OGC Opinion No. 07-04-10

The Office of General Counsel issued the following opinion on April 12, 2007 representing the position of the New York State Insurance Department.

RE: Allowable Groups Under New York Insurance Law § 4235

Questions Presented:

1. Would a particular group of associations in the commercial construction industry be considered engaged in “the same profession, trade or occupation” so as to qualify for group health insurance under Insurance Law § 4235(c)(1)(H)?

2. If the entire group would not be considered engaged in “the same profession, trade or occupation” within the meaning of Insurance Law § 4235(c)(1)(H), would any of the associations be considered engaged in “the same profession, trade or occupation” so as to qualify for group health insurance under Insurance Law § 4235(c)(1)(H)?

3. If each individual association had 200 or more members, would the group of associations qualify as a “large association” group within the meaning of Insurance Law § 4235(c)(1)(K)?

4. What types of “discretionary” groups has the Insurance Department approved pursuant to Insurance Law § 4235(c)(1)(M)?

5. May a particular group of associations in the commercial construction industry obtain group health insurance as a “discretionary” group?

6. May the associations’ members and their employees along with the employees of the associations be insured under the same group health insurance policy?

7. May the group health insurance be issued on a deductible basis?

8. May each association purchase "stop-loss insurance" on a group basis for all of its member employers or would each employer have to obtain "stop-loss insurance" on an individual basis?

Conclusions:

1 and 2. The inquirer did not furnish enough information for the Department to determine whether any combination of the associations, which the inquirer represented are all in the commercial construction industry, have a sufficient identity of interest to be considered in the same “profession, trade or occupation” pursuant to Insurance Law § 4235(c)(1)(H).

3. The inquirer did not furnish enough information for the Department to determine whether the associations could obtain group health insurance pursuant to Insurance Law § 4235(c)(1)(K) which, in addition to requiring that each association have at least 200 insured members, contains various other requirements, not all of which the query addressed.

4 and 5. The Department cannot describe which “discretionary” groups the Superintendent of Insurance has approved pursuant to Insurance Law § 4235(c)(1)(M), because the Department does not maintain a list of these groups. Nor did the inquirer provide sufficient information for the Department to determine, at this stage, whether the entire group of commercial construction associations could be approved as a “discretionary” group.

6. The associations’ members and their employees may be insured under the same group health insurance policy, but the employees of the associations themselves must be covered under a separate health insurance policy.

7. Yes. The group health insurance may be issued on a deductible basis; the Insurance Law does not regulate deductibles. However, if the group or a member association made itself liable for such deductible, the provisions of the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 2003), would apply.

8. If an association or an individual employer is covered under a group health insurance policy, neither may also purchase "stop-loss insurance."

Facts:

The inquirer reports that he represents a group of associations that wishes to obtain a group health insurance policy. He states that each association consists of employers engaged in the construction industry, such as general contractors, subcontractors, material suppliers, construction workers, attorneys, and bankers. The inquirer states that each of these associations has existed for at least two years and each has its own by-laws and certificate of incorporation. He also reports that these associations are not-for-profit and tax exempt, and were not formed for the principal purpose of obtaining insurance. The policy would insure both the associations’ members and their employees and the employees of the associations. He did not report how many members are in each association.

Analysis:

Association Groups - Questions 1, 2, and 3

Insurance Law § 4235(c)(1)(H) authorizes the issuance of group health insurance to an association, or to a trustee or trustees of a fund established, created or maintained for the benefit of members of one or more associations, where, among other things, all of the eligible members share “the same profession, trade or occupation”:

(c)(1) No policy of group accident, group health or group accident and health insurance shall be delivered or issued for delivery in this state unless it conforms to one of the following descriptions:

****

(H) A policy issued to an association, or to a trustee or trustees of a fund established, created or maintained for the benefit of members of one or more associations, all of whose eligible members have the same profession, trade or occupation, which association or associations have been organized and maintained in good faith for purposes principally other than that of obtaining insurance and have been in active existence for at least two years. The policy shall insure members, or employees of members, of such association or associations for the benefit of persons other than employers and the association or associations, or any officials, representatives, trustees or agents thereof and shall provide for the issuance of a certificate to the persons insured or such beneficiary as evidence of such insurance. The members or employees eligible for the insurance under the policy shall be all the members, or all the members and their employees, or all of any class or classes thereof determined by conditions pertaining to their employment or to association membership or both. The premiums for the policy shall be paid from association or members" funds, or partly from such funds and partly from funds contributed by the insured individuals, or from funds wholly contributed by the insured individuals. . . . . In every case the policy must cover at least one hundred individuals at date of issue. The insurance coverage on employees insured under the policy shall be based upon some plan precluding individual selection. . . .(emphasis added).

Similarly, Insurance Law § 4235(c)(1)(K) authorizes the issuance of group health insurance to an association or to the trustee or trustees of a trust established, or participated in, by one or more associations, where the associations meet certain requirements, including each having at least two hundred members at the policy's date of issue.

