MARK WHITE AttorneyGeneral

Supreme Court Buitdmg P.0. Box12546 Austin. TX. 76711.2546 51244752501 Telex 9101674.1367 Te,ecop,er 5121475-0266

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AnEqualOpportwilyl Affirmalive Actmn Employer 

# TheAttorney Generalof

# Texas

March 18, 1982

Honorable Chct Brooks, Chairman opinion No. W-455 Senate Committee onHumanResources Texas State Senate Re: Definition of health Room412. Archives Building maintenance organization Austin, Texas 78711

Dear Senator Brooks:

You ask whether aprepald..single service health care plan that provides services but does not provide reimbursement for services offered byother health care providers would fall within the stacurory definition of a health maintenance organization (hereinafter 8X0). Before answering your question, wemust first note that the definition of an HMOand the requirements for obtaining a certificate of authority to operate an HMOdo 

### not distinguish between s “single service” health care plan and a “multiservice” one. Thus, whether a health care plan is to be considered an HMOdepends on whether it falls within the statutory definition 

### of anHMO.not onwhether it is
a single or multiservice plan. Likewise, whether ahealth care plan that has been determined 

### to be an RMOmayobtain a certificate of authority to operate legally as anKM0depends onwhether ic meets the statutory standards for obtaining acertificate, not onwhether it is
asingle or multiservice health care plan.
Every health care plan that falls within the.definition of anHMO must obtain a certificate of authority to operate in this state, according 

### to the Texas Health Maintenance Organization Act, codified in article 20A.O3(a) of the Texas Insurance Code. Hovever. in order to qualify to receive a certificate. of authority. article 20A.O5(b)(2)(B) riquires that the health care plan constitute an appropriate mechanism whereby the RMOwill effectively provide or arrange for the provision of basic health care services onaprepaid basis. If the health care plans not provide basic services, then it msynot obtain acertificate of atithority andthus maynot operate - in smanner that brings it within the definition of anHMO.

The determination of whether a health care plan msy obtain a certificate of authority is not based onwhether the plan is abingle
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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health care services which anenrolled population might reasonably require in order tobemaintained in good health, including, as aminimum, emergency care, inpatient hospital andmedical services, and outpatient medical services.

The definition of basic health care services does not expressly exclude aso-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 adefinition 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 towhether 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. Byreferring tothe definitions, onemust 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 anP&O.except that they donot offer basic health care services andtherefore cannot qualify for acertificate of authority to operate legally asanHMO.

The statutory definition of an HMOis broad enough to cover health care plans that either mayor 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 mayor maynot be authorized to engage in the businesd of insurance. That is. aplan maybeincluded in the definition of an HMObecause it offers a prepaid health care service, but it may

### not exist as acertifiable HMO because it does not offer basic health care services. According to article 20A.O2(j) of the Inzce Code, as amended~byRouse Bill No. 1774, Acts 1981, Sixty-seventh Legislature, chapter 562. section 1, at 2299, anHMOis “any person whoarranges for or provides ahealth care plan to enrollees on aprepaid basis.” This statute does not require that aplan mustoffer basic health care

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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 anHMO,canbecertified tooperate 8s an HMO.

Whether aplan is considered to be anHMOdepends' onwhether it falls within the statutory definition of "health care plan." Article 20A.O2(h) of the Texas Insurance Code, defines ahealth care plan as follows:

anyplan vhereby anyperson undertakes to provide.

arrange for. payfor, or reimburse anypart of the cost of any health care services; provided, however, apart 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
amultiservice andasingle 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., aplan that provides any' health care. service (such as dental care) on a prepaid basis constitutes ahealth care plan and consequently would fall within the statutory definition of anHMO. The plan need **not** offer all health
care services to be considered ahealth care plan and anHMO. If it offers 9 prepaid health care service, the,plan maybe considered an HMOfor regulatory purposes. However, to become a certified HMO,it mustof 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 anywayexempt aso-called single service plan from the definition of ahealth care plan or of anHMO..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 ahealth 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 toHMO's.

Your opinion request suggests that the definition of a health
care plan could be interpreted to include only those plans that

p. 1580Honorable 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 HMOif 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 atraditional “insurance” plan. There must be somearranging for or provision of services tobring **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 ahealth care plan from indemnification. It does not serve to **exempt** aplan that provides services alone **from the**  definition of s health care plan. Although the definition does not include spure indemnification plan. it still does include aplan that provides services only, without any reimburseZ feature. Ofcourse, the definition also includes aplan that both provides andreimburses 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 anHMOend8 health care plan, the State Board of Insurance has the authority to regulate such aplan under the ststutory provisfons applying toHMO’s. If the plan offers basic heslth care services, **it** can receive a certificate of authority tooperate legally as enHMO. If it does not propose to offer basic health care services, it cannot receiv.e a .certificate and cannot legally 

### operate as an 

### HMOin the etate of Texas. Furthermore, although legslly authorized HMO’sare exempt from many of the statutes regulsting insurance companies, unsuthorited HMO’s are not similarly exempt. Thus, plans falling within the definition of anHI40but operating vlthout acertlficste’ 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. VPSnot 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 tobe insurance. It also madeclear that whether aplan is labrlled as insurance depends onthe details of the plan.

p. 1501.

. 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 noeuthoriration existed 

### in the Insurance Code at that time for the regulation of heslth maintenance organizations. Weinterpret this conclusion to meanthet before the HMOAct 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.

.TheState 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 canbedescribed 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 thembusinesses. 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.

Aprepaid 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 amajor reason for designating **the** plans ss insurance. Thus, depending on the details of the plan
, aprepaid single service health plan that does not qualify for anLIMO certificate 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 ChetBrooks - 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 andwhether it offers services only or a combination of services and reimbursement. However, such a plan cannotobtain a certificate of authority and legally operate as anEM0if it does not offer basic health care services. If such aplan is ozing without scertificate of authority, the Stste Board of Insurence ten take steps to prevent its operation as enunauthorized HMO. Also, the board mayfind that aparticuler 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 l ngege in the business of insurance.

a

Attorney General of Texas

JORRW.FAINTER,JR. First Assistant Attorney Generel

RICRARIJE. GRAYIII Executive Assistant Attorney General Prepared byCharmaine Rhodes Assistsnt Attorney General

APPROVED: OPIWIOECOMMITTEE

SusanL. Garrison, Chairman JonBible Rick Gilpin Patricie Rinojoss JimPfoellinger Charmaine Rhodes

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