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 December 1, 2005 representing the position of the New York State Insurance Department.

Re: Group Health Insurance, Multiple Employers.

Question Presented:

May two or more businesses in the same trade join together to purchase health insurance?

Conclusion:

Such a combination is permitted pursuant to New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2005 Supplement). If, however, any employer has less than 50 employees, the entire policy must be community rated.

Facts:

Since this was a general inquiry by an insurance agent licensed in accordance with New York Insurance Law § 2103(a) (McKinney 2000 and 2005 Supplement), no facts were furnished.

Analysis:

New York Insurance Law §§ 4235(c)(1)(B), (D) and (H) authorize 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 . . . 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 . . . .

(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. . . .

Based upon the general description the inquirer furnished, an aggregation of employers could qualify to purchase group health insurance under New York Insurance Law §§ 4235(c)(1)(B), (D), or (H).

As part of a major reform of health insurance, the Legislature enacted New York Insurance Law § 3231(a) (McKinney 2000 and 2005 Supplement), regulating policies of commercial health insurers, which provides:

No . . . group health insurance policy covering between two and fifty employees . . . 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 . . . 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, . . . a small group cannot be terminated by the insurer due to claims experience. Termination of an individual or small group shall be based only on one or more of the reasons set forth in subsection (g) of section three thousand two hundred sixteen or subsection (p) of section three thousand two hundred twenty-one of this article. . . . 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 HMOs, has an identical requirement.

In order to effectuate the requirements of New York Insurance Law §§ 3231(a) and 4317(a), the Insurance Department promulgated N.Y. Comp. Codes R. & Regs. tit. 11, Part 360 (2000) Regulation 145). 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) . . . 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

In addition, N.Y. Comp. Codes R. & Regs. tit. 11, § 360.8(e)(1) (2000) provides:

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.

Accordingly, if any of the employers in the group has less than 50 employees, the entire policy must be community rated.

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 2005 Supplement). An aggregation of unrelated employers is defined as a Multiple Employer Welfare Arrangement, 29 U.S.C.A. § 1002(40 (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) [employee welfare benefit plan] to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained-- (i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements . . . .

The extent of state authority over MEWAs is set forth in 29 U.S.C.A. § 1144(b)(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, and (ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.

The provision of health benefits to employees by employers constitutes the doing of an insurance business, as defined in New York Insurance Law § 1101(a) (McKinney 2000 and 2005 Supplement). Unless otherwise exempt, in accordance with New York Insurance Law § 1102 (McKinney 2000 and 2005 Supplement), no one may do an insurance business without a license. Accordingly, an aggregation of employers that self-fund employee benefits might constitute a MEWA and could not function in New York without being licensed.

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