The Office of General Counsel issued the following opinion on July 24, 2007, representing the position of the New York State Insurance Department.
RE: Medicare Prescription Drug Program; Use of Adjusters
Does the Medicare Prescription Drug Improvement and Modernization Act (MMA), Pub. Law No. 108-173 (2003), which created a prescription drug program commonly known as Medicare Part D, pre-empt New York law requiring the licensure of entities performing adjusting services for insurers?
No. Whatever the full scope of MMA’s pre-emption, the federal statute does not supersede New York law to the extent that an entity performing adjusting services on behalf of an insurer must be licensed as an independent adjuster.
The inquirer, an insurance holding company, reports that it has retained a third party to review and process claims for its commercial insurers and health maintenance organizations that provide coverage under Medicare Parts C and D. The inquirer asks whether MMA preempts New York from requiring that the third party be licensed as an independent adjuster.
N. Y. Ins. Law § 2101(g)(1) (McKinney 2006) is relevant to the inquiry. The statute defines an “independent adjuster” in pertinent part:
The term “independent adjuster” means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster. . . .
Insurance Law § 2102(a)(1) pertains to the licensing of independent adjusters. It provides:
No person, firm, association or corporation shall act as an . . . insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
Insurance Law § 2108(a) also pertains to your inquiry. It states in relevant part:
(3) No adjuster shall act on behalf of an insurer unless licensed as an independent adjuster . . . .
(4) No insurer, agent or other representative of an insurer shall pay any fees or other compensation to any person, firm, association or corporation for acting as an independent adjuster except to a licensed independent adjuster or to a person excepted from the licensing requirement pursuant to subsection (g) of section two thousand one hundred one of this article.
When Congress established the Medicare Managed Care Program, Pub. Law No. 105-33 (1997), which is commonly known as Medicare Part C, it denominated the program as Medicare+Choice. Congress intended that private insurers, including health maintenance organizations (“HMOs”), would actually provide the coverage. In order to maintain federal control over the Medicare Part C Program, Congress enacted 42 U.S.C.A. § 1395w-26(b)(3) (West 1997), which specified those areas of state regulation to be preempted. It reads as follows:
Relation to State laws.
(A) In general. The standards established under this subsection shall supersede any State law or regulation (including standards described in subparagraph (B)) with respect to Medicare+Choice plans which are offered by Medicare+Choice organizations under this part [i. e., 42 U.S.C.S. §§ 1395w-21, et seq.] to the extent such law or regulation is inconsistent with such standards.
(B) Standards specifically superseded. State standards relating to the following are superseded under this paragraph:
(i) Benefit requirements (including cost-sharing requirements), (ii) Requirements relating to inclusion or treatment of providers, (iii) Coverage determinations (including related appeals and grievance processes), (iv) Requirements relating to marketing materials and summaries and schedules of benefits regarding a Medicare+Choice plan.
In § 201, MMA, codified as a Note to 42 U.S.C.A. § 1395w-21 (West 2003), provides for a transition by stating that references to “Medicare+Choice” shall also refer to “Medicare Advantage” and ”MA.” The modification in MMA § 201 merely renames Medicare+Choice as Medicare Advantage.
In § 232(a), MMA amended 42 U.S.C.A § 1395w-26(b)(3) (West 2005) to preempt state laws and regulations with limited exceptions:
Relation to State laws. The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part.
The federal agency responsible for overseeing Medicare, the Center for Medicare and Medicaid Services (“CMS”), thereafter promulgated a conforming modification to the applicable preemption regulation. See 42 C.F.R. § 422.402, 70 Fed. Reg. 4714 (January 28, 2005).
While there is no specific mention of preemption in the description of the new Medicare Part D, MMA § 101(a)(2) enacted 42 U.S.C.A. § 1395w-112(g), which specifically makes the pre-emption of 42 U.S.C.A. § 1395w-26(b)(3) applicable to Medicare Part D. In addition, 42 C.F.R. § 423.440(a), 70 Fed. Reg. 4194 ( January 28, 2005), was promulgated (to read:
Federal preemption of State law. The standards established under this part supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) for Part D plans offered by Part D plan sponsors.
Thus, state laws affecting insurers offering Medicare Parts C or D are to a large extent pre-empted by federal law
The inquirer suggests that the federal law pre-emption extends to state licensing requirements for entities that adjust claims for insurers. To that end, it references but does not specify statements made by the CMS. The relevant statement of the CMS position is set forth in the Federal Register:
We believe State licensure requirements cannot be used as an indirect way to regulate MA plans by imposing requirements not generally associated with licensure. For example, we stated that reasonable licensure requirements may include the filing of articles of incorporation with the appropriate State agency or satisfying State governance requirements. However, we chose not to establish the parameters of State licensure in our regulations as there may be other legitimate aspects of State licensure we have not noted.
. . .
We believe that under the MMA, states are preempted from applying any regulatory requirements on MA plans with the sole exception of state licensure and solvency requirements. We also believe that licensure and solvency requirements cannot be used as an indirect method of imposing State regulatory requirements that a State might impose on non MA health plans. We recognize that there still may be questions about the extent of allowable State regulation. As in the case of the pre-MMA pre-emption provisions, we intend to address these specific type of preemption questions in cooperation with States.
70 Fed. Reg. 4664 (January 28, 2005).
Accordingly, notwithstanding federal law, the licensing requirements set forth in New York Insurance Law §§ 2102(a)(1) & 2108(a)(3) pertain to entities performing adjusting services, since the federal preemption language only extends to state action against an insurer.1
Please note that CMS has not indicated whether it agrees or disagrees with the position of the New York Insurance Department set forth herein. But in the absence of any official statement to the contrary by CMS, it is the Department’s position that any entity adjusting claims for an insurer issuing policies under Medicare Parts C & D must be licensed as an independent adjuster.
For further information you may contact, Principal Attorney Alan Rachlin at the New York City Office.
1 An analogy may be drawn with entities adjusting for self-funded employee welfare benefit plans, which are, in accordance with the Employee Retirement Income Security Act, 29 U.S.C.A. § 1144(a) (West 2003), exempt from state regulation, including licensure. The Insurance Department has consistently required entities adjusting claims for self-funded plans to be licensed as independent adjusters. See September 21, 2004 Office of General Counsel Opinion.