Ausrrx~. T-s 78711
July 11, 1974
The Honorable A. R. Schwartz Opinion No. H- 344
Chairman, Senate Jurisprudence Committee
State Capitol Building Re: Whether prepaid health
Austin, Texas insurance plans are subject
to insurance regulatory laws.
Dear Senator Schwartz:
Your letter on behalf of the Senate Jurisprudence Committee asking
our opinion about prepaid health maintenance organizations and hereafter
referred to as HMO’s for convenience, points to the great variety of such
plans and asks us to assume various factual situations and to state whether
in each instance the plan would constitute a transaction of the business of
insurance (and thus require regulation by the State Board of Insurance) or
would be outside the insurance laws.
The question you pose is one which has long bothered the courts
of the United States. See for instance, Jordan v. Group Health Associa-
tion, 107 F. 2d 239 (D. C. Cir. 1939); Cleveland Hospital Service Associa-
tion.v. Ebright, 45 N. E. 2d 157 (Ohio App. 1942); Commissioner of
Banking and Insurance V. Community Health Service, Inc., 30 A. 2d 44
(N. J. 1943); California Physicians’ Service v. Garrison, 172 P. 2d 4
(Cal. 1946): Maloney v. American Independent Medical and Health Associa-
tion, 259 P. 2d 503 (Cal. App. 1953); Complete Service Bureau v. San
Diego County Medical Society, 260 P. 2d 1038 (Cal. App. 1953); People
v. California Mutual Association, 441 P. 2d 97 (Cal. 1968); Bloom v.
Northern Pacific Beneficial Association, 193 N. W. 2d 244 (N. D. 1971).
And see annotation “Validity and Nature of Group Medical and Hospital
Service Plans, ” 167 ALR 322, 323.
In large part the problem has been compoinded by the many and
p. 1604
.
The Honorable A. R. Schwartz wge 2 (H-344)
varied definitions of what does constitute “insurance”. See for instance
Jordan v. Group Health Association,, sppra; Barmeier v. Oregon Physicians’
Service, 243 P. 2d 1053 (Ore.1952); Epmeier v. U.S., 199 F. 2d 508
(7th Cir. 1952); Metropolitan Police Retiring Association, Inc. v. Tobriner,
306 F. 2d 775 (D. C. Cir. 1962); Cleveland Hospital Service Association v.
Ebright, 49 N. E. 2d 929 (Ohio 1943).
In Attorney General Opinion O-4986-A (1943) the question was
whether a non-profit rural health service, incorporated for the purpose
of promoting the health of its members, was engaged in the insurance
business and thus subject to the supervision of the State Insurance Depart-
ment. Members paid a membership fee in return for which they were
furnished dental care, medical care, and drugs, etc., on a non-profit
basis. The service had entered into agreement wifh various hospitals,
physicians, dentists, and drugstores whereby the latter would agree to
render services to members at agreed and standardized fees. However,
a member was free to obtain needed services from any of the contracting
physicians. Citing the definitions of then Article 4716, V. T. C. S. (now
Article 3.01 of the Insurance Code), this office was unable to find that
the health service fit the description of any type of insurance subject to
state regulation and found that the service was not in the insurance business
and was not subject to supervision of the State Insurance Department.
Opinion O-4986-A was ratified in Attorney General Opinion WW-1475
(1962) which held that a prepaid prescription plan under which a member
could have a prescription filled for less than its normal selling price
-was insurance.
We agree with the conclusion of Opinion O-4986-A insofar as we
conclude that none of the variations of the prepaid health care delivery
systems which you describe fall within the defined types of insurance of
Article 3.01 of the Insurance Code.
In fact, we have found only two instances where our statutes purport
to regulate health maintenance services. One authorizes plans written for
p. 1605
The Honorable A.R. Schwartz page 3 (H-344)
residents of the State who are 65 years of age, or older. Article 3.71,
Insurance Code, V. T. C. S. Another authorizes group hospital service
plans under extremely limited circumstances. Articles 20.01 to 20. 21,
Insurance Code.
Therefore, whatever the details of the proposed prepaid health
delivery system may be, we find no authorization in the Insurance Code
for the State Board of Insurance to regulate such a plan, unless it comes
within the scope of regulation authorized by either of these two articles
or by some other article of the Insurance Code such as those for the
provision of life, accident, health or casualty insurance.
In 1971 (Acts 1971. 62nd Leg., ch. 627, p. 2041) the Legislature
adopted what appears as Article 4509a, authorizing the Texas State
Board of Medical Examiners to approve and certify health organiza-
tions upon certain conditions. Delivery of health care to the public
is one of several purposes for which such organizations may be formed.
We do not pass upon or express any opinion as to the validity of Article
4509a in view of the fact that that very question is presently before the
United States Court of Appeals for the 5th Circuit in Cause No. 73-2557,
styled, Genaro Garcia v. Texas State Board of Medical Examiners, et al.
See also Article 1396-2.01, V. T. C.S., and Attorney General Opinion
H-128 (1973) with reference to the organization of Dental Health Service
Corporations.
Whatever the validity of Article 4509a. its enactment by the Legis-
lature in 1971 evidenced the intention of the Legislature that such an
organization be regulated by the State Board of Medical Examiners and
not by the Board of Insurance. California Physicians’ Service v. Garrison.
We believe we may summarize what we have said as follows: While
some of the plans which you have submitted to us may constitute the doing
of an insurance business, there is no provision of the Code which would
authorize the State Insurance Board to regulate or lay down guidelines for
prepaid health delivery systems. The fact that the Legislature has enacted
p. 1606
The Honorable A. R. Schwartz page 4 (H-344)
Article 4509a, whether invalid or not, is another indication of the intent
of the Legislature that such plans not be considered insurance.
While it has always been our practice to attempt to avoid answering
hypothetical questions, we have answered your general question as well
as we can because of the widespread interest in this important matter.
However, it would be impossible for us to take each of the situations you
pose and determine its validity, So too it would be impossible for us to
answer the question you posed earlier in your letter as to whether there
exist any so-called “legal barriers ” to health care professional plans.
We would only point out. as you are already aware, the limitations
imposed by the Texas Medical Practice Act (Article 4495, V. T. C. S.,
et seq.) and the Hospital Authority Act, (Article 4437e, V. T. C. S.) as
well as others of similar nature. Again, we express no opinion as to
the validity of those limitations.
SUMMARY
Except as to possible general regulation of an
insurance company involved in a health maintenance
organization, the State Board of Insurance has no
regulatory power over prepaid health care delivery
systems. Whether or not other regulatory authorities
may have an impact on such systems will depend upon
the facts of each type of plan.
Very truly yours,
Attorney General of Texas
p. 1607
The Honorable A. R. Schwartz Page 5 (H-344)
\
‘y Ii?
K, First A sistant
LlC47 2
DAVID M. KENDALL, Chairman
Opinion Committee
p. 1608