Does paying for individual health insurance through a pre-tax cafeteria plan make it an employer plan and block Texas Risk Pool eligibility?

TX AG Opinion GA-0640: Do pre-tax cafeteria-plan premiums create an employer health plan?

Plain-English summary

A state senator asked two linked questions about chapter 1501 of the Texas Insurance Code, the state's Health Insurance Portability and Availability Act. First, when an employee pays individual health-plan premiums through a "cafeteria plan" funded entirely by pre-tax deductions from salary, and the employer neither offers nor endorses the individual plan, does that create a "small employer" or "large employer" health benefit plan under chapter 1501? Second, if it does, how does that classification affect the employee's eligibility for the Texas Health Insurance Risk Pool under chapter 1506?

The opinion stressed at the outset that the questions raised many fact issues that an attorney general opinion cannot resolve, but it explained the statutory framework. Sections 1501.003 and 1501.004 say an individual or group health benefit plan is a small or large employer plan if it covers the requisite employees and any one of three things is true: the employer pays part of the premiums or benefits; the employer or a covered individual treats the plan as part of a section 106 or 162 Internal Revenue Code program; or the plan is an "employee welfare benefit plan" under federal regulation 29 C.F.R. section 2510.3-1(j). Because the three are joined by "or," they are alternatives.

The senator's question focused on the third route. The cited federal regulation is the "safe harbor" exclusion: it describes a group or group-type insurance program that is not an employee welfare benefit plan, where (1) the employer makes no contributions, (2) participation is completely voluntary, (3) the employer's only role, without endorsing, is to permit the insurer to publicize the program and to collect and remit premiums through payroll deductions, and (4) the employer receives no consideration beyond reasonable compensation for administering the deductions. If a plan fits all four elements of the safe harbor, it is not an employee welfare benefit plan and so is not an employer plan under section 1501.003(3) or 1501.004(3).

The opinion identified several wrinkles, all fact-dependent. The safe harbor applies only to "group" or "group-type" programs, so a purely individual policy might not qualify for it at all; but the statutory definition of "health benefit plan" includes some individual policies (like a franchise policy), so the opinion could not rule out that the plan described was group-type. The fact that the plan is a cafeteria plan under section 125 of the Internal Revenue Code, is funded by pre-tax deductions, and is not endorsed by the employer, was relevant but not dispositive. All four safe-harbor elements must be met, and whether they are is a question of fact, so the opinion could not say whether the described plan fell within the safe harbor.

On the second question, the opinion explained that the Texas Health Insurance Risk Pool exists to give otherwise uninsurable people access to coverage, and chapter 1506 lists who is not eligible. Two provisions stood out: a person is generally ineligible if, when applying, they are eligible for other health-care benefits (with exceptions), and a person is ineligible if they are eligible for health-benefit-plan coverage connected to an employer-paid or employer-sponsored policy, even if the employer coverage is declined (with an exception for certain part-time employees). Because mere eligibility for employer-connected coverage can disqualify a person, the opinion concluded that an individual eligible to participate in an individual plan classified as a small or large employer plan under chapter 1501 may, depending on the facts, be ineligible for the Risk Pool.

Currency note

This opinion was issued in 2008. 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.

Later federal health-insurance reform and other changes substantially reshaped the individual health-insurance market after 2008, the Texas Health Insurance Risk Pool was wound down, and the Insurance Code provisions discussed here may have been amended. Treat this analysis as historical and confirm current law.

Who this opinion affected (as of 2008)

Employers offering pre-tax premium payment: The opinion meant that allowing employees to pay individual-plan premiums through a cafeteria plan could, depending on the facts and the safe harbor, turn the arrangement into a regulated small or large employer health benefit plan.

Employees and Risk Pool applicants: The opinion meant that eligibility for an employer-connected plan, even one declined or only available, could make a person ineligible for the Texas Health Insurance Risk Pool.

The Texas Department of Insurance: The opinion's reading of the disjunctive test and the safe harbor matched the department's own construction, but left the fact-specific application to the department and the parties.

