Could Sutton County self-fund part of its employee health coverage through an account controlled by an unlicensed private administrator?

Texas AG Opinion JM-887: Sutton County Could Not Self-Fund Part of Its Health Plan

Plain-English summary

Sutton County proposed an employee health plan using a bank account controlled by a private administrator. The administrator would purchase insurance with a $500 deductible while employees received coverage described as having a $100 deductible. County money in the account would cover the difference, and the administrator would collect fees, keep interest above a stated rate, and receive a substantial share of remaining funds if the contract ended.

The Attorney General treated the arrangement as county self-insurance for part of the deductible. Local Government Code section 157.002, formerly section 2 of article 2372h, was the only Texas statute authorizing a county to self-insure. It applied only to counties with populations above 500,000.

Sutton County fell below that threshold. Because a commissioners court could exercise only powers expressly conferred by constitution or statute, or reasonably implied from those powers, the absence of authority for smaller counties meant the county could not enter the described plan.

After resolving that threshold issue, the opinion did not decide whether county money could be deposited with the administrator, whether the administrator required an insurance license, or whether the interest, monthly fees, and termination penalty were otherwise lawful.

Currency note

This opinion was issued in 1988. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Why was the plan considered self-insurance?

The county itself assumed the risk between the underlying policy's $500 deductible and the program's $100 deductible by paying claims from the separate account.

Could Sutton County use the self-insurance statute?

No. Section 157.002 applied only to counties with populations over 500,000.

Did a general power to provide employee health benefits authorize this structure?

No. The opinion found no statutory or constitutional authority allowing a smaller county to self-insure in this way.

Did the opinion decide whether the private administrator was properly licensed?

No. Once the county lacked authority to self-insure, the Attorney General did not reach the licensing issue.

Did it decide whether the administrator could keep interest or termination funds?

No. Those issues were also left unanswered after the threshold ruling.

Background and statutory framework

Attorney General Opinion MW-473 (1982) had identified section 2 of article 2372h as the only provision authorizing county self-insurance. The Legislature later repealed and recodified it as Local Government Code section 157.002 without expanding the population coverage.

Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948), supplied the general rule that commissioners courts could exercise only specifically conferred or necessarily implied authority. Attorney General Opinion JM-406 (1985) applied the same principle.

The opinion mentioned but did not decide issues under Local Government Code chapter 116 and Insurance Code article 21.07-5.

Citations

Statutory authority:

• Local Government Code section 157.002
• Local Government Code chapter 116
• Insurance Code article 21.07-5
• Former V.T.C.S. article 2372h, section 2

Case:

• Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948)

Prior Attorney General materials referenced: MW-473 (1982) and JM-406 (1985).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-887
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0887.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Obvious character-level OCR errors have been corrected, but minor errors may remain; the linked PDF is authoritative.

THE ATTORNEY GENERAL
OF TEXAS

April 7, 1988

Honorable David W. Wallace Opinion No. JM-887 Sutton County Attorney
Sonora, Texas 76850
Re: Authority of a commis-
sioners court to enter into certain contracts to provide health insurance coverage for its employees (RQ-1237)

Dear Mr. Wallace:

You ask:

Does [the County Commissioners Court of Sutton County] have the authority, in its effort to provide health insurance coverage for employees and dependents, to enter into a contract under the following circum- stances:

1. A portion of the total money spent by the county for coverage goes into a separate bank account for payment of a portion of the medical benefits due to employees and dependents.

2. The administration of the above mentioned bank account, and the benefits paid from it, is in the control of a company
that is unlicensed as an insurance company
and is totally independent from the county except for certain contractual conditions which are further detailed in this request and the attachments.

3. The administrator of the bank account provides for the purchase of high deductible ($500.00) insurance. However, the coverage that the complete program offers is for a lower deductible ($100.00). Sutton County, through the administration of this account by the third party, assumes the risk for this difference in deductible.

Honorable David W. Wallace - Page 2 (JM-887)

4. All interest on the county funds deposited to this account that exceed 5% pass on to the exclusive use of the adminis- trator.

5. The administrator draws regular monthly fees out of this bank account.

6. Termination of the contract with the administrator by the county results in penalties of up to 50% of the county funds in the above bank account to be forfeited to the administrator.

  The scheme you       describe would       involve the      county's

self-insuring a portion of the deductible amount provided for in the underlying insurance contract. Attorney General Opinion MW-473 (1982) noted that there was only one statutory provision authorizing such a self- insurance scheme, i.e., section 2 of article 2372h, V.T.C.S., which applies only to counties with populations of over 500,000. Article 2372h was repealed by the 70th Legislature in 1987 and section 2 was recodified as section 157.002 of the Local Government Code. The provision currently embodied in section 157.002 remains
the only one in Texas law authorizing a county to self-
insure. Since Sutton County's population is less than 500,000, section 157.002 does not authorize it to self- insure. Since certain counties are authorized, under section 157.002, to self-insure, the lack of authorization elsewhere in Texas law for other counties such as Sutton County to self-insure, indicates that the legislature did not intend to authorize counties with populations under 500,000 to self-insure. Commissioners courts may exercise only such powers specifically conferred upon them, by the constitution or by statute, or which may reasonably be implied therefrom. Canales V. Laughlin, 214 S.W.2d 451 (Tex. 1948). See also Attorney General Opinion JM-406 (1985) .

We are therefore of the opinion that the Sutton
County self-insurance scheme you described is not author- ized by law. Having reached this conclusion, we need not address the other issues that we would have addressed had we answered in the affirmative the threshold question of the county's authority to self-insure: e.g., whether county funds may legally be deposited with the adminis- trator in light of chapter 116 of the Local Government Code, whether the administrator would be authorized to

p. 4345

.

Honorable David W. Wallace - Page 3 (JM-887)

act as such in light of article 21.07-5 of the Insurance Code, etc.
SUMMARY

The commissioners court of Sutton County is not authorized to self-fund a health insurance program for county employees.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by William Walker
Assistant Attorney General

p. 4346