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

OGC Op. No. 09-10-07

The Office of General Counsel issued the following opinion on April 13, 2009 representing the position of the New York State Insurance Department.

Re: Balance Billing by Health Care Providers

Questions Presented:

1. May a health care provider balance bill for amounts in excess of the amount allowed by a health maintenance organization (HMO)?

2. May a health care provider balance bill for amounts in excess of the amount allowed by an insurer other than an HMO?

3. Where a welfare benefit plan (plan) covering New York residents purchases insurance in which the benefits are limited, and self-funds benefits beyond those insured, may a health care provider balance bill for amounts in excess of the amounts allowed by the plan?

4. Where a welfare benefit plan self-funds its benefits, contracts with an insurer to administer the plan, and then purchases a stop-loss insurance policy, may a health care provider balance bill for amounts in excess of the amounts allowed by the plan?

5. Where a welfare benefit plan purchases comprehensive insurance coverage containing a high deductible amount, which is to be borne by the plan, may a health care provider balance bill for amounts in excess of the amounts allowed by the plan?

Conclusions:

1. When health care service is provided by a participating provider, an HMO must hold its subscriber harmless from charges in excess of any contractual co-payment amounts. Accordingly, the contract between the HMO and the provider must prohibit balance billing. In addition, when emergency services are furnished by a non-participating provider, or when the HMO refers the subscriber to the non-participating provider, the HMO must likewise hold the subscriber harmless from any additional charge. However, there is no prohibition on balance billing by the provider where the HMO subscriber otherwise utilizes the services of a non-participating provider without an HMO referral or in the absence of an emergency situation.

2. There is no statutory provision governing balance billing by providers where an insurer other than an HMO is involved. However, contracts between such insurers and participating providers may prohibit balance billing.

3. Because the definition of HMO in Public Health Law § 4401(1) includes a requirement for the provision of comprehensive health services, an HMO may not offer a limited benefit contract. Where coverage is provided under a limited benefits policy issued by an insurer other than an HMO, the question of whether a health care provider may balance bill is a matter of contract between the insurer and the provider, as the New York Insurance Law does not prohibit balance billing.

4. With respect to those self-funded welfare benefit plans over which the Insurance Department exercises jurisdiction, primarily those not subject to the federal Employee Retirement Income Security Act (ERISA), 29 U.S.C. Chapter 18, there is no prohibition on balance billing. The utilization of an insurer as an administrator or to provide stop-loss coverage would not preclude balance billing.

5. A high deductible for insurance coverage would not affect the ability of a provider to balance bill, because there is nothing in the Insurance Law or regulations promulgated thereunder that prohibits it.

Facts:

The inquirer is employed by a hospital to contract and administer relations with insurers, including HMOs and self-funded welfare benefit plans. He has presented several scenarios, and inquires whether a health care provider, such as the hospital, may balance bill lawfully under the New York Insurance Law and regulations promulgated thereunder.

Analysis:

While this opinion quotes the New York Public Health Law and relevant regulations promulgated thereunder, it does not consider any obligations imposed on a hospital by any other statute, state or federal, including New York Public Health Law and ERISA. Nor does the opinion opine about any obligation imposed on an insurer or self-funded plan by ERISA.

I. HMO Contracts

The first question asks whether a health care provider may balance bill for amounts in excess of the amount allowed by the HMO. A regulation of the New York State Health Department, N.Y. Comp. Codes R. & Regs. tit. 10 Part 98-1, refers to “managed care organizations” (MCO), a term that encompasses a number of types of HMO. For the purposes of this opinion, the term MCO is construed solely to refer to an HMO with a certificate of authority from the Health Department in accordance with Public Health Law § 4403.

