Texas Insurance Code, Article 21.07-06
Excerpted from the Texas Insurance Code, Chapter 21, Subchapter A:
Art. 21.07-6. Third Party Administrators
Sec. 1. In this article:
(1) “Administrator” means a person who collects premiums or
contributions from or who adjusts or settles claims in connection
with life, health, and accident benefits, including pharmacy
benefits, or annuities for residents of this state but does not
(A) an employer on behalf of its employees or the employees of one
or more subsidiaries or affiliated corporations of the employer;
(B) a union on behalf of its members;
(C) an insurance company or a group hospital service corporation
subject to Chapter 20 of this code with respect to a policy lawfully
issued and delivered by it in and under the law of a state in which
the insurer was authorized to do an insurance business;
(D) a health maintenance organization that is authorized to operate
in this state under the Texas Health Maintenance Organization Act
(Chapter 20A, Vernon’s Texas Insurance Code), with respect to any
activity that is specifically regulated under that Act;
(E) an agent licensed under Article 21.07 or Chapter 213, Acts of
the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
Vernon’s Texas Insurance Code), who is acting under appointment on
behalf of an insurance company authorized to do business in this
state and within the customary scope and duties of the insurance
agent’s authority as an agent and who receives commissions as an
(F) a creditor who is acting on behalf of its debtors with respect
to insurance that covers a debt between the creditor and its debtor
so long as only the functions of a group policyholder or creditor
(G) a trust established in conformity with 29 U.S.C. Section 186 and
the trustees and employees who are acting under the trust;
(H) a trust that is exempt from taxation under Section 501(a) of the
Internal Revenue Code of 1986 and the trustees and employees acting
under the trust, or a custodian and the custodian’s agents and
employees who are acting pursuant to a custodian account that
complies with Section 401(f), Internal Revenue Code of 1986;
(I) 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 federal or state regulatory
authorities so long as that institution is performing only those
functions for which it holds a license under federal or state law;
(J) 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;
(K) a person who adjusts or settles claims in the normal course of
his practice or employment as a licensed attorney and who does not
collect any premium or charge in connection with life, health, or
accident benefits, including pharmacy benefits, or annuities;
(L) an adjuster licensed by the commissioner, if the adjuster is
engaged in the performance of his powers and duties as an adjuster
within the scope of his license;
(M) a person who provides technical, advisory, utilization review,
precertification, or consulting services to an insurer, plan, or
plan sponsor and who does not make any management or discretionary
decisions on behalf of an insurer, plan, or plan sponsor;
(N) an attorney in fact for a Lloyd’s operating under Chapter 18 of
this code or a reciprocal or interinsurance exchange operating
under Chapter 19 of this code if acting in the capacity of attorney
in fact under the applicable chapter;
(O) a municipality that is self-insured or a joint fund, risk
management pool, or a self-insurance pool composed of political
subdivisions of this state that participate in a fund or pool
through interlocal agreements and any nonprofit administrative
agency or governing body or any nonprofit entity that acts solely on
behalf of a fund, pool, agency, or body or any other funds, pools,
agencies, or bodies that are established pursuant to or for the
purpose of implementing an interlocal governmental agreement;
(P) a self-insured political subdivision;
(Q) a plan under which insurance benefits are provided exclusively
by a carrier licensed to do business in this state and the
administrator of the plan is either:
(i) a full-time employee of the plan’s organizing or sponsoring
association, trust, or other entity; or
(ii) the trustee or trustees of the organizing or sponsoring trust;
(R) a parent of a wholly owned direct or indirect subsidiary insurer
licensed to do business in this state or a wholly owned direct or
indirect subsidiary insurer that is a part of the parent’s holding
company system that, only on behalf of itself or its affiliated
(i) collects premiums or contributions, if the parent or subsidiary
insurer prepares only billing statements, places those statements
in the United States mail, and causes all collected premiums to be
deposited directly in a depository account of the particular
affiliated insurer, and the services rendered by the parent or
subsidiary are performed under an agreement regulated and approved
under Article 21.49-1 of this code or a similar statute of the
domiciliary state if the parent or subsidiary is a foreign insurer
doing business in this state; or
(ii) furnishes proof-of-loss forms, reviews claims, determines the
amount of the liability for those claims, and negotiates
settlements, but pays claims only from the funds of the particular
subsidiary by checks or drafts of that subsidiary and the services
rendered by the parent or subsidiary are performed under an
agreement regulated and approved under Article 21.49-1 of this code
or a similar statute of the domiciliary state if the parent or
subsidiary is a foreign insurer doing business in this state.
