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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on May 9, 2005, representing the position of the New York Insurance Department.

Re: Fully Insured Multiple Employer Welfare Arrangements

Question Presented:

Is a fully insured Multiple Employer Welfare Arrangement (MEWA) containing, among others, New York residents, which is insured under a group health insurance policy issued outside New York, and its insurer subject to regulation by the New York Insurance Department?

Conclusion:

New York would not assert jurisdiction over either the MEWA or the insurer under such circumstances.

Facts:

A Limited Liability Partnership (LLP) is composed of professionals and organized pursuant to Illinois law, 805 ILCS 206/110 (2002), and is registered in accordance with New York Partnership Law § 121-1500 (McKinney 2005 Supplement) because it has New York partners. Some of the partners, including the New York partners, are individuals who are licensed to practice the profession in the jurisdiction in which they practice. Some other partners, but not the New York partners, are Professional Service Corporations (PSC) organized pursuant to the statutes of various jurisdictions, including Illinois, 805 ILCS 10 (2002). The shareholders of the PSCs are individuals who are licensed to practice their profession.

The LLP has purchased a group health insurance policy outside New York with an insurer licensed in New York to sell health insurance covering the individual partners, the individuals who are shareholders of the PSCs, and non-professionals employed by the LLP. Some of the individuals covered under the policy are either employed in or reside in New York.

It is understood that under the applicable provisions of the Employee Retirement Income Security Act (ERISA), 28 U.S.C.A. § 1001 et seq. (West 1999 and 2003 Supplement), the LLP would be considered a MEWA. Confirmation is sought from the Insurance Department that, notwithstanding any authorizations of ERISA, New York would not seek to assert jurisdiction over either the LLP or the policy it has purchased.

Analysis:

Pursuant to ERISA, 29 U.S.C.A. § 1144(a), all state laws relating to employee welfare benefit plans, as defined in 29 U.S.C.A. § 1002(1) (West 1999) are preempted, except that, pursuant to 29 U.S.C.A. § 1144(b)(2)(A), laws regulating insurance are not preempted. There is an exception to the general preemption of state laws, however, with respect to MEWAs.

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 (other than an employee welfare benefit plan), 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 extent of state jurisdiction over a MEWA is 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 . . . 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.

. . . .

(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.

Based upon the information furnished, it appears that the LLP’s plan would constitute an employee welfare benefit plan as defined in ERISA. It has been indicated, and the statement is accepted for the purpose of this opinion, that when the ERISA definition of common control, 29 U.S.C.A. § 1301(a)(14)(A) (West 1999) and 29 C.F.R. § 2520-101.2(c)(2)(ii)(A) (2002), is utilized, the presence of the PSCs in the LLP renders it a MEWA.

If the policy had been issued to the LLP in New York, it would have qualified under New York Insurance Law § 4235(c)(1)(A) (McKinney 2000 and 2005 Supplement) and all the partners, including those individual who were shareholders of a PSC, and employees would have fallen within the definition of employee in New York Insurance Law § 4235(d)(1):

A policy issued to an employer . . . employer . . . 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 Insurance Law § 4235(c)(1)(A).

In this section, for the purpose of insurance hereunder: ‘employees’ includes the officers, managers, employees and retired employees of the employer and of subsidiary or affiliated corporations of a corporate employer, and the individual proprietors, partners, employees and retired employees of affiliated individuals and firms controlled by the insured employer through stock ownership, contract or otherwise; ‘employees’ may be deemed to include the individual proprietor or partners if the employer is an individual proprietor or a partnership; and ‘employees’ as used in subparagraph (A) of paragraph one of subsection (c) hereof may also include the directors of the employer and of subsidiary or affiliated corporations of a corporate employer

If a MEWA is fully insured, the Insurance Department does not regulate it directly, but imposes all applicable requirements on the insurer. In accordance with New York Insurance Law § 3201(b)(1) (McKinney 2000 and 2005 Supplement), a policy issued out of state to a group described in New York Insurance Law § 4235(c)(1)(A) is not subject to New York requirements. In accordance with New York Insurance Law § 1101(b)(2)(B)(i)(II)(aa) (McKinney 2000 and 2005 Supplement), even if the insurer that issued the policy is not licensed in New York, transactions with respect to New York residents may take place by mail from without the State.

Accordingly, despite the state’s jurisdiction over fully insured MEWAs pursuant to ERISA, New York would not assert jurisdiction over the MEWA or the insurer in the situation postulated.

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