The Office of General Counsel issued the following opinion on June 3, 2005 representing the position of the New York State Insurance Department.
Re: Health Insurance, Continuation Benefit
Must an employer maintain a Health Maintenance Organization contract for the sole purpose of providing a continuation benefit for a former employee when there are no longer any active employees covered under the contract?
The New York Insurance Law (McKinney 2000 and 2005 Supplement) does not require maintenance of the contract under those circumstances.
The inquirer is the sole owner of a business with two full time employees and provide health coverage for the inquirer and the inquirer's employees. One of the inquirer's employees had opted for HMO coverage, which was provided by Empire HealthChoice HMO. Neither the inquirer nor the other employee is covered by the HMO. The employee covered by the HMO has resigned. The inquirer inquired whether the inquirer is required to maintain the HMO contract for the sole purpose of providing continuation coverage to this former employee.
Since the Federal requirement for continuation coverage is limited to business with over 20 employees, 29 U.S.C.A. § 1161(b) (West 1999), any requirement for continuation coverage would be in accordance with the New York Insurance Law. New York Insurance Law § 4305(e) (McKinney 2000 and 2005 Supplement), applicable to not-for-profit health insurers and all HMOs, provides:
In addition to the conversion privilege afforded by subsection (d) of this section, a group contract . . . shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment . . . such employee . . . shall be entitled without evidence of insurability upon application to continue his insurance for himself or herself and his or her eligible dependents, subject to all of the group contract's terms and conditions applicable to those forms of benefits and to the following conditions
. . .
(3) An employee . . . electing continuation must pay to . . . his employer, but not more frequently than on a monthly basis in advance, the amount of the required premium payment, but not more than one hundred two percent of the group rate for the benefits being continued under the group contract on the due date of each payment. The employee's or member's written election of continuation, together with the first premium payment required to establish premium payment on a monthly basis in advance, must be given to the policyholder or employer within sixty days of the date the employee's or member's benefits would otherwise terminate.
(4) Subject to paragraph one of this subsection, continuation of benefits under the group contract for any person shall terminate at the first to occur of the following: (A) The date eighteen months after the date the employee's or member's benefits under the contract would otherwise have terminated because of termination of employment or membership; or . . . (E) The date on which the group contract is terminated or, in the case of an employee, the date his employer terminated participation under the group contract. However, if this clause applies and the coverage ceasing by reason of such termination is replaced by similar coverage under another group contract, the following shall apply: (i) The employee . . . shall have the right to become covered under that other group contract, for the balance of the period that he would have remained covered under the prior group contract in accordance with this subparagraph had a termination described in this subparagraph not occurred, and (ii) The minimum level of benefits to be provided by the other group contract shall be the applicable level of benefits of the prior group contract reduced by any benefits payable under the prior group contract, and (iii) The prior group contract shall continue to provide benefits to the extent of its accrued liabilities and extensions of benefits as if the replacement had not occurred.
. . .
The provision of health insurance to employees constitutes an employee welfare plan within the meaning of the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1001 et seq. (West 1999 and 2003 Supplement). Since state laws affecting such plans are preempted, 29 U.S.C.A. § 1199(a) (West 1999), New York could not require maintenance of the contract
Accordingly, the contract with the HMO may be terminated. However, if the coverage being provided under the other policy is similar to that provided under the HMO contract, New York Insurance Law § 4305(e)(4)(E)(i) might require allowing the former employee to have coverage under that policy for the remainder of his or her 18 months continuation period.
In addition to the conversion right of New York Insurance Law § 4305(d), mentioned in New York Insurance Law § 4305(e), the former employee would have, in accordance with New York Insurance Law § 4317(a) (McKinney 2000 and 2005 Supplement), the right to purchase an individual contract from Empire HealthChoice HMO or any other HMO.
For further information one may contact Principal Attorney Alan Rachlin at the New York City Office.