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Self Insurance Group Rules

October 14, 2008                                                     Bulletin 2008-No. 01


Self-Insurance Group Rules


The Texas Department of Insurance has proposed amendments to rules 5.6403, 5.6405, 5.6408, and 5.6411 and proposed new rules 5.6401, 5.6402, 5.6404, 5.6409, 5.6412, and 5.6413, concerning workers’ compensation group self-insurance coverage. Proposed amended rules 5.6403 and 5.6411 and new rule 5.6402 are to clarify and implement House Bill 472, enacted by the 80th Legislature, Regular Session, effective September 1, 2007.


There is concern that these rules, if adopted by the Texas Department of Insurance to regulate workers’ compensation self-insurance groups, will serve as a model for the rules that will be proposed and adopted to regulate third party administrators and others.


Of particular concern is proposed rule 5.6402(a) (12), which contains the definition of “Service Company.” A Service Company is defined as:


A person that directly or indirectly provides services to or on behalf of a group, other than the services provided by an administrator, including, but not limited to:


(A) claims adjustment;


(B) safety engineering;


(C) compilation of statistics and the preparation of premium, loss, and tax reports;


(D) preparation of other required self-insurance reports;


(E) development of members’ assessments and fees; and


(F) administration of a claim fund.


The definition includes the words “directly or indirectly,” as well as “or on behalf of” (a group), as well as “but not limited to.”  These words are not contained in the statutory definition of “service company” that is found at Texas Labor Code Section 407A.001 (a) (8). 


The concern is that these added words could greatly expand the statutory definition.  Many different “persons” provide services “directly or indirectly” to self-insured groups (as well as “on behalf of” such groups).  The words “but not limited to” also greatly expand on the statutory definition.  Such “persons” could include medical bill auditing companies, utilization review companies, case managers, electronic data interchange trading partners, private investigators, forensic engineers, doctors who perform peer reviews and required medical examinations, attorneys handling benefit review conferences, contested case hearings and other dispute resolution proceedings before the Division of Workers’ Compensation, SOAH and the courts, not to mention the “Austin Representative” of the group under Texas Labor Code Section 406.011. 


As stated above, the concern is that the proposed rules will serve as the model or basis for the rules the Department will propose to regulate third party administrators for workers’ compensation insurance carriers.


On October 8, 2008, the Texas Department of Insurance held a public meeting on the proposed amendments and proposed new rules. Ms. Nancy Moore, Deputy Commissioner for Workers’ Compensation, conducted the public meeting.  Ms. Moore stated that she had been delegated to conduct the meeting by Commissioner Geeslin pursuant to Order 08-0806. Ms. Moore called upon Kevin Brady, Deputy Commissioner of Insurance, to discuss the proposed amendments and proposed new rules. Mr. Brady testified the purpose of the amendments and new rules was to insure the solvency of self-insurance groups and to insure the payment of benefits. In addition the proposed amendments and new rules are to regulate the third party administrators (TPAs) that adjust the self-insurance groups’ workers’ compensation claims. Mr. Brady referred to TPAs as “delegated entities.”


Mr. Brady testified that self-insurance groups are responsible for their own actions as well as the actions of their TPAs. Other states have experienced problems with self- insurance groups. This problem in other states, according to Mr. Brady, is due to the TPAs. He testified that Texas has experienced similar problems with TPAs. He cited an example, without naming the TPA, as not having sufficient money to pay benefits as well as the failure to execute indemnity agreements.


The proposed amendments and new rules will set out minimum contract requirements between self-insurance groups and TPAs. The rule changes will allow the Texas


Department of Insurance to access TPAs’ books and records. The proposed rules will require an annual operation review plan that will be submitted to the Department. Mr. Brady discussed the definition of “service company” as having management or discretionary authority on a claim. According to Mr. Brady, the rule would apply to fewer not more TPAs.


Speaking at the public meeting were Steve Nichols with the Insurance Council of Texas, Kevin McGillicuddy with Parker & Associates, Tim Loonam, with Texas Cotton Ginners Trust, and Pam Beachley representing the Texas Cotton Ginners Trust. No action was taken by the Texas Department of Insurance at the public meeting on the proposed amendments and new rules. 


The proposed amendments and new rules can be accessed at:



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