MARK WHITE 

Attorney General 

Supreme Court Buitdmg 

P. 0. Box 12546 

Austin. TX. 76711.2546 

51244752501 

Telex 9101674.1367 

Te,ecop,er 5121475-0266 

1607 Matn St.. Suila 1400 

Dallas. TX. 752014709 

2141742-6944 

4624 Albe,ta Ave.. Swte 160 

El Paso. TX. 79905.2793 

91515333464 

1220 Oallrs Ave.. Suite 202 

Houston. TX. 77002.6966 

7131650-0666 

606 Broadway. Suite 312 

‘ubbock. TX. 79401.3479 

6CW47.5236 

4309 N. Tenth. Suite B 

MeAllen. TX. ?6501.1665 

51216624547 

200 Main Plaza. Suite 400 

San Antonio. TX. 76205.2797 

51212254191 

An Equal Opportwilyl 

Affirmalive Actmn Employer 

The Attorney General of Texas 

March 18, 1982 

Honorable Chct Brooks, Chairman opinion No. W-455 

Senate Committee on Human Resources 

Texas State Senate Re: Definition of health 

Room 412. Archives Building maintenance organization 

Austin, Texas 78711 

Dear Senator Brooks: 

You ask whether a prepald..single service health care plan that 

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). 

Before answering your question, we must first note that the definition 

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 

health care plan is to be considered an HMO depends on whether it 

falls within the statutory definition of an HMO. not on whether it is 

a single or multiservice plan. Likewise, whether a health care plan 

that has been determined to be an RMO may obtain a certificate of 

authority to operate legally as an KM0 depends on whether ic meets the 

statutory standards for obtaining a certificate, not on whether it is 

a single or multiservice health care plan. 

Every health care plan that falls within the.definition of an HMO 

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 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 

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: 

p. 1578 
. . 

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 HMO because 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 HMO end 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 
. 

. 

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 LIMO 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 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 l ngege 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 

p. 1583