The Office of General Counsel issued the following informal opinion on October 31, 2002, representing the position of the New York State Insurance Department.
Re: Employer Sponsored Group Health Insurance
Must an employer sponsored group accident & health insurance policy, where the policyholder requires no employee contribution, cover all employees?
Yes, coverage of all employees is required under those circumstances.
The inquirers firm is a Domestic Advanced Premium Cooperative Insurance Company operating in accordance with New York Insurance Law Article 66 (McKinney 2000 and 2002 Supplement). The firm has contracted to purchase from a domestic Health Maintenance Organization a contract to cover the companys employees and their dependents. As an incentive to attract and retain employees, the firm does not require any contribution from its employees for this benefit.
Several of the employees are also eligible to be covered as dependents under their spouses health insurance policy or contract. In order to encourage those employees to "opt out" of receiving coverage through the contract that the firm has purchased, a program has been implemented whereby an employee who declines the coverage provided by the firm receives monetary compensation.
The inquirer has been made aware, through a recent opinion of this Office, that such "opting out" may not be allowed under the applicable statute and inquired whether the firms program is in compliance with the New York Insurance Law (McKinney 2000 and 2002 Supplement).
New York Insurance Law § 4235(c)(1) (McKinney 2000) provides, in pertinent part:
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 or to a trustee or trustees of a fund established by an employer, which employer or trustee or trustees 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. If all or part of the premium is to be derived from funds contributed by the insured employees, then such policy must insure not less than fifty percent of such eligible employees or, if less, fifty or more of such employees. . . . (emphasis added)
The regulation effecting this requirement, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) (1999), provides:
Conditions pertaining to employment under section  of the Insurance Law includes geographic situs of employment, earnings, method of compensation, hours, and occupational duties.
The above listing is illustrative and is not intended to be an exhaustive compilation of all valid conditions pertaining to employment.
Although HMOs are primarily regulated by the Health Department pursuant to New York Public Health Law Article 44 (McKinney 2002), the subscriber contracts of HMOs are, pursuant to New York Public Health Law § 4406(1), subject to regulation by this Department. Accordingly, the contract issued to the firm by the HMO would have to be in compliance with New York Insurance Law § 4235(c)(1).
If an employer purchases a group accident & health insurance policy intending to cover all employees, or a subset thereof based on a valid condition of employment, in which the employer pays the entire premium without any contribution by employees, then pursuant to New York Insurance Law § 4235(c)(1)(A) it is not possible for an employee to opt out of coverage. If, however, there was a requirement for contribution by employees, no matter how minimal, an opt out would be permitted.
Most employer sponsored group accident & health programs are regulated by the Employee Retirement Income Security Act, 29 U.S.C.A. § 1001 et seq (ERISA). Accordingly, this Department will express no opinion as to the employers obligation with respect to ERISA with relation to employee opt outs.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.