320 (McKinney 2000) imposes similar restrictions on not for profit insurers.
It is the position of the Department that, under the holdings of Metropolitan Life Insurance Company v. Massachusetts, 471 U.S. 724 (1985) and Kentucky Association of Health Plans v. Miller, ___ U.S. ____, 123 S. Ct. 1471 (2003), even if the above quoted statutes should have an indirect effect on self-funded ERISA plans, New York Insurance Law §§ 3231, 3234, 4317, and 4320 are preserved under the "insurance savings clause" of ERISA. 29 U.S.C.A. § 1144(b)(2)(A).
In addition to New York, a number of other jurisdictions regulate the content of stop-loss policies. The National Association of Insurance Commissioner (NAIC), a trade association of insurance regulators, promulgates draft statutes and regulations for the consideration of its members, which may contain proposals that would be relevant to your inquiry. The National Insurance Law Service (NILS), a subsidiary of Commercial Clearing House, publishes, both in hard copy and electronic form, compilations of the insurance statutes and regulations of the various jurisdictions.
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.