OGC Opinion No. 11-02-06

The Office of General Counsel issued the following opinion on February 7, 2011 representing the position of the New York State Insurance Department.

Re: Applicability of New York Insurance Law to Self-Funded Employee Welfare Benefit Plans

Question Presented:

Does a network contractor have an affirmative obligation under state law or contract law to notify its network of contracted providers of a fee schedule change for a self-funded employee welfare benefit plan subject to the federal Employee Retirement Income Security Act (“ERISA”) ¹ administered by a third party?

Conclusion:

The requirements of N.Y. Ins. Law § 3217-b(g)(1) (McKinney 2010 Supp.) and Public Health Law § 4406-c(5-a) that insurers give advance notice of changes in reimbursement of health care providers are not applicable to self-funded employee welfare benefit plans. The Insurance Department will not comment on the applicability of general contract law.

Facts:

The inquirer reports that some chiropractors have contracted with what the inquirer believes is an independent practice association (“IPA”), as defined in a regulation of the New York State Health Department. ² The IPA in question, which the inquirer believes is an affiliate of an insurer, has, in turn, contracted with several insurers, as well as several self-funded employee welfare benefit plans. Some of the self-funded plans have contracted with an insurer that is unaffiliated with the IPA to provide administrative services to the plan.

The inquirer further reports that some of the inquirer’s members have noticed a decrease in the amount that they are being reimbursed for their services. In the inquirer’s submission, the inquirer has not indicated whether the lower reimbursement has been applied under both insured and self-funded plans, nor whether advance notice was given with respect to insured patients.

In addition to citing the Health Department’s “provider Contract Guidelines for MCOs and IPAs”, the inquirer quotes the provision in the agreement between the IPA and the inquirer’s members that states “[t]his Agreement will be governed by and construed in accordance with the laws of the State of New York.”

Analysis:

Insurance Law § 3217-b(g)(1), which is relevant to the inquiry, provides:

No health care plan shall implement an adverse reimbursement change to a contract with a health care professional that is otherwise permitted by the contract, unless, prior to the effective date of the change, the health care plan gives the health care professional with whom the health care plan has directly contracted and who is impacted by the adverse reimbursement change, at least ninety days written notice of the change. If the contracting health care professional objects to the change that is the subject of the notice by the health care plan, the health care professional may, within thirty days of the date of the notice, give written notice to the health care plan to terminate his or her contract with the health care plan effective upon the implementation date of the adverse reimbursement change. For the purposes of this subdivision, the term "adverse reimbursement change" shall mean a proposed change that could reasonably be expected to have a material adverse impact on the aggregate level of payment to a health care professional . . . . The notice provisions required by this subdivision shall not apply where: (i) such change is otherwise required by law, regulation or applicable regulatory authority, or is required as a result of changes in fee schedules, reimbursement methodology or payment policies established by a government agency or by the American Medical Association's current procedural terminology (CPT) codes, reporting guidelines and conventions; or (ii) such change is expressly provided for under the terms of the contract by the inclusion of or reference to a specific fee or fee schedule, reimbursement methodology or payment policy indexing mechanism.

Thus, a reimbursement change, that would reasonably be expected to have a material adverse impact on the aggregate level of payment to a health care professional triggers certain rights for the health care provider. Public Health Law § 4406-c(5-a) provides similar protections to participating providers of health maintenance organizations (“HMOs”).

If any of the inquirer’s members feel, with respect to an insurer or HMO, that adequate notice has not been given, in violation of either Insurance Law § 3217-b(g)(1) or Public Health Law § 4406-c(5-a), a complaint may be made to either the Insurance or Health Departments. As to self-funded employee welfare benefit plans, the provisions of ERISA are most relevant.

An “employee welfare benefit plan” is defined in 29 U.S.C. § 1002(1), in relevant part, as:

[A]ny 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, death . . . .

Pursuant to 29 U.S.C. § 1144(a), ERISA plans are exempt from state laws:

Except as provided in subsection (b) of this section, the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . .and not exempt . . . .

The scope of the preemption is expansive. See e.g. California Division of Labor Standards Enforcement v. Dillingham Construction, 519 U.S. 316 (1997); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981).

There is, however, in 29 U.S.C. § 1144(b)(2), an exception to the general preemption of state laws, and a qualification to that exception:

(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.

(B) Neither an employee benefit plan . . .which is not exempt . . ., nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.

The scope of the Insurance Law exception has been construed most recently as:

[F]or a state law to be deemed a ‘law which regulates insurance’ . . . it must satisfy two requirements. First, the state law must be specifically directed toward entities engaged in insurance. Second, the state law must substantially affect the risk pooling arrangement between the insurer and the insured. . . . (Internal citations omitted)

Kentucky Association of Health Plans v. Miller, 538 U.S. 329 at 342 (2003).

In DeBuono v. NYSAQ-ILA Medical and Clinical Services Fund, 520 U.S. 806 (1997), the Supreme Court upheld New York’s Health Facility Assessment (“HFA”) ³ against challenge by a self-funded employee benefit plan, and held that the HFA did not “relate” to the fund. Even assuming an argument that Insurance Law § 3217-b(g)(1) and Public Health Law § 4406-c(5-a) “substantially affect the risk pooling arrangement between the insurer and the insured,” given the ERISA provision that self-funded welfare benefit plans are not be deemed to be insurers within the scope of a law regulating insurance, the provisions in both the Insurance and Public Health Laws would not be considered to be “specifically directed towards entities engaged in insurance.” See 29 USC 1144(b)(2)(B).

Thus, the requirements of N.Y. Ins. Law § 3217-b(g)(1) and Public Health Law § 4406-c(5-a) that insurers give advance notice of changes in reimbursement of health care providers are not applicable to self-funded employee welfare benefit plans. The Insurance Department will not comment on the applicability of general contract law, nor as to requirements imposed on self-funded employee welfare benefit plans by ERISA as it now exists or as it may have been amended by the Patient Protection and Affordable Care Act (Pub Law No. 111-148) (2010).

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

¹ 29 U.S.C. Ch. 18 (West 2009).

² 10 NYCRR 98-1.2(w).

³ Public Health Law § 2807-d.