The Office of General Counsel issued the following opinion on February 24, 2005, representing the position of the New York State Insurance Department.

Re: Licensing of Foreign Health Maintenance Organization's (HMO's) in New York

Questions Presented:

1. Is ABC Co. doing an insurance business, as defined in N.Y. Ins. Law § 1101 (McKinney Supp. 2005), by engaging in the activities described in this opinion?

2. If so, is there a reciprocal HMO license in New York for foreign HMO's?


1. Yes, ABC Co. is doing an insurance business as defined in N.Y. Ins. Law § 1101 (McKinney Supp. 2005).

2. No. There is no reciprocal HMO license in New York.


The inquirer's company, ABC Co., is based in Michigan and provides fully insured vision programs to large and small employer groups. By the term "fully insured" the inquirer means that ABC Co. offers capitated programs where it assumes all of the risk of loss, as opposed to a program where the employer assumes the risk and obtains stop-loss insurance to cover any unforeseen over-utilization. It manages a provider network that covers 50 states, Canada and Mexico and adjudicates all of its claims. The inquirer states that ABC Co. holds an Alternative Finance Delivery System (AFDS) license in Michigan and is held to the same standards of compliance as any HMO. One of the requirements of the AFDS license is that ABC Co. has enough cash reserves to cover the entire program in case there are any unexpected and significant losses.

ABC Co. presents its vision programs at trade shows and/or seminars that take place around the country, where its representatives meet potential New York clients. In the vision industry, it is unlikely that the representative will be able to close the deal at the trade show or seminar. Therefore, after an initial meeting at a trade show or seminar, the representative converses with the prospective client by telephone, to set up an appointment date in New York. After meeting with the client, when all of the finer points of the prospective client's needs have been uncovered, a quote on the vision program is submitted by electronic mail or regular mail. Along with that quote, a contract with all of the terms of the agreement is included. The prospect has the opportunity to let its legal department review the document and the language of the contract is amended, if necessary. If all is well, the contract is signed and mailed back to ABC Co. If not, a representative of ABC Co. will set a date to go back to the client to handle all of the formalities.

The inquirer would like to know what steps he would have to take to do business with a client that is based in New York. Should he apply for an HMO license in New York or is there a reciprocal license available?


Question No. 1

N.Y. Ins. Law § 1102(a)(McKinney Supp. 2005) prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in this state, unless licensed as an insurer or exempted from licensing pursuant to the Insurance Law N.Y. Ins. Law § 1101(b)(1)(McKinney Supp. 2005) defines the term "doing an insurance business", in pertinent part, as:

(b)(1)(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts. . .

(C) collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance. . .

(E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter. . . .

N.Y. Ins. Law § 1101(a)(1) (McKinney Supp. 2005) defines "insurance contract" as follows:

(a)(1) [A]ny agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.

(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party. . . .

N.Y. Ins. Law § 1101(b)(2) (McKinney Supp. 2005) provides certain exceptions for transactions performed by an unauthorized foreign or alien insurer if effected by mail from outside of New York, provided that the insurer is licensed by its place of domicile to transact an insurance business. These exceptions are known as the "mail order" exceptions because they allow a foreign or alien insurer to engage in certain activities from without the state, without becoming licensed as an insurer in New York, so long as those activities are done by mail. These exceptions would not apply to contact from outside of the state, such as contact by telephone or to any activity physically occurring within New York.

The Department has consistently opined that if an entity agrees to provide unlimited services that are based upon the happening of a fortuitous event, such as illness, injury, etc., on a prepaid fee basis (capitated basis) or similar arrangement, the entity would be doing the business of insurance in New York within the meaning of Section 1101 and would have to become licensed in New York as an insurer or be in violation of Section 1102. The Department has also opined that an entity may agree to provide services dependent upon fortuitous events for an additional fee-per-service, which is discounted from the provider’s usual fee for such services, so long as the discounted fee covers the cost of rendition of the services (i.e., cost of labor, material and reasonable overhead expenses). Under such circumstances licensing as an insurer would not be required.

Here, ABC Co. is providing the vision programs on a prepaid fee (or capitated) basis based upon a fortuitous event, such as illness or injury. Therefore, its activities would fall under the definition of doing an insurance business in Section 1101. None of the mail order exceptions would apply to this situation, since a representative of ABC Co. is contacting the prospective New York client by telephone and traveling into New York to complete the transaction, after the initial meeting at a trade show or seminar. Consequently, ABC Co. would have to become licensed in New York as an insurer to continue to offer its vision programs to New York clients.

Question No. 2

Pursuant to N.Y. Ins. Law § 1109(a) (McKinney Supp. 2005), an HMO is not required to be licensed by the New York State Insurance Department, provided that it has obtained a Certificate of Authority from the New York State Department of Health under Article 44 of the N.Y. Pub. Health Law. However, HMO's that are not eligible for the Certificate of Authority are subject to the licensing requirements of the Insurance Law.

There is no reciprocal license in New York available for foreign HMO's. Section 98-1.5 of the Department of Health's Regulation provides that "a foreign corporation shall not be a proper applicant for a Certificate of Authority" to operate an HMO in New York. See N.Y. Comp. Codes R. & Regs. tit. 10, § 98-1.5. N.Y. Ins. Law § 4301(f) (McKinney Supp. 2005) states that "[n]o foreign or alien medical expense indemnity corporation, dental expense indemnity corporation, health service corporation or hospital service corporation shall be authorized to do business in this state." Thus, pursuant to these provisions only entities that are domiciled in New York may be licensed as HMO's or Article 43 Corporations. A foreign entity providing a vision program such as ABC Co. that wishes to do business in New York must do so through a New York subsidiary. The inquirer was accordingly advised to cease soliciting business in New York, until he obtains the proper license.

For further information you may contact Senior Attorney Pascale Jean-Baptiste at the New York City Office.