The Office of General Counsel issued the following informal opinion on July 17, 2002, representing the position of the New York State Insurance Department.
Re: Health Maintenance Organizations ("HMO") and Agents Commissions
Questions Presented:
1. May an HMO stop paying commissions to its agent on certain small group business?
2. May an HMO reduce benefits and increase the premium for certain segments of its business?
Conclusions:
1. Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 360.11(k) (2000), commissions in the small group market must be uniformly applied to all size cases. Thus, if an insurer pays commissions on any small group case, it must pay commissions on all small group cases, using the same commission scale.
2. An HMO in New York must have its forms and premium rate filings submitted to and approved by the Insurance Department. The forms and rates must be in compliance with Article 43 of the Insurance Law and any other applicable provision of law. N.Y. Ins. Law § 4308 (McKinney 2000).
Facts:
A licensed accident and health agent has placed business with an HMO for various small groups. Included in these groups are one person association groups covering one person self-employeds. About 9 months ago the HMO advised the agent that it would not write new one person association groups and that the benefits on this existing block of business would be reduced and the premiums would be increased. Recently, the HMO advised the agent that it will no longer pay commissions for business on existing one person association groups and that it is likely that, in the future, benefits will again be reduced and premiums increased.
Analysis:
Generally, the issue of entitlement to payment of commissions involves an aspect of the relationship between a broker and insured and /or the insurer that is contractual in nature and does not involve the administration of the Insurance Law. However, with respect to the small group market, N.Y. Comp. Codes R. & Regs. tit.11, § 360.11(k) (2000), which took effect on March 1, 2001 and is applicable to all policies and contracts subject to Chapter 501 of the Laws of 1992 that are issued, renewed, modified, altered, or amended on or after such date, provides:
Commissions and marketing practices in the small group market must be uniformly applied to all size cases. If an insurer pays commissions on any small group case, then that insurer must pay commissions on all small group cases, using the same commission scale. The commission scale must pay a flat percentage of premium or a percentage which decreases as premium increases or a flat dollar amount per person or a flat dollar amount per case. Payment of commissions or other sales compensation based on loss ratio or in any way reflecting or dependent upon the experience of any case or group of cases and payment of no commissions or reduced commissions on cases below a specified size are prohibited practices. . . . (Emphasis added).
In accordance with the above, an HMO is prohibited from ceasing to pay commissions on its one person association groups, while continuing to pay commissions on its other small group business.
HMOs in New York must submit their forms and premium rate filings to this Department for approval. The forms and rates must be in compliance with Article 43 of the New York Insurance Law and any other applicable provision of law. N.Y. Ins. Law § 4308 (McKinney 2000).
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.