David A. Paterson
James J. Wrynn
The Office of General Counsel issued the following opinion on June 16, 2010, representing the position of the New York State Insurance Department.
Re: New York State Health Care Reform Act (HCRA) Surcharges
May an automobile insurer or self-insurer offset an applicant’s aggregate no-fault benefit limit for the payment of a HCRA surcharge?
No, an automobile insurer or self-insurer may not offset an applicant’s aggregate no-fault benefit limit for the payment of a HCRA surcharge.
The inquiry is of a general nature, without reference to particular facts.
The New York State HCRA, set forth in Public Health Law
Shortly before the effective date of Chapter 639 of the Laws of 1996, which enacted Pub. Health Law § 2807-c and related sections with respect to the reimbursement system applicable to no-fault payments, the Insurance Department issued Circular Letter No. 16 (1996). In Circular Letter No. 16, the Department provided guidance as to whether HCRA surcharges may be offset against an applicant’s aggregate no-fault benefit limit:
For No-Fault insurers that elect to pay the Department of Health’s pool administrator directly, the 8.18% surcharge can be offset against the applicant’s No-Fault benefit package. However, those insurers that elect to pay health providers directly and thereby incur the additional 24% surcharge, may not offset and thereby reduce an applicant’s No-Fault benefit package by the additional 24% surcharge.
Circular Letter No. 16 did not reference any relevant statutory or regulatory provision to support the inclusion of a surcharge in calculating basic economic loss. Nor did it cite any provision that created a distinction between surcharges that may or may not be offset against an applicant’s no-fault benefit limit. Rather, because the Public Health Law enactments did not address whether the surcharge should be included as a payment made for basic economic loss, and since the Legislature did not amend Article 51 of the Insurance Law in Chapter 639 to reflect the application of the surcharge, the Department expressed a policy decision, as articulated in Circular Letter No. 16, to include the 8.18% surcharge as part of a payment made for a service governed by the DRG rate, and therefore deductible as basic economic loss, and to exclude the additional 24% surcharge.
The Department’s interpretation created an incentive to no-fault insurers to make payments directly to the Department of Health in order to expedite payment of the surcharge to the Public Goods Pool, and to discourage the longer process whereby an insurer would make payment, including the HCRA surcharge, directly to a provider of health service, who would then be responsible for making payment of the surcharge to the Department of Health.
Subsequent to the issuance of Circular Letter No. 16, several insurers sued the Superintendent, seeking a judicial declaration that payment of the 8.18% surcharge imposed by the HCRA did not constitute a payment that could be offset against basic economic loss under a no-fault policy. The Appellate Division, Third Department concluded that the Superintendent’s determination, as expressed in Circular Letter No. 16, was “rational and neither arbitrary nor capricious,” and emphasized that “the Department has wide authority to interpret, clarify and implement legislative policy by prescribing regulations, provided they are not inconsistent with other specific statutory provisions.” Matter of State Farm, et. al. v. Neil D. Levin, Superintendent of Insurance, 263 A.D.2d 233 (2000). The court noted that since “the Public Health law does not address how the surcharges should be treated with respect to no-fault payments for covered services, the issue…is not one involving pure statutory construction.” Id. at 237. Thus, the court held that the guidance contained in Circular Letter No. 16 was rational as an interpretive policy determination by the Department, but was not necessitated by statute, nor based upon an analysis of relevant statutory provisions.
Further review of the Department’s policy determination has necessitated a reevaluation of the Department’s position regarding the treatment of HCRA surcharges. Article 51 of the New York Insurance Law (“the no-fault law”) is a comprehensive social reparations scheme meant to compensate people injured in motor vehicle accidents for the basic economic loss they incur as a result of their injuries. As noted above, Insurance Law
(a) “Basic economic loss” means, up to fifty thousand dollars per person of the following combined items, subject to the limitations of section five thousand one hundred eight of this article:
(1) All necessary expenses incurred for: (i) medical, hospital (including services rendered in compliance with article forty-one of the public health law, whether or not such services are rendered directly by a hospital), surgical, nursing, dental, ambulance, x-ray, prescription drug and prosthetic services; (ii) psychiatric, physical therapy (provided that treatment is rendered pursuant to a referral) and occupational therapy and rehabilitation; (iii) any non-medical remedial care and treatment rendered in accordance with a religious method of healing recognized by the laws of this state; and (iv) any other professional health services; all without limitation as to time, provided that within one year after the date of the accident causing the injury it is ascertainable that further expenses may be incurred as a result of the injury. For the purpose of determining basic economic loss, the expenses incurred under this paragraph shall be in accordance with the limitations of section five thousand one hundred eight of this article.
