The Office of General Counsel issued the following opinion on January 14, 2005, representing the position of the New York State Insurance Department.
Re: Third Party Administrator Licensing as an Independent Adjuster for Employee Funded Flexible Spending Accounts or Cafeteria Plans
Is a third party administrator ("TPA") under the facts presented below required to become licensed as an independent adjuster under the New York State Insurance Law ("N.Y. Ins. Law") if it processes employee claims for reimbursement from flexible spending accounts that are governed by Internal Revenue Code, 26 U.S.C.S. § 125 (Lexis 2004) ("Cafeteria plans")?
No. Under the facts presented a TPA is not required to become licensed as an independent adjuster under the N.Y. Ins. Law.
The inquirer's company, ABC Co., performs third party administration of employee funded flexible spending accounts or cafeteria plans governed by Internal Revenue Code, 26 U.S.C.S. § 125 (Lexis 2004). For the purpose of this inquiry the employee funded flexible spending accounts or cafeteria plans will be limited to a Health Care Reimbursement Account ("HCRA") and a Dependent Care Reimbursement Account ("DCRA").
Employee funded flexible spending accounts or cafeteria plans are separate written benefit plans maintained by the employer for the benefit of its employees in which all participants are employees. The benefits from the HCRA and DCRA are cash and qualified benefits that meet the Internal Revenue Service criteria for eligible benefits.
Generally, employees estimate how much their out-of-pocket expenses will be throughout the year for health care (that is not covered or reimbursed by an employee's insurance or other benefit plan) and dependent care. The employer then withholds the estimated amount from an employee's pay check and deposits the estimated amount into a master account in the name of the employer. The amount contributed by an employee is tax-free. The employer will establish the year during which employees may make contributions; the year does not have to be a calendar year. The funds do not carry over to the following year. However, the employer will establish a time period after the year is over which permits claims from employees for reimbursement of expenses incurred during that year. If an employee does not use funds contributed to the HCRA or DCRA the funds are kept by the employer.
Claim handling by ABC Co. for both the HCRA and DCRA encompasses the claim form, supporting documents, and responses to telephone inquiries from employees. The claim form is made available to an employee through ABC Co.'s website and the employer has copies of the claim form. In addition to the name of an employee and the date of the claim, the claim form describes the supporting documents that an employee must fax, mail, or e-mail to ABC Co. ABC Co. responds to various telephone inquiries from employees that can include eligibility questions regarding whether benefits sought meet the Internal Revenue Service's criteria for qualified benefits.
ABC Co.'s administration of the HCRA and DCRA for the employer includes: mailing checks to reimburse employees, adding or deleting employees who participate in a HCRA or a DCRA, maintaining account balances for each employee, and notifying employees of their account balance at the beginning of the year's fourth quarter.
At the outset, there is no licensing or registration requirement for a TPA as such under the N.Y. Ins. Law. However, any person or entity, including a TPA, that performs functions that require licensing as an independent adjuster (or any other type of license under the N.Y. Ins. Law) must be accordingly licensed.
N.Y. Ins. Law § 2102(a)(1) (McKinney Supp. 2005) states in pertinent part:
(a)(1) No person, firm, association or corporation shall act as an . . . insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
N.Y. Ins. Law § 2101(g)(1) (McKinney Supp. 2005) defines the term "independent adjuster" in pertinent part:
(g)(1) [A]ny person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster . . . .1 (Emphasis added)
Thus, in accordance with N.Y. Ins. Law § 2101(g)(1) (McKinney Supp. 2005), any person, firm, association or corporation that investigates and adjusts claims in this State that arise under insurance contracts issued by an insurer must be licensed as an independent adjuster.
Under the facts presented above the employer is not acting as an insurer in providing flexible reimbursement accounts to its employees because the accounts are directly funded by the employees for their anticipated out-of-pocket expenses. The employer is not paying any claims submitted by its employees. The employer is merely providing its employees with a vehicle through which employees can pay their own expenses. Moreover, the activities that ABC Co. performs are not related to the investigating and adjusting of claims arising under insurance contracts2 issued by an insurer. Therefore, under the facts presented above ABC Co. does not have to become licensed as an independent adjuster.
For further information one may contact Robert Freedman, Senior Attorney at the New York City Office.
1 Although the statute lists exemptions from this independent adjuster definition, none of them are applicable to this inquiry.
2 An element of an insurance contract defined by N.Y. Ins. Law § 1101(a) (McKinney Supp. 2005) is a fortuitous event. The HCRA and DCRA do not encompass fortuitous events; request for reimbursement under either account is solely within the discretion of an employee.