The Office of General Counsel issued the following informal opinion on August 17, 2001 representing the position of the New York State Department of Insurance.

Re: Multiple Employer Health Insurance Trust


May an experience rated health insurance policy be issued to a trust composed of employees of various employers, each of which has more than 50 employees, when the number of employees eligible for coverage under the trust for each employer is less than 50 employees?


No, in accordance with applicable statutes and regulations, the policy must be issued on a community rated basis.


Your client is a corporation that is licensed as an insurance agent in accordance with New York Insurance Law §2103(a) (McKinney 2001). Some of your client’s customers are businesses for which your client secures various forms of insurance coverage. Among the types of insurance that your client endeavors to furnish is health insurance for the customer/business’ employees in branch locations.

Your client would like to establish a trust, in which the various branch location employees could be aggregated into a single group. The trust, in turn, would purchase, and act as policyholder for, coverage on an experience rated basis from an insurer. Your client would serve as trustee of the trust and, in addition to any commissions payable by the insurer, would receive a fee from each participating employer for establishing the trust and acting as trustee.

While each participating employer will have more than 50 employees, the number of employees for each employer employed at the various branch locations, and thus eligible for coverage under the trust, will be under 50. You seek this Department’s confirmation that issuance of an experience rated policy is allowed under this Department’s Regulation 145, N.Y. Comp. R. & Regs. tit. 11, §360.8(e) (2001).


This opinion will not repeat the entire analysis of my earlier letter and is limited to those areas relevant to your latest inquiry.

New York Insurance Law §3231(a) (McKinney 2001), dealing with commercial insurers provides, in pertinent part:

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. Any … small group, including all employees … and dependents of employees … applying for individual health insurance coverage … must be accepted at all times throughout the year for any hospital and/or medical coverage offered by the insurer to … small groups in this state. Once accepted for coverage, an … small group cannot be terminated by the insurer due to claims experience. Termination of an … 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 … obtained through an out-

of-state trust covering a group of fifty or fewer employees … who are residents of this state must be community rated regardless of the situs of delivery of the policy. … 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.

Regulation 145, N.Y. Comp. R. & Regs. tit. 11, §360, was promulgated to effectuate New York Insurance Law §3231(a).

It was previously determined, based upon the material originally submitted, that the participating employers in the trust would qualify as an acceptable group for health insurance pursuant to New York Insurance Law §4235(c)(1)(D) (McKinney 2001). Such groups are considered, in accordance with N.Y. Comp. R. & Regs. tit. 11, §360.2(a) (2001), as "association" groups.

It further appears that coverage under the trust policy will be limited to those employees of participating employers who are employed at the branch locations. An employer may limit those employees eligible for insurance in accordance with New York Insurance Law §4235(c)(1)(D)(i), which provides:

The persons eligible for insurance shall be all of the employees of the employers or all of the members of the unions, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the unions, or to both.

This Department believes that employment at the branch locations is a legitimate "condition pertaining to employment", N.Y. Comp. R. & Regs. tit. 11, §52.18(f) (2001).

The regulatory provision upon which you rely in your belief that an experience rated policy is allowable, N.Y. Comp. R. & Regs. tit. 11, §360.8(e), provides:

(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.

You have indicated that the number of employees at branch locations will usually be fewer than 50. Since a policy must be community rated where the number of employees for any of the employers is under 50, and since the group will not qualify for its own community rate in accordance with N.Y. Comp. R. & Regs. tit. 11, §360.8(a) (since it will not be formed in accordance with New York Insurance Law §4325(c)(1)(B) or (K)), the group policy would clearly have to be community rated by the insurer.

For further information contact Principal Attorney Alan Rachlin at the Department’s New York Office.