The Attorney General of Texas
MARK WHITE March 18, 1982
Attorney General
Honorable Chct Brooks, Chairman opinion No. W-455
SupremeCourtBuitdmg Senate Committee on Human Resources
P. 0. Box 12546 Texas State Senate Re: Definition of health
Austin. TX. 76711.2546
Room 412. Archives Building maintenance organization
51244752501
Telex 9101674.1367 Austin, Texas 78711
Te,ecop,er 5121475-0266
Dear Senator Brooks:
1607 Matn St.. Suila 1400
Dallas. TX. 752014709
You ask whether a prepald..single service health care plan that
2141742-6944 provides services but does not provide reimbursement for services
offered by other health care providers would fall within the stacurory
definition of a health maintenance organization (hereinafter 8X0).
4624 Albe,ta Ave.. Swte 160
Before answering your question, we must first note that the definition
El Paso. TX. 79905.2793
91515333464
of an HMO and the requirements for obtaining a certificate of
authority to operate an HMO do not distinguish between s “single
service” health care plan and a “multiservice” one. Thus, whether a
1220 Oallrs Ave.. Suite 202 health care plan is to be considered an HMO depends on whether it
Houston. TX. 77002.6966
falls within the statutory definition of an HMO. not on whether it is
7131650-0666
a single or multiservice plan. Likewise, whether a health care plan
that has been determined to be an RMO may obtain a certificate of
606 Broadway. Suite 312 authority to operate legally as an KM0 depends on whether ic meets the
‘ubbock. TX. 79401.3479 statutory standards for obtaining a certificate, not on whether it is
6CW47.5236 a single or multiservice health care plan.
4309 N. Tenth. Suite B Every health care plan that falls within the.definition of an HMO
MeAllen. TX. ?6501.1665 must obtain a certificate of authority to operate in this state,
51216624547 according to the Texas Health Maintenance Organization Act, codified
in article 20A.O3(a) of the Texas Insurance Code. Hovever. in order
200 Main Plaza. Suite 400
to qualify to receive a certificate. of authority. article
San Antonio. TX. 76205.2797 20A.O5(b)(2)(B) riquires that the health care plan constitute an
51212254191 appropriate mechanism whereby the RMO will effectively provide or
arrange for the provision of basic health care services on a prepaid
basis. If the health care plans not provide basic services, then
An Equal Opportwilyl
Affirmalive Actmn Employer
it msy not obtain a certificate of atithority and thus may not operate -
in s manner that brings it within the definition of an HMO.
The determination of whether a health care plan msy obtain a
certificate of authority is not based on whether the plan is a bingle
or multiserv& one. but rather on whether it will provide “basic
health care services.” This phrase is defined in article ZOA.O2(a) as
follows:
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Honorable Chcc Rrooks - Page 2 (w-455)
health care services which an enrolled population
might reasonably require in order to be maintained
in good health, including, as a minimum, emergency
care, inpatient hospital and medical services, and
outpatient medical services.
The definition of basic health care services does not expressly
exclude a so-called single service plan. If the operators of such a
plan apply to the cormnissioner of insurance for a certificate of
authority, the commiss,ioner must determine whether the plan will offer
basic health care services. Because of the lack of a definition for
and the ambiguity surrounding the term “single service plan.” it is
impossible to state in advance that no so-called single service plan
cm ever qualify for a certificate of authority. Rather, the
commissioner must evaluate each health care plan ~that is required to
obtain a certificate and chat attempts to do so on the basis of the
services it will offer. If those services are found to be sufficient
to qualify as basic health care services, the plan may obtain a
certificate of authority, without regard to whether it has arbitrarily
and artificially been labelled as either a. single or multiservice
plan.
From the preceding analysis. there arises your question of what
type of health plan or organization must attempt to obtain a
certificate oft authority and then must cease to operate if it cannot
qualify for the certificate. Again, this question cannot be answered
by reference to the “single service” and “multiservice” labels.
Rather, one must refer to,the definitions in the Health Maintenance
Organization Act to determine the scope of the act’s registration
requirements. By referring to the definitions, one must conclude that
the act intends to prevent certain entities from operating ,in this
state; those entities vhose operations are intended to be prev,ented
are health care plans that have the characteristics of an P&O. except
that they do not offer basic health care services and therefore cannot
qualify for a certificate of authority to operate legally as an HMO.
