TITLE 28.INSURANCE

Part 1. TEXAS DEPARTMENT OF INSURANCE

Chapter 3. LIFE, ACCIDENT AND HEALTH INSURANCE AND ANNUITIES

Subchapter FF. CREDIT LIFE AND CREDIT ACCIDENT AND HEALTH INSURANCE

The Commissioner of Insurance adopts new §§3.5002, 3.5206, and 3.5603 and amendments to §§3.5001, 3.5105, 3.5201, 3.5202, 3.5307, 3.5502, 3.5601, 3.5602, 3.5604, 3.5607, 3.5608, 3.5610, 3.5901, 3.5905, and 3.6002, concerning credit life and credit accident and health insurance. Sections 3.5001, 3.5201, 3.5202, 3.5206, 3.5502 and 3.5610 are adopted with changes to the proposed text as published in the November 19, 2004, issue of the Texas Register (29 TexReg 10684). New §3.5002 and §3.5603 and amendments to §§3.5105, 3.5307, 3.5601, 3.5602, 3.5604, 3.5607, 3.5608, 3.5901, 3.5905, and 3.6002 are adopted without changes.

The new sections implement legislation enacted by the 77th Legislature in House Bill (HB) 2159. HB 2159 amended Insurance Code Chapter 1153 with regard to the setting of premium rates for credit life and credit accident and health insurance by changing the way those rates are set. Previously, the Commissioner of Insurance, through a contested case proceeding, established a presumptive premium rate for all classes of business and terms of coverage, and insurers that experienced excessive loss ratios, as defined by rule, could request approval for deviations from the presumptive premium rate. The most recent presumptive premium rates were established by Commissioner's Order No. 00-0214 Nunc Pro Tunc (2000 rate order). HB 2159, however, requires that the commissioner set presumptive premium rates by rulemaking, rather than through a contested case. It also allows insurers to file their rates in an amount that deviates from the presumptive premium rates without seeking written approval from the commissioner, as long as the deviated rate is no more than 30% above nor 30% below the presumptive premium rate. HB 2159 also allows insurers that meet certain conditions to use rates that are more than 30% above or below the presumptive premium rates, if the insurer obtains prior written approval from the commissioner.

Pursuant to the new ratemaking procedures of HB 2159, on June 1, 2004, the department published credit life and credit accident and health statistical data collected from credit insurers for the years 2000, 2001, and 2002 and solicited rate proposals from interested persons. The department's contracted actuary, Milliman, reviewed the published credit life and credit accident and health data, as well as submissions from interested persons, and prepared a rate assessment and recommendation based on that information. The department also made available for informal comment a draft proposal that incorporated Milliman's rate recommendations. The department posted the Milliman report, rate recommendations from interested parties, information responsive to inquiries about the recommendation, statistical data for 2000-2002, and comments on the proposed rule on its web site, and these items were also available to interested persons on request. The department also held informal meetings on the rate proposals and associated issues on October 26 and December 13, 2004.

Credit rates in Texas have traditionally been applied to predetermined classes of business, as defined in §3.5002. In reviewing industry expense and experience data supplied in response to the credit insurance data call, however, the department observed that the loss ratios and compensation percentages for one class, Class E--Dealers, were significantly different (lower for loss ratios and higher for commissions) than the other classes in both credit life and credit accident and health. The department believes that this disparity establishes a basis for distinguishing between Class E and all other classes of business. In order to give interested persons the greatest latitude in commenting on this proposed change, the department published for comment two alternatives, one that established a presumptive premium rate for Class E alone, with a different presumptive premium rate for all classes other than Class E (Alternative 1), and a second alternative that established a composite presumptive premium rate for all classes of business combined (Alternative 2). The department sought comments on the alternatives as well as on which alternative to adopt. Likewise, for the same reasons, the department proposed two alternatives for comment with regard to the loss ratios in §3.5202--one that established loss ratios for Class E alone, with different loss ratios for all classes other than Class E (Alternative 1), and a second alternative that established composite loss ratios for all classes of business combined (Alternative 2). After considering all comments, both for and against adoption of each alternative, the department has determined to adopt Alternative 1, with changes to the proposed language, for the loss ratios adopted in §3.5202 and for the presumptive premium rates adopted in §3.5206.

In response to comments, the department changed the calculation of the general expense component in the rates from a weighted average to the average of the experience for the period 1997 - 2002. This produced a new value for the general insurance expense component in the rate formula, which in turn produced different presumptive premium rates than those in the proposal. The new rates are found in §3.5206. Because the loss ratios in §3.5202 are derived from the presumptive premium rates in §3.5206, the change in presumptive premium rates also caused those loss ratios to change.

In addition, minor changes have been made to §§3.5001, 3.5201, 3.5502 and 3.5610 to update references, correct typographical errors and remove redundant language.

Section 3.5001 updates a statutory reference from Insurance Code Article 3.53 to Insurance Code Chapter 1153. Similar amendments to update statutory citations are found in §§3.5105, 3.5201, 3.5502, 3.5610 and 3.5905. Similarly, §3.5905 updates a statutory citation from a reference to Texas Civil Statutes, Article 5069, Chapters 3 - 6, 6A, 7 and 15 to the current citation, which is Finance Code Chapters 342 - 348. Finally, because this order relocates rule language and adopts new sections, it includes various amendments to assure correct citations to other rule sections, adherence to proper form, and enhanced readability.

Section 3.5002 includes definitions for the subchapter. All of the definitions that were previously found in §3.5110 and §3.5603 are included in this new section. The new section also includes definitions for the terms actual earned premium, approved deviation by case, automatic deviation, class of business, credit disability, presumptive premium rate, pro rata method, rule of anticipation and sum of the digits method, also known as rule of 78 method.

Section 3.5202 provides that the test of reasonableness of the relation of benefits to premiums charged (loss ratio) applies only to approved deviations. Language was also added to clarify that the loss ratio comparison is to be applied to rates that would exist if an approved deviation is allowed to become effective. The loss ratios that serve as the parameters for the test of reasonableness addressed in §3.5202 were determined using the underlying proposed presumptive premium rates and their claims cost components. As noted earlier, this section also establishes separate loss ratios for Class E alone and for all other classes, pursuant to the adoption in §3.5206 of separate presumptive premium rates for Class E.

The ratemaking methodology set forth in the proposal was used and resulted in the presumptive premium rates that are set forth in §3.5206 and the corresponding loss ratios that are found in §3.5202.

Section 3.5307 deletes language from the section that was not pertinent and which could create confusion about the standard established by §3.5307.

Section 3.5601 requires that a request for an approved deviation must be presented on form CI-DRF and in accordance with §3.5602. The language of §3.5602 includes specific reference to form CI-DRF.

The text of adopted §3.5603 includes the credibility table that was a part of old §3.5603, that is being repealed simultaneously with this adoption order. The language of §3.5607 clarifies that the authorization addressed by that section is the upward approved deviated single account case rate.

The repeal of §3.5110 and §3.5603 is published elsewhere in this issue of the Texas Register .

GENERAL

Comment: A commenter believes that the proposed presumptive premium rates are excessive and do not satisfy the statutory requirement that credit insurance premiums be reasonable in relation to benefits provided. The commenter asserts that, in order to be reasonable and to harmonize the various provisions and requirements of Insurance Code Chapter 1153, including carriers' ability to take an automatic 30% upward deviation, the presumptive premium rates must be established at 1/1.3 of reasonable prima facie rates.

Another commenter notes that the department's proposal is for an overall rate decrease across all classes and plans combined of 8.4% for credit life insurance and 3.7% for credit accident and health insurance. While the commenter agrees with a rate decrease, he believes that a much larger decrease is appropriate. By not proposing a sufficiently large rate decrease, the commenter maintains that the department would be allowing credit insurance companies to charge excessive rates.

Agency Response: Insurance Code §1153.105, which authorizes automatic deviations, clarifies that a carrier may implement a deviation from presumptive premium rates of not more than 30% without seeking prior approval of the commissioner. This standard, however, is independent of the directive in Insurance Code §1153.103(d) concerning the information that must be considered when setting presumptive premium rates. The regulatory scheme established by Chapter 1153 contemplates that the commissioner will set the presumptive premium rates based on the information required by §1153.103(d), and that thereafter insurers may use rates which deviate from the presumptive premium rates if they follow the required procedures. Simply reducing the calculated presumptive rates by the factor 1/1.3 would be inconsistent with the intent of the law.

In addition, these rules meet the statutory requirement that credit insurance premiums be reasonable in relation to benefits provided. The component methodology used to develop the presumptive premium rates adopted in this order is the same methodology used to develop the presumptive premium rates in the 2000 order and produces a rate that is consistent with the requirements of Chapter 1153. This is a generally accepted actuarial approach and the individual components in the formula were determined using sound actuarial principles and a fair evaluation of market conditions based on data from credit data calls.

REVERSE COMPETITION

Comment: A commenter states that the proposed presumptive premium rates are the result of an actuarial analysis that fails to acknowledge that there is reverse competition in credit insurance markets. The commenter concludes that the analysis does not consider the reasonableness of the actual historical experience values of the various non-claim rate components. According to the commenter, reverse competition--competition among credit insurers to sell group policies to lenders--drives up credit insurance expenses by driving up lender/producer compensation. For example, a credit insurer that charges a premium of $1.00 would lose business to other credit insurers who charge a premium of $1.30, because lenders will choose the insurer with the rate which produces the larger commission. The commenter also cites the automatic deviation filings of credit insurers following the enactment of HB 2159, which show that every non-credit union credit insurer filed for the maximum 30% upward deviation, regardless of the insurers' claim experience. The commenter notes these carriers' common justification that the increase was needed to offset higher acquisition costs to remain competitive in the Texas insurance marketplace. The commenter also notes that insurers' filings did not cite a need to raise rates because of higher than expected claim costs. The commenter argues that these explanations reveal reverse competition because lenders demanded more compensation ("higher acquisition costs" for the credit insurer).

Agency Response: The department agrees that reverse competition does exist in the credit insurance market in Texas, and included a finding to that effect in the 2000 rate order. As noted by the commenter, reverse competition in this market manifests itself in the form of higher commissions paid by insurers to producers of credit insurance business. One answer might be to impose a cap on commissions. However, Insurance Code §1153.103(e) specifically prohibits the commissioner from setting or limiting the amount of compensation actually paid by an insurance company to an agent. The rates adopted in this order do not violate that prohibition, because a credit insurer may continue to pay whatever commissions it believes are necessary to obtain business. The amount of commissions paid by insurers was among the information furnished to the department through its data call. Because of the effect reverse competition has on commissions in the credit insurance industry, the department believes it is reasonable that the commission component used in establishing these presumptive premium rates be 25%, which is in the lower range of commissions actually paid in the credit insurance market. This is also the same commission component value that was used in setting the current presumptive premium rates.

LOSS RATIOS FOR APPROVED DEVIATIONS

Comment: A commenter states that the loss ratios proposed as the standard for approval of upward deviations that exceed 30% of the presumptive premium rates are far too low to satisfy statutory standards. The commenter believes that the loss ratios fail the basic test of reasonableness because a credit insurance policy would be expected to pay out only 41 cents on each dollar of premium paid, which the commenter believes is not reasonable to consumers. The commenter argues that if insurers and agents disclosed the amount of expected benefits and the amount of producer compensation associated with a credit insurance policy, consumers would not purchase these products.

While a component rating analysis is part of the overall evaluation of whether or not rates are reasonable, the commenter believes there must be some broader evaluation of the loss ratio to determine if the results of the component rating analysis do, in fact, produce rates with benefits that are reasonable in relation to premium. The commenter states that the department's witness in the 1999 contested case rate hearing testified that rates producing loss ratios less than 50% were not reasonable; however, the commenter believes that the current proposal has provided no such overall reasonableness evaluation. Rather, the commenter asserts that, even if claims dropped to zero, a component rating analysis could still produce a reasonable rate. The commenter also contends that reliance solely on a component rating approach will inevitably lead to lower and lower loss ratios over time. At every hearing, the commenter contends, claim costs have dropped and, with a strict component rating analysis, insurers have incentive to continue to drive claims costs down with stricter underwriting and unfair claims settlement practices and spend greater amounts on expenses. The commenter believes that this occurs because the strict component rating approach rewards such behavior with lower loss ratio standards in each new set of rates. Finally, the commenter notes that the NAIC model regulation for credit insurance establishes 60% as the baseline for rates producing reasonable benefits in relation to premium, and recommends a minimum loss ratio of 50% for credit life and 60% for credit disability.

Another commenter believes that the proposal requires a much smaller percentage of the premium be available to pay benefits to claimants, and allows insurance companies to keep a much larger percentage of the premium for expenses, commissions and profit. The commenter asserts that a change from a minimum loss ratio of 60% to one of 42% can raise the rates by 43%, but that the proposal has provided no reasonable basis as to why the minimum loss ratio applicable to approved deviations should be changed to allow such dramatic rate increases.

Agency Response: The attraction of credit insurance to the average consumer is that if the consumer dies or becomes disabled, the credit insurance will assure that certain items purchased by the consumer will be paid off, even if the consumer can't work and earn the money needed to make those payments. This benefits either the consumer or (typically) the consumer's family. Consequently, if a consumer were aware that a credit insurance policy could pay as little as 41 cents for each dollar of premium paid, he or she might still consider purchasing credit insurance.

