The Office of General Counsel issued the following opinion on March 18, 2005 representing the position of the New York State Insurance Department.
Re: Professional Employer Organization (PEO), Health Insurance
1) May an insurer that is not licensed in New York provide health insurance coverage to New York residents who are employed by a non-New York employer?
2) May a Professional Employer Organization (PEO) operating in New York self-fund health benefits for leased employees who are resident in New York?
3) May the organization discussed herein administer claims on behalf of the PEO?
1) Based upon the facts presented, such coverage would be permitted.
2) Such self-funding would not be permitted.
3) If such claims administration involved adjusting, the organization discussed herein would have to be licensed as an independent adjuster.
A not-for-profit Health Maintenance Organization, with a Certificate of Authority from the Minnesota Health Department that was issued in accordance with Minnesota Statutes Chapter 62D (1997), is also licensed as a Third Party Administrator (TPA) by the Minnesota Insurance Department in accordance with Minnesota Statutes § 60A23.8(3) (1997). As a TPA, the organization has contracted with a PEO. The leased employees of the PEO are either (1) covered by an insurer that is licensed in a number of jurisdictions, but not New York, or, where such is permitted, (2) covered under a self-funded plan established by the PEO. The organization administers claims on behalf of both the insurer and the self-funded plan.
The Department was told that the insurer "conducts no sales activities in New York; has no agents conducting business in New York on its behalf, does not solicit business in New York from outside New York and does not otherwise conduct any of its activities in New York."
The PEO presently leases employees located in New Jersey to a multi-state, multi-national bank. The bank intends to open an office in New York and desires that the PEO provide its services with relation to the banks New York "employees". Based upon a reading of New York Labor Law Article 31 (McKinney 2005 Supplement), the organization believes it would be advantageous for the PEO to offer a fully insured plan, although it has been informed by a representative of the New York Labor Department that New York Labor Law Article 31 would not preclude self-funding of benefits by the PEO.
The organization inquired as to the options available to the PEO under the New York Insurance Law (McKinney 2000 and 2005 Supplement).
New York Labor Law § 916(4) (McKinney 2005 Supplement) defines a PEO:
Professional employer organization means any person whose business is entering into professional employer agreements with clients. In determining whether the professional employer organization employs all or a majority of the employees of a client, any person employed pursuant to the terms of the professional employer agreement after the initial placement of client employees on the payroll of the professional employer organization shall be included. Temporary help firms and employment agencies, as defined in article eleven of the general business law, shall not be deemed to be professional employer organizations for purposes of this article.
New York Labor Law § 918 (McKinney 2005 Supplement) requires that PEOs doing business in New York be registered with the New York Labor Department.
New York Labor Law § 922(5) (McKinney 2005 Supplement) provides:
A registered professional employer organization shall be deemed for purposes of state law an employer for purposes of sponsoring welfare benefit plans for its worksite employees. Worksite employees participating in that professional employer organization's fully insured welfare benefit plan or plans shall be considered employees participating in a single employer welfare benefit plan or plans. A fully insured welfare benefit plan or plans offered by a registered professional employer organization to its employees and/or worksite employees shall not be considered for purposes of state law a multiple employer welfare arrangement.
New York Insurance Law § 1101(a) (McKinney 2000 and 2005 Supplement) defines doing an insurance business:
(1) Insurance contract means any agreement or other transaction whereby one party, the insurer, is obligated to confer benefit of pecuniary value upon another party, the insured or beneficiary, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) Fortuitous event means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
The provision of health benefits to employees falls within the definition of doing an insurance business.
Unless otherwise exempt, in accordance with New York Insurance Law § 1102(a) (McKinney 2000 and 2005 Supplement) no one may do an insurance business in New York without a license from the Insurance Department. One of the exemptions is found in New York Insurance Law § 1101(b)(2):
[T]he following acts or transactions, if effected by mail from outside this state by an unauthorized foreign or alien insurer duly licensed to transact the business of insurance in and by the laws of its domicile, shall not constitute doing an insurance business in this state, but section one thousand two hundred thirteen of this chapter shall nevertheless be applicable to such insurers: . . . (B) transactions with respect to . . . group accident and health or blanket accident and health insurance . . . (i) where such groups conform to the definitions of eligibility contained in; . . . (II) the following subparagraphs of paragraph (1) of subsection (c) of section four thousand two hundred thirty-five of this chapter: (aa) subparagraph (A) . . . and (ii) where the master policies or contracts were lawfully issued without this state in a jurisdiction where the insurer was authorized to do an insurance business; . . . .
