Do Texas insurance mandates apply to a county's self-funded employee health plan?

Plain-English summary

The Williamson County Auditor asked the Attorney General a series of questions about the county's self-funded employee medical benefit plan, which the county runs itself rather than buying coverage from an insurance company. The core question was whether various provisions of the Texas Insurance Code apply to a single-employer, self-funded plan like the county's, and whether the federal Employee Retirement Income Security Act (ERISA) overrides those state provisions.

The Attorney General concluded that three Insurance Code articles apply to the county's plan: article 1.24C (which directs the state to collect data on the effect of HIV and AIDS on health coverage), article 3.51-9 (which requires chemical dependency coverage on terms no less favorable than for physical illness), and article 21.53 (dental care benefits). The office read each article's definitions broadly enough to reach a self-funded plan, noting that a single-employer self-funded plan is a "mechanism providing health care benefits." On ERISA, the office concluded the federal law does not preempt these state provisions as applied to the county, because ERISA exempts "governmental plans" from its requirements and expressly leaves state regulation of such plans in place. The office then addressed several narrower questions: articles 3.51-6 (section 3A) and 3.51-14 require a self-funded plan to offer, but not necessarily provide, coverage for in vitro fertilization and for serious mental illness, with the offer made to the employer rather than directly to employees. Finally, it explained that article 20.12 (group hospital service corporations), the preferred-provider rules in title 28 of the Administrative Code, and the patient-solicitation prohibition in Health and Safety Code section 161.091 reach a county's arrangements only in narrow circumstances, and that a governmental entity that is the payor of its own health benefits plan is not subject to section 161.091.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Texas Insurance Code has since been recodified (the old article numbers cited here were reorganized into the modern Insurance Code), so confirm the current provisions before relying on anything described here.

What the opinion meant for those who asked

For Texas counties and other governmental entities running single-employer, self-funded health plans: The opinion concluded that Insurance Code articles 1.24C, 3.51-9, and 21.53 apply to such a plan, and that ERISA does not preempt them because the plan is a governmental plan exempt from ERISA. It read articles 3.51-6 (section 3A) and 3.51-14 to require the plan to offer, not necessarily provide, coverage for in vitro fertilization and for serious mental illness.

For employees covered by such a plan: The opinion described some of the relevant provisions as "offer" requirements directed at the employer, meaning the employer may decline the offered coverage. It did not opine on what any particular employee would ultimately receive.

For entities arranging preferred-provider networks or hospital service plans: The opinion explained that article 20.12 applies only to a group hospital service corporation incorporated by seven or more persons (a majority hospital superintendents, physicians, or surgeons); that the title 28 preferred-provider rules apply only to an insurer authorized to do health insurance business in Texas; and that a governmental entity that is the payor of its own health benefits plan is not subject to the patient-solicitation prohibition in Health and Safety Code section 161.091.

Background and statutory framework

The auditor first asked whether Insurance Code articles 1.24C, 3.51-9, and 21.53 apply to single-employer, self-funded plans, and if so, whether ERISA (29 U.S.C. §§ 1001-1461) preempts them. Article 1.24C defines "health insurance coverage" to include not only insurance companies, group hospital service corporations, and health maintenance organizations, but also "any self-insurance trust or mechanism providing health care benefits." Because a single-employer self-funded plan is such a mechanism, and because the legislature had on a number of occasions made Insurance Code provisions applicable to self-funded plans, the office concluded article 1.24C applies. Article 3.51-9 expressly refers to "all employer, trustee, or other self-funded or self-insured plans or arrangements" providing health insurance or other health coverage or services, so the office concluded it applies to a single-employer self-funded plan even though the auditor suggested it might be aimed only at multiple-employer welfare arrangements (MEWAs). Article 21.53 applies to a "health insurance policy" or "employee benefit plan," and the office read the broad definition of "employee benefit plan" as not limited to traditional health insurance plans, so it applies as well.

