OGC Op. No. 08-10-01

The Office of General Counsel issued the following opinion on October 6, 2008 representing the position of the New York State Insurance Department.

Re: Group Health Insurance, Employee-Employer Groups

Questions Presented:

1. Do group health insurance laws require that the participants have an employer-employee relationship, or can they be “1099 type” employees?

2. Is there a regulation that requires an employer to pay a certain percentage of the gross premium for group health insurance?

Conclusions:

1. To qualify for group health insurance, covered individuals do not have to be in a formal employer-employee relationship, provided that the “employer” exercises control over the “employee.” However, most independent contractors would not qualify for employer-employee group health insurance.

2. There is no requirement under the New York Insurance Law or the regulations promulgated thereunder regulating the amount of the employer’s contribution for group health insurance.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

Insurance Law § 4235, which is relevant to the inquiries, sets forth the criteria for group health insurance. Insurance Law § 4235(c)(1)(A) defines an employer-employee group as follows:

A policy issued to an employer . . . which employer . . . shall be deemed the policyholder, 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

Notwithstanding the allowance of “evidence of insurability satisfactory to the insurer” in Insurance Law § 4235(c)(1)(A), in accordance with Insurance Law § 3231(a) (which governs policies of commercial insurers) and Insurance Law § 4317(a) which governs contracts of not-for-profit health insurers and all health maintenance organizations) for small groups (e.g. those with less than 50 employees), underwriting by the insurer is not permitted.

Insurance Law § 4235(d)(1) defines the term “employee” as follows:

In this section, for the purpose of insurance hereunder: "employees" includes the officers, managers, employees and retired employees of the employer and of subsidiary or affiliated corporations of a corporate employer, and the individual proprietors, partners, employees and retired employees of affiliated individuals and firms controlled by the insured employer through stock ownership, contract or otherwise; "employees" may be deemed to include the individual proprietor or partners if the employer is an individual proprietor or a partnership; and "employees" as used in subparagraph (A) of paragraph one of subsection (c) hereof may also include the directors of the employer and of subsidiary or affiliated corporations of a corporate employer.

It is presumed that the term “1099 type employee”, means an individual with respect to which the “employer” must file with the federal Internal Revenue Service (IRS) an information return in accordance with a federal regulation, 26 C.F.R. § 1.6041-1 (2006). Because “1099 type employees” are usually considered independent contractors, they are not generally eligible to be issued certificates from a group health insurance policy issued to an employee-employee group.

However, the Insurance Department has previously considered the situation of "independent" truckers that had contracted with a common carrier. See Office of General Counsel Opinion dated September 19, 2000. Based upon the contract there between the truck operators and the common carrier, the Department determined, notwithstanding that the truck operators were not employees for other purposes, that sufficient control by the common carrier existed so the independent truckers could be considered "affiliated" with the common carrier, and thus "employees" for the purpose of New York Insurance Law § 4235(c)(1)(A). The inquirer did not furnish sufficient information to the Insurance Department to enable this agency to determine whether such control exists with respect to the “employees” about which she inquired.

In construing the contribution requirements of Insurance Law § 4235(c)(1)(A), the Insurance Department has held that, where there is no employee contribution, there must be 100% participation by the employees. See Office of General Counsel Opinion dated March 23, 2004. There is nothing in the Insurance Law, or the regulations promulgated thereunder, that establishes any requirement for minimum employee contributions.

The provision of health benefits by an employer is considered an “employee welfare benefit plan” under the federal Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1002(1) (West 2003). The requirements for such plans are regulated by the United States Department of Labor. Any questions concerning minimum employer contribution requirements may be addressed to:

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.