# The Attorney General of Texas

JOHNL.HILL AttorneyGeneral Jcsmary 25, 1978

Honorable Joseph N.Murphy, Jr. Opinion No.H- 1121 Executive Director Employees Retirement System ofTexas Re: Disposition of surpluses Box12337,Capitol Station generated under State employees Austin, Texas 78711 group insurance programs.

Dear Mr.Murphy:

You request our opinion on. the disposition of certain funds held by insurance carriers pursuant to expired contracts with State agencies. Prior to September 1, 1976, individual State agencies were authorized to enter into contracts securing group health and accident insurance for employees. Ins. Code art. 3.51;see Attorney General Opinions M-919(1971);M-138(1967).In 1975,the Legislature enacted the Texas Employees Uniform Group Insurance Benefits Act, Ins. Code art. 3.50-2, which provided for the coverage of all State employees under one uniform insurance plan, with exceptions not here relevant. See Attorney General Opinion H-859 (1976). The Trustees of the EmployeesRetirement System are responsible for administering the Act. Section 20 of the Act permitted State agencies to continue their separate insurance plans until the uniform plan became available:

Effective Date.- This Act shall become effective September 1,1975,but no insurance coverages shall be provided hereunder until such time as the trustee shall have made a study of the coverages and benefits authorized by this Act and gathered the necessary statistical data and information to secure such group insurance and the Texas Legislature has appropriated the funds necessary to provide the insurance coverages and benefits provided for in this Act; provided, however, that subject only to the legislature’s appropriating the necessary funds, group insurance coverages for state employees contemplated by this Act shall be provided beginning not later than September 1, 1976. Departments are specifically authorized to continue orinitiate state employee insurance plans and policies with state financial participation until the date and time this Act is implemented; provided,

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Honorable Joseph N.Murphy, Jr. - Page 2 (H-1121)

however, that any experience rating refunds becoming payable to such department under any such plans or policies
on or after the date and time this Act is implemented shall be paid to the Employees Life, Accident, and Health Insurance and Benefits Fund, and such payment shall be deemed payment to suchdepartment.

The uniform plan went into effect on September 1,1976,and the authority ofState agencies to continue individual plans ended as ofthat date. Wecareinformed that the contracts providing these plans expressly provided for an expiration date of August 31,1976. Some insurance carriers are still holding surplus funds, which the contract required them to pay to the contracting agency. You wish to know whether these surpluses should be paid to the contracting agency, or to the Employees Life, Accident, and Health Insurance and Benefits Fund established by section 16 of the Act and available for payment for insurance coverage and administration expenses. See Attorney General Opinion No.H-1040(1977).

- We note the contention of some agencies that they have vested contract rights to the refunds. However, no constitutional provision prevents the Legislature ‘from allocating the refunds owed one agency to a different agency. The Legislature may remove public property from the custody of one agency and allot it to another and may withdraw from an agency the power it delegated to it. State v. Jackson, 376S.W.2d341(Tex. 1964);Lander v.Victoria County, 131S.W.821 (Tex. Civ. App. - 1910,no writ); see Hunt County v. Rains County, 7 S.W.2d 648 (Tex. Civ. App. - Texarkana 1925,x writ). The legislatively created agency has
no vested rights against the Legislature. Lander v. Victoria County, supra; see Deacon v. City of Euleas, 405 S.W.2d 59 (Tex. 19661. There is no contention tm employees of the agencies have acquired vested rights in the refunds which would prevent the Legislature from placing them inthe Fund.

The answer to your question lies in the construction of section 20, which provides that “any experience rating refunds becoming payable to such department under any such plans” on or after the implementation date should be paid into the Fund. Some agencies have advanced arguments that’any experience rating funds existing immediately before the new Act became effective were payable to the agencies at that time. “Experience rating refunds” are partial refunds of premiums, which prove excessive in light of claims actually paid under the policy. See Associated Indemnity Corp. v. Oil Well Drilling Co., 258S.W.2d 523 (Tex. Civ. G. - Dallas 19531,.aff’d, 264 S workmen% compensation insurance); see ‘w~~~~~~~~~~~~~~a~~~~~~u~~ Cross and Blue Shield Plans 212- 224 such refunds generally cannot be determined until the contract peiiod closes. In discussing experience rating as used in workmen’s compensation insurance, a Texas court noted that the employer’s experience during the policy year was not considered in setting rates until the policy year had expired. Associated Indemnity Corp. v. OilWellDrilling Co., G at 529.

