OGC Op. No. 08-10-08
The Office of General Counsel issued the following opinion on October 27, 2008 representing the position of the New York State Insurance Department.
RE: Self-Funded Benefit Plan, Claims Funding Arrangement
May a self-funded health benefit plan retain an insurer to administer claims, and have the insurer advance the funds for claim payments, subject to subsequent reimbursement?
There is nothing in the New York Insurance Law or the regulations promulgated thereunder that would specifically prohibit such an arrangement, but for the Insurance Department to opine about the arrangement, more facts are necessary. At the very least, the insurer must be licensed as an independent adjuster.
The inquirer asks, presumably on behalf of a self-funded health benefit plan established by an employer for the benefit of its employees, if the plan may enter into an administrative services arrangement with an insurance carrier, pursuant to which the insurer will process claims for benefits, and pay benefits on behalf of the plan. Under the arrangement, the insurer would advance the benefit payments, and the insurer would then seek reimbursement from the plan. The inquirer asks whether such an arrangement is legally permissible.
The primary regulator for employer-sponsored health benefit plans, which are authorized under and primarily regulated by the federal Employee Retirement Income Security Act (ERISA), 28 U.S.C. §§ 1001-1461 (West 2003), is the United States Department of Labor. Each state, however, retains jurisdiction over insurers that contract with such plans. See 29 U.S.C. § 1144(b)(2)(A).
A domestic insurer incorporated pursuant to Article 42 of the New York Insurance Law to issue policies of accident & health insurance may, if it maintains books and records that separately account for such business, engage in any business “necessarily or properly incidental” to the insurer’s business. See Insurance Law § 1714. A domestic insurer incorporated pursuant to Article 41 of the Insurance Law may similarly engage directly in such activities. See Insurance Law § 1610. Whether a foreign licensed insurer may engage in such activities depends upon the laws of its domiciliary jurisdiction.
Providing administrative services to self-funded health benefit plans is an activity encompassed within Insurance Law §§ 1610 and 1714. However, while administrative services may be provided by insurers for self-funded benefit plans under Insurance Law § 2108(g)(1), the insurer must be licensed as an independent adjuster. That statute provides:
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 . . . .
As to advancement of claim payments, the Insurance Department understands that presently, when an insurer provides administrative services to a self-funded plan, an insurer makes claims payments by issuing checks drawn on the plan’s bank account, or from a separate account funded by the plan. By entering into an arrangement such as the inquirer presents, the insurer would be assuming a credit risk, which it should protect against, as with a letter of credit for the insurer’s benefit. Because of the unusual nature of the proposal, the Insurance Department cannot at this time opine about the program without more information, especially with regard to whatever protection against the credit risk has been established.
In sum, under the scenario presented, the insurer must to be licensed as an independent adjuster, and should not advance funds without a demonstration of a minimization of credit risk. This opinion should not be construed as expressing any opinion as to the legality of the proposal under any other statute, such as ERISA, that may be applicable to the plan.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.