OGC Op. No. 07-05-18
The Office of General Counsel issued the following opinion on May 29, 200 representing the position of the New York State Insurance Department.
RE: Termination of Health Insurance Plan
1. Where a New York employer with fewer than 20 employees terminates the employee’s health benefits, what continuation requirements apply?
2. Under New York law, what notice must the employer give to the employees?
1. Since the continuation requirements contained in the Comprehensive Omnibus Budget Reconciliation Act (COBRA), Pub. Law No. 99-272 (1986), are inapplicable in the described situation, the continuation and conversion requirements set forth in New York Insurance Law § 3221(m) (McKinney 2007) and N.Y. Comp. Codes R. & Regs. tit. 11 Part 362 (2006) (Regulation 171), would apply.
2. New York’s employer notice requirements are set forth in the New York Labor Law (McKinney 2002), but such these requirements may be pre-empted by the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 2005).
You report that your firm advises employers in the field of human resources administration about their employee benefit obligations. One of your firm’s clients is a New York entity with eight employees, of whom four are eligible for health benefits by virtue of being full-time employees. Your client, which has enrolled in the Healthy New York Program, now contemplates terminating its employer-provided health benefit plan and has inquired as to its obligations, including notice and continuation requirements.
The purpose of the Healthy New York Program is set forth in Insurance Law § 4326(a) (McKinney 2007):
A program is hereby established for the purpose of making standardized health insurance contracts available to qualifying small employers and qualifying individuals as defined in this section. Such program is designed to encourage small employers to offer health insurance coverage to their employees and to also make coverage available to uninsured employees whose employers do not provide group health insurance.
For purposes of participation in the Healthy New York Program, Insurance Law § 4326(c)(1)(B) defines a “qualifying small employer” to include:
An employer with: (i) not more than fifty eligible employees; (ii) no group health insurance which provides benefits on an expense reimbursed or prepaid basis covering employees in effect during the twelve month period prior to application for a qualifying group health insurance contract under the program established by this section; and (iii) at least thirty percent of its eligible employees receiving annual wages from the employer at a level equal to or less than thirty thousand dollars. The thirty thousand dollar figure shall be adjusted periodically . . . .
Because your client has only four employees eligible for health benefits, it is a “qualifying small employer” within this definition.
The provision of health benefits to employees constitutes an “employee welfare benefit plan” within the purview of ERISA:
The terms ‘employee welfare benefit plan’ and ‘welfare plan’ mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability . . . .
29 USCA § 1002(1).
An employer sponsored plan provided through the Healthy New York Program constitutes an employee benefit plan within this definition.1
Question 1 Continuation Requirements
The federal continuation requirements for health insurance terminations are set forth in COBRA. These requirements have been codified in ERISA, which sets forth the generally applicable requirements, but then exempts certain small employers:
(a) In general. The plan sponsor of each group health plan shall provide, in accordance with this part, that each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled, under the plan, to elect, within the election period, continuation coverage under the plan.
(b) Exception for certain plans. Subsection (a) shall not apply to any group health plan for any calendar year if all employers maintaining such plan normally employed fewer than 20 employees on a typical business day during the preceding calendar year.
29 U.S.C.A. § 1161 Because your client employs fewer than 20 employees, such employees are not entitled to COBRA continuation.
New York imposes its own continuation requirements as well. The requirements for commercial health insurers are set forth in Insurance Law § 3221(m):
A group policy providing hospital, surgical or medical expense insurance for other than accident only 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 or membership in the class or classes eligible for coverage under the policy, such employee or member shall be entitled without evidence of insurability upon application to continue his hospital, surgical or medical expense insurance for himself or herself and his or her eligible dependents, subject to all of the group policy's terms and conditions applicable to those forms of benefits and to the following conditions: . . . (6) This subsection shall not be applicable where a continuation benefit is available to the employee or member pursuant to Chapter 18 of the Employee Retirement Income Security Act, or Chapter 6A of the Public Health Service Act.
Insurance Law § 4305(e) (McKinney 2007) contains a similar continuation requirement for contracts issued by not-for-profit health insurers and all health maintenance organizations.