(2) “Administrative or service fees” means all consideration, fees,
assessments, payments, reimbursements, dues, and other
compensation, excluding sales commissions, received for services
as an administrator during a calendar year.
(3) “Board” means the State Board of Insurance.
(4) “Commissioner” means the commissioner of insurance.
(5) “Insurer” or “insurance company” means a person who transacts a
life, health, or accident insurance business under the law of this
(6) “Plan” means a plan, fund, or program established, adopted, or
maintained by a plan sponsor or insurer to the extent that the plan,
fund, or program is established, adopted, or is maintained to
provide indemnification or expense reimbursement for any type of
life, health, or accident benefit.
(7) “Person” means an individual, partnership, corporation,
organization, government or governmental subdivision or agency,
business trust, estate trust, association, or other legal entity.
(8) “Plan sponsor” means a person, other than an insurer, who
establishes, adopts, or maintains a plan that covers residents of
this state, including a plan established, adopted, or maintained by
two or more employers or jointly by one or more employers and one or
more employee organizations, an association, a committee, a joint
board of trustees, or any similar group of representatives who
establish, adopt, or maintain a plan.
(9) “Pharmacy benefit manager” means a person, other than a
pharmacy or pharmacist, who acts as an administrator in connection
with pharmacy benefits.
Sec. 2. The board may establish and promulgate rules, regulations,
minimum standards, or limitations that are fair and reasonable as
may be appropriate for the augmentation and implementation of this
Certificate of authority required
Sec. 3. (a) An individual, corporation, organization, trust,
partnership, or other legal entity may not act as or hold itself out
as an administrator unless it is covered by and is doing business
under a certificate of authority issued under this article.
(b) Each administrator is required to have only one certificate of
authority issued under this article.
(c) The certificate of authority issued under this article shall
continue in effect until 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) Sections 2A, 3A, 4A, 5A, and 6A, Article 21.01-2, of this code;
(2) Chapter 82 of this code.
Sec. 4. An application for a certificate of authority to operate as
an administrator must be in a form prescribed by the commissioner
and must include the following:
(1) copies of all basic organizational documents of the
administrator, including the articles of incorporation, bylaws,
articles of association, trade name certificate, and other similar
documents and copies of all amendments to those documents;
(2) a description of the administrator and its services,
facilities, and personnel;
(3) a power of attorney executed by the administrator, if not
domiciled in this state, appointing the commissioner, the
commissioner’s successors in office, or the commissioner’s duly
appointed designee as the attorney of the administrator 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
(4) an audited financial statement of the applicant covering the
preceding three calendar years or for any lesser period that the
applicant and any predecessors of the applicant have been in
existence, but if an audited financial statement is not available,
the applicant shall attach 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
(A) the unaudited financial statement is true and correct, as of its
(B) no material change in financial condition has occurred from the
date of the financial statement to the execution date of the
affidavit or certification; and
(5) any other information the commissioner may reasonably require.
Application approval and denial by commissioner
Sec. 5. (a) The commissioner shall approve an application for a
certificate of authority to conduct a business in this state as an
administrator if the commissioner is satisfied that the application
meets the following criteria:
(1) the granting of the application would not violate a federal or
(2) the financial condition of an administrator applicant or those
persons who would operate or control an administrator applicant are
such that the granting of a certificate of authority would not be
adverse to the public interest;
(3) the applicant has not attempted through fraud or bad faith to
obtain the certificate of authority;
(4) the applicant has complied with this article and rules adopted
by the board under this article; and
(5) the name under which the applicant will conduct business in this
state is not so similar to that of another administrator or insurer
that it is likely to mislead the public.
(b) If the commissioner is unable to approve the application for a
certificate of authority, he shall provide the applicant with
written notice detailing all deficiencies in the application and
offer the applicant the opportunity for a hearing to address the
reasons and circumstances for possible denial. The opportunity for
hearing must be provided before the commissioner finally denies an
application. The applicant has the burden, at the hearing, to
produce sufficient competent evidence on which the commissioner can
make the findings provided by Subsection (a) of this section.
Sec. 6. (a) Each person whose application for a certificate of
authority is approved by the commissioner under this article must
obtain and maintain a fidelity bond and must submit to the
commissioner proof that a fidelity bond that complies with this
section has been obtained before the commissioner issues the
certificate of authority.
(b) The amount of the bond may not be less than $10,000. The amount
of the bond may not be more than 10 percent of the amount of total
funds handled during the previous year or, if no funds were handled
during the preceding year, 10 percent of the amount of funds
reasonably estimated to be handled during the current calendar year
by the administrator; however, in no case may the amount of the
bond be more than $500,000.