The loss ratios in §3.5202 provide an initial test of whether a request for rate deviation beyond 30% is reasonable. Meeting the loss ratio test does not guarantee approval of the deviation request. But the loss ratios should be reflective of the underlying rates. This linkage of the loss ratios and the underlying rates effectively provides the overall reasonableness evaluation sought by the commenter. The alternative is to simply choose a target loss ratio, such as the loss ratio in the NAIC model regulation. The component rating approach is a more reasonable approach to just selecting a target loss ratio, because the component rating approach reasonably mirrors the economic model on which the insurance industry is based. The presumptive premium rates were developed using actual data provided by Texas credit insurers, and reflect the actual underlying expense structure of the credit insurance industry in Texas.

The comment that posits a scenario in which claims costs might be zero and still yield a reasonable rate must be evaluated in the realistic context of today's market. If circumstances of zero claims cost persist, demand will plummet. Consumers will stop purchasing credit insurance products. Under such circumstances, the department would need to re-evaluate the presumptive premium rates. Those circumstances do not currently exist. The component rating methodology is a realistic model of today's market, and was used by this commenter to make recommendations in this process.

The expressed concern that, with a strict component rating analysis, insurers have incentive to continue to drive claims costs down with stricter underwriting and unfair claims settlement practices and to spend greater amounts on expenses is not per se a valid criticism of the proposal. Any insurer that is willing to use unreasonable underwriting or unfair claims settlement practices is likely to do so no matter how the presumptive premium rates are set. However, after receiving this comment the department reviewed its complaint records pertinent to credit insurance issues and found that the department had received a total of 244 justified complaints for the period from September 1, 1999 to April 15, 2005. Of these, 10 could be construed as complaints about unfair underwriting and 124 could be construed as claims handling issues. In a universe of the many thousands of credit insurance transactions that occurred during that period of several years, the complaint history does not confirm the commenter's suggestion that the credit insurance industry is manipulating the development of rates by using unfair claims or underwriting practices.

PROFIT COMPONENT

Comment: A commenter notes that the proposal uses an underwriting profit provision of 5.75%. The commenter contends that this compares to the underwriting profit provisions underlying the current rates of -2% for credit life insurance and -4% for credit accident & health insurance. The commenter concludes that the proposed change in the underwriting profit provision underlying the presumptive premium rates increases the otherwise indicated rates by approximately 12% for credit life insurance and by approximately 15% for credit accident and health insurance.

A commenter believes that the profit component used in the development of the proposed rates is excessive and not based on any analysis of actual historical investment gains. The proposed premium presumptive rates include a profit component of 5.75%, which the commenter characterizes as an increase of 7.75 percentage points above the -2.0% profit component used in the 2000 rate order. The commenter believes that the profit component in the proposed rates ignores the impact of investment income, which actual historical data show exceeds 15% of premium for credit life and disability insurance.

The commenter also disagrees with the statement in the proposal that investment income is already reflected in the single premium discount provision, and argues that the profit component should be rejected because there is no data or analysis to support it and because actual historical data demand a much lower profit provision.

Finally, the commenter disagrees with the reasoning offered by another commenter that "surplus strain" associated with single premium credit insurance products demands a higher profit provision, arguing that lenders should not be rewarded for choosing to offer only the single premium product because it is unfavorable to many consumers.

Another commenter believes that the proposal's use of an investment profit value of 3.5% is too Iow and lacks reasonable support. The commenter cites information regarding the actual investment returns earned by insurance companies, which during the last decade ranged from about 5 1/2% to 9%, with an average of about 7 1/2%. The commenter notes that in the most recent title rate order, the commissioner found that a reasonable investment income rate was 6.0%. The commenter notes that the proposal's 3.5% investment return was based on past and current yields for U.S. Treasury and corporate bonds with durations of less than five years, but argues that these are not the only types of investments made by life and accident and health insurance companies. By ignoring the actual investments made by insurance companies, the commenter says, the proposal has understated the expected investment return, which results in an inflated rate level.

Agency Response: The profit component of 5.75% was based in part on an assumption of an investment income factor of 3.5%, which is in turn based on an estimate of expected new money investment rates during the time these new presumptive premium rates are expected to be in effect. For single premium business, insurers earn investment income, because premiums are received soon after the issue date, but policy benefits are paid over the term of the policies. The department agrees with Gary Fagg, that prudent business practices dictate that insurers invest policy funds in investment vehicles that match the terms of the investments with the terms of the liabilities. (Mr. Fagg is a Fellow of the Society of Actuaries and a Member of the Actuarial Association of America. He presented this consideration to the National Association of Insurance Commissioners' Committee on Credit Insurance, at a public hearing on December 4, 1994, in a paper entitled "Component Rating in Credit Insurance".) This same principle was emphasized by a commenter, an actuary, at the public hearing on the proposal.

Following this matching principle, the department reviewed yield rates on U.S. Government bonds maturing in two, three, and four years, as reported in the Wall Street Journal. In August of 2004, these yields ranged from 2.68% to 3.45%. We also reviewed yields on corporate bonds of six major companies with maturity dates ranging from April, 2007 to January, 2009. These corporate bond yields ranged from 3.39% to 4.32%. The department also reviewed bond and yield data compiled by Bloomberg for 3- and 5-year U.S. Treasury notes and bonds for the period 2000 through 2003. The average yield was approximately 3.5%.

The proposal's assumption of 3.5% represents a mix of U.S. Government and corporate bond investments with terms that reasonably match the expected terms of liabilities in the credit insurance market, which are typically very short. This approach is an effort to distinguish investment income directly related to premiums from credit insurance business from the average investment income an insurance company may accrue from all of its investments over a given period. The companies in Texas that sell credit insurance generally also sell products in other lines of insurance, which have liability terms that are different from credit insurance. The terms of the investment vehicles associated with those other lines will vary just as their liability terms vary. Thus, an insurance company may have total investment income that is very different from 3.5% of total premium, because of the diversity of products and lines of insurance that it offers.

Additionally, the historical returns on investment income noted by one commenter are not reasonably expected in the current market conditions. The assumption of 3.5% is reasonable in today's market, based on considerations just discussed.

With regard to the commenter's disagreement with the statement in the proposal that investment income is already reflected in the single premium discount provision, the formula used in the proposal to develop the base prima facie rate recognizes an interest component in the denominator of the fraction. The rate determined by each formula is lowered by an estimate of the interest expected to be earned on the single premium. The rate is reduced further by a discount factor to develop the premium rate scale to be charged to the borrower. This treatment reflects the interest component twice. In order to alleviate this "double counting," the proposal sets the interest component used in the presumptive rate formula at zero.

Surplus strain occurs in credit insurance under statutory accounting rules when a policy is issued and the single premium is only partially recognized as income (the "earned premium") but the expenses in issuing the policy (including commissions) and reserves for expected claims are immediately recognized as expense. The result is a temporary depletion of statutory surplus, until the full premium is earned over the term of the policy. To make up this depletion of surplus, the insurance company must commit additional equity in the form of assets invested in relatively conservative investments, yielding less investment return than would normally be required by the owners. The foregone investment return on these committed assets is viewed as a cost associated with selling the credit insurance and can only be compensated for through an additional profit margin. Therefore, it is appropriate to recognize the cost of surplus strain in pricing credit insurance, and such recognition does not unfairly reward the insurance company for writing credit business.

The method used in determining the profit component is consistent with the method used in the 2000 rate order and includes an allowance for surplus strain. The premium to equity ratio used in the proposal was also used in the 2000 order, and is derived in part by risk based capital requirements, along with recognition that surplus strain on single premium business may require additional commitments of equity by the insurance carrier.

GENERAL INSURANCE EXPENSE

Comment: More than one commenter discusses the observation in the proposal that expense ratios inexplicably dropped suddenly in 2000. Because of that observation, the proposal assigns a weight of 25% to the new expense data, and 75% to the expense data from the prior period. One commenter asserts that giving only 25% weight to the most recent expense experience violates actuarial principles which require that more current experience be given greater weight. The commenter also asserts that the proposal provided no discussion or explanation why the older expense experience better reflected future expense experience. The commenter believes that giving more weight to 1999 and earlier expense experience improperly uses very old experience as a predictor of future experience. The commenter also argues that it is logical that expenses should have declined from the 1990s to the 2000s because there has been considerable consolidation in the credit insurance industry, creating greater economies of scale in what is essentially a fixed cost business. The commenter also believes that the proposal treats the expense component as a trend and argues that there is no goal or actuarial standard defining the expense component as a trend.

Another commenter suggests leaving the expense component used to develop the current rates unchanged in developing the new rates. This commenter argues that there is no reason to believe that industry general expenses have truly dropped as a percentage of premium, asserting that nationwide premium rates have dropped slightly, production levels are down significantly, and inflation is low but positive. The commenter does not see the value of replacing the expense component currently used with data that is not fully understood and produces a result that is not supported by observed industry trends.

Another commenter also questions the drop in expenses suggested by the data, because the 2000 rate order not only lowered the rates significantly, but it also altered the method by which premiums and refunds are calculated, which required a retooling of administrative software, producer software, and annual statement software and methods. These costs of implementation would, the commenter argues, be understated by the proposal's implicit assumption that Texas business costs no more on a "per certificate" basis than any other state during this time. The commenter believes this assumption is incorrect and believes that the most recent expense data should not be given any weight.

Another commenter states that prior credit insurance rates have relied upon expenses during the most recently available three year period. The commenter believes that there has been no showing that the experience from 2000 to 2002 is not reliable, and that this experience is fully credible from an actuarial perspective. Therefore, the commenter believes that the most recent three years of expense experience, from 2000 to 2002, should be given 100% weight in the rate calculation. In the alternative, the commenter states that if the older data from 1997 to 1999 is to be used, then the more recent experience from 2000 to 2002 should be given a weight of 75% and the older experience should be weighted at 25%.

Agency Response: The data relied upon to derive the general insurance expense component was collected from the industry in the credit insurance data call, certified as accurate by insurers that submitted it, and thoroughly reviewed by department staff and Milliman. At the end of that review, the department had no reason to reject or question the data. The anomalous change in expenses reflected by the data from 1999 to 2000 and beyond currently stands without certain explanation, which gave rise to the department's initial idea of weighting the general insurance expense data from the different timeframes. The explanations offered by various commenters about why the data should or should not be believed are plausible, but are not accompanied by other data that would lead a reasonable person to conclude that the reliability of the data relied upon by the department should be questioned. In light of comments about the weighting of historical data, the apparent reliability of data available to the department, and the unexplained change in general insurance expenses industry wide after 1999, the department has concluded that it is most reasonable to use an average of the data from the six year period of 1997 - 2002, rather than a weighted average. The presumptive premium rates and the rule are changed accordingly.

Comment: A commenter believes there is an error in the compilation of the expense data contained in the actuarial report that was relied upon in the proposal. The actuarial report contained exhibits showing credit life insurance expense data and credit accident and health insurance expense data. Those exhibits show expense data by component (i.e., rent, salaries and wages, etc.) and also as a total. However, in every instance in the actuarial report, the total values are higher than the sum of the individual expense items. This has led the commenter to conclude that the expense values used in the proposal are higher than the actual sum of the reported expenses by about 7% for credit life insurance and by about 5% for credit accident and health insurance.

Agency Response: It is true that the total expense values reflected in the Milliman report are higher than the sum of the individual expense items identified on the exhibits to the report. The data collection method explains this disparity. The credit insurance data call requested that the insurers provide expense information in the categories identified in the exhibits. The department was contacted by at least one insurer because some of the insurer's expenses did not fit into any of the categories specified in the data call, and there was no "other expense" or "miscellaneous expense" category made available in the data call. Because the categories used in the data call did not necessarily accommodate all expenses of all the responding insurers, only the total expense line included all expenses. For that reason, the calculations used to set the presumptive premium rates relied on the expense totals provided by the insurers, rather than on a separate calculation of total expenses using the categories identified in the exhibits to the Milliman report. This is the most accurate method to assure that all expenses are taken into account.

ALTERNATIVE 1 vs. ALTERNATIVE 2

Comment: A commenter asks that the department confirm its intent to allow insurers to continue to combine classes of business for rating purposes under the presumptive rate established for "Alternative 2" for classes of business other than Class E.

Agency Response: By this order, the commissioner adopts Alternative 1, which establishes separate rates for Class E and for all other classes of business. Under the adopted rules, insurers can combine classes of business other than Class E for rating purposes. Class E rates must be handled separately.

Comment: A commenter believes that proposed Alternative 1, which would establish separate rates for Class E and for all other classes of business, is contrary to the law. The commenter argues that Insurance Code §1153.103(a) requires the commissioner to adopt a single presumptive rate for all classes, and only allows individual insurers to file separate rates for various classes. This commenter contends that Insurance Code §1153.102(a) applies to rate setting by insurers, and not to the authorized rate promulgation process of the department or commissioner. The commenter therefore argues that a reasonable conclusion to be drawn from these provisions is that the insurer may revise its schedules of premium rates for various classes of business, after the commissioner has established a single promulgated rate.

