OGC Opinion No. 08-03-06

The Office of General Counsel issued the following opinion on March 11, 2008 representing the position of the New York State Insurance Department.

RE: Insolvent Health Maintenance Organization, Liability of Subscriber

Questions Presented:

1. Does an HMO subscriber have an obligation to participating health care providers when the HMO providing coverage is insolvent and fails to pay the health care providers?

2. Is an agreement whereby the HMO subscriber agrees to pay the participating health care provider, if the HMO fails to do so, enforceable?


1. No, the HMO subscriber has no liability to participating providers when the subscriber’s HMO is insolvent.

2. No, in the event of the HMO’s insolvency, an agreement where the HMO subscriber agrees to pay the participating provider would be a nullity.


The inquirer reports that he is insured by an HMO that operates in accordance with a certificate of authority issued by the New York State Department of Health in accordance with N.Y. Pub. Health Law § 4403 (McKinney 2002). He further report that he has been informed by someone in the New York State Insurance Department that the HMO is insolvent and that it will soon “be configured similar to a bankruptcy proceeding.” Finally, he reports that some health care providers have patients sign agreements that obligate the patient to pay if for any reason the insurance company does not pay. He inquires about the validity of such agreements.


At the outset, it bears noting that while HMO has notified its subscribers that all contracts will cease as of a date certain, the Insurance Department has no present intention to take steps to place the HMO in rehabilitation or liquidation pursuant to Insurance Law Article 74.

Insurance Law § 4307(d) is relevant to the inquiry. That statute affords protection to HMO subscribers in the event that the HMO becomes insolvent with respect to health care providers who participate in the HMO’s network. The provision reads as follows:

In the event a health maintenance organization . . . is deemed insolvent, . . . then no individual subscriber or enrollee of, or served by, the health maintenance organization . . . shall be liable to any provider of health care services for any covered services of the insolvent health maintenance organization . . . . No provider of health care services or any representative of such provider shall collect or attempt to collect from the individual subscriber or enrollee sums owed by a health maintenance organization or health service corporation deemed insolvent, and no provider or representative of such provider may maintain any action at law against an individual subscriber or enrollee to collect sums owed to such provider by such health maintenance organization or health service corporation.

In view of the plain terms of Insurance Law § 4307(d), any agreement under which an HMO subscriber agrees to pay a participating health care provider, in the event of the insolvency of an HMO, would be a nullity.

Please be advised, however, that the Insurance Department expresses no opinion as to whether such an agreement would constitute permissible conduct for the provider under the New York Education or Public Health Laws.

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