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 June 3, 2005 representing the position of the New York State Insurance Department.

RE: Association Groups, Health Insurance

Question Presented:

May a group health insurance policy be issued to cover employees of several employers, all of which are in the same industry?

Conclusion:

Yes, such a policy could be issued under various provisions of New York Insurance Law § 4235 (McKinney 2000 and 2005 Supplement). If, however, any of the employers have less than 50 employees, community rating requirements would be applicable.

Facts:

A licensed insurance agent represents several employers in the same industry, each of which has purchased its own group health insurance policy. In order to take advantage of economies of scale, it is proposed that the various coverages be consolidated into one policy. Several health insurers indicated a willingness to issue such a policy.

Analysis:

New York Insurance Law § 4235(c)(1)(B), (D) & (H) (McKinney 2000 and 2005 Supplement) authorizes the issuance of a group health insurance policy to:

(B) A policy issued to a trustee or trustees of a fund established by, or participated in, by the employer members of a trade association, which trustees shall be deemed the policyholder, for the sole benefit of the employees of such employers, the policy must conform subject to the following requirements: (i) The policy may be issued only if (I) the association has been in existence for at least two years and was formed for purposes principally other than obtaining insurance, and (II) the participating employers, meaning such employer members whose employees are to be insured, constitute at date of issue at least fifty percent of the total employers eligible to participate, unless the total number of persons covered at date of issue exceeds six hundred, in which event such participating employers must constitute at least twenty-five percent of such total employers, in either case omitting from consideration any employer whose employees are already insured under a similar group accident and health insurance policy. (ii) The persons eligible for insurance under the policy shall be all of the employees of the participating employers, or all of any class or classes thereof determined by conditions pertaining to their employment. (iii)  The premium for the policy shall be paid by the trustee or trustees either from funds contributed by the employers or by the employees; or funds contributed jointly by the employers and the employees. A policy on which no part of the premium so payable is to be derived from funds contributed by the insured employees must insure all eligible employees. (iv) The policy must cover at least fifty employees at date of issue. (v) The insurance coverage under the policy must be based upon some plan precluding individual selection either by the employees or by the policyholder or the employer. . . . .

(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 . . . . . . .

(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 all or part 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. . . .

If the employers already have a trade association that has been in existence for the requisite periods of time, the group could qualify pursuant to New York Insurance Law § 4235(c)(1)(B) or (H). Even if not, the employers could, after establishment of a trust to be the policyholder, purchase a group policy in accordance with New York Insurance Law § 4235(c)(1)(D). The employers would have to consult with their own attorneys as to establishment of the trust.

New York Insurance Law § 3231(a) (McKinney 2000 and 2005 Supplement), regulating policies of commercial health insurers, provides:

No . . . group health insurance policy covering between two and fifty employees or members of the group exclusive of spouses and dependents, hereinafter referred to as a small group, providing hospital and/or medical benefits . . . 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. Any . . . small group, including all employees or group members and dependents of employees or members, applying for . . . small group health insurance coverage . . . must be accepted at all times throughout the year for any hospital and/or medical coverage offered by the insurer to . . . small groups in this state. Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. . . . Group hospital and/or medical coverage . . . obtained through an out-of-state trust covering a group of fifty or fewer employees or participating persons who are residents of this state must be community rated regardless of the situs of delivery of the policy. . . . 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 and all Health Maintenance Organizations, has an identical requirement.

In order to effectuate the requirements of New York Insurance Law §§ 3231(a) and 4317(a), the Insurance Department has 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.

Regulation 145 further provides:

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. Where there is no statutory authority recognizing the group, insurers should issue individual health insurance policies in New York State

N.Y. Comp. Codes R. & Regs. tit. 11, § 52.8(b)(1) (2000)

(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.

N.Y. Comp. Codes R. & Regs. tit. 11, § 52.8(e) (2000)

Accordingly, if any of the employers has fewer than 50 employees, the entire group is subject to community rating requirements.

The provision of health benefits to employees constitutes an employee welfare benefit plan within the meaning of the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1999 and 2003 Supplement). While state laws affecting employee welfare benefit plans are generally preempted by ERISA, a special rule applies to Multiple Employer Welfare Arrangements (MEWA), as defined in 29 U.S.C.A. § 1002(40)(A) (West 1999):

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 . . . .

The special rule for MEWAs is set forth in 29 U.S.C.A. § 1144(6)(A) (West 1999):

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 . . . .

For fully insured MEWAs, any requirements that are enforceable in accordance with 29 U.S.C.A. § 1144(b)(6)(A)(i) are enforced through the insurer that has issued the policy or contract and not against the MEWA directly. Information concerning any requirements imposed by ERISA on MEWAs, and other employee welfare benefit plans, may be obtained from:

Employee Security Benefit Administration
United States Department of Labor
Suite 1200
33 Whitehall Street
New York, NY 10004.

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