Agency Response: The department disagrees. Insurance Code §1153.103(a) authorizes the commissioner to ". . . adopt a presumptive premium rate for various classes of business and terms of coverage." The wording of the statute allows the commissioner to adopt a different rate for each class of business and even for differing terms of coverage within a single class. The legislature more clearly expressed its intent that the department consider separate rates for different classes in the language of Insurance Code §1153.103(d), which requires the commissioner to consider the type or class of business when determining the presumptive premium rate.

The reasoning suggested by the commenter actually leads to the conclusion that the commissioner must set one rate--the same rate--for all credit life products and all credit accident and health products. No one has ever suggested that should happen, because those products are so different that it would not make sense. This is a clear example of the commissioner considering the different types of business when determining the presumptive premium rate. The same logic can be applied to the question of the commissioner's authority to set different rates by class of business. The available data indicate a sound basis for setting different rates based on class of business. Pursuant to §1153.103(d), the commissioner must consider that data and set rates accordingly.

Comment: Several commenters recommend that Alternative 2 be adopted, contending that no actuarial data or conclusions regarding mortality or morbidity rates, actual or expected, were used in deriving the separate Class E proposed presumptive rates. They argue that there is no evidence to suggest that life expectancy or propensity to become disabled is related to the location of the purchase of the credit insurance policy. One commenter also states that the experience data collected by the department's credit data calls do not provide any reason for the difference in experience by class of creditor.

Another commenter that disagrees with Alternative 1 noted that in reviewing industry expense and experience data supplied in response to the data call, the department observed that the loss ratios and compensation percentages for Class E were significantly different than the other classes. But this commenter complains that the department has not articulated what is meant by "significantly different" that would require a regulatory change to allow for presumptive rates by class. The commenter expresses an understanding of the department's concern with regard to this class of business, but believes that the department has failed to illustrate if the difference was a result of failure to report information accurately in the data call or if the data truly supports a change in the method for developing presumptive rates for that class of business.

One commenter notes that Class E contains a variety of dealer types, including auto dealers and retail stores, and says that the amount of credit life insurance needed to cover a furniture or jewelry account could be significantly less than the amount financed for a new car.

A commenter notes that Class E includes auto dealers, but that banks, finance companies and credit unions--which are included in different classes--also make car loans, and the mortality and morbidity of a consumer buying credit insurance through one of these producers should not be different than through an auto dealer. They contend that establishing rates that vary depending on where the credit insurance is purchased is nonsensical and actually discriminatory.

Agency Response: The loss ratios and compensation percentages for Class E differed materially from the loss ratios and compensation percentages for the other credible classes of business (Classes A, B and C). For credit life, the loss ratio and compensation percentage for Class E were 31.41% and 42.7%, respectively. The credit life loss ratio for the other statistically credible classes of business ranged from 52.01% to 53.46%. The credit life compensation percentages for the other statistically credible classes of business ranged from 2.93% to 28.76%. For credit disability, the loss ratio and compensation percentage for Class E were 40.17% and 41.44%, respectively. The loss ratio and compensation percentage for the other statistically credible classes of business were 54.39% and 17.39%, respectively.

Even without the guidance of a specific legal definition for what constitutes a "significant difference" between loss ratios and compensation percentages between the various classes, the substantial differences observed between the loss ratios and compensation percentages in Class E and those in all other classes called for serious consideration of setting different rates by class of business.

It is also not necessary to establish classes on the basis of mortality or morbidity. Insurers that have in the past sought approval of deviations from the presumptive premium rates did not necessarily rely on mortality or morbidity information. Instead, they based their requests on loss ratios and the insurer's profitability relative to specific customer groups in much the same manner that this order establishes separate rates by class of business. The noted difference in loss ratios and compensation percentages is an actuarially sound basis for rate distinctions, and Texas credit insurers have used it to justify different rates for their various customers. Because the basis for the distinction is actuarially sound, factoring it into the setting of presumptive premium rates does not constitute unfair discrimination.

The point that there are a variety of dealers that fit into Class E is true. The department, however, does not have enough reliable data to establish separate rates for subclasses, and none of the other classes include dealers at all. Therefore, the proposal could not refine the rates more specifically.

Comment: One commenter highlights a concern about disparate impact with the following example. A single company has a majority of the auto dealer business in the state and has a substantially lower loss ratio than other insurance companies classified as auto dealers. The commenter believes this set of circumstances creates an unfair bias against the rest of the auto dealer companies in the presumptive premium rate development.

Agency Response: It is important to note that the commenter has presented a hypothetical scenario, rather than an actual observed phenomenon in the Texas credit insurance market. The department has developed presumptive premium rates that are not confiscatory. There will likely be specific impacts of the presumptive premium rates that affect each credit insurance carrier uniquely. That result is driven, in part, by the unique circumstances of each company. After assessing the impacts of implementing the presumptive premium rates, each company can determine whether to ameliorate perceived problems by adopting an automatic deviation of as much as 30% variation from the presumptive rates, or by seeking specific approval to use rates that deviate even more than 30%.

Comment: Another commenter states that one of the reasons credit life and credit accident and health insurance have been so popular with both borrowers and creditors is the simplicity of the products and their administration, and one of the key elements of that administrative simplicity is the rate structure. The commenter believes that establishing rates by class of business represents a first step toward a rate structure that is more complex and more expensive to administer.

Another commenter states that presumptive premium rates developed by class of business would be unduly burdensome to the industry, in addition to raising the specter of opportunistic litigation or regulatory unfairness. The commenter is concerned that the proposal does not provide a mechanism for determining under what class a particular business may fall. It is left to the discretion of insurers to determine to which class of business a particular program would belong. The commenter believes that the classes of business defined under §3.5002(7) are sufficiently broad that a particular class of business could be classified under multiple categories. For example, a retail store's credit program could be classified under either Class E-Dealer or Class A-Commercial Bank, if a national bank is the creditor of the underlying debt.

Agency Response: The concerns that setting presumptive premium rates by class and plan of business may add slight complexity may be true for some companies, but it should not be a problem for consumers because they don't shop for credit insurance. They simply decide whether or not to purchase whatever credit insurance product is offered by a retail salesperson when the consumer is purchasing a consumer product.

The potential additional costs to insurers of administering a rate structure that includes separate rates by class are associated with the costs that would be incurred to revise the computer systems that the insurers use to track rates and inform business producers (dealers and financial institutions) about the rates. Once the computer revisions are accomplished, the commenter's concerns in this regard should be resolved. This order establishes January 1, 2006 as the date the new rates will take effect, an ample time for insurers to prepare.

The department does not agree that setting presumptive premium rates by class and plan of business necessarily creates the kind of confusion that will lead to speculative or opportunistic litigation. The classes identified in the rules can be summarized as dealers, financial institutions and others. The classes are determined by the entity that sells the credit insurance product, not the entity that sells the consumer product; thus, dealers should not be confused about whether they are financial institutions.

Comment: A commenter states that rating by class would be unduly burdensome on insurers attempting to administer multiple programs for each class of business, and will be burdensome on the department when reviewing deviations by class for each insurer. In order to alleviate this, the commenter recommends that the department provide a process for insurers to develop rates that are actuarially equivalent to the presumptive rates by class of business. Insurers would develop rates internally, consistent with methods previously filed and approved by the department, and submit an informational filing for the department's review.

Agency Response: Once the computer revisions necessary for implementation of the new rates are accomplished, the commenter's concerns that insurers and the department will encounter undue burdens should be resolved. The insurers in the credit insurance market typically sell other lines of insurance, some of which include multiple products. Their experience demonstrates that they are capable of accommodating this change without difficulty. The department's experience managing the review and oversight of multiple product offerings also demonstrates that there should not be a problem. The rule sets forth procedures for obtaining approval of rates and deviations, and the department declines to adopt the procedural change suggested by the commenter.

Comment: A commenter stated that having rates that vary by class creates additional expenses for companies that write dealer business and other business and the proposal does not reflect this additional expense. This commenter sees that as a problem because the commenter believes Texas already has one of the nation's lowest presumptive credit accident and health insurance rate structures, but the credit accident and health claim cost is average compared to other states.

Agency Response: Variance should not be an undue burden on any credit insurance company. The department stated in the proposal that the probable economic cost to persons required to comply with the sections will be the possible revenue impacts from the changes in rates and the costs associated with reprogramming to effect the new rates. This includes reprogramming changes that insurers that write dealer business and other business will make. The department has set the effective dates of the new presumptive premium rates with enough lead time to accommodate insurer needs. The companies that write dealer business and other business will possibly encounter more reprogramming costs than companies that sell to only one class of customers. The actual impact will vary from company to company. The date for effective implementation of these rates is January 1, 2006. That allows sufficient time for credit insurers to modify their business systems, even if they offer a variety of products. The commenter's concern about the Texas credit insurance rate structure and claim cost should be improved by instituting separate rates by class, because the classes with higher costs should have the higher rates. The presumptive rate structure will more closely mirror actual industry circumstances.

Comment: Another commenter supports adoption of Alternative 1, stating that there are sufficient credible consistent differences between Class E and the other classes of business to justify different rates. The commenter disagrees with the argument that the use of class rating would be too confusing, and points out that widespread use of computers makes it just as simple to have multiple class rates as only one class rate. The commenter also points out that for some lines of insurance, such as private passenger automobile insurance, there are thousands of possible different class rates, which has not presented a problem. The commenter believes that the objection that separate class rates would cause confusion among consumers is a much more hypothetical concern than a reality because consumers very rarely shop for credit insurance, which is sold concurrently with the purchased consumer product. The commenter also points out that the use of deviations will mean that rates between sellers of credit insurance will vary anyway. The commenter also contends that if the credit insurance rates are not set by class, it is likely that some classes of business for which that one uniform rate is too low will use higher rates, while those for whom that rate is too high will not use lower rates. This will lead to an unbalanced situation where consumers are being charged overall premiums that are excessive and confiscatory. The commenter concludes that it is completely consistent with actuarial and regulatory principles to use credit insurance rates that vary by class of business.

Another commenter believes that the potential of a "low cost" class of business subsidizing a "high cost" class is the strongest reason to support rates by class of business if one believes that the differential in income between different classes of producers should be small. The rates by class would then lead to rates that more closely reflect the level of claims actually being produced by borrowers who purchase coverage through the respective classes. The commenter believes that if separate rates by class of business are to be adopted, it is appropriate to look for the largest possible reasonably homogeneous groupings of claim cost, as was done in the proposal.

A commenter who supports varying rates by business class observes that the proposed rate difference for credit disability is small enough that it would not be worth much extra administrative cost to maintain the separation, but the proposed rate difference for credit life is material. The commenter goes on to say that if maintaining separate presumptive rates for one of the two coverages causes the administrative cost to be incurred and the second product does not add much cost, it would make sense to use separate rates for both credit disability and credit life.

Agency Response: The department agrees with the observations of these commenters and notes that their observations are responsive to some of the comments that precede them in this order.

Comment: A commenter argues that, just as the claims experience for Class E is significantly different than for other classes, the claims experience for single premium and monthly outstanding balance (MOB) business are significantly different. This commenter believes that the same logic that dictates separate rates for Class E versus other classes should apply to single premium versus MOB products. That is, plans and classes of business with significantly different claims experience warrant different presumptive premium rates. The commenter believes that the proposal has incorrectly ignored the substantially different claims experience for single premium credit life and MOB credit life.

Agency Response: The department agrees that the same logic that dictates separate rates for Class E versus other classes should apply to single premium versus MOB products. The proposal did not ignore the different claims experience for single premium credit life and MOB credit life. Exhibits 15-2 and 15-3 in the Milliman report identify the loss ratios for single premium business and for MOB business. The difference between the losses experienced by those plans of business was taken into account and this data was relied upon in the proposal and in this order.

Comment: A commenter asks that the department confirm that an insurer that files rates or has rates on file that are equivalent to the presumptive rates shown in §3.5206 of this rule, to the extent adjusted pursuant to §3.5202 of this rule, may use those rates without further proof of their reasonableness. The commenter believes such a provision would allow for insurers to comply with the presumptive premium rate in a more timely manner and alleviate the department's burden in approving rate filings.

Agency Response: The department cannot comply with the request. Pursuant to §1153.102, insurers must submit new filings to demonstrate that their rates are in compliance with the new rule requirements.

THE JOINT LIFE MULTIPLIER

Comment: A commenter complains that the joint life loss ratio is only 143%, but the proposal concluded that the 150% joint multiplier remains appropriate--without any analysis or explanation. The commenter also complains that the proposal employs a strict component rating analysis to establish single life rates but for joint life rates the component rating analysis is not used. The commenter explains that this is an example of the proposal departing from its stated procedure when it benefits insurers and agents and harms consumers.

A commenter recommends that the joint life multiplier should be 125%. The commenter assumes that claim costs are 50% of single life rates. Thus, the claim costs per dollar of premium for joint life would be 143% of 50 cents, or 72 cents. By adding 50 cents of non-claim expenses, the result is a multiplier of approximately 125%. The commenter acknowledges that this is not a precise calculation because some non-claim expenses vary with claim costs, but contends that this example makes it clear that a component rating analysis for joint life will produce a significantly lower joint life multiplier than 150%.

