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  H.B. No. 472
 
 
 
 
AN ACT
  relating to the regulation of third-party administrators,
  including administrators with delegated duties in the workers'
  compensation system of this state; providing penalties.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
  ARTICLE 1. THIRD-PARTY ADMINISTRATORS
         SECTION 1.01.  Section 4151.001, Insurance Code, is amended
  by amending Subdivisions (1) and (2) and adding Subdivisions (6),
  (7), and (8) to read as follows:
               (1)  "Administrator" means a person who, in connection
  with annuities or life benefits, health benefits, [and] accident
  benefits, [including] pharmacy benefits, or workers' compensation
  benefits, collects premiums or contributions from or adjusts or
  settles claims for residents of this state. The term includes a
  delegated entity under Chapter 1272 and a workers' compensation
  health care network authorized under Chapter 1305 that administers
  a workers' compensation claim for an insurer, including an insurer
  that establishes or contracts with the network to provide health
  care services.  The term does not include a person described by
  Section 4151.002.
               (2)  "Insurer" means a person who engages in the
  business of life, health, [or] accident, or workers' compensation
  insurance under the law of this state.  For purposes of this chapter
  only, the term also includes an "insurance carrier," as defined by
  Section 401.011(27), Labor Code, other than a governmental entity
  or a workers' compensation self-insurance group subject to
  regulation under Chapter 407A, Labor Code.
               (6)  "Workers' compensation benefits" means benefits
  provided under Title 5, Labor Code, or services provided through a
  certified workers' compensation health care network authorized
  under Chapter 1305.
               (7)  "Workers' compensation insurance coverage" means
  coverage subject to Subtitle E, Title 10.  The term includes
  coverage described by Sections 401.011(44)(A) and (B), Labor Code.
               (8)  "Workers' compensation self-insurer" means a legal
  entity subject to regulation under Chapter 407, Labor Code.
         SECTION 1.02.  Section 4151.002, Insurance Code, is amended
  to read as follows:
         Sec. 4151.002.  EXEMPTIONS. A person is not an
  administrator if the person is:
               (1)  an employer, other than a certified workers'
  compensation self-insurer, administering an employee benefit plan
  or the plan of an affiliated employer under common management and
  control [acting on behalf of its employees or the employees of one
  or more subsidiaries or affiliated corporations of the employer];
               (2)  a union administering a benefit plan [acting] on
  behalf of its members;
               (3)  an insurer or a group hospital service corporation
  subject to Chapter 842 acting with respect to a policy lawfully
  issued and delivered by the insurer or corporation in and under the
  law of a state in which the insurer or corporation was authorized to
  engage in the business of insurance;
               (4)  a health maintenance organization that is
  authorized to operate in this state under Chapter 843 with respect
  to any activity that is specifically regulated under that chapter,
  Chapter 1271, 1272, or 1367, Subchapter A, Chapter 1452, or
  Subchapter B, Chapter 1507;
               (5)  an agent licensed under Subchapter B, Chapter
  4051, Subchapter B, Chapter 4053, or Subchapter B, Chapter 4054,
  who receives commissions as an agent and is acting:
                     (A)  under appointment on behalf of an insurer
  authorized to engage in the business of insurance in this state; and
                     (B)  in the customary scope and duties of the
  person's authority as an agent;
               (6)  a creditor acting on behalf of its debtor with
  respect to insurance that covers a debt between the creditor and its
  debtor, if the creditor performs only the functions of a group
  policyholder or a creditor;
               (7)  a trust established in conformity with 29 U.S.C.
  Section 186 or a trustee or employee who is acting under the trust;
               (8)  a trust that is exempt from taxation under Section
  501(a), Internal Revenue Code of 1986, or a trustee or employee
  acting under the trust;
               (9)  a custodian or a custodian's agent or employee who
  is acting under a custodian account that complies with Section
  401(f), Internal Revenue Code of 1986;
               (10)  a bank, credit union, savings and loan
  association, or other financial institution that is subject to
  supervision or examination under federal or state law by a federal
  or state regulatory authority, if the institution is performing
  only those functions for which the institution holds a license
  under federal or state law;
               (11)  a company that advances and collects a premium or
  charge from its credit card holders on their authorization, if the
  company does not adjust or settle claims and acts only in the
  company's debtor-creditor relationship with its credit card
  holders;
               (12)  a person who adjusts or settles claims in the
  normal course of the person's practice or employment as a licensed
  attorney and who does not collect any premium or charge in
  connection with annuities or with life, health, [or] accident,
  pharmacy, or workers' compensation benefits[, including pharmacy
  benefits];
               (13)  an adjuster licensed under Subtitle C by the
  department who is engaged in the performance of the individual's 
  [person's] powers and duties as an adjuster in the scope of the
  individual's [person's] license;
               (14)  a person who provides technical, advisory,
  utilization review, precertification, or consulting services to an
  insurer, plan, or plan sponsor but does not make any management or
  discretionary decisions on behalf of the insurer, plan, or plan
  sponsor;
               (15)  an attorney in fact for a Lloyd's plan operating
  under Chapter 941 or for a reciprocal or interinsurance exchange
  operating under Chapter 942 who is acting in the capacity of
  attorney in fact under the applicable chapter;
               (16)  a joint fund, risk management pool, or
  self-insurance pool composed of political subdivisions of this
  state that participate in a fund or pool through interlocal
  agreements, any nonprofit administrative agency or governing body
  or other nonprofit entity that acts solely on behalf of a fund,
  pool, agency, or body, or any other fund, pool, agency, or body
  established under or for the purpose of implementing an interlocal
