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

Eliot Spitzer
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on September 20, 2007, representing the position of the New York State Insurance Department.

Re: Purchasing of Stop-Loss Insurance by Self-Funded Plan

Question Presented:

Is a stop-loss policy that is purchased from a New York authorized insurer by a self-funded health plan subject to New York Insurance Law benefit requirements?

Conclusion:

Yes. A stop-loss policy that is purchased by a self-funded health plan from a New York authorized insurer is subject to certain Insurance Law benefit requirements.

Facts:

The question is of a general nature, without reference to particular facts.

Analysis:

The provision of health benefits by an employer to employees constitutes a welfare benefit plan, as defined in the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C.A. §§ 1001-1461 (West 1999). See OGC Opinion 02-08-13 (August 15, 2002). Specifically, 29 U.S.C.A. § 1002(1) provides that:

The terms ‘employee welfare benefit plan’ and ‘welfare plan’ mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, death or unemployment. . . .1

Such health benefits may be provided either through the purchase of insurance, or through self-funding by a health plan.

Pursuant to ERISA, benefit plans are not considered to be insurers for purposes of state regulation. See 29 U.S.C.A. § 1144(b)(2)(B). In addition, state laws governing such plans are preempted by ERISA. See 29 U.S.C.A. § 1144(a). However, 29 U.S.C.A. § 1144(b)(2)(A) commonly known as the “insurance savings clause” - provides: “…nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” The Insurance Law constitute laws of a “State which regulates insurance.” Therefore, New York retains jurisdiction over certain required policy provisions, even if an insurance policy is issued to an ERISA employee welfare benefit plan. See, e.g., OGC Opinion 04-01-10 (January 7, 2004).

The inquirer asks whether a stop-loss policy that is issued by an insurer to an ERISA self-funded health plan is subject to New York Insurance Law benefit requirements. Stop-loss insurance policies that are issued to self-funded health plans constitute accident and health insurance. See OGC Opinion 02-04-07 (April 3, 2002). N.Y. Ins. Law § 4237-a (McKinney 2007), which addresses stop-loss insurance, reads in pertinent part as follows:

(a) An insurer authorized to do the business of accident and health insurance in this state…shall be authorized to issue stop-loss insurance as provided in this section. 

(b) ‘Stop-loss insurance’ means an insurance policy whereby the insurer agrees to pay claims or indemnify an employer for losses incurred under a self-insured employee benefit plan in excess of specified loss limits for individual claims and/or for all claims combined, or any similar arrangement.

. . .

(d) No stop-loss insurance contract shall be issued or renewed if issuance of the policy would be prohibited by section two thousand six hundred thirteen, three thousand two hundred thirty-one, four thousand three hundred seventeen or four thousand three hundred twenty of this chapter.

. . .

As noted above, state laws regulating insurance are not deemed preempted by ERISA if the laws are directed at the insurer rather than at the self-funded health plan. See 29 U.S.C.A. § 1144(a). Insurance Law § 4237-a(d), for example, is aimed at insurers, not at self-funded health plans. That section specifically prohibits authorized insurers from issuing stop-loss insurance policies in New York if issuance of the policy would violate the sections of the Insurance Law delineated therein, including Insurance Law §§ 2613;2 3231 (stop-loss insurance may not be issued to a small group); 4317 (regulates the rating of individual and small group health insurance policies issued by not-for-profit insurers and health maintenance organizations); and 4320 (prohibits not-for-profit insurers from providing stop-loss insurance to groups that deny or limit benefits for a specific disease or condition).3

Moreover, Insurance Law § 3234 (as added by Chapter 695 of the Laws of 1993) prohibits commercial insurers from providing stop-loss insurance to groups that deny or limit benefits because of a specific disease or condition. The Department also has interpreted Insurance Law § 4224 to prohibit an insurer from limiting sale of a stop-loss insurance policy to a plan where the sale is tied to, or dependent upon, the policyholder purchasing other service or insurance from the insurer.

For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.

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1 Pursuant to 29 U.S.C.A. § 1003(b), plans such as governmental or church plans are not covered by ERISA.

2 Insurance Law § 2613 provides that unless an insurer’s action is based on sound actuarial principle or related to actual or reasonably anticipated experience, no insurer shall refuse to issue any policy of life or non-cancelable disability insurance, or cancel or decline to renew such policy because an individual has had any type of cancer, provided that the initial diagnosis of such disease occurred at least 3 years prior to the application and a physician has certified that the disease has not reoccurred in the applicant or the individual proposed for such insurance.

3 In addition, relevant portions of N.Y. Comp. Codes R. & Regs. tit. 11, Pt. 52 (Regulation 62), which addresses the minimum standards for form, content and sale of health insurance and for full and fair disclosure, apply to stop-loss insurance policies.