Since your client’s employees are, by virtue of the number employed, not entitled to COBRA continuation, and because they meet the New York continuation requirements, that law would govern. But as practical matter, since the Healthy New York policy issued to the employer would have been completely terminated, there would be no policy to continue.
However, the regulation promulgated by the Insurance Department to effectuate the Healthy New York program, 11 NYCRR Part 362 (Regulation 171), provides that, in addition to any continuation rights, employees whose group policy is ending may convert to a regular individual health insurance policy. While the requirements for individual enrollment in the Healthy New York Program mandate that the individual not have had health insurance within the past 12 months, see Insurance Law § 4326(c)(3)(A ), Insurance Law § 4326(c)(3)(C) provides:
The requirements set forth in items (i) and (ii) of subparagraph (A) of this paragraph shall not be applicable where an individual had health insurance coverage during the previous twelve months and such coverage terminated due to: . . . (v) discontinuation of a group health insurance contract with benefits on an expense reimbursed or prepaid basis covering the qualifying individual as an employee or dependent . . . .
Question 2: Notice Requirements
New York’s policy on and rules for employer notice of termination of health benefits are set forth in Labor Law § 217 (McKinney 2002):
1. Statement of public policy. The legislature finds that in today's society health and accident insurance coverage for medical care and treatment is of prime importance to all employees and their dependents within the state of New York. Adequate and prospective planning is necessary to insure that such coverage is in effect at the time of commencement of the need for medical and health care. Many employees and their dependents in New York State are covered through group policies issued to their employers, employee organizations or trustees of employee welfare funds and no statutory provision has heretofore afforded these employees and their dependents the right as certificate holders of a group accident or group health policy to receive notification of the intended termination or substitution of the group policy and to have premiums remitted to insurers on their behalf should they choose to exercise continuation privileges available under law.
Accordingly, it is the declared public policy of the state of New York that sufficient and timely notice be afforded each employee covered under a group accident or group health policy of the intended termination or substitution of such policy and that employers be required to remit premiums to insurers on behalf of individuals exercising their right to continuation coverage under the law.
. . .
3. Notification. A policyholder shall, subsequent to receipt from the insurer of notice of termination pursuant to subsection (k) of section four thousand two hundred thirty-five of the insurance law provide written notice to the certificate holders of such policy of such termination. In any case where the policyholder is substituting such policy with another policy providing similar coverage for the same certificate holders, the policyholder shall provide certificate holders with a written notice including therein the name of the substituted insurer. Where the employees are represented by a labor organization, such notice shall be given to the representative of that labor organization. Such written notice shall be in accordance with the rules and regulations of the superintendent of insurance, promulgated pursuant to subsection (1) of section four thousand two hundred thirty-five of the insurance law.
4. Exception. The provisions of subdivision three of this section shall not be deemed to apply if, within ten days subsequent to receipt of notice of termination from the insurer, the policyholder has taken necessary steps whereby the intended termination is rendered null and void.
Furthermore, Insurance Law § 4235(l) provides:
(l) The superintendent shall promulgate rules and regulations concerning the method, manner and time for a policyholder to provide written notice of termination to the certificate holders as required by subdivision three of section two hundred seventeen of the labor law.
Since Labor Law § 217(1) is precatory, it is probably not preempted by ERISA2. However, because termination of the insurance policy would be by the employer, not the insurer, Labor Law § 217(3) would not apply to your client’s situation. Nor does New York law contain any other applicable notice requirements.
Questions concerning the interplay between ERISA and Labor Law § 217(3) where the policy is not terminated by the employer should be addressed to the Employment Benefit Security Administration at the following address:
Employee Benefit Security Administration
United States Department of Labor
33 Whitehall Street
New York, NY 10004.
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.
1 The effect of ERISA on state statutes purporting to effect ERISA plans is set forth in 29 U.S.C.A. § 1144:
(a) Supersedure; effective date. Except as provided in subsection (b) of this section, the provisions of this title. . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a)and not exempt under section 4(b) . . . .
(b) Construction and application. . . . (2) (A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.
2 Since Insurance Law §§ 3221(m) and 4305(e) regulate the insurance contract, they are saved from ERISA preemption by 29 U.S.C.A. § 1144(b)(2)(A). See supra note 1.