David A. Paterson
James J. Wrynn
The Office of General Counsel issued the following opinion on June 3, 2010, representing the position of the New York State Insurance Department.
Re: HMO Commissions to Brokers
1) May an HMO use a sliding scale qualifier when paying broker commissions, such as a one percent commission for 10-50 new subscriber contracts, two percent between 51-74 new subscriber contracts, and three percent for 75 or more new subscriber contracts obtained?
2) May an HMO continue to pay broker commissions for existing business at the rate in effect when the group was sold, assuming that percentage does not exceed four percent?
1) and 2). Yes, an insurer may use the proposed sliding scale arrangement in paying broker commissions provided that it is nondiscriminatory, does not exceed four percent, and does not otherwise violate Insurance Law restrictions on overall expense limitation.
The inquiry is of a general nature, without reference to particular facts.
Section 52.42(e) of New York Compilation of Codes Rules & Regulations, title 11, Pt. 52 (Regulation 62) is relevant to the query. It authorizes HMOs to pay commissions and fees to insurance brokers for producing business but limits the amount payable to four percent. It states:
Commissions or fees payable by health maintenance organizations to an insurance broker as authorized by 10 NYCRR Part 98. A health maintenance organization (HMO) issued a certificate of authority pursuant to article 44 of the Public Health Law, HMO operated as a line of business of a health service corporation licensed under article 43 of the Insurance Law and having a certificate of authority pursuant to article 44 of the Public Health Law, or HMO organized prior to the enactment of article 44 of the Public Health Law which has a license from the Superintendent of Insurance as a health service corporation pursuant to article 43 of the Insurance Law and a certificate of need as a health facility from the Commissioner of Health pursuant to article 28 of the Public Health Law, may, as authorized by 10 NYCRR Part 98, pay commissions or fees to a licensed insurance broker. Such authority to pay commissions or fees by a corporation, other than a corporation solely holding a certificate of authority from the Commissioner of Health, shall be restricted to its HMO operation only. No licensed insurance broker shall receive such commissions or fees from an HMO, unless the HMO has filed the actual rate to be paid and included the anticipated expenses for such payments to insurance brokers in its application to amend its community premium rates pursuant to the provisions of section 4308 of the Insurance Law. Such rate shall be incorporated into the HMO’s premium rate manual. The actual rate per annum may not exceed four percent of the HMO’s approved premium for the contract sold.
Other than the maximum four percent of premium imposed on HMOs, the Insurance Law and regulations thereunder do not specifically limit the amount of commission payable by an HMO to an insurance broker. Hence, the commissions payable are a matter of contractual agreement between the HMO and the producer, limited by the Superintendent’s approval of the rate filings. 1 Accordingly, an insurer may use the proposed sliding scale arrangement in paying broker commissions provided that it is nondiscriminatory, does not exceed four percent, and does not otherwise violate Insurance Law restrictions on overall expense limitation. See OGC opinion 07-04-05 (April 10, 2007).
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.
1 Payments are restricted by Insurance Law § 4309’s overall expense limitation and the § 4308 filed rates, which must include the commissions payable to agents and brokers pursuant to § 4312.