The Office of General Counsel issued the following opinion on January 6, 2005, representing the position of the New York State Insurance Department.
Re: Licensing of Medicare Advantage Sales Representatives As Insurance Agents
Question Presented:
Must the medicare advantage sales representatives of XYZ Inc. become licensed as insurance agents in order to accept payment by XYZ Inc. of a commission or fee that is based on the enrollment of new members into the medicare advantage program?
Conclusion:
Yes, the medicare advantage1 sales representatives of XYZ Inc. must become licensed as insurance agents in order to accept payment by XYZ Inc. of a commission or fee that is based on the enrollment of new members into the medicare advantage program.
Facts:
XYZ Inc. is a health maintenance organization that operates under a certificate of authority issued pursuant to Article 44 of the N.Y. Public Health Law. XYZ Inc.'s sales representatives are employed to enroll individuals into the medicare advantage (formerly medicare+choice) program pursuant to its contract with the Center for Medicare and Medicaid Services, which administers the medicare program and is the federal sub-agency of the Department of Health and Human Services.
The New York State Insurance Department had earlier opined that XYZ Inc. may not pay its medicare+choice sales representatives a fee based on the enrollment of new members into the medicare+choice program because its sales representatives were not licensed as insurance agents as required under N.Y. Ins. Law §§ 2101(a)(1) and (2), and 2114(a)(3) (McKinney 2000 and Supp. 2003).2
The federal statute governing the medicare+choice program has been revised. XYZ Inc. questions whether New York's insurance agent licensing requirements under N.Y. Ins. Law §§ 2101(a)(1) and (2), 2102, and 2114(a)(3) are now pre-empted by federal law.
Analysis:
Federal statute regarding the medicare+choice program has been amended. The medicare+choice program is now known as the medicare advantage program, and in its abbreviated form as "MA." The amended federal statute expands the state pre-emption provision contained in 42 U.S.C.S. § 1395w-26(b)(3).
The former wording of 42 U.S.C.S. § 1395w-26 (b)(3) was as follows:
3) Relation to State laws.
(A) In general. The standards established under this subsection shall supersede any State law or regulation (including standards described in subparagraph (B)) with respect to Medicare+Choice plans which are offered by Medicare+Choice organizations under this part [42 U.S.C.S. §§ 1395w-21 et seq.] to the extent such law or regulation is inconsistent with such standards.
(B) Standards specifically superseded. State standards relating to the following are superseded under this paragraph:
i) Benefit requirements (including cost-sharing requirements)
ii) Requirements relating to inclusion or treatment of providers
iii) Coverage determinations (including related appeals and grievance processes)
iv) Requirements relating to marketing materials and summaries and schedules of benefits regarding a Medicare+Choice plan.
Generally speaking, the state exemption applied only to the four specified areas noted above.
The amended 42 U.S.C.S. § 1395w-26 (b)(3) now reads:
(3) Relation to State laws. The standards established under this part [42 U.S.C.S. §§ 1395w-21 et seq.] shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part [42 U.S.C.S. §§ 1395w-21 et seq.].
The federal agency that regulates MA plans is the Center for Medicare and Medicaid Services. Their tentative position on the statutory amendment is noted in their proposed revisions to 42 C.F.R. § 422.402. They state therein:
The reason for such broad preemption authority is that the Congress intended that the MA program, as a Federal program, operate under Federal rules. . . . We note that the Conference Report makes it clear that the Congress intended to broaden the scope of preemption through this change. Thus, we believe that the exception for State laws that relate to "State licensing" must be limited to State requirements for becoming State licensed, and would not extend to any requirement that the State might impose on licensed health plans that - absent Federal preemption - must be met as a condition for keeping a State license.
The statutory requirement of agent licensing does not create an imposition upon a licensed health plan. The agent licensing requirement affects only the sales representatives. Therefore, there is no interference with federal mandates regarding the plan. Moreover, there are no apparent protections under the federal scheme for regulating the sales representatives. The Department maintains its position that licensing of the sales representatives is essential for protecting the public and that the sales representatives comply with the applicable provisions of the Insurance Law, including N.Y. Ins. Law § 2120 (McKinney 2000), which states in relevant part:
(a) Every insurance agent and every insurance broker acting as such in this state shall be responsible in a fiduciary capacity for all funds received or collected as insurance agent or insurance broker, and shall not, without the express consent of his or its principal, mingle any such funds with his or its own funds or with funds held by him or it in any other capacity.
Hence, the medicare advantage sales representatives of XYZ Inc. must become licensed as insurance agents in order to accept payment by XYZ Inc. of a commission or fee that is based on the enrollment of new members into the medicare advantage program.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.
1 Formerly 'medicare+choice.' Section 201 of Act Dec. 8, 2003, P.L. 108-173 (42 U.S.C.S. §1395w-21 note) provides, among other things, that any reference to 'medicare+choice' is deemed a reference to 'medicare advantage' and 'MA', and that any reference to 'medicare advantage' and 'MA' shall be deemed to include a reference to 'medicare+choice.'
2 The current citation would read: N.Y. Ins. Law §§ 2101(a)(1) and (2), and 2114(a)(3) (McKinney 2000 and Supp. 2004), as amended by Chapter 687 of the Laws of New York 2003. The former opinion would not have been affected by the 2003 amendments to the New York Insurance Law, nor do such amendments cause an affect upon our opinion herein.