May 16, 1974
Then Honorable Raymond W. Vowel1 Opinion No. H- 308
Commissioner
State Dept. of Public Welfare Re: Interpretation of appropria-
John H. Reagan Building tions rider concerning contract
Austin, Texas 78701 between Department of Public
Welfare and a health insurance
organization.
Dear h4r. Vowell:
You have asked our opinion eon questions regarding the interpretation
of an approp+iations rider affecting the Medicaid Reserve Fund x&i& is an
aspect of the State’s participation, in medical assistance programs under
Title XIX of the Social~Security- Act (42 USCA $ $ 1396-1396-i). The
State’s program is authorized by the Medical Assistance Act of 1967,
Article 695j-1, V. T. C. S, , which was enact.ed pursuant to Article 3! 5 51-a
of the Constitution.
As part of its T,itle XIX program, Texas has contracted with Texas
Blue Cross-Blue: Shield (Group Hospital Services, Inc. ),(hereafter Blue
Cross) for the provision of medical benefits to qualified recipients. The
State pays a premium for each eli,gible individual. Federal matching funds
constitute more than sixty per cent of the premiums. The contract is
designed so that Blue Cross will receive sufficient premiums to equal ,its
expenses, and certain other charges consisting of (1) benefits paid,. (2)
administrative expenses, (3) taxes, (4) a community support or risk
charge and ( 5) maintenance of the statutor.ily required reserve. To the
extent that premiums exceed expenses and charges the excess is credited
to the Medicaid Reserve. If the premiums are insufficient to offset expenses,
Blue Cross is entitled to recover its deficit. from the Reserve, and if the
Reserve is insufficient Blue Cross has a right to recover from the Reserve
p. 1425
The Honorable Raymond W. Vowel1 page 2 (H- 308)
surplus accumulated in subsequent years. At the termination of the
contract any balance in the Reserve will be paid to the State.
Blue Cross is required by the contract to invest any funds in the
Re:serve which are in excess of the amount needed to discharge the obliga-
tions of the program. The income, reduced by 0. 3% of the invested funds
which constitutes an administrative charge payable to Blue Cross, is
returned to the Reserve. The Reserve fund exceeds $30 million, an
amount considered by the federal government to be considerably more’than
sound management practices dictate.
The rider to your appropriation which forms the basis of your
question provides:
“( 39) None of the funds held in reserve by Texas
Blue Cross-Blue Shield shall be used to pay monthly
premium charges for individuals eligible for medicaid
untrl all State funds appropriated, in .item number 50A
for Blue Cross ,premiums have been exhausted. ”
Acts 1913’; 63rd Leg., ch. 659, p. 1866.
You ask if the rider precludes the negotiation of a premium which
would reasonably be expected to have the effect of reducing the si se of
the reserve. We limit our answer to that question.
We believe there are numerous reasons compelling the conclusion
that the rider does not preclude the negotiation of such a premium. The
contract between the State and Blue Cross was in existence prior to the
adoption of the rider, and since the rider involves. the contract, the con-
tract obviously was within the contemplation of the Legislature. The
purpose of the Reserve Fund is to permit Blue Cross to.look to it to offset
its deficit. Clearly the rider was not,intended to so fundamentally alter
the purpose of the Fund as to require the State to pay premiums which
.are designed to insure against any necessity to invade the reserves.
Such,aninterpretation would amount to a legislative g,rant of a valuable
p. 1426
The’Honorable Raymond W. Vowel1 page 3 (H-308)
benefit to a private corporation for which ,the State received nothing in
return. ‘We.,do not believe this was theintent of the Legislature or the
effect of the rid,er. Furthermore, if the rider ,had that effect, the pro-
vision would be subject to serious qu,estions involving.its constitutionality:
S,ee Article 3, 5 0 50 and 51, Constitution of Texas.
The~refore, it is our opinion that the Department is not precluded
form negotiating a premium for its Title XIX program wh,ich can be
expected to result in a reduction of the Medicaid Reserve. Indeed,’ it
may be required to do so. 42 USCA § 1396a (a), (4); Article 6953-I, $ 3(l)
and (6), V. T. C. S. ; and Article ~695c,$ 4 (12), V. T. C. S.
SUMMARY
The premium negotiated by the Department of
Public. Welfare and a health,insurance organization
for provision of benefits underTexas’Title XIX
program may be,of a size designed to reduce the
s’ize of the Medicaid,Reserve.
Very,truly yours,
A,ttorney~General of Texas
DAVID M. KENDALL, Chairman
Opinion Committee
p. 1427