PART 1. TEXAS DEPARTMENT OF INSURANCE
CHAPTER 5. PROPERTY AND CASUALTY INSURANCE
SUBCHAPTER C. TEXAS MEDICAL LIABILITY INSURANCE UNDERWRITING ASSOCIATION
28 TAC §5.2004
The Texas Department of Insurance adopts amendments to 28 TAC §5.2004, concerning the Texas Medical Liability Insurance Underwriting Association's (JUA) Plan of Operation (Plan). TDI adopts the amendments without changes to the proposed text published in the June 23, 2017, issue of the Texas Register (42 TexReg 3250). TDI held a hearing on July 7, 2017, but did not receive any oral or written comments.
REASONED JUSTIFICATION. The Texas Legislature formed the JUA in 1975 to be the residual market for medical liability insurance. Senate Bill 18, 84th Legislature, Regular Session (2015) enacted Insurance Code Chapter 2203, Subchapter J, which requires the commissioner of insurance to determine whether a necessity exists to suspend the JUA's authority to issue new insurance policies.
To evaluate the JUA in response to SB 18, TDI requested information from the JUA on its operations and current policyholders. After reviewing the information, TDI determined that amendments to the Plan are necessary to help the JUA efficiently operate as the residual market for medical liability insurance. TDI adopts four amendments to the Plan:
1. Require that eligibility be based on two written rejections by carriers.
2. Require that eligibility for reapplication be based on two written rejections by carriers.
3. Remove the subsection that allows higher rates to be a criterion for eligibility.
4. Prohibit accepting applicants that owe deductibles to the JUA.
This order also updates §5.2004(a)(2). Before the amendment, §5.2004(a)(2) stated that the JUA could not issue policies after the date fixed in the Texas Medical Liability Insurance Association Act for a plan of suspension to become effective and operative. The date fixed in the Act was December 31, 1985. No plan of suspension became effective on that date, so that part of the section is obsolete. The amendment removes the reference to the date, but retains the requirement that if the JUA is suspended it cannot issue a policy with an effective date later than the date of suspension.
This order adopts updated citations to the Insurance Code to reflect changes made by the nonsubstantive recodification of the Insurance Code by House Bill 2922, 78th Legislature, Regular Session (2003), and HB 2017, 79th Legislature, Regular Session (2005). The order also adopts proposed nonsubstantive editorial and formatting changes to conform the rule text to TDI's current writing style and improve the rules clarity.
Discussion of Amendments
1. Require that eligibility be based on two written rejections by carriers. TDI amends 28 TAC §5.2004(b)(4)(A)(ii) and §5.2004(b)(4)(A)(iii) to specify a single way that applicants may show their inability to obtain coverage: by submitting written rejections from two voluntary market carriers. A carrier may be an insurer or a self-insurance trust created under Insurance Code Chapter 2212 (formerly Insurance Code Article 21.49-4).
Under §5.2004(b)(4)(A)(ii) and §5.2004(b)(4)(A)(iii), applicants seeking coverage from the JUA must provide evidence that they are unable to obtain coverage in the voluntary market. Evidence includes two rejections from carriers that provide the type of coverage applied for, and prior to the amendment, the rejections could be shown by valid notification from the carriers or by sworn affidavit of the applicant or applicant's agent. The amendment removes the sworn affidavit option.
The JUA's purpose is to serve as the residual market for medical liability insurance, available for licensed physicians and health care providers that cannot obtain coverage in the voluntary market. Requiring applicants to provide two written rejections as proof of the inability to obtain coverage will help ensure that the JUA will accept only applicants eligible for coverage. In addition, this will enable the JUA to document this information for each applicant.
2. Require that eligibility for reapplication be based on two written rejections by carriers. Section 5.2004(b)(4)(A)(ii) and §5.2004(b)(4)(A)(iii) require applicants to show their inability to obtain coverage from the voluntary market. In practice, the JUA also required this proof on reapplication, but that requirement was not expressly stated in the Plan.
