The Office of General Counsel issued the following opinion on December 28, 2004, representing the position of the New York State Insurance Department.
Re: Employer Sponsored Group Health Insurance, Employee Selection of Health Plan
Issue
May an employer offering two types of coverage to its employees, indemnity and Health Maintenance Organization, allow a waiver of both types of coverage?
Conclusion
Under the facts presented, because one of the options is Health Maintenance Organization coverage and an employee contribution is required for the other, the employee may waive both types of coverage.
Facts
The inquirer originally described a situation where an employer has established an employee welfare benefit plan, as that term is defined in the Employee Retirement Income Security Act (ERISA). 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.
By letter of October 12, 2004, the Department indicated that each contract stands alone and that 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. The inquirer now asks whether the New York Insurance Law (McKinney 2000 and 2004 Supplement) permits the employee to waive both types of coverage.
Analysis
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) permits the issuance of:
A policy issued to an employer or to a trustee or trustees of a fund established by an employer, which employer or trustee or trustees 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.
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.
A similar requirement for an employer to offer HMO coverage 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. In addition, New York Insurance Law § 1109(a) (McKinney 2000 and 2004 Supplement) provides:
An organization complying with the provisions of article forty-four of the public health law may operate without being licensed under this chapter and without being subject to any provisions of this chapter, except: (1) to the extent that such organization must comply with the provisions of this chapter by virtue of such article, and (2) the provisions of sections three hundred eight, three hundred thirteen, three hundred thirty-two, one thousand three hundred one, one thousand three hundred two, one thousand three hundred seven, two thousand one hundred three, two thousand one hundred twelve, two thousand one hundred fourteen, two thousand one hundred fifteen, two thousand one hundred seventeen, two thousand one hundred twenty-three, two thousand six hundred eight-a, three thousand two hundred twenty-four-a, four thousand three hundred eight, four thousand three hundred seventeen, four thousand three hundred eighteen, four thousand three hundred twenty, four thousand three hundred twenty-one, four thousand three hundred twenty-two and four thousand three hundred twenty-three of this chapter
While a group purchasing group coverage in a HMO must comply with the general requirements of New York Insurance Law § 4235(c), denominating those groups that are qualified to take delivery of a group contract, if the participation requirements of New York Insurance Law§ 4235(c)(1)(A) were made applicable to HMO coverage, such coverage would be mandatory, not an employee's option, in contravention of New York Public Health Law § 4407.
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.
Therefore, the employee may, because a contribution is required, refuse the major medical coverage. In addition, because the participation requirements of New York Insurance Law § 4235(c)(1)(A) has not been made applicable to HMOs by New York Insurance Law § 1109(a), that coverage may be waived. Accordingly, the employee may opt out from both coverages.
For further information one may contact Principal Attorney Alan Rachlin at the New York City Office.