Common questions

Does pre-tax premium payment automatically create an employer plan?
No. The opinion concluded it depends on the facts, mainly whether the arrangement satisfies all four elements of the federal safe harbor exclusion. If it does, it is not an employer plan; if it does not, it may be.

What is the "safe harbor"?
A federal regulation that excludes from "employee welfare benefit plan" a group program where the employer makes no contribution, participation is voluntary, the employer only permits publicizing and payroll deductions without endorsing, and the employer gets no consideration. All four must be met.

Could this block someone from the Texas Risk Pool?
Yes, potentially. The opinion explained that under chapter 1506, mere eligibility for employer-connected coverage, even if declined, can make a person ineligible for the Risk Pool, so the individual may be ineligible depending on the facts.

Why didn't the AG give a definite yes or no?
Because the answers turn on disputed facts, such as whether the plan is group-type and whether all four safe-harbor elements are met, which an attorney general opinion cannot resolve.

Background and statutory framework

Chapter 1501 of the Insurance Code defines small and large employer health benefit plans, and a plan covering the requisite employees qualifies if any one of three alternatives is met, including being an employee welfare benefit plan under federal regulation (Tex. Ins. Code Ann. §§ 1501.001, 1501.003-.004 (Vernon 2007); Bd. of Ins. Comm'rs v. Guardian Life Ins. Co., 180 S.W.2d 906, 908 (Tex. 1944)). The federal "safe harbor" excludes from "employee welfare benefit plan" a group or group-type program meeting four elements (no employer contribution, voluntary participation, employer permits publicizing and payroll deductions without endorsing, and no employer consideration), and it applies only to group or group-type programs (29 C.F.R. § 2510.3-1(j) (2004); McNeil v. Time Ins. Co., 205 F.3d 179, 190 (5th Cir. 2000); O'Brien v. Mutual of Omaha Ins. Co., 99 F. Supp. 2d 744, 747 (E.D. La. 1999); House v. Am. United Life Ins. Co., 499 F.3d 443, 449 (5th Cir. 2007), cert. denied, 128 S. Ct. 1309 (2008)). The Insurance Code definition of "health benefit plan" includes some individual policies such as franchise policies (Tex. Ins. Code Ann. § 1501.002(5) (Vernon 2007)). A cafeteria plan is a section 125 written plan letting employees choose among cash and qualified benefits, but that status is not dispositive of the safe harbor (26 U.S.C.A. § 125(d)(1) (West Supp. 2007); Nat'l Plan Admin., Inc. v. Nat'l Health Ins. Co., 150 S.W.3d 718, 724-25 (Tex. App.-Austin 2004), rev'd on other grounds, 235 S.W.3d 695 (Tex. 2007)). The Texas Health Insurance Risk Pool serves otherwise uninsurable individuals, and chapter 1506 makes a person ineligible if, when applying, they are eligible for other health-care benefits or for employer-connected coverage, even if declined, subject to exceptions (Tex. Ins. Code Ann. §§ 1506.101, 1506.153(a)(2), (a)(7), 1506.152(a)(3)(C)-(D) (Vernon 2007)).

Citations

Statutes:

• Tex. Ins. Code Ann. §§ 1501.001, 1501.002(5), 1501.003-.004 (Vernon 2007)
• Tex. Ins. Code Ann. §§ 1506.101, 1506.153(a)(2), (a)(7), 1506.152(a)(3)(C)-(D) (Vernon 2007)
• 26 U.S.C.A. § 125(d)(1) (West Supp. 2007)
• 29 C.F.R. § 2510.3-1(j) (2004)

Cases:

