The Office of General Counsel issued the following opinion on November 5, 2004, representing the position of the New York State Insurance Department.
Re: Third Party Administrator Licensing as an Independent Adjuster Inquiry in the Context of ERISA Self-Funded Employee Welfare Benefit Plans
Must the TPA and/or its employees be licensed as an independent adjuster under N.Y. Ins. Law § 2108 (McKinney 2000 & Supp. 2004), because of their activities in New York State on behalf of an ERISA Self-Funded Employee Welfare Benefit Plan ("Plan") as described below?
No. The TPA and/or its employees that act in New York State pursuant to the proposed activity need not be licensed as independent adjusters.
The TPA is an out-of-state Limited Liability Company ("LLC") that has contracted with the Plan in New York State. This opinion is limited to an analysis of the New York State Insurance Law ("N.Y. Ins. Law") and Regulations promulgated thereunder.
The inquirers August 4, 2004 letter provides the following description of the services provided by the TPA (BAS) personnel for the one Plan that it services in New York State:
The BAS claim processor will enter the amount of the claim into the automated claims processing system. The automated system will determine first whether the submitting individual is a covered employee and whether the claim is covered under the employer's plan. The automated system will then reprice the claim if preferred provider or utilization review contracts are involved or, if not, will test to determine if usual and customary limitations apply. In addition, the automated system will coordinate the benefits with any other applicable insurance or benefits and will code all claims using CPT, DRG, REV and HC/PC. Finally, having determined the amount to be paid to the service provider(s), the automated system will determine the amount to be paid by the covered employee by applying the relevant deductibles, copayments and out-of-pocket limits . . . .
If the covered employee does not agree with the amount allowed by this automated system, he/she can appeal to the employer. In connection with any such appeal, BAS will provide information about the claim to the employer and, in certain cases, a peer review will be involved. Following a review of the claim, the employer -- and not BAS -- will determine whether the amount calculated by BAS's automated system will be changed.
In subsequent e-mails, the inquirer clarified the definitions of terms used above and provided the following information. A CPT is Current Procedural Terminology, which means the type of medical service. A DRG is a Diagnostic Related Group and it represents a median number estimated for payment of all medical services related to a particular medical condition such that half the treatments cost less and half more. REV is the relative value payment by Medicare for various procedures and ancillary services such as x-ray service, lab service, and physical therapy. HC/PCS is the acronym for the Healthcare Common Procedure Coding System, which is a uniform method for healthcare providers and medical suppliers to report professional services, procedures, and supplies.
The employer is the Plan Administrator.
The TPA employs an individual who is a licensed individual non-resident life, accident, and health insurance agent who places stop-loss insurance for the Plan against specific claims excess of an attachment point and against high frequency of claims exceeding an aggregate attachment point. The term specific claims excess of an attachment point relates to a fixed dollar amount per individual for all claims paid on that individual during the contract year. The term aggregate attachment point relates to an annual maximum for the total claims of all participants under the specific stop-loss attachment. This writer presumes: (1) the agent is acting in his individual licensed capacity, (2) the agent does not act on behalf of the TPA in its capacity as LLC, and (3) the agent does not share his commission with the TPA in its capacity as LLC.
An independent adjuster is defined by N.Y. Ins. Law § 2101(g)(1) (McKinney 2000), as amended by 2003 N.Y. Laws 692:
(1) The term "independent adjuster" means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster, except that such term shall not include: . . . .
None of the exceptions are relevant to this inquiry.
This analysis focuses on three elements that must be established to define an independent adjuster in New York State, with reference to whether the TPA and/or its employees must be licensed as an independent adjuster: (1) the TPA acts on behalf of an insurer (2) in New York State (3) doing adjusting activity.
Once the employer establishes the Plan, the employer is contractually bound to provide the benefits to its employees. This contract meets the definition of doing an insurance business pursuant to N.Y. Ins. Law § 1101 (McKinney Supp. 2004) because there is a benefit of pecuniary value to the employees regarding accident and health benefits dependent upon the happening of a fortuitous event. Pursuant to ERISA 29 U.S.C.A. § 1144 (West 1999), a self-funded employee welfare benefit Plan is exempt from licensing by New York State. Thus, a self-funded employee welfare benefit Plan is an exempt insurer. Accordingly, the TPA, in acting on behalf of the Plan, acts on behalf of an exempt insurer.
