OGC Opinion No. 08-03-04

The Office of General Counsel issued the following opinion on March 5, 2008 representing the position of the New York State Insurance Department.

RE: Small Employer Group Health Insurance

Questions Presented:

1. Must a health insurance policy or contract issued to a New York employer with between 2 and 50 employees be community rated1 ?

2. May an insurer aggregate employees when a corporate parent covers its own employees and those of a subsidiary?

3. Would it make a difference of the ultimate corporate parent is Canadian?

4. How is a “small” group defined?

5. What is the “Comprehensive Small Employer Reform” Law?

Conclusion:

1. Yes, such a policy or contract, which covers a small group policy, must be community rated.

2. Yes, if a health insurance policy is issued for delivery in New York, and the policyholder is a corporation that covers its own employees and those of a subsidiary, whether the group is a small group depends upon the total number of covered employees.

3. If the policy is issued for delivery in New York, the domicile of the ultimate corporate parent is irrelevant.

4. For insurance purposes, a “small group” is defined in New York by Insurance Law §§ 3231(a) and 4317(c). There may be other definitions in other statutes.

5. Based upon the inquiry, the “Comprehensive Small Employer Reform” Law is 1992 N.Y. Laws ch. 501.

Facts:

The inquirer’s firm’s client is a New York employer with between 2 and 50 employees, and is a subsidiary of another New York corporation. The ultimate corporate parent of the firm’s client is a Canadian corporation.

The insurer that had issued a health insurance contract to the client, has unilaterally changed the basis of the contract from community rated to experience rated.2 Based upon her understanding of New York law, the inquirer seeks the Insurance Department’s confirmation that the insurer acted improperly.

Analysis:

The insurer is a not-for-profit health service corporation that operates in accordance with Article 43 of the Insurance Law. Insurance Law § 4235(c)(1)(A) is relevant to the query. That section provides:

A policy [may be] issued to an employer . . . 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.

Simply put, this provision authorizes insurers to issue group health insurance policies to employers to cover their employees.

By enacting 1992 N.Y. Laws ch. 501 (i.e. the Comprehensive Small Employer Reform Law), the Legislature provided extensive protections to individual and small group health policyholders. Insurance Law § 4317(a), which was part of that enactment, and which regulates contracts of not-for-profit health insurers and all health maintenance organizations, is also relevant to the inquiry. It reads as follows:

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. Any . . . small group, including all employees or group members and dependents of employees or members, applying for . . . small group health insurance coverage must be accepted at all times throughout the year for any hospital and/or medical coverage . . . offered by the corporation to . . . small groups in this state. Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. . . .

Insurance Law § 3231(a), regulating policies of commercial health insurers, sets forth an identical requirement.

While Insurance Law §§ 3231(a) and 4317(c) define “small employer” group for New York insurance purposes, there are different definitions in federal statutes, see e.g. 42 U.S.C.A. § 1392y(b) (West 2003) (with respect to Medicare as a secondary payer). There also may be different definitions in other New York statutes.

If a group health insurance policy is issued for delivery in New York, and if the employer-employee group covers more than 50 employees, the policy may be experience rated. The group may include employees of both the purchasing corporation and its subsidiaries. It would not affect the situation under the New York Insurance Law if the ultimate corporate parent is domiciled outside of New York, including in Canada.

Assuming that the facts presented here are fully accurate, and that the policy here covers between 2 and 50 employees, the surmise concerning the insurer’s actions is correct. However, please note that if, for example, the policy was issued to the corporate parent covering both its employees and those of its subsidiary, and the aggregate number of employees therefore is in excess of 50, then the policy need not be community rated. If the inquirer wishes to pursue the matter further, she should furnish the Department with a complete set of facts, which will enable the Department to undertake a more searching inquiry.

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

1 Community rating means a rating methodology by which the premium for all persons covered by the policy or contract is the same, without regard to age, sex, health status or occupation, based on the experience of the entire pool covered b that policy or contract form.

2 Experience rating means a rating methodology in which age, sex, health status, occupation or other criteria are applied to the group covered by the policy or contract.