The Office of General Counsel issued the following opinion on October 12, 2004 representing the position of the New York State Insurance Department.
Re: Employer Sponsored Group Health Insurance Employee Selection of Health Plan
May an employer offer two types of coverage to its employees and allow waiver of one type of coverage
The inquirer describes a situation where an employer has established an employee welfare benefit plan, as that term is defined in the Employee Retirement Income Security Act. 29 U.S.C.A. § 1002(1) (West 1999). Under the plan, the employer offers its employees the choice of two types of coverage: (1) coverage through an HMO or (2) coverage through a commercial major medical policy. The two types of coverage are mutually exclusive, i.e. the employee has to choose one and may not combine the two types of coverage. The employer pays the full cost for the HMO coverage, while requiring employee contributions for the major medical coverage.
New York Public Health Law § 4407 (McKinney 2002) provides, in pertinent part:
1. All employers subject to the provisions of the unemployment insurance law, except for those employers with fewer than twenty-five employees, shall include in any health benefits plan offered to their employees, the option of membership in a health maintenance organization which provides or offers a comprehensive health services plan in accordance with the provisions of this article, but only if such plan serves an area in which twenty-five of such employer's employees reside and the organization has been issued a certificate of authority by the commissioner.
. . .
4. No employer shall be required to pay more for health benefits as a result of the application of this section than would otherwise be required by any prevailing collective bargaining agreement or other legally enforceable contract for the provision of health benefits between an employer and his employees.
A similar requirement exists under Federal law. 42 U.S.C.A. § 300e-9 (West 2003).
In accordance with New York Public Health Law § 4406(1) (McKinney 2002 the subscriber contracts of an HMO are regulated by the Insurance Department as if they were contracts of not-for-profit health insurers. New York Insurance Law § 4235(c)(1)(A) (McKinney 2000 and 2004 Supplement) authorizes the issuance of group accident & 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.
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) precludes a waiver of dependent coverage where the employer does not requires any contribution by the employee towards either his or her coverage or that of dependents. If, however, the employer requires any contribution towards dependent coverage, a waiver is permitted.
In the situation postulated by the inquirer, each contract stands alone and there is an opportunity for the employee to choose one or the other option, as distinguished from a waiver of coverage where there is no choice of policies.
For further information one may contact Principal Attorney Alan Rachlin at the New York City office.