• Bd. of Ins. Comm'rs v. Guardian Life Ins. Co., 180 S.W.2d 906, 908 (Tex. 1944)
• McNeil v. Time Ins. Co., 205 F.3d 179, 190 (5th Cir. 2000)
• O'Brien v. Mutual of Omaha Ins. Co., 99 F. Supp. 2d 744, 747 (E.D. La. 1999)
• House v. Am. United Life Ins. Co., 499 F.3d 443, 449 (5th Cir. 2007), cert. denied, 128 S. Ct. 1309 (2008)
• Nat'l Plan Admin., Inc. v. Nat'l Health Ins. Co., 150 S.W.3d 718, 724-25 (Tex. App.-Austin 2004), rev'd on other grounds, 235 S.W.3d 695 (Tex. 2007)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0640
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2008/ga0640.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts may remain - the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

July 2, 2008

The Honorable Kim Brimer
Chair, Committee on Administration
Texas State Senate
Post Office Box 12068
Austin, Texas 78711-2068

Opinion No. GA-0640

Re: Applicability of chapter 1501, Texas Insurance Code, to certain health benefit "cafeteria" plans offered by employers (RQ-0662-GA)

Dear Senator Brimer:

You ask the following questions regarding the applicability of chapter 1501, Texas Insurance Code, to certain health benefit plans and the related effect such applicability may have on an individual's eligibility to participate in the Texas Health Insurance Risk Pool:

For the purposes of Chapter 1501, Insurance Code, does the payment of individual health benefit plan premiums through a cafeteria plan that is funded entirely by pre-tax deductions from employer[-]paid salaries create a small or large employer health benefit plan if the individual health benefit plan is not offered or endorsed by the employer?

If a cafeteria plan that is funded entirely by pre-tax deductions from employer[-]paid salaries is classified as a small or large employer health benefit plan, what effect, if any, does that classification have on the eligibility of an individual to participate in the Texas Health Insurance Risk Pool under Chapter 1506, Insurance Code, if that individual is eligible to participate in the cafeteria plan?[1]

Your questions raise many issues of fact, which cannot be resolved in an opinion. See Tex. Att'y Gen. Op. No. GA-0446 (2006) at 18 ("Questions of fact are not appropriate to the opinion process."). We can, however, provide some guidance as to the interpretation of the statutory provisions at issue and the legal framework applicable to your questions. We begin by examining chapter 1501, Texas Insurance Code, in light of your questions.

I. Chapter 1501

Chapter 1501 of the Insurance Code is the state's "Health Insurance Portability and Availability Act." TEX. INS. CODE ANN. § 1501.001 (Vernon 2007). Sections 1501.003 and 1501.004 respectively define small and large employer health benefits plans for the purposes of chapter 1501:

§ 1501.003. Applicability: Small Employer Health Benefit Plans

An individual or group health benefit plan is a small employer health benefit plan subject to Subchapters C-H[2] if it provides health care benefits covering two or more eligible employees of a small employer and:

(1) the employer pays a portion of the premiums or benefits;

(2) the employer or a covered individual treats the health benefit plan as part of a plan or program for purposes of Section 106 or 162, Internal Revenue Code of 1986 (26 U.S.C. Section 106 or 162); or

(3) the health benefit plan is an employee welfare benefit plan under 29 C.F.R. Section 2510.3-1(j).

§ 1501.004. Applicability: Large Employer Health Benefit Plans

An individual or group health benefit plan is a large employer health benefit plan subject to Subchapters C and M[3] if the plan provides health care benefits to eligible employees of a large employer and:

(1) the employer pays a portion of the premiums or benefits;

(2) the employer or a covered individual treats the health benefit plan as part of a plan or program for purposes of Section 106 or 162, Internal Revenue Code of 1986 (26 U.S.C. Section 106 or 162); or

(3) the health benefit plan is an employee welfare benefit plan under 29 C.F.R. Section 2510.3-1(j).

Id. §§ 1501.003-.004 (footnotes added); see also id. § 1501.002 (defining, among other terms, "health benefit plan," "eligible employee," "large employer," "large employer health benefit plan," "small employer" and "small employer health benefit plan").

