Could Sutton County self-fund part of its employee health coverage through an account controlled by an unlicensed private administrator?

Texas AG Opinion JM-887: Sutton County Could Not Self-Fund Part of Its Health Plan

Plain-English summary

Sutton County proposed an employee health plan using a bank account controlled by a private administrator. The administrator would purchase insurance with a $500 deductible while employees received coverage described as having a $100 deductible. County money in the account would cover the difference, and the administrator would collect fees, keep interest above a stated rate, and receive a substantial share of remaining funds if the contract ended.

The Attorney General treated the arrangement as county self-insurance for part of the deductible. Local Government Code section 157.002, formerly section 2 of article 2372h, was the only Texas statute authorizing a county to self-insure. It applied only to counties with populations above 500,000.

Sutton County fell below that threshold. Because a commissioners court could exercise only powers expressly conferred by constitution or statute, or reasonably implied from those powers, the absence of authority for smaller counties meant the county could not enter the described plan.

After resolving that threshold issue, the opinion did not decide whether county money could be deposited with the administrator, whether the administrator required an insurance license, or whether the interest, monthly fees, and termination penalty were otherwise lawful.

Currency note

This opinion was issued in 1988. 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.

Common questions

Why was the plan considered self-insurance?

The county itself assumed the risk between the underlying policy's $500 deductible and the program's $100 deductible by paying claims from the separate account.

Could Sutton County use the self-insurance statute?

No. Section 157.002 applied only to counties with populations over 500,000.

Did a general power to provide employee health benefits authorize this structure?

No. The opinion found no statutory or constitutional authority allowing a smaller county to self-insure in this way.

Did the opinion decide whether the private administrator was properly licensed?

No. Once the county lacked authority to self-insure, the Attorney General did not reach the licensing issue.

Did it decide whether the administrator could keep interest or termination funds?

No. Those issues were also left unanswered after the threshold ruling.

Background and statutory framework

Attorney General Opinion MW-473 (1982) had identified section 2 of article 2372h as the only provision authorizing county self-insurance. The Legislature later repealed and recodified it as Local Government Code section 157.002 without expanding the population coverage.

Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948), supplied the general rule that commissioners courts could exercise only specifically conferred or necessarily implied authority. Attorney General Opinion JM-406 (1985) applied the same principle.

The opinion mentioned but did not decide issues under Local Government Code chapter 116 and Insurance Code article 21.07-5.

Citations

Statutory authority:

• Local Government Code section 157.002
• Local Government Code chapter 116
• Insurance Code article 21.07-5
• Former V.T.C.S. article 2372h, section 2

Case:

• Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948)

Prior Attorney General materials referenced: MW-473 (1982) and JM-406 (1985).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-887
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0887.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Obvious character-level OCR errors have been corrected, but minor errors may remain; the linked PDF is authoritative.

THE ATTORNEY GENERAL
OF TEXAS

                    April 7, 1988

Honorable David W. Wallace Opinion No. JM-887
Sutton County Attorney
Sonora, Texas 76850 Re: Authority of a commis-
sioners court to enter into
certain contracts to provide
health insurance coverage
for its employees (RQ-1237)

Dear Mr. Wallace:

   You   ask:

         Does [the County   Commissioners    Court   of
     Sutton County]    have the   authority,   in   its
     effort to provide health insurance       coverage
     for employees  and dependents,    to enter    into
     a contract    under   the   following     circum-
     stances:

         1. A portion of the total money spent by
     the county for coverage goes into a separate
     bank account   for payment   of a portion  of
     the medical benefits    due to  employees and
     dependents.

         2.  The   administration       of   the     above
     mentioned   bank   account,    and    the   benefits
     paid from it, is in the control of a company
     that is unlicensed      as an insurance       company
     and is totally     independent   from the      county
     except for    certain    contractual      conditions
     which are further     detailed   in this      request
     and the attachments.

         3. The administrator     of the bank account
     provides  for the purchase    of high deductible
     ($500.00) insurance.    However, the     coverage
     that the complete    program offers     is for    a
     lower deductible   ($100.00).    Sutton   County,
     through the administration      of this   account
     by the   third party,    assumes the    risk   for
     this difference   in deductible.

Honorable David W. Wallace - Page 2 (JM-887)

         4. All    interest   on   the  county    funds
     deposited  to   this   account that    exceed    5%
     pass on to the exclusive     use of the adminis-
     trator.

         5. The      administrator   draws     regular
     monthly fees    out of this bank account.

         6.  Termination  of the contract with    the
     administrator    by  the  county   results     in
     penalties   of up to  50% of the county    funds
     in the above bank account to be forfeited     to
     the administrator.

  The scheme you       describe would       involve the      county's

self-insuring a portion of the deductible amount provided
for in the underlying insurance contract. Attorney
General Opinion MW-473 (1982) noted that there was
only one statutory provision authorizing such a self-
insurance scheme, i.e., section 2 of article 2372h,
V.T.C.S., which applies only to counties with populations
of over 500,000. Article 2372h was repealed by the 70th
Legislature in 1987 and section 2 was recodified as
section 157.002 of the Local Government Code. The
provision currently embodied in section 157.002 remains
the only one in Texas law authorizing a county to self-
insure. Since Sutton County's population is less than
500,000, section 157.002 does not authorize it to self-
insure. Since certain counties are authorized, under
section 157.002, to self-insure, the lack of authorization
elsewhere in Texas law for other counties such as Sutton
County to self-insure, indicates that the legislature did
not intend to authorize counties with populations under
500,000 to self-insure. Commissioners courts may exercise
only such powers specifically conferred upon them, by the
constitution or by statute, or which may reasonably be
implied therefrom. Canales V. Laughlin, 214 S.W.2d 451
(Tex. 1948). See also Attorney General Opinion JM-406
(1985) .

  We are    therefore    of    the opinion    that    the   Sutton

County self-insurance scheme you described is not author-
ized by law. Having reached this conclusion, we need not
address the other issues that we would have addressed had
we answered in the affirmative the threshold question of
the county's authority to self-insure: e.g., whether
county funds may legally be deposited with the adminis-
trator in light of chapter 116 of the Local Government
Code, whether the administrator would be authorized to

                              p. 4345

.

Honorable   David   W. Wallace       - Page    3 (JM-887)




act as such   in light     of     article 21.07-5       of the     Insurance
Code, etc.
                                SUMMARY

           The commissioners  court of Sutton   County
        is not   authorized  to   self-fund  a health
        insurance program for county employees.




                                              JIM      MATTOX
                                              Attorney  General    of Texas

MARY KELLER
First Assistant     Attorney      General

LOU MCCREARY
Executive   Assistant     Attorney        General

JUDGE ZOLLIE STEAKLEY
Special Assistant  Attorney          General

RICK GILPIN
Chairman,  Opinion      Committee

Prepared by William Walker
Assistant Attorney General




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