The inquirer is a third-party administrator (TPA) in New York for several self-funded benefit plans, and also is licensed as an insurance agent in New York. At least one such plan2 has purchased a stop-loss policy from an insurer which is licensed in New York to write, among other kinds of insurance, accident and health insurance. The policy is administered by a Third Party Administrator (TPA).
It is asserted that the inquiring firm’s client has been owed an amount of almost $480,000 by the insurer since June 1, 2008, with respect to a dependent under the plan. The insurer contends, in defending litigation commenced by the plan, that questions of fact support its refusal to pay the stop-loss claim.
When the inquirer notified the insurer, through the TPA, of its belief that the insurer is obligated to pay claims promptly under Insurance Law § 3224-a, the TPA indicated its disagreement . . .
The inquirer asks whether the TPA’s interpretation of Insurance Law § 3224-a is correct.
State Of New York Insurance Department, OGC Op. No. 09-04-08
Stop loss insurance is frequently the subject of inquiry that borders on the metaphysical. Is it a form of accident and health insurance? Property and casualty insurance? Is it “reinsurance”?
This recent legal opinion from the New York Insurance Department is interesting. It required classification of stop loss insurance in the first instance. The ultimate question was whether stop loss carriers are subject to New York’s prompt pay laws.
The inquiry asks whether stop-loss insurers are subject to the prompt-pay rules of Insurance Law § 3224-a. In April 1982, the Insurance Department issued Circular Letter 7, which provides that stop-loss insurance is not reinsurance, but rather a form of accident and health insurance that may not be placed by excess line brokers. In 1999, the Legislature confirmed that stop-loss insurance is a form of accident and health insurance by enacting Insurance Law § 4237-a.
So what is stop loss insurance?
A stop-loss insurance policy is a contract or agreement issued or entered into pursuant to Article 42 of the Insurance Law. However, in enacting Insurance Law § 3224-a, there is no indication that the Legislature intended for the statute to apply to stop-loss policies. Rather, by its terms, Insurance Law § 3224-aapplies only to policies directly providing coverage for “health care” services.
Because stop-loss insurance claims are similar to disability insurance claims, which are claims under an accident and health insurance policy but not “health care claims” under Insurance Law § 3224-a (since they do not involve payment for health care treatment), a claim under a stop-loss insurance policy is not a “health care claim” for the purposes of Insurance Law § 3224-a.
The opinion does note that state law does provide protection against carrier abuses, however, stating that:
An insured benefit plan that falls outside the scope of Insurance Law § 3224-a is not, however, without protection. Insurance Law § 3216(d)(1)(H), which regulates individual accident and health insurance policies, requires that payments be made immediately upon receipt of proof of loss. Further, Insurance Law § 3221(a)(12), which regulates group accident and health policies, requires payment within 60 days. Because stop-loss insurance protects a self-funded group plan, but is provided by an individual policy issued to the plan, the Department interprets the Insurance Law to allow either time period for payment of claims.
In addition, § 216.6 of 11 NYCRR Part 216 (Regulation 64) sets forth the standards for the prompt, fair, and equitable settlement of accident and health insurance claims.
Note: Stop loss insurance is not reinsurance although some MGU’s in the past have attempted to confuse the distinction. So I agree with the opinion (and the cited Circular) on that point.
But then the opinion states:
Because stop-loss insurance protects a self-funded group plan, but is provided by an individual policy issued to the plan, . . .
That is incorrect. In many instances stop loss policies are issue to the plan sponsors. Stop loss policies cannot be categorically defined as policies protecting the benefit plan.
And then this:
In April 1982, the Insurance Department issued Circular Letter 7, which provides that stop-loss insurance is . . . a form of accident and health insurance . . .
Whether issued to employers or benefit plans, it seems that stop loss insurance is better viewed as a form of casualty insurance. So I would disagree with the foregoing characterization.
More importantly, however, the opinion affirms that stop loss insurance is subject to state insurance law regulation (consistent with FMC v. Holliday) and suggests the state regulatory provisions that apply to stop loss insurance.
Also, it is important to note that the opinion did not say that stop loss carriers could not be subject to prompt pay laws. The question was one of statutory interpretation, not ERISA preemption. Should a state decide to include stop loss insurance by definition, then stop loss claims would be required to meed the state regulation of prompt reimbursement.
The opinion is available for review here.