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 June 25, 2004 representing the position of the New York State Insurance Department.

Re: Preferred Provider Organizations

Issue

1. Would an organization that, as a contractor for self-insured employers, compensates health care providers providing medical care as required by New York Workers’ Compensation Law § 13 (McKinney 1992 and 2004 Supplement), and for other corporate health services, on a fee for service basis be doing an insurance business?

2. Are such entities subject to other statutes and to the jurisdiction of other agencies?

Conclusions

1. An entity that, on behalf of its customer, compensates health care providers under delegation from the customer and does not independently assume any risk would not be doing an insurance business under the facts as described herein.

2. The described organization may be subject to several other federal and state statutes and the jurisdiction of several other federal and state agencies.

Facts

Corporation A intends to contract with New York employers to provide corporate health services to the employer, including pre-employment physicals, substance abuse tests, and medical treatment for employees as a result of illnesses and injuries incurred in the course of employment. The services to be provided by Corporation A, except for pre-employment physicals and substance abuse tests, would only extend to any medical services to employees arising out of an illness or injury that is incurred in the course of employment.

In addition, Corporation A may contract with insurers that are licensed to transact a workers’ compensation business in New York to furnish those medical providers as will enable the insurer to provide managed care, as contemplated by New York Workers’ Compensation Law Article 10-A (McKinney 2004 Supplement).

In accordance with New York Workers’ Compensation Law § 13, an employer is obligated to provide medical treatment for employees who are ill or injured within the meaning of the New York Workers’ Compensation Law (McKinney 1992 and 2004 Supplement). While the self-insured employer would delegate to Corporation A the burden of furnishing health care providers to furnish the obligated services, the responsibility under the New York Workers’ Compensation Law would remain with the employer.

In order to provide its services, Corporation A would contract with health care providers, who would provide the actual treatment. Where the medical treatment involves ancillary services, such as laboratory tests, and Corporation A does not have a contractual arrangement with a provider, Corporation A will recommend that employers utilize providers with which it has an informal arrangement. The health care providers under contract would charge Corporation A, on a fee for service basis, an amount that represents a discount from the provider’s usual fee.

Corporation A would provide its customers with a list of participating health care providers. The customer would contact the health care provider directly. Corporation A would collect from its customers for remittal to the health care provider an amount in excess of the amount charged by the health care provider to Corporation A, although less than the amount usually charged by the health care provider. The health care providers are made aware of the differential retained by Corporation A and, if the employer does not remit amounts to Corporation A for retransmission to the provider, agree to look solely to the employer for any payments. In addition, the health care providers agree that, in exchange for administrative services (primarily billing the employers) they will pay Corporation A an annual fee.

In cases where the customer utilizes service providers, such as clinical laboratories, where Corporation A did not have a contractual arrangement, the customer would directly pay the service provider an amount that represents a discount from the usual fee for service.

All contracted health care providers will be appropriately licensed in accordance with the New York Education Law (McKinney 2001 and 2004 Supplement) and, if required, the New York Workers’ Compensation Law (McKinney 1992 and 2004 Supplement).

Analysis

New York Insurance Law § 1101(a) (McKinney 2000) defines the doing of an insurance business:

(1) ‘Insurance contract’ means any agreement or other transaction whereby one party, the ‘insurer’, is obligated to confer benefit of pecuniary value upon another party, the ‘insured’ or ‘beneficiary’, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.

(2) ‘Fortuitous event’ means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.

Arrangements that obligate one party to provide a service that is dependent upon a fortuitous event (beyond the control of either party) constitute insurance under New York Insurance Law § 1101 and require licensing of the providers of such services pursuant to New York Insurance Law § 1102. The Department has opined, however, that such arrangement would not constitute the doing of an insurance business if the provider of such services charges a separate fee for each such fortuitous service. The fee, even if discounted, must, however, fully cover the cost of rendition (including reasonable overhead costs) of such services.

Services provided that are not dependent upon the happening of a fortuitous event do not come within the definition of doing an insurance business and accordingly, no separate fee need be charged for such non-fortuitous services.