II. Chapter 1501 Applicability

A. Statutory Test

We first consider the statutory test for large and small employer health benefit plans. A colon introduces three means by which a small employer health benefit plan under section 1501.003 is created and, likewise, a colon introduces three means by which a large employer health benefit plan under section 1501.004 is created. Id. §§ 1501.003-.004. As the three means in the respective provisions are connected by the word "or," they should be read as alternatives.[4] See Bd. of Ins. Comm'rs v. Guardian Life Ins. Co., 180 S.W.2d 906, 908 (Tex. 1944) (explaining that the term "or" is generally construed as disjunctive); TEX. LEGISLATIVE COUNCIL DRAFTING MANUAL § 7.08 (Aug. 2006) ("Use a colon to introduce a series of dependent subdivisions or to introduce subdivisions of a definitions section.").

Thus, an individual or group health benefit plan that provides benefits to the requisite employees is a small or large employer health benefit plan if one of the following three factors is present: (1) the employer pays a portion of the premiums or benefits; (2) the employer or a covered individual treats the health benefit plan as part of a plan or program for purposes of section 106 or 162 of the Internal Revenue Code; or (3) the health benefit plan is an employee welfare benefit plan under 29 C.F.R. section 2510.3-1(j). TEX. INS. CODE ANN. §§ 1501.003-.004 (Vernon 2007).

B. Safe Harbor

We understand you to inquire only about the third means by which a small or large employer health benefit plan is created contained in sections 1501.003(3) and 1501.004(3).[5] See Request Letter, supra note 1, at 1-2 (predicating questions on the application of 29 C.F.R. § 2510.3-1(j)); TEX. INS. CODE ANN. §§ 1501.003(3) (Vernon 2007) (providing that a plan is a small employer health benefit plan if, among other things, the plan "is an employee welfare benefit plan under 29 C.F.R. Section 2510.3-1(j)"); 1501.004(3) (providing that a plan is a large employer health benefit plan if, among other things, the plan "is an employee welfare benefit plan under 29 C.F.R. Section 2510.3-1(j)").

The federal regulation referred to in sections 1501.003(3) and 1501.004(3)-29 C.F.R. section 2510.3-1(j)-is commonly known as the "safe harbor" exclusion and, as you point out, rather than providing what constitutes an "employee welfare benefit plan" it explains what type of program is not within that term. See Request Letter, supra note 1, at 2; 29 C.F.R. § 2510.3-1(j); McNeil v. Time Ins. Co., 205 F.3d 179, 190 (5th Cir. 2000) (explaining that 29 C.F.R. § 2510.3-1(j) is a federal regulation promulgated by the Secretary of Labor called the "safe harbor" exclusion that exempts certain insurance programs from the scope of the Employee Retirement Income Security Act (ERISA)). The safe harbor exclusion provides, in relevant part, that

the term[] "employee welfare benefit plan" ... shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which

(1) No contributions are made by an employer or employee organization;

(2) Participation in the program is completely voluntary for employees or members;

(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.

29 C.F.R. § 2510.3-1(j) (2004) (emphasis added). If a plan falls within the safe harbor exclusion at 29 C.F.R. § 2510.3-1(j), it is not an employee welfare benefit plan for purposes of sections 1501.003(3) or 1501.004(3), Texas Insurance Code. TEX. INS. CODE ANN. §§ 1501.003(3), .004(3) (Vernon 2007); 29 C.F.R. § 2510.3-1(j).[6]

We note first that the safe harbor exclusion is applicable, by its express terms, to "group" and "group-type" programs. 29 C.F.R. § 2510.3-1(j); see also O'Brien v. Mutual of Omaha Ins. Co., 99 F. Supp. 2d 744, 747 (E.D. La. 1999) (concluding that the safe harbor exclusion did not apply to an individual health insurance policy acquired by an employee directly from an insurance company because it was not a group or group-type policy). If the individual health benefit plan you describe is not a group or group-type program, it will not fall within the safe harbor exclusion.

