The Office of General Counsel issued the following opinion on May 9, 2005, representing the position of the New York State Insurance Department.
Re: New York Municipal Law Section 92-a
Does the contract between a Municipal Cooperative Health Benefit Plan ("MCHBP") and a Health Maintenance Organization ("HMO") comply with New York General Municipal Law § 92-a(6) (McKinney 2005 Supplement)?
It is the belief of the New York Insurance Department that the contract in question is not in compliance with New York General Municipal Law § 92-a(6).
The MCHBP has a Certificate of Authority in accordance with New York Insurance Law § 4703(a)(1) (McKinney 2000) and has contracted with an HMO that has a Certificate of Authority from the Commissioner of Health pursuant to New York Public Health Law § 4403 (McKinney 2002), for the provision of administrative services to MCHBP. The contract between the parties provides, in pertinent part:
7. Services. The HMO shall perform the Services set forth in the Service and Fee Schedule and the Description of Services Addendum identified in the Service Agreement. Customer hereby delegates to the HMO authority to make initial determinations on behalf of Customer with respect to benefit payments under the Plan and to pay such benefits, subject, however, to the right of Customer to review and modify any such determinations. In the discharge of its obligations hereunder, the HMO does not act as a fiduciary as defined in applicable state law or otherwise. . . .
9. Standard of Care. The HMO shall observe the standard of care of a fiduciary under ERISA, subject to the terms of Section 7 above. . .
10. Recovery of Overpayments. The parties will cooperate fully to make reasonable efforts to recover overpayments of Plan benefits. If it is determined that any payment has been made by the HMO to or on behalf of an ineligible person or if it is determined that more than the appropriate amount has been paid, the HMO shall undertake best efforts to recover the erroneous payment. . . . the HMOs liability for unrecovered overpayments shall be determined in accordance with Sections 9 and 13.
13. Indemnification. (A) The HMO shall indemnify and hold harmless Customer, its directors, officers, employees (acting in the course of their employment, but not as Members) and agents for that portion of any loss, liability, damage, expense, settlement, cost or obligation (including reasonable attorneys fees) which was caused solely and directly by the HMOs willful misconduct, criminal conduct, breach of this Agreement, fraud, breach of fiduciary responsibility, or failure to comply with Section 9 above, related to or arising out of the Services provided under this Agreement.
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(C) The party seeking indemnification under (A) . . . above must notify the indemnifying party within 30 days in writing of any actual or threatened action, suit or proceeding to which it claims such indemnification applies. Failure to so notify the indemnifying party shall be deemed a waiver of the right to seek indemnification. The indemnifying party may then takes steps to be joined as a party to such proceedings, and the party seeking such indemnification shall not oppose any such joinder. Whether or not such joinder takes place, the indemnifying party shall provide the defense with respect to claims to which this Section applies and in doing so shall have the right to control the defense and settlement with respect to such claims. The party seeking indemnification may assume responsibility for the direction of its own defense at any time, including the right to settle or compromise any claim against it without the consent of the indemnifying party, provided that in doing so it shall be deemed to have waived its right to indemnification except in cases where the indemnifying party has declined to defend against the claim.
Originally, the inquirer wrote to the Department of Audit & Control inquiring whether the above quoted provisions were in compliance with New York General Municipal Law § 92-a. Because of the Insurance Department's statutory responsibilities under New York Insurance Law Article 47 (McKinney 2000 and 2005 Supplement), the Department of Audit & Control believed that the inquiry lay within the jurisdiction of the Insurance Department, Accordingly, by letter of February 11, 2005, the inquiry was forwarded to the Insurance Department.
Since the HMO is primarily regulated by the Department of Health, the Insurance Department will not determine whether the services contracted for by MCHBP are within the corporate powers of the HMO or whether such services are within the scope of its Certificate of Authority.
Since, in accordance with New York Insurance Law § 4705(d)(5)(B) (McKinney 2000 and 2005 Supplement), the premium equivalent rates of MCHBP must be on a community rated basis, it is presumed that the HMO is not prohibited by New York Insurance Law § 4317(e)(1) (McKinney 2000 and 2005 Supplement) from providing administrative services to MCHBP
2002 N.Y. Laws 681 enacted New York General Municipal Law 92-a(6), which provides:
(a) Notwithstanding any general, special or local law to the contrary, the governing board of a public corporation that, in lieu of contracting pursuant to subdivision two of this section, self-funds medical, surgical or hospital benefits, may enter into agreements with duly qualified contract administrators or other service providers to receive, investigate, make recommendations on, audit, approve or make payment of claims for such benefits. Such agreements shall be entered into pursuant to competitive bidding, or written request for proposals in accordance with the procurement policies and procedures of the public corporation adopted pursuant to section one hundred four-b of this chapter.
