The Office of General Counsel issued the following opinion on December 28, 2004, representing the position of the New York State Insurance Department.
Re: Health Insurance/Community Rating Policy Issued to Taft-Hartley Trust
Issues:
1. If a policy met the minimum participation requirement for association groups when first issued, but now the number of participants is below that specified minimum, may an insurer renew the policy?
2. Would the reduction in the number of participants bring the policy within the strictures of New York's "small group" law?
3. Does the fact that the policy has been issued to a Taft-Hartley Trust exempt it from New York's "small group" laws?
Conclusions:
1. If the policy qualified at the time of initial issue, it may be renewed.
2. & 3. While the reduction in the number of participants could bring the policy within the strictures of New York's "small group" laws, the fact that the policy was issued to a Taft-Hartley Trust would exempt it from New York's "small group" laws.
Facts:
The inquirers company issued, in accordance with New York Insurance Law § 4235(c)(1)(D) (McKinney 2000 and 2004 Supplement), a group health insurance policy, established pursuant to a collective bargaining agreement, to a trust where the trustees are representatives of both a labor union and an employer. Since only a single employer is involved, the group does not constitute a Multiple Employer Welfare Arrangement, as that term is defined in the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(40) (West 1999).
While the number of covered employees exceeded 100 at the time of first issuance of the policy, the group now consists of only 20 employees.
The inquirer has been informed of a provision of the New York "small group" law, 1992 N.Y. Laws 501, that purports to exempt Taft-Hartley Trusts, which is the type of trust that is the policyholder for the group in question. Since the inquirer is unable to locate such exemption in the New York Insurance Law (McKinney 2000 and 2004 Supplement), he inquires as to the existence of such an exemption.
Analysis:
New York Insurance Law § 4235(c)(1)(D), with respect to group health insurance, authorizes:
A policy issued to a trustee or trustees of a fund established, or participated in, by . . . one or more employers and one or more labor unions, which trustee or trustees shall be deemed the policyholder, to insure employees of the employers . . . for the benefit of persons other than the employers . . . subject to the following requirements: (i) The persons eligible for insurance shall be all of the employees of the employers . . . or all of any class or classes thereof determined by conditions pertaining to their employment . . . (ii) The premium for the policy shall be paid by the trustee or trustees either wholly from funds contributed by the employer or employers of the insured person or by the union or unions, or by both, or jointly from such funds and funds contributed by the insured persons specifically for their insurance or from contributions by the insured persons. . . . (iii) The policy shall insure at least fifty persons at date of issue, except that if part of the premium is to be derived from funds to be contributed by the insured persons specifically for their insurance the policy shall insure at least one hundred employees or members at date of issue. (iv) The insurance coverage under the policy shall be based upon some plan precluding individual selection either by the insured persons or by the policyholders, employers, or unions. . . .
The Labor-Management Relations Act (Taft-Hartley Act), 61 Stat. 138 (1947), as part of its regulation of employer-employee relations, generally prohibited payment by an employer or association of employers of money or anything of value to employees or unions. 29 U.S.C.A. § 186(a) (West 1998). However, 29 U.S.C.A. § 186(c) provides:
The provisions of this section shall not be applicable . . . (5) with respect to money or other thing of value paid to a trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer, and their families and dependents; . . . Provided, That (A) such payments are held in trust for the purpose of paying, either from principal or income or both, for the benefit of employees, their families and dependents, for medical or hospital care, . . . or insurance to provide any of the foregoing. . . (B) the detailed basis on which such payments are to be made is specified in a written agreement with the employer, and employees and employers are equally represented in the administration of such fund . . . (6) with respect to money or other thing of value paid by any employer to a trust fund established by such representative for the purpose of pooled vacation, holiday, severance or similar benefits, or defraying costs of apprenticeship or other training programs . . . (7) with respect to money or other thing of value paid by any employer to a pooled or individual trust fund established by such representative for the purpose of (A) scholarships for the benefit of employees, their families, and dependents for study at educational institutions, (B) child care centers for preschool and school age dependents of employees, or (C) financial assistance for employee housing . . . (8) with respect to money or any other thing of value paid by any employer to a trust fund established by such representative for the purpose of defraying the costs of legal services for employees, their families, and dependents for counsel or plan of their choice . . . or (9) with respect to money or other things of value paid by an employer to a plant, area or industrywide labor management committee established for one or more of the purposes set forth in section 5(b) of the Labor Management Cooperation Act of 1978.
Trusts established for any of the purposes of 29 U.S.C.A. § 186(c)(5) through (9) are collectively known as Taft-Hartley Trusts.