On preemption, the office explained that ERISA does not apply to "governmental plans," defined in 29 U.S.C. § 1002(32) to include a plan established by a state or political subdivision for its employees, and exempted from ERISA's requirements by 29 U.S.C. § 1003(b)(1). ERISA's preemption clause, 29 U.S.C. § 1144(b), expressly excludes plans exempt under section 1003(b). The office therefore concluded ERISA does not preempt articles 1.24C, 3.51-9, and 21.53 as applied to a governmental entity's single-employer self-funded plan such as the county's.

The auditor next asked the office to confirm that article 3.51-6, section 3A, and article 3.51-14 require employers only to be offered certain coverage, not to provide it. Section 3A of article 3.51-6 requires various plans to grant and make available coverage for out-patient expenses arising from in vitro fertilization procedures when the policy or plan otherwise provides pregnancy-related benefits, and directs that the offer be made to "each group policyholder, contract holder, employer, multiple-employer, union, association, or trustee." Because that offer runs to the employer, not directly to the employee, the office concluded a single-employer self-funded plan must offer in vitro fertilization coverage to the employer. Article 3.51-14 works the same way for the treatment of serious mental illness: it requires the offer of coverage to the employer, so a self-funded plan must offer that coverage to the employer.

Finally, the auditor asked whether article 20.12 of the Insurance Code, sections 3.3701 through 3.3705 of title 28 of the Texas Administrative Code, and section 161.091 of the Health and Safety Code apply to an employer-controlled entity that arranges a select group of providers at preferred rates for contracting employers. Article 20.12 governs group hospital service corporations subject to chapter 20, and article 20.01 describes those as corporations formed by seven or more persons, a majority of whom are hospital superintendents, physicians, or surgeons, incorporated to establish a nonprofit hospital service plan; so the entity is subject to article 20.12 only if it fits that description. The title 28 preferred-provider rules apply only to an insurer authorized to engage in the business of health insurance in Texas, because section 3.3701 states the rules do not apply to plans arranged or provided by an entity that is not such an insurer. As for Health and Safety Code section 161.091 (the patient-solicitation prohibition, recently amended by the 73rd Legislature), subsection (f) exempts a variety of entities, including a governmental entity that reimburses, provides, offers to provide, or administers medical benefits under a health benefits plan for which it is the payor; so a governmental entity that is the payor of its own plan is not subject to section 161.091.

Common questions

Does a Texas county's self-funded health plan have to follow state insurance mandates?
For several of them, yes. The Attorney General concluded that Insurance Code articles 1.24C (HIV/AIDS data), 3.51-9 (chemical dependency), and 21.53 (dental benefits) apply to a county's single-employer, self-funded medical benefit plan.

Does ERISA override Texas insurance rules for a county health plan?
No. The office concluded that ERISA exempts governmental plans, so it does not preempt these state-law provisions as applied to a county's self-funded plan.

Does the plan have to cover in vitro fertilization and serious mental illness?
The opinion read articles 3.51-6 (section 3A) and 3.51-14 to require the plan to offer that coverage to the employer, not necessarily to provide it. The employer may decline the offered coverage.

Is a county's preferred-provider arrangement regulated like an insurer?
Only in narrow circumstances. The office found the title 28 preferred-provider rules apply only to authorized insurers, the article 20.12 hospital-service-corporation rules apply only to certain incorporated entities, and a governmental entity that is the payor of its own plan is not subject to the patient-solicitation prohibition in Health and Safety Code section 161.091.

Citations

Statutory and regulatory provisions discussed:

• Ins. Code art. 1.24C (HIV/AIDS data on health insurance coverage; definition of "health insurance coverage")
• Ins. Code art. 3.51-9, § 2A(a) (chemical dependency coverage)
• Ins. Code art. 21.53 (dental care benefits; definition of "employee benefit plan")
• Ins. Code art. 3.51-6, § 3A (offer of in vitro fertilization coverage)
• Ins. Code art. 3.51-14, § 2(a) (offer of serious mental illness coverage)
• Ins. Code art. 20.12; art. 20.01 (group hospital service corporations)
• 28 T.A.C. §§ 3.3701-3.3705 (preferred provider plans)
• Health & Safety Code § 161.091 (patient solicitation; governmental-payor exemption)
• 29 U.S.C. §§ 1001-1461 (ERISA); § 1002(32) (governmental plan); § 1003(b) (exemption); § 1144(b) (preemption)
• Gov't Code § 311.005(2) (definition of "person")

No court cases were cited in this opinion.

