The Office of General Counsel issued the following opinion on July 5, 2005, representing the position of the New York State Insurance Department.
Re: Third Party Administrator License Requirement.
Question Presented:
Does New York State require a third party administrator (TPA) license to administer dental plans?
Conclusion:
No, New York does not have a TPA license requirement. However, depending on the activities of the TPA, it may require another license under the New York Insurance Law. In this case, it appears that ABC Administrators will be acting as an independent adjuster and a utilization review agent and needs to be licensed or registered accordingly.
Facts:
ABC Administrators Inc. is a TPA of dental claims that provides services to insurers with respect to dental insurance. ABC Administrators is currently engaged in negotiations with a New York insurer and intends to provide these services on New York claims. ABC Administrators feels that it does not need an adjusters license, and wants to know if it will need a TPA license.
ABC Administrators states that its duties on behalf of insurers would include:
Underwriting and rate setting for dental proposals
Proposal generation
Group set up
Mailing of group supplies
Eligibility maintenance
Dental billing
Customer and provider service
Web based group inquiry services
Claim adjudication processing and payment
Collection and application of premium payments
Processing of agent commission payments
Data extract for 1099 reporting
Renewal calculation and reports
Professional review of claims
The following summarizes ABC Administrators activities.
First, the insurer's sales force collects industry data such as the age and sex of a group. This data is then loaded onto ABC Administrators' processing system. Based on the demographics of the group, ABC Administrators' system calculates and suggests rates. ABC Administrators then creates a proposal from the information that was provided by the insurer, based on the insurer's guidelines.
Once a sale is complete, the sales force of the insurer submits a "master application" including premium and eligibility information, to the insurer. The insurer then enters this data onto its own system. All premiums are now paid to the insurer and ABC Administrators merely processes the claims. However, in the future, ABC Administrators may both process the claim and directly collect the premium.
The insurer maintains a bank account from which claims are paid. Once the insurer approves the claim, ABC Administrators pays it based on the benefits purchased. The payment of each dental procedure is determined from a database that ABC Administrators has licensed from a national vendor. The national vendor produced this database by collecting information on reimbursements based on submitted dental charges from every zip code in the United States. The insurer determines the percentage of reimbursement that an individual is eligible to receive. ABC Administrators, for the most part, is responsible for the accurate accounting and reporting of all paid claims. ABC Administrators is also responsible for printing ID cards, membership certificates, and group supplies from the product filing documents that is provided by the insurer.
There is no contact between ABC Administrators and the insured prior to a policy being issued. The insurer is responsible for all appeals of claims. ABC Administrators does not assume any of the insurance risk under the policies.
The insurer provides ABC Administrators with the dental plan design, limitations, and what is not covered. This information is put into ABC Administrators processing system. The processing system then determines whether a claim can be processed. ABC Administrators has no discretion to adjudicate a claim that is placed in the processing system.
ABC Administrators provides service over the phone to answer questions on the type of coverage an individual has on a dental plan, the amount of deductible, and the status of a claim. This service is available to both the customer and the provider.
ABC Administrators also has certified practicing dentists and claims review specialists on staff to review whether claims are being processed appropriately. Claims are randomly chosen for professional review and do not enter ABC Administrators automated processing system. For example, the specialists may examine X-rays submitted with a claim to ensure that the tooth needing a crown has sufficient decay or crack so that it meets the criteria the insurer has set out. If the review specialist determines that a claim does not meet the criteria, the staff dentist reviews the claim and then decides whether it will be processed or denied.
Analysis:
New York State does not have a requirement for a TPA license. Rather, the specific activities of the TPA must be analyzed to determine whether the activities performed require another license under the Insurance Law. N.Y. Ins. Law § 2102(a)(1) (McKinney Supp. 2005) provides that no person, firm, association or corporation may act as an insurance producer or an insurance adjuster without a license in New York. Further, N.Y. Ins. Law § 2108(a)(3) (McKinney Supp. 2005) states that no adjuster shall act on behalf of an insurer without being licensed as an independent adjuster. Moreover, N.Y. Ins. Law § 4900 (McKinney Supp. 2005) and N.Y. Public Health Law § 4900 (2005) define the process to determine whether a health care service provided is necessary as a "utilization review" and further defines those who perform these reviews as "utilization review agents."
