The Office of General Counsel issued the following informal opinion on March 29, 2004, representing the position of the New York State Insurance Department.
Re: Offering Free Administrative Services
When insurance agents sell group health insurance policies to employers, may such agents also provide administrative services for the health insurance at no additional charge to such employers, or would doing so constitute an unlawful rebate?
By providing administrative services for the health insurance sold to employers at no additional charge to such employers, such insurance agents are providing an unlawful rebate on such policies in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2003).
The inquirer is an insurance agent who sells group health insurance policies to employers. The inquirer wants to know whether providing administrative services to the employers for such policies would constitute an unlawful rebate. The inquirer would hire an outside firm to actually provide the service to the inquirers clients. For employers, the outside firm would administer Flexible Spending Account plans (hereinafter FSA); and benefits required by the Consolidated Omnibus Budget Reconciliation Act (hereinafter COBRA).
The COBRA services would include providing the following: instructions for initial notification to employees of their rights under COBRA; adjudication of eligibility; billing, collection, and processing of COBRA transactions; Participant Update reports that advise the employer of the need to add or remove individuals from the group health plan; a Participant Help Hotline; a Client Hotline; 24-7 automated information and full Web access to account information; remittance of monthly premiums to the employer with itemized reports; and retention of proof of compliance in professional document archives for long-term reference.
The FSA services include providing the following: customer service; information on a toll-free number; Interactive Voice Response and participant account information access via the Internet; expert plan design consulting; a Sample Plan Document and Summary Plan Description with customized information for the employer; employee communication materials to ensure employees understand the benefits of the plan; election form processing completed quickly to meet plans effective date; post-enrollment reporting clearly summarizing necessary payroll and human resources information; rapid claims processing, with claims fax via toll-free number; non-discrimination testing performed annually according to Internal Revenue Code guidelines; and Form 550 preparation service.
The inquirer further state that traditionally such fees have been paid by the employer, but that currently insurance agents are offering such services to clients in an effort to compete for the business.
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2003) states:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
An insurance agent or broker subject to the provisions of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2003), may not provide " . . . an inducement to any person . . . or any valuable consideration or inducement whatever not specified in such policy or contract; . . . " in connection with the sale of health insurance. Therefore, an insurance agent selling health insurance may not provide free administrative services to an employer because this service constitutes valuable consideration and is an unlawful inducement in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2003).
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.