The Office of General Counsel issued the following opinion on January 13, 2005, representing the position of the New York State Insurance Department.
Re: Accident & Health Benefits, Multiple Employer Welfare Arrangement (MEWA)
Issues:
1. If a consortium of tax exempt organizations decides to self-fund employee health benefits, and such consortium were a MEWA, as that term is defined in the Employee Retirement Income Security Act (ERISA), 42 U.S.C.A. § 1001 et seq. (West 1999 and 2003 Supplement), would it, by virtue of being composed of tax exempt organizations, be exempt from the requirements of the New York Insurance Law (McKinney 2000 and 2005 Supplement)?
2. If not, would such a MEWA have to meet all applicable requirements of the New York Insurance Law, including minimum capital & surplus requirements and state and federal benefit and contract mandates?
3. If the MEWA were fully insured, are there any special requirements applicable to the policy or contract issued to the MEWA?
4. If the individual consortium members opt to each self-fund health benefits, could they jointly purchase either third party administrative services, such as ability to utilize a Preferred Provider Network and pharmacy benefit management services, or stop-loss insurance?
Conclusions
1. & 2. The tax exempt status of a MEWA, or of its constituent members, would not serve to exempt it from the applicable requirements of the New York Insurance Law.
3. An insurance policy or contract issued to a MEWA is not, by virtue of being issued to such a policyholder, subject to any additional requirements.
4. Contingent upon such activity not being prohibited to insurers by New Yorks Community Rating Law, the consortium could jointly purchase either third party administrative services or stop-loss insurance. However, such third party administrator might, depending upon the services provided, have to be licensed by the Insurance Department and the physicians contracted through the Preferred Provider Network could not be compensated on a capitated basis.
Facts:
The inquirers firm, which is licensed as an insurance agent pursuant to New York Insurance Law § 2103(a), has as a client a tax exempt private college in New York that, in order to minimize its cost for employee health benefits, desires to combine with other similar institutions for the provision of such benefits. The inquirer has reviewed the previous opinions of the Insurance Department and have some additional questions.
Analysis:
It is presumed that the client of the inquirers firms has a charter from the New York State Education Department in accordance with New York Education Law § 216 (McKinney 2000) and is recognized by the Internal Revenue Service under Internal Revenue Code § 501(c)(3) (West 2002). It is further presumed that the other members of the consortium could be similarly described.
New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2005 Supplement) authorizes the issuance of group health insurance policies and contracts to those types of entity listed therein. Among the entities that are authorized to have group health insurance policies and contracts issued to them are: employer members of a trade association, subparagraph (B); joint employer-employee organizations, subparagraph (D); and associations whose members have the same profession, trade, or occupation, subparagraph (H).
New York Insurance Law § 1101(a) (McKinney 2000 and 2005 Supplement) defines the doing of an insurance business:
(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.
New York Insurance Law § 1102(a) (McKinney 2000) requires that, unless otherwise exempted, anyone doing an insurance business in New York must be licensed by the Department.
The provision of health care by an employer to employees and dependents constitutes an employee welfare benefit plan under ERISA. 29 U.S.C.A. § 1002(1) (West 1999). Governmental or Church Plans are, 29 U.S.C.A. § 1003(b) (West 1999 and 2003 Supplement), not covered by ERISA. It is presumed that no member of the consortium is either a Governmental or Church Plan.
Pursuant to 29 U.S.C.A. § 1144(a) (West 1999), all state laws relating to employee welfare benefit plans are preempted by ERISA, except that, pursuant to 29 U.S.C.A. § 1144(b)(2)(A) (West 1999), laws regulating insurance are not preempted. There is an exception, however, to the general preemption of state laws with relation to MEWAs. Finally, pursuant to 29 U.S.C.A. § 1144(b)(2)(B), a self-funded employee welfare benefit plan is not deemed to be an insurer.
A MEWA is defined, 29 U.S.C.A. § 1002(40):
(A) The term multiple employer welfare arrangement means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), 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
(B) The term multiple employer welfare arrangement means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), 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 extent of state jurisdiction over a MEWA is set forth in 29 U.S.C.A. § 1144(b)(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 title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.
(B) The Secretary may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii), individually or by class, multiple employer welfare arrangements which are not fully insured. . . .