(2) Loss of earnings from work which the person would have performed had he not been injured, and reasonable and necessary expenses incurred by such person in obtaining services in lieu of those that he would have performed for income, up to two thousand dollars per month for not more than three years from the date of the accident causing the injury. An employee who is entitled to receive monetary payments, pursuant to statute or contract with the employer, or who receives voluntary monetary benefits paid for by the employer, by reason of the employee's inability to work because of personal injury arising out of the use or operation of a motor vehicle, is not entitled to receive first party benefits for “loss of earnings from work” to the extent that such monetary payments or benefits from the employer do not result in the employee suffering a reduction in income or a reduction in the employee's level of future benefits arising from a subsequent illness or injury.
(3) All other reasonable and necessary expenses incurred, up to twenty-five dollars per day for not more than one year from the date of the accident causing the injury.
The many categories of expenses enumerated in Insurance Law
With respect to in-patient hospital services rendered, the actual expense is calculated under the DRG methodology prescribed by the Public Health Law. Only after calculating the actual expense of providing health services to an injured person is the surcharge imposed upon that expense. To this end, payment of the DRG expense and payment of the HCRA surcharge by insurers are separate and distinct: the DRG expense is to reimburse the hospital for health services provided, whereas the surcharge is used to subsidize health care costs for the indigent.
The Legislature clearly intended payment to health providers to be included as part of basic economic loss when it enacted Article 51 of the Insurance Law. There is no similar evidence, however, that the Legislature intended payment of the surcharge to be included as a reimbursable health expense under the no-fault law. To the contrary, when it enacted the law providing for the HCRA surcharge, the Legislature did not amend the no-fault law in any manner. Accordingly, the interpretive guidance set forth in Circular Letter No. 16 no longer should be followed, and insurers may not offset the HCRA surcharge against any no-fault benefits to which an injured person is entitled under Insurance Law
Offsetting the HCRA surcharge against the no-fault benefit limit has the practical effect of lowering the amount of no-fault benefits available to injured persons to below the $50,000 maximum prescribed by Insurance Law
In fact, the broader purpose of imposing the HCRA surcharges—to expand the availability of health services to those in need through the public goods pool—is served by prohibiting the offset of the surcharges against basic economic loss. Permitting such an offset shifts the burden of funding the Public Goods Pool onto injured persons by reducing the amount of no-fault benefits available to them, a scheme that is inconsistent with both the social reparations system of the no-fault law as well as the creation of a public fund to provide health services to the indigent, as it inequitably burdens those who are injured and most in need of the maximum no-fault benefits. Rather, payment of the HCRA surcharges should be the responsibility of insurers, which can record the surcharge as an unallocated loss adjustment expense to avoid absorbing additional cost.
United Food and Commercial Workers Unions and Employees Benefit Fund v. DeBuono, et al., 101 F. Supp. 2d 74 (N.D.N.Y. 2000), a federal district court ruling in which the HCRA surcharge was deemed a tax for purposes of the Federal Tax Injunction Act, is not to the contrary. That case only serves to reinforce the status of the HCRA surcharge as a duly enacted charge on “anyone responsible for payment of a provider’s bill,” id. at 75, and in no way suggests that the burden of payment should fall upon injured persons in the form of a reduction in no-fault benefits.
In sum, to promote consistency with the Insurance Law and promote the no-fault law’s intent to provide injured persons with up to $50,000 of basic economic loss incurred as a result of their injuries, an insurer may not offset an applicant’s aggregate no-fault benefit limit for the payment of a HCRA surcharge.
For further information you may contact Lawrence M. Fuchsberg, Principal Attorney at the New York City Office.