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 August 19, 2005 representing the position of the New York State Insurance Department.

RE: Group Health Insurance, Waiver of Coverage.

Question Presented:

May an employer limit the opportunity of an employee to waive coverage under a contributory policy of health insurance if the only alternate insurance coverage is a governmental program?

Conclusion:

Such a restriction would not be contrary to the New York Insurance Law (McKinney 2000 and 2005 Supplement) or the regulations promulgated thereunder.

Facts:

The inquirer's firm represents a private not-for-profit organization in the social service field that provides health insurance to its employees through a group insurance policy issued by an insurer licensed to transact an insurance business in New York. The employer requires that employees make a contribution towards the coverage. In order to minimize its cost, and also the costs of its employees, the employer makes a cash payment to employees who waive coverage under the employer’s policy, provided that the employee can demonstrate that he or she has acceptable alternative coverage. An example of acceptable alternative coverage would be the employee being covered as a dependent under a spouses’ health insurance policy.

Prior to being employed by the inquirer's client, some employees have received health benefits through governmental programs, such as Medicare, Medicaid, or Healthy New York. The inquirer further indicates as follows:

As a matter of policy, my client does not want to encourage its employees to remain on this type of coverage rather than the Agency provided coverage. Therefore, it wishes to implement a policy whereby, if the only alternative coverage the employee has is coverage under Healthy New York, Medicaid, or Medicare, the employee will not be allowed to waive coverage under the Agency’s policy.

While the inquirer has reviewed the various opinions of the Department allowing waivers of coverage by employees where the policy is contributory to any degree, the inquirer has not located any opinion concerning the issue faced by his client.

Analysis:

New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2005 Supplement), governs acceptable groups for health insurance coverage. New York Insurance Law § 4235(c)(1)(A) authorizes:

A policy issued to an employer . . . which 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.

"Conditions pertaining to employment" has been defined in N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) (2004):

Conditions of eligibility. Conditions pertaining to employment under section 4235(c) of the Insurance Law includes geographic situs of employment, earnings, method of compensation, hours, and occupational duties.

The listing in N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) only constitutes examples and is not intended to be exhaustive. The Insurance Department would consider alternative coverage as a factor that the employer could consider.

The inquirer presupposes that the employee will remain eligible for coverage under the governmental program. While the Insurance Department only can opine authoritatively upon one such program, Healthy New York, it understands that the other programs have eligibility requirements that may preclude continued eligibility.

Eligibility for Healthy New York is set forth in New York Insurance Law § 4326(c) (McKinney 2000 and 2005 Supplement). It is surmised that individuals hired by the inquirer's client would have been eligible for Healthy New York in accordance with New York Insurance Law § 4326(c)(3)(A). Given that the purpose of New York Insurance Law § 4326, as added by 1999 N.Y. Laws 1, is to provide health insurance for those who would otherwise be without such coverage; upon the individual becoming employed by the inquirer's client, who provides health benefits, those individuals theretofore receiving coverage through Healthy New York would become ineligible for Healthy New York coverage.

Medicare is a Federal health benefit program for two types of individuals: (1) those age 65 or higher and (2) those individuals who have been deemed disabled by the Social Security Administration for at least two years. Since eligibility for both Social Security disability benefits and Medicare predicated upon receipt of such benefits terminates upon employment, the only employed individuals eligible for Medicare are those age 65 or higher.

Congress has, in 42 U.S.C.A. 1395y(b) (West 2003), directed that, except for employers with less than 20 employees, Medicare shall be secondary to the health benefits provided by the employer. In order to prevent employers from discouraging enrollment in private employment based health plans, Congress has enacted 29 U.S.C.A. § 1395y(b)(3)(C):

Prohibition of financial incentives not to enroll in a group health plan or a large group health plan. It is unlawful for an employer or other entity to offer any financial or other incentive for an individual entitled to benefits under this title not to enroll (or to terminate enrollment) under a group health plan or a large group health plan which would . . . be a primary plan . . . . Any entity that violates the previous sentence is subject to a civil money penalty of not to exceed $ 5,000 for each such violation. The provisions of section 1128A . . . shall apply to a civil money penalty under the previous sentence in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a).

Questions concerning waiver programs, in view of the restrictions of 42 U.S.C.A. § 1395y(b)(3)(C), should be addressed to:

Center for Medicare & Medicaid Services
United States Department of Health & Human Services
26 Federal Plaza
New York, NY 10278.

Medicaid is a joint Federal-state program for the medically indigent. Eligibility in New York is governed by New York Social Services Law § 366 (McKinney 2003 and 2005 Supplement). Since New York Social Services Law § 367-a (McKinney 2003 and 2005 Supplement) contemplates an interplay between private health insurance and Medicaid, eligibility for private health insurance does not, per se, constitute disqualification for Medicaid.

In addition to Medicaid, based upon a waiver by the United States Department of Health & Human Services, New York has established a complementary program, Family Health Plus. The benefits of Family Health Plus are set forth in New York Social Services Law § 369-ee(1)(e) (McKinney 2003 and 2005 Supplement). Eligibility of individuals for coverage under Family Health Plus is set forth in New York Social Services Law § 369ee(2)(a):

A person is eligible to receive health care services pursuant to this title if he or she: (i) resides in New York state and is at least age nineteen, but under sixty-five years of age; (ii) is not eligible for medical assistance under title eleven of this article . . . (iii) does not have equivalent health care coverage under insurance or equivalent mechanisms, as defined by the commissioner in consultation with the superintendent of insurance; (iv) (A) was not covered by a group health plan based upon his or her employment or a family member's employment, as defined by the commissioner in consultation with the superintendent of insurance, during the six-month period prior to the date of the application under this title . . . .

Questions concerning Medicaid and Family Health Plus, including waiver programs, should be addressed to:

Office of Legal Affairs
Department of Health
Tower Building
Empire State Plaza

The provision of health benefits to employees constitutes an employee welfare benefit plan, as 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, or benefits in the event of sickness, accident, disability, death . . . .

In accordance with 29 U.S.C.A. § 1144 (West 1999) state laws concerning employee welfare benefit plans are generally preempted and such self-funded plans are not considered as insurers. Accordingly, New York may not interpose any requirement on what benefits are to be provided by an employer or to which classes of employees.

Questions concerning waiver programs and their interplay with ERISA should be addressed to:

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

If an employer decided to impose a limitation as the inquirer describes on who is eligible to waive coverage and the individual remained eligible for the governmental program, the waiver as so limited would not be, since the plan is contributory, contrary to New York Insurance Law § 4235(c)(1)(A).

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