Pursuant to Public Health Law § 4406(1), HMO subscriber contracts are primarily regulated by the New York State Insurance Department. However, the Health Department has imposed additional requirements on HMOs. For instance, 10 NYCRR § 98-1.5 sets forth requirements before an HMO may be licensed. Among them are submission to the Health Department of contracts between an HMO and health care providers, including hospitals. 10 NYCRR § 98-1.5(b)(6)(ii) specifically requires that:

Such contract shall include express provisions indicating that the provider shall hold MCO enrollees harmless from liability, and shall not bill enrollees under any circumstances for the costs of covered services rendered by the contracting provider, except that nothing herein shall prevent collection of applicable co-payments or co-insurance or permitted deductibles. . . .

In addition, section 101.4(a)(2) of 11 NYCRR Part 101 (Regulation 164), which regulates risk transfers between health care providers and insurers, provides that a contract between an insurer, including an HMO, and a health care provider transferring risk must contain:

A "hold harmless" provision that prohibits a participating provider from collecting or attempting to collect from a subscriber any amounts owed to such participating provider for covered services, but excluding any amounts owed by the subscriber to the provider pursuant to the subscriber's contract . . . .

Accordingly, a contract between an HMO and its participating providers, including hospitals, must preclude balance billing. See also Opening statement, Joint Public Hearing on “Surprise Out-Of-Network Medical Bills” (October 7, 2008), available at http//www.ins.state.ny.us.

Furthermore, 10 NYCRR § 98-1.13(a) requires that an HMO must have a procedure for provision of specialty services “to be provided by out-of network providers where such services are not available in network.” In addition, 10 NYCRR § 98-1.13(i) reads as follows:

When an enrollee is referred by an MCO or by an MCO primary care practitioner or MCO provider authorized by the MCO to make such referrals to a participating or nonparticipating specialist for services included in the enrollee contract with such MCO, the enrollee shall incur no financial liability other than required co-payments. (Emphasis added.)

Therefore, when an HMO refers the subscriber to a non-participating provider, the provider may not balance bill. In addition, when an HMO subscriber is treated at a hospital in an emergency situation, the Health Department requires that the HMO ensure that the subscriber is not balance billed. See Opening statement, Joint Public Hearing on “Surprise Out-Of-Network Medical Bills” (October 7, 2008), available at http//www.ins.state.ny.us.

A different situation is presented where the HMO subscriber opts to utilize a non-participating provider without an HMO referral or in the absence of an emergency situation. Public Health Law § 4406(2)(a) permits the Commissioner of Health to allow an HMO to implement a system whereby a subscriber may utilize an out-of-network provider. Such utilization is commonly known as a “point-of-service” benefit. Generally speaking, there is nothing in either the Insurance Law or Public Health Law that requires an HMO to hold its subscribers harmless from balance billing by a non-participating health care provider on a point-of-service benefit. However, there is an exception to the general rule if an HMO becomes insolvent, because in that scenario, Insurance Law § 4307(d) prohibits balance billing to attempt to recoup any amounts.1

II. Policies Issued by Insurers Other than HMOs

The next question asks whether a health care provider may balance bill for amounts in excess of the amounts allowed by an insurer other than an HMO. Subject to the requirements of Insurance Law § 4307(d) or Regulation 164, there is no prohibition against balance billing. Nevertheless, provisions in contracts between insurers and participating health care providers may bar balance billing. But there is no legal requirement that they do so. See Opening statement, Joint Public Hearing on “Surprise Out-Of-Network Medical Bills” (October 7, 2008), available at http//www.ins.state.ny.us.

III. Limited Benefit Policies

The third question asks whether a health care provider may balance bill when the benefits are provided by an insured welfare benefit plan covering New York residents that provides limited benefits, and the plan self-funds benefits beyond those insured. The Insurance Department has promulgated 11 NYCRR Part 52 (Regulation 62), which implements the requirements imposed by the Insurance Law on health insurance policies and contracts subject to the Insurance Law, and defines various terms. 11 NYCRR § 52.7 defines a “limited benefit” health insurance policy to mean a policy that does not meet the definition of either a basic hospital or major medical policy.