Section 1501.002(5) defines the term "health benefit plan" to "mean[] a group, blanket, or franchise insurance policy, a certificate issued under a group policy, a group hospital service contract, or a group subscriber contract or evidence of coverage issued by a health maintenance organization that provides benefits for health care services." TEX. INS. CODE ANN. § 1501.002(5) (Vernon 2007). An examination of the enumerated policy types and contracts included within the definition of "health benefit plan" reveals that certain individual health benefit plans are encompassed within that definition,[7] and we assume it is this type of plan to which you refer when you use the phrase "individual health benefit plan." Request Letter, supra note 1, at 1-3. A franchise insurance policy is, for example, an "individual health benefit plan under which a number of individual policies are offered to a selected group." 28 TEX. ADMIN. CODE §§ 3.601(c)(3) (2008) (Tex. Dep't Ins., Purpose and Scope, Applicability, and Definitions Used in This Subchapter); 26.4(17) (Tex. Dep't Ins., Definitions); see also Tex. Att'y Gen. Op. No. GA-0327 (2005) at 4-5 (discussing the meaning of each of the policy types and contracts included in the definition of "health benefit plan"). Because you do not specify the type of plan at issue, we can not rule out the possibility that the individual health benefit plan you describe is a group or group-type program.

Assuming the individual health benefit plan you describe is a group or group-type insurance program, all four elements of the safe harbor exclusion must be satisfied to qualify for the exclusion. See 29 C.F.R. § 2510.3-1(j) (2004); House v. Am. United Life Ins. Co., 499 F.3d 443, 449 (5th Cir. 2007), cert. denied, 128 S. Ct. 1309 (2008) ("The plan must meet all four criteria to be exempt from ERISA."). Consideration of each of the four elements of the safe harbor exclusion in any particular circumstance involves questions of fact. See, e.g., House, 499 F.3d at 449-50 (the existence of an ERISA plan, which depends in part on whether the plan falls within the safe harbor exclusion, is a mixed question of law and fact unless the facts are undisputed); McNeil, 205 F.3d at 189 (holding that whether an insurance policy constitutes an ERISA plan is an issue of fact). We cannot, therefore, determine whether the individual health benefit plan you describe falls within the safe harbor exclusion.

You tell us various things about the individual health benefit plan at issue that may be relevant to the applicability of the safe harbor exclusion. You describe the payment of plan premiums as being made through a "cafeteria plan." Request Letter, supra note 1, at 2-3. State statutes define this term to mean a plan authorized by section 125 of the Internal Revenue Code, and we assume that you mean the same when you use the term. See, e.g., TEX. EDUC. CODE ANN. § 22.101(1) (Vernon Supp. 2007) ("'Cafeteria plan' means a plan as defined ... by Section 125, Internal Revenue Code ...."); TEX. GOV'T CODE ANN. §§ 811.001(7) (Vernon Supp. 2007) (including cafeteria plan within definition of "compensation"), 851.001(6) (Vernon 2004) (including cafeteria plan within definition of "compensation"); TEX. INS. CODE ANN. §§ 1551.003(5), 1601.003(3) (Vernon 2007) (providing "cafeteria plan" means a section 125 plan). Section 125 of the Internal Revenue Code defines a cafeteria plan as:

a written plan under which-

(A) all participants are employees, and

(B) the participants may choose among 2 or more benefits consisting of cash and qualified benefits.[8]

26 U.S.C.A. § 125(d)(1) (West Supp. 2007) (footnote added); see also Nat'l Plan Admin., Inc. v. Nat'l Health Ins. Co., 150 S.W.3d 718, 724-25 (Tex. App.-Austin 2004) ("Under a cafeteria plan, an employee may request an employer to reduce an employee's wages by a certain amount in exchange for the employer purchasing insurance on behalf of the employee or for reimbursing the employee for medical or child-care expenses."), rev'd on other grounds, 235 S.W.3d 695 (Tex. 2007). That a plan is a cafeteria plan is not dispositive as to the application of the safe harbor exclusion.

You also describe the plan at issue as one that is funded entirely by pre-tax deductions from employer-paid salaries and is not offered or endorsed by the employer. Request Letter, supra note 1, at 2. Like the fact that the plan at issue is a cafeteria plan, those factors are relevant but not dispositive as to whether the plan falls within the safe harbor exclusion.

