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 July 28, 2004, representing the position of the New York State Insurance Department.

Re: Kidney Dialysis, Insurer Reimbursement

Issues:

1. Is a health insurance plan required to give notice to insureds and non-participating health care providers when it changes the method of reimbursing for the services of such health care providers from a percentage of a provider’s charges to a set amount?

2. Are health insurers required to secure the Insurance Department’s approval before implementing such a change?

3. Are hearings required before such changes may be implemented?

4. Is there any remedy where such changes result in a significant decrease in benefits?

Conclusions:

1. If the benefits are provided through a policy or contract issued by an insurer, including a Health Maintenance Organization, notification to insureds would be required. If the benefits are provided by a self-funded employee welfare benefit plan, as that term is utilized in the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1999 and 2003 Supplement), such plans are not subject to regulation by the Insurance Department, and notice requirements are established by ERISA. There is no requirement in the New York Insurance Law (McKinney 2000 and 2004 Supplement) that non-participating health care providers be given notice of such a change.

2. Before an insurer, including an HMO, could modify its contract, the approval of the Insurance Department would have to be secured.

3. There is no requirement for hearings prior to the Insurance Department making a determination on an application by an insurer to change its method of paying for services by a non-participating health care provider.

4. If the benefits are provided by an ERISA plan, either insured or self-funded, complaints may be made to the United States Department of Labor. If the benefits are provided under a policy or contract of insurance and the change would be violative of the contract, recourse may be had to the Insurance Department.

Facts:

A firm operates a number of kidney dialysis centers throughout the United States. It is alleged that some health plans have instituted a change in compensating non-participating health care providers, from paying a percentage of the provider’s charges to paying a set amount, and that such changes have resulted in significant decreases in benefits.

Analysis:

It is presumed that this inquiry does not concern individual health insurance policies, since New York Insurance Law § 3216(g)(1) (McKinney 2000 and 2004 Supplement) would prohibit a modification of an existing policy.

Group health insurance may be provided by any one of three types of insurers: (1) commercial insurers, (2) not-for-profit insurers having a license from the Insurance Department in accordance with New York Insurance Law Article 43 (McKinney 2000 and 2004 Supplement), or (3) HMOs having a Certificate of Authority from the Commissioner of Health in accordance with New York Public Health Law Article 44 (McKinney 2002 and 2004 Supplement). In accordance with New York Public Health Law § 4406(1) (McKinney 2002), subscriber contracts of HMOs are regulated by the Insurance Department as if they were subscriber contracts of not-for-profit insurers.

In addition to insured plans, benefits may be provided by either employers or unions on a self-funded basis. Such benefits are regulated in accordance with ERISA and, to a great extent, state jurisdiction over the benefits provided by such plans has been preempted. 42 U.S.C.A. § 1144(a) (West 1999).

The method of compensating non-participating health care providers, whether by a percentage of charges or a set amount, is usually set forth in the insurance policy or contract. In accordance with New York Insurance Law §§ 3201(b)(1) (McKinney 2000), dealing with policies of commercial insurers, and 4308(a) (McKinney 2000), dealing with contracts of not-for-profit insurers and all HMOs, before such policies or contracts may be issued or amended, the language must be approved by the Insurance Department.

Many group health insurance policies and contracts are issued on an annually renewable basis. The insurer, including an HMO, may only opt to modify the contract at the time of renewal. If the method of compensating non-participating health care providers is set forth in the contract (or certificate issued to individual insureds thereunder), such a change would require an amendment of the policy, contract, or certificate, which as indicated above would be subject to the approval of the Insurance Department.

There is no provision in the New York Insurance Law or the regulations issued thereunder for the Department to hold a hearing before making a determination on such an amendment.

If the Department approves the change in the policy, contract, or certificate, new documents would have to be issued to the policyholder or contractholder and the individual certificateholders. If the policy or contract is issued to an ERISA plan, the Summary Plan Description (SPD) may have to be amended. In addition, in accordance with New York Public Health Law § 4408(1) (McKinney 2002), the member’s handbook might also have to be amended.

Since there is no contractual relationship between the insurer and the non-participating health care provider, there is no requirement that such provider be notified by the insurer of any change in the method of reimbursing the insured.

The benefits provided under an ERISA plan may be specified both in the plan itself and in the SPD. If it is an insured ERISA plan, such benefits are also specified in the insurance policy or contract, as well as the certificate (which may be a separate document from the SPD). If the plan sponsor has not reserved the right in the plan to modify benefits, such a change may be violative of ERISA. Complaints concerning possible violations of ERISA should be addressed to the local office of the Employee Benefit Security Administration of the United States Department of Labor.

If a change in compensation of a non-participating provider would not be in compliance with the approved policy or contract, a complaint may be made to the Department’s Consumer Services Bureau. Complaints concerning the quality of health care provided by an HMO may be addressed to the Department of Health.

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