  governmental agreement;
               (17)  a self-insured political subdivision;
               (18)  a plan under which insurance benefits are
  provided exclusively by an insurer authorized to engage in the
  business of insurance in this state and the administrator of which
  is:
                     (A)  a full-time employee of the plan's organizing
  or sponsoring association, trust, or other entity; or
                     (B)  a trustee of the organizing or sponsoring
  trust; [or]
               (19)  a parent of a wholly owned direct or indirect
  subsidiary insurer authorized to engage in the business of
  insurance in this state or a wholly owned direct or indirect
  subsidiary insurer that is a part of the parent's holding company
  system that, under an agreement regulated and approved under
  Chapter 823 or a similar statute of the domiciliary state if the
  parent or subsidiary insurer is a foreign insurer engaged in
  business in this state, on behalf of only itself or an affiliated
  insurer:
                     (A)  collects premiums or contributions, if the
  parent or subsidiary insurer:
                           (i)  prepares only billing statements and
  places those statements in the United States mail; and
                           (ii)  causes all collected premiums to be
  deposited directly in a depository account of the particular
  affiliated insurer; or
                     (B)  furnishes proof-of-loss forms, reviews
  claims, determines the amount of the liability for those claims,
  and negotiates settlements, if the parent or subsidiary insurer
  pays claims only from the funds of the particular subsidiary by
  checks or drafts of that subsidiary; or
               (20)  an affiliate, as described by Chapter 823.003, of
  a self-insurer certified under Chapter 407, Labor Code, and who:
                     (A)  is performing the acts of an administrator on
  behalf of that certified self-insurer; and
                     (B)  directly or indirectly through one or more
  intermediaries, controls, is controlled by, or is under common
  control with that certified self-insurer, as the term "control" is
  described by Section 823.005.
         SECTION 1.03.  Subchapter A, Chapter 4151, Insurance Code,
  is amended by adding Sections 4151.0021, 4151.0031, and 4151.0051
  to read as follows:
         Sec. 4151.0021.  APPLICABILITY TO CERTAIN PROCESSING
  AGENTS. (a) In this section, "processing agent" means a person
  described by Section 413.0111, Labor Code.
         (b)  A processing agent is not an administrator for purposes
  of this chapter if the processing agent is acting as an assignee of
  a pharmacy and if:
               (1)  the assignee has a written contract with the
  pharmacy to:
                     (A)  act as the provider of licensed pharmacy
  services in lieu of the pharmacy; and
                     (B)  purchase the pharmacy's claims at face value,
  or at a value expressly stated in the contract; and
               (2)  the contract specifically prohibits the assignee
  from performing any function of an administrator, as that term is
  defined in this chapter, unless the assignee holds a certificate of
  authority under this chapter.
         Sec. 4151.0031.  MARKET ANALYSIS. The commissioner may
  conduct market analyses and examinations of an administrator under
  Chapter 751.
         Sec. 4151.0051.  REFERRAL TO ADJUSTER BY ADMINISTRATOR. (a)
  An administrator may not knowingly refer a claim or loss for
  adjustment in this state to an individual purporting to be or acting
  as an adjuster unless the individual holds a license under Chapter
  4101.
         (b)  Before first referring a claim or loss for adjustment,
  an administrator must ascertain from the commissioner whether the
  individual selected to perform the adjustment holds a license under
  Chapter 4101. After receipt of information from the department
  that the individual does hold an adjuster license, the
  administrator may refer claims or losses to the individual for
  adjustment until the administrator has actual knowledge or receives
  information from the department that the individual no longer holds
  an adjuster license under Chapter 4101.  The department shall keep
  an updated list of individuals who hold adjuster licenses.
         SECTION 1.04.  Section 4151.006, Insurance Code, is amended
  to read as follows:
         Sec. 4151.006.  RULES. The commissioner may adopt, in the
  manner prescribed by Subchapter A, Chapter 36, rules that are fair,
  [and] reasonable, and appropriate [rules, minimum standards, or
  limitations as appropriate] to augment and implement this chapter,
  including rules establishing financial standards, reporting
  requirements, and required contract provisions.
         SECTION 1.05.  Section 4151.052, Insurance Code, is amended
  to read as follows:
         Sec. 4151.052.  APPLICATION. (a) An application for a
  certificate of authority to engage in business as an administrator
  must be in a form prescribed by the commissioner and must include
  the following:
               (1)  a copy of each basic organizational document of
  the applicant, including the articles of incorporation, bylaws,
  articles of association, trade name certificate, and any other
  similar document and a copy of any amendment to any of those
  documents;
               (2)  a description of the applicant and the applicant's
  services, facilities, and personnel;
               (3)  if the applicant is not domiciled in this state, a
  power of attorney executed by the applicant appointing the
  commissioner, the commissioner's successors in office, or the
  commissioner's appointed designee as the applicant's attorney in
  this state on whom process may be served in any legal action or
  proceeding based on a cause of action arising in this state against
  the applicant;
               (4)  an audited financial statement of the applicant
  covering the preceding three calendar years or any lesser period
  that the applicant and any predecessors of the applicant have been
  in existence, or if an audited financial statement is not
  available, an unaudited financial statement as of a date not
  earlier than the 120th day before the date the application is filed,
  accompanied by an affidavit or certification of the applicant that:
                     (A)  the unaudited financial statement is true and
  correct, as of its date; and
                     (B)  a material change in financial condition has
  not occurred from the date of the financial statement to the
  execution date of the affidavit or certification; and
               (5)  any other information the commissioner reasonably
  requires.