(c)(1) No policy of group accident, group health or group accident and health insurance shall be delivered or issued for delivery in this state unless it conforms to one of the following descriptions:

****

(K) A policy issued to an association or the trustee or trustees of a trust established, or participated in, by one or more associations, to insure association members, subject to the following:

The inquirer did not furnish enough information for the Department to determine whether all or some of the associations, which the inquirer states are all in the commercial construction industry, have a sufficient identity of interest to be considered in the same “profession, trade or occupation” pursuant to Insurance Law § 4235(c)(1)(H). It is not clear, for example, why bankers or attorneys should be considered as in the same profession, trade or occupation as construction workers.

Furthermore, the inquirer did not furnish enough information for the Department to determine whether the associations could obtain group health insurance pursuant to Insurance Law § 4235(c)(1)(K) which, in addition to requiring that each association have a minimum of 200 insured members, contains various other requirements, not all of which the query addressed.

Please be advised that, while each association must have a minimum of 200 insured members under Insurance Law § 4235(c)(1)(K), within each association there may be member employers or other member groups that have 50 or fewer employees or members. Pursuant to Insurance Law § 3231(a), any group health insurance policy covering between two and fifty employees or members of the group exclusive of spouses and dependents, referred to in the statute as a small group, must be community rated.¹ Insurance Law § 3231(a) states:

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 . . . shall be issued in this state unless such policy is community rated and, notwithstanding any other provisions of law, the underwriting of such policy involves no more than the imposition of a pre-existing condition limitation as permitted by this article. Any individual, and dependents of . . . such small group, including all employees or group members and dependents of employees or members, applying for small group health insurance coverage must be accepted at all times throughout the year for any hospital and/or medical coverage offered by the insurer to . . . small groups in this state. Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. Termination of …[a] small group shall be based only on one or more of the reasons set forth in subsection (g) of section three thousand two hundred sixteen or subsection (p) of section three thousand two hundred twenty-one of this article. Group hospital and/or medical coverage . . . 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. . . . 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.

In order to effectuate the above community rating requirements, the Insurance Department promulgated N.Y. Comp. Codes R. & Regs. tit. 11, § 360.8(e)(1) (2000), which provides dependents, referred to in the statute as a small group, must be community rated.²

A policy issued to an association group covering at least one participating group member with 50 or fewer employees or members exclusive of spouses and dependents requires the insurer to charge the same community rate to all association members.

Accordingly, if a group member of an association had 50 or fewer employees or members exclusive of spouses and dependents, the health insurance policy issued to the group would have to be community rated.

Discretionary Groups - Questions 4 and 5

Insurance Law § 4235(c)(1)(M) authorizes the issuance of group health insurance to “discretionary” groups. It states:

(c)(1) No policy of group accident, group health or group accident and health insurance shall be delivered or issued for delivery in this state unless it conforms to one of the following descriptions:

****

(M) A policy issued to insure any other group approved by the superintendent upon a finding that: (i) there is a common enterprise or economic or social affinity or relationship; (ii) the premiums charged are reasonable in relation to the benefits provided; and (iii) the issuance of the policy would result in economies of acquisition or administration, would be actuarially sound, and would not be contrary to the best interest of the public. The superintendent shall promulgate regulations setting forth any such groups that have been accepted as qualifying pursuant to this subparagraph.

The Superintendent of Insurance has approved certain “discretionary” groups pursuant to this provision, but the Department does not maintain a list of these groups. Nor did the inquirer provide sufficient information for the Department to determine, at this stage, whether the entire group of associations described could be approved as a “discretionary” group. If the group of associations wishes to obtain group health insurance through Insurance Law § 4235(c)(1)(M), the insurer would need to file with the Insurance Department for approval.

Coverage of Employees and Staff – Question 6

Insurance Law § 4235(d)(1) defines the term “employees” for purposes of group health insurance. It provides:

In this section, for the purpose of insurance hereunder: “employees” includes the officers, managers, employees and retired employees of the employer and of subsidiary or affiliated corporations of a corporate employer, and the individual proprietors, partners, employees and retired employees of affiliated individuals and firms controlled by the insured employer through stock ownership, contract or otherwise; "employees" may be deemed to include the individual proprietor or partners if the employer is an individual proprietor or a partnership; and "employees" as used in subparagraph (A) of paragraph one of subsection (c) hereof may also include the directors of the employer and of subsidiary or affiliated corporations of a corporate employer.

Based on the section above and the requirements of Insurance Law § 4235(c)(1)(H), the policy may cover the associations’ members and their employees, but the employees of the associations themselves must be covered under a separate health insurance policy. The inquirer also specifically asked whether the owners of the member companies may be covered under the same policy as the employees. Under Insurance Law § 4235(d)(1), an individual proprietor or partner may be covered under the policy. Thus, two different policies would be required, one for the owner and employees of the member companies under Insurance Law § 4235(c)(1)(H), and another policy for the employees of the associations.

