OGC Opinion No. 09-04-10
The Office of General Counsel issued the following opinion on April 20, 2009, representing the position of the New York State Insurance Department.
RE: Insurance Agency Offering Free Access to a Third-Party Online Vendor
Question Presented:
May a licensed insurance agent or broker offer its employer clients free access to ABC, a third-party online vendor that provides certain services, without running afoul of the rebating and inducement provisions of the New York Insurance Law?
Conclusion:
No. Assuming the services are offered as a package, a licensed insurance agent or broker may not offer its employer clients free access to ABC, because certain of the services offered run afoul of the rebating and inducement provisions set forth in the New York Insurance Law.
Facts:
The inquirer states that she is the chief operating officer for an insurance agency, which is licensed as an insurance agent and broker, and that in order to ease its employer clients’ administrative burdens, the inquirer’s agency wishes to offer them free access to ABC, a third-party online vendor. ABC provides the following services:
• Automated enrollment process and administration of employee benefit plans;
• COBRA administration, which includes preparing required notifications, creating payment coupons, and managing receipt of COBRA payments;
• Production of federal Health Insurance Portability and Accountability Act (“HIPAA”) certificates;
• Printing of instant I.D. cards;
• Allocation of expenses to specific divisions or departments;
• Coordination of employee data for 401(k) program;
• Access to benefit information 24 hours a day/7 days a week, including the ability to view the details of coverage, search for providers and check the status of claims;
• Creation of communication protocols for exchanging information with carriers; and
• Exportation of data to carriers for reports and proposals
Furthermore, ABC provides three-levels of access, which it describes as follows:
The Administrator Level access (for broker and/or client) manages new and open enrollment, participant data changes, terminations (including a complete COBRA notification, billing and collection module and HIPAA compliance), invoicing of all core and voluntary benefits and can communicate all activities to the appropriate claims or payroll system.
The Client Level access (for the client of a broker or a corporate subsidiary) includes access to all the data the Administrator sees including the reporting package. Clients also communicate new hires, terminations and data changes (such as compensation) directly to the administrator via their access. The Human Resources Department is always in control of their responsibilities at their business site.
The Employee Level access allows each participant to view details of their coverage on line (including medical, dental, vision, life, Long Term Disability, 401(k) and voluntary programs), search for in-network doctors and check the status of their pending claim reimbursement. Participants can also enroll in benefit plans, print benefit ID cards, make benefit changes as well as communicate their Open Enrollment selections. They can also indicate changes in their personal lives such as address or life status.
The inquirer further states that while she plans to discuss the availability of this online service with all her clients, the inquirer generally intends only to offer free access to employer clients who have twenty or more employees, explaining that these “large” employers are more likely to need the online service.
Analysis:
As a general matter, a licensed insurance agent or broker may not provide or offer to provide an insured or potential insured with any special benefit or discount, including any rebate from the insurance premium, or any service or other incentive in conjunction with the sale of insurance, that is not specified in the insurance policy or contract, or vice versa. N.Y. Ins. Law § 4224(c) (McKinney 2009), which applies to life insurance, accident and health insurance, and annuities, and states that:
(c) Except as permitted by section three thousand two hundred thirty-nine of this chapter, no such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract. (Emphasis added.)1
However, an insurance agent or broker may provide a free service not specified in the insurance policy or contract to an insured or potential insured without violating the anti-rebating and inducement provisions of Insurance Law § 4224(c) if:
1. the service directly relates to the sale or servicing of the policy or contract or provides general information about insurance or risk reduction; and
2. the insurer or insurance producer provides the service in a fair and nondiscriminatory manner to like insureds or potential insureds.
See Circular Letter No. 9 (2009).
The inquirer indicates that in order to ease its employer clients’ administrative burdens, the inquirer’s agency wishes to offer them free access to ABC, a third-party online vendor that provides certain services. Thus, the first question that arises is whether the services provided by ABC directly relate to the sale or servicing of an insurance policy or contract, or provide general information about insurance or risk reduction.
1. Automated enrollment process and administration of employee benefit plans
The first service ABC offers is an automated enrollment process and administration of employee benefit plans. As a general matter, an insurance agent or broker may not offer free management or administration of employee benefit programs, such as retirement programs and time-off/leave of absence programs, other than management or administration of the insurance sold by the insurance agent or broker, because such a service does not directly relate to the sale or servicing of an insurance policy or contract. See Circular Letter No. 9 (2009). It is unclear what ABC means by “employee benefit plans” or “administration.” Therefore, the Department lacks sufficient information at this time to opine on whether this service directly relates to the sale or servicing of an insurance policy such that the inquirer’s agency may lawfully offer its employer clients free access to it.
2. COBRA administration, including preparation of required notifications, creation of payment coupons, and the management of the receipt of COBRA payments
ABC offers COBRA administration services, including preparation of required notifications, creation of payment coupons, and the management of the receipt of COBRA payments. COBRA “gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.” See Continuation of Health Coverage – COBRA, Health Plans & Benefits, United States Department of Labor, at http://www.dol.gov/dol/topic/health-plans/cobra.htm. As a general matter, an insurance agent or broker may provide certain free COBRA administration services, including billing former employees, collecting the insurance premiums, and forwarding the aggregate premiums to the employer policy or contract holder or to the insurer, when offered in connection with the provision of accident and health insurance. See Circular Letter No. 9 (2009).