         (b)  An applicant for a certificate of authority or a
  certificate holder under this chapter shall notify the department
  in the manner prescribed by commissioner rule of a change of control
  in the applicant's or certificate holder's ownership not later than
  the 30th day after the effective date of the change and shall notify
  the department of any other fact or circumstance affecting the
  applicant's or certificate holder's qualifications for a
  certificate of authority in this state as required by commissioner
  rule.
         SECTION 1.06.  Section 4151.056, Insurance Code, is amended
  to read as follows:
         Sec. 4151.056.  DURATION OF CERTIFICATE OF AUTHORITY.  A
  certificate of authority issued to an administrator under this
  chapter is effective until it is suspended, canceled, or revoked.
  The issuance, denial, suspension, cancellation, or revocation of a
  certificate of authority to act as an administrator is subject to:
               (1)  Subchapters B and C, Chapter 4005; [and]
               (2)  Chapter 82; and
               (3)  Subchapter G.
         SECTION 1.07.  The heading to Subchapter C, Chapter 4151,
  Insurance Code, is amended to read as follows:
  SUBCHAPTER C. POWERS AND DUTIES OF [THIRD-PARTY] ADMINISTRATORS AND
  INSURERS
         SECTION 1.08.  Section 4151.101, Insurance Code, is amended
  to read as follows:
         Sec. 4151.101.  WRITTEN AGREEMENT WITH INSURER OR PLAN
  SPONSOR REQUIRED. (a) An administrator may provide services only
  under a written agreement with an insurer or plan sponsor.
         (b)  The commissioner by rule may prescribe provisions that
  must be included in the written agreement.
         SECTION 1.09.  Section 4151.102, Insurance Code, is amended
  by adding Subsection (a-1) to read as follows:
         (a-1)  The written agreement must include a statement of the
  duties that the administrator is expected to perform on behalf of
  the insurer, and the lines, classes, or types of insurance that the
  administrator is authorized to administer. The agreement must
  include, as applicable, provisions regarding claims handling and
  other standards relating to the business underwritten by the
  insurer.
         SECTION 1.10.  Section 4151.103, Insurance Code, is amended
  by amending Subsection (a) and adding Subsection (d) to read as
  follows:
         (a)  The [During the term of the written agreement, the]
  administrator and the insurer, plan, or plan sponsor shall retain a
  copy of the written agreement as part of their official records:
               (1)  during the term of the agreement; and
               (2)  until the fifth anniversary of the date on which
  the agreement expires.
         (d)  The commissioner shall adopt rules to address the
  transfer of records from one administrator to another.
         SECTION 1.11.  Section 4151.104, Insurance Code, is amended
  to read as follows:
         Sec. 4151.104.  NOTICE OF USE OF ADMINISTRATOR'S SERVICES.
  (a) If an insurer, plan, or plan sponsor uses the services of an
  administrator, the administrator shall give written notice to each
  insured and injured employee [or plan participant] of the
  administrator's identity and the relationship among the
  administrator and the insurer, plan, or plan sponsor and the
  insured and injured employee [or plan participant]. The insurer,
  plan, or plan sponsor must approve the notice before the notice is
  distributed.
         (b)  An administrator administering workers' compensation
  claims may satisfy the requirements of Subsection (a) by including
  the notice as part of, or in conjunction with, the notice required
  under Section 406.005(c), Labor Code.
         (c)  An administrator who fails to provide notice as required
  by Subsection (a) is subject to an administrative penalty in the
  manner provided by Chapter 84.
         SECTION 1.12.  Subchapter C, Chapter 4151, Insurance Code,
  is amended by adding Sections 4151.1041 and 4151.1042 to read as
  follows:
         Sec. 4151.1041.  REFERRAL BY INSURER. (a)  An insurer may
  not knowingly refer a claim or loss for administration in this state
  to a person purporting to be or acting as an administrator unless
  the person holds a certificate of authority under this chapter.
         (b)  Before first referring a claim or loss for
  administration, an insurer must ascertain from the commissioner
  whether the person performing the administration holds a
  certificate of authority under this chapter. Once the insurer has
  ascertained that the person holds a certificate of authority, the
  insurer may refer a claim to the person for administration and may
  continue to refer claims to the person until the insurer has
  knowledge or receives information from the commissioner that the
  person no longer holds a certificate of authority.
         Sec. 4151.1042.  RESPONSIBILITIES OF INSURER; SEMIANNUAL
  AUDIT. (a) If an insurer uses the services of an administrator,
  the insurer is responsible for determining the benefits, premium
  rates, reimbursement procedures, and claims payment procedures
  applicable to the coverage and for securing reinsurance, if any.
  The insurer shall provide a copy of the written requirements
  relating to those matters to the administrator. The
  responsibilities of the administrator as to any of those matters
  must be set forth in the written agreement between the
  administrator and the insurer.
         (b)  An insurer shall ensure competent administration of its
  programs.