Texas courts defined ‘payable” as meaning “capable of being paid,” ‘legally enforceable,” “admitting or demanding payment.” First National Bank v.

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Greenville, 19S.W. 334, 335 (Tex. 1892). See also Munzesheimer v. Wickham, 12 S.W.751,752 (Tex. 1889);Gulf Production C-use, 258SW 211 iTex. Civ. App. -Beaumont 19241,rev’d on other grounds, 271S.W.886 (Tex. Comm’n App. 1925, jdgmt adopted). Asdefined, “payable” implies an obligation that can be performed now, not an unascertained, contingent liability. Cf. Southern Materials Co. v. Marks, 83 S.E.2d 353, 354 (Va. 1954)(“payable” instatute refers to time when obligation to pay is immediate). In our opinion, the experience rating refunds become payable when their amount is ascertained, so that the carrier can release them. Asalready noted, this amount generally cannot be ascertained ‘until after the contra&t period ends. Weare informed that carriers usually donot release such refunds until some time after the expiration date of the contract. In directing payment into the Fund of refunds “becoming payable

. . .on or after the date and time this atit is implemented ” the Legislature apparently contemplated that determination of the amount would take some time. Ins. Code art. 3.50-2, S20 (Emphasis added).

Webelieve, therefore, that the carriers should pay into the Employees Life, Accident, and Healt,h Insurance and Benefits Fund those experience rating refunds that become ascertained asto amount and otherwise payable inapractical sense on or after September 1,1976. In the language of section 20, “such payment shall be deemed payment” to the contracting agency.

Inview of our answer to your first question, weneed not answer your second question. You also state that the Employees Retirement System wishes to audit the carrier’s records to verify the refunds payable, and ask whether the cost ofthis audit may bepaid from the refunds.

The refunds becoming payable are to be paid to the Employees Life, Accident, and Health Insurance Fund, which is established by section 16ofthe act. Section 16provides inpart:

(a) There ls hereby. created with the treasury of the State of Texas an Employees Life, Accident, and Health Insurance and Benefits Fund which shall Abe administered by the trustee. Thecontributions ofemployees, annuitants, and the state provided for under this Act shall be paid into the fund. The fund is available: (11 without fiscal year limitation for all payments for any insurance coverages provided for under this Act; and (2) to pay expenses for administering this Act within the limitations that may bespecified annually bythe legislature. (b) Portions of the contributions made by employees, annuitants, and the state shall be regularly set aside in the fund as follows: apercentage, not to exceed one percent of all contributions, determined bythe trustee to be reasonably adequate to pay the administrative expenses made available bySubsection (a)ofthis section.

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Honorable Joseph N.Murphy, Jr. - Page 4 (II-ll.21)

Inour opinion, the refunds payable to the Fund are subject to section 16(a),and may be used to pay for insurance coverages and administrative expenses. Webelieve that the expense of the projected audit isan expense ofadministering the Act. Cf. Ins. Code art. 3.50-2, S17(carriers must permit trustee to examine their record Although section 16(b)provides that no more than one percent ofcontributions be set aside for administrative expenses, this limitation appears to apply only to contributions made under the Act and not toexperience rating refunds paid into the Fund. Beealso Ins. Code art. 3.50-2, S3(b). Wefind noadditional limitation inthe current.priations Act that would prevent payment from the refunds of expenses incurred in auditing the carrier’s accounts. Bee General Appropriations Act, Acts 1977,65th Leg., ch. 872, art. 3,at 2875. -
~DMMARY
Experience rating refunds attributable to group insurance plans maintained by individual state agencies prior to September 1, 1976, must be paid. into the Employees Life, Accident, and Health Insurance and Benefits Fund. The Employees~ Retirement System may use the refunds to pay for the cost ofauditing the insurance carriers holding them.

APPROVED: Verytruly yours,

’ dfY&w

P J &. HILL Attorney General of Texas

%&

Opinion Committee ’

1st

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