                                 The Attorney                   General of Texas

MARK WHITE                                                March 18,    1982
Attorney General

                              Honorable   Chct Brooks,   Chairman                     opinion     No.    W-455
SupremeCourtBuitdmg           Senate Committee on Human Resources
P. 0. Box 12546               Texas State Senate                                      Re:     Definition       of       health
Austin. TX. 76711.2546
                              Room 412. Archives    Building                          maintenance    organization
51244752501
Telex 9101674.1367            Austin,   Texas   78711
Te,ecop,er  5121475-0266
                              Dear Senator      Brooks:
1607 Matn St.. Suila 1400
Dallas. TX. 752014709
                                     You ask whether a prepald..single                 service     health    care plan that
2141742-6944                  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).
4624 Albe,ta Ave.. Swte 160
                              Before answering your question,              we must first       note that the definition
El Paso. TX. 79905.2793
91515333464
                              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
1220 Oallrs Ave.. Suite 202   health     care plan is to be considered                 an HMO depends on whether it
Houston. TX. 77002.6966
                              falls    within    the statutory      definition      of an HMO. not on whether it is
7131650-0666
                              a single      or multiservice       plan.      Likewise,      whether a health         care plan
                              that has been determined             to be an RMO may obtain                a certificate        of
606 Broadway. Suite 312       authority      to operate    legally    as an KM0 depends on whether ic meets the
‘ubbock. TX. 79401.3479       statutory      standards    for obtaining        a certificate,       not on whether it is
6CW47.5236                    a single     or multiservice       health care plan.

4309 N. Tenth. Suite B               Every health      care plan that falls         within     the.definition        of an HMO
MeAllen. TX. ?6501.1665       must obtain        a certificate       of authority         to operate        in this      state,
51216624547                   according      to the Texas Health Maintenance               Organization        Act, codified
                              in article       20A.O3(a)     of the Texas Insurance           Code.      Hovever.     in order
200 Main Plaza. Suite 400
                              to     qualify      to     receive     a    certificate.        of      authority.        article
San Antonio. TX. 76205.2797   20A.O5(b)(2)(B)        riquires      that    the health        care     plan    constitute        an
51212254191                   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
An Equal Opportwilyl
Affirmalive Actmn Employer
                              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           HMObecause 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 HMOend 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 LIMOcertificate              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     lngege      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




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