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 March 29, 2005 representing the position of the New York State Insurance Department.

Re: Coalition of Not-For Profit Organizations, Purchase of Group Health Insurance

Question Presented:

May several not-for-profit organizations form a trust to purchase health insurance from an insurer?

Conclusion:

Yes, such a trust could be formed. However, because several employer/members have less than 50 employees, if the trust purchases a health insurance policy, the policy would have to be community rated. If the trust opts to self-fund the benefits, it might, in accordance with the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1999 and 2003 Supplement), be considered a Multiple Employee Welfare Arrangement (MEWA) and be required to be licensed as an insurer.

Facts:

A number of not-for-profit organizations in a county in upstate New York are seeking to reduce the premium rates that they would have to pay for health coverage for their employees. While several of the potential members of the trust have in excess of 50 employees, some organizations have less than 50 employees who would be covered.

Analysis:

Background

The provision of health benefits to employees constitutes an employee welfare benefit plan, as that term is defined in ERISA, 29 U.S.C.A. § 1002(1) (West 1999):

The terms ‘employee welfare benefit plan’ . . . mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer . . . to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits . . . .

All employee welfare benefit plans, except church plans that have not elected ERISA coverage and governmental plans, are covered by ERISA. 29 U.S.C.A. § 1003(b)(2) (West 1999 and 2003 Supplement). A church plan is defined in 29 U.S.C.A. § 1002(33)(A):

The term ‘church plan’ means a plan established and maintained (to the extent required in clause (ii) of subparagraph (B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1986.

It has been held, in Catholic Charities of Maine, Inc. v. City of Portland, 304 Fed. Supp. 2d 77 (Dist of ME 2004), that an employee welfare benefit plan of a social services organization affiliated with a church may also be a church plan. It is presumed that while none of the potential members of the trust is a governmental plan, as defined in ERISA, 29 U.S.C.A. § 1002(32), one or more might be a church plan.

Purchase of an Insurance Policy

New York Insurance Law §§ 4235(c)(1)(D) & (H) (McKinney 2000 and 2005 Supplement) authorizes issuance of:

(D) A policy issued to a trustee or trustees of a fund established, or participated in, by two or more employers . . . which trustee or trustees shall be deemed the policyholder, to insure employees of the employers . . . for the benefit of persons other than the employers . . . subject to the following requirements: (i) The persons eligible for insurance shall be all of the employees of the employers . . . or all of any class or classes thereof determined by conditions pertaining to their employment . . . .(ii) The premium for the policy shall be paid by the trustee or trustees either wholly from funds contributed by the employer or employers of the insured person . . . or jointly from such funds and funds contributed by the insured persons specifically for their insurance or from contributions by the insured persons. A policy on which all or part of the premium is to be derived from funds contributed by the insured persons specifically for their insurance may be placed in force only if it insures not less than fifty percent of the then eligible persons, or, if less, fifty or more of such eligible persons excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. A policy on which no part of the premium is to be derived from funds contributed by the insured persons specifically for their insurance must insure all eligible persons, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. (iii) The policy shall insure at least fifty persons at date of issue, except that if part of the premium is to be derived from funds to be contributed by the insured persons specifically for their insurance the policy shall insure at least one hundred employees or members at date of issue. (iv) The insurance coverage under the policy shall be based upon some plan precluding individual selection either by the insured persons or by the policyholders, employers, or unions . . . .

. . .

(H) A policy issued to an association, or to a trustee or trustees of a fund established, created or maintained for the benefit of members of one or more associations, all of whose eligible members have the same profession, trade or occupation, which association or associations have been organized and maintained in good faith for purposes principally other than that of obtaining insurance and have been in active existence for at least two years. The policy shall insure members, or employees of members, of such association or associations for the benefit of persons other than employers and the association or associations, or any officials, representatives, trustees or agents thereof and shall provide for the issuance of a certificate to the persons insured or such beneficiary as evidence of such insurance. The members or employees eligible for the insurance under the policy shall be all the members, or all the members and their employees, or all of any class or classes thereof determined by conditions pertaining to their employment or to association membership or both. The premiums for the policy shall be paid from association or members' funds, or partly from such funds and partly from funds contributed by the insured individuals, or from funds wholly contributed by the insured individuals. A policy on which part or all of the premium is to be derived from funds contributed by the insured individuals specifically for their insurance must insure at least fifty percent of the then eligible individuals or a minimum of two hundred individuals, whichever is less, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. A policy on which no part of the premium is to be derived from funds contributed by the insured individuals specifically for their insurance must cover all eligible individuals, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. In every case the policy must cover at least one hundred individuals at date of issue. The insurance coverage on employees insured under the policy shall be based upon some plan precluding individual selection. . . .

Other than the requirements set forth in New York Insurance Law § 4235(c)(1) which are applicable to policies purchased by trusts, the New York Insurance Law does not establish requirements that must be followed in the establishment of a trust. The trust should consult its own attorney as to any applicable requirements.

As part of a major reform of health insurance, 1992 N.Y. Laws 501 enacted New York Insurance Law § 3231(a) (McKinney 2000 and 2005 Supplement), regulating commercial health insurers:

No . . . group health insurance contract covering between two and fifty employees or members of the group exclusive of spouses and dependents, including contracts for which the premiums are paid by a remitting agent for a group, hereinafter referred to as a small group, providing hospital and/or medical benefits . . . shall be issued in this state unless such contract is community rated and, notwithstanding any other provisions of law, the underwriting of such contract involves no more than the imposition of a pre-existing condition limitation as permitted by 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..

New York Insurance Law § 4317(a) (McKinney 2000 and 2005 Supplement), regulating contracts of not-for-profit health insurers, has an identical requirement. Accordingly, any policy issued to an employer with less than 50 employees would have to be community rated.

In effectuation of 1992 N.Y. Laws 501, the Department promulgated N.Y. Comp. Codes R. & Regs. tit. 11, Part 360 (Regulation 145) (2000). N.Y. Comp. Codes R. & Regs. tit. 11, § 360.2(a) (2000) defines:

Association Group means a group defined in Section 4235(c)(1)(B), (D), (H), (K), (L) and (M) of the Insurance Law, including but not limited to an association or trust of employers, if the group includes one or more member employers or other member groups which have 50 or fewer employees or members exclusive of spouses and dependents. A group containing individual members of an association will be considered an association group having member groups of 50 or fewer members

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

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.

(2) An insurer may issue an experience rated policy to an association group so long as all member employers or member groups covered by that policy exceed 50 persons exclusive of spouses and dependents. A second separate community rated policy may be issued by an insurer to the same association group covering all those member employers or member groups with 50 or fewer persons exclusive of spouses and dependents.

Accordingly, if the trust purchases a single policy covering the employees of its constituent members, and any employer has less than 50 employees, the entire contract would have to be community rated.

ERISA Requirements

A MEWA is defined in ERISA, 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 . . . 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,

ERISA, 29 U.S.C.A. § 1144 (West 1999), provides:

(a) Supersedure; . . . Except as provided in subsection (b) of this section, the provisions of this title . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . .

(b) Construction and application. . . . (2)(A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities. (B) Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies. . . .

(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 . . . 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. . .

The information furnished was insufficient for the Department to make a determination as whether it would consider the trust to be a self-funded MEWA.

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