N.Y. Ins. Law § 2101(a) (McKinney Supp. 2005) states in pertinent parts:
In this article, "insurance agent" means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker . . . .
The statutory exceptions that follow this provision do not apply to ABC Administrators.
Under the facts provided, ABC Administrators is not acting as an insurance agent because its activities do not include soliciting, negotiating, or selling insurance. Further, ABC Administrators has no contact with the insured before a policy is issued. ABC Administrators duties are merely to service the policy. Therefore, ABC Administrators would not be required to procure a license under the New York Insurance Law as an insurance agent.
N.Y. Ins. Law § 2101(g)(1) (McKinney Supp. 2005) states in pertinent parts:
In this article, "adjuster" means any "independent adjuster" . . . as defined below:
(1) The term "independent adjuster" means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster . . . .
The statutory exceptions that follow this provision do not apply to ABC Administrators.
An adjuster license is required where the TPA exercises discretionary authority in adjusting claims. Opinion of General Counsel No. 01-06-36. ABC Administrators, in certain situations, reviews claims and then decides whether those claims will be processed or denied. Although these reviews are done based on the parameters provided by the insurer, the reviewers eventually decide whether a claim will be processed or denied. Therefore, ABC Administrators and the employees engaged in such activities will need independent adjuster licenses pursuant to § 2108 of the New York Insurance Law.
N.Y. Ins. Law § 4900(h) (McKinney Supp. 2005) defines utilization review:
'Utilization review' means the review to determine whether health care services that have been provided, are being provided or are proposed to be provided to a patient, are being provided to a patient, whether undertaken prior to, concurrent with or subsequent to the delivery of such services are medically necessary . . . .
N.Y. Public Health Law § 4900(8) (2005), which applies only to health maintenance organizations (HMO), has an identical definition. The statutory exceptions that follow these provisions do not apply to ABC Administrators.
Further, N.Y. Ins. Law § 4900(i) (McKinney Supp. 2005) (Article 49) defines a "utilization review agent" as "any insurer . . . performing utilization review and any independent utilization review agent performing utilization review under contract with such insurer."
N.Y. Public Health Law § 4900(9), which relates to HMO's, defines utilization review agent as:
any company, organization or other entity performing utilization review, except: (a) an agency of the federal government; (b) an agent acting on behalf of the federal government, but only to the extent that the agent is providing services to the federal government; (c) an agent acting on behalf of the state and local government for services provided pursuant to title XIX of the federal social security act; (d) a hospital's internal quality assurance program except if associated with a health care financing mechanism; or (e) any insurer subject to article thirty-two or forty-three of the insurance law and any independent utilization review agent performing utilization review under a contract with such insurer, which shall be subject to article forty-nine of the insurance law.
ABC Administrators, through its staff of practicing dentists and claims review specialists, determines whether the processing of a claim is appropriate and whether alternative benefits would be more appropriate. Therefore, ABC Administrators is making a dental necessity determination and conducting utilization review as defined in both N.Y. Ins. Law § 4900(h) (McKinney Supp. 2005) and N.Y. Public Health Law § 4900(8) (2005).
Accordingly, it is our opinion that ABC Administrators would not have to be licensed as an insurance agent; however, because ABC Administrators is exercising discretion by acting on the utilization review decision, ABC Administrators would require an independent adjuster license under the New York Insurance Law. In addition, because ABC Administrators provides professional review of claims, it is engaging in utilization review and would be required to file with the Department of Insurance as a utilization review agent. If ABC Administrators engages in activities in connection with HMOs, then, in addition to filing with the Department of Insurance, it would also have to register with the Department of Health. This conclusion is strictly based on the facts provided.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.