         (c)  If an administrator administers benefits for more than
  100 certificate holders, injured employees, plan participants, or
  policyholders on behalf of an insurer, the insurer shall, at least
  semiannually, conduct a review of the operations of the
  administrator. At least biennially, the insurer shall conduct an
  on-site audit of the operations of the administrator.
         SECTION 1.13.  Section 4151.111, Insurance Code, is amended
  by adding Subsection (c) to read as follows:
         (c)  In the event of a conflict between this section and a
  provision of the Labor Code relating to time periods for
  adjudication and payment of workers' compensation claims, the Labor
  Code provision prevails.
         SECTION 1.14.  Section 4151.113(b), Insurance Code, is
  amended to read as follows:
         (b)  A trade secret, including the identity and address of a
  policyholder, [or] certificate holder, or injured employee, is
  confidential, except the commissioner may use that information in a
  proceeding against the administrator.
         SECTION 1.15.  Section 4151.117, Insurance Code, is amended
  to read as follows:
         Sec. 4151.117.  COMPENSATION OF ADMINISTRATOR.  (a) An
  administrator's compensation may be determined:
               (1)  as a percentage of the premiums or charges the
  administrator collects or the amount of claims the administrator
  pays or processes; or
               (2)  except as provided by Subsection (b), on another
  basis as specified in the written agreement.
         (b)  An insurer or plan sponsor may not permit or provide
  compensation or another thing of value to an administrator that is
  based on the savings accruing to the insurer or plan sponsor because
  of adverse determinations regarding claims for benefits,
  reductions of or limitations on benefits, or other analogous
  actions inconsistent with this chapter, that are made or taken by
  the administrator.
         SECTION 1.16.  The heading to Subchapter E, Chapter 4151,
  Insurance Code, is amended to read as follows:
  SUBCHAPTER E.  DEPARTMENT REGULATION OF [THIRD-PARTY]
  ADMINISTRATORS
         SECTION 1.17.  Section 4151.205, Insurance Code, is amended
  by amending Subsection (a) and adding Subsections (c), (d), (e),
  and (f) to read as follows:
         (a)  An administrator shall annually, not later than June 30 
  [March 1], file with the commissioner a report on a form prescribed
  by the commissioner. The report must contain any information
  required by the commissioner and must be verified by at least two
  officers of the administrator.
         (c)  Except as provided by Subsection (f), the annual report
  must include an audited financial statement performed by an
  independent certified public accountant. An audited financial
  statement prepared on a consolidated basis must include a columnar
  consolidating or combining worksheet that shall be filed with the
  annual report and must comply with the following:
               (1)  amounts shown on the consolidated audited
  financial report must be shown on the worksheet;
               (2)  amounts for each entity must be stated separately;
  and
               (3)  explanations of consolidating and eliminating
  entries must be included.
         (d)  The annual report must include notes to the financial
  statement or attachments that reflect the complete name and address
  of each insurer in this state with which the administrator had an
  agreement during the preceding fiscal year.
         (e)  Information derived from an audited financial statement
  contained in an annual report under this section is confidential
  and is not subject to disclosure under Chapter 552, Government
  Code.
         (f)  An administrator who receives less than $10 million
  annually as compensation for performing administrative services
  and operates under written agreements subject to this chapter with
  insurers or plan sponsors in this state is not required to file an
  audited financial statement under Subsection (c), but must file a
  financial statement certified in the manner prescribed by
  commissioner rule.
         SECTION 1.18.  Section 4151.206(a), Insurance Code, is
  amended to read as follows:
         (a)  The commissioner shall collect and an applicant or
  administrator shall pay to the commissioner fees in an amount to be
  determined by the commissioner as follows:
               (1)  a filing fee not to exceed $1,000 for processing an
  original application for a certificate of authority for an
  administrator;
               (2)  a fee not to exceed $500 for an examination under
  Section 4151.201 [4201.201]; and
               (3)  a filing fee not to exceed $200 for an annual
  report.
         SECTION 1.19.  Subchapter E, Chapter 4151, Insurance Code,
  is amended by adding Sections 4151.210, 4151.211, and 4151.212 to
  read as follows:
         Sec. 4151.210.  EFFECT OF REVOCATION OF OTHER CERTIFICATES.
  An officer or a director or a shareholder with a controlling
  interest of an entity whose certificate of authority to engage in
  the business of insurance or other analogous authorization has been
  revoked in this state or in any other state may not act as an
  officer, director, member, manager, or partner, or as a shareholder
  with a controlling interest, of an entity that holds a certificate
  of authority issued under this chapter unless the commissioner
  determines, for good cause shown, that it is in the public interest
  to permit the individual to act in that capacity.
         Sec. 4151.211.  RESTRICTIONS ON ACQUISITION OF OWNERSHIP
  INTEREST. (a) A person may not acquire an ownership interest in an
  entity that holds a certificate of authority under this chapter if
  the person is, or after the acquisition would be, directly or
  indirectly in control of the certificate holder, or otherwise
  acquire control of or exercise any control over the certificate
  holder, unless the person has filed with the department under oath:
               (1)  a biographical form for each person by whom or on
  whose behalf the acquisition of control is to be effected;
               (2)  a statement certifying that no person who is
  acquiring an ownership interest in or control of the certificate
  holder has been the subject of a disciplinary action taken by a
  financial or insurance regulator of this state, another state, or
  the United States;
               (3)  a statement certifying that, immediately on the
  change of control, the certificate holder will be able to satisfy
  the requirements for the issuance of a certificate of authority;
  and
               (4)  any additional information that the commissioner
  by rule may prescribe as necessary or appropriate to the public
  interest and the protection of the insurance consumers of this
  state.
