OGC Opinion No. 06-06-10
The Office of General Counsel issued the following opinion on June 22, 2006, representing the position of the New York State Insurance Department.
Questions Presented:
1) May an insurer establish a separate community rate for a small group policy issued to an association that meets the requirements of N.Y. Ins. Law § 4235(c)(1)(H) (McKinney 2006)?
2) May such an insurer exclude association members from a small group policy subject to community rating based upon insurability?
Conclusion:
1) No. Pursuant to Section 360.8(b)(2) of N.Y. Comp. R. & Regs. tit. 11, Part 360 (Regulation 145) an insurer ". . . shall not issue small group policies with their own community rate to professional or occupational associations . . ."
2) No. Pursuant to N.Y. Ins. Law §§ 3231 (McKinney 2006) and 4317 (McKinney 2006) an insurer may not exclude association members from a small group policy subject to community rating based upon insurability.
Facts:
A New York State professional association (hereinafter "association") with 4,000 members, some of which are small employers with less than 50 employees, wishes to develop a fully insured health plan for its members and employees of members with an authorized insurer. The inquirer expects over 1,000 members to enroll.
The inquirer states that the association meets the requirements of N.Y. Ins. Law § 4235(c)(1)(D) and (H). However, as discussed below, only N.Y. Ins. Law § 4235(c)(1)(H) is applicable to these facts.
Analysis:
Although the inquirer states that the association meets the requirements of both N.Y. Ins. Law §§ 4235(c)(1)(D) and (H) (McKinney 2006), it must be noted that N.Y. Ins. Law § 4235(c)(1)(D) is intended to cover only employees and/or union members and thus does not apply to the policy the inquirer has described. For purposes of this analysis, it is assumed that the association is made up of members of the same profession, trade or occupation; and that association was formed more than two years ago and not for the purposes of securing insurance. Otherwise, N.Y. Ins. Law § 4235(c)(1)(H) would not be applicable either and since no other paragraph of N.Y. Ins. Law § 4235(c)(1) would be applicable, the group would not be permitted.
N.Y. Ins. Law § 3231(a) (McKinney 2006) provides, in relevant part, as follows:
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, including medicare supplemental insurance, 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 . . . Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. Termination of an individual or small group shall be based only on one or more of the reasons set forth in subsection (g) of section three thousand two hundred sixteen or subsection (p) of section three thousand two hundred twenty-one of this article. Group hospital and/or medical coverage, including medicare supplemental insurance, obtained through an out-of-state trust covering a group of fifty or fewer employees or participating persons who are residents of this state must be community rated regardless of the situs of delivery of the policy. Notwithstanding any other provisions of law, the underwriting of such policy may involve no more than the imposition of a pre-existing condition limitation as permitted by this article, and once accepted for coverage, an individual or small group cannot be terminated due to claims experience. Termination of an individual or small group shall be based only on one or more of the reasons set forth in subsection (p) of section three thousand two hundred twenty-one of 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.
N.Y. Ins. Law § 4317(a) (McKinney 2006) has an identical requirement for not-for-profit health insurers.
In order to effectuate the requirements of N.Y. Ins. Law § 3231(a) and N.Y. Ins. Law §4317(a), the Department promulgated N.Y. Comp. R. & Regs. tit. 11, Part 360 (Regulation 145).
Section 360.2(a) of Regulation 145 defines an "association group" as follows:
Association group means a group defined in section 4235(c)(1)(B), (D), (H), (K), (L) and (M) of the Insurance Law, including but not limited to an association or trust of employers, if the group includes one or more member employers or other member groups which have 50 or fewer employees or members exclusive of spouses and dependents. A group containing individual members of an association will be considered an association group having member groups of 50 or fewer members. (emphasis added).
In addition, Section 360.8(e) of Regulation 145 provides as follows:
Community rates based on the size of the association groups. (1) A policy issued to an association group covering at least one participating group member with 50 or fewer employees or members exclusive of spouses and dependents requires the insurer to charge the same community rate to all association members.
(2) An insurer may issue an experience rated policy to an association group so long as all member employers or member groups covered by that policy exceed 50 persons exclusive of spouses and dependents. A second separate community rated policy may be issued by an insurer to the same association group covering all those member employers or member groups with 50 or fewer persons exclusive of spouses and dependents.
Section 360.8(b)(2) of Regulation 145, provides, in relevant part, as follows:
Insurers shall not issue policies with their own community rate to professional or occupational associations because they fail to meet the requirements of paragraph (a)(1)(iii) of this section. Insurers may, however, issue policies to eligible group members of professional or occupational associations so long as any group (not just professional or occupational) can obtain the policy and the policy is community rated based upon the experience of the entire pool of risks covered by that policy without regard to age, sex, health status or occupation.
Accordingly, the insurer would be required to charge the association and/or its members the same community rate that the insurer charges other small groups for the policy form issued to the association group. The insurer may not establish a separate community rate for the association group.1
With respect to the inquirer's second question regarding whether the Insurance Law permits an insurer to exclude association members from a small group policy based upon insurability, please note that N.Y. Ins. Law § 3231, as quoted above, states that the underwriting of such a policy may involve no more than the imposition of a pre-existing condition limitation as permitted by Article 32. Once accepted for coverage, an individual or small group may not be terminated due to claims experience.
Moreover, Section 360.3(a) of Regulation 145, in relevant part, provides that no insurer may restrict or limit eligibility for small group policies except as specified in such section, including but not limited to: an employer's required time period of employment before coverage under the employer's plan takes effect and a required number of work hours to qualify as an employee, not to exceed 20 hours per week. These permitted limitations do not concern a potential insured's risk factors. Thus, pursuant to N.Y. Ins. Law §§ 3231 and 4317; and Regulation 145, an insurer may not exclude association members from a small group policy based upon insurability.
For further information you may contact Assistant Counsel Brenda Gibbs Albany Office.
1 Section 360.8(a)(1) of Regulation 134 permits an insurer to establish a separate community rate for an association group under certain circumstances. However, that section does not appear to be applicable to these facts since, among other things, Section 360.8(a)(1) applies only to policies validly issued to a group defined by N.Y. Ins. Law § 4235(c)(1)(B) or (K).