OGC Opinion No. 04-02-08: HMO is Subject to Article Four of the New York Insurance Laws

OGC Op. No. 04-02-08

The Office of General Counsel issued the following informal opinion on February 13, 2004, representing the position of the New York State Insurance Department.

Re: HMO is Subject to Article Four of the New York Insurance Laws

Questions Presented

1. Is a New York State licensed health maintenance organization, (hereinafter HMO), subject to examination by the Department?

2. Is the HMO subject to Article 4 of the New York Insurance Laws?

Conclusions

1. Yes. Pursuant to relevant parts of N.Y. Ins. Law § 1109(a) (McKinneys Supp. 2004) and relevant parts of New York Public Health Law, Section 4409(2) (2004), the HMO is subject to examination by the Department.

2. Yes. The HMO is subject to all of the provisions of Article Four of the New York Insurance Laws.

Facts

You are the manager of an HMO, licensed pursuant to Article 44 of the New York Public Health Law. You wish to know whether the HMO is subject to Article 4 of the New York Insurance Law. Based on information filed with the Department, the HMO has in excess of 60,000 members.

Analysis

Regarding examination of the HMO by the Department, N.Y. Ins. Law § 1109(a) (McKinneys Supp. 2004) states in relevant part:

An organization complying with the provisions of article forty-four of the public health law may operate without being licensed under this chapter and without being subject to any provisions of this chapter, except: (1) to the extent that such organization must comply with the provisions of this chapter by virtue of such article, and (2) the provisions of sections three hundred eight . . .

New York Public Health Law Section 4409(2) (2004) permits the Superintendent to examine the financial affairs of each HMO, and to ". . . exercise the powers set forth in sections . . . three hundred ten of the insurance law in connection with such examinations, . . . ." Section N.Y. Ins. Law § 310 (McKinneys 2000), entitled "Examinations, how conducted," sets forth requirements of insurers during examinations.

Regarding the applicability of the requirements of Article 4 to HMOs, N.Y. Ins. Law § 409(a) (McKinneys Supp. 2004), states in relevant part:

. . . every entity licensed pursuant to article forty-four of the public health law except those entities with an enrolled population of less than sixty thousand persons in the aggregate . . . shall, . . . , file with the superintendent a plan for the detection, investigation and prevention of fraudulent insurance activities in this state and those fraudulent insurance activities affecting policies issued or issued for delivery in this state. The superintendent may accept programs and processes implemented pursuant to section forty-four hundred fourteen of the public health law as satisfying the obligations of this section and regulations promulgated thereunder.

N.Y. Ins. Law § 409(a) (McKinneys Supp. 2004) clearly states that HMOs with an enrolled population of 60,000 or more must comply with N.Y. Ins. Law § 409 (McKinneys Supp. 2004). Since the HMO has an excess of 60,000 members, it is subject to all of the requirements of N.Y. Ins. Law § 409 (McKinneys Supp. 2004), including N.Y. Ins. Law § 409(g) (McKinneys Supp. 2004), which states in relevant part that "[e]very insurer required to file a fraud prevention plan shall report to the superintendent on an annual basis, . . . , describing the insurers experience, performance and cost effectiveness in implementing the plan, . . . ."

The Department determined that HMOs are insurers in an opinion dated August 21, 1991. In analyzing the issue, the Department determined that HMOs provide accident and health insurance, as defined in Insurance Law Section 1113(a)(3). The Department opined:

[w]hile the term insurer is not defined in the Insurance Law, it is commonly understood to mean any entity that is doing an insurance business. Doing an insurance business is defined in the Insurance Law under Section 1101(b). An HMO that provides a comprehensive health service plan is doing an insurance business under Section 1101, and, as noted, the comprehensive health services plan is accident and health insurance. . . . However, Section 1109(a) provides that an organization complying with Public Health Law Article 44 may operate without being licensed under the Insurance Law and without being subject to any provision of the Insurance Law, except to the extent that Article 44 requires the HMO to comply with the provisions of the Insurance Law. This exemption, however, does not make the HMO any less of an insurer; it merely exempts the HMO from certain requirements.

Accordingly, HMOs are insurers, and as such, this HMO must comply with N.Y. Ins. Law § 409(g) (McKinneys Supp. 2004).

Furthermore, as discussed above, since HMOs are engaged in the business of insurance, HMOs must report fraud pursuant to N.Y. Ins. Law § 405 (McKinneys 2000). N.Y. Ins. Law § 405 (McKinneys 2000) states in relevant part:

(a) Any person licensed pursuant to the provisions of this chapter, and any person engaged in the business of insurance in this state who is exempted from compliance with licensing requirements of this chapter, . . . , who has reason to believe that an insurance transaction may be fraudulent, or has knowledge that a fraudulent insurance transaction is about to take place, or has taken place shall, within thirty days after determination by such person that the transaction appears to be fraudulent, send to the insurance frauds bureau . . . the information . . . relative to the factual circumstances of the transaction. . . .

An HMO would have immunity to the extent that it is provided in N.Y. Ins. Law § 406 (McKinneys 2000). The remaining sections inquired about under Article 4 do apply to HMOs; however, they require no affirmative action by an HMO.