(c) On written request of an administrator for reduction of the
amount of the fidelity bond for a particular year, the commissioner
may authorize the reduction of the amount of the bond if the
administrator presents evidence that the amount of funds to be
handled during that particular year will be less than the amount
handled in the preceding year.
(d) For purposes of this section, the amount of total funds handled
by a person in his capacity as administrator shall include either
the total amount of premiums and contributions received by the
administrator or the total amount of benefits paid by the
administrator, whichever is greater, during the preceding calendar
year in all jurisdictions in which he acts as an administrator.
(e) The fidelity bond shall protect against acts of fraud or
dishonesty by the administrator in carrying out his powers and
duties as administrator.
(f) An administrator is required to obtain and maintain only one
fidelity bond for all insurers and plans for which the
administrator acts as administrator in this state unless the
administrator and the insurer or plan agree otherwise in writing.
Sec. 7. (a) An administrator commits an offense if the
administrator knowingly violates this article or a rule of the
board adopted under this article.
(b) An offense under this section is a misdemeanor punishable by a
fine of not less than $500 and not to exceed $5,000.
Examination of administrator
Sec. 8. (a) The commissioner may examine each administrator that
has a certificate of authority with regard to its business
conducted in this state.
(b) The commissioner may designate certain employees to perform the
(c) An examination shall include:
(1) review of all existing written agreements between the
administrator and various insurers and plans; and
(2) review of the financial statements of the administrator.
(d) The commissioner also may have examiners make an on-site
evaluation of the administrator’s personnel and facilities and any
books and records of the administrator relating to the transaction
of business and the financial condition of the administrator.
Before an examiner enters the property of an administrator, the
commissioner shall give notice to the administrator of the intent
to have an on-site evaluation by an examiner. The notice must be in
the form required by board rule and shall include the date and
estimated time that the examiner will enter the property of the
administrator. An examiner shall comply with operational rules of
the administrator while on the administrator’s property.
(e) The commissioner may summon and examine under oath the
administrator and the administrator’s personnel, if necessary to
make a complete evaluation of the activities and operations of an
(f) The cost of examinations under this section shall be paid from
the fee collected under Section 20 of this Act and with revenues
from the maintenance tax levied under Section 21 of this Act
pursuant to legislative appropriation.
Sec. 9. (a) Each administrator operating under a certificate of
authority issued under this article shall file with the
commissioner an annual report.
(b) The annual report shall cover the preceding calendar year and
must be filed with the commissioner not later than March 1 of the
year following the year covered by the report on a form prescribed
by the board.
Activities of certain partnerships and corporations
Sec. 10. An administrator licensed in any state that accepts
agent’s commissions for coverage for risks located in this state
and disburses those commissions to licensed agents in this state is
not considered an insurance agent for purposes of this state’s
insurance agent licensing laws. The exemption provided by this
section does not authorize an administrator to perform any other
acts for which a license as an insurance agent is required by law.
Sec. 11. (a) An administrator may provide services only pursuant to
a written agreement with an insurer or plan sponsor.
(b) The administrator and the insurer, plan, or plan sponsor shall
retain a copy of the written agreement as part of their official
records for the term of the agreement, and on written request of the
commissioner, the administrator shall make the written agreement
available for inspection by the commissioner or his designated
(c) Information obtained by the commissioner or the commissioner’s
designated representative from the written agreement is
confidential and may not be made available to the public. The
information may be examined by employees of the board and the
commissioner in carrying out functions under this article.
(d) The written agreement shall include the requirements provided
by Sections 12 through 19 of this article except for requirements
that do not apply to functions performed by the administrator.
(e) If a policy or plan document is issued to a trustee, a copy of
the trust agreement and any amendment to that trust agreement
becomes part of the written agreement required by this section.
(f) The written agreement required by this section may not contain a
provision that unreasonably restricts the right of a plan
participant to the availability of individual life, health, or
accident policies or annuities through an agent selected by the
Payment to an administrator
Sec. 12. (a) If an insurer, plan, or plan sponsor uses the services
of an administrator under a written agreement as required by
Section 11 of this article, the payment of premiums or
contributions to the administrator by or on behalf of an insured or
plan participant is considered to have been received by the
insurer, plan, or plan sponsor, and payment of return premium,
contributions, or claims by the insurer, plan, or plan sponsor to
the administrator are not considered payment to the insured, plan
participant, or claimant until the payments are received by the
insured, plan participant, or claimant.
(b) This section does not limit a right of an insurer, plan, or plan
sponsor against the administrator resulting from the
administrator’s failure to make payments to insureds, plan
participants, or claimants.