New York Insurance Law § 1213 (McKinney 2000) declares that unauthorized insurers issuing policies and contracts covering New York residents are doing business in New York for the purpose of conferring jurisdiction of New York courts over them and designates the Superintendent of Insurance as agent for service of process. In accordance with New York Insurance Law § 1214 (McKinney 2000), no person may act for such an insurer which has not designated the Superintendent of Insurance as agent for service of process.
New York Insurance Law § 4235(c)(1)(A) (McKinney 2000 and 2005 Supplement) authorizes the issuance of a group health insurance policy to employers covering their employees. In accordance with New York Labor Law § 922(5), a registered PEO may be deemed by an insurer to be an employer within the purview of New York Insurance Law § 4235(c)(1)(A).
Based upon representations made by the organization, provided that all communications into New York are effected by mail from without New York and the PEO is registered with the New York Labor Department, the Illinois domiciled and licensed insurers could validly provide coverage to the New York "employees" of the PEO.
In accordance with the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. §1002(1) (West 1999), the provision of health benefits to employees falls within the definition of an employee welfare benefit plan. Generally, 29 U.S.C.A. § 1144(b)(1)(B) (West 1999), ERISA exempts self-funded employee welfare benefit plans from the requirement that employer/employee plans be licensed in accordance with state law. There is, however, an exception to the exemption for Multiple Employer Welfare Arrangements (MEWA).
A MEWA is defined, 29 U.S.C.A. § 1002(40):
(A) The term multiple employer welfare arrangement means an employee welfare benefit plan, or any other arrangement . . . which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained--(i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements . . . .
(B) For purposes of this paragraph--(i) two or more trades or businesses, whether or not incorporated, shall be deemed a single employer if such trades or businesses are within the same control group, (ii) the term "control group" means a group of trades or businesses under common control, (iii) the determination of whether a trade or business is under "common control" with another trade or business shall be determined under regulations of the Secretary applying principles similar to the principles applied in determining whether employees of two or more trades or businesses are treated as employed by a single employer under section 4001(b) except that, for purposes of this paragraph, common control shall not be based on an interest of less than 25 percent, . . . .
The obligations of a MEWA are set forth in 29 U.S.C.A. § 1144(b)(6):
(A) Notwithstanding any other provision of this section--(i) in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides--(I) standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and (II) provisions to enforce such standards, and (ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.
(B) The Secretary may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii), individually or by class, multiple employer welfare arrangements which are not fully insured. Any such exemption may be granted with respect to any arrangement or class of arrangements only if such arrangement or each arrangement which is a member of such class meets the requirements of section 3(1) and section 4 necessary to be considered an employee welfare benefit plan to which this title applies.
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(D) For purposes of this paragraph, a multiple employer welfare arrangement shall be considered fully insured only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a State.
The United States Secretary of Labor has not exempted, either individually or by class, any MEWA from the requirement that an uninsured MEWA is subject to all relevant state law provisions.
Since the provisions of New York Labor Law § 922(5) only except fully insured plans from being considered as MEWAs under New York law, unless the self-funded plan is established or maintained under a collective bargaining agreement, 29 U.S.C.A. § 1002(400(a)(1)(i), it would have to be licensed as an insurer.
While New York does not license TPAs, qua TPA, if the TPA performs a function that requires a license, that entity must be so licensed. New York Insurance Law 2101(g)(1) (McKinney 2000 and 2005 Supplement) defines an independent adjuster:
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: . . . (E) any licensed agent of an authorized insurer who adjusts losses for such insurer solely under policies issued through his or its agency, provided the agent receives no compensation for such services in excess of fifty dollars per loss adjusted . . . .
New York Insurance Law § 2108(a)(3) (McKinney 2000 and 2005 Supplement) prohibits acting as an independent adjuster without a license.
If the organization were to function as an independent adjuster in New York for the Illinois insurer, since that insurer is not licensed as an insurer and the organization is not licensed as an agent, it would have to be licensed as an independent adjuster. Even if the self-funded plan were to be exempt under ERISA from licensing by this Department, the organization could not function as an independent adjuster for such exempt insurer without a license.
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.