         (b)  The department may require a partnership, syndicate, or
  other group that is required to file a statement under Subsection
  (a) to provide the information required under that subsection for
  each partner of the partnership, each member of the syndicate or
  group, and each person who controls the partner or member. If the
  partner, member, or person is a corporation or the person required
  to file the statement under Subsection (a) is a corporation, the
  department may require that the information required under that
  subsection be provided regarding:
               (1)  the corporation;
               (2)  each individual who is an executive officer or
  director of the corporation; and
               (3)  each person who is directly or indirectly the
  beneficial owner of more than 10 percent of the outstanding voting
  securities of the corporation.
         (c)  The department may disapprove an acquisition of control
  if, after notice and opportunity for hearing, the commissioner
  determines that:
               (1)  immediately on the change of control the
  certificate holder would not be able to satisfy the requirements
  for the certificate of authority;
               (2)  the competence, trustworthiness, experience, and
  integrity of the persons who would control the operation of the
  certificate holder are such that it would not be in the interest of
  the insurance consumers of this state to permit the acquisition of
  control; or
               (3)  the acquisition of control would violate this code
  or another law of this state, another state, or the United States.
         (d)  Notwithstanding Subsection (c), a change in control is
  considered approved if the commissioner has not proposed to deny
  the requested change before the 61st day after the date on which the
  department receives all information required by this section.
         Sec. 4151.212.  MAINTENANCE OF QUALIFICATIONS REQUIRED. The
  department may, in the manner prescribed by Section 4151.056 and by
  Subchapter G, revoke, suspend, or refuse to renew the certificate
  of authority of a certificate holder who does not maintain the
  qualifications necessary to obtain a certificate of authority
  issued under this chapter.
         SECTION 1.20.  Chapter 4151, Insurance Code, is amended by
  adding Subchapter F to read as follows:
  SUBCHAPTER F. WORKERS' COMPENSATION BENEFIT PLANS
         Sec. 4151.251.  DEFINITION. For purposes of this subchapter
  only, "insurance carrier" means:
               (1)  an insurance company; or
               (2)  a certified self-insurer for workers' compensation
  insurance, other than a certified self-insurance group under
  Chapter 407A, Labor Code, or a governmental entity that
  self-insures.
         Sec. 4151.252.  APPLICATION. (a) This subchapter applies
  to the administration of workers' compensation insurance coverage.
         (b)  This subchapter does not apply to an employer that does
  not elect under Subchapter A, Chapter 406, Labor Code, to obtain
  workers' compensation insurance coverage.
         Sec. 4151.253.  AGREEMENTS BETWEEN ADMINISTRATORS AND
  CARRIERS. (a)  An administrator shall enter into a contract in
  connection with workers' compensation benefits for collecting
  premium or contributions, adjusting claims, or settling claims with
  the insurance carrier responsible for those claims, including the
  insurance carrier responsible for claims arising under policies
  authorized under Section 2053.202(b).  A contract required by this
  subsection may be in the form of a master services agreement.
         (b)  A contract required by Subsection (a) must provide that:
               (1)  the contract does not limit in any way the
  insurance carrier's authority or responsibility, including
  financial responsibility, to comply with each statutory or
  regulatory requirement; and
               (2)  the administrator shall comply with each statutory
  or regulatory requirement relating to a function assumed by or
  carried out by the administrator.
         Sec. 4151.254.  AGREEMENTS BETWEEN ADMINISTRATORS AND
  EMPLOYERS. (a) In addition to the contract required by Section
  4151.253, an administrator may also enter into a contract with an
  employer in connection with workers' compensation benefits for
  collecting premium or contributions, adjusting claims, or settling
  claims, including an employer purchasing a policy authorized under
  Section 2053.202(b).
         (b)  A contract entered into under Subsection (a) must
  provide that:
               (1)  the contract does not limit or modify in any way:
                     (A)  the insurance carrier's authority or
  responsibility, including financial responsibility, to comply with
  each statutory or regulatory requirement; and
                     (B)  the provisions of the contract entered into
  between the administrator and the insurance carrier under Section
  4151.253; and
               (2)  the administrator shall comply with each statutory
  or regulatory requirement relating to a function assumed by or
  carried out by the administrator.
         Sec. 4151.255.  ADMINISTRATOR COMPENSATION. Except as
  provided by Section 4151.117, an administrator may accept
  compensation of any kind for the performance of administrative
  services in connection with workers' compensation claims from:
               (1)  an insurance carrier responsible for those claims;
               (2)  an employer with whom the administrator has
  entered into a contract; or
               (3)  both the insurance carrier and the employer.
         Sec. 4151.256.  LARGE DEDUCTIBLE POLICIES. An employer who
  enters into a contract with an insurance carrier under Section
  2053.202(b) may not use or contract with an administrator to
  perform administrative services in connection with workers'
  compensation benefits unless the administrator has entered into a
  written agreement with the insurance carrier that:
               (1)  complies with all the provisions of this chapter;
  and
               (2)  provides that the insurance carrier is responsible
  for:
                     (A)  setting standards used in the handling of
  claims; and
                     (B)  arranging for the payment of claims.