Another commenter states that the joint life multiplier of 1.5 is low and asserts that industry studies have shown the need for a multiplier in the range of 1.6 to 1.75.

A commenter believes that claims are frequently reported incorrectly, especially with regard to life claims being reported as a single life claim or a joint life claim. For this reason, the commenter believes that comparison of losses between single life and joint life from reported data should always be viewed with caution. Rather than rely on reported data, the commenter prefers a theoretical approach, and recommends a joint life multiplier for credit life of 165%.

The commenter also claims to have seen experience and heard from other industry actuaries that the proper multiple for credit disability may be greater than 200%, and recommends a joint life multiplier for credit disability of 175%.

Agency Response: The joint coverage mortality cost averaged 143% of the single coverage mortality cost during 2000-2002, based on industry data. The experience fluctuates considerably. The ratio was 125% in 2000, 157% in 2001 and 150% in 2002. Historically, the department has used 150% and the history of fluctuation in these three years justifies not lowering it to 143%, just because of the average. This experience also does not justify lowering it to 125%. The experience generally hovers around 150%, and in some years it exceeds that percentage by just a few points, while in other years it is a few points less than 150%. Accordingly, the department believes that a multiplier of 150% is reasonable.

Comment: Another commenter states that the definition of average lives is unclear.

Agency Response: There is no definition for "average lives." The definition for "average number of life years" has been in this subchapter for years. The proposal moved the definition to a different section but did not include the language of the definition. Because of the comment, the department reviewed the definition and could not discern what makes the definition unclear to the commenter. Therefore, it will not be changed.

ADJUSTMENT TO PRIMA FACIE PREMIUMS AND LOSS RATIOS

Comment: A commenter believes that certain patterns of earned premiums relative to prima facie premiums and losses incurred suggest that consistent and appropriate adjustments were not made to the actual earned premiums to produce the presumptive premium rate equivalent. The commenter constructs a simple model to approximate the potential claim cost understatement. The model concludes that prima facie earned premiums are overstated by approximately 11% for the period 2000-2002. The commenter believes that this adjustment is further supported by the following analysis. The proposal calculated the single life decreasing term claim cost per $100 per year from the losses incurred and the mean insurance in force. This value is .1187. The single life decreasing term loss ratio for the 2000-2002 period is 36.47%. Applying that ratio to the 36-month prima facie rate of .281 (per $100 per year) yields .1025. The claim cost based on the mean insurance in force is approximately 15.8% greater than the claim cost based on the loss ratio times the prima facie rate. The commenter believes this demonstrates that the 11% adjustment is appropriate.

Agency Response: As previously noted, insurers provided the data relied upon to derive the presumptive premium rates in the credit insurance data call, and certified the data they submitted as accurate. The data was rigorously reviewed by department staff and Milliman. At the end of that review, the department had no reason to reject or question the data. The model constructed by the commenter included certain key simplifying assumptions that the department questions. For example, the commenter assumed that no company with policies issued in 1999 and prior years correctly reported premiums at presumptive rates (PEP) on those policies during the 2000-2002 experience period at the $.30 rate in effect during that period, but instead reported it at the $.36 rate in effect when those policies were issued. The commenter also assumed that all policies are written for a term of 36 months even though it is clear that policies are written for other terms. In the final analysis, the department believes it is more reasonable to rely on the actual data rather than the modeled scenario offered by the commenter.

PROFIT AND CONTINGENCY MARGIN

Comment: One commenter calculates profit and contingency margins based on asset share methods with target surplus, contending that this is the only appropriate method appropriate for multi-year contracts involving significant surplus strain.

Agency Response: An appropriate methodology for calculating profit and contingency margins, including cases with multi-year contracts where significant surplus strain is involved, must include several factors. Consideration of a target return on equity (ROE) acknowledges that insurance companies must make more profit than they could make if they simply invested their money instead of underwriting the risk of others. Thus it follows that there must be a reasonable estimate of net investment income derived from equity and, to assure sufficient reserves if underwriting results are not favorable, an appropriate premium to equity ratio. The department acknowledges that the asset share method takes these factors into consideration, but the proposal does as well. Accordingly, the proposal's approach to determining the profit and contingency margin component and the asset share approach preferred by the commenter are both actuarially sound methods. The method used in the proposal is also consistent with the method used in the 2000 rate order.

Comment: A commenter argues that there is a serious fallacy in using the ROE calculation used in the proposal and the 2000 rate order. The commenter believes that surplus strain associated with issuing new single premium credit insurance business can easily exceed 50% of the single premium. The commenter notes that the cost of this surplus can vary by insurance company, but is generally equal to the required ROE. Thus, if a carrier has a 15% pre-tax cost of capital and a 3.5% investment return, there is an 11.5% gap that must be recovered from underwriting gains. Also, the commenter has observed that some analyses have alleged that the profit formula should be reduced by "investment income on reserves." The commenter disagrees and responds that since a large portion of the reserves represent borrowed surplus, most companies have a significant cost of maintaining reserves not reflected in these ROE analyses.

Agency Response: The premium to equity ratio of 2.0 used in the development of the profit margin component of the rating formula recognizes that surplus strain on single premium business may require additional commitments of equity by the insurer. Because surplus strain is taken into consideration in the premium to equity ratio, the ROE calculation used to derive the profit component is appropriate and reasonable.

Comment: Another commenter observes that for the target after-tax ROE, the proposal uses a value of 12.0%. The commenter believes that this is an excessive value without reasonable support. The commenter conducted an analysis which indicated that an appropriate after-tax ROE is 9.7%. The commenter also points out that the most recent department decision on the cost of capital issue was in the Texas title insurance biennial rate hearing where the commissioner found 10.5% to be a reasonable cost of capital. The commenter believes that the recommendation in this proposal for the 12% after-tax cost of capital is unscientific and unreliable and appears to be based totally upon the rate of return that insurance companies want to earn, which will lead to an excessive profit provision.

Agency Response: To evaluate an assumption for a ROE, the department reviewed the annual statement and Best Reports of five major carriers in the credit insurance market. The effective tax rate of these carriers fluctuated between 24% and 43%.

To properly compare the ROE recommendations of commenters and the department, it is important to use the same effective tax rate for each recommendation. The commenter's reference to the proposal's use of a 12% after-tax ROE fails to acknowledge that the effective tax rate yielding that result is 20%. This cannot fairly be compared to the commenter's ROE recommendation of 9.7%, because the effective tax rate yielding that result is 25%.

The proposal included the statement that "for comparison purposes, a 15% pre-tax rate of return is equivalent to a 12% after-tax rate of return with a 20% effective tax rate, or to a 10.5% after-tax rate of return with a 30% effective tax rate." This 10.5% is the same cost of capital that the commenter argues should be used because the commissioner found it reasonable in the most recent title insurance rate case.

Only two commenters provided ROE recommendations, one who does not represent credit insurers, and one whose recommendation was adopted by several credit insurers. At a 25% effective tax rate, the non-insurer commenter's recommendation for ROE was 9.7%. This calculates to a 12.93% before-tax ROE. The insurer recommendation for after-tax ROE was 11.5%, which is the same rate adopted by the commissioner in the 2000 rate order. At a 25% effective tax rate, this calculates to a before-tax ROE of 15.3%. The proposal's recommendation of 10.5% after-tax ROE, at a 25% effective tax rate, calculates to a before-tax ROE of 14.0%. At an effective tax rate of 30%, the non-insurer recommendation is a 13.85% ROE and the insurer recommendation is 16.42% The proposal's recommendation is 15.0%. At an effective tax rate of 35%, the non-insurer recommendation is a 14.9% ROE and the insurer recommendation is 17.69% The proposal's recommendation is 16.15%.

At all these tax rates, the proposal's recommendation falls very close to the midpoint between the non-insurer and insurer recommendations. The department did not make its proposal with that objective, but these numbers indicate that the ROE recommendation in the proposal is reasonable.

DISCOUNT FACTOR

Comment: A commenter addresses the conclusion in the proposal that the investment income on reserves should be 0.0% because single premium rates are currently discounted for interest and because the investment income in MOB business is negligible. The commenter believes that this approach is correct only if two conditions are met: (i) the premiums at current presumptive rates used in the rate calculation were appropriately adjusted for the discounting of single premium business and (ii) the interest rate used to discount single premium business in the future is appropriate. The commenter believes there are serious concerns with regard to whether or not the first of these assumptions is satisfied. The commenter notes that the proposal states that in the data call, the earned PEP were subject to, potentially, the greatest misstatement. Because when current presumptive premium rates were set, two factors were utilized that could have caused confusion in the reporting of the PEP, one of which was the implementation of a discount factor. With regard to the second assumption, the commenter believes the 3.5% interest rate proposed to discount single premium rates is significantly lower than the actual return that can be expected by insurance companies.

Another commenter agrees with the component rating formula in the proposal, observing that this method was used in the 2000 rate order setting the current presumptive premium rates. This commenter agrees that the absence of an interest component in the denominator of the formula is appropriate because the result of the calculation is discounted to reflect the timing differences of receipt of the premiums.

A commenter believes that the discounting of single premiums at interest is not appropriate, based on his perspective of the standpoint of equity between policyholders. Only the policyholder may cancel single premium contract. The insurer is bound to continue coverage. The commenter believes this factor increases the risk of cumulative anti-selection, which he asserts is true of many other guaranteed renewable coverages. Conversely, in MOB plans, the insurer usually retains the right to cancel coverage upon 30 days notice. In addition, whether the risk is life or disability, the commenter believes the yearly increase in expected claim costs more than offsets any potential interest discount. The commenter believes that if the interest discount concept remains, the interest should be reduced to the 3.5% that was included in the proposal. The commenter believes that the discount should not be higher for disability coverage. He contends that a "mortality discount" is not appropriate on single premium credit disability insurance, because when an insured dies, the disability contract is cancelled and the disability premium is refunded. Thus, there is no need for a "mortality discount."

A commenter observes that the department's proposal applies different discounts for credit life premiums (4.5%) versus credit accident and health premiums (5.63%) and believes that part of the proposal is without any reasoned justification or other explanation.

A commenter believes that the application of discount factors to the proposed premium presumptive rates duplicates discounts already used in the ratemaking process. The proposal uses a 3.5% discounted internal rate of return which the commenter believes already accounts for earned investment income on surplus. The commenter believes that to apply an additional discount factor to the presumptive premium rates unreasonably duplicates a discount and recommends that the use of discounts applied to the presumptive premium rates should be eliminated.

A commenter believes that the use of a 3.5% interest rate to discount the single premium credit insurance rates is a reduction from the interest rates currently used to discount single premium credit insurance rates of 4.5% for credit life insurance and 5.63% for credit accident and health insurance and characterizes this as a "hidden" rate increase.

A commenter states that the 3.5% interest rate included in the proposal is too low and does not reflect the actual expected investment results of insurance companies and contends this will result in excessive credit insurance premiums.

A commenter recommends that the department use a 7% interest rate to discount the rates for single premium business to the extent that the manual rates do not fully reflect investment income.

Agency Response: The credit life insurance presumptive premium rates recommended in the proposal were developed independent of the presumptive earned premiums reported for the experience period. Therefore, any misreporting of the presumptive earned premiums would not have affected the recommended credit life presumptive premium rates. Any misreporting of premiums by the companies might, however, have affected the recommended presumptive premium rates for credit accident and health if it actually occurred. Since the department has no indication of misreporting of the data, however, any adjustment we would attempt to make would be purely arbitrary. As noted previously, the department and Milliman engaged in a rigorous review of the credit data call submissions prior to utilizing that data to set the presumptive premium rates. The department found no reason to question the data. Furthermore and perhaps most significantly, as of this date, some eighteen months after the reporting of the data to the department, no company has stepped forward to suggest that they now believe their data reporting was in error.

The discounts applied by the department's proposal are 3.5% for both the credit life premiums and the credit accident and health premiums. This follows from the determination that 3.5% is the appropriate value to use for investment income. The reasoning that led to that conclusion has already been explained in response to comments about investment income.

The department respectfully disagrees with the commenter that believes the discounting of single premiums at interest is not appropriate. A consumer that pays a single premium for coverage at the inception of the policy loses the time value of that money. Application of the discount rate offsets this loss to the consumer and effectively lowers the amount an insurer receives for investment.

CLAIM COST

Comment: A commenter believes that the department should calculate a rate for a central type of coverage, such as single premium single life decreasing term, and then use existing and theoretical relationships to develop the other rates. The commenter contends that in calculating the central coverage type, it is most appropriate to use the claim experience of as broad a spectrum of coverage as possible. This would avoid anomalies, such as basing a rate on experience that does not include the experience under that type of coverage. In calculating the base rate for single premium single life decreasing term, the commenter used the adjusted loss ratio for the entire credit life line of business. The overall three-year prima facie loss ratio for credit life was 41.91%. The commenter adjusted the loss ratio because he believes misreporting of premiums is common, and got 46.64%, which produced a claim cost of 13.11 cents per $100 per year. The commenter contends that the method used in the proposal erroneously used only the single premium single life decreasing term experience, but should have used the ratio of losses to mean insurance in force to arrive at the claim cost component.