Therefore, since each service being provided for is subject to a separate fee, the participating health care provider would not be considered to be doing an insurance business within the meaning of the New York Insurance Law, so long as each such fee that is dependent upon a fortuitous event covers the provider’s cost of rendition of service, including reasonable overhead costs. In addition, Corporation A will not assume any risk and will merely function as an intermediary, because it merely forwards the payments on behalf of the employer for retransmission to the provider and the provider agrees to look solely to the employer for any payment. Therefore, it would not be considered to be doing an insurance business within the meaning of the New York Insurance Law.

As stated previously, Corporation A might contract with insurers to enable the insurers to furnish managed care, as authorized under the New York Workers’ Compensation Law. If such an arrangement were entered into, and there was financial risk transfer, as defined in N.Y. Comp. Codes R. & Regs. tit. 11, Part 101 (2002) (Regulation 164), there must be compliance with the requirements of the Regulation.

Although Corporation A would not be doing an insurance business, some other applicable statutes are discussed below.

The Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq (West 1999 and 2003 Supplement) regulates, among other plans, employee welfare benefit plans. Such plans are defined in ERISA, 29 U.S.C.A. § 1002(1) (West 1999):

The terms ‘employee welfare benefit plan’ . . . mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability . . . .

The scope of ERISA coverage is set forth in 29 U.S.C.A. § 1003(1) (West 1999 and 2003 Supplement):

(a) Except as provided in subsection (b) . . . this title shall apply to any employee benefit plan if it is established or maintained-- (1) by any employer engaged in commerce or in any industry or activity affecting commerce; or (2) by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or (3) by both.

(b) The provisions of this title shall not apply to any employee benefit plan if-- . . . (3) such plan is maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws . . . .

With but one exception, the "plan" is for the benefit of the employer, and not the employee. The one exception, workers’ compensation benefits, is exempted from ERISA by 29 U.S.C.A. § 1003(b)(3). Therefore, the "plan" being proposed by your client may not be subject to ERISA.

Corporation A should also be aware of its possible obligations under both the Americans with Disability Act (ADA), 42 U.S.C.A. § 12101 et seq. (West 1995 and 2003 Supplement) and the New York State Human Rights Law, New York Executive Law § 296(3)(a) (McKinney 2001 and 2003 Supplement), which prohibit discrimination against individuals with disabilities.

Corporation A may be subject to the requirements of the Health Insurance Portability and Accountability Act (HIPAA). HIPAA was enacted by the United States Congress as Pub. L. No. 104-191 (1996) and is a comprehensive enactment dealing with health insurance. Section 264 of HIPAA, codified as a Note to 42 U.S.C.A. § 1320d-2 (West 2002 Supplement), required the Secretary of Health & Human Services (HHS) to promulgate a regulation dealing with privacy of protected health information. The Regulation as promulgated by the Department of HHS, 45 C.F.R. § 160.101 et seq. (2003), contains comprehensive requirements, which go beyond insurance, for the protection of protected health information. The HIPAA Privacy Regulation is limited to regulation of protected health information in the custody of "covered entities".

Questions concerning HIPAA requirements, as they affect Corporation A and its customers may be addressed to:

Office for Civil Rights
United States Department of Health & Human Services
601 East 12 Street
Kansas City, MO 64106.

Additionally, in its dealings with workers’ compensation insurers, Corporation A may be a preferred provider organization (PPO) within the meaning of New York Workers’ Compensation Law Article 10-A (McKinney 2004 Supplement). An employer that has permission from the New York Workers’ Compensation Board to self-insure workers’ compensation benefits may also contract with a PPO to provide injured or ill employees with all medical services required under the New York Workers’ Compensation Law. New York Workers’ Compensation Law § 351 (McKinney 2004 Supplement). A preferred provider organization is defined, New York Workers’ Compensation Law § 352 (McKinney 2004 Supplement):

As used in this article, the term ‘preferred provider organization’ . . . shall mean a plan licensed pursuant to section three hundred fifty-three of this article owned, operated or administered by an entity that provides for the delivery of all services required by this chapter to all persons covered by such plan.

In accordance with New York Workers’ Compensation Law § 353 (McKinney 2004 Supplement), applications for licensure are submitted to the Commissioner of Health. Activities of a PPO are subject to the supervision of both the Department of Health and the Workers’ Compensation Board.

In addition to possible licensure as a workers’ compensation PPO, Corporation A, in its relationship with the participating health care providers, may be subject to other provisions of the New York Public Health Law (McKinney 2002 and 2004 Supplement).

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