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 March 23, 2004, representing the position of the New York State Insurance Department.

Re: Employer Sponsored Group Health Insurance, Waiver of Coverage

Issues

1. Where an employer requires no contribution by employees to cover themselves, but does require contribution by employees for coverage of dependents, may an employee waive employer-sponsored health insurance?

2. Where an employer requires contribution by employees to cover both themselves and dependents, may an employee waive employer sponsored health insurance?

Conclusions

1. Such a waiver is not permissible.

2. Such a waiver is permissible.

Facts

The inquirer’s firm is a consultant in human resources issues and received an inquiry from a subscriber to the inquirer’s publication. The subscriber offers two plans, eligibility for each plan depends upon the employee’s job title. One plan requires no employee contribution for the employee, but does require an employee contribution to cover dependents. The other plan requires employee contributions for coverage of both the employee and dependents. The subscriber will pay employees a specified sum, if the employee opts out of coverage under whichever plan to which the employee is entitled, and inquired if such a practice was permissible.

Analysis

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 v. Massachusetts, 471 U.S. 724 (1985).

New York Insurance Law § 4235(c)(1)(A) (McKinney 2000 and 2004 Supplement) authorizes the issuance of group accident & health insurance through:

A policy issued to an employer . . . which employer . . . 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)

New York Insurance Law § 4235(f)(1) provides:

Any policy of group accident, group health or group accident and health insurance may include provisions for the payment by the insurer of benefits for expenses incurred on account of hospital, medical or surgical care . . . for the employee or other member of the insured group, his spouse, his child or children, or other persons chiefly dependent upon him for support and maintenance. . . .

New York Insurance Law § 4235(c) has been clarified by the Department’s Regulation 62, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) (2002):

Conditions of eligibility. Conditions pertaining to employment under section 4235(c) of the Insurance Law includes geographic situs of employment, earnings, method of compensation, hours, and occupational duties.

Accordingly, the inquirer’s subscriber may validly maintain different benefit plans for different classes of employees.

It is the position of this Department that where the employer requires any contribution by the employee towards his or her coverage, the employee may waive coverage. If, however, the employer only requires an employee contribution toward dependent coverage, then the employee may not waive his or her coverage. This interpretation creates parity between employees with dependents and those without dependents.

Under the circumstances of the inquirer’s subscriber’s program, since the first plan is non-contributory as to employee coverage, a waiver by employees, as to their own coverage, would be prohibited by New York Insurance Law § 4235(c)(1)(A). Employees could, of course, waive coverage of dependents. In the case of the second plan, since both employee and dependent coverage are contributory, employees may waive the coverage.

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