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The Office of General Counsel issued the following opinion on September 27, 2005 representing the position of the New York State Insurance Department.

Re: Professional Employer Organization (PEO), Healthy New York

Question Presented:

May an employer whose employees are presently covered under the Healthy New York program contract with a PEO for its services without losing eligibility for participation in the Healthy New York program?


Based upon the information furnished, it appears the employer would remain eligible to participate in the Healthy New York program.


A PEO has registered with the New York Labor Department pursuant to New York Labor Law § 918 (McKinney 2005 Supplement) and has a potential New York client whose employees are presently covered under the Healthy New York program. The present clients of the PEO have in the aggregate in excess of 50 employees.

It is anticipated that as part of the PEO contract, the employer will retain any obligation to provide health benefits to the employees. The PEO has indicated that the employer’s share of the cost of participating in the health benefit plan provided by the PEO would be more than the cost of the coverage provided under the Healthy New York program. Accordingly, if the employer would lose eligibility under the Healthy New York program because of contracting with the PEO, it would eliminate any health coverage for employees.

The PEO seeks confirmation that, upon entering into a contract with the PEO, the employer will not lose eligibility under the Healthy New York program.


The purpose of the Healthy New York program is set forth in New York Insurance Law § 4326(a) (McKinney 2000 and 2005 Supplement):

A program is hereby established for the purpose of making standardized health insurance contracts available to qualifying small employers and qualifying individuals as defined in this section. Such program is designed to encourage small employers to offer health insurance coverage to their employees and to also make coverage available to uninsured employees whose employers do not provide group health insurance.

Eligibility of employers, other than sole proprietors, for the Healthy New York program is set forth in New York Insurance Law § 4326(c)(1)(B) through (F):

(B) An employer with: (i) not more than fifty eligible employees; (ii) no group health insurance which provides benefits on an expense reimbursed or prepaid basis covering employees in effect during the twelve month period prior to application for a qualifying group health insurance contract under the program established by this section; and (iii) at least thirty percent of its eligible employees receiving annual wages from the employer at a level equal to or less than thirty thousand dollars. The thirty thousand dollar figure shall be adjusted periodically pursuant to subparagraph (F) of this paragraph.

(C) The requirements set forth in . . . in item (ii) of subparagraph (B) of this paragraph shall not be applicable where an . . . employer is transferring from a health insurance contract issued pursuant to the New York state small business health insurance partnership program established by section nine hundred twenty-two of the public health law or from health care coverage issued pursuant to a regional pilot project for the uninsured established by section one thousand one hundred eighteen of this chapter.

(D) The twelve month period set forth in . . . item (ii) of subparagraph (B) of this paragraph may be adjusted by the superintendent from twelve months to eighteen months if he determines that the twelve month period is insufficient to prevent inappropriate substitution of other health insurance contracts for qualifying group health insurance contracts.

(E) An individual proprietor or employer shall cease to be a qualifying small employer if any health insurance which provides benefits on an expense reimbursed or prepaid basis covering the individual proprietor or an employer's employees, other than qualifying group health insurance purchased pursuant to this section, is purchased or otherwise takes effect subsequent to purchase of qualifying group health insurance under the program established by this section.

(F) The wage levels utilized in subparagraph (B) of this paragraph shall be adjusted annually, beginning in two thousand two. The adjustment shall take effect on July first of each year. . . . The percentage adjustment shall be the same percentage by which the current year's non-farm federal poverty level, as defined and updated by the federal department of health and human services, for a family unit of four persons for the forty-eight contiguous states and Washington, D.C., changed from the same level established for the prior year.

A PEO is defined in New York Labor Law § 916 (McKinney 2005 Supplement):

3. ‘Professional employer agreement’ means a written contract whereby: (a) A professional employer organization expressly agrees to co-employ all or a majority of the employees providing services for the client; (b) The contract is intended to be on-going rather than temporary in nature; (c) Employer responsibilities for worksite employees, including those of hiring, firing and disciplining, are expressly allocated by and between the professional employer organization and the client in the agreement; and (d) The professional employer organization expressly assumes the rights and responsibilities as required in section nine hundred twenty-two of this article.

4. ‘Professional employer organization’ means any person whose business is entering into professional employer agreements with clients. In determining whether the professional employer organization employs all or a majority of the employees of a client, any person employed pursuant to the terms of the professional employer agreement after the initial placement of client employees on the payroll of the professional employer organization shall be included. Temporary help firms and employment agencies . . . shall not be deemed to be professional employer organizations for purposes of this article.

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The provision of employee benefits to clients of PEOs is regulated under New York Labor Law § 922(5) (McKinney 2005 Supplement):

5. A registered professional employer organization shall be deemed for purposes of state law an employer for purposes of sponsoring welfare benefit plans for its worksite employees. Worksite employees participating in that professional employer organization's fully insured welfare benefit plan or plans shall be considered employees participating in a single employer welfare benefit plan or plans. A fully insured welfare benefit plan or plans offered by a registered professional employer organization to its employees and/or worksite employees shall not be considered for purposes of state law a multiple employer welfare arrangement.

New York Insurance Law § 4326 was enacted as part of the Health Care Reform Act of 2000, 1999 N.Y. Laws 1. The legislative intent of HCRA, with respect to New York Insurance Law § 4326, was set forth in 1999 N.Y. Laws 1, § 1: "The legislature . . . further finds that New York should provide comprehensive health insurance for those citizens who need it most . . . ."

Given that the provision of health insurance by employers constitutes an employee welfare benefit plan under the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1999 and 2003 Supplement)and that ERISA preempts state regulation of employee welfare benefit plans, 29 U.S.C.A. § 1144(a) (West 1999), New York may not mandate the provision of health benefits. Therefore, the loss of eligibility for the Healthy New York program would result in an increase of the uninsured population in New York.

New York Labor Law § 922(6) provides:

Subject to any contrary provisions contained in the written professional employer agreement between the client and the professional employer organization, the professional employer arrangement that exists between a professional employer organization and its client or clients shall be interpreted for the purposes of insurance and bonding as follows: . . . (b) Worksite employees are not automatically deemed pursuant to this section to be employees of the professional employer organization for purposes of general liability, insurance, automobile insurance, fidelity bonds, surety bonds, employer's liability which is not covered by workers' compensation, or liquor liability insurance carried by the professional employer organization unless the worksite employees are included by specific reference in the professional employer agreement and applicable prearranged employment contract, insurance contract or bond.

Thus, the employees of the employer would not automatically be deemed to be part of the PEO’s benefit plan. Therefore, the Department believes that the employees would still qualify for the Healthy New York program.

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

Department of Financial Services


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