B-0046-98

To: Insurers Licensed to Write Accident and Health Insurance and All Health Maintenance Organizations

Re: Business Practices Related to Individual and Small Group Coverage and Election to be a Small or Large Employer Carrier

The purpose of this bulletin is to convey the position of the Texas Department of Insurance (TDI) on industry practices that TDI staff believe violate federal and state statutes and regulations. Additionally, this bulletin alerts industry that certain information must be submitted to this Department.

The practices which TDI staff believe violate federal and state law are:

Agent Commissions

Small employer market -- The rate commissions forwarded to this Department indicate some small employer carriers utilize agent commission schedules which discourage agents from selling to very small groups. Examples of unacceptable commissions include:
1. No or reduced commissions and bonuses for sales to high risk groups
2. Commission schedules which pay a smaller amount for sales to groups with fewer employees.
The use of commission schedules which discourage agents from marketing to small employers is viewed as a circumvention of not only Insurance Code Chapter 26 provisions related to small employer coverage but also portions of federal law, the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Individual market -- TDI has received information indicating some individual carriers use commission schedules, underwriting guidelines or other procedures that discourage agents from submitting applications or otherwise prohibit consideration of applicants whose most recent coverage was under a group health plan, government plan or church plan. The 75th Legislature: (a) enacted the Texas Health Insurance Risk Pool to provide coverage to HIPAA eligible individuals AND (b) amended Insurance Code Article 3.70-1(H) to provide protection beyond federal requirements for individuals whose most recent coverage was under a group health plan, government plan or church plan. Use of any tactic to discourage or prohibit consideration of these individuals is contrary to the purpose of the legislation.

Processing Applications

Small employer market -- TDI has been informed that small employer carriers are NOT providing price quotes to small employers in a timely manner. According to 28 TAC §26.13(d), a small employer carrier is required to provide a price quote to a small employer within ten (10) working days of receipt of such information necessary to give a quote. The rule also requires a carrier to notify the small employer within five (5) working days of receipt of a request for any additional information needed to provide the quote.

Individual market -- TDI has received information indicating some carriers writing individual health coverage are refusing to accept or process an application from an individual who is currently covered under federal continuation (COBRA) or state continuation. While this practice is allowed under Insurance Code Article 3.77 for individuals seeking coverage from the Texas Health Insurance Risk Pool, no such provision is contained in the laws and rules applicable to individual health coverage. This practice in the individual market violates Insurance Code Article 21.21-8. Refer also to the second bullet under Agent Commissions.

All carriers affected by this bulletin are directed to review their commission schedules, practices, procedures and underwriting criteria to verify compliance and, if necessary, make modifications to comply. If TDI receives complaints or information in the future concerning these types of violations, the Department will investigate and take prompt action as necessary.

Information to be reported to TDI:

Small or Large Employer Carrier Elections -- Insurance Code Articles 26.07 and 26.82 and recently adopted rules 28 TAC §28.6(a) and 26.302(a) require all health carriers to certify by March 1: (a) whether or not the carrier is offering or renewing small and large employer health coverage and (b) other information. Figure 40 (Form Number 1212 SEHC STATUS) and Figure 50 (Form Number 1212 CERT LEHC STATUS) are to be utilized for this election and reporting.

Additionally, a carrier that elects to be a small or large employer carrier must establish and notify this department of the geographic service area(s) within which it will operate as a small or large employer carrier. Figure 44 (Form Number 1212 CERT GEOG) and Figure 51 (Form Number 1212, LEHC GEOG) are to be utilized for filing geographic service areas. Refer to 28 TAC §26.6(c) and 26.302(c).

Copies of the referenced and other 28 TAC, Chapter 26 Figures are available either from TDI's home page at www.tdi.state.tx.us or by contacting the Life/Health Group at 512/322-3409. If you have not submitted the required filings, please do so no later than August 1, 1998. Otherwise, enforcement action may be initiated.

If you have additional questions pertaining to this bulletin, please contact Kimberly Stokes, Deputy Commissioner of the Life/Health Group, at 512/322-3401 or Karen Thrash, Deputy Commissioner of the HMO/UR Group, at 512/322-4266.

_________________________
Rose Ann Reeser
Associate Commissioner
Regulation and Safety