The Office of General Counsel issued the following opinion on March 22, 2005 representing the position of the New York State Insurance Department.
Re: Coalition of Not-For-Profit Organizations, Purchase of Group Health Insurance
Issue
May several not-for-profit organizations form a coalition to negotiate with health insurers, including Health Maintenance Organizations, as to the premium rates that they will be charged?
Conclusion
While such organizations might be able to jointly purchase a contract with an insurer, joint negotiations with the insurer as to premium rates for separate contracts issued to each organization could not result in a lesser rate. Further, if any constituent member of the coalition had less than 50 employees, the policy would have to be community rated. In addition, the organization that negotiated with the insurer might have to be licensed by the Insurance Department. As to HMOs, in accordance with the applicable Department of Health regulations, such coverage would have to be community rated.
Facts
A number of not-for-profit organizations are seeking to reduce the premium rates that they would have to pay for health coverage for their employees. The organizations intend to indicate to any potential insurer, possibly including an HMO, that the insurer could insure all of the organizations, each with its own policy, upon negotiating a favorable rate based upon the combined purchasing power of the group. The inquirer indicates that the number of employees could range from several hundred to 4,000, depending upon the number of organizations that join the coalition. While several of the potential members of the coalition would provide coverage for in excess of 50 employees, many organizations have less than 50 employees who would be covered.
The inquirer inquires as to the legality of such an arrangement or, as an alternative, a joint policy issued to all of the organizations.
Analysis
New York Insurance Law § 4235(c)(1)(A) (McKinney 2000 and 2005 Supplement) authorizes issuance of:
A policy issued to an employer or to a trustee or trustees of a fund established by an employer, which employer or trustee or trustees shall be deemed the policyholder, insuring with or without evidence of insurability satisfactory to the insurer, employees of such employer, and insuring, except as hereinafter provided, all of such employees or all of any class or classes thereof determined by conditions pertaining to the employment or a combination of such conditions and conditions pertaining to the family status of the employee, for insurance coverage on each person insured based upon some plan which will preclude individual selection. . . . The premium for the policy shall be paid by the policyholder, either from the employer's funds, or from funds contributed by the insured employees, or from funds contributed jointly by the employer and employees. If all or part of the premium is to be derived from funds contributed by the insured employees, then such policy must insure not less than fifty percent of such eligible employees or, if less, fifty or more of such employees.
As part of a major reform of health insurance, 1992 N.Y. Laws 501 enacted New York Insurance Law § 3231(a) (McKinney 2000 and 2005 Supplement), regulating commercial health insurers:
No . . . group health insurance contract covering between two and fifty employees or members of the group exclusive of spouses and dependents, including contracts for which the premiums are paid by a remitting agent for a group, hereinafter referred to as a small group, providing hospital and/or medical benefits . . . shall be issued in this state unless such contract is community rated and, notwithstanding any other provisions of law, the underwriting of such contract involves no more than the imposition of a pre-existing condition limitation as permitted by 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.
New York Insurance Law § 4317(a) (McKinney 2000 and 2005 Supplement), regulating contracts of not-for-profit health insurers, has an identical requirement. Accordingly, any policy issued to an employer with less than 50 employees would have to be community rated.
Whether the policy is community rated or experience rated, premiums, or in the case of experience rated contracts, the premium derived from the filed formula, may not be excessive, inadequate or unfairly discriminatory and, in accordance with New York Insurance Law § 4235(h)(1), the premium rate or formula must be approved by the Insurance Department. The Department would not permit the issuance of individual policies to each group and the pooling of the individual experience of discrete groups to be combined for the purpose of one experience rate. Accordingly, the combined purchasing power of the coalition could not result in a lower premium rate.
With respect to a single policy issued to the coalition, New York Insurance Law § 4235(c)(1)(D) authorizes issuance of:
A policy issued to a trustee or trustees of a fund established, or participated in, by two or more employers . . . 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 jointly from such funds and funds contributed by the insured persons specifically for their insurance or from contributions by the insured persons. A policy on which all or part of the premium is to be derived from funds contributed by the insured persons specifically for their insurance may be placed in force only if it insures not less than fifty percent of the then eligible persons, or, if less, fifty or more of such eligible persons excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. A policy on which no part of the premium is to be derived from funds contributed by the insured persons specifically for their insurance must insure all eligible persons, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. (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. . . .
In effectuation of 1992 N.Y. Laws 501, the Department promulgated N.Y. Comp. Codes R. & Regs. tit. 11, Part 360 (Regulation 145) (2000). 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
N.Y. Comp. Codes R. & Regs, tit. 11, § 360.8(e) (2000) provides:
Community rates based on the size of the association groups. (1) 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.
(2) An insurer may issue an experience rated policy to an association group so long as all member employers or member groups covered by that policy exceed 50 persons exclusive of spouses and dependents. A second separate community rated policy may be issued by an insurer to the same association group covering all those member employers or member groups with 50 or fewer persons exclusive of spouses and dependents.
Accordingly, while experience rating might be available in a coalition policy, if no member of the coalition has less than 50 employees; if the coalition purchases a single policy covering the employees of its constituent members, as is authorized by New York Insurance Law § 4235(c)(1)(D), and any employer has less than 50 employees, the entire contract would have to be community rated.
In accordance with New York Public Health Law § 4406(1) (McKinney 2000 and 2005 Supplement), contracts between HMOs and subscribers are subject to regulation by the Insurance Department as if they were subscriber contracts of not-for-profit health insurers. In effectuation of its responsibility under Article 44 of the New York Public Health Law (McKinney 2002 and 2005 Supplement), the Department of Health promulgated N.Y. Comp. Codes R & Regs. tit. 10, § 98-1.5(b)(18) (2001) setting forth the requirements for premium rates for those seeking to receive a Certificate of Authority as an HMO:
the applicant's proposed rates of payment for enrollees, including the basis and manner of calculating those rates, consistent with the principles of community rating, whether the applicant proposes to use community rating or experience rates approved by the superintendent.
N.Y. Comp. Codes R. & Regs. tit. 10, § 98-1.8 (2001) requires continuing compliance with N.Y. Comp. Codes R. & Regs. tit. 10, § 98-1.5(b)(18). Community rating is defined in N.Y. Comp. Codes R. & Regs. tit. 10, § 98-1.2(u) (2001) in a manner consistent with the New York Insurance Law definition.
The only experience rates that have been approved by the Insurance Department are those covering point of service contracts. Accordingly, whatever the size of the group, a contract with a HMO would have to be community rated.
New York Insurance Law § 2101(c) (McKinney 2000 and 2005 Supplement) defines an insurance broker:
In this article, 'insurance broker' means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker, except that such term shall not include: . . . (5) a person who secures and furnishes information for the purpose of group life insurance, group property/casualty insurance, group annuities, group or blanket accident and health insurance; or for the purpose of enrolling individuals under plans, issuing certificates under plans or otherwise assisting in administering plans; or performs administrative services related to mass marketed property/casualty insurance, where no commission is paid to the person for the service . . .
New York Insurance Law § 2102 (McKinney 2000 and 2005 Supplement) prohibits acting as an insurance broker or insurance consultant without a license. Depending upon the functions that will be performed by the intermediary who would deal with the insurer, that individual or entity might have to be licensed as an insurance broker or insurance consultant.
For further information one may contact Principal Attorney Alan Rachlin at the New York City Office.