The statutory definition of an HMO is broad enough to cover
health care plans that either may or may not be able to obtain a
certificate of authority, just as. for example, the statutory
definition of. the business of insurance is broad enough to cover
companies that may or may not be authorized to engage in the businesd
of insurance. That is. a plan may be included in the definition of an
HMO because it offers a prepaid health care service, but it may not
exist as a certifiable HMObecause it does not offer basic health care
services. According to article 20A.O2(j) of the Inzce Code, as
amended ~by Rouse Bill No. 1774, Acts 1981, Sixty-seventh Legislature,
chapter 562. section 1, at 2299, an HMO is “any person who arranges
for or provides a health care plan to enrollees on a prepaid basis.”
This statute does not require that a plan must offer basic health care
p. 1579
Honorable Chet Brooks - Page 3 (W-455)
services in order to be included in the definition of an HHO; the
requirement of offering basic services is in the statutory provision
that regulates~ which plans, of the many that fall within the
definition of an HMO, can be certified to operate 8s an HMO.
Whether a plan is considered to be an HMO depends' on whether it
falls within the statutory definition of "health care plan." Article
20A.O2(h) of the Texas Insurance Code, defines a health care plan as
follows:
any plan vhereby any person undertakes to provide.
arrange for. pay for, or reimburse any part of the
cost of any health care services; provided,
however, a part of such plan consists of arranging
for or the provision of health care services, as
distinguished from indemnification against the
cost of such service, on a prepaid basis through
insurance or otherwise.
This definition of health care plan does not distinguish between
a multiservice and a single service plan. It refers to the provision
of "health care services," defined in article 20A.O2(1) of' the
Insurance Code as "any services, including the furnishing to any
individual of medical or dental care." Thus., a plan that provides any'
health care. service (such as dental care) on a prepaid basis
constitutes a health care plan and consequently would fall within the
statutory definition of an HMO. The plan need not offer all health
care services to be considered a health care plan and an HMO. If it
offers 9 prepaid health care service, the,plan may be considered an
HMO for regulatory purposes. However, to become a certified HMO, it
must of course offer basic health care services.
Although the definition of a health care plan in article
20A.O2(h) of the Insurance Code was amended by Iiouse Bill No. 1774,
the change.8 did not in any way exempt a so-called single service plan
from the definition of a health care plan or of an HMO.. In fact, the
legislative history of House Bill No. 1774 ind~icates that the
legislature intended to continue to include single service plans in
the definitions of a health care plan and of an HMO. As originally
filed, Rouse Bill No. 1774‘vould have added language to the definition
of health care services to mske clear that such services did not
include prepaid single services. Such language was omitted in the
final version of the bill. The .legislature"s refusal to adopt the
proposed exemption of single service plans indicates that it intended
to continue to include single service plans es health care plans that
are subject to regulations applying to HMO's.
Your opinion request suggests that the definition of a health
care plan could be interpreted to include only those plans that
p. 1580
Honorable Chet Brooks - Page 4 (m-455)
provide both services and reimbursement for services. Under such an
interpretation, a plan (either single or multiservice) could not be
considered an HMO if ic only provided services but did not also
reimburse for services. It is the position of this office that such
an interpretation of the definition of a health care plan would be
incorrect. Article 20A.O2(h) of the Insurance Code expressly states
that a plan whereby a person provides health care cervices x
reimburses the costs of such services is a health care plan. The
remainder of the definition of health care plan simply makes clear
that indemnification against the cost of such services vi11 trot by
itself cause the plan to be considered a health care plan, because
indemnification alone would constitute a traditional “insurance” plan.
There must be some arranging for or provision of services to bring the
plan within the definition of health csre plan.
The statutory provision relating to the provision of and
reimbursement for services merely serves to distinguish a health care
plan from indemnification. It does not serve to exempt a plan that
provides services alone from the definition of s health care plan.
Although the definition does not include s pure indemnification plan.
it still does include a plan that provides services only, without any
reimburseZ feature. Of course, the definition also includes a plan
that both provides and reimburses for services.
when s prepaid health service plan. either “single” or
“multiservice” and either simply providing or both providing and
reimbursing for services, fells within the definitions of an HMOend 8
health care plan, the State Board of Insurance has the authority to
regulate such a plan under the ststutory provisfons applying to HMO’s.
If the plan offers basic heslth care services, it can receive a
certificate of authority to operate legally as en HMO. If it does not
propose to offer basic health care services, it cannot receiv.e a
.certificate and cannot legally operate as an HMO in the etate of
Texas. Furthermore, although legslly authorized HMO’s are exempt from
many of the statutes regulsting insurance companies, unsuthorited
HMO’s are not similarly exempt. Thus, plans falling within the
definition of an HI40 but operating vlthout a certlficste’ of authority
would be subject to the insurance statutes.
