New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Acting Superintendent

The Office of General Counsel issued the following opinion on February 8, 2005 representing the position of the New York State Insurance Department.

RE: Health Insurance, Medicare Eligible Individuals, Premium Reduction

Questions Presented:

1) Does N.Y. Comp. Codes R. & Regs. tit. 11, § 52.26(c) (2003) mandate that a retired employee, who is eligible for Medicare, pay a premium that is less than that paid by other insureds under the same policy or contract?

2) Would the answer be different depending upon the type of insurer?

Conclusions:

1) The above cited regulation would not require such a premium differential for group health insurance policies and contracts.

2) The type of insurer would not affect the answer.

Facts:

A labor union represents, for collective bargaining purposes, active employees in the education field. Many individuals, once they retire, maintain membership in this organization.

The individuals employed by employers that have negotiated agreements with the organization are, in many instances, covered for health insurance purchased by their employer. In many instances, the individuals who retire from such employers continue coverage from such employers. The insurers with which the employers contract for health insurance may be indemnity insurers or Health Maintenance Organizations, or both. In addition, such insurers may be either commercial or not-for-profit entities. Further, while some employers may contract directly with an insurer, some employers join into a consortium to purchase health insurance coverage. Finally, some employers may join a consortium that self-funds health benefits in accordance with New York Insurance Law Article 47 (McKinney 2000 and 2005 Supplement).

The labor union inquired why, if the primary coverage for retirees is Medicare in many instances, the premiums paid by such retirees, where such contribution is required by the former employer, does not reflect the lesser level of benefits for which the private insurer is eligible.

Analysis:

Health Insurance Options Available to Local Governments

New York State has established a program of health insurance for state employees and retirees, New York Civil Service Law Article 11 (McKinney 1999 and 2004 Supp.), participation in which program may be elected by localities, such as the school districts (except the City of New York) that employ the inquiring organization’s members. New York Civil Service Law § 163(2) (McKinney 1999).

In addition, a local governmental employee that does not desire to participate in the State plan has other options, including the purchase of health insurance, either directly or through a consortium, or self-funding of such benefits.

The New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2005 Supp.) authorizes the issuance of group health insurance policies and contracts to those types of entities listed therein. Among the entities that are authorized to have group health insurance policies and contracts issued to them are: employers, subparagraph (A); jointly administered employer-employee trusts subparagraph (D); and associations whose members have the same profession, trade, or occupation, subparagraph (H).

Interplay Between Medicare and Insurance

Medicare is a Federal program, the coverage parameters of, and eligibility for, being governed by statute, 42 U.S.C.A. § 1395 et seq. (West 1982 and 2003 Supp.). The program primarily covers individuals over age 65, although individuals who have been collecting Social Security Disability for 24 months are also eligible. After enrollment in the program, coverage for hospitalization, Part A, is automatic, while medical coverage, Part B, for which an additional premium is charged, is optional.

As part of a comprehensive regulation of health insurance policies (Regulation 62), the Department has allowed insurers, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.16(c)(8) (2002), to exclude coverage of expenses covered by other types of insurance, including Medicare. The allowable exclusion for Medicare is not dependent upon the insured actually purchasing Medicare Part B. Accordingly, in order to secure coverage for procedures covered by Medicare, many individuals opt to pay the premium to the Federal government and purchase Medicare Part B.

Under the Medicare as Secondary Payor Statute, 42 U.S.C.A. § 1395y(b) (West 1982 and 2003 Supp.), Medicare is primary for retirees. An employed individual over age 65 is still eligible for Medicare, although for most employed individuals Medicare would be secondary. There is, however, an exception for those employed in a business with less than 20 employees.

With respect to the program operated in accordance with New York Civil Service Law Article 11, if the employee or retiree’s primary coverage is Medicare, the Health Insurance Fund established pursuant to New York Civil Service Law Article 11 pays the Medicare Part B premium. New York Civil Service Law § 167-a (McKinney 1999). If Medicare is the employee’s or retiree’s secondary source of coverage, the participating local employer must reimburse the Health Insurance Fund for the Medicare Part B premium. N.Y. Comp. Codes R. & Regs. tit. 4, § 73.3(b)(6) (1999).

The regulatory provision, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.26(c) (2002), provides:

Policies may provide for the exclusion of Medicare benefits when coverage continues beyond the covered person's eligibility for Medicare benefits, provided appropriate adjustment is made in the premium.

Some insurers have provided for a separate rate for Medicare beneficiaries where the contract provides substantially reduced benefits when Medicare is primary. Other insurers have provided for a single rate, in effect combining or averaging the premium for Medicare primary benefits with the premium for full plan coverage. In the latter case, the premiums charged in the aggregate for all covered members appropriately reflect the contract’s exclusion of Medicare benefits.

Community Rating

As part of a major reform of health insurance, 1992 N.Y. Laws 501, New York Insurance Law §§ 3231(a), regulating commercial health insurance, and 4317(a), regulating contracts of Health Service Corporations and Health Maintenance Organizations, were enacted. New York Insurance Law § 3231(a) provides in pertinent part:

No individual health insurance policy and no group health insurance policy covering between two and fifty employees . . . exclusive of spouses and dependents, hereinafter referred to as a small group, providing hospital and/or medical benefits, including medicare supplemental insurance, shall be issued in this state unless such policy is community rated and, notwithstanding any other provisions of law, the underwriting of such policy involves no more than the imposition of a pre-existing condition limitation as permitted by this article. . . . Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. . . . Termination of an individual or small group shall be based only on one or more of the reasons set forth in subsection (p) of section three thousand two hundred twenty-one of this article. For the

purposes of this section, ‘community rated’ means a rating methodology in which the premium for all persons covered by a policy or contract form is the same based on the experience of the entire pool of risks covered by that policy or contract form without regard to age, sex, health status or occupation. (emphasis added)

New York Insurance Law § 4317(a) has identical provisions, except for statutory cross-references. The essence of community rating is that the experience of all insureds is pooled.

In order to effectuate New York Insurance Law §§ 3231 and 4317, the Department promulgated a regulation (Regulation 145), N.Y. Comp. Codes R. & Regs, tit. 11, Part 360 (2000). In administering Regulation 145, the Department has considered "a policy or contract form" to be the particular policy or contract issued to the group in question. The same form may be issued to both small and large groups.

N.Y. Comp. Codes R. & Regs. tit. 11, § 360.8 (2000) further provides:

(b) Rules relating to insurers enrolling individuals and small groups through association groups. (1) For the purposes of this Part, insurers may issue small group health insurance policies in New York State only to or through groups specifically recognized as groups under subparagraphs (B), (D), (H), (K), (L) and (M) of paragraph (1) of subsection (c) of Section 4235 of the Insurance Law. . . .

* * * *

(e) Community rates based on the size of the association groups. (1) A policy issued to an association group covering at least one participating group member with 50 or fewer employees or members exclusive of spouses and dependents requires the insurer to charge the same community rate to all association members. . . .

If at least one member of the group composed of Association members has less than 50 members, the entire policy must be community rated. New York Insurance Law § 4705(d)(5)(B) (McKinney 2000 and 2005 Supp.) requires that Municipal Cooperative Health Benefit Plans be community rated.

It is the position of the Department that neither New York Insurance Law § 4317(a) nor Regulation 145 would preclude an insurer from providing a rate adjustment to individuals whose primary coverage is through Medicare. With respect to experience rated groups, the experience of the group would reflect the primacy of Medicare for some insureds. However, there is no requirement that an insurer recognize Medicare beneficiaries as a discrete group, since the experience of either the community pool or a particular group reflects the primacy of Medicare for some insureds.

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