The TPA and/or its employees' activity highlighted in the facts presented on behalf of the exempt insurer (Plan) would be activity in New York State. Bases for doing business in New York State include communications in New York State by telephone, mail, internet, and e-mail.
In determining what constitutes adjusting claims, the New York State Insurance Department has traditionally considered whether the duties performed in the handling of a claim required the exercise of discretionary authority conferred by the insurer, as opposed to performance of strictly ministerial tasks. Past opinions have held that reviewing and processing claims, authorizing payments, issuing and signing checks, handling inquiries from insureds, evaluating the merits of a loss, and making recommendations to the insurer, are all discretionary acts, while acts such as data processing are ministerial in nature.
In this instance, the TPA and/or its employees do not establish the standards and criteria of the software used by the automated claims processing system to decide whether a Plan participant's claim is covered and, if so, the amount of payment for the claim.
The inquirer indicates that the TPA uses commercially available software. Each Plan Administrator establishes the rules and limits for payment of a specific claim, for example 1) $500 deductible per employee per year; 2) eligible charges in excess of the deductible paid at 80%; 3) once the employee's out-of-pocket expense reaches $2,000 including deductible, the Plan then pays 100% of eligible charges; 4) a lifetime maximum benefit of $1,000,000. The covered services are determined by each Plan Administrator. These types of payment rules are communicated to the TPA by the Plan Administrator. The TPA uses the software to implement these rules. Thus, the employer as Plan Administrator decides whether a Plan participant's claim is covered and, if so, the amount of the claim payment. The TPA merely implements the employer's standards and criteria to determine whether a claim is covered and, if so, the amount of claim payment.
The TPA and/or its employees do not make the decision regarding a Plan participant's appeal of claim denial. The inquirers letter indicates that any claims appeal will be determined by the employer and not the TPA. The TPA will assist in gathering information about the claim and, in certain situations, will engage a peer review of the service provided and will forward the information to the Plan Administrator for review and final determination. However, once all the claim information is provided, the employer will decide the appeal.
Accordingly, the TPA and/or its employees do not act with discretion in handling claims on behalf of the Plan and therefore need not become licensed as "Independent adjuster, accident and health" pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 26.3(i) (2000) (Regulation 25).
However, it is unclear what role, if any, the TPA had in the sale of stop-loss insurance to the Plan. The TPA may be involved in the sale of stop-loss insurance with the Plan only if the TPA becomes a licensed insurance agent or insurance broker pursuant to N.Y. Ins. Law § 2103(a) as amended by 2003 N.Y. Laws 692 (insurance agent's license to sell accident and health insurance) or N.Y. Ins. Law § 2104(b)(1)(A) as amended by 2003 N.Y. Laws 692 (insurance broker's license to sell accident and health insurance) with a sub-licensee who is a natural person meeting the requirements that a person seeking to be licensed as an individual for the same kind of license would be required to meet and who is either a member or manager of the LLC.
The Office of General Counsel's October 2, 2002 opinion (see copy enclosed) provides our position that for the purpose of licensing an LLC as an insurance agent or insurance broker, the LLC resembles a partnership more closely than a corporation and the permissible sub-licensee(s) could be a member or manager, assuming that the individual who is a prospective sub-licensee is qualified to be a sub-licensee.
Therefore, if the TPA wishes to become involved in the sale in New York State of stop-loss insurance to an ERISA Self-Funded Employee Welfare Benefit Plan the LLC must become licensed as an insurance agent pursuant to N.Y. Ins. Law § 2103(a) or become licensed as an insurance broker pursuant to N.Y. Ins. Law § 2104(b)(1)(A) as amended by 2003 N.Y. Laws 692 and have a member or manager sub-licensee.
For further information one may contact Robert Freedman, Senior Attorney at the New York City Office.