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 14, 2008 representing the position of the New York State Insurance Department.

Re: Medicare Part D, Insurer Licensing

Question Presented:

If an entity only administers Medicare Part D benefits for self-funded welfare benefit plans, must it be licensed as an insurer in New York?

Conclusion:

Based on the information before the Insurance Department in this instance, no. Under New York law, the inquirer’s employer need not maintain a New York insurance license. However, the Department lacks sufficient information to determine whether the entity must be licensed as an independent adjuster.

Facts:

The inquirer reports that her employer commenced operations in January 2007, initially in its domicile of Delaware, as a Prescription Drug Plan (“PDP”) to provide benefits pursuant to Medicare Part D. Pursuant to a waiver of the otherwise applicable requirement that providers of Medicare Part D be licensed as risk-bearing entities by the Center of Medicare & Medicaid Services (“CMS”) of the United States Department of Health and Human Services, the entity operated as a Medicare Part D provider in New York until, because of the expiration of the waiver by its terms, the entity became licensed as an accident & health insurer in April 2007.

She further reports that, from its inception, the entity marketed its product to self-funded employer and union based welfare benefit plans, and individuals seeking prescription drug coverage under Medicare. Commencing in January 2008, the entity no longer provides PDP coverage to individuals in New York.

She states that the only activity in which the entity currently engages in New York is as follows:

Self-insured Employer Group Waiver Plan (“EGWP”): Employer groups or union clients pay [the entity] the full cost of prescription claims and they may charge their members a premium, if they desire. [The entity] receives the direct subsidy from CMS, but passes it onto the EGWP client, as they are paying the cost of claims. ]The entity] charges the EGWP client an administrative fee to operate the PDP for the employer group. [The entity] is only acting as a third party claim administrator – providing access to a network of pharmacies, claims adjudication services, submission of claims files to CMS, reconciliation of subsidies received from CMS, passing on the subsidies to the plan after deducting our administrative fees, formulary management, and other standard pharmacy benefits management services that we provide to our non-Medicare product.

The inquirer reports that the entity is a subsidiary of its corporate parent, which functions as a pharmacy benefit manager (“PBM”) for both self-funded and insured employer and union employee welfare benefit plans. The entity solicits self-funded plans that utilize its parent as a PBM.

She asks whether, under the circumstances, the entity needs to maintain its New York license as an insurer.

Analysis:

The Medicare Prescription Drug Program (Medicare Part D) was enacted by Pub L. No. 108-173 (2003), to be effective January 1, 2005. In accordance with 42 U.S.C.A. § 1395w-112(a) (West 2003), a PDP sponsor must be licensed as a risk-bearing entity in every jurisdiction in which it offers a prescription drug plan. The inquirer reports that she has been assured by CMS that, if the entity offers only the self-insured EGWP product, the entity need only maintain licensure as an insurer in its domiciliary jurisdiction, Delaware.

N.Y. Ins. Law § 1101(a) (McKinney 2007) defines the doing of an insurance business. Paragraphs (1) and (2) thereof provide:

(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.

Insurance Law § 1102(a) requires that, unless otherwise exempted, no entity may do an insurance business in New York unless duly licensed as an insurer.

All self-funded employee welfare benefit plans, both employer-or union-based, typically must be licensed as insurers in accordance with Insurance Law §§ 1101 and 1102. However, the Employee Retirement Income Security Act (ERISA), see 29 U.S.C.A. § 1144(a), preempts certain state laws, such as Insurance Law § 1102(a) with respect to most such plans. Accordingly, such plans need not be licensed as insurers in New York. Further, since the risk-bearing entity is each self-funded plan, NMHC, in administering Medicare Part D benefits as a PDP to ERISA groups, would not be doing an insurance business in New York.

It is this Department’s understanding of 42 U.S.C.A. § 1395w-112 that the entity is required to maintain a New York license as an accident & health insurer, but we defer to the position of CMS on the matter.

With respect to the administration of claims, the inquirer has not furnished sufficient information for the Insurance Department to determine if the entity needs to be licensed as an independent adjuster. Insurance Law § 2101(g)(1) defines independent adjusters as follows:

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.

Attention is directed to Insurance Law § 1105, which pertains to the withdrawal of insurers from New York. That statute reads as follows:

When an authorized insurer proposes to cease to maintain its existing licensing status in this state, the insurer shall at least forty-five days prior to such proposed action submit to the superintendent a plan to protect the interests of the people of this state. Such proposed action shall not become effective without the approval of such plan by the superintendent. The plan shall include requirements and procedures for meeting the insurer's contractual obligations, providing security protection in the event of a subsequent insolvency, and meeting any applicable statutory obligations . . .

If the entity seeks to terminate its insurance license, the appropriate plan, in accordance with the above statute and N.Y. Comp. Codes R. & Regs. tit. 11, Part 88 (Regulation 109) (2002) must be submitted to the Department’s Health Bureau.

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