For the claim cost component for credit disability, the commenter believes that the 14-day retroactive plan at an appropriate term is the best choice for the central coverage type. A percentage or other appropriate adjustment can then be applied across terms, elimination periods and premium types. In calculating the base rate for single premium disability 14-day retroactive coverage, the commenter used the adjusted loss ratio for the entire credit disability line of business. The overall three-year prima facie loss ratio for credit disability was 48.08%. He adjusted the loss ratio because he believes misreporting of premiums is common, and got 53.16%, which produced a claim cost of $1.368 per $100 for the three-year plan. The commenter argues that the proposal erroneously used only the 14-day retroactive experience, but should have used adjusted overall loss ratios to develop the claim cost component.

Agency Response: In developing the claim cost component of the presumptive premium rates, the department used claims experience in the plans that have the largest volume of business in force. This approach uses a homogeneous group of credit insurance consumers and is consistent with the method used in prior rate decisions. The approach derives the claim cost component for other plans by applying a factor to the largest volume plan to represent the actuarial value of the coverage differential between the various plans. This method gives reasonable results, is actuarially sound, and is a generally accepted industry practice. Some plans may have a different composition of credit insurance consumers, with age and gender characteristics that differ from the largest volume plan. The department has historically refrained from varying presumptive premium rates in credit insurance because of the age and gender of the insured. To the extent that an individual company's composition of credit insurance customers in a specific plan causes the actual experience in the plan to vary materially from that assumed in the presumptive rate development, a rate deviation solution is available to the company. The commenter's approach, while somewhat different, is also a reasonable approach to developing the claim cost component. But since the other components of the rate (commissions, general expenses, and profit and contingency margin) also represent common assumptions for all plans, it is not necessary to use the commenter's approach in order to develop reasonable presumptive premium rates.

INTEREST

Comment: A commenter agrees with the treatment of interest used in the proposal.

Agency Response: The department appreciates the comment.

COMMISSION COMPONENT

Comment: One commenter believes that the commission component should reflect the level of compensation actually paid to producers. The commenter argues that credit insurance competes with other products for "shelf space" in the producer's fee income sources. If an alternate product, or offering no product at all, is more attractive to the producer, credit insurance will simply not be offered. Another commenter disagrees that the proposed commission component of 25% is inadequate, contending that the average commission paid for all classes exceeds that amount. The commenter reasons that a presumptive rate with a commission component less than average would be inadequate for some insurers, agents or both in violation of Insurance Code §1153.103(f). Further, the commenter points out that, pursuant to Insurance Code §1153.103(e), the Commissioner may not set a presumptive premium rate that sets or limits the amount of compensation paid to an agent. Another commenter states that by setting the commission component well below the average, the new proposed presumptive rate could require insurers or agents to have commissions set or limited. This commenter believes that problem is exacerbated if the order adopts Alternative 1, under which separate rates for Class E have the same commission component as all other classes. The commenter asserts that the average amount actually reported and paid for Class E is over 45%, whereas the actual amount reported and paid for credit unions and savings institutions is significantly less than 25%.

Agency Response: As previously noted in this order, and well-documented historically, reverse competition exists in the credit insurance market through producer commissions. For that reason, the department believes it would be unreasonable to set the commission component in the higher range of actual commissions paid by some companies. The statute specifies that reasonable acquisition costs are only one component of the presumptive rate. The value of 25% is in the lower range of actual commissions reported by carriers, and is more reasonable. It is also the same value used for the commission component in the 2000 rate order. The use of 25% as the value for the commission component does not, however, prevent any company from paying higher or lower commissions as it sees fit. Therefore, this rate order does not set or limit the amount of compensation actually paid to a company or agent, and does not violate the prohibition found at Insurance Code §1153.103(e).

Comment: A commenter points out that Insurance Code §1153.103(d) enumerates various types of data which the Commissioner must consider in determining the presumptive premium rate. The commenter notes that the claims cost component and the general expense component in the proposal were based upon data submitted by insurers through the data calls, but believes that the commission component was not. The commenter believes that the proposal ignored the compensation data provided by insurers which would violate the Commissioner's statutory obligation to consider all relevant data and the statutory prohibition against attempting to set or limit commissions. The data requested from and provided by insurers regarding commissions indicates that, on average, commission levels are around 40% for both credit life insurance and credit accident and health insurance.

A different commenter states that continued use of a 25% commission component in the current presumptive premium rates fails to reflect that credit insurance companies now have the ability to receive an automatic 30% upward deviation from the presumptive premium rates, which was not available at the time of the 2000 rate order. The commenter believes that it is appropriate to use a provision for commissions lower than the value that was used when the automatic upward deviation was not available, and suggests the use of a value of no more than 20%.

Agency Response: The department did consider actual data submitted regarding commissions paid by credit insurance companies, and determined that because of the effect of reverse competition that was discussed previously, 25% is a reasonable value to use for the commission component, which is in the lower range of commission payments reported by credit insurance companies.

The department does not believe it is appropriate, however, to reduce the commissions component because of the automatic upward rate deviations allowed by Insurance Code §1153.105. As noted previously, the regulatory scheme established by Chapter 1153 of the Insurance Code requires the commissioner to set the presumptive premium rates based on the information required by §1153.103(d). Thereafter, insurers may use deviated rates if they follow the required procedures. Reducing the calculated presumptive rates or any individual component by a factor of 1/1.3 because of allowable rate deviations would be inconsistent with the intent of the law.

MINIMUM PREMIUM

Comment: Several commenters recommend that the order establish minimum premiums and refunds. One commenter observes that, in recent times consumers have begun to finance smaller purchases, which has resulted in significantly smaller initial credit insurance face amounts (many less than $1,000) and smaller premiums per policy with no reduction in per-policy administration costs to the producer and the insurer. The commenter recommends that the commissioner establish a minimum premium of $10.00 per policy and a minimum policy refund upon policy cancellation of $5.00 to assist in defraying the increasing policy administration costs associated with smaller face amount policies.

A commenter points out that banks incur the following costs in managing their credit insurance business: personnel time in taking applications, explaining policies and assuring that documents are completed correctly for Truth-In-Lending as well as Gramm-Leach-Bliley and state law disclosure; data processing entry; per-loan costs to data processors if the institution uses outside processors; postage and supplies relating to transmitting certain documents including certification to carriers and policy delivery to customers as appropriate; compliance costs including licensing of the institution as a special agent, and ongoing training of employee. In reviewing community bank activities with a credit insurance carrier, the commenter learned that approximately 45% of community banks credit insurance premiums are under $10.00. These commenters believe the imposition of minimum premiums and refunds will not unduly burden consumers, and will reduce the amount of money insurers are currently losing by accepting small premium policies and certificates.

Agency Response: The proposal made no mention of minimum premiums or refunds.

The department believes that it would be outside the scope of the notice provided by the proposal to make these changes in the rules.

§3.5608: A commenter disagrees with this section's requirement for annual review of approved deviated rates, arguing that a three year approval period is more appropriate. The commenter believes that rates will be "kept in line" by the expiration of deviations every three years, noting that in states with a shorter approval period there is more fluctuation of rates rather than a trending over time. The commenter also believes that a shorter period would create extra costs for filers and the department with no corresponding public benefit.

Agency Response: The timeframes in §3.5607 and §3.5608 are longstanding and this proposal made no mention of changing them. Therefore, the department declines to change them. The commenter's interest is noted and the department will maintain awareness of the issue as the new rates are implemented.

Comment: Some commenters believe that the proposed effective date of March 1, 2005 does not allow the time required for filing and system conversion.

Agency Response: This order establishes an effective date of January 1, 2006, which should allow sufficient time for the industry to make the business process changes necessary to achieve timely compliance.

FINDINGS AND CONCLUSIONS REQUIRED BY INSURANCE CODE §1153.103(c). The following Findings are made, as required by Insurance Code §1153.102(c).

GENERAL PROCEDURE

1. On June 1, 2004, the department published credit life and credit accident and health statistical data for the years 2000, 2001, and 2002 and solicited rate proposals from interested persons.

2. The department's contractor, Milliman, reviewed the submissions and prepared a rate assessment and recommendation based on that information and the published statistical data.

3. The department made the report prepared by Milliman, rate recommendations from interested parties, information responsive to inquiries about staff's recommendation, and statistical data for 2000-2002 were made available to the public on the department's web site, along with comments on the proposed rule. Interested persons could also request a copy of this information by contacting the Life/Health Division at (512) 322-3401 or lifehealth@tdi.state.tx.us.

4 A proposal for the amendment of presumptive premium rates for credit life plans and credit accident and health plans was published in the Texas Register on November 12, 2004.

5. The department held two informal meetings to discuss the procedure that would be followed at the public hearing and invited known interested parties to attend.

6. The Commissioner of Insurance conducted a public hearing to receive public comments on the proposal on January 6, 2005.

REVERSE COMPETITION

7. There is reverse competition in the credit insurance industry.

8. Reverse competition in the credit insurance market means that insurers direct their competitive efforts at the producers of insurance business rather than at the ultimate consumers of credit insurance.

9. Reverse competition in the credit insurance market raises credit insurance rates consumers pay, without adding benefits, because it forces insurers to pay higher acquisition costs (i.e; commissions) to producers in order to attract more business.

GENERAL RATEMAKING

Classes of Business

10. The following classes of business exist in the credit life insurance and credit accident and health insurance market:

Class A--Commercial banks, savings and loan associations and mortgage companies;

Class B--Finance companies and small loan companies;

Class C--Credit unions;

Class D--Production credit associations (agriculture and horticulture P.C.A.s);

Class E--Dealers (including auto and truck, other dealers, and retail stores); and

Class F--All others not included in classes A through E.

ALTERNATIVE 1 VS. ALTERNATIVE 2

11. In reviewing industry expense and experience data supplied in response to the data call, the department observed that the loss ratios and compensation percentages for one class, Class E--Dealers, were significantly different than the other classes in both credit life plans and credit accident and health plans. This disparity established a basis for distinguishing between Class E and all other classes of business.

12. The department published for comment two alternatives. Alternative 1 established a presumptive premium rate for Class E alone, with a different presumptive premium rate for all classes other than Class E. Alternative 2 established a composite presumptive premium rate for all classes of business combined. The department specifically invited comments on the alternatives as well as on which alternative to adopt.

13. After consideration of all available information, including comments from the public, it is reasonable to adopt Alternative 1, establishing presumptive premium rates for credit life insurance and credit accident and health insurance based on plan and class of business.

COMPONENT RATING FORMULA

14. The proposed presumptive premium rates for both credit life insurance and credit accident and health insurance were developed using a method known as the component rating methodology. Component rating considers each element of income and expense and builds the premium rate as a combination of the components.

15. The components utilized in developing the presumptive premium rates were claims cost, general insurance expenses, investment income, premium taxes and fees, commissions, and profit.

16. The formula used to develop a premium rate for both credit life plans and credit accident and health plans, using the component rating method, is: Component Rate = (claims cost + general insurance expenses)/(1 + investment income-premium taxes and fees-commissions-profit).

COMPONENTS IN THE DENOMINATOR OF THE FORMULA

17. The values for the components in the denominator of the formula are the same for credit life plans and credit accident and health plans.

18. An annual earning rate of 3.5% is reasonable for the investment income component. This rate is based on review of past and current yield for U.S. Treasury and corporate bonds with durations of less than five years.

19. Investment income is excluded from this proposal because single premium rates are currently discounted for interest in the presumptive premium rate calculation formula and because the investment income in outstanding balance business is negligible.

20. A percentage of 2.75% is a reasonable value to use as the component for state premium taxes, licenses, fees and other assessments. The commissioner used this same value in his 2000 rate order. Insurance Code Chapter 222 requires insurers selling life insurance to pay taxes at a rate of one-half of 1.75% on the first $450,000 of gross premiums and 1.75% on gross premiums above that amount.

21. It is reasonable to use a value of 25% for the commissions component. This is unchanged from the assumption the commissioner used in the 2000 rate order.

22. The commission component does not fix or limit the amount an insurer may pay in commissions.

23. It is reasonable to use a value of 5.75% of premium for the profit component. This factor is calculated as follows: (target before-tax return on equity (15%) minus net investment income on equity (3.5%)) divided by the premium to equity ratio of 2.0.

24. The overall target return on equity of 15% used in the profit component calculation is equivalent to a 10.5% after-tax rate of return with a 30% effective tax rate. This is very nearly midway between the return on equity recommendations provided by representatives of the credit insurance industry and representatives of credit insurance consumers.

25. The premium to equity ratio of 2.0 used in the calculation of the profit component is an assumption that reflects surplus targets for the industry, driven in part by risk-based capital requirements, along with recognition that surplus strain on single premium business may require additional commitments of equity by the insurance carrier. The commissioner also used a ratio of 2.0 in the profit margin calculation in the last presumptive premium rate order.

COMPONENTS IN THE NUMERATOR OF THE COMPONENT RATING FORMULA FOR CREDIT LIFE

Plans of Benefits for Credit Life Insurance

26. The following Plans of Benefits exist in the Credit Life Insurance market:

Plan 1 Single Premium, Reducing Coverage, Single Life

Plan 2 Single Premium, Level Coverage, Single Life

Plan 3 Outstanding Balance, Revolving Loan, Single Life

Plan 4 Outstanding Balance, Other, Single Life

Plan 5 Single Premium, Reducing Coverage, Joint Life

Plan 6 Single Premium, Level Coverage, Joint Life

Plan 7 Outstanding Balance, Revolving Loan, Joint Life

Plan 8 Outstanding Balance, Other, Joint Life.