For consistency with the JUA practices, TDI amends the Plan to expressly require that applicants show their inability to obtain coverage every time they reapply to the JUA. Policyholders must reapply at the end of their policy term. As the Plan is amended, on each reapplication for a policy applicants must be required to go through the same process that is required on their initial application. Because the JUA's purpose is to be a residual market, applicants should have to provide proof of rejection each time they apply for coverage, regardless of their prior coverage in the JUA.
3. Remove higher rates as a criterion for eligibility. TDI amends the Plan so that, in determining eligibility for JUA coverage, applicants are not considered rejected from a carrier if they are accepted in the voluntary market at a rate higher than that available from the JUA. Prior to amendment, under §5.2004(b)(4)(B) it was considered a rejection if the applicant was accepted in the voluntary market at a higher rate than the rate offered by the JUA. The JUA's function is to operate as a residual market, not to be in price competition with the voluntary market. Therefore, higher prices should not be considered a rejection, and §5.2004(b)(4)(B) is amended to reflect this.
The amendment to remove higher rates from carriers as a reason for rejection does not apply to nursing homes and assisted living facilities. Insurance Code §2203.102 and 28 TAC §5.2004(b)(4)(A)(iii) require that nursing homes and assisted living facilities applying for coverage must show the inability to obtain substantially equivalent coverage and rates. Accordingly, nursing homes and assisted living facilities may still consider a higher price from a carrier in the voluntary market as a rejection from that carrier.
4. Prohibit accepting applicants that owe deductibles. TDI amends the JUA's underwriting standards by adding new §5.2004(b)(4)(A)(ix) to prohibit the JUA from accepting applicants that owe the JUA all or part of a deductible. Insurance Code §2203.104 and 28 TAC §5.2004(b)(4)(A)(viii) require that an applicant has no unpaid, uncontested premium, or assessment due from prior insurance. Amending the Plan to include unreimbursed deductibles will similarly allow the JUA to decline coverage to applicants that owe the JUA all or part of a deductible.
SUMMARY OF COMMENTS. TDI did not receive any comments on the proposed amendments.
STATUTORY AUTHORITY. TDI adopts the amendments under Insurance Code Article 21.49-3, Sec. 12 and Sec. 13 and Insurance Code §§2203.053, 2203.054, 2203.101, 2203.102, 2203.104, and 36.001.
Insurance Code Article 21.49-3, Sec. 12, provides that at any time TDI finds that the association is no longer needed to accomplish the purposes for which it was created, TDI may issue an order suspending the association as of a certain date stated in the order.
Insurance Code Article 21.49-3, Sec. 13, provides that if TDI issues an order suspending the association, no policies may be issued by the association after the date of suspension.
Insurance Code §2203.053 requires that the plan of operation contain provisions relating to the establishment of necessary facilities; the association's management; the assessment of members and policyholders to defray losses and expenses; the administration of the policyholder's stabilization reserve funds; commission arrangements; reasonable and objective underwriting standards; the acceptance, assumption, and cession of reinsurance; the appointment of servicing insurers; and procedures for determining amounts of insurance to be provided by the association.
Insurance Code §2203.054 allows the commissioner to direct amendments to the association's plan of operation.
Insurance Code §2203.101 directs the commissioner to establish by order the categories of physicians and health care providers that are eligible to obtain insurance coverage from the association.
Insurance Code §2203.102 provides that a nursing home or assisted living facility not otherwise eligible for coverage under Insurance Code §2203.101 is eligible for that coverage if it can show it made a verifiable effort to obtain coverage from a carrier in the voluntary market and was unable to obtain substantially equivalent coverage and rates.
Insurance Code §2203.104 states that a physician or health care provider included in a category eligible for insurance coverage by the association is entitled to apply to the association for coverage. On receipt of the premium and the policyholder's stabilization reserve fund charge, the association must issue a medical liability insurance policy if the association determines that the applicant meets the underwriting standards of the association prescribed by the plan of operation, and there is no unpaid and uncontested premium, charge, or assessment due from the applicant.
Insurance Code §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of TDI under the Insurance Code and other laws of this state.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 7, 2017.
Texas Department of Insurance
Effective date: August 27, 2017
Proposal publication date: June 23, 2017
For further information, please call: (512) 676-6584