The predecessor to New York Insurance Law § 4235(c)(1)(D) was enacted, 1948 N.Y. Laws 709, as New York Insurance Law § 221(2)(c) (McKinney 1948) to provide a mechanism for employers to purchase health insurance for their employees when the group would not qualify as an employer-employee group or the employer was not a member of a trade association, which groups were authorized in accordance with New York Insurance Law §§ 221(2)(a) & (b) (McKinney 1947). The Memorandum to the Executive Chamber concerning Assembly Bill 2647 (Member of Assembly Pillion), which became New York Insurance Law § 221(2)(c) stated:
The present amendment is particularly timely in order to harmonize our law with the requirements of the Taft-Hartley Law. . . . In view of the salutary purposes served by Section
302 of the Taft-Hartley Law [29 U.S.C.A § 186] relating to trust funds established for the benefit of employees it is highly desirable that the provisions of our Insurance Law should be brought into harmony with it. If our law should constitute a barrier to trustees of a fund established pursuant to a bargaining agreement obtaining group insurance for the employees, such trustees might seek the alternative of self-insurance which we would not consider desirable either from the standpoint of the employees or public interest.
A number of years later, and after the types of groups that could qualify under the New York Insurance Law (McKinney 1991) had been expanded, as part of a major reform of health insurance in New York, 1992 N.Y. Laws 501 enacted a requirement of open enrollment and community rating for individuals and small groups. The Memorandum in Support of Assembly Bill 12350 (Member of Assembly Grannis), which was enacted as 1992 N.Y. Laws 501 stated:
As we continue to see a rise in the number of uninsured persons in the State; as the complaints increase by individuals and small businesses that they are being priced out of health insurance coverage . . . it becomes obvious that there is a need to change the existing system. The problems we are faced with appear to be caused primarily by allowing the underwriting of health insurance risks and by the current statutory authority which allows community rating and experience rating to exist a competing rating methodologies.
If all insurers are required to community rate and underwriting barriers are eliminated, it is
more likely that insurers will compete on the basis of efficient claims handling, ability to manage health care services, consumer satisfaction and low administrative costs, rather than on differing underwriting practices and varying premium rate methodologies, which can result in inadequate initial rates and significant future rate increases.
Among the changes made by 1992 N.Y. Laws 501 was the enactment of a new statute, New York Insurance Law § 3231(a) (McKinney 2000 and 2004 Supplement), which regulates the policies issued by the inquirer's company:
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 or group members and dependents of employees or members, applying for . . . group 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, . . . 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. . . . . 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.
In order to effectuate the requirements of New York Insurance Law § 3231, the Superintendent of Insurance promulgated N.Y. Comp. Codes R. & Regs. tit. 11, Part 360 (2000) (Regulation 145). N.Y. Comp. Codes R. & Regs. tit. 11, § 360.2(a) (2000) defines:
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.
Once an association group meets the initial participation requirements of New York Insurance Law § 4235(c)(1)(D), it may, even after the number of participants drops below the minimum initial number, continue to qualify as an association group.
N.Y. Comp. Codes R. & Regs. tit. 11, § 360.8(e)(1) (2000) requires:
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.
A group which upon initial issuance is not a small group and that subsequently becomes a small group, then becomes entitled to the protections of New York Insurance Law § 3231(a) and Regulation 145. Conversely, once a group is no longer a small group, it no longer requires those protections and New York Insurance Law § 3231(a) and Regulation 145 are no longer applicable to such a group.
However, in addition to making substantive modifications to the New York Insurance Law and New York Public Health Law (McKinney 2002 and 2004 Supplement), Section 18 of 1992 N.Y. Laws 501 provided:
Notwithstanding any other provision of law, and specifically those sections of this act that may be applicable to labor organizations or insurers thereof, nothing contained in this act shall be applicable to organizations, associations or trusts maintained pursuant to one or more collective bargaining agreements, including, but not limited to, any trust which qualifies as a Taft Hartley Trust pursuant to Title 29 of the United States Code
Therefore, New York Insurance Law § 3231 and N.Y. Comp. Codes R. & Regs. Tit. 11, § 360.8(e)(1) would not be applicable to those groups that meet the criteria of Taft-Hartley Trusts, e.g. they are established pursuant to a collective bargaining agreement and the trust is jointly administered by representatives of the employer and union. Of course, those substantive requirements imposed by the Health Insurance Portability and Accountability Act, Pub. Law No. 104-191 (1996), would still affect the policies issued to such groups.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.