         Sec. 4151.257.  RULES. The commissioner shall adopt rules
  to implement the requirements of this subchapter, including rules
  prescribing requirements for contracts and master services
  agreements and requirements for the payment of claims. The rules
  must provide for compliance with the requirements of this chapter
  for any contract that takes effect or has an annual anniversary date
  on or after January 1, 2008.
         SECTION 1.21.  Chapter 4151, Insurance Code, is amended by
  adding Subchapter G to read as follows:
  SUBCHAPTER G. DISCIPLINARY ACTIONS; PENALTIES
         Sec. 4151.301.  GROUNDS FOR DENIAL, SUSPENSION, OR
  REVOCATION OF CERTIFICATE OF AUTHORITY. The department may deny an
  application for a certificate of authority or discipline the holder
  of a certificate of authority under this subchapter if the
  department determines that the applicant or holder, individually,
  or through an officer, director, or shareholder:
               (1)  has wilfully violated an insurance law of this
  state;
               (2)  has intentionally made a material misstatement in
  the application for a certificate of authority;
               (3)  has obtained or attempted to obtain a certificate
  of authority by fraud or misrepresentation;
               (4)  has misappropriated, converted to the applicant's
  or holder's own use, or illegally withheld money belonging to:
                     (A)  an insurance carrier, as that term is
  defined by Section 401.011, Labor Code;
                     (B)  an insurer, as that term is defined by
  Section 4001.003;
                     (C)  a health maintenance organization; or
                     (D)  an insured, enrollee, injured employee, or
  beneficiary;
               (5)  has engaged in fraudulent or dishonest acts or
  practices;
               (6)  has materially misrepresented the terms and
  conditions of an insurance policy, certificate, evidence of
  coverage, or contract;
               (7)  has been convicted of a felony;
               (8)  is in a financial condition, or is operating or
  conducting business in a manner, that would render further
  transaction of business in this state hazardous or injurious to
  insured persons or the public;
               (9)  has failed to comply with any judgment rendered
  against the applicant or holder before the 60th day after the date
  on which the judgment becomes final;
               (10)  has wilfully violated a commissioner rule;
               (11)  has refused to be examined or to produce
  accounts, records, and files for examination as required by this
  chapter or commissioner rule;
               (12)  at any time fails to meet a qualification for
  which issuance of the certificate of authority could have been
  denied had the failure then existed and been known to the
  commissioner;
               (13)  has had a certificate of authority, license, or
  other authority issued by this state, another state, or the United
  States suspended or revoked; or
               (14)  has failed to timely file the annual report
  required by Section 4151.205.
         Sec. 4151.302.  REMEDIES FOR VIOLATION OF INSURANCE LAWS OR
  COMMISSIONER RULES. In addition to any other remedy available
  under Chapter 82 for a violation of this code, another insurance law
  of this state, or a commissioner rule, the department may:
               (1)  deny an application for a certificate of
  authority;
               (2)  suspend or revoke a certificate of authority;
               (3)  place on probation a person whose certificate of
  authority has been suspended;
               (4)  assess an administrative penalty; or
               (5)  reprimand a certificate of authority holder.
         Sec. 4151.303.  PROBATED SUSPENSION. If the suspension of a
  certificate of authority is probated, the commissioner may require
  the holder to:
               (1)  report regularly to the department on any matter
  that is the basis of the probation; or
               (2)  limit the holder's practice to the areas
  prescribed by the department.
         Sec. 4151.304.  HEARING. If the department proposes to deny
  an application for a certificate of authority, or to suspend or
  revoke a certificate of authority, the applicant or holder is
  entitled to notice and a hearing conducted by the State Office of
  Administrative Hearings as provided by Chapter 40.
         Sec. 4151.305.  APPLICATION FOR CERTIFICATE OF AUTHORITY
  AFTER DENIAL OR REVOCATION. (a)  A person, or officer, director, or
  shareholder of a person, whose application has been denied or whose
  certificate of authority has been revoked under this subchapter may
  not apply for a certificate of authority before the fifth
  anniversary of:
               (1)  the effective date of the denial or revocation; or
               (2)  the date of a final court order affirming the
  denial or revocation if judicial review was sought.
         (b)  An application filed after the period required by
  Subsection (a) may be denied by the commissioner if the applicant
  fails to show good cause why the denial or revocation should not be
  a bar to the issuance of a new certificate.
         (c)  Subsection (b) does not apply to an applicant whose
  application was denied for failure by the applicant to submit a
  properly completed application for a certificate of authority.
         Sec. 4151.306.  DISCIPLINARY PROCEEDING FOR CONDUCT
  COMMITTED BEFORE SURRENDER OR FORFEITURE OF CERTIFICATE. (a)  The
  department may institute a disciplinary proceeding against a former
  certificate holder, or officer, director, or shareholder of a
  former certificate holder, for conduct committed before the
  effective date of a voluntary surrender or automatic forfeiture of
  the certificate of authority.
         (b)  In a proceeding under this section, the fact that the
  certificate holder, or officer, director, or shareholder of a
  certificate holder, has surrendered or forfeited the certificate
  does not affect the former certificate holder's, or officer,
  director, or shareholder of a former certificate holder's,
  culpability for the conduct that is the subject of the proceeding.
