                                           May 16, 1974


Then Honorable  Raymond W. Vowel1                         Opinion    No.   H-   308
Commissioner
State Dept. of Public Welfare                             Re: Interpretation     of appropria-
John H. Reagan Building                                   tions rider   concerning     contract
Austin,  Texas   78701                                    between Department        of Public
                                                          Welfare    and a health insurance
                                                          organization.

Dear   h4r. Vowell:

        You have asked our opinion eon questions        regarding   the interpretation
of an approp+iations     rider affecting   the Medicaid    Reserve    Fund x&i& is an
aspect of the State’s participation,     in medical  assistance    programs     under
Title XIX of the Social~Security-      Act (42 USCA $ $ 1396-1396-i).        The
State’s program     is authorized   by the Medical    Assistance    Act of 1967,
Article   695j-1, V. T. C. S, , which was enact.ed pursuant to Article         3! 5 51-a
of the Constitution.

        As part of its T,itle XIX program,             Texas has contracted          with Texas
Blue Cross-Blue:       Shield (Group Hospital          Services,     Inc. ),(hereafter     Blue
Cross)    for the provision      of medical      benefits   to qualified     recipients.      The
State pays a premium         for each eli,gible individual.           Federal     matching     funds
constitute    more than sixty per cent of the premiums.                   The contract      is
designed     so that Blue Cross will receive            sufficient    premiums      to equal ,its
expenses,      and certain    other charges       consisting     of (1) benefits    paid,. (2)
administrative      expenses,      (3) taxes,    (4) a community        support or risk
charge and ( 5) maintenance           of the statutor.ily     required    reserve.       To the
extent that premiums         exceed expenses        and charges       the excess     is credited
to the Medicaid      Reserve.       If the premiums        are insufficient      to offset expenses,
Blue Cross      is entitled to recover        its deficit. from the Reserve,           and if the
Reserve     is insufficient    Blue Cross has a right to recover               from the Reserve




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The    Honorable   Raymond       W.   Vowel1     page    2    (H- 308)




surplus    accumulated     in subsequent       years.   At the termination        of the
contract    any balance    in the Reserve       will be paid to the State.

       Blue Cross is required      by the contract     to invest any funds in the
Re:serve  which are in excess of the amount needed to discharge              the obliga-
tions of the program.      The income,       reduced by 0. 3% of the invested       funds
which constitutes   an administrative       charge payable to Blue Cross,        is
returned   to the Reserve.      The Reserve      fund exceeds   $30 million,    an
amount considered     by the federal     government     to be considerably    more’than
sound management      practices    dictate.

        The rider to your     appropriation      which       forms   the basis   of your
question provides:

                    “( 39) None of the funds held in reserve    by Texas
               Blue Cross-Blue     Shield shall be used to pay monthly
               premium     charges for individuals  eligible for medicaid
               untrl all State funds appropriated,  in .item number 50A
               for Blue Cross ,premiums have been exhausted.        ”

Acts   1913’; 63rd Leg.,   ch.   659, p. 1866.

       You ask if the rider precludes the negotiation  of a premium    which
would reasonably   be expected to have the effect of reducing   the si se of
the reserve.   We limit our answer to that question.

        We believe       there are numerous     reasons     compelling    the conclusion
 that the rider does not preclude         the negotiation     of such a premium.       The
 contract     between the State and Blue Cross was in existence             prior to the
 adoption     of the rider,    and since the rider involves. the contract,        the con-
 tract    obviously     was within the contemplation        of the Legislature.      The
 purpose     of the Reserve      Fund is to permit Blue Cross to.look to it to offset
 its deficit.     Clearly    the rider was not,intended      to so fundamentally     alter
 the purpose      of the Fund as to require     the State to pay premiums        which
.are designed       to insure against any necessity       to invade the reserves.
 Such,aninterpretation          would amount to a legislative      g,rant of a valuable




                                            p.   1426
The’Honorable       Raymond     W.   Vowel1        page   3     (H-308)




benefit to a private     corporation   for which ,the State received      nothing in
return.    ‘We.,do not believe    this was theintent    of the Legislature     or the
effect of the rid,er.     Furthermore,     if the rider ,had that effect,    the pro-
vision would be subject to serious qu,estions involving.its           constitutionality:
S,ee Article    3, 5 0 50 and 51, Constitution    of Texas.

       The~refore,  it is our opinion that the Department         is not precluded
form negotiating     a premium     for its Title XIX program        wh,ich can be
expected  to result in a reduction      of the Medicaid   Reserve.       Indeed,’ it
may be required    to do so. 42 USCA § 1396a (a), (4); Article         6953-I, $ 3(l)
and (6), V. T. C. S. ; and Article    ~695c,$ 4 (12), V. T. C. S.

                                     SUMMARY

                     The premium     negotiated   by the Department        of
                Public. Welfare   and a health,insurance       organization
                for provision   of benefits   underTexas’Title        XIX
                program     may be,of a size designed to reduce the
                s’ize of the Medicaid,Reserve.

                                                              Very,truly   yours,




                                                              A,ttorney~General     of Texas




DAVID M. KENDALL,             Chairman
Opinion Committee




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