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The Texas Independent Review Law

The 1997 Legislature passed sweeping managed care reforms. Among these, the legislature established an independent review process for persons denied care by their health plan because a utilization review agent made an "adverse determination."(1) An "adverse determination" is a finding that certain health services are not "medically necessary or appropriate."(2) After appealing the adverse determination once within the health plan, the law allows a person to seek an independent review from the Texas Department of Insurance (TDI). TDI contracts with three independent review organizations (IRO) to actually perform the reviews.

The bill creating independent review also inaugurated a patient's right to sue his or her health plan, and it quickly became tangled in a lawsuit filed by Aetna.(3) The lower court ruled that the Texas independent review process was preempted by the Employee Retirement Income Security Act (ERISA) and not subject to state law. ERISA regulates employer-based health plans. This ruling put the independent review process out of reach for most people who get health coverage through their jobs. The court ruled similarly regarding some health care provider rights included in the legislation, but said that the liability provision (a person's right to sue) was not preempted.

Both parties appealed the Aetna case to the 5th Circuit, which upheld the lower court decision about independent review. The case eventually landed before the U.S. Supreme Court. The Supreme Court decided not to take up the Texas case, but heard arguments in January 2002 on an Illinois case (Rush Prudential HMO, Inc v. Debra Moran, et al). In Illinois, the federal circuit court found that the state's independent review process was not preempted by ERISA. At the time of this report, the Supreme Court had not yet made a decision on the issue.(4)

About 75% of Texans have health insurance, and nearly half of these are covered by an ERISA plan. The court's decision regarding this law removed the state guarantee to an independent review for an estimated 3.9 million Texans covered by ERISA or "self-funded" employer health plans.(5) Since the first court decision, health plans have claimed they like the independent review process and will continue to use it on a voluntary basis until the case is finally settled. However, in ERISA situations, the health insurance company is typically only acting as a third party administrator and employers designing an ERISA plan have the right to accept or reject access to independent review for employees. TDI has no way of knowing how many ERISA covered consumers actually have access to this process.

In 1999, the legislature required that any voluntary participants in independent review must comply completely with the law and regulations governing this process.(6) The law makes the IRO decision binding on the health plan; an ERISA plan that voluntarily adopts independent review cannot decide it doesn't like an IRO decision and refuse to comply with it.

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Footnotes:

1 Texas Insurance Code 21.58C.

2 22 TexReg 11366, November 21, 1997, adopting the initial Chapter 12 rules on the independent review process added the term "or not appropriate" in the definition of "adverse determination" in §12.5. TDI explained "the department believes that the use of the term 'appropriate' is consistent with the intent of the Legislature to ensure that the utilization review process not be used to ration health care by denying treatments which may be appropriate, simply because they are costly."

3 Corporate Health Insurance Inc. v. Texas Department of Insurance, U.S. Court of Appeals for the Fifth Circuit, 215 F 3rd 526, June 20, 2000.

4 Rush Prudential HMO, Inc. v. Debra C. Moran, et al., U.S. Court of Appeals for the Seventh Circuit, 230 F 3rd 959, October 19, 2000.

5 "Health Insurance Regulation in Texas: The impact of mandated health benefits," Texas Department of Insurance, Report to the Legislature, December 1998, p. 64-65.

6 Senate Bill 1884, 76th Texas Legislature, effective September 1, 1999.