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

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

The office of General Counsel issued the following opinion on April 2, 2008 representing the position of the New York State Insurance Department.

Re: Health Insurance, Waiver of Deductibles and Co-Insurance

Questions Presented:

1. If a patient is an employee of a not-for-profit organization, may a health care provider waive otherwise applicable co-payments?

2. In order to make services more affordable, may a health care provider establish a different fee scale if the patient is an employee of a not-for-profit organization,?

Conclusions:

1. Depending on the circumstances, the waiver of otherwise applicable co-payments could constitute insurance fraud.

2. A health care provider may establish different fee scales, depending upon the patient’s income, if thereby an insurer is not misled as to the health care provider’s usual fee scale.

Facts:

The inquirer is licensed as a physical therapist. He reports that he has patients who are employed by a not-for-profit organization, and that he is not in the network of the insurer that has issued a group health insurance policy to the employing not-for-profit organization.

He reports that, because the insurer requires a substantial deductible and imposes what he considers to be a high co-payment requirement, and because these patients are relatively indigent, he desires to waive the co-payments.

In the alternative, he proposes to waive only part of the co-payment, or establish a separate fee scale for such patients. As an example, he states that if an insurer imposes co-payment requirement of $100, he would waive $85. He has not indicated how the alternative fee scale would operate.

He reports that he has reviewed several previous opinions of the Department’s Office of General Counsel, namely those of February 6, 2001, April 4, 2003, and February 24, 2004, and that none have specifically addressed the questions posed.

Analysis:

There is a distinction between a deductible, which is imposed by the insurer and is not under the control of the health care provider, and a co-payment requirement, which is to be collected by the health care provider. For example, an insurer may require an insured to incur a minimum out of pocket payment (e.g., $750) before the insurer will become obligated to make payments. Once the deductible is met, the insurer may require the insured to pay a set amount (e.g., $15) before it will make a payment to a health care provider in its network.

If the health care provider is not in the insurer’s network (e.g., the provider is a “non-participating” provider) the insurance policy will commonly obligate the insured to pay a percentage of the provider’s fee, usually denominated as “usual and customary or reasonable” (“UCR”), while the insurer will reimburse the insured for a percentage of a provider’s usual fee for the service. For example, the insurer may pay 80% of the usual fee for the procedure, anticipating that the insured will pay the remainder of the provider’s actual fee. While it is not common, an insurer may also impose a set co-payment requirement on an insured utilizing a non-participating health provider.

Insurers determine the usual fee for a procedure by accessing data collected by entities established for that purpose. The data collectors aggregate information furnished by insurers on amounts charged by health care providers in various geographic areas for a particular procedure. The amount allowed by an insurer as a usual charge is, most often, the fee for all providers in an area, not the fee charged by any particular health care provider.

N.Y. Penal Law § 176.05 (McKinney 2000) defines insurance fraud. That statute specifically provides in subsection (2):

A fraudulent health care insurance act is committed by any person who, knowingly and with intent to defraud, presents, causes to be presented, or prepares with knowledge or belief that it will be presented to, or by, an insurer . . . or any agent thereof, any written statement or other physical evidence as part of, or in support of, . . . a claim for payment, services or other benefit pursuant to such policy, contract or plan, which he knows to: (a) contain materially false information concerning any material fact thereto . . . .

In addition, Insurance Law § 403 (c) authorizes the imposition of a civil penalty for the commission of insurance fraud.

If a health care provider, as a general business practice, waives otherwise required co-insurance requirements, that provider may be guilty of insurance fraud. See opinion of the Office of General Counsel dated March 27, 2008. For example, if a health care provider indicates that the charge for a procedure is $100 and the insurer anticipates that the provider will collect a 20% co-payment amount, the insurer will reimburse the insured $80. If, however, the provider waives the co-payment, that provider’s actual charge becomes $80, which then obligates the insurer, assuming payment at 80% of the usual charge, to reimburse the insured only $64.

A health care provider would not be guilty of insurance fraud if the provider were to waive the otherwise applicable co-payment, provided that the insurer is made aware of the waiver. See Office of General Counsel Opinions dated December 14, 2000 and March 27, 2008.

If a health care provider were to institute a different fee scale for patients with limited ability to pay, such a fee scale would not, per se, be objectionable under the Insurance Law. But, limiting the reduced fee scale to employees of a particular employer might be violative of some other statute outside of the Insurance Law.

The health care provider is expected to make insurers aware of any lower fee in the same manner that it reports its charges for other patients, and such information might affect the calculation of usual charges for a particular procedure.

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