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(D) For purposes of this paragraph, a multiple employer welfare arrangement shall be considered fully insured only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a State.
The Secretary of Labor has not promulgated a regulation exempting any class of self-funded MEWAs from state regulation. Accordingly, unless the self-funded MEWA is otherwise exempt from the requirement to secure a license, it may not operate in New York without a license and, thus subject to all applicable requirements, including mandated benefits.
New York Insurance Law §§ 1108 (McKinney 2000) and 4522 (McKinney 2000) set forth those types of organizations, some of which are tax exempt, that are exempt from the requirement of securing a license from the Department. A consortium such as the one that the inquirer describes is not one of the types or organization set forth in the above statutes.
Information about requirements for licensure and an application for same may be accessed on the website of the National Association of Insurance Commissioners, www.naic.org. On the website, please click on "UCAA Instructions and State Requirements. Primary Applications are available there. Information as to financial requirements may be found at "state Charts" and then "Minimum Capital and Surplus."
The New York Community Rating Law, as it affects commercial insurers, is set forth in New York Insurance Law § 3231 (McKinney 2000 and 2005 Supplement):
(a) No individual health insurance policy and 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. . . . 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.
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(h) (1) Notwithstanding any other provision of this chapter, no insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of small groups which, if they purchased insurance, would be subject to this section. No insurer, subsidiary of an insurer, or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to small groups which, if they purchased insurance, would be subject to this section.
New York Insurance Law § 4317 (McKinney 2000 and 2005 Supplement) imposes identical requirements and restrictions on contracts of not-for-profit insurers and all Health Maintenance Organizations.
If a MEWA is fully insured, the Insurance Department does not regulate it directly but imposes all applicable requirements upon the insurer.
Other than the restrictions of New York Insurance Law §§ 3231 (h) and 4317(e), neither the New York Insurance Law (McKinney 2000 and 2005 Supplement) nor the regulations promulgated thereunder regulate the purchase of administrative services by self-funded employee welfare benefit plans. While the consortium could not, if any member would constitute a small group, purchase administrative services from an insurer, the individual members of the consortium, each of which would be exempt from the New York Insurance Law by virtue of ERISA, could jointly purchase administrative services from any other organization, and if no member of the consortium were to be a small group, administrative services could be purchased from an insurer.
While New York does not regulate Third Party Administrators qua a TPA, if the services provided by the third party would themselves require a license, the entity providing the services would have to be licensed. For example, New York Insurance Law § 2101(g)(1) (McKinney 2000) defines an independent adjuster:
The term independent adjuster means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster . . . .
In accordance with New York Insurance Law § 2108(b)(3) (McKinney 2000 and 2005 Supplement), no one may function as an independent adjuster, including for an exempt insurer, unless he, she or it is licensed as an independent adjuster.
An insurer licensed under the New York Insurance Law or a Health Maintenance Organization with a Certificate of Authority in accordance with New York Public Health Law Article 44 could enter into a contract with a self-funded employee welfare benefit plan to provide administrative services to the self-funded plan. In addition the self-funded plan could contract with an individual or organization that has developed such a network for the use of the networks health care providers.
Compensation of the network or the individual health care providers on a capitated basis, or any basis other than fee for service, would constitute the doing of an insurance business, unless specifically permitted. The Regulation of the Insurance Department, N.Y. Comp. Codes R. & Regs. Tit. 11, Part 101 (2002)(Regulation 164), specifically authorizing compensation on a capitated basis would not be applicable to the use of the network by the consortium or its constituent members.
Stop loss insurance is regulated by New York Insurance Law § 4237-a (McKinney 2000):
(a) An insurer authorized to do the business of accident and health insurance in this state . . . 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
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(d) No stop-loss insurance contract shall be issued or renewed if issuance of the policy would be prohibited by section . . . three thousand two hundred thirty-one, four thousand three hundred seventeen . . . of this chapter.
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If, in accordance with New York Insurance Law § 4235(c)(1) the consortium would be qualified to purchase a policy of group health insurance and the purchase of such a policy would not be in violation of New York Insurance Law § 4237-a(d), if an insurer were willing to issue such a policy, it could purchase a stop-loss policy covering the liabilities of the consortiums members.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.