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 31, 2005 representing the position of the New York State Insurance Department.

Re: Health Care Insurance Grouping.

Question Presented:

May a group health insurance policy be offered to individuals who have a discount card with a supermarket, where neither the supermarket nor the discount card provider endorse the insurance?

Conclusion:

Under the facts as presented, neither a group nor a franchise policy may be issued to cover the individuals in question.

Facts Presented:

An entity licensed as an insurance agent pursuant to New York Insurance Law § 2103(a) (McKinney 2000 and 2005 Supplement) desires to arrange an insurance program for individuals that hold a card providing discounts for shopping at a specified supermarket. It is not known whether the card is issued by the supermarket or by a third party under the auspices of the supermarket.

As contemplated, an individual policy would be issued to each individual. The supermarket would neither endorse the program, nor would it prohibit solicitation of the holders of the discount card.

Analysis:

New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2005 Supplement) sets forth those groups that may take delivery in New York of a group health insurance policy. In addition to the groups specified therein, none of which describes the proposed group, New York Insurance Law § 4235(c)(1)(M) authorizes:

A policy issued to insure any other group approved by the superintendent upon a finding that: (i) there is a common enterprise or economic or social affinity or relationship; (ii) the premiums charged are reasonable in relation to the benefits provided; and (iii) the issuance of the policy would result in economies of acquisition or administration, would be actuarially sound, and would not be contrary to the best interest of the public. The superintendent shall promulgate regulations setting forth any such groups that have been accepted as qualifying pursuant to this subparagraph.

Since policies will be issued to each individual, New York Insurance Law § 4235(c)(1) would not authorize the proposed program. True group coverage includes the use of a master group policy form issued to a policyholder with only certificates evidencing coverage being issued to insured individuals The group policyholder often performs some administrative functions and is actively involved in providing the coverage, resulting in certain economies of acquisition and administration to the insurer.

The use of individual policies for each insured individual without any active involvement or endorsement by a group policyholder may be an indication that the structure contemplated does not result in economies of acquisition or administration ordinarily associated with group health insurance. Accordingly, the proposed group would probably not be encompassed within New York Insurance Law § 4235(c)(1)(M) (discretionary groups).

The proposed program is for franchise insurance, which is defined in N.Y. Comp. Codes R. & Regs. tit. 11, § 52.2(k) (2002):

Franchise insurance means that form of accident and health insurance, distributed on a mass merchandising basis and administered by group methods, provided, with or without evidence of insurability, and under which the insured's right to renew his policy, with or without other permissible renewal conditions, may be contingent upon the continuing of such employment, membership, or supplier participation, by: (1) individual policies which are made available to persons under a plan sponsored by: (i) an employer; (ii) an association consisting of persons having the same or similar occupation or profession; (iii) a union; (iv) two or more employers under common control; or (v) an association of civil service employees; or (2) individual policies which are made available to individuals supplying or delivering materials to a central point of collection.

N.Y. Comp. Codes R. & Regs. tit. 11, § 52.70(c)(1) (1998) provides:

Eligible classes. The class or classes of persons insured on the effective date of the plan shall consist of: (i) 25 or more members of an incorporated or unincorporated association having a constitution or bylaws, where such association was formed and is maintained in good faith for purposes other than that of obtaining insurance for its members, has been in active existence for at least two years prior to the inception of the insurance of its members, and consists of persons having the same or similar occupation or profession; (ii) not less than 4 nor more than 25 members of a labor union; (iii) an association of civil service employees, or employers of civil service employees; (iv) groups of individuals, such as dairy farmers, who supply or deliver materials, e.g., milk, to a central point of collection.

The proposed program would not qualify as franchise insurance because the policy is not sponsored by the supermarket or the administrator of the discount card and, even if such sponsorship was present, the group is not encompassed within the groups described in N.Y. Comp. Codes R. & Regs. tit. 11, §§ 52.2(k) and 52.70(c)(1).

In summary, the New York State Insurance Law (McKinney 2000 and 2005 Supplement) and the regulations promulgated thereunder are geared to safeguard the public from entering into health insurance arrangements marketed as group or franchise when, in fact, such arrangements are individual health insurance. Marketing individual health insurance to artificially created "groups" formed only to obtain insurance without active group policyholder involvement or marketing individual health insurance without meeting franchise insurance requirements often misleads the public into believing there are some true group coverage or franchise coverage advantages when there are no true group coverage or franchise coverage advantages. For instance, marketing individual health insurance policies to an artificially created "group" at rates generally available in the individual marketplace with no lower rates associated with true group coverage can be viewed as misleading. Also, marketing individual health insurance policies to an artificially created "group" at a discount when other insureds not in the artificially created "group" purchasing the same or similar individual health insurance policies receive no discounts may raise issues of "unfair discrimination" among insureds as prohibited by New York Insurance Law § 4224(b)(1) (McKinney 2000 and 2005 Supplement).

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