The Office of General Counsel issued the following informal opinion on June 18, 2001, representing the position of the New York State Insurance Department.

Re: New York Insurance Department Privacy Regulation, Prepaid Health Service Plans


Was the Department in error in holding in its April 27, 2001 letter that CHP contracts are "commercial" contracts, rather than government programs?


No, accordingly, there is no reason to modify the conclusion expressed therein.


The Inquirer asserts that CHP is as much a government program as Medicaid, which the Department indicated in its April 16, 2001 letter, was not subject to Regulation 169. In support of his contention, the inquirer claims that CHP shares certain characteristics with Medicaid, which characteristics the inquirer believes define a government health insurance program:

The benefits eligibility criteria and programatic requirements are all defined by State statutes and regulations, and may not be modified at the discretion of participating health plans.

The government covers all or most of the premiums through subsidies paid to health plans. Both Medicaid and CHP are State-funded programs that draw down federal matching dollars in accordance with State and federal law.

Participation is limited to low-income individuals who cannot afford to purchase coverage in the commercial market.

Health plans may offer coverage only pursuant to contracts entered into by the plan with a government agency. These contracts expand upon and implement the statutory and regulatory requirements governing the programs, and dictate the rules under which plans provide coverage

The State actively monitors the compliance of health plans with programatic requirements through regular reports, audits and inspections.

The inquirer further represents that, since federal funding was made available for children’s health insurance programs, many states have integrated their Medicaid and CHP equivalent coverages into a single program.

There are, however, a number of differences between Medicaid and CHP in New York’s statutes. First, with respect to Medicaid, the insurer, including a PHSP, enters into a contract with the State and there is no contractual relationship between the subscriber and the insurer. With CHP, however, there is a contract between the insurer and the State, New York Public Health Law §2511(7)(a) (McKinney 2001), as well as a contractual relationship with the individual (or his or her legal representative) covered under the CHP program, which relationship is evidenced by a document approved by this Department pursuant to New York Public Health Law §2511(7)(b).

Second, the rates charged by an insurer under the CHP program are approved by this Department utilizing the same criteria utilized by this Department for Health Maintenance Organizations, including community rating as required by New York Insurance Law §4317(a) (McKinney 20001). Health Maintenance Organizations and PHSPs were selected by the State to provide services to Medicaid enrollees on the basis of responses to a Request for Proposal that contemplated that the rate to be charged could include age and gender adjustments.

Third, the only compensation received by an insurer for Medicaid coverage is that received from the State and the individual beneficiary is not expected to make a contribution. By contrast, the CHP program is contributory for some children, New York Public Health Law §2510(9), and even a child not otherwise eligible may "buy in" to the program, New York Public Health Law §2511(5).

The inquirer represents that PHSPs insure 50% of the eligible children under the CHP program and that CHP business represents 44% of PHSP enrollment. Since a PHSP is limited to 10% commercial business, New York Public Health Law §4402-a(1) (McKinney 2001), the inquirer asserts considering CHP business as commercial will destroy the CHP program.

The 10% limitation is a result of an October 8, 1999 letter from the Health Department to the inquirer’s firm construing the "substantially composed" language of New York Public Health Law §4403-a(1):

The commissioner may issue a special purpose certificate of authority to a provider, applying on forms prescribed by the commissioner, seeking to offer a comprehensive health services plan on a prepaid contractual basis either directly, or through an arrangement, agreement or plan or combination thereof to an enrolled population, which is substantially composed of persons eligible to receive benefits under title XIX of the federal social security act or other public programs. (Emphasis added)

Neither the Insurance Law (or Regulation 169), nor the Public Health Law, define or use the term "commercial business". In the April 16, 2001 letter the term was used as an expression for that PHSP business which was not a "public program". Since "commercial business" is not a defined term, a reasonable interpretation must be based upon the context and intent of the particular statute or regulation. This Department, therefore, cannot agree that, given the purpose of Regulation 169, making PHSPs subject to Regulation 169 for their CHP business would destroy the CHP program. Accordingly, this Department sees no need to modify the conclusion expressed in the April 16, 2001 letter.

For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.