Notice of administrator’s capacity; statement of premium or
Sec. 13. (a) If the services of an administrator are used, the
administrator shall give written notice to insureds or plan
participants of the identity of the administrator and the
relationship among the administrator and the insurer, plan, or plan
sponsor and the insured or plan participant. The notice must be
approved by the insurer, plan, or plan sponsor before distribution.
(b) If an administrator collects funds, the administrator must
identify and state separately in writing the amount of any premium
or contribution specified by the insurer, plan, or plan sponsor for
the coverage and must give this written information to any person
who pays to the administrator a premium or contribution.
Maintenance of information
Sec. 14. (a) Each administrator shall maintain at its principal
administrative office adequate books and records of all
transactions in which the administrator engages with insurers,
plans, plan sponsors, insureds, and plan participants.
(b) The books and records must be maintained for the term of the
written agreement to which they relate and for the five-year period
following the end of the written agreement’s term.
(c) The administrator shall maintain the books and records in
accordance with prudent standards of insurance recordkeeping.
(d) The commissioner and his designated representative must be
given access to those books and records for the purpose of
examination, audit, and inspection.
(e) Trade secrets, including the identity and addresses of
policyholders and certificate holders, are confidential, except
the commissioner may use that information in proceedings instituted
against the administrator.
(f) An insurer, plan, or plan sponsor is entitled to continuing
access to these books and records sufficient to permit the insurer,
plan, or plan sponsor to fulfill contractual obligations to
insureds and plan participants. The right provided by this
subsection is subject to any restrictions included in the written
agreement between the administrator and the insurer, plan, or plan
sponsor relating to proprietary rights of the parties to the books
(g) An administrator may fulfill the legal requirements of this
section on termination of the written agreement by delivering to
the successor administrator or, if there is no successor
administrator, to the insurer, plan, or plan sponsor the books and
records and by giving written notice to the commissioner of the
location of the books and records.
Confidentiality of personal information
Sec. 14A. (a) Information that identifies an individual covered by
a plan is confidential.
(b) During the time information described in Subsection (a) of this
section is in an administrator’s custody or control, the
administrator shall take all reasonable precautions to prevent
disclosure or use of the information for a purpose unrelated to
administration of the plan.
(c) The administrator shall disclose information described in
Subsection (a) of this section only:
(1) in response to a court order;
(2) for an examination conducted by the commissioner under this
(3) for an audit or investigation conducted under the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1001, et seq.);
(4) to or at the request of the insurer or plan sponsor; or
(5) with the written consent of the identified individual or his or
her legal representative.
Approval of advertising
Sec. 15. An administrator may use only advertising relating to
business underwritten by an insurer, plan, or plan sponsor that is
approved by the insurer, plan, or plan sponsor in advance of its
Sec. 16. If the administrator has the authority to accept or reject
risks, the written agreement required by this article shall address
underwriting or other standards of the insurer or plan.
Premium and contribution collection
Sec. 17. (a) Premiums and contributions collected by an
administrator on behalf of or for an insurer, plan, or plan sponsor
and return premiums received from an insurer, plan, or plan sponsor
are held by the administrator in a fiduciary capacity.
(b) On receipt of premiums, contributions, or return premiums, the
(1) timely remit the funds to the person entitled to them according
to terms of the written agreement; or
(2) promptly deposit the funds in a fiduciary bank account
established and maintained by the administrator.
(c) If premiums or contributions deposited in a fiduciary bank
account were collected on behalf of or for more than one insurer,
plan, or plan sponsor, the administrator shall keep records that
clearly record separately the deposits and withdrawals from the
account on behalf of or for each insurer, plan, or plan sponsor.
The administrator shall obtain and maintain copies of these
records, and on request of an insurer, plan, or plan sponsor, the
administrator shall furnish to the insurer, plan, or plan sponsor
copies of the records relating to deposits and withdrawals on
behalf of or for that insurer or plan. The requirements of this
subsection are in addition to requirements of any other federal or
state law and do not authorize the commingling of funds if otherwise
prohibited by law.
(d) An administrator may not pay any claims from the fiduciary bank
(e) Withdrawals from the fiduciary bank account must be made as
provided in the written agreement between the administrator and the
insurer, plan, or plan sponsor for any of the following purposes:
(1) remittance to an insurer, plan, or plan sponsor entitled to
(2) deposit in an account controlled and maintained in the name of
the insurer, plan, or plan sponsor;
(3) transfer to and deposit in a claims payment account for payment
of claims as provided by Section 18 of this article;
(4) payment to a group policyholder for remittance to the insurer
entitled to payment;
(5) payment to the administrator of its commission, fees, or
(6) remittance of return premiums to any person entitled to
(7) payment of premiums for stop-loss or excess of loss insurance.