Claim Costs

27. The department initially attempted to calculate presumptive premium rates for credit life plans using actual claims cost experience information plan by plan. However, some plans had an insufficient volume of business to provide reliable data for rate setting purposes. In addition, the actual claim experience by plan does not reflect the actuarial value of the coverage and benefit differences by plan.

28. For credit life plans, the claims cost component represents the annual mortality costs based on experience data for the years 2000, 2001 and 2002. This data was submitted by carriers through the department's annual credit data call.

29. The establishment of the credit life claims component relies on the claims experience in Plan 1, which contains over 50% of all credit life earned premium during the experience period, to develop a presumptive premium rate for that plan. The presumptive premium rates for all other credit life plans use the rate relationships below, which reasonably represent the actuarial value of the coverage and benefit differences in each plan.

SPn = ((n x (n+1))/2n2) x (12/10) x Op = ((12 x (n + 1))/20n) x Op

And, for level term insurance on single lives:

LTn = (12/10) x Op

where,

SPn = Single premium rate per year of coverage per $100 of initial decreasing indebtedness repayable in "n" equal monthly installments.

LTn = Single premium rate per year of coverage per $100 of level life insurance where the indebtedness remains level during the term of the coverage and is repayable in a single sum at the end of the term.

Op = Monthly outstanding balance premium rate per $1,000 of insured indebtedness.

n = Original repayment period, in months; assumed to be twenty-four months.

30. It is reasonable to use claims cost components of .1048 for Class E alone and .1558 for all classes except Class E in determining the presumptive premium rates for Alternative 1 credit life plans.

General Insurance Expense

31. For credit life plans, the general insurance expenses were estimated using information reported by the companies in the annual credit data calls summary expense report. The percentage ratio of the mean Texas certificates in force to the mean nationwide certificates in force was calculated for the years 2000, 2001 and 2002. This percentage was then multiplied by the total of all expense items to produce an estimate of the Texas expenses for all plans for each year. The estimated Texas expenses were then divided by the total presumptive earned premium to develop Texas expenses as a percentage of presumptive earned premiums. Estimated annual expenses per plan were determined by applying that percentage to the presumptive earned premiums by plan. The annual plan expense costs per $1,000 were then calculated by dividing the estimated annual expenses per plan by the plan mean insurance in force, which were then converted to expense per plan.

32. A significant change from previous studies appeared in the ratio of Texas estimated expenses to presumptive earned premium. That ratio dropped from the 20 - 21% range for studies over the six years prior to the current study period to 14% for 2000 through 2002. Because of the significant difference in this number from one observation period to the next, this value for this component was proposed to be determined by using a weighted average expense ratio, applying a 25% weight to the current study period data and a 75% weight to the prior study period. As a result, the general insurance expense component used in the proposal for a new presumptive premium rate for credit life was .0642.

33. Commenters questioned the use of the weighted average expense ratio approach. Some questioned the proposal's reasoning for weighting the more recent expense data at 25% and weighting the older data at 75%. Some recommended giving 100% weight to the expense data for the years 2000-2002. Others recommended giving no weight at all to the data for those years.

34. Department staff carefully reviewed the data submitted in response to the credit data calls and found no reason to discard the data. At the same time, the drastic difference from one observation period to the next is without certain explanation.

35. A reasonable way to reconcile these concerns is to average the expense information reported in credit data calls for the six years immediately preceding this proceeding. That calculation yields a general insurance expense component of .0580 for credit life, which is reasonable.

COMPONENTS IN THE NUMERATOR OF THE COMPONENT RATING FORMULA FOR CREDIT ACCIDENT AND HEALTH

Plans of Benefits for Credit Accident and Health Insurance

36. The following Plans of Benefits exist in the Credit Accident and Health Insurance market:

Plan 10 Single Premium 14-day Retroactive

Plan 11 Single Premium 30-day Retroactive

Plan 12 Single Premium 14-day Non-Retroactive

Plan 13 Single Premium 30-day Non-Retroactive

Plan 14 Single Premium 30-day Non Retroactive

Plan 16 Outstanding Balance Revolving 14-day Retroactive

Plan 17 Outstanding Balance Revolving 30-day Retroactive

Plan 18 Outstanding Balance Revolving 14-day Non-Retroactive

Plan 19 Outstanding Balance Revolving 30-day Non-Retroactive

Plan 22 Outstanding Balance Other 14-day Retroactive

Plan 23 Outstanding Balance Other 30-day Retroactive

Plan 24 Outstanding Balance Other 14-day Non-Retroactive

Plan 25 Outstanding Balance Other 30-day Non-Retroactive

Plan 26 Outstanding Balance Other 90-day Non-Retroactive.

Claim Costs

37. Experience pertinent to credit accident and health plans presented the same problem identified in Finding 27. Therefore, the department relied on the claims experience in Plans 10 and 17 for credit accident and health to develop presumptive premium rats for those plans. The presumptive premium rates established for Plans 10 and 17 are the starting points for establishing the presumptive premium rates for all other credit accident and health plans.

38. For credit accident and health plans, the claims cost component was calculated as the ratio of incurred claims to presumptive premiums multiplied by the current presumptive premium rate.

39. The Plan 10 percentages of the current presumptive premium rates were applied to the current presumptive premium rate schedule to determine the recommended presumptive premium rates for Class E alone and all classes except Class E for all single life, single premium plans and all outstanding balance other plans. The Plan 17 percentages were used for all single life, outstanding balance revolving account plans.

40. It is reasonable to use claims cost components of 1.1480 (Plan 10) and .5130 (Plan 17) for Class E alone in determining the Alternative 1 presumptive premium rates for credit accident and health plans.

41. It is reasonable to use claims cost components of 1.6886 (Plan 10) and .6034 (Plan 17) for all classes except Class E in determining the Alternative 1 presumptive premium rates for credit accident and health plans.

General Insurance Expense

42. For credit accident and health plans, general insurance expense was determined by multiplying the ratio of total general insurance expense to presumptive earned premium by the current presumptive premium rate. As in credit life, there was an inconsistency between the general insurance expense calculated using the 2000-2002 data and general insurance expense using the experience data reported for 1997-1999. As a result, a weighted average component was calculated in the proposal for new presumptive premium rates using a weight of 25% for 2000-2002 experience data and a weight of 75% for the 1997-1999 experience data. The general insurance expense component for credit accident and health using that calculation was .5501 (Plan 10) and .2918 (Plan 17).

43. Commenters questioned the use of the weighted average expense ratio approach. Some questioned the proposal's reasoning for weighting the more recent expense data at 25% and weighting the older data at 75%. Some recommended giving 100% weight to the expense data for the years 2000-2002. Others recommended giving no weight at all to the data for those years.

44. Department staff carefully reviewed the data submitted in response to the credit data calls and found no reason to discard the data. At the same time, the drastic difference from one observation period to the next is without certain explanation.

45. A reasonable way to reconcile these concerns is to average the expense information reported in credit data calls for the six years immediately preceding this proceeding. That calculation yields a general insurance expense component for credit accident and health of .5111 (Plan 10) and .2711 (Plan 17).

JOINT COVERAGES

46. It is reasonable to establish presumptive premium rates for both credit life insurance and credit accident and health insurance coverages on joint lives at 150% of the corresponding single life presumptive premium rates. A comparison of the experience for single life and joint life rates was made by type of plan. While there was variability within the plan sub-groups, the overall ratio of the annual claims cost of joint life to single life business is 1.434 (143.4%) for the years 2000-2002. This result confirms the reasonableness of the use of the 150% multiplier for joint credit life rates.

DISCOUNT FACTOR

47. It is reasonable to use a discount rate of 3.5%. This rate is based on a review of the past and current yield for U.S. Treasury and corporate bonds with durations of less than five years.

LOSS RATIOS/ REASONABLENESS TEST

48. The department proposed loss ratios to serve as a test of reasonableness of the relationship of benefits for applications that seek approval of deviations from the presumptive premium rates that exceed 30%.

49. Because the department observed that the loss ratios and compensation percentages for one class, Class E--Dealers, were significantly different than the other classes in both credit life plans and credit accident and health plans, the department also proposed two alternatives for comment with regard to loss ratios: Alternative 1 presented loss ratios based on plan and class of business. Alternative 2 presented composite loss ratios for all classes of business combined for credit life policies and all classes of business combined for credit accident and health policies.

50. After consideration of all available information, including comments from the public, it is reasonable to adopt Alternative 1, establishing loss ratios based on plan and class of business.

51. The anticipated loss ratios for credit life plans and credit accident and health plans, separated by Class E and all classes except Class E, were determined using the underlying proposed presumptive premium rates and their claim cost components.

52. It is reasonable to establish a standard for approval of deviations from the presumptive premium rates that exceed 30% that, unless it can be reasonably anticipated that a loss ratio of claims incurred to earned premiums will, after the increase becomes effective, be no less than the following:

(A) Loss Ratios For Class E Only:

(i) credit life--43%

(ii) credit accident and health:

(I) 46% for Plans 10 -14 and 22 - 26 identified in Finding 36; and

(II) 44% for Plans 16 -19 identified in Finding 36.

(B) Loss Ratios For All Other Classes:

(i) credit life--48%;

(ii) credit accident and heath:

(I) 51% for Plans 10 -14 and 22 - 26 identified in Finding 36; and

(II) 46% for Plans 16 -19 identified in Finding 36.

PRESUMPTIVE PREMIUM RATES with DISCOUNT FACTOR

53. The following presumptive premium rates are reasonable and shall be used on or after January 1, 2006.

See Figure: 28 TAC §3.5206

The following Conclusions are made, as required by Insurance Code §1153.103(c).

1. The Commissioner of Insurance has jurisdiction over this matter pursuant to Chapter 1153 of the Insurance Code.

2. Insurance Code §1153.103(a) authorizes the Commissioner of Insurance to adopt a presumptive premium rate for various classes of business and terms of coverage. This statute does not limit the authority of the commissioner to setting one presumptive premium rate; it authorizes the commissioner to set a separate presumptive premium rate for each of the various classes of business, and allows the commissioner to set additional separate rates when the terms of coverage make that appropriate.

3. The presumptive premium rates set by this order were developed after a consideration of all factors set forth in Insurance Code §1153.103(d), which requires the commissioner to consider the type or class of business when determining the presumptive premium rate.

4. Insurance Code §1153.103 does not mandate the use of a specific ratemaking methodology. It only mandates the consideration of specific factors in any methodology relied upon by the commissioner.

5. The regulatory scheme established by Chapter 1153 of the Insurance Code is that the commissioner is to set presumptive premium rates without consideration of the fact that Insurance Code §1153.105 allows insurers to use rates that are up to 30% higher or lower than the presumptive premium rates.

6. There is reverse competition in the credit insurance industry.

7. Because of reverse competition, it would be unreasonable to set presumptive premium rates using a value for the commissions component that is in the middle to higher end of the range of commissions actually paid by credit insurers.

8. Neither the producer commissions component of the presumptive premium rate calculations, nor any other part of this order, sets or limits the amount of compensation that can actually be paid by insurance companies to agents.

9. The loss ratios to be included in §3.5202, which this order adopts to establish a standard for approval of deviations from the presumptive premium rates that exceed 30%, strike a reasonable balance between the benefits returned to consumers and the premiums charged.

10. The adoption in this order of the loss ratios to be included in §3.5202 (relating to Reasonable Relation of Benefits to Premiums for Approved Deviations) does not restrict in any way the commissioner's authority to approve or disapprove a rate application because of other lawful considerations.

11. The presumptive premium rates for credit life insurance adopted in this order are just, reasonable, adequate, and nonconfiscatory, and are not excessive to insureds, insurers or agents.

12. The presumptive premium rates for credit accident and health insurance that are adopted in this order are just, reasonable, adequate, and nonconfiscatory, and are not excessive to insureds, insurers or agents.

13. The presumptive premium rates adopted in this order shall be in force and effect on January 1, 2006.

Against: Texas Automobile Dealers Association. Neither for nor against, with changes: The Office of Public Insurance Counsel, Texas Association of Life and Health Insurers, American National Insurance Company, Resource Life Insurance Company, Consumer Credit Insurance Association, Assurant Solutions, Center for Economic Justice, Independent Bankers Association of Texas, Cuna Mutual Insurance Company, Protective Life Insurance Company, Union State Bank.

1. GENERAL PROVISIONS

28 TAC §3.5001, §3.5002

The amendment and new section are adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

§3.5001.Authority and Scope.

