Texas bans discretionary clauses from health plan policies

Insurers in Texas can no longer use discretionary clauses that give them the right to interpret their policies and decide what benefits should be paid.

In announcing the new rule, Texas Insurance Commissioner Mike Geeslin said discretionary powers of companies "are unjust, encourage misrepresentation and are deceptive because they mislead consumers regarding the terms of coverage" in their policies, according to the Dallas Morning News.

Prohibiting those provisions will protect consumers from "incorrect and unfair coverage determinations by insurers and HMOs without a subsequent opportunity for a full and independent review" of their claims. As an example, he cited one policy under which the health insurance company stated it had "complete discretionary authority" to review all denied claims and determine whether its policyholders were entitled to any of the benefits being sought, the Morning News reports.

Patients could argue against the practices in court, but the clause stacked the deck in favor of the insurance company because the clause leaves it up to their own discretion whether to deny the claim and then to determine if the denial was justified if there is an objection. That sort of in-house investigation creates an opportunity for conflict of interest, according to KETK.

The new rule will allow consumers to challenge what they consider unfair denial of benefits, either by complaining to state regulators or by filing a lawsuit against the company.

Insurers had opposed the prohibition, arguing that discretionary clauses have been used for several years in Texas without an adverse effect on consumers. They contended that the rules would lead to more lawsuits and increase the cost of insurance.

The order takes effect on Feb. 1 for disability income insurance and on June 1 for all other forms of health, life and disability insurance policies issued in Texas. The clauses are already banned in 22 other states, notes the American-Statesman.

To learn more:
- read the Dallas Morning News article
- read the American-Statesman story
- see the KETK piece

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