OGC Opinion No. 10-11-10

The Office of General Counsel issued the following opinion on November 24, 2010, representing the position of the New York State Insurance Department.

Re: Referral Fees

Question Presented:

May an insurance agent that is appointed by an insurer to sell Medicare Advantage and Medicare Supplement Insurance policies compensate a non-appointed agent, or a person who is not a licensee (“non-licensee”) of the New York State Insurance Department (“Department”), for referring a person to the appointed agent?

Conclusion:

Pursuant to New York Insurance Law § 2114(a)(4) (McKinney Supp. 2010), an insurance agent that is appointed by an insurer to sell Medicare Advantage and Medicare Supplement Insurance policies may compensate a non-appointed agent, or a non-licensee, for referring a person to the appointed agent, provided that: 1) the person making the referral does not discuss the specific terms and conditions of the policy with the person being referred; and 2) the payment of the referral fee is not dependent on the referred person purchasing an insurance policy.

Facts:

An insurance agent appointed by an insurer to sell Medicare Advantage and Medicare Supplement Insurance policies in New York asked whether the agent may compensate a non-appointed agent, or a Chamber of Commerce member (a non-licensee), for referring a person to the agent as a potential insured.

Analysis:

The Center for Medicare and Medicaid Services (“CMS”), a federal sub-agency of the Department of Health and Human Services, administers the programs for Medicare and Medicaid services. The Medicare Advantage program allows Medicare beneficiaries to receive medical services through privately managed health care providers, such as HMOs, which contract with CMS to provide those services. A Medicare Advantage policy may include prescription drug coverage and additional benefits not provided by the original Medicare plan (e.g., vision, hearing, dental, and health and wellness benefits). Medicare Supplement Insurance (a/k/a “Medigap”) is sold as a health insurance policy by private entities. The coverage provided fills the “gaps” left by the original Medicare plan by paying for certain health care costs, or providing additional benefits, that are not covered by the original Medicare plan (e.g., emergency health care outside the United States). Medicare Advantage and Medicare Supplement Insurance plans are subject to federal law. See 42 U.S.C. §§ 1395 et seq.

Although the Medicare Advantage and Medicare Supplement Insurance plans are subject to federal statute, and regulated by CMS, insurance agents who sell, solicit or negotiate Medicare Advantage and Medicare Supplement Insurance in New York must be licensed by this Department, pursuant to Insurance Law § 2102. ¹ See the Department’s Office of General Counsel (“OGC”) Opinion Nos. 05-01-21 (January 6, 2005) and 03-08-02 (August 1, 2003).

Life and accident and health insurance agents, which includes insurance agents who sell Medicare Advantage and Medicare Supplement Insurance policies, are subject to certain requirements regarding the payment of commission and other compensation pursuant to Insurance Law § 2114. ² Insurance Law § 2114(a)(3) and (4) ³ is specifically relevant to this inquiry, and reads as follows:

The statute thus permits an insurance agent that is appointed by an insurer to sell Medicare Advantage and Medicare Supplement Insurance policies to compensate a non-appointed agent, or a non-licensee, for referring a person to the appointed agent, provided that: 1) the person making the referral does not discuss the specific terms and conditions of the policy with the person being referred; and 2) the payment of the referral fee is not dependent on the referred person purchasing an insurance policy. If these conditions are not met, the person making the referral would be acting as an insurance producer without a license, in violation of Insurance Law § 2101. See OGC Opinion Nos. 06-11-23 (November 29, 2006); 05-07-29 (July 28, 2005); and 01-01-17 (January 25, 2001). Insurance Law § 2114(a)(4) is deemed repealed effective September 10, 2011, pursuant to L.2000, c. 418, § 12, and L.1997, c. 3, § 7.

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

¹ Insurance Law § 2102(a)(1) concerns the licensing of insurance agents, among others, and reads as follows: “No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.” An “insurance producer” is defined in Insurance Law § 2101(k) as “an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.”

² Insurance Law §§ 2115 and 2116 contain similar requirements with respect to property/casualty insurance agents and insurance brokers, respectively.

³ Subsection (a)(4) of Insurance Law § 2114 will expire on September 10, 2011, unless extended by the Legislature.