This subchapter is adopted pursuant to the authority provided in Insurance Code, Chapter 1153. This subchapter applies to all life insurance and all accident and health insurance sold in connection with loans and other credit transactions, the premium for which is charged to or paid for in whole or in part either directly or indirectly by the debtor, regardless of the nature, type, or plan of the credit insurance coverage or premium payment system, which shall include any such credit insurance which purports to be on a "cost free," "no cost," "give away," or other "no charge" basis insofar as a debtor is concerned, but shall not apply to:

(1) insurance issued or sold in connection with a loan or other credit transaction of more than 10 years' duration;

(2) insurance issued or sold in connection with a credit transaction that is:

(A) secured by a first mortgage or deed of trust; and

(B) made to finance the purchase of commercial real property or the construction of or improvement to a building other than a single family dwelling on the real property if the purchase, construction, or improvement is secured by a lien on the real property, or to refinance a credit transaction made for those purposes; or

(3) insurance issued or sold as an isolated transaction on the part of the insurer not related to an agreement or a plan for insuring debtors of the creditor.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502002

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

2. APPLICATIONS AND POLICIES

28 TAC §3.5105

The amendment is adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502003

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

3. FILING AND APPROVAL OF FORMS AND RATES

28 TAC §§3.5201, 3.5202, 3.5206

The amendments and new section are adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

§3.5201.Submission of Form and Rate Filings.

(a) Every insurance company, when submitting a schedule of rates for automatic or approved deviations from the presumptive premium rate, shall identify the rates to be used with the policy form submitted for approval. The face page of every form or schedule submitted to the commissioner, shall include with its identifying form number the additional identification: "(3.53)" if the form is an individual life and/or individual accident and health form and used only within the scope of Insurance Code Chapter 1153; "(3.53 and 3.50)" if the form is a group life and/or group accident and health form and used only within the scope of Chapter 1153; "(3.53 R.A.)" or "(3.53 O.E.)" if the form is a credit life and/or credit accident and health form and is written on open-end transactions. The designations "(3.53 R.A.)" or "(3.53 O.E.)" may not be used on forms or schedules providing insurance coverage on closed-end transactions. The additional identification, as required by this subsection, will only be used on credit life and/or credit accident and health insurance written under the scope of Insurance Code, Chapter 1153.

(b) All form and rate filings are to be filed in accordance with the requirements of Subchapter A of Chapter 3 of this title (relating to Submission Requirements for Filings and Departmental Actions Related to Such Filings.

§3.5202.Reasonable Relation of Benefits to Premiums for Approved Deviations.

As the basic test of the reasonableness of the relation of benefits to the premium charges for approved deviations, to be applied separately by policy form number, it is hereby declared that the benefits of credit life insurance or credit accident and health insurance, individual or group, shall not be considered to be reasonable in relation to the premium charges, unless it can be reasonably anticipated that a loss ratio of "claims incurred" to "earned premiums" will, after the increase becomes effective, be no less than the following:

(1) Loss Ratios For Class E Only:

(A) credit life--43%;

(B) credit accident and health:

(i) 46% for Plans 10 - 14 and 22 - 26 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter (relating to Presumptive Premium Rates); and

(ii) 44% for Plans 16 - 19 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter.

(2) Loss Ratios For All Other Classes:

(A) credit life--48%;

(B) credit accident and heath:

(i) 51% for Plans 10 - 14 and 22 - 26 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter; and

(ii) 46% for Plans 16 - 19 on the Presumptive Premium Rate Chart found at §3.5206 of this subchapter.

§3.5206.Presumptive Premium Rates.

The following presumptive premium rates are adopted by the commissioner and shall be used on or after January 1, 2006.

Figure: 28 TAC §3.5206

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502004

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

4. PRESUMPTIVELY ACCEPTABLE RELATION OF CREDIT LIFE INSURANCE BENEFITS TO PREMIUMS

28 TAC §3.5307

The amendment is adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502005

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

5. STANDARDS OF BENEFITS FOR CREDIT ACCIDENT AND HEALTH INSURANCE

28 TAC §3.5502

The amendment is adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

§3.5502.Joint Credit Accident and Health Insurance.

(a) Joint debtors, for purposes of credit accident and health insurance written under Insurance Code, Chapter 1153 means only spouses or business partners, and such persons must be jointly and severally liable for repayment of the single indebtedness and be joint signers of the instrument of indebtedness. Endorsers and guarantors are not eligible for credit insurance coverage. Joint accident and health coverage shall not be written covering more than two debtors.

(b) Coverage may be provided by either of the methods set forth in paragraphs (1) and (2) of this subsection:

(1) each debtor is insured for 100% of the disability payment;

(2) each debtor is insured for a portion of the disability payment. The total of the portions shall equal 100% of the disability payment. The joint disability insurance benefit cannot exceed the amount of insurance that would have been provided if coverage had been issued on a single debtor.

(c) Joint disability coverage shall be evidenced by an individual policy or, in the case of group insurance, by a certificate of insurance. The form shall specify the amount of disability benefit to be provided on each debtor. The coverage shall not be provided by two single individual disability policies or by two single group disability certificates of insurance. Jointly indebted persons shall not both be covered separately at single accident and health rates.

(d) Joint disability forms shall provide that if coverage on one of the joint debtors is terminated, the coverage on the other debtor shall be continued under a single individual disability policy or a single group disability certificate. Coverage may be terminated for any of the reasons stated in paragraphs (1) - (4) of this subsection:

(1) the coverage is successfully contested;

(2) the coverage was issued in error to a joint insured who exceeded the eligibility age limits and who correctly stated his age. Under these circumstances, the insurer has the right to terminate the portion of coverage provided on such insured as long as the adjustment is handled as set forth in §3.5106(b) of this title (relating to Prohibited Provisions and Practices) addressing excess coverage;

(3) coverage was issued in error to a joint insured who did not meet the eligibility employment requirements, if required, and who correctly stated his employment status in writing. Under these circumstances, the insurer has the right to terminate the portion of coverage provided on such insured as long as the adjustment is made as set forth in §3.5106(b) of this title addressing excess coverage;

(4) suicide or any other life exclusions, as set forth in the policy and/or certificate of insurance.

(e) If termination occurs for any of the reasons set forth in subsection (d)(1) - (3) of this section, the amount of premium refund required will be equal to the difference between the premium charged for joint disability coverage and the premium that would have been charged if only single disability coverage (on a single insured) had been provided at the time the coverage was originally issued. If termination occurs for the reason set forth in subsection (d)(4) of this section, the amount of premium refund required will be equal to the unearned portion, at the date of death, of the premium charged for joint disability coverage minus the unearned portion, at the date of death, of the premium that would have been charged if only single disability coverage (on the single "surviving" insured) had been provided at the time the coverage was originally issued. The refund for joint disability coverage is to be paid in addition to the refund for joint life insurance coverage, in accordance with §3.5104(a)(2) of this title (relating to Benefits and Refunds), if joint life coverage was issued.

(f) If a separate identifiable premium is charged for the joint disability coverage, and if joint coverage is desired by the debtors, each debtor must elect and sign for the joint coverage.

(g) The maximum premiums to be charged for joint disability coverage when each debtor is insured for 100% of the disability payment must be equal to the amount set forth in the latest adopted presumptive premium rates for joint credit disability coverage. The maximum premiums to be charged for joint disability coverage when each debtor is insured for a portion of the disability payment, with the total of the portions equal to 100% of the disability payment, must be equal to the premium that would have been charged if 100% of the disability insurance amount was provided on a single life, as set forth in the latest adopted presumptive premium rates for single life credit disability coverage.

(h) The annual experience data reports required under §3.5701 of this title (relating to Statistical Data and Annual Experience Calls) shall be submitted as follows:

(1) if joint disability coverage is provided on each debtor for 100% of the disability payment, the experience data will be reported as joint disability coverage 1;

(2) if joint disability coverage is provided on each debtor for a portion of the disability payment, with the total of the portions equal to 100%, the experience data will be reported as joint disability coverage 2.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502006

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

6. DEVIATION PROCEDURES

28 TAC §§3.5601 - 3.5604, 3.5607, 3.5608, 3.5610

The amendments and new section are adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

§3.5610.Determination of Approved Deviated Case Rates.

(a) For cases which are not of credible size, or have no experience, no approved deviation shall be made in the presumptive premium rates under these deviation procedures; except that nothing herein shall be construed as preventing any insurer from filing an automatic deviation pursuant to Insurance Code, §1153.105.

(b) For purposes of this section: if the coverage for a single creditor which qualifies as a case has been in force with the insurer for less than the experience period:

(1) the claim experience of the creditor while covered by any prior insurer shall be included to the extent necessary in determining the appropriate case ratios; and

(2) the experience considered in the determination of multiple state case rates shall be Texas experience for the case unless the insurer makes the one-time election to use only nationwide experience. The election to use only nationwide experience must be accompanied by a certification that the insurer uses the same nationwide basis in determining the case ratios in each state in which the case has experience. A grouping of states may be used subject to the same requirements of consistency and certification.

(c) Schedule of new case rates. When submitting a Request for Deviated Rate pursuant to §3.5602 of this title (relating to Request for an Approved Deviated Premium Rate) the insurer shall also file a schedule of new case rates as determined by this section.

(d) Approved Deviation Request Form. As required by §3.5602 of this title any request for approved deviated rates shall be submitted to the commissioner through the Filings Intake Division in the manner prescribed on the form provided by the department for that purpose. The form can be obtained from the Texas Department of Insurance, Filings Intake Division, MC 106-1E, P.O. Box 149104, Austin, Texas 78714-9104. The form can also be obtained from the department's internet web site at www.tdi.state.tx.us.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502007

Gene C. Jarmon

Chief Clerk and General Counsel

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

9. PREMIUM REFUNDS

28 TAC §3.5901, §3.5905

The amendments are adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502008

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

10. RESPONSIBILITIES AND OBLIGATIONS OF INSURANCE COMPANIES AND THEIR AGENTS AND REPRESENTATIVES

28 TAC §3.6002

The amendment is adopted under the Insurance Code Chapter 1153 and §36.001. Chapter 1153 addresses requirements for Credit Life Insurance and Credit Accident and Health Insurance, and Subchapter C specifically addresses rates. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502009

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

Chapter 3. LIFE, ACCIDENT AND HEALTH INSURANCE AND ANNUITIES

Subchapter FF. CREDIT LIFE AND ACCIDENT AND HEALTH INSURANCE

The Commissioner of Insurance adopts the repeal of §3.5110 and §3.5603, concerning open and closed-end transactions and definitions. The sections are adopted without changes to the proposal as published in the November 19, 2004, issue of the Texas Register (29 TexReg 10692).

The repeal of these sections is necessary to consolidate definitions contained in those sections into one section. Simultaneous with this repeal, new §3.5002 is published elsewhere in this issue of the Texas Register , which implements, in part, Texas Insurance Code Chapter 1153, as amended by Acts 2001, 77th Legislature in House Bill 2159. That new section will include the definitions that had heretofore been found in §3.5110 and §3.5603. Contemporaneously with this repeal, adopted new §§3.5002, 3.5206, and 3.5603 and amendments to §§3.5001, 3.5105, 3.5201, 3.5202, 3.5307, 3.5502, 3.5601, 3.5602, 3.5604, 3.5607, 3.5608, 3.5610, 3.5901, 3.5905, and 3.6002, concerning credit life and credit accident and health insurance are published elsewhere in this issue of the Texas Register .

The definitions that were included in the repealed sections are included in new §3.5002 which will, in conjunction with other amendments adopted to Chapter 3 that are published elsewhere in this issue of the Texas Register , assure that the department's rules regarding presumptive rates for credit life and credit accident and health insurance conform to current statutory requirements.

No comments were received.

2. APPLICATIONS AND POLICIES

28 TAC §3.5110

The repeal is adopted pursuant to Insurance Code Chapter 1153, and §36.001. Chapter 1153 gives the Commissioner of Insurance authority to set presumptive premium rates by rule for credit life and accident and health policies. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502000

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

6. DEVIATION PROCEDURES

28 TAC §3.5603

The repeal is adopted pursuant to Insurance Code Chapter 1153, and §36.001. Chapter 1153 gives the Commissioner of Insurance authority to set presumptive premium rates by rule for credit life and accident and health policies. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 2005.

TRD-200502001

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 2005

Proposal publication date: November 19, 2004

For further information, please call: (512) 463-6327

Part 2. TEXAS WORKERS' COMPENSATION COMMISSION

Chapter 112. SCOPE OF LIABILITY FOR COMPENSATION

Subchapter B. APPLICATION TO GENERAL CONTRACTOR/SUBCONTRACTOR AND MOTOR CARRIER/OWNER OPERATOR

28 TAC §112.102

The Texas Workers' Compensation Commission (the commission) adopts amendments to §112.102 concerning Agreements between Motor Carriers and Owner Operators, §112.200 concerning Definition of Residential Structures, and §112.402 concerning Determination of Equivalent Benefits for Professional Athletes without changes to the proposed text published in the March 4, 2005, issue of the Texas Register (30 TexReg 1226).

As required by the Government Code §2001.033(1), the commission's reasoned justification for this rule is set out in this order which includes the preamble, which in turn includes the rule. This preamble contains a summary of the factual basis of the rule, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals. In addition to written comments, the public was provided the opportunity to comment on the proposed amendments in an open forum at a public hearing held April 7, 2005.

Amendment to §112.102 - Agreements between Motor Carriers and Owner Operators

Section 112.102(f) corrects the Texas Workers' Compensation Act citation from §3.24 to §406.005.

Amendment §112.200 - Definition of Residential Structures

Section 112.200 corrects the Texas Workers' Compensation Act citation from §3.06 to §406.142,

Amendment to §112.402 - Determination of Equivalent Benefits for Professional Athletes

Section 112.402 corrects the Texas Workers' Compensation Act citations from Texas Civil Statutes, Article 8308, 3.075 to Texas Labor Code, §406.095.