Deductible Policies – Question 7

Almost all health insurance policies and contracts contain some deductible. An employer’s decision to request more than a nominal deductible is a business decision that is not regulated by the Insurance Law, with one exception: 11 NYCRR § 52.7 (Regulation 62) limits the deductible for major medical insurance. The regulation defines major medical insurance as an insurance policy that “provides coverage for each covered person, to a maximum of not less than $100,000.” Id. As long as the health insurance offered is not a major medical policy, the deductible limit would not apply.

Please note, however, that an employer’s 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 2003). The New York Insurance Law does not restrict an employer’s decision to self-fund a portion of its contractual obligation to provide health benefits.

However, an employer’s self-funding of health benefits would, in accordance with Insurance Law § 1101(a), constitute the doing of an insurance business and, in accordance with Insurance Law § 1102, require a license from the Insurance Department, but for an ERISA provision, 29 U.S.C.A. § 1144, which states:

(a) Supersedure; effective date.

Except as provided in subsection (b) of this section, the provisions of this subchapter . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . .

(b) Construction and application. . . .

****

(2) (A) Except as provided in subparagraph (B), nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

(B) Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.

****

(6) (A) Notwithstanding any other provision of this section—

(i) in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides—

(I) standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and

(II) provisions to enforce such standards, and

(ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this subchapter, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this subchapter.

As used in 29 U.S.C.A. § 1002(40)(A), “Multiple Employer Welfare Arrangement (MEWA)” is defined as:

an employee welfare benefit plan, or any other arrangement . . . which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained—

(i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements,

(ii) by a rural electric cooperative, or

(iii) by a rural telephone cooperative association.

The inquirer did not furnish sufficient information for the Department to decide whether it would consider either the group of associations or the associations themselves to be MEWAs.

Stop Loss Coverage – Question 8

The inquirer asked whether each association may purchase “stop-loss insurance” on a group basis for all of its member employers or whether each employer would have to obtain “stop-loss insurance” on an individual basis.

Stop-loss insurance is addressed in Insurance Law § 4237-a, which provides:

(a) An insurer authorized to do the business of accident and health insurance in this state and a health service corporation organized under article forty-three of this chapter shall be authorized to issue stop-loss insurance as provided in this section.

(b) “Stop-loss insurance” means an insurance policy whereby the insurer agrees to pay claims or indemnify an employer for losses incurred under a self-insured employee benefit plan in excess of specified loss limits for individual claims and/or for all claims combined, or any similar arrangement.

(c) A stop-loss insurance policy delivered, issued for delivery, or entered into in this state shall clearly describe:

(1) the entire money or other consideration for the policy;

(2) the time at which the insurance takes effect and terminates;

(3) the specified per-claim, per-employee, or aggregate amount of claims above which payment or reimbursement is to be made by the insurer; and

(4) the payments to be made by the insurer once the specified stop-loss thresholds have been exceeded.

(d) No stop-loss insurance contract shall be issued or renewed if issuance of the policy would be prohibited by section two thousand six hundred thirteen [prohibition of discrimination based on a history of cancer], three thousand two hundred thirty-one [community rating for commercial insurers], four thousand three hundred seventeen [community rating for not-for profit insurers] or four thousand three hundred twenty [limitation on administrative services] of this chapter.

(e) The superintendent may promulgate such rules and regulations he deems necessary or desirable to establish financial requirements and standards for the form and content of stop-loss insurance policies authorized by this section.

Neither an association nor an individual employer covered under a group health insurance policy may purchase "stop-loss insurance" because Insurance Law § 4237-a(b) authorizes “stop-loss insurance” only for “losses incurred under a self-insured employee benefit plan.”³

In addition, even though Insurance Law § 4237-a allows insurers to issue “stop-loss insurance,” Insurance Law §§ 3231(h)(1) and 4317(e)(1) prohibit the issuance of stop-loss policies to self-funded small groups who, if they purchased health insurance policies, would be community rated, subject to certain exceptions inapplicable here.⁴ Thus, if an individual employer is covered under a group health insurance policy, the employer may not also purchase “stop-loss insurance,” nor may self-funded small groups buy “stop-loss insurance,” because of community rating requirements.

For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.

¹ Insurance Law § 4317(a), which regulates contracts of not-for-profit health insurers and all health maintenance organizations, has identical requirements.

² 11 NYCRR § 360.2(a) (Regulation 145) defines “association group” as:

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.

³ Please note that even when a group is allowed to purchase stop-loss insurance, New York Insurance Law §§ 3234 and 4320 limit an insurer from providing stop-loss coverage to groups that deny or limit benefits for a specific disease or condition or for a procedure or treatment.

⁴ In accordance with 29 U.S.C.A. § 1144(b)(2)(A), Insurance Law §§ 3231(h)(1), 3234, 4237-a, 4317(c)(1), and 4320 are not pre-empted by ERISA.