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 Genera Counsel issued the following opinion on August 24, 2005 representing the position of the New York State Insurance Department.

RE: Health Maintenance Organizations, Commissions

Question Presented:

Are the limitations on the rate of commission that may be paid by a Health Maintenance Organization limited to the traditional HMO product?

Conclusion:

No, all commissions paid by an HMO are similarly limited.

Facts:

A firm, of which the inquirer is a sub-licensee, is licensed as an insurance agent pursuant to New York Insurance Law § 2103(a). The inquirer had been informed by several New York HMOs that they will only pay commissions at a rate of 4% of the premium.

In addition to a traditional HMO product, among the health products the inquirer offers for various HMO and insurers are: (1) a Point of Service Product (POS), (2) Preferred Provider Organization (PPO), and (3) Executive Provider Organization (EPO). As the inquirer describe them, a PPO is a provider network with an out of network benefit, a POS is an indemnity based product with a provider network and an out of network benefit, an EPO is an indemnity based plan with a provider network only.

The inquirer seeks confirmation of his belief that plans with out of network benefits do not come within the definition of HMO and thus the insurers offering them are not limited in the commissions they may pay.

Analysis:

An HMO is defined, New York Public Health Law § 4401(1) & (2) (McKinney 2002):

1. ‘Health maintenance organization’ . . . means any person, natural or corporate, or any groups of such persons who enter into an arrangement, agreement or plan or any combination of arrangements or plans which propose to provide or offer, or which do provide or offer, a comprehensive health services plan.

2. ‘Comprehensive health services plan’ . . . means a plan through which each member of an enrolled population is entitled to receive comprehensive health services in consideration for a basic advance or periodic charge. A plan may include the provision of health care services which are covered by the organization at the election of enrollees by health care providers not participating in the plan pursuant to a contract, employment or other association to the extent authorized in section forty-four hundred six of this article; provided, however, that in no event shall an enrollee elect to have a non-participating provider serve as the enrollee's primary care practitioner responsible for supervising and coordinating the care of the enrollee.

New York Public Health Law § 4406(1) & (2) (McKinney 2002) provides:

1. The contract between a health maintenance organization and an enrollee shall be subject to regulation by the superintendent [of insurance] as if it were a health insurance subscriber contract, and shall include, but not be limited to, all mandated benefits required by article forty-three of the insurance law. Such contract shall fully and clearly state the benefits and limitations therein provided or imposed, so as to facilitate understanding and comparisons, and to exclude provisions which may be misleading or unreasonably confusing. . . .

2. (a) Upon approval of the commissioner, an organization may implement an out-of-plan benefits system that allows enrollees to use providers not participating in the plan pursuant to a contract, employment or other association. . . .

(b) Except as provided in paragraph (c) of this subdivision, an organization may not permit the benefits provided pursuant to such out-of-plan system to exceed ten percent of the total health care expenditures of the organization, as determined on a quarterly basis . . . . In determining the amount of benefits provided in connection with the use of such providers, an organization shall not include benefits provided pursuant to a referral made by a participating provider or benefits provided in emergency situations.

(c) An organization may exceed the ten percent level by up to two percent in any given quarter provided that the organization does not exceed the ten percent level by the end of the following quarter.

. . .

(i) Nothing herein shall be deemed to prohibit a health maintenance organization from offering services in connection with a company appropriately licensed pursuant to the insurance law.

The EPO product is not a managed care health insurance contract as defined in New York Insurance Law § 4801(c) (McKinney 2000):

a ‘managed care health insurance contract’ . . . shall mean a contract which requires that all medical or other health care services covered under the contract, other than emergency care services, be provided by, or pursuant to a referral from, a designated health care provider chosen by the insured (i.e. a primary care gatekeeper), and that services provided pursuant to such a referral be rendered by a health care provider participating in the insurer's managed care provider network. . . .

A product with a closed panel of providers coupled with a referral from a Primary Care Provider is an HMO product. An EPO product is an indemnity product offered by insurers and is not subject to New York Insurance Law § 4801. In addition to EPO products, some insurers also offer PPO products.

While an HMO may, in accordance with New York Public Health Law § 4406(2)(a) offer a POS product, it may not issue a PPO or EPO contract. However, although an HMO may not directly issue a PPO or EPO product, it may, as authorized by New York Public Health Law § 4406(2)(i), offer such types of coverage through another insurer, which other insurer may be either in the same holding company system as the HMO or be otherwise unaffiliated with it.

A regulation of the Department of Health, N.Y. Comp. Codes R. & Regs., tit. 10, § 98-1.11(t) (2005) provides:

An MCO [Managed Care Organization, which includes HMOs] may employ salaried solicitors and accept business from licensed insurance brokers and agents . . . on a commission basis provided, however, that (1) HMOs shall comply with section 4312 of the State Insurance Law with respect to accepting business from licensed insurance brokers and agents on a commission basis; . . . (3) any broker or agent selling MCO coverage shall be licensed by the Insurance Department as an insurance broker or agent; . . . (5) any fees or commission rates payable by an MCO to a broker or agent, which shall be at the same rate for all brokers and agents utilized by such MCO, shall be reviewed by the Superintendent of Insurance as part of the MCO's rate filing process and pursuant to any other applicable provisions of the Insurance Law and regulations.

New York Insurance Law § 4312(a) (McKinney 2000) provides:

1. Every corporation subject to the provisions of this article may employ solicitors or accept business from agents and brokers on a commission basis, but all solicitors shall be paid on a salary basis only. . . . Commissions shall be included in the corporation's rate manual and rate filings and commissions payable by health maintenance organizations organized under this article or health maintenance organizations operating as a line of business of corporations organized under this article shall continue to be subject to existing regulations governing commissions payable by health maintenance organizations.

2. Any corporation exercising the authority granted in paragraph one of this subsection shall provide to the superintendent at the time a corporation commences the use of agents and brokers on a commission basis, a detailed plan explaining the purpose for which agents and brokers are to be utilized, the lines of business or products where agents and brokers are to be utilized, the commission scales to be employed in compensating such agents and brokers, and such other information as required by the superintendent

A regulation of the Insurance Department, N.Y. Comp. Codes R. & Regs. tit 11, § 52.42(e) (1995) (Regulation 62), provides:

A health maintenance organization (HMO) issued a certificate of authority pursuant to article 44 of the Public Health Law . . . as authorized by 10 N.Y.C.R.R. Part 98, pay commissions or fees to a licensed insurance broker. . . . No licensed insurance broker shall receive such commissions or fees from an HMO, unless the HMO has filed the actual rate to be paid and included the anticipated expenses for such payments to insurance brokers in its application to amend its community premium rates pursuant to the provisions of section 4308 of the Insurance Law. Such rate shall be incorporated into the HMO's premium rate manual. The actual rate per annum may not exceed four percent of the HMO's approved premium for the contract sold

Any contract offered by an HMO, including a POS benefit, is subject to the above 4% limitation on commissions. A contract offered by another type of insurer, even in conjunction with an HMO, is not subject to the above restriction.

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