New York Law Review

Tag: health insurance

  • Consumers Union of U.S., Inc. v. State, 5 N.Y.3d 327 (2005): State Power to Redirect Assets of Converting Non-Profit Insurer

    5 N.Y.3d 327 (2005)

    When a non-profit health insurer converts to a for-profit entity, the state has broad authority to direct the use of the conversion proceeds, provided the designated uses are reasonably consistent with the insurer’s historic mission of promoting affordable and accessible health care.

    Summary

    This case addresses the legal challenge to New York legislation authorizing Empire Blue Cross and Blue Shield’s conversion from a not-for-profit to a for-profit corporation. The legislation directed a substantial portion of Empire’s assets to public health and charitable purposes. The plaintiffs, Empire subscribers and related organizations, argued that the legislation violated due process, contract clauses, and constituted an unlawful taking of private property by diverting assets from Empire’s original charitable mission. The New York Court of Appeals upheld the legislation, finding that the state’s actions were within its authority to regulate non-profit conversions and that the designated asset uses aligned with Empire’s historic mission.

    Facts

    Empire began as a non-profit providing affordable hospital care to workers. Over time, it faced financial challenges due to community rating, open enrollment policies, and competition from commercial insurers. The New York legislature provided subsidies and favorable treatment to Empire over the years. Ultimately, Empire proposed converting to a for-profit entity to raise capital. The proposed conversion involved transferring assets to for-profit subsidiaries and using the proceeds for a charitable foundation. The Attorney General raised concerns, leading to legislative action culminating in Chapter 1 of the Laws of 2002, which authorized the conversion but directed 95% of the assets to a public asset fund managed by state appointees, and 5% to a charitable organization.

    Procedural History

    Subscribers and related organizations sued, alleging Chapter 1 was unconstitutional. The Supreme Court initially dismissed the complaint but later found a potential violation related to exclusive privileges. The Appellate Division affirmed. The Court of Appeals granted leave to appeal, certifying the question of whether the Appellate Division’s decision was properly made.

    Issue(s)

    1. Whether Chapter 1 of the Laws of 2002, authorizing Empire’s conversion and directing the use of its assets, constitutes an unconstitutional taking of private property under the state and federal constitutions?

    2. Whether Chapter 1 violates the Due Process Clause of the state and federal constitutions by depriving Empire of property rights without adequate procedural safeguards?

    3. Whether Chapter 1 violates the Contract Clause of the federal constitution and the due process clause of the state constitution by impairing contractual obligations?

    4. Whether Chapter 1 violates Article III, Section 17 of the New York Constitution by granting an exclusive privilege to Empire?

    Holding

    1. No, because Chapter 1 does not constitute an unconstitutional taking, as the legislation serves legitimate public purposes aligned with Empire’s historic mission and does not unduly interfere with Empire’s investment-backed expectations.

    2. No, because Chapter 1 provides sufficient process through public hearings, the Superintendent’s review, and the opportunity for judicial review.

    3. No, because Empire’s certificate of incorporation does not create a contract protected by the Contract Clause, and Chapter 1 does not impair any essential contractual attribute.

    4. No, because Chapter 1 does not grant Empire an exclusive privilege, as it does not prevent other entities from seeking similar conversions.

    Court’s Reasoning

    The Court reasoned that the plaintiffs lacked a cognizable property interest in the assets of Empire beyond their status as subscribers. However, due to the Attorney General’s conflict of interest and the Board’s statutory immunity, the subscribers had standing to protect Empire’s not-for-profit assets. The Court found that Chapter 1 did not effect an illegal taking because it did not compel Empire to convert, and the dedication of assets to health care worker recruitment and retention and public health programs aligned with Empire’s historic mission. The Court determined that the legislation did not violate due process, as it provided adequate procedural safeguards, including public hearings and judicial review. It also found that the legislation did not violate the Contract Clause because Empire’s certificate of incorporation was not a contract protected by the clause. Finally, the Court held that Chapter 1 did not violate the Exclusive Privileges Clause, as it did not grant Empire a monopoly. Key to the Court’s reasoning was the determination that the uses of the conversion proceeds were consistent with Empire’s mission of promoting affordable and accessible health care, even though the proceeds were directed to public programs rather than a private charitable foundation. The dissenting opinions argued that the legislation constituted an unlawful taking and violated the directors’ fiduciary duties.

  • Health Care Plan, Inc. v. Bahou, 61 N.Y.2d 814 (1984): Mandamus and Reimbursement of Overcharged Health Plan Subscribers

    Health Care Plan, Inc. v. Bahou, 61 N.Y.2d 814 (1984)

    When a state agency overcharges public employees for health insurance premiums, a health maintenance organization (HMO) has standing to seek reimbursement on behalf of its subscribers, and the court can order the reimbursement to be made directly to those subscribers.

    Summary

    Health Care Plan, Inc. (HCP), a health maintenance organization, sued the Commissioner of Civil Service, alleging that the State under-contributed to the health insurance plan for state employees in 1980, resulting in overcharges to the employees. The Court of Appeals held that HCP had standing to sue and that the subscribers were indeed overcharged. It modified the Appellate Division’s order, directing the Commissioner to refund the overcharged amounts directly to the subscribers. This decision emphasizes the court’s power to provide a just remedy that benefits those directly harmed by state action and acknowledges the HMO’s interest in maintaining its competitive position.