Assuming the type of plan you describe does not fall within the safe harbor exclusion and is a small or large employer health plan under chapter 1501, we consider your second question.

III. Texas Health Insurance Risk Pool

You ask if a cafeteria plan that is funded entirely by pre-tax deductions from employer-paid salaries is classified as a small or large employer health benefit plan, "what effect, if any, ... that classification [has] on the eligibility of an individual to participate in the Texas Health Insurance Risk Pool under Chapter 1506, Insurance Code, if that individual is eligible to participate in the cafeteria plan[.]" Request Letter, supra note 1, at 3. We assume from your question that the individual is only eligible for but not actually covered by the plan you describe. Id.; see also TEX. INS. CODE ANN. §§ 1501.151-.152 (Vernon 2007) (establishing guaranteed issue requirements and exclusion prohibitions for small employer health benefit plans); 1501.602-.603 (providing coverage requirements and exclusion prohibitions for large employer health benefit plans).

The Texas Health Insurance Risk Pool (the "Pool") is a legislatively created insurance pool aimed at providing otherwise uninsurable individuals with access to health insurance. See TEX. INS. CODE ANN. § 1506.101 (Vernon 2007). Eligibility for coverage from the Pool is established in subchapter D, chapter 1506, Insurance Code. Section 1506.153(a) sets out a list of individuals who are not eligible for coverage from the Pool. Id. § 1506.153(a). You do not identify a particular provision that you believe would result in ineligibility. Request Letter, supra note 1. We examine two statutory provisions that might make the individual you inquire about-a person who is eligible to participate in an individual health care benefit plan under chapter 1501-ineligible to obtain coverage from the Pool.[9]

First, we consider section 1506.153(a)(2), which provides that

an individual is not eligible for coverage from the pool if ...

(2) at the time the individual applies to the pool, except as provided in Subsection (b), the individual is eligible for other health care benefits ... other than:

(C) individual coverage conditioned by a limitation described by Section 1506.152(a)(3)(C) or (D).[10]

TEX. INS. CODE ANN. § 1506.153(a)(2) (Vernon 2007) (emphasis added).

Second, we consider section 1506.153(a)(7), which provides that "an individual is not eligible for coverage from the pool if ... the individual is eligible for health benefit plan[11] coverage provided in connection with a policy, plan, or program paid for or sponsored by an employer, even though the employer coverage is declined." Id. § 1506.153(a)(7) (footnote and emphasis added). Certain part-time employees are excepted from this provision. Id.

Based on the express language of these two provisions, it is apparent that, with certain exceptions, mere eligibility for health care benefits or coverage from a health benefit plan can make one ineligible for coverage from the Pool. Therefore, if an individual is eligible to participate in an individual health benefit plan classified as a small or large employer health benefit plan under chapter 1501, the individual may, depending on the facts, be ineligible for coverage from the Pool.

Footnotes

[1] See Letter from Honorable Kim Brimer, Chair, Committee on Administration, Texas State Senate, to Honorable Greg Abbott, Attorney General of Texas, at 2-3 (Jan. 2, 2008) (on file with the Opinion Committee, also available at http://www.texasattorneygeneral.gov) [hereinafter Request Letter].

[2] Subchapter C sets out the provisions of coverage for both small and large employer health benefit plans. See TEX. INS. CODE ANN. §§ 1501.101-.111 (Vernon 2007). Subchapter D mandates the issue of, and sets the parameters for, small employer health benefit plans to small employers. See id. §§ 1501.151-.159. Subchapters E through H establish small employer health benefit plan guidelines. See id. §§ 1501.201-.215 (subchapter E relating to underwriting and rating plans); 1501.251-.260 (subchapter F outlining provisions of coverage); 1501.301-.326 (subchapter G providing for reinsurance); 1501.351-.358 (subchapter H concerning marketing).

[3] Subchapter C sets out the provisions of coverage for both small and large employer health benefit plans. See id. §§ 1501.101-.111. Subchapter M establishes participation criteria, coverage requirements, premium rates and marketing requirements pertaining to large employer benefit plans. See id. §§ 1501.601-.616.

