OGC Opinion No. 07-09-21
The Office of General Counsel issued the following opinion on September 21, 2007 representing the position of the New York State Insurance Department.
Re: Medicare Prescription Drug Program, Insurance Agent Licensing
Question Presented:
Is an insurer that issues policies to provide the prescription drug benefit contemplated by the Medicare Prescription Drug Improvement Act (“MMA”), Pub. Law No. 108-173 (2003) – which is commonly known as Medicare Part D - obligated to issue a formal appointment to licensed insurance agents that it has engaged to solicit customers for its policies?
Conclusion:
Pursuant to the statutory strictures of the MMA and the guidelines issued by the Center for Medicare and Medicaid Services (“CMS”) of the United States Department of Health and Human Services, it appears that a state may, as through Insurance Law § 2112(a) require the formal appointment of an agent.
Facts:
According to Insurance Department records, the inquirer is licensed as an insurance agent pursuant to Insurance Law § 2103(a). The inquirer reports that he was employed by a firm, which is not licensed by the New York Insurance Department. He further reports that the employer was retained by Insurer1) to operate a call center for Insurer Medicare Part D products.
When a call is received at the call center from a prospective insured who requires advice or assistance with respect to Medicare Part D insurance, the call is transferred to a line staffed by licensed insurance agents. The licensed agent will review the prospective insured’s needs and inform the prospective insured about available options. If the prospective insured desires to purchase a policy, the agent will “fill out the application over the phone and take a record attestation as their signature.”
The inquirer asserts that the duties you performed in this capacity required an appointment as an insurance agent. Indeed, he states that he contacted the Insurance Department to confirm his belief, and thus the employer should issue such appointment. When the employer refused and indicated that such an appointment was not required, he terminated his employment with the employer.
Analysis:
Insurance Law § 2101(a) is relevant to the inquiry. It defines an insurance agent as follows:
In this article, “insurance agent” means any authorized or acknowledged agent of an insurer . . . 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 . . . contract, other than as a licensed insurance broker, except that such term shall not include [ exemptions not relevant here].
Some of the terms set forth in Insurance Law § 2101(a) are defined later in that section:
(m) In this article, “negotiate” or “negotiation” means the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells insurance or obtains insurance from licensed insurers . . . for purchasers.
(n) In this article, “sell” or “sale” means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of a licensed insurer . . . .
(o) In this article, “solicit” or “solicitation” means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular licensed insurer . . . .
Moreover Insurance Law § 2112 addresses certificates of appointment. It provides in pertinent part:
(a) Every insurer . . . doing business in this state shall file a certificate of appointment in such form as the superintendent may prescribe in order to appoint insurance agents to represent such insurer . . . .
(b) To appoint a producer, the appointing insurer shall file, in a format approved by the superintendent, a notice of appointment within fifteen days from the date the agency contract is executed or the first insurance application is submitted.
. . .
(d) Every insurer . . . or insurance producer or the authorized representative of the insurer . . . or insurance producer doing business in this state shall, upon termination of the certificate of appointment as set forth in subsection (a) of this section of any insurance agent licensed in this state, or upon termination for cause. . . of the certificate of appointment, of employment, of a contract or other insurance business relationship with any insurance producer, file with the superintendent within thirty days a statement, in such form as the superintendent may prescribe, of the facts relative to such termination for cause. . . . Every statement made pursuant to this subsection shall be deemed a privileged communication.
In accordance with the MMA, which is codified at 42 U.S.C.A. § 1395w-101(c) (West 2003), CMS issues detailed Marketing Guidelines for Medicare Part D products. The latest CMS Guidelines provide in pertinent part:
An organization may directly employ or contact with a person to market a plan if the organization: . . . Uses a state licensed individual to perform marketing. An organization must utilize only a state licensed, certified, or registered individual to perform marketing, if a state has such a marketing requirement. This requirement applies to any individual that performs marketing on behalf of an organization, whether as an employee or under contract directly or downstream.
Because CMS, through its Medicare Marketing Guidelines, explicitly addresses the use of marketing representatives, state marketing agent appointment laws will not apply to organizations. However, because an organization is required to use only a state licensed, registered, or certified individual, if a state has such a requirement, CMS expects an organization to comply with a reasonable request from a state insurance department . . . which is investigating a person that is marketing on behalf a organization, if the investigation is based on a complaint filed with the state insurance or other department. . . .
If a state has a law that requires an organization to report to the state: the identity and other information of a marketing representative that is marketing the organization’s plan(s), the organization must ensure that its marketing representative is reported to the state, in a format required by the state; and the termination of a marketing representative’s employment or contract, an organization must report a termination for cause to the appropriate state agency . . . .
2007 CMS Marketing Guidelines p. 130.
In accordance with Insurance Law § 2102, any individual or entity must, unless otherwise exempted, secure a license from the Insurance Department to perform functions within the definition of insurance agent. Accordingly, both the employer, which is functioning as an insurance agent, and all others who actually sell the insurance, must be licensed by the New York Insurance Department as insurance agents. The Insurer has the obligation to assure that its agents are licensed.
Interpreting the portions of the CMS Medicare Marketing Guidelines quoted above, it appears that Insurer must issue formal appointments to agents, because the use of a “state licensed” individual in New York requires issuance of a license, and under Insurance Law § 2112(b) effective licensing requires filing of a Notice of Appointment. In addition, there is an obligation, under the quoted CMS guidelines, to furnish the information required by Insurance Law § 2112(d) in the appropriate form to the New York Insurance Department.
Further, CMS has promulgated 42 C.F.R. § 423.440(a) (2005), which provides:
Federal preemption of State law. The standards established under this part supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) for Part D plans offered by Part D plan sponsors.
In the Insurance Department’s estimation, the requirements of Insurance Law § 2112(a) and (b) constitute a “state licensing law” within the meaning of 42 C.F.R. § 423.440(a).
Please note that while the above reasoning has been informally discussed with the CMS, the views expressed herein do not represent the formal opinion of CMS.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.
1 It is presumed that Insurer refers to[a licensed New York insurer].