Here, ABC offers COBRA administration, which includes preparation of required notifications, creation of payment coupons, and the management of the receipt of COBRA payments. Since these services directly relate to the sale or servicing of an accident and health insurance policy or contract, the inquirer’s agency may lawfully provide its employee clients free access to this service in connection with such a policy or contract.
3. Production of HIPAA Certificates
ABC also offers the production of HIPAA certificates. An insurance agent or broker may provide certain free services in accordance with HIPAA, such as those pertaining to health care access, portability, and renewability, when offered in connection with the provision of accident and health insurance. See Circular Letter No. 9 (2009). Here, it is unclear what “production of HIPAA certificates” means and whether the service is offered in connection with the provision of accident and health insurance. However, to the extent that “production of HIPAA certificates” directly relates to the sale or servicing of the accident and health insurance policy, the inquirer’s agency may lawfully offer free access to this service.
4. Printing of instant I.D. cards
ABC offers the ability to print benefit I.D. cards. Based upon the information set forth on ABC’s website, it appears that the I.D. cards are for insurance coverage. Assuming this is the case, the ability to print benefit I.D. cards is a service that directly relates to the sale or servicing of an insurance policy or contract. Accordingly, the inquirer’s agency may lawfully offer its employer clients free access to this service.
5. Allocation of expenses to specific divisions or departments
Another service ABC offers is the allocation of expenses to specific divisions or departments. Because it is unclear what these expenses relate to, the Department lacks sufficient information at this time to opine about whether they directly relate to the sale or servicing of an insurance policy or contract such that the inquirer’s agency may lawfully offer its employer clients free access to this service.
6. Coordination of employee data for 401(k) programs
ABC offers the coordination of employee data for 401(k) programs. As stated above, an insurance agent or broker may not offer free management of employee benefit programs, such as retirement programs and time-off/leave of absence programs, other than management of the insurance sold by the insurance agent or broker, because such a service does not directly relate to the sale or servicing of an insurance policy. See Circular Letter No. 9 (2009). A 401(k) program is not insurance, but rather “a type of tax-qualified deferred compensation plan in which an employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pretax basis.” See Topic 424 - 401(k) Plans, Internal Revenue Service, United States Department of the Treasury, at http://www.irs.gov/taxtopics/tc424.html. Therefore, the inquirer’s agency may not lawfully offer its employer clients free access to this service, because it does not directly relate to the sale or servicing of an insurance policy or contract.
7. Access to benefit information 24 hours a day/7 days a week, including the ability to view the details of coverage, search for providers and check the status of claims
ABC offers access to benefit information 24 hours a day/7 days a week, including the ability to view the details of coverage, search for providers and check the status of claims. More specifically, ABC permits employees to “view details of their coverage on line (including medical, dental, vision, life, Long Term Disability, 401(k) and voluntary programs), search for in-network doctors and check the status of their pending claim reimbursement.”
In OGC Opinion 07-07-17 (July 23, 2007), the Department opined that an insurance agent or broker may provide free access to a system created by the insurance agent or broker that sets forth useful information about group insurance plans currently in place, forms needed for plan administration, insurance company website links and answers to frequently asked questions related to the insurance. See also Circular Letter No. 9 (2009). However, in the situation presented here, the service is not strictly limited to insurance. Rather, it permits an employee to access information about his or her 401(k) plan and “voluntary programs.” Therefore, the inquirer’s agency may not lawfully offer its employer clients free access to this service, because it does not in every instance directly relate to the sale or servicing of an insurance policy or contract, or provide general information about insurance.
8. Creation of communication protocols for exchanging information with carriers
ABC offers access to communication protocols for exchanging information with insurers. This service directly relates to the sale or servicing of an insurance policy or contract. Therefore, the inquirer’s agency may lawfully offer its employer clients free access to this service.
9. Exportation of data to carriers for reports and proposals
Finally, ABC offers the ability to export data to insurers for reports and proposals. Again, this service directly relates to the sale or servicing of an insurance policy or contract. Therefore, the inquirer’s agency may offer its employer clients free access to this service.
Having analyzed whether the various services offered by ABC directly relate to the sale or servicing of an insurance policy or contract, the second question that arises is whether by offering employer clients who have twenty or more employees free access to ABC, an insurance agent or broker is providing the service in a fair and nondiscriminatory manner to like insureds or potential insureds. If the inquirer’s agency consistently offers free access to ABC to all of its employer clients or potential employer clients with twenty or more employees, and does not offer free access to any employers with fewer than twenty employees, then the inquirer’s agency would appear to be providing the service in a fair and nondiscriminatory manner to like insureds or potential insureds.
Nonetheless, if the services offered by ABC constitute a single package, the inquirer’s agency may not offer its employer clients free access to ABC, because certain of the services offered do not directly relate to the sale or servicing of the policy, or provide general information about insurance.
For further information, you may contact Senior Attorney Joana Lucashuk at the New York City office.
1 Insurance Law § 2324(a) sets forth similar language with regard to property/casualty insurance.