The Office of General Counsel issued the following opinion on August 22, 2006, representing the position of the New York State Insurance Department.
Re: Employee Leasing Organization
1. An Employee Leasing Organization ("ELO") wishes to offer group health insurance coverage to its employees (who are leased to multiple independent entities). Would the group be eligible for insurance coverage pursuant to the requirements of New York Insurance Law § 4235 (McKinney Supp. 2006)?
2. The ELO wishes to also offer health insurance coverage under the same group policy to non-employees. Would the group be eligible for insurance coverage pursuant to the requirements of New York Insurance Law § 4235 (McKinney Supp. 2006)?
1. The ELO would be considered the single employer of all of the employees. The plan would be considered an "employee welfare benefit plan" (hereinafter "welfare plan") governed by the Federal Employee Retirement Income Security Act (ERISA), and the group would be eligible for insurance coverage pursuant to the requirements of New York Insurance Law § 4235 (McKinney Supp. 2006).
2. The group including both employees and non-employees of the ELO would not be eligible for group health insurance pursuant to the requirements of New York Insurance Law § 4235 (McKinney Supp. 2006).
ABC Corporation is an ELO that offers coverage under a group health insurance policy to its employees who are leased to other companies. ABC also offers payroll services to employers that do not lease employees from them, including the XYZ Corporation. ABC wants to offer the employees of the XYZ Corporation the opportunity to purchase health insurance coverage as members of the same group as its leased employees.
It is assumed that the following extract from Alcott Staff Leasing v. New York Compensation Insurance Rating Board, 224 App. Div 2d 54 at 55-56, 648 N.Y.S. 2d 792 at 793 (3d Dept. 996) accurately reflects the operations of the ABC Corporation:
[A]n employee leasing arrangement is generally established when a small business (hereinafter the client) utilizes the services of a leasing firm to provide it with workers for a fee or other compensation. The client transfers all or most of its employees to the leasing firm and the leasing firm hires these workers. These same employees are then leased back to the client. Employee leasing firms offer small businesses a way to cut benefit costs and relieve themselves of many administrative burdens.
Based upon the information submitted, the benefits provided by the ELO would establish it as an "employee welfare benefit plan", as that term is defined in ERISA, 29 U.S.C.A. § 1002(1) (West 1999 and 2005 Supplement), and it would be regulated under ERISA. 29 U.S.C.A. § 1003(a) (West 1999 and 2005 Supplement). Generally, ERISA is considered to "supersede any and all State laws insofar as they may now relate to any employee benefit plan", 29 U.S.C.A. § 1144(a) (West 1999 and 2005 Supplement), and provides, 29 U.S.C.A. § 1122(b)(2)(B) (West 1999 and 2005 Supplement), that employer welfare benefit plans, as defined in 29 U.S.C.A. § 1002(1) (West 1999 and 2005 Supplement), (which definition includes single employer insured health benefit plans), are exempted from state laws governing insurance.
However, if the employer opts to provide the health benefits through an insurance policy, a state may regulate the contents and conditions of such policy. Metropolitan Life v. Massachusetts, 471 US. 724 (1985).
New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2006 Supplement) establishes those groups eligible to purchase group health insurance. 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.
New York Insurance Law § 4235(d)(1), states, in relevant part, as follows:
In this section, for the purpose of insurance hereunder: "employees" includes the officers, managers, employees and retired employees of the employer and of subsidiary or affiliated corporations of a corporate employer, and the individual proprietors, partners, employees and retired employees of affiliated individuals and firms controlled by the insured employer through stock ownership, contract or otherwise;....
Based upon the facts presented, had coverage under the health insurance policy plan been limited to leased employees of the ELO, it would have qualified as an employer-employee plan under New York Insurance Law § 4235(c)(1)(A).
However, the ELO is proposing to also offer health insurance coverage to non-employees as part of the same group as employees. Under those circumstances, the plan would not constitute a qualifying group pursuant to New York Insurance Law § 4235(c)(1) (McKinney Supp. 2006 Supplement).
For further information please contact Associate Attorney Sam Wachtel at the New York City Office.