OGC Opinion No. 09-02-02
The Office of General Counsel issued the following opinion on February 2, 2009 representing the position of the New York State Insurance Department.
RE: Doing An Insurance Business
Question Presented:
Is the inquirer doing an insurance business in violation of N.Y. Ins. Law § 1101 (McKinney 2006)?
Conclusion:
Yes. Based upon information available to the Insurance Department, the inquirer is doing an insurance business in New York in violation of Insurance Law § 1101. Accordingly, the inquirer should immediately cease doing its present business in New York.
Facts:
The inquirer is a professional service corporation organized in accordance with Article 15 of the New York Business Corporation Law. The principal of the inquirer is also the principal shareholder of the parent corporation of an health maintenance organization (HMO) with a certificate of authority pursuant to Public Health Law Article 44.
According to the inquirer’s website, in exchange for a monthly fee of $79 per month,1 the inquirer provides “unlimited visits” for supposedly “comprehensive medical services.” According to the inquirer’s Membership Agreement the membership benefits are set forth as follows:
Included Benefits: All Members in good standing shall be entitled to regular preventive checkups for adults and/or well baby checkups (including all vaccinations up to the age of ten except the Gardasil vaccine). Preventive checkups may include all treatments, testing and care identified in Appendix I and Appendix II.
Benefits at Additional Charge: Members will also enjoy the benefit of unlimited sick visits charged at $10 per visit. . . .
Services Not Available: THIS AGREEMENT DOES NOT COVER HOSPITAL STAYS, EMERGENCY ROOM VISITS, SERVICES OF SPECIALISTS NOT EMPLOYED BY [THE INQUIRER], TREATMENT (INCLUDING BUT NOT LIMITED TO IMAGING) PROVIDED ANYWHERE OTHER THAN AT [THE INQUIRER’S] FACILITIES, AND ALL LAB TESTS OTHER THAN THOSE IDENTIFIED IN APPENDIX II.
The website indicates that only two third-party payers, Medicare and the HMO, are accepted. The inquirer and its seven employed physicians, are participating providers for the HMO. Apart from the principal, none of the physicians employed by the inquirer has an ownership interest in any affiliated entity.
It is further reported that:
In addition to its website the inquirer’s advertising consists of a flyer which is distributed to patients who visit a facility. The inquirer intends to advertise further but presently does not have any concrete plans to do so.
The inquirer asserts that it is not doing an insurance business, and indicates as much on its website.
Analysis:
Insurance Law § 1101 is germane to the inquiry. That statute defines the doing of an insurance business, and reads in pertinent part as follows:
(a)(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules: (A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts . . .
Further, Insurance Law § 1102(a) prohibits any person, firm, association, corporation, or joint-stock company from doing an insurance business in New York unless authorized by a license in force pursuant to the Insurance Law, or exempted by the provisions of the Insurance Law from such requirement.
In general, a plan where a health care provider offers health care at a discount to patients who pay a membership fee to join the plan constitutes the doing of an insurance business, because the benefits that the plan provides are dependent upon the happening of a fortuitous event - namely that being the need for health care - which is beyond the control of either party. See Office of General Counsel (“OGC”) Opinion dated May 2, 2005. Because such a plan constitutes the doing of an insurance business under Insurance Law § 1101(a), it requires a license pursuant to Insurance Law § 1102, because the provider bears the risk of incurring a loss if the cost of the services provided exceeds the paid fees. Id.
However, a service plan where there is a prepaid membership fee, and certain services occasioned by the happening of a fortuitous event are offered for an additional fee per service which is discounted from the usual fee, does not constitute the doing of an insurance business, and does not require an insurance license by the Department, provided that the fees cover the cost of rendering the service, including reasonable overhead. See OGC Opinions dated June 30, 2008; April 3, 2008; May 2, 2005. Additionally, the prepaid membership fee may include services at no or a nominal separate charge, so long as such benefits are of a non-fortuitous nature (e.g., a routine annual examination). See OGC Opinion dated May 2, 2005.
Here, the unlimited benefits described in the inquirer’s materials include items that are clearly dependent on fortuitous events, such as tetanus vaccines after injury. Moreover, it seems unlikely that the $10 co-payment truly covers the cost of rendition of the physician’s services. Thus, it appears that the inquirer is doing an insurance business, which requires a duly issued license from the Department pursuant to Insurance Law § 1102.
Because the inquirer is doing an insurance business, individuals that solicit membership in the inquirer, too, must be licensed by the Insurance Department. Indeed, Insurance Law § 2102(a)(1), which governs the licensing requirements for insurance producers, reads as follows:
No person, firm, association or corporation shall act as an insurance producer . . . in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
The inquirer was required to confirm in writing within ten days of the date of this letter that it has ceased doing an insurance business in violation of the Insurance Law. Should the Department not receive such notification from the inquirer, the Department will commence appropriate enforcement proceedings2.
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.
1 The first month’s fee is reduced to $69, if enrollment is through an approved agent.
2 The inquirer subsequently modified its operations to bring them within the strictures of the Insurance Law.