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Texas Warns Benefits Administrators About Illegal Health Plans

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NU Online News Service, Sept. 15, 2003, 4:32 p.m. EDT – The Texas Department of Insurance is asking health stop-loss carriers and benefit plan administrators to make sure that they do not become unwitting supporters of “unlicensed and illegal health insurance plans.”

“Your failure to establish and maintain appropriate internal controls may lead to substantial liability,” Sara Shiplet Waitt, a senior associate commissioner at the department, writes in Commissioner’s Bulletin B-32-03. “Under Texas Insurance Code Annotated ?? 101.101101.202, assisting directly or indirectly in the unauthorized business of insurance may subject your business to liability for all the unpaid claims of an unauthorized insurance plan. Further, your business may subject itself both to regulatory penalties?and criminal charges.”

Unauthorized health plans have left tens of millions of dollars in unpaid claims in Texas in the last two years, Waitt writes.

Some managers of illegal multiple-employer welfare arrangements say MEWAs are exempt from state regulation under the Employee Retirement Income Security Act, but ERISA explicitly permits states to regulate MEWAs, and the Texas Insurance Code requires licensure of all MEWAs that are not fully insured through licensed insurance companies, Waitt writes.

“If a plan commingles the health care contributions of multiple employers and it is not fully insured, then it is likely to be found to be unauthorized,” Waitt writes. “Issuing insurance policies to, or administering claims for, entities doing the unauthorized business of insurance is a violation of the Insurance Code.”

If a “self-funded” employer-sponsored health plan buys any form of stop-loss insurance or other insurance from outside companies, then the supplier must be an insurance carrier licensed in Texas or otherwise authorized to do business in Texas, Waitt writes.

“This applies even if an employer health plan is exempt from state regulation under [ERISA],” Waitt notes.

Some organizations try to get around Texas restrictions on MEWAs by selling coverage to trusts that Texas employers set up outside of Texas, or “leasing” employees to Texas employers and arranging for self-funded plans to cover the leased employees.

Texas will treat the sale of health coverage to a Texas employer’s out-of-state trust as a form of conducting insurance business in Texas, and it will treat most self-funded health plans for leased employees as unauthorized insurers, Waitt writes.

Doug Danzeiser, a department official, is taking questions about health plan authorization and licensing issues over the telephone at (512)475-1964.

The Texas department has posted a tool for verifying an insurance carrier’s license or authorization at

The text of the bulletin is on the Web at


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