New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Eliot Spitzer
Governor

Eric Dinallo
Superintendent

The Office of General Counsel issued the following opinion on June 19, 2007, representing the position of the New York State Insurance Department.

Re: Healthcare Access Plan

Question Presented:

Do the activities of the inquirer, as described below, require a license from the Insurance Department?

Conclusion:

No.  Based upon the information furnished to the Department, the proposed modification of the inquirer’s activities would not clearly violate the New York Insurance Law or the regulations promulgated thereunder.

Facts:

By letter of August 29, 1994, the Health Finance Unit of the Department’s Property Bureau - the predecessor of the Department’s Health Bureau - informed a predecessor of the inquirer that it could establish a network of health care providers who would render health care services at a discounted fee to subscribers.  Under that arrangement, the former entity was to be compensated by payment of a fixed annual or monthly fee by each subscriber, irrespective of utilization of the network.

In a September 27, 2006 letter, the inquirer requested approval to allow it to offer to members in New York the option of either paying a flat fee, or paying on a fee-for-service basis.  The Health Bureau, to which the request had been referred, in turn referred the matter to the Department’s Office of General Counsel.

According to information that the inquirer had provided to the Department, under the fee-for-service option, a member would pay 25% of his healthcare savings to the inquirer.  That is, each time that a member were to receive a service from an inquirer’s provider, the member would be assessed a charge of 25% of the difference between the amount of the provider’s usual charge and the amount the inquirer’s member would be charged.

In the September 27, 2006 letter, the inquirer indicated that it, or a designee, would control what its members pay for health services through “adjudication” of claims.  In addition, the inquirer indicated that it would “approve” the rendition of health services.  In subsequent correspondence with the Department, the inquirer indicated that the terms “adjudication” and “approve” were misnomers.

Although not stated in the original letter, a review of the enrollment documents furnished to the Department indicates that, in addition to 25% of any savings, the member is charged an additional 12% of the amount paid to the provider, which the inquirer states constitutes an administrative fee for network leasing and a third party administrative fee.

The enrollment documents, which are expressly based on California law, state that a healthcare provider may provide a discount to an uninsured patient.  The documents further provide that the discounted amount charged by the healthcare provider is not to be deemed the provider’s usual, customary, or reasonable fee.

As the Department understands the situation from the documents submitted, a condition precedent to receipt of the-negotiated discounts is possession of either a credit or debit card with a sufficient balance to pay the health care provider his discounted fee.  If the potential subscriber lacks such a card, the inquirer has an arrangement with a third party, which in turn has an arrangement with an issuer of a pre-paid debit card.  The debit card issuer will deduct a monthly fee from the pre-paid balance, part of which will be paid to the third party.  The inquirer represented that it does not share any portion of this fee, either through the issuer or the third party facilitator.

Here is an example of how the program would work in practice: if a member desires medical services, e.g. an EKG from a cardiologist, she would go to a participating health care provider, whose usual fee for performing and reading an EKG is $300.  The cardiologist, however, has contracted with the inquirer, or a separate contracted Preferred Provider Organization, to charge the members $100.  The inquirer then “reprices” the service to $100 and calculates its fee, 25% of the $200 savings, or $50.  Thereafter, it verifies that the member has sufficient funds in the charge card, i.e. $150 ($100 for the cardiologist and $50 for the inquirer).  If so, the inquirer prepares two charge slips and sends them to the member for authorization.  If the member authorizes the charges, the inquirer then sends the charge slips to the card issuer to credit the cardiologist and the inquirer with their respective fees.  If the member does not authorize the charges, she is free to shop for another health provider.  If there is an insufficient balance on the charge card to cover the 25% of savings and the 12% administrative fee, the member is notified to either increase the available balance or utilize a non-participating health care provider.

The inquirer inquires whether, under the above circumstances, it is doing an insurance business.

Analysis:

New York Insurance Law § 1101 (McKinney 2006) is relevant to the inquiry.  It defines “doing an insurance business” as follows:

(a) (1) ‘Insurance contract’ means any agreement or other transaction whereby one party, the ‘insurer’, is obligated to confer benefit of pecuniary value upon another party, the ‘insured’ or ‘beneficiary’, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.

(2) ‘Fortuitous event’ means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.

. . .

(b) (1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules: (A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts . . . 

Although under the arrangement described here, a health care provider has agreed to provide a benefit of pecuniary value to the patient (namely, a discount), the Insurance Department has opined, see Office of General Counsel (“OGC”) Opinion of July 5, 2005, that a health care provider that discounts her fees would not be doing an insurance business, provided that the fee charged represents at least the cost of rendition of the service, plus a reasonable overhead.  In addition, previous opinions, see OGC Opinion of September 25, 3003, have concluded that a third party administrator, such as the prior entity under the original 1994 program, may charge a fixed fee for membership in the program.  Thus, it is incumbent upon the inquirer and the health care providers to conform their operations to legal requirements set forth in prior OGC Opinions.

Moreover, while the Department recognizes that payment of the fee-for-service to the inquirer by the  member only when the member accesses the healthcare services is a condition based on a fortuitous event, the inquirer is not obviously adversely affected by the event.  For this reason, the Department is of the view that the member would not be acting as an insurer when she compensates the inquirer.

Provided the above conditions are satisfied, the 25% of savings fee charged to the third party is not a matter for regulation by the Insurance Department.

However, any “repricing” of the amount paid to the health care provider would require a separate agreement between the inquirer and the health care provider.  While the inquirer has represented that its program complies with the California law, it is unclear if the arrangements between the inquirer and the health care provider would be in compliance with New York Education Law § 6509, which defines professional misconduct.  Questions concerning relations between the inquirer and health care providers should be directed either to the New York State Education Department or the New York State Health Department.

In addition, please note that the network established by the inquirer would be a Preferred Provider Organization (“PPO”), which is defined in New York Workers’ Compensation Law § 352 (McKinney 2000) and attendant regulations dealing with workers’ compensation managed care.  PPO also is included in the definition of “independent practice association” set forth in N.Y. Comp. Codes R & Regs. tit. 10, § 98-1.2 (2005), which regulates health maintenance organizations.  While there is no impediment in the Insurance Law to creation of a PPO, any questions about PPOs should be addressed to the New York State Health Department.

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