    Facts

    Health Care Plan, Inc. (HCP) offered a health insurance plan for State employees. Under the law, the State was obligated to pay a portion of the subscriber’s cost. HCP contended that in 1980, the State contributed less than legally required, leading to excess charges for subscribing public employees. HCP sought a court order compelling the Commissioner of Civil Service to increase the State’s contribution and correspondingly reduce employee contributions to adjust for the disparity.

    Procedural History

    The Supreme Court granted the petition, directing the Commissioner to pay the contested amounts to HCP, so that HCP could pass the savings to its subscribers. The request for counsel fees was denied. On cross-appeals, the Appellate Division acknowledged HCP’s standing and the overcharge but denied reimbursement, arguing HCP had received its full premium from members or the State. The Court of Appeals then modified the Appellate Division’s order, directing reimbursement to the subscribers.

    Issue(s)

    1. Whether Health Care Plan, Inc. has standing to contest the overcharge to its subscribers.
    2. Whether the Commissioner of Civil Service should be directed to reimburse subscribers who were overcharged for their health insurance premiums.

    Holding

    1. Yes, because the petitioner has expressed a willingness to accept this relief as an appropriate means to restore its competitive position, which the Appellate Division recognized may have been injured by the commissioner’s prior actions.
    2. Yes, because directing the commissioner to make the reimbursement directly to those subscribers who in fact were overcharged in 1980 would constitute just relief consistent with the petition and the finding that petitioner has standing to bring the suit.

    Court’s Reasoning

    The Court of Appeals found that HCP had standing to bring the suit and that the State had overcharged HCP’s subscribers. The court reasoned that directing the Commissioner to reimburse the subscribers directly was the most appropriate form of relief. The court emphasized that this approach aligns with the petition and acknowledges HCP’s standing. The court also considered that HCP was willing to accept this remedy to restore its competitive position, which may have been harmed by the Commissioner’s actions. The court also held that mandamus was not available to compel the commissioner to compute the respective contributions in accordance with 42 CFR 110.808 [g] (see Matter of Suffolk Outdoor Adv. Co. v Town of Southampton, 60 NY2d 70).

  • Glickman v. New York Life Ins. Co., 32 N.Y.2d 55 (1973): Material Misrepresentation in Insurance Applications

    Glickman v. New York Life Ins. Co., 32 N.Y.2d 55 (1973)

    An applicant for insurance has a duty to disclose all material information about their health, and failure to do so constitutes a misrepresentation that can void the policy if the insurer was deprived of its freedom of choice in accepting the risk.

    Summary

    Dr. Glickman applied for a group accident and health insurance policy, failing to disclose a prior diagnosis and treatment for paroxysmal atrial fibrillation. After becoming disabled, his claim for benefits under Plan A ($1,000/month) was rejected, with the insurer only willing to pay under Plan C ($500/month). The court held that Glickman’s failure to disclose his heart condition was a material misrepresentation as a matter of law, entitling the insurer to deny the higher coverage because it deprived them of assessing and accepting or rejecting the risk based on accurate information. The court emphasized an insurer’s right to select its risks based on full disclosure from the applicant.

    Facts

    1. In January 1963, Dr. Glickman applied for group accident and health insurance, stating he was in good health.
    2. He listed several instances of prior medical treatment but omitted a January 1962 diagnosis of paroxysmal atrial fibrillation, for which he was taking quinidine.
    3. The policy offered three plans with varying monthly indemnity amounts, with the insurer reserving the right to limit coverage to the lowest amount if insurability evidence was unsatisfactory.
    4. In 1964, Glickman became disabled and filed a claim, which was partially rejected due to the misrepresentation.

    Procedural History

    The trial court initially ruled in favor of Glickman. The appellate division reversed the trial court’s decision, vacated the judgment, and dismissed the complaint, finding that the misrepresentation was material as a matter of law. The New York Court of Appeals affirmed the appellate division’s decision.

    Issue(s)

    1. Whether Dr. Glickman misrepresented his health as a matter of law by failing to disclose his heart condition.
    2. Whether the misrepresentation was material as a matter of law, justifying the denial of full coverage.

    Holding

    1. Yes, because Dr. Glickman failed to disclose his heart condition and related medical treatment, which constituted a misrepresentation.
    2. Yes, because the misrepresentation was material, depriving the insurance company of the opportunity to properly assess and accept or reject the risk under the chosen plan.

    Court’s Reasoning

    The Court reasoned that Glickman, as a physician, should have been aware of the significance of his heart condition. The court emphasized the insurer’s right to select its risks, stating that failure to disclose is as much a misrepresentation as a false affirmative statement, citing Geer v. Union Mut. Life Ins. Co., 273 N.Y. 261. The court found that the heart condition was not a trivial matter and could have affected the insurance company’s decision regarding the application. The court stated, “By his failure to disclose his heart condition, plaintiff deprived the defendant of freedom of choice in determining whether to accept or reject the risk. On the record, there is little doubt that the defendant would have rejected the risk or certainly would have rejected it under Plan A.” This aligns with Insurance Law § 149 and the precedent set in Wageman v. Metropolitan Life Ins. Co., 24 A D 2d 67, affd. 18 Y 2d 777.