The Office of General Counsel issued the following opinion on February 8, 2008, representing the position of the New York State Insurance Department.
RE: Licensing Requirements for Discount Dental Plans
Does the discount dental plan described below constitute the doing of an insurance business, as defined in N.Y. Ins. Law § 1101 (McKinney 2006), which would require licensing as an insurer under Insurance Law § 1102, where the plan would charge members an annual membership fee, and participating dentists would offer members a discounted fee for dental services, including those that are based upon the happening of fortuitous events?
The discount dental plan would not constitute doing an insurance business, as defined in Insurance Law § 1101. Nor would the plan have to be licensed as an insurer under Insurance Law § 1102, provided that the discounted fee for each service based upon a fortuitous event would cover the cost of rendering the service.
The inquirer reports that he would like to offer a dental plan in New York whereby members of the plan would pay an annual membership fee of $65, and have access to a list of dentists who participate in the dental plan. The dentists would offer their services at a discounted rate to members of the plan. The plan would collect the annual fee and advertise plan benefits to attract new members.
Insurance Law § 1102(a) is relevant to the inquiry. That section prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in this state, unless licensed as an insurer or exempted from licensing.
Insurance Law § 1101(b)(1) defines the term “doing an insurance business”, in pertinent part, as follows:
(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; . . .
Insurance Law § 1101(a)(1) defines the term “insurance contract” as follows:
(a)(1) [A]ny 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.
Insurance Law § 1101(a)(2), in turn, defines the term "fortuitous event" as:
(a)(2) [A]ny 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. . . .
The Department has consistently opined that if an entity agrees to provide unlimited services that are based upon the happening of a fortuitous event (such as illness or injury) on a prepaid fee basis (capitated basis) or similar arrangement, the entity would be doing the business of insurance as defined by Section 1101, and would have to be licensed as an insurer as required under Section 1102. (See, eg., Office of General Counsel Opinion No. 01-06-10, dated June 15, 2001; Office of General Counsel Opinion No. 02-05-20, dated May 17, 2002, and Office of General Counsel Opinion No. 07-03-11, dated March 15, 2007 (available at http://www.ins.state.ny.us)).
However, if the entity agrees, for a prepaid fee, to provide services that are not dependent upon the happening of a fortuitous event (e.g., routine annual examinations), the entity would not be doing an insurance business. Id. The Department has also opined that a party may agree to provide services dependent upon the happening of fortuitous events (e.g., filling a cavity) for an additional fee-per-service that is discounted from the provider’s usual fee for such services, so long as the discounted fee covers the cost of rendering the services (like the cost of labor, materials and reasonable overhead expenses). Id.
Here, the inquirer states that his plan would charge its members a prepaid fee, which is a membership fee, and that the participating dentists would offer members a discounted fee for dental services, including those that are based upon the happening of fortuitous events. Thus, so long as the discounted fee for each service that is based upon a fortuitous event covers the cost of rendering the service, the plan would not be doing an insurance business under the Insurance Law, and would not have to be licensed as an insurer. In addition, individuals who advertise for the plan would not have to be licensed by the Department, since insurance would not be involved.
Please note that the conclusions expressed in this opinion are strictly limited to the New York Insurance Law. We offer no opinion regarding any other laws that may apply to the plan.
For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.