The Office of General Counsel issued the following opinion on May 7, 2004 representing the position of the New York State Insurance Department.
Re: Employer Sponsored Group Health Insurance, Waiver of Coverage
1. Where an employer requires no contribution by employees to cover themselves and their dependents, may an employee waive employer-sponsored health insurance either for himself or for his or her dependents?
2. If an employer presently offers an incentive to employees to so waive, what should it do?
1. Such a waiver is not permissible.
2. The employer should immediately cease offering such incentive and inform the insurer of the termination of the incentive, so dependent coverage may be provided.
As a licensed insurance agent, the inquirer has a client that has purchased contracts with both an indemnity insurer and an HMO covering employees and their dependents. The employer does not require any contribution by the employees. In accordance with a collective bargaining agreement, the employer permits employees who have coverage for either themselves or their dependents from other sources to opt out of the employer provided coverage in exchange for either cash payment or a credit towards another employee benefit.
If the employee should no longer be entitled to health coverage through the other source, he or she will be permitted to rejoin the employer sponsored plan.
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 and 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)(1)(A) precludes a waiver of dependent coverage where the employer does not require any contribution by the employee towards either his or her coverage or that of dependents. This interpretation creates parity between employees with dependents and those without dependents.
Accordingly, the employer should immediately terminate the incentive and notify the employees that coverage will be provided. Failure to remove the incentive would entitle the insurer to terminate the policy for non-compliance with New York Insurance Law § 4235 (c)(1)(A). Simultaneously with this notification to the employees, the employer should notify the insurer and request that immediate dependent coverage be provided to all employees. The insurer would be entitled to collect a premium for such additional coverage as of the date of its initiation.
The insurer should not object to the provision of such coverage, as it is required by New York Insurance Law § 4235(c)(1)(A). Whether the Department will seek to penalize the insurer for its failure to assure compliance with New York Insurance Law § 4235(c)(1)(A) is a fact specific issue and, therefore, cannot be determined at this time.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.