[4] The Texas Department of Insurance (TDI) appears to construe the statute in a similar fashion. See TDI Brief from Sara Shiplet Waitt, Senior Associate Commissioner, Legal Services, Texas Department of Insurance, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 2 (Feb. 26, 2008) (on file with the Opinion Committee) [hereinafter TDI Brief]. Without offering supporting citation, the Texas Association of Life and Health Insurers (TALHI) asserts in a brief submitted to our office that "the Texas Legislature intended that an employer must actually pay a portion of the premium or benefits in order to be considered a small employer plan under Section 1501.003 or a large employer plan under Section 1501.004." Brief from Jay A. Thompson, of Thompson, Coe, Cousins & Irons, L.L.P., on behalf of the Texas Association of Life and Health Insurers, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 7 (Mar. 18, 2008) (on file with the Opinion Committee) [hereinafter TALHI Brief]. Under TALHI's proposed construction we would have to read the term "and" after 1501.003(1) and 1501.004(1). See id. at 5. Such a reading is not supported by the rules of grammar or statutory construction.

[5] We note that regardless of whether any particular plan falls within subsection (3), it may nonetheless constitute a small or large employer health benefit plan pursuant to sections 1501.003(1)-(2) or 1501.004(1)-(2).

[6] The TDI appears to construe this statute in a similar manner. See TDI Brief, supra note 4, at 8 ("To the extent that an employer correctly applies and implements the safe harbor regulations established at 29 C.F.R. § 2510.3-1(j), a plan falls within the safe harbor from treatment as an employee welfare benefit plan under Title I, Employee Retirement Income Security Act (ERISA), and is not, therefore an employee welfare benefit plan for purposes of TIC §§ 1501.003(3) or 1501.004(3).") (footnote deleted).

[7] One brief received in our office seems to argue that individual health benefit plans are not encompassed within the definition of "health benefit plan." See TALHI Brief, supra note 4, at 6 ("The term health benefit plan is defined ... to mean only group, blanket, or franchise policies and other specific types of policies contained in the definition. Individual health insurance policies are not included in the definition of health benefit plan ....").

[8] With some exceptions, the term does not include a plan that provides for deferred compensation. See 26 U.S.C.A. § 125(d)(2) (West Supp. 2007).

[9] An individual covered by the plan you describe may, depending on the facts, be ineligible for coverage from the Pool under other provisions as well.

[10] Section 1506.152(a)(3)(C) describes "an offer to issue substantially similar individual coverage only with conditional riders" and subsection (D) relates to "a diagnosis of the individual with one of the medical or health conditions" covered by the Pool. TEX. INS. CODE ANN. § 1506.152(a)(3)(C)-(D) (Vernon 2007).

[11] The term "health benefit plan" is broadly defined in chapter 1506 as "an individual or group health benefit plan" including, among other things, any "health care plan or arrangement that pays for or furnishes medical or health care services by insurance or otherwise." Id. § 1506.002(a).

SUMMARY

The payment of individual health benefit plan premiums through a cafeteria plan that is funded entirely by pre-tax deductions from employer-paid salaries and that is not offered or endorsed by the employer is a small or large employer health benefit plan under section 1501.003(3) or 1501.004(3), Insurance Code, if the plan (1) is a health benefit plan that provides health care benefits (2) to the requisite employees and (3) is an employee welfare benefit plan under 29 C.F.R. section 2510.3-1(j) (i.e., does not fall within the safe harbor exclusion). Whether any particular plan meets these requirements involves questions of fact.

An individual who is eligible to participate in a cafeteria plan that is funded entirely by pre-tax deductions from employer-paid salaries and that constitutes a small or large employer health benefit plan under chapter 1501, may, depending upon the facts, be ineligible to participate in the Texas Health Insurance Risk Pool under chapter 1506 of the Insurance Code.

KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Christy Drake-Adams
Assistant Attorney General, Opinion Committee