         Sec. 4151.307.  EMERGENCY CERTIFICATE SUSPENSION.  (a)  The
  commissioner may suspend the certificate of an administrator
  without notice or hearing if the commissioner determines that:
               (1)  the administrator is insolvent or impaired;
               (2)  an order for receivership, conservatorship,
  rehabilitation, or any other delinquency regarding the
  administrator has been entered in any state; or
               (3)  the financial condition or business practices of
  the administrator otherwise pose an imminent threat to the public
  health, safety, or welfare of the residents of this state.
         (b)  On determining that grounds exist under Subsection (a)
  to suspend the administrator's certificate of authority, the
  commissioner may issue an order suspending the certificate. The
  commissioner shall immediately serve notice of the suspension on
  the holder.
         (c)  The notice required by Subsection (b) must:
               (1)  be personally served on the holder or be sent by
  registered or certified mail, return receipt requested, to the
  holder's last known address according to the department's records;
               (2)  state the grounds for the suspension; and
               (3)  inform the holder of the right to a hearing on the
  suspension order.
         (d)  An administrator whose certificate of authority is
  suspended under this section is entitled to request a hearing on the
  suspension not later than the 30th day after the date of receipt of
  notice of the suspension. Not later than the 10th day after the
  date a hearing is requested, the commissioner shall issue a notice
  of hearing.
         (e)  The hearing must be held not later than the 10th day
  after the date notice of hearing is issued, unless the parties agree
  to a later date.
         (f)  A hearing on a suspension order under this section is
  subject to Chapter 2001, Government Code, and to Subchapter A,
  Chapter 40. After the hearing, the administrative law judge shall
  recommend to the commissioner whether to uphold, vacate, or modify
  the suspension order.
         (g)  A suspension order issued under this section remains in
  effect until further action is taken by the commissioner.
         SECTION 1.22.  Section 4151.207, Insurance Code, is
  transferred to Subchapter G, Chapter 4151, Insurance Code, as added
  by this Act, renumbered as Section 4151.308, and amended to read as
  follows:
         Sec. 4151.308 [4151.207]. GENERAL ADMINISTRATIVE SANCTIONS.
  An administrator or other person who violates this chapter is
  subject to the sanctions provided by Chapter 82.
         SECTION 1.23.  Section 4151.208, Insurance Code, is
  transferred to Subchapter G, Chapter 4151, Insurance Code, as added
  by this Act, renumbered as Section 4151.309, and amended to read as
  follows:
         Sec. 4151.309 [4151.208].  CRIMINAL PENALTY [OFFENSE]. (a)
  An administrator commits an offense if the administrator knowingly
  violates this chapter or a rule of the commissioner adopted under
  this chapter.
         (b)  An offense under this section is a misdemeanor
  punishable by a fine of not less than $500 or more than $5,000.
  ARTICLE 2. CONFORMING AMENDMENTS--INSURANCE CODE
         SECTION 2.01.  Section 1305.004(a), Insurance Code, is
  amended by adding Subdivision (1-a) to read as follows:
               (1-a)  "Administrator" has the meaning assigned by
  Section 4151.001.
         SECTION 2.02.  Subchapter A, Chapter 1305, Insurance Code,
  is amended by adding Section 1305.008 to read as follows:
         Sec. 1305.008.  ADMINISTRATOR CERTIFICATE OF AUTHORITY
  REQUIRED.  A person that performs the functions of an administrator
  under Chapter 4151 must hold a certificate of authority issued
  under that chapter to provide those functions under this chapter
  for an insurance carrier.
         SECTION 2.03.  Sections 1305.1545(a) and (c), Insurance
  Code, are amended to read as follows:
         (a)  An insurance carrier or [third-party] administrator may
  not reimburse a doctor or other health care provider, an
  institutional provider, or an organization of doctors and health
  care providers on a discounted fee basis for services that are
  provided to an injured employee unless:
               (1)  the carrier or [third-party] administrator has
  contracted with either:
                     (A)  the doctor or other health care provider,
  institutional provider, or organization of doctors and health care
  providers; or
                     (B)  a network that has contracted with the doctor
  or other health care provider, institutional provider, or
  organization of doctors and health care providers; and
               (2)  the doctor or other health care provider,
  institutional provider, or organization of doctors and health care
  providers has agreed to the contract and has agreed to provide
  health care services under the terms of the contract.
         (c)  An insurance carrier or [third-party] administrator who
  violates this section:
               (1)  commits an unfair claim settlement practice in
  violation of Subchapter A, Chapter 542, Insurance Code; and
               (2)  is subject to administrative penalties under
  Chapters 82 and 84, Insurance Code.
         SECTION 2.04.  Section 4101.001(a), Insurance Code, is
  amended to read as follows:
         (a)  In this chapter, "adjuster" means an individual who:
               (1)  investigates or adjusts losses on behalf of an
  insurer as an independent contractor or as an employee of:
                     (A)  an adjustment bureau;
                     (B)  an association;
                     (C)  a general property and casualty agent;
                     (D)  an independent contractor;
                     (E)  an insurer; or
                     (F)  a managing general agent; [or]
               (2)  supervises the handling of claims; or
               (3)  investigates, adjusts, supervises the handling
  of, or settles workers' compensation claims, including claims
  arising from services provided through a certified workers'
  compensation health care network as authorized under Chapter 1305,
  on behalf of an administrator, as defined by Chapter 4151, or on
  behalf of an insurance carrier, as defined by Section 401.011,
  Labor Code.
