                         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 on behalf of the Senate Jurisprudence    Committee asking
our opinion about prepaid health maintenance    organizations    and hereafter
referred  to as HMO’s for convenience,    points to the great variety of such
plans and asks us to assume various factual situations and to state whether
in each instance the plan would constitute a transaction    of the business of
insurance   (and thus require regulation by the State Board of Insurance)      or
would be outside the insurance laws.

        The question you pose is one which has long bothered the courts
of the United States.    See for instance,     Jordan v. Group Health Associa-
tion,   107 F. 2d 239 (D. C. Cir. 1939); Cleveland Hospital Service Associa-
tion.v.   Ebright,  45 N. E. 2d 157 (Ohio App. 1942); Commissioner        of
Banking and Insurance      V. Community Health Service,      Inc.,   30 A. 2d 44
 (N. J. 1943); California Physicians’     Service v. Garrison,    172 P. 2d 4
 (Cal. 1946): Maloney v. American       Independent Medical and Health Associa-
tion, 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,         193 N. W. 2d 244 (N. D. 1971).
And see annotation “Validity and Nature of Group Medical and Hospital
Service Plans, ” 167 ALR 322, 323.

      In large    part the problem    has been compoinded         by the many and




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The Honorable   A. R.   Schwartz   wge    2      (H-344)




varied definitions of what 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.,      199 F. 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).

        In Attorney General Opinion O-4986-A         (1943) the question was
whether a non-profit      rural health service,   incorporated    for the purpose
of promoting the health of its members,         was engaged in the insurance
business and thus subject to the supervision        of the State Insurance Depart-
ment.     Members     paid a membership     fee in return for which they were
furnished dental care, medical care, and drugs, etc.,            on a 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 of the contracting
physicians.      Citing the definitions of then Article 4716, V. T. C. S. (now
Article   3.01 of the Insurance    Code), this office was unable to find that
the health service fit the description      of any type of insurance    subject to
 state regulation and found that the service was not in the insurance business
and was not subject to supervision       of the State Insurance Department.

        Opinion O-4986-A   was ratified in Attorney General Opinion WW-1475
 (1962) which held that a prepaid prescription   plan under which a member
 could have a prescription  filled for less than its normal selling price
-was insurance.

        We agree with the conclusion   of Opinion O-4986-A    insofar as we
conclude that none of the variations    of the prepaid health care delivery
systems which you describe     fall within the defined types of insurance   of
Article  3.01 of the Insurance Code.

       In fact, we have found only two instances where our statutes purport
to regulate health maintenance   services.   One authorizes plans written for




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The Honorable   A.R.   Schwartz     page 3       (H-344)




residents of the State who are 65 years of age,            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 of the proposed prepaid health
delivery system may be, we find no authorization      in the Insurance Code
for the State Board of Insurance to regulate such a plan, unless it comes
within the scope of regulation authorized   by either of these two articles
or by some other article of the Insurance Code such as those for the
provision  of life, 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       to approve and certify health organiza-
tions upon certain conditions.     Delivery of health care to the public
is one of several purposes for which such organizations        may be formed.
We do not pass upon or express any opinion as to the validity of Article
4509a in view of the fact that that very question is presently before the
United States Court of Appeals for the 5th Circuit in Cause No. 73-2557,
styled,   Genaro Garcia v. Texas State Board of Medical Examiners,          et al.
See also Article 1396-2.01,    V. T. C.S.,   and Attorney General Opinion
H-128 (1973) with reference    to the organization   of Dental Health Service
Corporations.

       Whatever the validity of Article 4509a.  its enactment by the Legis-
lature in 1971 evidenced the intention of the Legislature  that such an
organization  be regulated by the State Board of Medical Examiners      and
not by the Board of Insurance.    California Physicians’  Service v. Garrison.

       We believe we may summarize       what we have said as follows:  While
some of the plans which you have submitted to us may constitute the doing
of an 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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The Honorable    A. R. Schwartz      page 4       (H-344)




Article 4509a,   whether invalid or not, is another indication of the intent
of the Legislature  that such plans not be considered  insurance.

       While it has always been our practice to attempt to avoid answering
hypothetical    questions,   we have answered your general question as well
as we can because of the widespread         interest in this important matter.
However,     it would be impossible    for us to take each of the situations you
pose and determine its validity,       So too it would be impossible       for us to
answer    the question you posed earlier in your letter as to whether there
exist any so-called     “legal barriers ” to health 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 of similar nature.        Again,    we express no opinion as to
the validity of those limitations.

                                     SUMMARY

                    Except as to possible general regulation of an
                insurance company involved in a health maintenance
                organization,   the State Board of Insurance 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
                the facts of each type of plan.

                                                    Very truly yours,




                                                    Attorney   General   of Texas




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 The Honorable   A. R.   Schwartz        Page    5     (H-344)




                      \
                  ‘y Ii?
                 K,   First    A sistant




LlC47                          2
 DAVID M. KENDALL,            Chairman
 Opinion Committee




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