OGC Op. No. 08-10-05
The Office of General Counsel issued the following opinion on October 14, 2008 representing the position of the New York State Insurance Department.
Re: Applicability of Employee Retirement Income Security Act (ERISA), Self-Funded Association Groups
Does the Insurance Department have authority over a self-funded association group?
Pursuant to ERISA, the Insurance Department has full authority, and exercises such authority, over self-funded association groups.
The inquirer reports that, although a search of the Insurance Department’s website has furnished general information about self-funded groups and the ramifications of such group being a MEWA, she has not found any information about “an association group.” Accordingly, she asks whether an association group, where each employer member of the association has 51 or more employees, may self-fund.
According to the Insurance Department’s records, the company for which she works, is licensed as an insurance agent in accordance with N.Y. Ins. Law § 2103(a) (McKinney 2008). According to the employer’s website, in addition to offering a full range of stop-loss products and employee benefit products, it offers a program that:
consists of services aimed at achieving positive patient outcomes while also improving a health plan's experience. [Employer] believe[s] that the plan should focus on the best course of treatment for the patient. With [Employer] clients have access to: Care Management, Management of High Risk Maternities & Neonates, Superior Tertiary Networks Claim Negotiation Services, National Out-of-Network Networks, Subrogation Services, National Transplant Networks, Dialysis Network, Specialty Pharmacy Services.
Insurance Law § 1101(a), which is relevant to the inquiry, generally defines doing an insurance business as follows:
(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 prohibits the doing of an insurance business without a license.
The provision of health benefits by employers to employees generally constitutes the doing of an insurance business, and thus requires a license from the Insurance Department. However, ERISA, which is a multi-faceted and reticulated statute, exempts most employee welfare benefit plans, as defined in 29 U.S.C. § 1002(1), from state regulation. See 29 U.S.C. § 1144(a).
Nevertheless, ERISA carves out an exception from the exemption for MEWAs, which are defined in 29 U.S.C. § 1002(40)(A) as follows:
[A]n employee welfare benefit plan, or any other arrangement . . . which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained--(i) under or pursuant to one or more agreements which the Secretary [of Labor] finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association.
Indeed MEWAs are subject to regulation by “any law of any State which regulates insurance” to the extent not otherwise inconsistent with the ERISA statute. Specifically, 29 U.S.C. § 1144(b)(6) provides:
(A) Notwithstanding any other provision of this section--(i) in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides--(I) standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and (II) provisions to enforce such standards, and (ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.
(B) The Secretary may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii), individually or by class, multiple employer welfare arrangements which are not fully insured. . . .
To date, the federal Secretary of Labor has not exempted any self-funded plan from the strictures of 20 U.S.C. § 1144(b)(6)(A).
Because the inquiry does not define the term “association group”, it is presumed that the inquirer means a group as defined in § 360.2(a) of N.Y. Comp. Code R. & Regs., tit. 11, Part 360 (2001) (Regulation 145). That definition provides that an association group is:
[A] group defined in Section 4235(c)(1)(B)[trade association], (D) [two or more employers], (H) [association whose members have the same trade or occupation], (K) [association where purchase of insurance is not principal purpose], (L) [organization insuring customers of a financial institution] and (M) [discretionary group] of the Insurance Law . . . .
In an Office of General Counsel opinion dated March 7, 2002 (a copy of which is enclosed), the Insurance Department concluded that a group consisting of a manufacturer and affiliated sales representatives was exempt under ERISA as an employer-employee group. However, the Insurance Department has never exempted another type of self-funded group from the requirement that it be licensed as an insurer. Nor is it certain that, if confronted with the same inquiry, the Department would reach the same conclusion as set forth in the March 7, 2002 opinion. Accordingly, the association groups referenced in the inquiry, if self-funded, would have to be licensed.
Further, should any association group have an employer member with less than 50 employees, the entire group would be subject to the strictures of the Insurance Law, see Insurance Law §§ 3231 (applicable to commercial insurers) and 4317 (applicable to not-for-profit health insurers and all health maintenance organizations), which regulate “small” groups. Insurance Law § 3231(h)(1) provides:
Notwithstanding any other provision of this chapter, no insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of small groups which, if they purchased insurance, would be subject to this section. No insurer, subsidiary of an insurer, or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to small groups which, if they purchased insurance, would be subject to this section.
Finally, please be advised that if [Employer] performs any ancillary services-such as case management or claim negotiation services, which fall within the definition of adjusting, see Insurance Law § 2101(g)(1)-it must be licensed as an adjuster.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.