Prior Attorney General opinion referenced: DM-138 (1992).

Legislation referenced: Acts 1993, 73d Leg., ch. 573, § 5.01, at 2171; ch. 706, § 1, at 2772 (amending Health & Safety Code § 161.091).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0276
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1993/dm0276.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative. Where the scan was too degraded to read a quoted passage with confidence, an ellipsis marks the omitted text.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

December 17, 1993

Mr. David U. Flores
Williamson County Auditor
P.O. Box 506
Georgetown, Texas 78627

Opinion No. DM-276

Re: Whether a county's single-employer, self-funded medical benefit plan is subject to certain provisions of the Insurance Code, and related questions (RQ-508)

Dear Mr. Flores:

You begin by asking whether the county's medical benefit plan is subject to certain provisions of the Texas Insurance Code and, if so, whether those provisions are preempted by the federal Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"). First we address whether article 1.24C, article 3.51-9, and article 21.53 of the Insurance Code apply to single-employer, self-funded plans.

Article 1.24C(a) states that the purpose of this article is

to assure that adequate health insurance and benefits coverage is available to the citizens of this state, to assure that adequate health care is available to protect the public health and safety, and to ascertain the cost effect of HIV and AIDS on health insurance coverage and health benefits coverage availability and adequacy in this state for purposes of meeting the public's health coverage needs.

Subsections (c) through (i) of the article require the State Board of Insurance (the "board") to gather and compile data on the effect of HIV and AIDS on health insurance coverage, and authorize the board to submit written recommendations for legislation to resolve problems associated with the impact of HIV and AIDS on the availability of health insurance coverage. In article 1.24C, "health insurance coverage" is defined to mean "any group policy, contract, or certificate of health insurance or benefits delivered, issued for delivery, or renewed in this state by an insurance company . . . , a group hospital service corporation . . . , a health maintenance organization . . . , and any self-insurance trust or mechanism providing health care benefits." Ins. Code art. 1.24C(b)(2) (citation omitted) (emphasis added).

You ask whether the italicized language would include a single-employer self-funded plan such as the county's within the ambit of the article. You suggest that because the Insurance Code generally applies only to insurance companies, group hospital service corporations, and health maintenance organizations, and because the State Board of Insurance's regulatory authority is generally limited to those industries, the legislature could not have intended for article 1.24C to apply to single-employer, self-funded plans. As will be seen below, the legislature on a number of occasions has made provisions of the Insurance Code applicable to self-funded plans. For this reason, and because a single-employer self-funded plan is clearly a "mechanism providing health care benefits," we conclude that article 1.24C applies to single-employer, self-funded plans such as the county's.

Next, you consider whether article 3.51-9 applies to single-employer, self-funded plans. Article 3.51-9 requires various entities, including "all employer, trustee, or other self-funded or self-insured plans or arrangements providing health insurance or providing other health coverage or services" to provide "benefits for the necessary care and treatment of chemical dependency that are not less favorable than for physical illness generally." Id. art. 3.51-9, § 2A(a) (emphasis added). Although this provision expressly refers to self-funded plans, you suggest that it may only be designed to apply to multiple employer welfare arrangements ("MEWA's") "which, while being a collection of employee plans, . . . [resemble] insurance in the sense that risk is spread across several unrelated entities." The italicized language, however, makes clear that this provision applies not only to MEWA plans but also to self-funded plans that provide "other health coverage or services." Therefore, we conclude that article 3.51-9 applies to single-employer, self-funded plans such as the county's.

