The Office of General Counsel issued the following opinion on November 14, 2005 representing the position of the New York State Insurance Department.

Re: Group Health Insurance, Employer-Employee Group

Question Presented:

Would the individuals in the group being advertised by the ABC Risk Management Services (ABC) qualify for group health insurance?


No, based upon the information furnished, the group in question would not qualify under New York Insurance Law § 4235(c)(1) (McKinney 2000 and 2005 Supplement).


A firm is licensed as an insurance agent in accordance with New York Insurance Law § 2103(a) (McKinney 2000 and 2005 Supplement) and represents several insurers issuing health insurance to small groups. It has become aware of solicitations by ABC, which is licensed as an insurance broker in accordance with New York Insurance Law § 2104(b)(1)(a) (McKinney 2000 and 2005 Supplement), to self-employed individuals for them to purchase health insurance through a "group" developed by ABC. In addition to a solicitation letter from the officer and sub-licensee of ABC, the Department was also furnished a "PowerPoint" solicitation for a program purportedly developed for real estate agents of a major real estate firm.

According to the ABC solicitations, each individual self-employed person will enter into an employment relationship with an affiliate of ABC and be scheduled to work 20 hours a week, which ABC represents is the minimum number of hours required in New York for employer-employee group life insurance, and be paid $1,100 per month. In exchange for the $1,100 payment, the "employee" is expected to refer individuals desirous of purchasing property & casualty insurance to ABC or its affiliates. There are no minimum numbers of referrals required in any month to remain eligible to receive the $1,100.

As an "employer", ABC will make the required payments under the Federal Insurance Contributions Act (FICA), 26 U.S.C.A. § 3101 et seq. (West 2002), which is the funding mechanism for Social Security and Medicare Part A.

As an "employer", ABC will purchase a policy for disability as required by New York Workers' Compensation Law Article 9 (McKinney 2000 and 2005 Supplement) covering the individuals. In addition, ABC will cause the individuals to be covered by a group life insurance policy issued to it.

As an "employee", the individual will be eligible to participate in ABC's employee benefits program, including health benefits on a community rated basis through a health care system. While there are other optional employee benefits mentioned, including a deferred compensation plan in accordance with Internal Revenue Code § 401k) (West 2002 and 2005 Supplement) and a flexible spending arrangement in accordance with Internal Revenue Code § 106(c)(2) (West 2002 and 2005 Supplement), no details as to these benefits are provided in the materials furnished.

As part of the arrangement with ABC, in addition to receiving a $1,100 monthly "salary" from ABC, each individual will be obligated to pay ABC a $200 "set-up" fee and the monthly sum of $1,500 for individuals and up to $1,800 for families for consulting services with relation to the individual's business insurance, employee benefits and retirement needs, such payments to be deducted from the individual's bank account pursuant to an authorization of ABC. In the letter from the officer of ABC, explaining the monthly fee, the officer indicates:

ABC bills for its services based on the size of the individual's family unit. This is because of the complexity of calculating a pension benefit and contribution based on a Joint & Survivor annuity that can take into [account] the size of the family unit.

Although there is a disclaimer that its analysis of the transactions does not constitute a legal opinion and that individuals should consult their own legal and accounting advisors, ABC represents that the consulting fee it receives would be deductible on the individual's income tax return as a business expense and thus that the individual would not owe any FICA contributions on the $1,100 per month received.

ABC represents that Oxford requires that each insured employee must contribute at least 25% of the cost of the coverage. An analysis of the various transactions prepared by ABC as part of the solicitations represents that the "tax effective cost for medical, life and disability insurance coverage" would range from $376 per month for individuals to $1,075 per month for families.


Limitation of Opinion

This opinion is limited to compliance with the New York Insurance Law and the regulations promulgated thereunder. There has been no analysis of whether the proposal is in compliance with any other statute or regulation.

Membership in a Group, Relevant Statutes

While the ABC material does not indicate whether the health care system is a domestic insurer licensed in accordance with New York Insurance Law Article 42 (McKinney 2000 and 2005 Supplement), or a health maintenance organization with a Certificate of Authority pursuant to New York Public Health Law § 4403 (McKinney 2002), the analysis would be the same for either entity.

New York Insurance Law § 4235(c)(1) sets forth those groups eligible to purchase group health insurance. New York Insurance Law §§ 4235(c)(1)(A) and (K) authorize:

(A) A policy issued to an employer . . . which employer . . . 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.

