OGC Op. No. 04-10-18

The Office of General Counsel issued the following opinion on October 21, 2004, representing the position of the New York State Insurance Department.

Re: Employer Sponsored Health Insurance, Coverage Options


May an employer, depending upon the family status of the employee, differ the coverage that it will offer to employees?


The employer’s practice, as described, is not violative of the New York Insurance Law (McKinney 2000 and 2004 Supplement). The Insurance Department, however, cannot express any opinion as to requirements of other statutes.


The inquirer is a licensed insurance agent pursuant to New York Insurance Law § 2103(a) and the inquirer’s firm is a benefits consultant. The firm has been approached by a client that currently purchases coverage from two unaffiliated insurers. The first insurer (A) is a Health Maintenance Organization that has a two tier rating structure, i. e., single and family [any dependent]. The second insurer (B) is also an HMO, but has a four tier rating structure, i.e., single, employee & spouse, family [more than one dependent], and employee & children. The employer offers coverage in HMO A to employees who are single or part of a family and offers coverage in HMO B to employees with only a dependent spouse or dependent children.

The inquirer asks if such a practice is illegal.


Insurers, including HMOs, may only issue group health insurance policies and contracts in accordance with New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2004 Supplement). New York Insurance Law § 4235(c)(1)(A) authorizes:

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. However, such a plan may permit a limited number of selections by employees if the selections offered utilize consistent plans of coverage for individual group members so that the resulting plans of coverage are reasonable. . . . (emphasis added)

Since the insurer and employer are utilizing the family status of the employee in allocating coverage, it is in compliance with New York Insurance Law § 4235(c)(1)(A).

New York Public Health Law § 4407 (McKinney 2002) imposes requirements on employers to offer HMO coverage:

1. All employers subject to the provisions of the unemployment insurance law, except for those employers with fewer than twenty-five employees, shall include in any health benefits plan offered to their employees, the option of membership in a health maintenance organization which provides or offers a comprehensive health services plan in accordance with the provisions of this article, but only if such plan serves an area in which twenty-five of such employer's employees reside and the organization has been issued a certificate of authority by the commissioner.

2. For those employees of an employer represented by a bargaining representative, the offer of the health maintenance organization alternative shall be subject only to the collective bargaining process; for those employees not represented by a bargaining representative, the offer of the health maintenance organization alternative shall be made directly to the employee.

. . .

There is an analogous Federal requirement in 42 U.S.C.A. § 300e-9(1) (West 2003). It thus appears that the employer is in compliance with the applicable requirements for the offering of HMO coverage.

The offering of health coverage 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). It is possible that ERISA may impose additional requirements on the employer.

If the employees are covered by collective bargaining agreements, other Federal statutes, e.g. 29 U.S.C.A. § 141 et seq. (West 1998 and 2003 Supplement), may be applicable.

Inquiries concerning applicable Federal statutes, including ERISA, may be addressed to:

Employee Benefit Security Administration
United States Department of Labor
33 Whitehall Street
New York, NY 10004.

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