OGC Op. No. 09-06-05
The Office of General Counsel issued the following opinion on June 9, 2009 representing the position of the New York State Insurance Department.
RE: Discount Medical Plan
1) Under the facts described below, would ABC, XYZ PPO (“PPO”) or the healthcare providers be doing an insurance business?
2) Would the services of ABC, as described below, require a license from the New York State Insurance Department?
1) Provided that the fee charged by each healthcare provider for each service covers the cost of rendition of the services and reasonable overhead, and so long as each member is solely responsible for his or her provider’s charges associated with the cost of rendition, ABC, PPO and the providers would not be doing an insurance business.
2) Based upon the information furnished to the Department, ABC would not need a license from the Insurance Department.
The inquirer reports report that he formed ABC, a New York State corporation, to “arrange for US medical treatment and procedures for Canadian citizens ONLY.” The inquirer states that there is “no insurance, claim adjustment, medical management, utilization review or evaluation of medical necessity aspect to the business.”
Under the inquirer’s proposal, a Canadian who is interested in receiving medical services in the United States would pay an annual membership fee to ABC ($200 for the first year, and $60 for subsequent years). ABC would contract with PPO (a national preferred provider organization network) to allow ABC’s members to access providers in the PPO network pursuant to the fee schedule that the providers have agreed to accept in exchange for participation in the PPO network. To obtain health care services in the United States under the plan, the ABC member would contact ABC, which will “obtain an appointment at an appropriate facility” and collect from the member the fee for the healthcare service. After receiving payment, ABC will issue the member a “pre-authorization” document that the member will present to the provider along with a copy of his or her ABC membership card. ABC will thereafter pay the provider that prepaid fee on the member’s behalf. The fee charged to the member for the healthcare service will be comprised of three parts: the provider’s fee for the service determined according to the fee schedule it has agreed to accept as a PPO provider; an amount to be paid to PPO for use of its network; and the amount paid by ABC for collecting the credit card payment. The amount to be paid to PPO for use of its network will be 15 percent of the “savings” to the ABC member. The “savings” will be the difference between the provider’s usual and customary charge, and the amount the provider agreed to accept under the PPO fee schedule.
The inquirer plans to advertise the ABC membership as a “limited benefit plan.” The inquirer also states that ABC will “develop a ‘Schedule of Benefits’ stating ‘Pre-authorized Services are reimbursed at 100% of the PPO contracted reimbursement rate. Non pre-authorized services are not covered.”
The inquirer asks whether this arrangement comports with the New York Insurance Law and regulations promulgated thereunder.
I. Doing an Insurance Business
The first question raised by the inquiry is whether ABC, PPO, or the healthcare providers are doing an insurance business within the meaning of the Insurance Law. N.Y. Ins. Law § 1102 (McKinney 2006) proscribes any person or entity from doing an insurance business in this state without a duly issued license from the Department, unless an exemption set forth in the Insurance Law applies. Insurance Law § 1101(a)(1), in turn, defines an “insurance contract” as follows:
(a)(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.
Based upon the facts provided, the ABC membership described above appears similar to a medical discount card program – in each instance, ABC members have access to discounts on medical services. With respect to medical discount card programs, the Department previously has concluded that where “the charge by the vendor or provider reflects the cost of rendition plus a reasonable overhead (herein “cost of rendition”), the granting of a discount by a health care provider or the entity that constructs a network of such health care providers would not constitute the doing of an insurance business.” Opinion of Office of General Counsel (“OGC Opinion”) No. 04-11-09 (November 10, 2004). See also OGC Opinion Nos. 08-06-12 (June 30, 2008); 08-04-06 (April 3, 2008); 05-07-05 (July 5, 2005); and 98-16 (NILS February 3, 1998).
ABC’s membership program, however, differs from the typical medical discount card program, in that rather than paying the healthcare providers directly, ABC members make their payments to ABC which, in turn, compensates the healthcare providers. But to the extent that each member pays all of his or her healthcare provider’s cost of rendition and ABC acts merely as a conduit for transferring the member’s monies to the healthcare provider, and itself assumes no risk or obligation for the services, this difference is of no consequence.
Thus, provided that the fee charged by each healthcare provider for each service covers the cost of rendition of the services and reasonable overhead, so long as each member is solely responsible for his or her provider’s charges associated with the cost of rendition, ABC, PPO and the providers would not be doing an insurance business.
The inquirer also asks whether ABC needs a license for acting as a discount medical organization plan (DMPO) or a third party administrator (TPA). The Insurance Law does not set forth a definition of a DMPO or a TPA, and nowhere requires licensing of DMPOs or TPAs as such. But if an entity performs a function that requires a separate license under the Insurance Law, then the DMPO or TPA must be so licensed. See OGC Opinion No. 07-07-23 (July 25, 2007).
The most common function that a TPA performs that requires an insurance license is adjusting claims. An entity that adjusts claims for an insurer, including an insurer that is exempt from licensure (such as a self-funded welfare benefit plan under the federal Employee Retirement Income Security Act), is considered an independent adjuster. See OGC Opinion No. 07-07-23 (July 25, 2007). N.Y. Ins. Law §2101(g) (1) (McKinney Supp. 2009) defines the term “independent adjuster” 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 an 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 . . . .
Under the facts presented, ABC is not adjusting within the meaning of Insurance Law § 2101(g)(1), because it is not acting on behalf of an insurer or an exempt insurer, or investigating and adjusting claims within the meaning of the statute. A person investigates or adjusts claims within the meaning of Insurance Law § 2101(g)(1), if the third party exercises any discretion on behalf of an insurer or self-funded benefit plan in the payment of a claim, rather than engaging in strictly ministerial acts. See OGC Opinion No. 07-10-09 (October 23, 2007); OGC Opinion No. 01-06-36 (June 29, 2001). Tasks such as data entry and data processing are generally considered ministerial in nature, and do not require licensing, because they are not discretionary acts performed by the person or entity handling the “investigating and adjusting of claims.” Where, as is the case here, the third party merely arranges for appointments with a health care provider, collects the provider’s fee in advance and remits that fee to the provider, the third party’s acts are merely ministerial.
For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.