Requires insurers to provide certificate holders with at least thirty days prior written notice of termination of group health insurance coverage

Summary of provisions

This bill adds new Insurance Law §3221(a)(16), Insurance Law §4305, and Public Health Law §4407-a, to require an insurance company, whether for-profit or non-profit, or health maintenance organization, at the policyholder's expense, to notify those who are insured or covered ("certificate holders" or "members") under a policy of group health insurance or plan when such policy or plan is being terminated. The bill requires policyholders to provide their insurance companies or health maintenance organizations with the names and addresses of each enrollee annually. The insurer or health maintenance organization need not provide notice of the pending termination of coverage if the policyhold- er has provided such notice to the insured or covered person or obtained replacement coverage. The bill also provides that the termination of insurance cannot take effect until 30 days after the notice is sent.

This bill would take effect on the first day of January following enact- ment.

Existing law

Insurance Law §§3221 and 4305 currently provide a right to convert to an individual policy of health and accident insurance without producing evidence of insurability and without a gap in coverage, to persons who lose their coverage under a group health insurance policy. Labor Law §§l95 and 217 require employers to notify each certificate holder (i.e. insured employee) of termination of the policy.

Justification

The loss of health insurance coverage can have a devastating impact on insureds and their families. Individuals who lose such coverage are forced to decide between delaying necessary medical care and thereby potentially jeopardizing their health, or spending their savings or incurring substantial debt to cover expensive medical treatments. There is particular hardship when individuals believe that they have health coverage through a group health insurance policy or health maintenance organization, only to learn too late that the payment of premiums has stopped and the coverage has consequently been terminated.

The New York State Legislature addressed this problem in 1987 when it amended Insurance Law §3221 to extend the right to convert to an indi- vidual health and accident insurance policy to situations where coverage is lost because the policyholder (e.g., the employer or a professional association) failed to pay premiums or took some other action resulting in the termination of the group policy. In addition, insurance Law §4305 provides a similar right to convert where coverage provided by a non- profit insurance company is terminated for any reason whatsoever. To facilitate the exercise of this right, Insurance Law §4235 and regu- lations (11 NYCRR 55.2) require the insurance carrier or health mainte- nance organization to provide notice of termination to the policyholder, and Labor Law §§195 and 217 require employers to notify each certificate holder or member (i.e. insured or covered employees).

Unfortunately, these statutes and regulations do not provide sufficient protections. In particular, the requirement that employers notify each certificate holder under Labor Law §217 may be preempted by the Employee Retirement Income Security Act of 1974 (ERISA). See Howard v. Gleason Corporation, 901 F.2d 1154 (2nd Cir. 1990). In addition, there have been many instances in which defaulting employers do not notify their employ- ees of impending insurance or plan termination as a result of the employer's failure to make health insurance premium payments or failure to remit to the insurance company or health maintenance organization premiums that have been deducted from employees' wages. When insured or covered employees in such cases do not have timely knowledge of the termination of their group coverage, they may fail to exercise their right to convert to an individual policy, which may be exercised only up to 45 days from termination.

This problem is compounded by the insurance industry practice of "carry- ing" employers and other policyholders who are experiencing temporary difficulties, for varying periods, depending upon the carrier's assess- ment of their basic soundness. Although this practice salvages some policies from immediate cancellation, since eventual cancellations for non-payment are retroactive to the last period of payment, claims filed during the "grace" period are not honored. Moreover, by the time the insured discovers the cancellation, the privilege to convert may have lapsed. By this time the policy holder may no longer be functioning or solvent, and the individual formerly insured is left unprotected, possi- bly with unreimbursed medical bills and nowhere to look for recourse.

This bill addresses this problem by requiring insurance companies and health maintenance organizations to notify insured or covered employees at the policyholder's expense, when coverage is being canceled. The insurer or health maintenance organization will not be required to provide notice if the policyholder has already advised those insured or covered of the termination, or, if the insured or covered person is represented by a labor organization, has provided the representative of such labor organization with such notice, or has notified the insured or covered person that a replacement insurance company will be providing similar coverage. In addition, the bill provides that the termination of

insurance or coverage cannot take effect until 30 days after the notice is sent.

The Legislature has recognized the vital importance of continued health insurance coverage and has already declared that the public interest requires notification to employees of any termination of their group health insurance or coverage so that alternate coverage can be secured. However, as experience has demonstrated, defaulting employers suffering serious financial reverses or other adverse circumstances may fail, or choose not to do so. Moreover, it is appropriate to mandate that notice be provided to all of those insured or covered under all group policies or plans. This bill will provide an alternative method for workers to learn about the pending termination of their insurance coverage or plan, and will help to ensure that no one covered under group insurance poli- cies or group plans loses coverage without notice and an opportunity to timely exercise their conversion privilege.

Legislative history

This bill was introduced as S.5044/A8516 in the 2003-04 legislative session and similar legislation was introduced as S.5170/A.8577 during the 2001-02 legislative session. It passed the Assembly on March 8, 2004.

Fiscal implications

There are no fiscal implications.

Effective date

This bill takes effect on the first of January following the date on which it becomes law.