EBIA Weekly Newsletter

TPA of Self-Insured Health Plan Not Subject to Texas Prompt-Pay Law

   February 18, 2016

Health Care Serv. Corp. v. Methodist Hosps. of Dallas, 2016 WL 530680 (5th Cir. 2016)

Available at http://www.ca5.uscourts.gov/opinions/pub/15/15-10154-CV0.pdf

The Fifth Circuit has ruled that a third-party administrator (TPA) of employer-sponsored self-insured health plans is not an insurer subject to the Texas Prompt Payment Act. A hospital sued the TPA for over $31 million under the state law, which generally requires insurers to pay benefit claims within 30 or 45 days (depending on the claim’s format), or face penalties. The TPA argued to the trial court that the Texas law does not apply because the TPA is not an “insurer” providing coverage through a “health insurance policy,” as required by the law. It also contended that ERISA preempts the application of the state law to claims arising under self-insured health plans. The trial court ruled that the state law by its terms does not apply to the TPA’s administration of self-insured plans; because of this conclusion, it did not address ERISA preemption.

On appeal by the hospital, the Fifth Circuit agreed that the prompt-pay law does not apply to the TPA. While noting that the TPA is a licensed insurance carrier authorized to issue health insurance policies in the state, the Fifth Circuit held that it is not an “insurer” when acting only in its capacity as a plan administrator. Furthermore, the TPA’s administrative services agreements and preferred provider agreements are not a “health insurance policy” because they do not provide benefits for medical or surgical expenses. The court explained that benefits are provided by the self-insured plans—wholly independent of any contractual relationship with the TPA.

EBIA Comment: In contrast with the Fifth Circuit’s ruling, earlier cases have concluded that the Texas prompt-pay law applies to TPAs of self-insured plans and is enforceable because it is not preempted by ERISA (see, e.g., our Checkpoint article). However, in this case, the Fifth Circuit did not have to rule on the preemption issue because of its determination that the law does not even apply to the TPA. For more information, see EBIA’s Self-Insured Health Plans manual at Section V.E (“ERISA Preemption and the Application of State Mandates”) and EBIA’s ERISA Compliance manual at Sections XXXIX.C (“State Laws That ‘Relate to’ ERISA Plans Are Generally Preempted”) and XXXIX.H (“Preemption Analysis Applied to Specific State Laws”).

Contributing Editors: EBIA Staff.