OGC Op. No. 09-06-13
The Office of General Counsel issued the following opinion on June 10, 2009 representing the position of the New York State Insurance Department.
Re: Insurance Law § 332 Assessments and State Paid Health Benefits
Are the payments made by New York State to insurance companies for health care coverage under various public welfare programs characterized as “premiums” for the purpose of imposing assessments under N.Y. Ins. Law § 332 (McKinney 2006)?
No. Payments made by New York State to insurance companies for health care coverage under various public welfare programs are not properly characterized as “premiums” for the purpose of imposing assessments under Insurance Law § 332.
The inquiry was general in nature, without reference to particular facts.
Insurance Law § 332 (McKinney 2006) governs assessments on insurers and reads in pertinent part as follows:
Assessments to defray operating expenses of department. (a) The expenses of the department, excluding the expenses of the supervision of employee welfare funds, for any fiscal year, including all direct and indirect costs, as approved by the director of the budget and audited by the comptroller, except as otherwise provided by sections one hundred fifty-one and two hundred twenty-eight of the workers` compensation law and by section sixty of the volunteer firefighters` benefit law, shall be assessed by the superintendent pro rata upon all domestic insurers and all licensed United States branches of alien insurers domiciled in this state within the meaning of paragraph four of subsection (b) of section seven thousand four hundred eight of this chapter, in proportion to the gross direct premiums and other considerations, written or received by them in this state during the calendar year ending December thirty-first immediately preceding the end of the fiscal year for which the assessment is made (less return premiums and considerations thereon) for policies or contracts of insurance covering property or risks resident or located in this state the issuance of which policies or contracts requires a license from the superintendent; and the superintendent shall levy and collect such assessments and pay the same into the state treasury, subject to the provisions of section one hundred twenty-one of the state finance law and subsection (b) hereof.
The statute provides the means by which the Department finances its operations, by spreading the cost among all domestic insurers and licensed U.S. branches of alien insurers domiciled in New York, and determining each company’s respective share of that cost on the basis of its premium income. Insurance Law § 332 assessments, which are levies calculated on premium volume, constitute a tax upon the premiums of such insurers.
At issue is whether revenue derived by insurers from payments made by the state through certain public welfare programs1 constitute premiums subject to assessment under Insurance Law § 332.
The Insurance Law does not provide an answer, but analogous federal law is instructive. In the case of federally paid benefits, federal law explicitly requires that such payments not be treated as premiums. For example, for payments made under the Medicare + Choice Programs, 42 U.S.C. §1395w-24(g) (West Supp. 2008) explicitly provides that payments made to health care providers under the program are exempt from premium taxes. Indeed, that statute provides that “[n]o state may impose a premium tax or similar tax with respect to payments to Medicare + Choice organizations.” Further, in a letter to an attorney at the New York State Insurance Department dated October 26, 1999, the Director of Integrated Delivery Systems of the federal Health Care Financing Administration noted that such statute prohibits a state from imposing a premium or similar tax on payments made to a Medicare + Choice entity.
Similarly, the Federal Employee Health Benefits Act (“FEHBA”) expressly exempts payments made by the Federal Employees Health Benefit Fund (the “Fund”) which is used to obtain health care coverage/benefits for federal employees, from state or local taxes. To that end, 5 U.S.C. § 8909(f)(1) (West 1996) reads as follows:
No tax, fee, or other monetary payment may be imposed, directly or indirectly, on a carrier or an underwriting or plan administration subcontractor of an approved health benefits plan by any state, the District of Columbia, or the Commonwealth of Puerto Rico, or by any political subdivision or other governmental authority thereof, with respect to any payment made from the Fund.
As a matter of practice, the New York State Insurance Department has interpreted this statute to prohibit the imposition of Insurance Law § 332 assessments on payments received by regulated entities from the Fund. See Office of General Counsel (“O.G.C.”) Opinion Letter to the New York State Health Department (October 18, 1996) (acknowledging that 5 U.S.C. § 8909(f) precludes Insurance Law § 332 assessments on premiums paid to FEHBA contractors).
Conceptually, payments from Medicare + Choice and the Fund are analogous to payments from state-administered programs such as Medicaid, Family Health Plus and Child Health Plus. Accordingly, since federal law prohibits the imposition of the premium assessment upon amounts paid by Medicare + Choice and the Fund, it is logical and consistent to treat payments under state- administered programs in the same manner. Consequently, the New York State Insurance Department does not presently include payments to insurers under those programs as premiums for purposes of determining assessments pursuant to Insurance Law § 332.
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.
1 These include the Medicaid, Family Health Plus, and Child Health Plus programs. A significant feature of each of these programs is the State’s payment of health insurance premiums to private insurers and health maintenance organizations (“HMOs”) on behalf of program participants. Information about these programs is available from the New York State Department of Health’s website at http://www.health.state.ny.us/health_care/.