In addition, you ask whether article 21.53, which governs dental care benefits in certain plans, applies to a single-employer, self-funded plan. Article 21.53 applies to a "health insurance policy" or "employee benefit plan" as defined by section 1, subsections (a) and (b). The term "employee benefit plan" means "any plan, fund or program heretofore or hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants . . . through the purchase of insurance or otherwise, dental care benefits in the event of accident or sickness." The definition of "employee benefit plan" is broad and is clearly not limited to traditional health insurance plans. We conclude that article 21.53 applies to a single-employer, self-funded plan that provides for its participants dental care benefits "in the event of accident or sickness."

You also ask whether ERISA preempts article 1.24C, article 3.51-9, and article 21.53 of the Insurance Code. You state that you understand "that ERISA preempts [state] provisions . . . as they apply to modern single-employer, self-funded plans." As you note, however, ERISA does not apply to "governmental plans" established by governmental entities. See 29 U.S.C. § 1002(32) (defining the term "governmental plan" to include a plan established "for its employees" by "the government of any State or political subdivision thereof"), 1003(b)(1) ("The provisions of this subchapter shall not apply to any employee benefit plan if . . . such plan is a governmental plan"). Therefore, you suggest that ERISA does not preempt these provisions of the Insurance Code as they apply to single-employer, self-funded plans.

ERISA's preemption provision generally states that an employee benefit plan is not to be "deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, . . . banks, trust companies, or investment companies." Id. § 1144(b). This preemption provision expressly excludes, however, employee benefit plans which are exempt under section 1003(b), which includes governmental plans. See id. In short, ERISA exempts governmental plans from its requirements, id. § 1003(b), and expressly provides that it does not preempt state laws which govern such plans, id. § 1144(b). Therefore, we conclude that ERISA does not preempt article 1.24C, article 3.51-9, and article 21.53 of the Insurance Code to the extent they apply to a single-employer, self-funded plan of a governmental entity such as the county.

Next you ask us to "confirm [your] understanding" that article 3.51-6, section 3A, and article 3.51-14 of the Texas Insurance Code "which arguably apply to single-employer, self-funded plans do not require employers to provide certain benefits." You suggest that these provisions "do not require employers to provide certain benefits, but rather require insurers, MEWA's, and other sellers of employee benefit plans to offer to provide certain coverage, and the employer may or may not elect to provide this coverage to its employees."

Subsection (a) of section 3A of article 3.51-6 requires various insurers and plans to "grant and make available . . . coverage for services and benefits on an expense incurred, service, or prepaid basis for out-patient expenses that may arise from in vitro fertilization procedures" if the policy or plan "otherwise provides pregnancy-related benefits." Subsection (b) states that "[a]n offer made under Subsection (a) . . . [is supplementary] to this section." Subsection (c) provides that a "rejection of an offer to provide coverage for services or benefits provided by Subsection (a) of this section must be in writing."

Section 3A of article 3.51-6 states that coverage must be offered to "each group policyholder, contract holder, employer, multiple-employer, union, association, or trustee." Ins. Code art. 3.51-6, § 3A(a) (emphasis added). It does not require that coverage be offered directly to an employee. Therefore, we conclude that section 3A requires a single-employer, self-funded plan to offer coverage for in vitro fertilization procedures to the employer.

Article 3.51-14, which is similar to article 3.51-6, provides as follows:

Each insurer, nonprofit hospital service plan corporation . . . , health maintenance organization . . . , employer, multiple employer, union, association, trustee, or other self-funded or self-insured welfare or benefit plan, program, or arrangement that issues group health insurance policies, enters into health care service contracts or plans, or provides for group health benefits, coverage, or services in this state for hospital, medical, or surgical expenses incurred as a result of accident or sickness shall offer and make available to each group policyholder, contract holder, employer, multiple employer, union, association, or trustee under a group policy, contract, plan, program or arrangement that provides hospital and . . . medical benefits coverage for . . . [an expense incurred,] service or prepaid basis for expenses incurred for the . . . care, diagnosis, and treatment of serious mental illness.

