The Office of General Counsel issued the following opinion on March 25, 2004, representing the position of the New York State Insurance Department.
Re: Health Maintenance Organization, Coverage of Dependent
1. May an HMO discontinue coverage for a dependent under a group contract because the dependent is eligible for coverage through employment?
2. May an HMO discontinue coverage for such dependent because the dependent had previously submitted claims to the HMO in the belief that its coverage was primary when it was, in fact, secondary coverage?
Under the facts presented, neither circumstance would entitle an HMO to discontinue coverage.
The inquirers client ("the client") has been a New York City school teacher since August 2001 and secured health insurance coverage through her employment. Prior to becoming so employed, she was covered as a dependent under an HMO contract issued to her husbands employer and submitted claims for health services to that HMO.
For a period of time after becoming employed by New York City, the client received medical services from a physician who was a participating physician with the HMO that had issued the policy to her husbands employer. That HMO made payments directly to the physician. The HMO subsequently discovered that, since August 2001, because of the clients coverage through her employment, the insurer that issued a policy to the employer should have been primary. Accordingly, the HMO that had paid the claim requested a refund of the amounts paid from its participating provider.
By letter of November 23, 2003, the inquirer asked whether the HMO could recover the amounts paid to the participating provider and whether the client could now submit a claim to her carrier. By letter of December 16, 2003, I indicated, as to the first branch of the inquiry, that nothing in the New York Insurance Law (McKinney 2000 and 2003 Supplement) or the regulations promulgated thereunder prevented such a recovery and that the right of the HMO to recover such payments could be governed by the contract between the HMO and the participating provider. As to the second branch of the inquiry, I indicated that, depending upon the factual circumstances and the policy or contract provisions, such a claim might be timely.
The inquirer now states that the client has discontinued coverage through her employment and is now covered solely through her husbands contract. The inquirer further stated that the HMO insuring the husband either has or will secure the repayments mentioned in the inquirers November 23, 2003 inquiry. The client is concerned, however, that (1) the HMO will discontinue coverage because she is eligible for coverage through her own employment and (2) that the HMO will claim that her prior submission of claims was fraudulent, thus entitling it to discontinue coverage.
The regulation of HMOs is bifurcated between the Insurance Department and the Health Department. In accordance with New York Public Health Law § 4406(1) (McKinney 2002), the subscriber contracts of an HMO are subject to approval by the Insurance Department as if they were subscriber contracts of Health Service Corporations. Further, a regulation of the Health Department, N.Y. Comp. Codes R. & Reg. Tit. 10, § 98-1.5(b)(18) 2000) mandates that such contracts are subject to community rating.
Based upon the requirements of New York Public Health Law § 4406(1) and N.Y. Comp. Codes R. & Regs. tit. 10, § 98-1.5(b)(18), all subscriber contracts of HMOs are subject to New York Insurance Law § 4317(a):
No . . . group health insurance contract 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 contract is community rated and, notwithstanding any other provisions of law, the underwriting of such contract involves no more than the imposition of a pre-existing condition limitation as permitted by this article. . . . Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. Termination of coverage for . .. . small groups may be based only on one or more of the reasons set forth in . . . subsection (j) of section four thousand three hundred five of 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.
Fraud or a material misstatement in the submission of an insurance application or claim may be grounds for termination of an individual HMO contract, New York Insurance Law § 4304(c)(2)(B) (McKinney 2000 and 2004 Supplement). While there is no comparable provision in New York Insurance Law § 4305(j) (McKinney 2000 and 2004 Supplement), dealing with group contracts, the Department has permitted an insurer to include in its group policies or contracts and the certificates issued thereunder a provision setting forth that fraud or material misstatements may serve as the basis for termination of an individuals coverage.
The availability of primary coverage for a dependent from his or her employment is not one of the reasons set forth in New York Insurance Law 4305(j) that would entitle an HMO to discontinue coverage for a group. Further, once a dependent is covered, the HMO may not debar him or her from coverage, unless the contractholder subsequently changes eligibility for coverage.
The groups that may take delivery of a group health insurance policy or contract are set forth in New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2004 Supplement). Employer-employee groups are governed by New York Insurance Law § 4235(c)(1)(A):
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. . . .
An employer may condition coverage of dependents upon the dependent securing coverage through his or her employment, thus making the employers policy secondary under applicable coordination of benefit rules. The insurer or HMO, however, may not unilaterally impose such a condition, nor may the HMO condition continuation of coverage on the employers imposition of such a requirement.
The Department has issued a regulation, Regulation 62, effectuating the various statutory requirements for health insurance. That regulation provides, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.23(2002):
(a) This section is intended to establish uniformity in the permissive use of overinsurance provisions and to avoid claim delays and misunderstandings that could otherwise result from the use of inconsistent or incompatible provisions among plans.
(b) A coordination of benefits (COB) provision is one that is intended to avoid claims payment delays and duplication of benefits when a person is covered by two or more plans providing benefits or services for medical, dental or other care or treatment. It avoids claims payment delays by establishing an order in which plans pay their claims and providing the authority for the orderly transfer of information needed to pay claims promptly. . . .
. . .
(n) Order of benefit determination rules. (1) The primary plan must pay or provide its benefits as if the secondary plan or plans did not exist. A secondary plan may take the benefits of another plan into account only when, under these rules, it is secondary to that other plan. . . . (3) The order of benefit payments is determined using the first of the following rules which applies: (i) the benefits of a plan which covers the person as an employee, member or subscriber . . . are determined before those of a plan which covers the person as a dependent; . . . .
Insurance fraud is defined in New York Penal Law § 176.05(2) (McKinney 1999 and 2004 Supplement):
A fraudulent health care insurance act is committed by any person who, knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be presented to, or by, an insurer . . . or any agent thereof, any written statement or other physical evidence as part of, or in support of, an application for the issuance of a health insurance policy, or a policy or contract or other authorization that provides or allows coverage for, membership or enrollment in, or other services of a public or private health plan, or a claim for payment, services or other benefit pursuant to such policy, contract or plan, which he knows to: (a) contain materially false information concerning any material fact thereto; or (b) conceal, for the purpose of misleading, information concerning any fact material thereto. . . . For purposes of this subdivision an application for the issuance of a health insurance policy shall not include . . . b) any application for a certificate evidencing coverage . . . under a group contract approved by the superintendent of insurance.
Given the confusion over COB provisions that exists among insurance non-professionals, submission of a claim in the belief that the insurer, including an HMO, was primary when the insurer was in fact secondary, under the circumstances described, appears to lack the intent necessary to constitute insurance fraud. Accordingly, if there is no insurance fraud, the HMO may not terminate the clients coverage.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.