* * *

(K) A policy issued to an association or the trustee or trustees of a trust established, or participated in, by one or more associations, to insure association members, subject to the following: (i) Each association shall have: (I) A minimum of two hundred insured members at the policy's date of issue; (II) Been organized and maintained in good faith for purposes principally other than that of obtaining insurance; (III) Been in active existence for at least two years . . . (ii) The premium for the policy shall be paid by the association or the trustees either wholly from funds contributed by the association or by the insured individuals, or from funds contributed jointly by the association and insured individuals. A policy on which no part of the premium is to be derived from funds contributed by the insured individuals specifically for their insurance must insure all eligible individuals excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. (iii) The amount of insurance under the policy shall be based upon some plan precluding individual selection either by the insured members or by the association. . . . (v) The premiums charged must be reasonable in relation to the benefits provided.

New York Insurance Law § 4235(d)(1) defines employees:

In this section, for the purpose of insurance hereunder: ‘employees’ includes the officers, managers, employees and retired employees of the employer and of subsidiary or affiliated corporations of a corporate employer, and the individual proprietors, partners, employees and retired employees of affiliated individuals and firms controlled by the insured employer through stock ownership, contract or otherwise; ‘employees’ may be deemed to include the individual proprietor or partners if the employer is an individual proprietor or a partnership; and ‘employees’ as used in subparagraph (A) of paragraph one of subsection (c) hereof may also include the directors of the employer and of subsidiary or affiliated corporations of a corporate employer.

New York Insurance Law § 3231(i) (McKinney 2000 and 2005 Supplement), regulating policies issued by Oxford as a commercial health insurers provides:

(1) If an insurer issues coverage to an association group . . . as defined in subparagraph (K) of paragraph one of subsection (c) of section four thousand two hundred thirty-five of this chapter, the insurer must issue the same coverage to individual proprietors which purchase coverage through the association group as the insurer issues to groups which purchase coverage through the association group; provided, however, that an insurer which, on the effective date of this subsection, is issuing coverage to individual proprietors not connected with an association group, may continue to issue such coverage provided that the coverage is otherwise in accordance with this subsection and all other applicable provisions of law.

(2) For coverage purchased pursuant to this subsection, individual proprietors shall be classified in their own community rating category . . . .

(3) An insurer may require members of the association purchasing health insurance to verify that all employees electing health insurance are legitimate

employees of the employers, as documented on New York state tax form NYS-45-ATT-MN or comparable documentation. In order to be eligible to purchase health insurance pursuant to this subsection and obtain the same group insurance products as are offered to groups, a sole employee of a corporation or a sole proprietor of an unincorporated business or entity must (A) work at least twenty hours per week, (B) if purchasing the coverage through an association group, be a member of the association for at least sixty days prior to the effective date of the insurance policy, and (C) present a copy of the following documentation to the insurer or health plan administrator on an annual basis: (i) NYS tax form 45-ATT, or comparable documentation of active employee status; (ii) for an incorporated business, the prior year's federal income tax Schedule C for an incorporated business subject to Subchapter S with a sole employee, federal income tax Schedule E for other incorporated businesses with a sole employee, a W-2 annual wage statement, or federal tax form 1099 with federal income tax Schedule F . . . ;

New York Insurance Law § 4317(f) (McKinney 2000 and 2005 Supplement), regulating contracts of this health care system as an HMO, is a similar provision. The 20 hour per week requirement in New York Insurance Law §§ 3231(i)(3)(A) and 4317(f)(3)(A) is the only 20 hour requirement in the New York Insurance Law.

Definition of Employee

There is no general definition of employee in either New York or Federal law. An individual can be an employee for the purpose of group insurance, as in New York Insurance Law § 4235(d), while not be considered an employee for another purpose, such as for workers' compensation benefits under the definition in New York Workers' Compensation Law § 2(4) (McKinney 2005). The Internal Revenue Code, 25 U.S.C.A. § 3121(d)(2), dealing with FICA, and the regulations promulgated thereunder, e.g. 26 C.F.R. 1.410(b)-9(2004), dealing with deferred compensation, utilize the common law definition.

In Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989) the United States Supreme Court set forth the common law factors to be considered:

In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party's right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. None of these factors is determinative. (Footnotes omitted)

490 U.S. 751-52.

Utilizing the relevant Reid factors: (1) ABC has no right to control the number or quality of the referrals, (2) where the referrals are sought, (3) ABC has no right to assign additional tasks to the individuals, and (4) the furnishing of referrals to ABC is not part of the individuals' usual business, and (5) ABC does not deduct income taxes from the payments. On the other side are that the payments are regular and subject to ABC's payment of FICA. After considering all the Reid factors, it appears that the individuals would not be employees.

Accordingly, the individuals would not appear to be employees under a common law definition and thus would not qualify for group insurance in accordance with New York Insurance Law § 4235(c)(1)(A).


Based upon the description furnished by ABC, the individuals in question would not qualify for group insurance under the statutes cited above. Other possible violations of the Insurance Law were referred to the Department’s Consumer Services Bureau for investigation.

For further information you may contact Principal Attorney Alan Rachlin at the New York City office.