Id. art. 3.51-14, § 2(a) (emphasis added). As with section 3A of article 3.51-6, this provision does not require that the offer for coverage of expenses incurred in the treatment of serious mental illness be made to the employee. Rather, article 3.51-14 requires a single-employer, self-funded plan to offer coverage to the employer.

Finally, you also ask whether article 20.12 of the Insurance Code, sections 3.3701 through 3.3705 of title 28 of the Texas Administrative Code, and section 161.091 of the Health and Safety Code apply to "an employer-controlled entity which has arranged for a select group of providers at preferred rates to be available to contracting employers."

Article 20.12 of the Insurance Code prohibits group hospital service corporations subject to chapter 20 from engaging in certain activities. Article 20.01, which describes the corporations which are subject to chapter 20, provides that

[a]ny seven (7) or more persons, a majority of whom are superintendents of hospitals or physicians or surgeons licensed by the State Board of Medical Examiners, upon application to the Secretary of State of the State of Texas for a corporate charter may be incorporated for the purpose of establishing . . . a nonprofit hospital service plan, whereby hospital care may be provided by said corporation through an established hospital . . . .

The entity which you describe is subject to article 20.12 of the Insurance Code only if it is comprised of seven or more persons, the majority of whom are hospital superintendents, physicians, or surgeons, incorporated for the purpose of providing hospital care at a hospital.

Sections 3.3701 through 3.3705 of title 28 of the Texas Administrative Code apply to preferred provider plans. Section 3.3701 expressly provides that "[t]hese sections of this subchapter do not apply to or otherwise sanction any plan arranged or provided . . . by any provider, employer, [or] third-party entity . . . [or] any other entity that is not an insurer authorized to engage in the business of health insurance in this state." 28 T.A.C. § 3.3701. Thus, an entity is subject to these regulations only if it is an insurer authorized to engage in the business of health insurance in Texas.

Section 161.091 of the Health and Safety Code was recently amended by the 73rd Legislature. The statute prohibits certain remuneration ". . . to or from any person, firm, association of persons, partnership, [or] corporation for securing or soliciting patients or patronage for or from a person licensed, certified, or registered by a state health care regulatory agency." Health & Safety Code § 161.091(a), as amended by Acts 1993, 73d Leg., ch. 573, § 5.01, at 2171, and ch. 706, § 1, at 2772. The term "person" in section 161.091 of the Health and Safety Code includes a "corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity." Attorney General Opinion DM-138 (1992) at 1 n.1 (citing Gov't Code § 311.005(2)). Subsection (f) of section 161.091 of the Health and Safety Code provides that it does not apply to a variety of entities, including governmental entities, which reimburse, provide, offer to provide, or administer medical benefits under a health benefits plan for which it is the payor. Therefore, if the entity you describe is a governmental entity which reimburses, provides, offers to provide, or administers medical benefits under a health benefits plan for which it is the payor, it is not subject to section 161.091.

SUMMARY

Article 1.24C, article 3.51-9, and article 21.53 of the Insurance Code apply to single-employer, self-funded plans. These provisions are not preempted by the federal Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461, ("ERISA") as they apply to "governmental plans" as defined by title 29, section 1002(32) of the United States Code.

Under article 3.51-6, section 3A of the Insurance Code, a single-employer, self-funded plan must make the offer of coverage for in vitro fertilization procedures to the employer. Article 3.51-14 requires a single-employer, self-funded plan to offer coverage of expenses incurred in the treatment of serious mental illness to the employer.

An entity is subject to article 20.12 of the Insurance Code only if it is comprised of seven or more persons, the majority of whom are hospital superintendents, physicians, or surgeons, incorporated for the purpose of providing hospital care at a hospital. An entity is subject to sections 3.3701 through 3.3705 of title 28 of the Texas Administrative Code only if it is an insurer authorized to engage in the business of health insurance in Texas. A governmental entity which reimburses, provides, offers to provide, or administers medical benefits under a health benefits plan for which it is the payor is not subject to section 161.091 of the Health and Safety Code.

DAN MORALES
Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Attorney General for Litigation

RENEA HICKS
State Solicitor

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General