OGC Op. No. 10-02-02

The Office of General Counsel issued the following opinion on February 10, 2010, representing the position of the New York State Insurance Department.

Re: Group Health Insurance

Question Presented:

May an insurer issue a group health insurance policy to an employer that makes employees and their spouses ineligible for healthcare benefits, because other sources of healthcare coverage are available to them?

Conclusion:

No. An insurer may not issue a group health insurance policy to an employer that makes employees and their spouses ineligible for healthcare benefits, simply because other sources of healthcare coverage are available to them.

Facts:

An inquiry was made as to whether an employer may make employees and their spouses, who have other sources of healthcare coverage available to them, ineligible for benefits under the employer’s group health insurance policy. Because the inquirer asked about actions an employer may take with regard to health benefits that it provides to its employees, the inquiry implicates the federal Employee Retirement and Income Security Act of 1974 ("ERISA"), which is codified at 29 U.S.C. § 101, et seq.

ERISA sets minimum standards for health benefit plans established by private industry employers, and may contain provisions responsive to the inquiry. The Employee Benefits Security Administration (“EBSA”), a division of the U.S. Department of Labor, is responsible for administering and enforcing ERISA. EBSA may be contacted at the following address:

U.S. Department of Labor
Employee Benefits Security Administration
33 Whitehall Street, Suite 1200
New York, NY 10004

Nevertheless, the inquiry was treated as posing the question of whether, under the New York Insurance Law and regulations promulgated thereunder, an insurer may issue a group health insurance policy to an employer that has made benefits dependent upon the availability of other healthcare coverage. The inquiry is general in nature, without reference to particular facts.

Analysis:

I. Employees

N.Y. Ins. Law § 4235 (McKinney 2007) (regulating commercial health insurers) and § 4305 (regulating not-for-profit health insurers and health maintenance organizations) authorize an insurer to issue a group health insurance policy to an employer for the benefit of its employees. Insurance Law § 4235(c)(1) reads in pertinent part as follows:

No policy of group accident, group health or group accident and health insurance shall be delivered or issued for delivery in this state unless it conforms to one of the following descriptions:

(A) A policy issued to an employer . . . which employer . . . shall be deemed the policyholder, insuring with or without evidence of insurability satisfactory to the insurer, employees of such employer, and insuring, except as hereinafter provided, all of such employees or all of any class or classes thereof determined by conditions pertaining to the employment or a combination of such conditions and conditions pertaining to the family status of the employee, for insurance coverage on each person insured based upon some plan which will preclude individual selection. . . . The premium for the policy shall be paid by the policyholder, either from the employer’s funds, or from funds contributed by the insured employees, or from funds contributed jointly by the employer and employees. (Emphasis added.)

Insurance Law § 4305(a) reads in relevant part: “A corporation subject to the provisions of this article may issue a group contract, provided the group of persons thereby covered conforms to the requirements of subsections (c) and (d) of section four thousand two hundred thirty-five[.]”

Hence, pursuant to Insurance Law §§ 4235(c) and 4305(a), a group health insurance policy issued to an employer as the policyholder must insure all of the employer’s employees, or a class or classes of employees, where the class or classes are determined by conditions pertaining to employment.

The phrase “conditions pertaining to employment” is defined in section 52.18(f) of New York Compilation of Codes, Rules & Regulations title 11, Part 52 (Regulation 62), which reads as follows:

Conditions of eligibility. Conditions pertaining to employment under section 4235(c) of the Insurance Law include geographic situs of employment, earnings, method of compensation, hours, and occupation duties.

In the situation inquired about, an employer seeks to define a class of employees based on the availability of other healthcare coverage. Although the conditions listed in 11 N.Y.C.R.R. § 52.18(f) are not exhaustive, any class must be defined by a condition that pertains to employment. Where an employee works, how much an employee earns, how an employee is paid, how many hours an employee works, and what an employee’s job duties are, all are factors that are workplace and job-related, and thus conditions pertaining to employment. That an employee may obtain healthcare coverage by some means other than through his employer is a factor that is unrelated to the employee’s workplace or job, and thus is not a condition that pertains to employment.

In an Office of General Counsel opinion dated August 19, 2005 (“OGC Op. 8/19/05”), the Department addressed whether an employer may limit an employee’s ability to waive contributory healthcare benefits provided by the employer when the only alternate insurance coverage is a governmental program. The opinion states in part: “The listing in N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) only constitutes examples and is not intended to be exhaustive. The Insurance Department would consider alternative coverage as a factor that the employer could consider.” However, for the reasons set forth above, the Department does not consider “alternative coverage” a “condition that pertains to employment” within the meaning of Insurance Law § 4235(c)(1)(A). Thus, inasmuch as OGC Op. 8/19/05 states otherwise, that portion of the opinion is hereby superseded and should no longer be followed.

II. Spouses of Employees

Insurance Law §§ 4235(c) and 4305(a) permit a group health insurer to cover the spouses of employees, on an optional basis, because Insurance Law § 4235(c) authorizes coverage of a class that is determined by conditions pertaining to employment and the family status of the employee. However, once the spousal coverage option is chosen, an insurer is prohibited from excluding a spouse from coverage based on the spouse’s ability to obtain other healthcare coverage. Indeed, 11 N.Y.C.R.R. § 52.23(l) provides:

A group contract may not reduce benefits on the basis that:

(1) another plan exists;

(2) except with respect to part B of Medicare, that person is or could have been covered under another plan; or

(3) a person has elected an option under another plan providing a lower level of benefits than another option which could have been elected.

While the “exclusion” inquired about is not permissible under the Insurance Law or the regulations promulgated thereunder, the inclusion of a “coordination of benefits” provision in the group health insurance policy, as authorized by 11 N.Y.C.R.R. §52.23, could accomplish the same (or similar) result sought by an employer with regard to spouses of employees. 11 N.Y.C.R.R. §52.23(b) provides:

A coordination of benefits (COB) provision is one that is intended to avoid claims payment delays and duplication of benefits when a person is covered by two or more plans providing benefits or services for medical, dental or other care or treatment. It avoids claims payment delays by establishing an order in which plans pay their claims and providing the authority for the orderly transfer of information needed to pay claims promptly. It avoids duplication of benefits by permitting a reduction of the benefits of a plan when, by the rules established by this section, it does not have to pay its benefits first.

Hence, the inclusion of a “coordination of benefits” provision in the employer’s group health insurance policy would make the benefits provided to an employee’s spouse secondary to benefits provided to the spouse under some other healthcare plan, thereby reducing – potentially to zero – any claims payable by the employer’s group health insurance policy.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.