Because the definition of HMO in Public Health Law § 4401(1) includes a requirement for the provision of comprehensive health services, an HMO may not offer a limited benefit contract. Where coverage is provided under a limited benefits policy issued by an insurer other than an HMO, the question of whether a health care provider may balance bill is a matter of contract, if any, between the insurer and the provider, as the Insurance Law does not prohibit balance billing.

IV. Self-Funded Welfare Benefit Plans and Stop-Loss Insurance

The penultimate question asks whether a health care provider may balance bill for amounts in excess of those provided by a self-funded welfare benefit plan that self-funds its benefits, contracts with an insurer to administer the benefits, and purchases a stop-loss insurance policy. Because the provision of health benefits generally constitutes the doing of an insurance business in accordance with Insurance Law § 1102, any entity providing self-funded health benefits must be licensed as an insurer. However, 29 U.S.C. § 1144(a) provides:

[T]he provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) and not exempt under section 4(b) . . . .

Further, 29 U.S.C. § 1144(b)(2)(B) provides that a self-funded employee benefit plan shall not be considered to be an insurer for the purpose of any law regulating insurance companies.2 Accordingly, the Department offers no opinion as to whether balance billing by self-funded ERISA plans is lawfully permitted.

However, ERISA does not extend to church or governmental plans. See 29 U.S.C. § 1003(b). Thus, such plans are subject to the Insurance Department’s jurisdiction. Governmental plans, which are the prevalent type of non-ERISA plans in New York,3 are subject to regulation pursuant to Articles 44 and 47 of the Insurance Law. Article 44 regulates employee welfare funds, as defined in Insurance Law § 4402(a), but does not impose substantive requirements on the plan. Nor does Article 47, which regulates municipal cooperative health benefit plans. Accordingly, the Insurance Department has no knowledge whether, in any given instance, a plan has agreed to hold members harmless from balance billing. But nothing in the Insurance Law or regulations promulgated thereunder proscribes the practice.

Further, Insurance Law § 4237-a regulates stop-loss insurance. That statute permits an insurer authorized to do the business of accident and health insurance in this state or an HMO licensed under Insurance Law Article 43 to issue stop-loss insurance, which is defined in Insurance Law § 4237-a(b) as “an insurance policy whereby the insurer agrees to pay claims or indemnify an employer for losses incurred under a self-insured employee benefit plan in excess of specified loss limits for individual claims and/or for all claims combined, or any similar arrangement.” Since the issuance of stop-loss insurance is not among the powers expressly enumerated for HMOs in Public Health Law § 4405, such organizations may not issue such policies.

Although stop-loss insurance policies are considered accident and health insurance policies, only certain mandated benefits are required. See Office of General Counsel opinions dated September 30, 2007 and April 3, 2002. Accordingly, there is nothing in the Insurance Law or regulations promulgated thereunder that prevents health care providers from balance billing when a plan self-funds its benefits, contracts with an insurer to administer the plan, and then purchases a stop-loss policy.

V. High-Deductible Policies

The final question asks whether a health care provider may balance bill for amounts in excess of those amounts allowed by a welfare benefit plan when the plan purchases a comprehensive insurance policy with a high deductible, and the plan is responsible for the deductible amount. If the plan purchases a comprehensive policy with a high deductible from an insurer, the existence of a high deductible does not prevent the health care provider from balance billing, because there is nothing in the Insurance Law or regulations promulgated thereunder that prohibits the practice.

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

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1 Insurance Law § 4307(d) states in relevant part that:

In the event a health maintenance organization . . . or any other health service corporation is deemed insolvent, . . . then no individual subscriber or enrollee of, . . . the health maintenance organization or health service corporation shall be liable to any provider of health care services for any covered services of the insolvent health maintenance organization or health service corporation. . . .

2 ERISA plans are considered to be exempt insurers, and Insurance Law provisions requiring licenses from those contracting with insurers, such as independent adjusters, are enforced against the contractor, not the plan.

3 All except one church plan have opted to become subject to ERISA, and are therefore not subject to the Departmentís jurisdiction.