The Office of General Counsel issued the following opinion on June 28, 2005 representing the position of the New York State Insurance Department.
Re: Health Insurance Continuation Benefits & Administrative Services.
Question Presented:
May an insurance agent or insurance broker provide administrative services relating to continuation benefits to an employer/client without charging the client?
Conclusion:
Yes, the provision of such services would not, in and of itself, constitute an illegal inducement.
Facts Presented:
A firm is licensed as, inter alia, an insurance agent pursuant to New York Insurance Law § 2103(a) (McKinney 2000 and 2005 Supplement) and an insurance broker pursuant to New York Insurance Law § 2104 (McKinney 2000 and 2005 Supplement). After discussions with the Insurance Department, it was agreed that whether a service could be provided by an insurance agent or broker without charge had to be decided on a task specific basis, depending upon whether the service would be encompassed with the functions of an insurance agent or insurance broker.
The issue being considered is whether the provision of administrative services for continuation benefits to an employer/client is encompassed within the functions of an insurance agent or insurance broker. While such services were not described, it is surmised that they would include billing the former employees, collecting the premiums, and forwarding the aggregate amounts to the employer/client. It was not specified whether the premium charged would include the 2% surcharge permitted by both Federal and state continuation statutes.
Analysis:
In accordance with the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1161 et seq. (West 1999), continuation benefits for most employee welfare benefit plans are required. When such benefits are so required, 29 U.S.C.A. § 1162(3) (West 1999) provides:
Premium requirements. The plan may require payment of a premium for any period of continuation coverage, except that such premium-- (A) shall not exceed 102 percent of the applicable premium for such period, and (B) may, at the election of the payor, be made in monthly installments.
When continuation benefits are not available under federal statute, New York Insurance Law §§ 3221(m) (McKinney 2000 and 2005 Supplement), regulating group policies of commercial insurers, and 4305(e), regulating group contracts of not-for-profit insurers and all Health Maintenance Organizations, have a similar requirement affecting most group insurance policies or contacts not subject to the federal requirements. Under applicable New York law, the plan may also collect 102% of the applicable premium from the continuing individual.
New York Insurance Law § 4224(c) (McKinney 2000 and 2005 Supplement) provides:
No . . . insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure . . . any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement . . .any valuable consideration or inducement whatever which is not specified in such policy or contract.
New York Insurance Law § 2101 (McKinney 2000 and 2005 Supplement) defines insurance agent and broker:
(a) In this article, 'insurance agent' means any authorized or acknowledged agent of an insurer . . . or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract . . . .
. . .
(c) In this article, 'insurance broker' means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker . . . .
A licensed insurance agent or insurance broker may, as part of his or her functions, provide assistance to an insured in administration of an insurance policy placed by such insurance agent or insurance broker. The provision of such services is considered within the services contemplated in exchange for a commission payable to the licensed insurance agent or broker. The provision of administrative services for health insurance continuation benefits, so long as the licensee provides such services to all similarly situated insureds and the services are not separately negotiated, may be viewed as another form of such assistance. Accordingly, should a licensed insurance agent or broker provide the services on such basis without additional charge, it would not be viewed as being in violation of New York Insurance Law § 4224(c).
If, however, the insurance agent or broker should use the provision of such services as an inducement for an employer to utilize his or her services, there would be a violation of New York Insurance Law § 4224(c).
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.