Adjudication of claims
Sec. 18. The administrator shall adjudicate the claims not later
than the 60th day after the date on which valid proof of loss is
received by the administrator. The administrator shall pay each
claim on a draft authorized by the insurer, plan, or plan sponsor in
the written agreement.
Compensation and claim settlement
Sec. 19. The compensation to the administrator may be based on a
percentage of the premiums or charges collected, the amount of
claims paid or processed, or on such other basis as specified in the
Identification Cards for Certain Plans
Sec. 19A. (a) Except as provided by rules adopted by the
commissioner, an administrator for a plan that provides pharmacy
benefits shall issue an identification card to each individual
covered by the plan.
(b) The commissioner by rule shall adopt standard information to be
included on the identification card. At minimum, the standard form
identification card must include:
(1) the name or logo of the entity that is administering the
(2) the International Identification Number that is assigned by the
American National Standards Institute for the entity that is
administering the pharmacy benefits;
(3) the group number applicable for the individual;
(4) the effective date of the coverage evidenced by the card;
(5) a telephone number to be used to contact an appropriate person
to obtain information relating to the pharmacy benefits provided
under the coverage; and
(6) copayment information for generic and brand-name prescription
(c) An administrator for a plan that provides pharmacy benefits
shall issue to an individual an identification card not later than
the 30th day after the date the administrator receives notice that
the individual is eligible for the benefits.
Disclosure of Certain Patient Information Prohibited
Sec. 19B. (a) A pharmacy benefit manager may not sell a list of
patients that contains information through which the identity of
individual patients is disclosed.
(b) All data that identifies a patient maintained by the pharmacy
benefit manager shall be maintained in a confidential manner that
prevents disclosure to third parties, unless the disclosure is
otherwise authorized by law or by the patient.
(c) This section does not prohibit:
(1) general advertising about a specific pharmaceutical product or
(2) a person from requesting and receiving information regarding a
specific pharmaceutical product or service; or
(3) a person from requesting and receiving information regarding
the person’s own records or claims, or information regarding the
person’s dependent’s records or claims.
Sec. 20. (a) The commissioner shall collect and the persons
affected shall pay to the commissioner fees in an amount to be
determined by the board not to exceed the following:
(1) filing fee for processing an original application for
certificate of authority for an administrator, $1,000;
(2) fee for an examination under Section 8 of this article, $500;
(3) filing fee for an annual report, $200.
(b) Fees collected under this section shall be deposited in the
state treasury to the credit of the State Board of Insurance
operating fund to be used by the board as provided by legislative
Sec. 21. (a) The commissioner annually shall determine the rate of
assessment of a maintenance tax to be paid on an annual, semiannual,
or other periodic basis, as determined by the comptroller. The rate
of assessment may not exceed one percent of the correctly reported
administrative or service fees of all administrators that are
covered by certificates of authority. The comptroller shall
collect the maintenance tax.
(b) The tax required by this section is in addition to all other
taxes now imposed or that may be subsequently imposed and that are
not in conflict with this section.
(c) The commissioner, after taking into account the unexpended
funds produced by this tax, if any, shall adjust the rate of
assessment each year to produce the amount of funds that it
estimates will be necessary to pay all the expenses of regulating
administrators. In making an estimate under this subsection, the
commissioner shall take into account the requirement that the
general revenue fund be reimbursed under Article 4.19 of this code.
(d) The taxes collected under this section shall be deposited in the
state treasury to the credit of the general revenue fund to be
reallocated to the Texas Department of Insurance operating fund and
shall be spent as authorized by legislative appropriation on
warrants issued by the comptroller pursuant to duly certified
requisitions of the commissioner. Amounts reallocated to the Texas
Department of Insurance operating fund under this subsection may be
transferred to the general revenue fund in accordance with Article
4.19 of this code.
(e) The commissioner shall advise the comptroller of the applicable
rate of assessment no later than the date 45 days prior to the due
date of the tax return for the period for which such taxes are due.
If the commissioner has not advised the comptroller of the
applicable rate by such date, the applicable rate shall be the rate
applied in the previous tax period. If the commissioner advises the
comptroller of the applicable rate of assessment after taxes have
been assessed pursuant to this subsection, the comptroller shall:
(1) advise each taxpayer in writing of the amount of any additional
taxes due; or
(2) refund any excess taxes paid.