The Office of General Counsel issued the following opinion on May 26, 2004 representing the position of the New York State Insurance Department.
Re: Accident & Health Insurance, Minimum Participation Rules
Can an employer change existing coverage for both New York resident employees and non-resident employees so as to provide coverage for New York resident employees through a new contract, but maintain a non-New York resident under the existing Health Maintenance Organization contract?
A distinction in coverage based solely on residence of the employee would not be permissible for either the employer or HMO under the New York Insurance Law (McKinney 2000 and 2004 Supplement) or the regulations promulgated thereunder.
The inquirer's firm is a licensed insurance agent and has a client with 10 employees, 9 of who reside in New York and one of who resides in Pennsylvania. Presently, the 10 employees are covered under a contract issued by an HMO domiciled in New York. The employer/client desires to establish a new plan only covering the New York residents, while the one Pennsylvania resident would remain in the old plan.
The provision of health benefits to employees constitutes an employee welfare benefit plan, as that term is
defined in the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(1) (West 1999). With exceptions not relevant to this inquiry, there are no substantive requirements in ERISA concerning the content or extent of coverage under such plans.
The regulation of HMOs in New York is divided between the Insurance Department and the Health Department. The Health Department regulates quality of care, while the Insurance Department regulates subscriber contracts. In accordance with New York Public Health Law § 4406(1) (McKinney 2002), such subscriber contracts are subject to regulation as if they were contracts issued by insurers licensed in accordance with New York Insurance Law Article 43 (McKinney 2000 and 2004 Supplement).
The groups to which health insurance policies and contracts may be issued for delivery in New York is regulated by New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2004 Supplement). New York Insurance Law § 4235(c)(1)(A) provides:
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. . . . .
In effectuating the requirements of New York Insurance Law § 4235(c)(1)(A), the Department has promulgated a regulation (Regulation 62) that provides, in pertinent part, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) (2002):
Conditions of eligibility. Conditions pertaining to employment under section 4235(c) of the Insurance Law includes geographic situs of employment, earnings, method of compensation, hours, and occupational duties.
The phrase "geographic situs of employment" in N.Y. Comp. Codes R. & Regs. tit. 11, § 52.18(f) refers to location of the employment, not the residence of the employee. Accordingly, neither the employer nor the HMO could make a distinction based solely upon the residence status of the employee.
Even if, however, there were other valid distinctions that would permit separating the Pennsylvania employee from the New York employees, for the reason indicated below, the HMO would have to continue to cover the Pennsylvania employee.
As part of a comprehensive enactment affecting health insurance, 1992 N.Y. Laws 501 enacted New York Insurance Law § 4317(a) (McKinney 2000):
No . . . group health insurance contract covering between two and fifty employees . . . exclusive of spouses and dependents . . . hereinafter referred to as a small group, providing hospital and/or medical benefits . . . shall be issued in this state unless such contract is community rated and, notwithstanding any other provisions of law, the underwriting of such contract involves no more than the imposition of a pre-existing condition limitation as permitted by this article. . . . . Termination of coverage for . . . small groups may be based only on one or more of the reasons set forth in . . . subsection (j) of section four thousand three hundred five of this article. For the purposes of this section, "community rated" means a rating methodology in which the premium for all persons covered by a policy or contract form is the same, based on the experience of the entire pool of risks covered by that policy or contract form without regard to age, sex, health status or occupation.
While termination of a group under limited circumstances is permitted by New York Insurance Law § 4305(j) (McKinney 2000 and 2004 Supplement), there is no provision for termination of a individual's certificate by an HMO.
In order to effectuate New York Insurance Law § 4317(a), the Department promulgated a regulation (Regulation 145) that provides in pertinent part, N.Y. Comp. Codes R. & Regs. tit. 11, § 360.3(a) (1998):
No insurer may restrict or limit eligibility for . . . small group policies except in the following ways: (1) Insurers may issue policies only to or through groups recognized under Sections 4235(c)(1)(A) . . . of the Insurance Law. (i) Small group health insurance policies may be issued to cover only certain classes of employees as provided in Section 4235(c)(1)(A) based upon conditions pertaining to employment, but only if the employer requesting coverage seeks coverage for only such classes. (ii) Minimum participation requirements as set forth in section 4235(c)(1) must continue to be utilized. Health maintenance organizations may not establish any minimum participation requirements within a group and must accept one person within a small group who elects the HMO coverage. . . .
Accordingly, in accordance with the New York Insurance Law and the regulations promulgated thereunder, even if there were other valid distinctions under Regulation 62 by which the employer provides coverage under the new plan to only the New York residents, the HMO must permit the Pennsylvania resident to remain under the old plan.
Since that Commonwealth's statutes might be affected by the actions of the inquirers client, the inquirer was directed to contact the Pennsylvania Insurance Department.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.