### 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 onbehalf ofthe Senate Jurisprudence Committee asking our opinion about prepaid health maintenance organizations and hereafter referred toas HMO’s for convenience, points to the great variety ofsuch plans and asks us toassume various factual situations and to state whether in each instance the plan would constitute atransaction ofthe business of insurance (and thus require regulation by the State Board ofInsurance) or would be outside theinsurance laws. The question you pose is one which has long bothered the courts of the United States. See for instance, Jordan v. Group Health Association, 107 F. 2d 239 (D.C. Cir. 1939); Cleveland Hospital Service Association.v. Ebright, 45 N.E. 2d 157 (Ohio App. 1942); Commissioner of Banking and **Insurance** V. Community Health Service, Inc., 30A. 2d 44 (N.J. 1943); California Physicians’ Service v. Garrison, 172 P. 2d 4 (Cal. 1946): Maloney v. American Independent Medical andHealth Association, 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, 193N.W. 2d 244 (N.D. 1971). And see annotation “Validity and Nature ofGroup Medical andHospital Service Plans, ” 167ALR 322, 323. Inlarge part the problem has been compoinded by themany and

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varied definitions ofwhat 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., 199F. 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). InAttorney General Opinion O-4986-A (1943) the question was whether anon-profit rural health service, incorporated for the purpose ofpromoting thehealth ofits members, was engaged inthe insurance business and thus subject to the supervision ofthe State Insurance Department. Members paid a membership fee in return for which they were furnished dental care, medical care, and drugs, etc., ona 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 ofthe contracting physicians. Citing the definitions ofthen Article 4716, V.T. C.S. (now Article 3.01 oftheInsurance Code), this office was unable tofind that thehealth service fit the description ofany type ofinsurance subject to state regulation and found that the service was not in the insurance business and was not subject to supervision ofthe State Insurance Department. Opinion O-4986-A was ratified inAttorney General Opinion WW-1475 (1962) which held that a prepaid prescription plan under which a member could have aprescription filled for less than its normal selling price was insurance. - We agree with the conclusion ofOpinion O-4986-A insofar as we conclude that none ofthe variations ofthe prepaid health care delivery systems which you describe fall within the defined types ofinsurance of Article 3.01 ofthe Insurance Code. Infact, wehave found only two instances where **our statutes**  purport to regulate health maintenance services. One authorizes plans written for

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residents ofthe State who are 65 years ofage, 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 ofthe proposed prepaid health delivery system may be, we find no authorization in theInsurance Code for the State Board ofInsurance to regulate such a plan, **unless** it comes within the scope of regulation authorized by either ofthese two articles or by some other article ofthe Insurance Code such as those for the provision oflife, 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 toapprove and certify health organizations upon certain conditions. Delivery ofhealth care tothe public is one of several purposes for which such organizations may be formed. We do not pass upon or express any opinion as to thevalidity ofArticle 4509a in view ofthe fact that that very question is presently before the United States Court ofAppeals for the 5th Circuit in **Cause** No. 73-2557, styled, Genaro Garcia v. Texas State Board of Medical Examiners, etal. See also Article 1396-2.01, V. T. C.S., and Attorney General Opinion H-128 (1973) with reference to the organization ofDental Health Service Corporations. Whatever the validity ofArticle 4509a. its enactment by the Legislature in 1971 evidenced the intention ofthe Legislature that such an organization be regulated by theState Board ofMedical Examiners and not by the Board ofInsurance. California Physicians’ Service v. Garrison. We believe we may summarize what we have said as follows: While some ofthe plans which you have submitted to us may constitute the doing ofan 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

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Article 4509a, whether invalid or not, is another indication ofthe intent of the Legislature that such plans not be considered insurance. While ithas always been **our** practice toattempt toavoid answering hypothetical questions, we have answered your general question as well as we can because ofthe widespread interest in this important matter. However, itwould beimpossible for us to take each ofthe situations you pose and determine its validity, So too itwould be impossible for us to answer the question you posed earlier in **your** letter as towhether there exist any so-called “legal barriers ” tohealth 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 ofsimilar nature. Again, we express no opinion as to the validity ofthose limitations. SUMMARY Except as topossible general regulation ofan insurance company involved in ahealth maintenance organization, the State Board ofInsurance 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 thefacts of each type of plan. Very truly **yours,**

Attorney General ofTexas

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# \ ‘yIi?
K, First A sistant 

# LlC47 2
DAVID M. KENDALL, Chairman Opinion Committee

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