The Office of General Counsel issued the following informal opinion on May 4, 2005 representing the position of the New York State Insurance Department.
Re: Community Rating and Out-of-State Association Trust
Question Presented:
1. Is community rating required for a fully insured out-of-state trust plan offered through an association to an employer that employs residents of the state of New York and another state; or may an insurer blend the rates?
2. If so, do such community rated rates apply to all the employees regardless of their state of residence?
Conclusion:
Community rating would apply to the employees who are New York residents. The rates for the residents of the other state would be subject to the laws of that state. Therefore, the rates for the residents of the two states may not be blended. The rates for New York residents may not be calculated using any rating methodology other than community rating.
In addition, 11 N.Y.C.R.R. § 360.8(d)(1) provides that an insurer using an out-of-state trust that covers a group of 50 or fewer employees or participating persons who are residents of New York State ". . . may not have its own community rate and the coverage of the New York State residents must be written on a policy available to other New York State groups of 50 or fewer employees or participating persons and must be offered at the community rate for that policy." If such a policy is not available, then pursuant to 11 N.Y.C.R.R. § 360.8(d)(2), "such out-of-state trust coverage may not cover New York State residents because of the inability to comply with the open enrollment and community rating requirements."
Therefore, based on information on ABC Insurance Companys website that the insurer does not offer small group policies to other groups in New York State, it appears the Insurance Law and implementing regulations would not permit the insurer to offer the association group policy to small group members who reside in New York State. As a result, the insurer must terminate coverage under the association group policy to New York residents who are members of small groups.
Facts:
An insurance agent works with a health insurance trust plan that is exclusive to members of an association group and is fully insured by the ABC Insurance Company, which is a for-profit insurer. One of the members is an engineering firm that has approximately 40 employees, a vast majority of whom work in the firms headquarters located in New York State. The 40 employees who work in New York are also residents of New York. The remaining employees work in a smaller branch of the firm in Pennsylvania and are Pennsylvania residents.
ABC originally quoted one set of rates for the health insurance trust plan, which applied to both the New York residents and the Pennsylvania residents; and such rates were higher than the community rates. Upon the insurance agent's request, separate rate sets were given for the residents of each state, but the rates given to the New York residents were still not community rated rates. The insurer has argued that it is permitted to blend the rates, but it is unclear what the insurer means by blending the rates.
Based on information on ABC's website, it appears that neither ABC nor any of its affiliates offers small group plans in New York State separate from the association group plan at issue.
Analysis:
N.Y. Ins. Law § 3231(a) (McKinney Supp. 2005) provides, in relevant part, as follows:
(a) No individual health insurance policy and no group health insurance policy covering between two and fifty employees or members of the group exclusive of spouses and dependents, hereinafter referred to as a small group, providing hospital and/or medical benefits, including medicare supplemental insurance, shall be issued in this state unless such policy is community rated . . . Group hospital and/or medical coverage, including medicare supplemental insurance, obtained through an out-of-state trust covering a group of fifty or fewer employees or participating persons who are residents of this state must be community rated regardless of the situs of delivery of the policy. Notwithstanding any other provisions of law, the underwriting of such policy may involve no more than the imposition of a pre-existing condition limitation as permitted by this article, and once accepted for coverage, an individual or small group cannot be terminated due to claims experience. Termination of an individual or small group shall be based only on one or more of the reasons set forth in subsection (p) of section three thousand two hundred twenty-one 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. (emphasis added)
In order to effectuate the requirements of N.Y. Ins. Law § 3231(a) as well as N.Y. Ins. Law §4317(a), which is not applicable to the facts presented, the Department promulgated 11 N.Y.C.R.R. Part 360 (Regulation 145). Regulation 145 establishes rules for association groups that, in essence, require that such groups be community rated if any member employer has less than 50 employees. 11 N.Y.C.R.R. § 360.8(e)(1). According to the facts provided, the engineering firm has less than 50 employees located in New York State.
11 N.Y.C.R.R. § 360.2(a) defines an "association group" as follows:
(a) Association group means a group defined in section 4235(c)(1)(B), (D), (H), (K), (L) and (M) of the Insurance Law, including but not limited to an association or trust of employers, if the group includes one or more member employers or other member groups which have 50 or fewer employees or members exclusive of spouses and dependents. A group containing individual members of an association will be considered an association group having member groups of 50 or fewer members.
For purposes of analysis, it was assumed that the trust plan at issue is a group defined in N.Y. Ins. Law § 4235(c)(1) (D).
11 N.Y.C.R.R. § 360.8(d), which applies to group health insurance policies issued to association groups, provides as follows:
(d) Community rating and open enrollment of group members residing in New York State who are covered under group policies delivered to a group trust outside of New York State.
(1) Group hospital and/or medical coverage, including Medicare supplemental insurance, obtained through an out-of-state trust covering a group of 50 or fewer employees or participating persons who are residents of New York State must be community rated and open enrolled in New York State. These requirements apply to all out-of-state trusts whether or not the certificates of coverage under such trusts are deemed to be delivered in New York State under Section 3201 of the Insurance Law.
The insurer using an out-of-state trust mechanism which covers residents of New York State as stated in the foregoing paragraph may not have its own community rate and the coverage of the New York State residents must be written on a policy available to other New York State groups of 50 or fewer employees or participating persons and must be offered at the community rate for that policy.
(2) If the requirements of open enrollment and community rating cannot be met because the policy form offered through the out-of-state trust is not available to other New York State groups of 50 or fewer employees or participating persons then such out-of-state trust coverage may not cover New York State residents because of the inability of the insurer to comply with the open enrollment and community rating requirements. (emphasis added)
Regulation 145, 11 N.Y.C.R.R. § 360.8(d) clearly limits the application of New York community rated rates to New York residents. Where community rating applies, an insurer must offer such rates calculated with the community rating methodology and may not blend or use any other rating methodology
Finally, 11 N.Y.C.R.R. § 360.8(d)(1) provides that an insurer using an out-of-state trust which covers a group of 50 or fewer employees or participating persons who are residents of New York State ". . . may not have its own community rate and the coverage of the New York State residents must be written on a policy available to other New York State groups of 50 or fewer employees or participating persons and must be offered at the community rate for that policy." If such a policy is not available, then pursuant to 11 N.Y.C.R.R. § 360.8(d)(2), "such out-of-state trust coverage may not cover New York State residents because of the inability to comply with the open enrollment and community rating requirements." Therefore, based on information on ABC Insurance Companys website that the insurer does not offer small group policies to other groups in New York State, it appears the Insurance Law and implementing regulations would not permit the insurer to offer the association group policy to small group members who reside in New York State. As a result, the insurer must terminate coverage under the association group policy to New York residents who are members of small groups.
For further information you may contact Assistant Counsel Brenda M. Gibbs at the Albany Office