The Office of General Counsel issued the following opinion on July 26, 2005, representing the position of the New York State Insurance Department.
Re: Permissibility of Broker Engaging in COBRA and General Billing Administration on Behalf of its Clients
Questions Presented:
1. May an insurance broker perform Comprehensive Omnibus Budget Reconciliation Act of 1986 ("COBRA"), 29 U.S.C.A. § 1161 et. seq. (West 2001), administration services on behalf of clients, whereby it bills COBRA recipients, remits their premiums to the insurance companies, keeps track of the recipients' eligibility and retains the 2% surcharge?
2. May an insurance broker perform general billing administration for an employer/client who does not allow payroll deductions for its employees, whereby the broker charges the employees in question a per month per member billing fee for the convenience of billing them at home?
Conclusions:
1. An insurance broker may perform COBRA administration services on behalf of clients whereby it bills COBRA recipients, remits their premiums to the insurance companies, keeps track of the recipients' eligibility and retains the 2% surcharge pursuant to the analysis below.
2. An insurance broker may perform general billing administration for such employer whereby such broker charges the employees a per month per member billing fee for the convenience of home billing pursuant to the analysis below.
Facts:
The inquirer is a licensed life/accident/health insurance agent. In addition, his corporation has such license. The inquirer is also licensed as a non-life insurance broker. For purposes of this response, we assume that the inquirer would be acting solely in the capacity of a broker and not that of an agent. The inquirer states that he specializes in employee benefits and would like to know if it is legal to engage in the following two activities:
1.COBRA Administration: The inquirer would like to offer COBRA Administration services to businesses. In that capacity, the inquirer would bill COBRA recipients, remit their premiums to the insurance companies on their behalf and keep track of their eligibility. The inquirer states that COBRA administrators, whether employers or not, are permitted to charge 102% of the premium. The inquirer asks whether he may, as an insurance broker who already receives commissions from the sale of health insurance, perform these administrative functions on behalf of his clients and retain the 2% surcharge.
2.General Billing Administration: One of the inquirer's clients, a temporary employment agency, offers medical insurance to its temporary employees after 90 days of employment but does not allow such covered employees to do payroll deductions. This involves a group policy. The inquirer states that presently these employees are billed monthly by a third party administrator ("TPA") who charges a billing fee of $5-$6 per member per month for the convenience of home billing. The inquirer asks if he may now perform such billing functions and collect a billing fee for this service as the broker for the account already receiving commissions from the insurer on the sale of coverage.
Analysis:
The inquirer asks whether he may engage in the above-referenced administrative activities without violating the Insurance Law. In the first case, the inquirer asks whether he may perform COBRA administration. In terms of COBRA, which requires that group health plans provide continuation coverage to former employees upon the occurrence of specified qualifying events, there is no prohibition in the Insurance Law against an employer delegating some of the administrative duties imposed by COBRA. In terms of the right of the employer to require that 102% of the premium be paid to it, please note that this requirement is designed to reimburse the employer for the additional costs associated with processing these transactions on behalf of the former employee. The premium to be paid to the insurer, however, is the same premium as would have been paid for the covered individual, had he or she still been a member of the group as an employee.
As an insurance broker, however, if the inquirer's compensation would include the retention of the 2% surcharge, or any part thereof, the requirement of N.Y. Ins. Law § 2119(c) (McKinney Supp. 2005) would be applicable. That section provides, as follows:
(c)(1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the sale, solicitation or negotiation of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.
(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.
Accordingly, if the inquirer wishes to retain the 2% surcharge, he will have to obtain a signed, written memorandum pursuant to the requirements in Section 2119(c) from each COBRA recipient to be charged.
In terms of the general billing administration proposal, the activities described are also administrative in nature. As stated above, however, because the inquirer intends to collect compensation, in terms of a fee, from the employee/insureds for the convenience of billing them at home, such fee arrangement, as required by Section 2119(c) above, must be specified in a written memorandum that is signed by each employee that is to be charged.
This opinion is limited to an interpretation of the Insurance Law.
For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.