(b) In order to authorize the payment of claims for benefits audited and approved by a contract administrator or other service provider, an agreement entered into pursuant to this subdivision may provide that after claims have been audited by the contract administrator or other service provider, the contract administrator or other service provider shall periodically inform the public corporation of the total amount payable in satisfaction of the audited and approved claims, together with such other supporting information as the public corporation may require, and the public corporation may transfer moneys in that amount to the contract administrator or other service provider for disbursement to the claimants entitled thereto. Any such agreement shall provide that if a check issued by the contract administrator or other service provider in satisfaction of a claim remains unpaid after one hundred eighty days, the moneys payable in satisfaction of that claim shall be returned to the public corporation.
(c) Any agreement entered into pursuant to this subdivision shall contain, at a minimum, the following: . . . (iii) a provision stating that the contract administrator or other service provider to which functions are delegated shall be liable to the public corporation for all loss or damage that may result from any failure by the contract administrator or other service provider to discharge their duties, or from any improper or incorrect discharge of those duties, and a provision that expressly reserves to the public corporation all legal rights of set-off. The contract administrator or service provider shall save the public corporation free and harmless from any and all loss occasioned by or incurred in the performance of services under an agreement pursuant to this subdivision; . . . .
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New York Insurance Law § 4705 regulates Municipal Cooperation Agreements. 2002 N.Y. Laws 681 also amended New York Insurance Law § 4705(d):
(d) The municipal cooperation agreement shall provide that the governing board: . . . (2) may enter into an agreement with a contract administrator or other service provider, determined by the governing board to be qualified, to receive, investigate, recommend, audit, approve or make payment of claims under the municipal cooperative health benefit plan, provided that (A) the charges, fees and other compensation for any contracted services shall be clearly stated in written administrative services contracts as required in subdivision six of section ninety-two-a of the general municipal law; . . . and (D) all such agreements shall comply with the requirements of subdivision six of section ninety-two-a of the general municipal law. (New material underlined)
With respect to settlement of claims, New York Insurance Law § 2101(g)(1) (McKinney 2000 and 2005 Supplement) defines:
The term independent adjuster means any 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, except that such term shall not include (A) any officer, director or regular salaried employee of an authorized insurer or entity licensed pursuant to article forty-four of the public health law providing comprehensive health service plans (as used in this paragraph, a 'health maintenance organization'), or any manager thereof, individual or corporate, or the manager, agent or general agent of any department thereof, . . . (B) any officer, director or regular salaried employee of an insurer authorized to write accident and health insurance, a corporation licensed under article forty-three of this chapter (collectively, as used in this paragraph, a health insurer) or a health maintenance organization, or any manager thereof, individual or corporate, when the claim to be adjusted is issued or administered by another health insurer or health maintenance organization within the same holding company system as the health insurer or health maintenance organization adjusting the claim; . . . .
Effect of Relevant Statutes:
MCHBP is an insurer within the terms of New York Insurance Law § 2101(g)(1). The functions to be performed by the HMO fall within the definition of adjusting in New York Insurance Law § 2101(g)(1). The Insurance Department has consistently interpreted the exemption of New York Insurance Law § 2101(g)(1)(A) to allow an insurer to only adjust claims on policies it has issued. In 2004 N.Y. Laws 385, New York Insurance Law § 2101(g)(1)(B) was added to allow health insurers to adjust claims of affiliated insurers.
Accordingly, since MCHBP is not an affiliate of the HMO, the exemption of New York Insurance Law § 2101(g)(1)(B) does not apply and, in order to adjust the claims of MCHBP, the HMO must, in accordance with the requirements of New York Insurance Law § 2108(a)(3) (McKinney 2000 and 2005 Supplement) be licensed as an independent adjuster.
The indemnification provision of the Agreement, § 13(A), does not require the HMO to indemnify MCHBP for the negligence of the HMO. It is the belief of the Insurance Department that this omission renders the Agreement in non-compliance with the specific mandate of New York General Municipal Law § 92-a(6)(c)(iii) that "any failure of the contract administrator" be indemnified, and thus in non-compliance with New York Insurance Law § 4705(d)(2)(D).
While the indemnification provision of the Agreement, § 13(C), does authorize the HMO to settle claims in its own discretion, such claims are not health claims, but in the nature of tort claims. Since such a settlement provision is common in liability insurance policies, and since the cost will be borne by the HMO (not the public fisc), it is belief of the Insurance Department that such provision is not contrary to the New York General Municipal Law or other relevant statute.
For further information please contact Principal Attorney Alan Rachlin at the New York City office.