Is a company taxable on its services when it acts as an intermediary reviewing medical bills and charges submitted by health care providers to insurance companies?

Plain-English summary

The taxpayer's company is contacted by insurance companies or health plan administrators to act as an intermediary, clarifying charges and coding billed by health care providers against the insurance company's usual and customary allowances for the services rendered. The taxpayer had previously been told by a Comptroller staff member, Kevin Franklin of the Tax Assistance Section, that these services were not taxable, and the taxpayer wrote in seeking written confirmation of that answer.

The Comptroller's response reversed that informal answer. Citing Rule 3.355(a)(5), the letter explains that "insurance adjustment and claims processing" is defined to include "any activities to supervise, handle, investigate, pay, settle, or adjust claims or losses." Rule 3.355(b) taxes insurance services performed for an insurance carrier, its policy holder, insured, or others pertaining to a policy or policies of insurance. The Comptroller concluded that by reviewing bills submitted by health care providers to insureds, insurance companies, or others pertaining to insurance policies, the company is performing insurance claims processing or claims adjustment services, which are taxable. The letter also references an enclosed attorney general opinion concluding that insurance services provided by an insurance services provider to an attorney or the insured after a settlement offer are taxable, which the Comptroller says reinforces the Rule 3.355(b) analysis. The letter notes the opinion is based on the facts presented and could change if additional or different facts exist.

What this means for you

Companies that review or adjudicate medical bills for insurers

If your business is engaged by an insurance company or health plan administrator to review, clarify, or verify charges and billing codes submitted by health care providers against the insurer's usual and customary allowances, this letter indicates that activity is treated as taxable insurance claims processing or claims adjustment under Rule 3.355 — not an exempt service.

Businesses that received informal verbal guidance from Comptroller staff

This letter shows that an informal verbal answer from a Tax Assistance Section representative is not necessarily reliable and can be corrected or reversed once a written ruling request is submitted and reviewed against the actual rules. If you received oral guidance that a service is nontaxable, it is worth confirming that guidance in writing before relying on it.

Accountants and tax professionals advising insurance-adjacent businesses

The letter illustrates how broadly Rule 3.355(a)(5)'s definition of claims processing can sweep in intermediary or bill-review functions performed on behalf of an insurer, even when the company itself is not the insurer and is not directly settling or paying claims, but is instead clarifying charges and coding against allowances.

Common questions

Q: Is reviewing and clarifying medical provider charges for an insurance company taxable in Texas?
A: Yes, according to this letter. The Comptroller determined that a company acting as an intermediary to clarify charges and coding billed by health care providers, measured against the insurer's usual and customary allowances, is performing taxable insurance claims processing or claims adjustment services under Rule 3.355.

Q: What does Rule 3.355(a)(5) say about claims processing?
A: The letter quotes it as amplifying the definition of insurance adjustment and claims processing to mean "any activities to supervise, handle, investigate, pay, settle, or adjust claims or losses."

Q: Does it matter that a Comptroller employee earlier said the service was not taxable?
A: In this letter, the taxpayer had been told by Kevin Franklin of the Tax Assistance Section that the services were not taxable, but the written ruling reached the opposite conclusion, finding the services taxable under Rule 3.355(b).

Q: Can this taxpayer rely on this letter if the facts change?
A: No. The letter states the opinion is based on the facts presented, and if there are additional or different facts, the opinion may change.

Citations and references

• Rule 3.355(a)(5) — amplifies the definition of insurance adjustment and claims processing to mean "any activities to supervise, handle, investigate, pay, settle, or adjust claims or losses."
• Rule 3.355(b) — taxes insurance services when performed for an insurance carrier, its policy holder, insured, or others pertaining to a policy or policies of insurance.
• An enclosed (unnamed) Attorney General opinion, concluding that insurance services provided by an insurance services provider to an attorney or the insured after a settlement was offered by an insurance company are taxable, cited as reinforcing Rule 3.355(b).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9502L1334G07

Original ruling text

February 16, 1995

Dear ***:

Thank you for your letter of February 8, 1995, concerning your company's
Texas sales and use tax responsibilities.

Your company is contacted by insurance companies or health plan administrators
to act as an intermediary to clarify charges and coding billed by a provider
of health care services with respect to the insurance company's usual and
customary allowances for the services rendered.

Kevin Franklin of our Tax Assistance Section told you that your company's
services were not taxable and you are writing for written confirmation of the
answer given by Mr. Franklin.

Rule 3.355(a)(5) amplifies the definition of insurance adjustment and claims
processing to mean "any activities to supervise, handle, investigate, pay,
settle, or adjust claims or losses." (Emphasis added.)

Rule 3.355(b) taxes insurance services when performed for an insurance
carrier, its policy holder, insured or others pertaining to a policy or policies
of insurance.

Your company is performing insurance claims processing or claims adjustment
services when it reviews bills submitted by health care providers to the
insureds, insurance companies, or others pertaining to policies of insurance.

I am enclosing an attorney general opinion in which the Attorney General
concludes that insurance services provided by an insurance services provider
to an attorney or the insured after a settlement was offered by an insurance
company are taxable. The opinion reinforces the provision in Rule 3.355(b).

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free 1-800-531-5441, extension 3-4683. The direct
line is 512/463-4683. You may also write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Administration Division

NOTE: Previous Accession Number 9502910L