The Office of General Counsel issued the following informal opinion on March 18, 2002, representing the position of the New York State Insurance Department.
Re: Health Insurance, Continuation and Conversion Benefits
1. Is an insurer required to issue a conversion policy or contract that provides the same benefits as were provided in the former group policy or contract?
2. May an employer grant continuation benefits for a period of time beyond that mandated by statute?
1. A conversion policy or contract need not provide the same benefits as did the former group policy or contract.
2. While an insurer need not provide a continuation benefit beyond that mandated by statute, it may, if requested by the employer, provide such an extended continuation period. Whether a public employer is required to request such a continuation from an insurer is not an issue that is governed by the Insurance Law or Regulations.
A former employee of a School District received health benefits through the employees then employer pursuant to a contract issued by an insurance company, (hereinafter, the Insurer). After the employees employment terminated, the employee continued coverage for 18 months with the same benefits by self-payment, through the former employer, the full amounts owed the Insurer. After expiration of the 18-month period, the Insurer offered the employee a conversion contract that provided less benefits than the employee had previously received.
The inquirer believes that if the employee is willing to pay the premium therefore, including the cost of any riders that the former employer had voluntarily purchased, the Insurer should issue the employee a policy or contract containing all the benefits that the employees former employer had secured. The inquirer wanted to know whether the Insurer is acting correctly.
The inquirer also asked whether the employees former employer may allow the employee to continue under its contract with the Insurer beyond the statutory continuation period.
The inquirer surmised that continuation of the employees benefits was mandated by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) (Pub. L. No. 99-272). The continuation requirements of COBRA have been codified in the Employee Retirement Income Security Act (ERISA) at 29 U.S.C.A. § 1161 et seq. (West 1999). While ERISA does regulate most employee welfare benefit plans, 29 U.S.C.A. § 1003(a)(1) (West 1999), there is an exception from such coverage for governmental plans. 29 U.S.C.A. § 1003(b)(1). A governmental plan is defined, 29 U.S.C.A. § 1002(32) (West 1999):
The term governmental plan means a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, . . . .
Accordingly, since the employees former employer was a political subdivision of New York State, New York General Municipal Law § 100(1) (McKinney 1999), and thus the employees benefits were provided under a governmental plan, COBRA is not applicable. The employees continuation benefits were thus mandated by the statute that regulates subscriber contracts of Health Service Corporations such as the Insurer, New York Insurance Law § 4305(e) (McKinney 2000):
In addition to the conversion privilege afforded by subsection (d) of this section, a group contract issued by a . . . health service corporation shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his insurance for himself or herself and his or her eligible dependents, subject to all of the group contract's terms and conditions applicable to those forms of benefits and to the following conditions:
(2) (A) An employee or member who wishes continuation of coverage must request such continuation in writing within the sixty day period following the later of: (i) the date of such termination; or (ii) the date the employee is sent notice by first class mail of the right of continuation by the group policyholder. . . .
(3) An employee or member electing continuation must pay to the group policyholder or his employer, but not more frequently than on a monthly basis in advance, the amount of the required premium payment, but not more than one hundred two percent of the group rate for the benefits being continued under the group contract on the due date of each payment. . . .
(4) Subject to paragraph one of this subsection, continuation of benefits under the group contract for any person shall terminate at the first to occur of the following: (A) The date eighteen months after the date the employee's or member's benefits under the contract would otherwise have terminated because of termination of employment or membership . . . .
The coverage of New Yorks continuation requirements is restricted to those situations where the requirements of COBRA are not applicable. New York Insurance Law § 4305(e)(7).
Conversion contracts are mandated by New York Insurance Law § 4305(d), provides in pertinent part:
(1) A group contract issued pursuant to this section shall contain a provision to the effect that in case of a termination of coverage under such contract of any member of the group because of (I) termination for any reason whatsoever of his employment or membership, if he has been covered under the group contract for at least three months, . . . he shall be entitled to have issued to him by the corporation, without evidence of insurability, upon application therefor and payment of the first premium made to the corporation within forty-five days after termination of the coverage, an individual direct payment contract, covering such member and his eligible dependents who were covered by the group contract, which provides coverage most nearly comparable to the type of coverage under the group contract, which coverage shall be no less than the minimum standards for basic hospital, basic medical, or major medical as provided for in insurance department regulation . . . . Notwithstanding the previous sentence, a corporation may elect to issue a standardized individual enrollee contract pursuant to section four thousand three hundred twenty two of this article in lieu of a major medical contract, comprehensive or comparable type of coverage required to be offered upon conversion from an indemnity contract. . . .
This Department understands that the Insurer has opted to provide the standardized contract set forth in New York Insurance Law § 4322 (McKinney 2000).
It therefore appears, based upon the available facts, that if the Insurer does not offer an individual contract providing the same benefits as are provided under the group contract issued to the school district, it did not act improperly.
As to the second inquiry, an insurer is not required to go beyond the continuation period required to be provided, in accordance with New York Insurance Law § 4305(e). If an employer, however, requested, and if the insurer agreed, this Department would not interpose an objection if continuation benefits for a period beyond 18 months were provided. Whether a public employer must, or even may, provide such an extension of continuation benefits is not governed by the New York Insurance Law or Regulations, and is not within the expertise of this Department.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.