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 March 13, 2008 representing the position of the New York State Insurance Department.

Re: Preferred Provider Organization

Question Presented:

Is a preferred provider organization or managed care organization of health care providers that provides health care at reduced rates to an insurer or its administrator’s clients subject to licensing and regulation by the New York State Insurance Department?

Conclusion:

A determination as to whether an entity is doing an insurance business requiring licensing and regulation by the Department must be made on a case-by-case basis upon consideration of the specific facts of the situation. In order to render an opinion here, more facts are necessary.

Facts:

The inquirer reports that a preferred provider organization that is a managed care organization of medical doctors, hospitals and other health care providers has contracted with an insurer or a third party administrator to provide health care at a reduced rate to the insurer’s or administrator’s clients. The inquirer seeks confirmation that the PPO would not be required to be licensed to operate in New York. The inquirer also reports that the preferred provider organization or managed care organization would not be related to workers compensation business, as provided in Article 10-A of the New York Workers’ Compensation Law.

Analysis:

In determining whether an undertaking constitutes an insurance contract and the doing of insurance business, the Department considers the nature of the activity and the actual obligation of the party providing the benefit.

As an initial matter, please be advised that the terms “preferred provider organization”, “managed care organization” and “third party administrator” are nowhere defined in the New York Insurance Law. However, N.Y. Ins. Law § 4801(c) (McKinney 2007) defines “managed care health insurance contract” or “managed care product” as:

a contract which requires that all medical or other health care services covered under the contract, other than emergency care services, be provided by, or pursuant to a referral from, a designated health care provider chosen by the insured (i.e. a primary care gatekeeper), and that services provided pursuant to such a referral be rendered by a health care provider participating in the insurer’s managed care provider network. In addition, in the case of (i) an individual health insurance contract, or (ii) a group health insurance contract covering no more than three hundred lives, imposing a coinsurance obligation of more than twenty-five percent upon services received outside of the insurer’s provider network, and which has been sold to five or more groups, a managed care product shall also mean a contract which requires that all medical or other health care services covered under the contract, other than emergency care services, be provided by, or pursuant to a referral from, a designated health care provider chosen by the insured (i.e. a primary care gatekeeper), and that services provided pursuant to such a referral be rendered by a health care provider participating in the insurer’s managed care provider network, in order for the insured to be entitled to the maximum reimbursement under the contract.

Insurance Law § 1101 defines what constitutes an “insurance contract.” Insurance Law Section 1101(a) provides in pertinent part that:

In this article: (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.
(3) “Contract of warranty, guaranty or suretyship” means an insurance contract only if made by a warrantor or surety who or which, as such, is doing an insurance business.

Insurance Law § 1102 prohibits the doing of an insurance business in New York unless authorized by a license in force pursuant to the provisions of the Insurance Law or exempted by the provisions of the Insurance Law from such requirement. Insurance Law Section 1102 provides in pertinent part that:

(a) No person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement. Any person, firm, association, corporation or joint-stock company which transacts any insurance business in this state while not authorized to do so by a license issued and in force pursuant to this chapter or exempted from the requirement of having such license, shall, in addition to any other penalty provided by law, forfeit to the people of this state the sum of one thousand dollars for the first violation and two thousand five hundred dollars for each subsequent violation.

It is not clear from the information submitted to the Department whether the activities of the organizations would constitute doing an insurance business or merely involve offering the availability of health care services arising from the happening of a fortuitous event, at a discounted rate. In the latter case, licensing by the Department is not required if the charge for such service by the health care provider covers the cost of rendition of services, and including a reasonable overhead. See Office of General Counsel Opinion 05-05-01 (May 2, 2005). Nor would an undertaking constitute an insurance contract where the activity does not involve provision of a product or service arising from the happening of a fortuitous event, and the provider charges a fee for each product or service (e.g., routine annual X-rays by a dental provider). See id.

Without further information, the Department cannot offer an opinion at this time. The inquirer may find it helpful to review the Selected Opinions of the Office of General Counsel available on the Department’s website at http://www.ins.state.ny.us. The opinions date back to 2000, and address various matters, including what constitutes doing an insurance business.

For further information you may contact Principal Attorney Donald Carroll at the New York City office.