         SECTION 2.05.  Section 4101.002, Insurance Code, is amended
  by adding Subsection (c) to read as follows:
         (c)  For purposes of Subsection (a)(6), claims arising under
  workers' compensation insurance policies, including claims
  relating to services provided through a certified workers'
  compensation health care network authorized under Chapter 1305, do
  not constitute claims arising under life, accident, or health
  insurance policies.
  ARTICLE 3. CONFORMING AMENDMENTS--LABOR CODE
         SECTION 3.01.  Section 406.010(b), Labor Code, is amended to
  read as follows:
         (b)  Each insurance carrier shall designate persons to
  provide claims service in sufficient numbers and at appropriate
  locations to reasonably service policies written by the carrier.  
  If an insurance carrier uses the services of a person required to
  hold a certificate of authority under Chapter 4151, Insurance Code,
  the carrier must comply with the requirements of that chapter.
         SECTION 3.02.  Section 407.001(5), Labor Code, is amended to
  read as follows:
               (5)  "Qualified claims servicing contractor" means a
  person who provides claims service for a certified self-insurer,
  who is a separate business entity from the affected certified
  self-insurer, and who holds a certificate of authority under
  Chapter 4151 [is:
                     [(A)     an insurance company authorized by the Texas
  Department of Insurance to write workers' compensation insurance;
                     [(B)     a subsidiary of an insurance company that
  provides claims service under contract; or
                     [(C)     a third-party administrator that has on its
  staff an individual licensed under Chapter 4101, Insurance Code].
         SECTION 3.03.  Section 407.061(c), Labor Code, is amended to
  read as follows:
         (c)  The applicant must present a plan for claims
  administration that:
               (1)  is acceptable to the commissioner;
               (2)  [and that] designates a qualified claims servicing
  contractor; and
               (3)  complies with Chapter 4151, Insurance Code.
         SECTION 3.04.  Section 407A.001(a), Labor Code, is amended
  by adding Subdivision (5-a) and amending Subdivision (8) to read as
  follows:
               (5-a)  "Managing company" means an individual,
  partnership, or corporation engaged by the board of trustees of a
  group to implement the policies established by the board of
  trustees and to provide day-to-day management of the group.
               (8)  "Service company" means a person that provides
  services to the group other than services provided by the managing
  company [administrator], including:
                     (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.
         SECTION 3.05.  Subchapter A, Chapter 407A, Labor Code, is
  amended by adding Section 407A.009 to read as follows:
         Sec. 407A.009.  CERTIFICATE OF AUTHORITY REQUIRED FOR
  CERTAIN ADMINISTRATORS AND SERVICE COMPANIES.  (a)  An
  administrator or service company under this chapter that performs
  the acts of an administrator as defined in Chapter 4151, Insurance
  Code, must hold a certificate of authority under that chapter.
         (b)  An entity is required to hold only one certificate of
  authority under Chapter 4151, Insurance Code, if:
               (1)  the entity acts as an administrator and a service
  company as defined in this chapter; and
               (2)  performs the acts of an administrator as that term
  is defined in Chapter 4151, Insurance Code.
         (c)  Exemptions in Chapter 4151, Insurance Code, as provided
  in Sections 4151.002(18), (19), and (20), apply to an administrator
  or service company under this section.
  ARTICLE 4. TRANSITION; EFFECTIVE DATE
         SECTION 4.01.  A person is not required to hold a certificate
  of authority under Chapter 4151, Insurance Code, as amended by this
  Act, to comply with Section 1305.008, Insurance Code, as added by
  this Act, before January 1, 2008.
         SECTION 4.02.  A service company that adjusts or settles
  claims for a workers' compensation self-insurance group under
  Chapter 407A, Labor Code, is not required to hold a certificate of
  authority under Chapter 4151, Insurance Code, as amended by this
  Act, to comply with Section 407A.009, Labor Code, as added by this
  Act, before January 1, 2008.
         SECTION 4.03.  The Texas Department of Insurance shall issue
  certificates of authority to applicants under Section 4151.052,
  Insurance Code, as amended by this Act, beginning September 1,
  2007.
         SECTION 4.04.  (a) Except as provided by Subsections (b) and
  (c) of this section, this Act takes effect September 1, 2007.
         (b)  A person is not required to hold a certificate of
  authority under Chapter 4151, Insurance Code, as amended by this
  Act, to administer workers' compensation benefits for an insurer
  before January 1, 2008.
         (c)  Subchapter G, Chapter 4151, Insurance Code, as added by
  this Act, applies to a disciplinary action commenced on or after
  January 1, 2008.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 472 was passed by the House on April
  18, 2007, by the following vote:  Yeas 144, Nays 0, 1 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 472 on May 25, 2007, by the following vote:  Yeas 135, Nays 0, 2
  present, not voting; and that the House adopted H.C.R. No. 282
  authorizing certain corrections in H.B. No. 472 on May 28, 2007, by
  a non-record vote.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 472 was passed by the Senate, with
  amendments, on May 22, 2007, by the following vote:  Yeas 29, Nays
  1; and that the Senate adopted H.C.R. No. 282 authorizing certain
  corrections in H.B. No. 472 on May 28, 2007, by a viva-voce vote.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor