OGC Opinion No. 09-07-03
The Office of General Counsel issued the following opinion on July 15, 2009, representing the position of the New York State Insurance Department.
Re: Medical Membership Programs
Question Presented:
Does a physician-owned multi-specialty group’s proposed discount membership program constitute the doing of an insurance business in violation of N.Y. Ins. Law § 1102 (McKinney 2009)?
Conclusion:
No. A physician-owned multi-specialty group’s proposed membership program would not constitute the doing of an insurance business in violation of Insurance Law § 1102, provided that the fee paid at the time of services occasioned by the happening of a fortuitous event covers the actual cost of rendition of the service, including reasonable overhead.
Facts:
The inquirer reports that it is a physician-owned multi-specialty group with three locations in New York. The group’s website indicates that it provides “comprehensive care,” including medical specialties such as urgent care, primary family care and pediatrics.
The inquirer also reports that it proposes to offer all its uninsured and underinsured patients discounted medical services as part of a membership program. Program members would pay an annual enrollment fee and a reduced fee at the time of service to cover any services rendered.
The inquirer asks whether its proposed membership program would constitute the doing of an insurance business.
Analysis:
Insurance Law § 1101 is germane to the inquiry. That statute, which defines the doing of an insurance business, reads in pertinent part as follows:
(a)(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules: (A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts . . .
Further, Insurance Law § 1102(a) prohibits any person, firm, association, corporation, or joint-stock company from doing an insurance business in New York unless authorized by a license in force, or otherwise exempted from licensing by the Insurance Law.
In general, a program where a health care provider offers health care at a discount to patients who pay a membership fee to join the program constitutes the doing of an insurance business, because the benefits that the program provides are dependent upon the happening of a fortuitous event – namely, that being the need for health care - which is beyond the control of either party and because the provider bears the risk of incurring a loss if the cost for the services provided exceeds the reduced fees paid by the members. See Office of General Counsel (“OGC”) Opinion dated May 2, 2005. Since such a program would constitute the doing of an insurance business under Insurance Law § 1101(a), it requires a license pursuant to Insurance Law § 1102.
However, a membership program would not constitute the doing of an insurance business where the program charges a prepaid membership fee, and services occasioned by the happening of a fortuitous event are offered for an additional fee per service that is discounted from the usual fee, provided that the discounted fees charged actually cover the cost of rendering the services, including reasonable overhead. See OGC Opinions dated June 30, 2008; April 3, 2008; May 2, 2005. Consequently, such a program would not need to obtain an insurance license from the Department pursuant to Insurance Law § 1102.
Here, the services that the physician-owned multi-specialty group would offer includes services that are dependent on fortuitous events, such as “trauma surgery” and “wound care,” and the members of its proposed medical membership program would pay a membership fee, which would entitle them to pay a reduced fee per service rendered. Therefore, provided that the annual membership enrollment fee and the fee paid at the time services are rendered cover the cost of rendition, including reasonable overhead, the physician-owned multi-specialty group’s medical membership program would not constitute the doing of an insurance business within the meaning of Insurance Law § 1101.
For further information you may contact Supervising Attorney D. Monica Marsh at the New York City Office.