August 23, 1977
Circular Letter # 11
TO: ALL INSURERS LICENSED TO WRITE ACCIDENT AND HEALTH INSURANCE IN NEW YORK STATE
RE: Chapter 843 of the Laws of 1976 Mandatory Maternity Coverage
On December 3, 1976, the Insurance Department, by Circular Letter No. 23 (1976) notified all insurers including Article IX-C Corporations, licensed to write accident and health insurance in New York State, of the impact of Chapter 843 of the Laws of 1976;
"Chapter 843 of the Laws of 1976 requires that every health insurance policy or contract subject to the provisions of Section 162, 163, or 253 of the New York Insurance Law which provides hospital, surgical or medical coverage must provide coverage for maternity care to the same extent that coverage is provided for illness or disease under the policy except that reimbursement of covered expenses for maternity care may be limited to a period of four days of hospital confinement. Maternity care coverage may be limited to persons covered under the policy for a period of ten months or a lesser period if the pregnancy commenced while the insured was covered under the policy."
This legislation took effect on January 1, 1977 and applied to all policies and contracts written, altered, amended or renewed on or after such date, except contracts which have been or shall be issued to or sponsored by any government or public employer. Thereafter, a suit was filed in the Supreme Court in the State of New York, County of New York by summons and complaint dated January 7, 1977, followed by an amended complaint served on February 3, 1977 by the Health Insurance Association of America and various other insurance companies seeking a judicial determination of the constitutionality of Chapter 843 of the Laws of 1976.
The complaint alleged three causes of action: 1) Chapter 843 is unconstitutional in that it deprives insurers of property without due process of law; 2) the Superintendent's interpretation of Chapter 843, that it applies to renewals of "guaranteed renewable" policies, constitutes an unconstitutional impairment of the obligation of contracts; and 3) the January 1, 1977 effective date of the statute did not provide a reasonable preparation period to enable timely compliance.
Thereafter, by an Order dated July 12, 1977, the Supreme Court, New York County, rendered a judgment and order relative to the action in which it states in part as follows:
"ADJUDGED AND DECLARED that Chapter 843 of the Laws of 1976 does not violate either the Constitution of the United States of America or the Constitution of the State of New York in that it does not deprive plaintiffs of due process of law and that the Legislation validly exercised the police power in mandating that all health insurance policies provide maternity coverage; and it is further
"ADJUDGED AND DECLARED that Chapter 843 of the Laws of 1976 may not, consonant with constitutional requirements, be applied to insurance policies already in existence, which plaintiffs have no choice but to renew at the option of the policyholder, and it is further
ORDERED that plaintiffs' application for injunctive relief, permanently and pendente lite, is denied."
The Health Insurance Association of America and the Insurance Department have both appealed from the portion of the Order which was denied as to their respective positions. The Attorney General has informed the Department that he will appeal that part of the judgment of the Supreme Court which states that "Chapter 843 of the laws of 1976 may not, consonant with constitutional requirements, be applied to insurance policies already in existence, which plaintiffs have no choice but to renew at the option of the policyholder." His office points out that service of his notice of appeal will stay the judgment under paragraph 5519(1)(a) of the Civil Practice Law and Rules, which operates to provide an immediate stay without court order where the appellant is "...the state...or any officer or agency of the state..."
In view of the Court determination that HIAA, et al application for injunctive relief, permanently and pendente lite, was denied and that an appeal was taken from the court decision, it is the Department's position that insurance companies writing accident and health insurance in the State of New York must comply with the provisions of Chapter 843 for both new policies, amended policies and the renewal of all outstanding policies, where the insurer has the right to change the premium rates.
The Department is concerned as to the position taken by some companies regarding renewals, especially as to guaranteed renewable policies, that the coverage mandated by Chapter 843 will not be afforded to insureds. The Department takes the view that this practice is contrary to the provisions of Chapter 843. Further, your attention is directed to Section 143 of the Insurance Law which section relates to "Non-conforming contracts; law governing contracts."
It is the Department's directive that all insurance companies comply with Chapter 843 and provide the coverage mandated by this law pending final determination of the appeals. Delay in payment of maternity benefits or introduction of dilatory procedures as a result of the Supreme Court decision above referred to will be viewed as unfair claims settlement practices under Section 40-d of the Insurance Law and under Department Regulation 64 (11 NYCRR 216), as well as other applicable provisions of the Insurance Law.
The failure to comply with the above directives will be subject to immediate administrative action by this Department.
In addition, no premium rate increases for policies subject to Chapter 843 will be approved unless such policies provide the mandated maternity coverage.
Please acknowledge receipt of this letter by a responsible executive officer of your company and address any inquiry to:
Mr. George LaFaro
Chief, Health & Life Policy Bureau
New York State Insurance Department
Empire State Plaza
Agency Building # 1
Albany, New York 12223
Very truly yours,
JOHN F. LENNON
Acting Superintendent of Insurance