Several ettorney general OpiniOn6 have sddressed the isrue of
whether prepaid medical plans constitute insureace plans. The
earliest one. Attorney Genersl Opinion O-4986-A (1943). concluded that
a non-profit health service, which did not guarantee that services
would be provided. VPS not engaged in the insurance business. Later,
Attorney General Opinion W-1475 (1962) declared that a prepaid
insurance plan would be an insurance business. This opinion
identified the risk element of the plan as a primary reason for
finding it to be insurance. It also made clear that whether a plan is
labrlled as insurance depends on the details of the plan.
p. 1501
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Honoreble Chet Brooks - Page 5 (rw-455)
.
More recently. Attorney General Opinion H-344 (1974) concluded
that certain proposed prepaid health plans could not be regulated by
the State Board of Insurance, because no euthoriration existed in the
Insurance Code at that time for the regulation of heslth maintenance
organizations. We interpret this conclusion to mean thet before the
HMO Act was passed in 1975, the board had no statutory authority to
create regulatory guidelines of the type eventually embodied in the
act passed by the Texas Legislature. However, this opinion did
recognize that certain plans could fall, within the scope of regulation
provided by some sections of the Insurance Code, such as those
regulating the provision of life, accident, health or casualty
insurance.
.The State Board of Insurance has ststutory authority to regulate
health care plans that are operating as duly authorized end licensed
insurance businesses. However. the board does not have the power to
exert regulatory control over plans that can be described as insurance
but that have not complied with the authorization end licensing
statutes for insurance businesses. In the case of unauthorized
insurance businesses, rather thanregulating them businesses. the board
is authorized to identify’the health plans as insurance businesses end
report to the attorney general that the plans ere operating in
violation of the law by virtue of engaging in the unauthorized
business of insurance. See Ins. Code art. 1.10(8). Such was the
situation discussed In Attorney General Opinion O-4217 (1941). in
which an undertaking business operating an smbulaace service was
deemed to be engaging in the unauthorized business of, insurance.
Although the Board of Insurance Commissioners itself could not take
any prohibitory action against the company, it could report the
violation to the attorney general, who could .then pursue the
appropriate legal sanctions.
A prepaid single service health plan could be deemed to be an
insurance plan under the criteria established in Attorney Genersl
Opinion O-4217 (1941). That opinion stated that because mtmbers of
the plan would receive benefits in the form of valued services upon
the happening of certain contingencies, which constituted the risk
assumed by the contractor, the plan amounted to the “doing of=
insurance business.” Attorney General Opinion WW-1425 (1962) also
identified the risk-distribution function of prepaid prescription
plans as a major reason for designating the plans ss insurance. Thus,
depending on the details of the plan , a prepaid single service health
plan that does not qualify for an LIMOcertificate of authority could
nevertheless be deemed to be sn insurance business. The State Board
of Ineurmce would have the authority to regulate the plan as such if
it became a duly authorized insurance business, or the board could
take appropriate steps to prevent its operation if the business did
not comply with the laws regulating the insurance industry in the
state of Texas.
p. I.582
_ I -.
Honorable Chet Brooks - Page 6 w-455)
.
SUMMARY
A prepaid health service plan falls within
the statutory definitior'of a health maintenance
organixation~ whether it offers one or more
services and whether it offers services only or a
combination of services and reimbursement.
However, such a plan cannotobtain a certificate
of authority and legally operate as an EM0 if it
does not offer basic health care services. If
such a plan is ozing without s certificate of
authority, the Stste Board of Insurence ten take
steps to prevent its operation as en unauthorized
HMO. Also, the board may find that a particuler
plan constitutes the business of insurance, and
the board may ,pursue the appropriate legal action
to prevent the plan from operating in the state of
Texas if the plan has not been authorized and is
not qualified to lngege in the business of
insurance.
a
Attorney General of Texas
JORR W. FAINTER, JR.
First Assistant Attorney Generel
RICRARIJ E. GRAY III
Executive Assistant Attorney General
Prepared by Charmaine Rhodes
Assistsnt Attorney General
APPROVED:
OPIWIOE COMMITTEE
Susan L. Garrison, Chairman
Jon Bible
Rick Gilpin
Patricie Rinojoss
Jim Pfoellinger
Charmaine Rhodes
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