One comment was received during the public comment period from the Insurance Council of Texas. This comment supports the proposed amendments.

Comment: The commenter supports the amendments that will result in the rules citing the correct provisions of the Texas Labor Code.

Response: The commission agrees.

The amendments are adopted pursuant to Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act; Texas Labor Code, §406.005, which requires employers to notify employees of workers' compensation coverage; Texas Labor Code, §406.095 which allows certain professional athletes to elect coverage under the Act or under contract agreement; Texas Labor Code, §406.121 through §406.127 which address the coverage of certain independent contractors, and Texas Labor Code, §406.141 through §406.146 which address coverage of certain building and construction workers.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502020

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Subchapter C. APPLICATION TO CERTAIN BUILDING AND CONSTRUCTION WORKERS

28 TAC §112.200

The Texas Workers' Compensation Commission (the commission) adopts amendments to §112.102 concerning Agreements between Motor Carriers and Owner Operators, §112.200 concerning Definition of Residential Structures, and §112.402 concerning Determination of Equivalent Benefits for Professional Athletes without changes to the proposed text published in the March 4, 2005, issue of the Texas Register (30 TexReg 1226).

As required by the Government Code §2001.033(1), the commission's reasoned justification for this rule is set out in this order which includes the preamble, which in turn includes the rule. This preamble contains a summary of the factual basis of the rule, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals. In addition to written comments, the public was provided the opportunity to comment on the proposed amendments in an open forum at a public hearing held April 7, 2005.

Amendment to §112.102 - Agreements between Motor Carriers and Owner Operators

Section 112.102(f) corrects the Texas Workers' Compensation Act citation from §3.24 to §406.005.

Amendment §112.200 - Definition of Residential Structures

Section 112.200 corrects the Texas Workers' Compensation Act citation from §3.06 to §406.142,

Amendment to §112.402 - Determination of Equivalent Benefits for Professional Athletes

Section 112.402 corrects the Texas Workers' Compensation Act citations from Texas Civil Statutes, Article 8308, 3.075 to Texas Labor Code, §406.095.

One comment was received during the public comment period from the Insurance Council of Texas. This comment supports the proposed amendments.

Comment: The commenter supports the amendments that will result in the rules citing the correct provisions of the Texas Labor Code.

Response: The commission agrees.

The amendments are adopted pursuant to Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act; Texas Labor Code, §406.005, which requires employers to notify employees of workers' compensation coverage; Texas Labor Code, §406.095 which allows certain professional athletes to elect coverage under the Act or under contract agreement; Texas Labor Code, §406.121 through §406.127 which address the coverage of certain independent contractors, and Texas Labor Code, §406.141 through §406.146 which address coverage of certain building and construction workers.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502021

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Subchapter E. PROFESSIONAL ATHLETES ELECTION OF COVERAGE

28 TAC §112.402

The Texas Workers' Compensation Commission (the commission) adopts amendments to §112.102 concerning Agreements between Motor Carriers and Owner Operators, §112.200 concerning Definition of Residential Structures, and §112.402 concerning Determination of Equivalent Benefits for Professional Athletes without changes to the proposed text published in the March 4, 2005, issue of the Texas Register (30 TexReg 1226).

As required by the Government Code §2001.033(1), the commission's reasoned justification for this rule is set out in this order which includes the preamble, which in turn includes the rule. This preamble contains a summary of the factual basis of the rule, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals. In addition to written comments, the public was provided the opportunity to comment on the proposed amendments in an open forum at a public hearing held April 7, 2005.

Amendment to §112.102 - Agreements between Motor Carriers and Owner Operators

Section 112.102(f) corrects the Texas Workers' Compensation Act citation from §3.24 to §406.005.

Amendment §112.200 - Definition of Residential Structures

Section 112.200 corrects the Texas Workers' Compensation Act citation from §3.06 to §406.142,

Amendment to §112.402 - Determination of Equivalent Benefits for Professional Athletes

Section 112.402 corrects the Texas Workers' Compensation Act citations from Texas Civil Statutes, Article 8308, 3.075 to Texas Labor Code, §406.095.

One comment was received during the public comment period from the Insurance Council of Texas. This comment supports the proposed amendments.

Comment: The commenter supports the amendments that will result in the rules citing the correct provisions of the Texas Labor Code.

Response: The commission agrees.

The amendments are adopted pursuant to Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act; Texas Labor Code, §406.005, which requires employers to notify employees of workers' compensation coverage; Texas Labor Code, §406.095 which allows certain professional athletes to elect coverage under the Act or under contract agreement; Texas Labor Code, §406.121 through §406.127 which address the coverage of certain independent contractors, and Texas Labor Code, §406.141 through §406.146 which address coverage of certain building and construction workers.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502022

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Chapter 133. GENERAL MEDICAL PROVISIONS

Subchapter E. COMPELLING PRODUCTION OF DOCUMENTS

28 TAC §133.401, §133.403

The Texas Workers' Compensation Commission (the commission) adopts amendments to §133.401 and §133.403, concerning Orders for Production of Documents and Noncompliance; Enforcement without changes to the proposed text published in the March 4, 2005, issue of the Texas Register (30 TexReg 1227).

As required by the Government Code §2001.033(1), the commission's reasoned justification for these rules is set out in this order, which includes the preamble, which in turn includes the rules. This preamble contains a summary of the factual basis of the rules, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rule, and the reasons why the commission disagrees with some of the comments and proposals.

No changes were made to the proposed rules in response to public comment received in writing and after opportunity for comment at a public hearing held on April 7, 2005.

The adopted amendments to §133.401(a) and (c), allow all commission employees, rather than only Medical Review employees, to submit a written request to the executive director or designee to issue an order for the production of documents and clarify what documents may be requested. This broadens the ability of other divisions to efficiently seek an order for the production of documents.

The adopted amendment to §133.403(a) replaces an outdated citation with a citation to the current codified version of the Texas Workers' Compensation Act.

Comments supporting amendments to §133.401 and §133.403 as proposed were received from the following group: Insurance Council of Texas.

COMMENT: Commenter supported the proposed amendment of Rule 133.401 to allow non-Medical Review Division staff to request an order for the production of documents, which will allow TWCC to obtain documents from a party in a more efficient manner and should assist the agency in its efforts to enforce the Texas Labor Codes and rules. Commenter further stated that the proposed amendment of Rule 133.403 subsection (a) is appropriate given that the current rule includes an outdated Labor Code citation.

RESPONSE: The commission agrees.

These rules are adopted pursuant to the Texas Labor Code §402.061 which requires the commission to adopt rules necessary for the implementation and enforcement of the Texas Workers' Compensation Act; Texas Labor Code §413.052, which requires the commission to adopt rules to establish procedures enabling the commission to compel the production of documents; and Texas Labor Code §415.021, which allows the commission to establish an administrative penalty against a person who commits an administrative violation.

No other code, statute, or article is affected by these rules actions.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502019

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Chapter 134. BENEFITS--GUIDELINES FOR MEDICAL SERVICES, CHARGES, AND PAYMENTS

Subchapter C. MEDICAL FEE GUIDELINES

28 TAC §134.303

The Texas Workers' Compensation Commission (the commission) adopts new §134.303 concerning the 2005 Dental Fee Guideline with changes to the proposed text published in the March 4, 2005, issue of the Texas Register (30 TexReg 1228).

As required by Government Code §2001.033(a)(1), the commission's reasoned justification for this rule is set out in this order, which includes the preamble, which in turn includes the rule. This preamble contains a summary of the factual basis of the rule, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were in support of or opposition to adoption of the rule.

A public hearing on the proposed 134.303 was held on April 7, 2005, but no comments were received at that public hearing. Changes made to the proposed rule are in response to written public comment received in writing during the comment period.

The commission adopts this new rule to update reimbursement guidelines for dental services provided in the Texas workers' compensation system. The adopted new rule establishes new reimbursement guidelines for dental services by applying a multiplier of 200% to the fees listed in the most current Texas Medicaid Dental Fee Schedule. The increase in the multiplier from 125% to 200% is intended to strike the proper balance between establishing fair and reasonable guidelines for medical services fees that ensure continuing quality of medical care and achieving effective medical cost control. The adopted new rule for dental services provided on or after June 15, 2005, severs the dental component of the Medical Fee Guideline, contained within §134.202 of this title, concerning Medical Fee Guideline (MFG), and creates a standalone Dental Fee Guideline responsive to current economic indicators in this segment of the medical services market.

Dental fees, as a subset of medical fees, must satisfy the standards for medical fees established in Texas Labor Code §413.011. Subsection (d) of that section requires guidelines for medical services fees to be fair and reasonable and designed to ensure the quality of medical care and to achieve effective medical cost control. The guidelines may not provide for payment of a fee in excess of the fee charged for similar treatment of an injured individual of an equivalent standard of living and paid by that individual or by someone acting on that individual's behalf. The commission must consider the increased security of payment afforded by the Texas Workers' Compensation Act in establishing the fee guidelines.

More recent statutory requirements added to §413.011 of the Texas Labor Code also require that the commission use health care reimbursement policies and guidelines that reflect the standardized reimbursement structures found in other health care delivery systems with minimal modifications to those reimbursement methodologies as necessary to meet occupational injury requirements. In order to achieve standardization, the statute additionally requires the commission to adopt the most current reimbursement methodologies, models, and values or weights used by the federal Health Care Financing Administration (HCFA), (now known as the Centers for Medicare and Medicaid Services (CMS)), including applicable payment policies relating to coding, billing, and reporting, and may modify documentation requirements as necessary to meet the requirements of Texas Labor Code §413.053 (relating to Standards of Reporting and Billing). The commission is required to develop conversion factors or other payment adjustment factors in determining appropriate fees, taking into account economic indicators in health care. However, the commission may not adopt conversion factors or other payment adjustment factors based solely on those factors as developed by the HCFA.

Prior to adoption of this new rule, reimbursements for professional dental services provided on or after August 1, 2003 were established by §134.202(c)(4) of this title, concerning Medical Fee Guideline (MFG). With adoption of this new rule, the MFG continues to establish reimbursements for professional dental services provided through June 14, 2005. Procedurally, the MFG provides maximum allowable reimbursement (MAR) amounts for health care providers (HCPs) treating injured workers in Texas. For dental treatments and services, the established MAR amount in the MFG is the Texas Medicaid Dental Fee Schedule multiplied by 125%, as the national Medicare system does not provide for reimbursement to professional dental health care providers. The adopted new rule, applicable to professional dental services provided on or after June 15, 2005, increases the multiplier to 200% to ensure continued access to quality dental services.

The challenge for the commission has been to find a payment adjustment factor, or multiplier, that satisfies the diverse statutory requirements of Texas Labor Code §413.011 and establishes an appropriate dental fee guideline, workable for providers, payers, and injured workers alike. The statutory criteria of §413.011 establish a range within which the commission is directed to exercise administrative discretion to select an appropriate multiplier. Specifically, the statutory requirement 'ensures quality of medical care' requires that fees not be set so low as to deprive covered workers access to qualified providers. Conversely, this requirement does not mandate that fees be set so high in order to induce all dentists to participate. The commission must 'achieve effective medical cost control' in establishing guidelines for medical service fees, thereby setting limits on a new multiplier. Further guidance in finding an appropriate multiplier is found in the statutory requirement that workers' compensation payers not pay more for similar treatments than payers on behalf of patients from populations with equivalent standards of living. This provision establishes parameters on workers' compensation reimbursements relative to those in other payer systems. Any identified special features in the workers' compensation system that warrant additional compensation may, however, offset this limit. Additionally, §413.011 permits the commission to consider reductions in the multiplier based on the security of payment afforded by the Texas Workers' Compensation Act as compared with other payer systems requiring the collection of co-pays, deductibles, and other balance billings. Ultimately, the commission must consider how payments may be set to control medical costs while maintaining access of injured workers to quality medical care.

A Workers' Compensation Research Institute (WCRI) published report entitled Benchmarks for Designing Workers' Compensation Medical Fee Schedules: 2001-2002 (August 2002) further analyzed factors associated with establishing fees. At page 5 it provides:

"The underlying question in most state public policy debates about fee schedules is 'What is the optimal fee level?' Studies to date in either workers' compensation or Medicare have yet to determine the optimal fee level. A review of the literature reveals "Conceptually, most would agree that the optimal fee level is one that provides access to quality care in the most cost-efficient manner. According to the economic model, it is the price that would induce health care providers to supply services that characterize 'good quality care' - not too much, not too little, and only those services that produce positive outcomes whose benefits are more valuable than the costs paid for the services. The optimal fee level, then, is one that minimizes incentives to over treat or treat with more costly services, even though less expensive, equally effective services exist. If, for example, complex surgeries provide relatively high profit margins (and therefore greater financial incentives), the optimal balance between cost and quality would not be achieved. On the other hand, if reimbursements do not provide a fair and competitive rate of return to providers, access to particular services would be hampered by financial disincentives, thereby jeopardizing access to care."

Lacking an established Medicare reimbursement methodology for dental services, the new rule retains and readopts the Texas Medicaid Dental Fee Schedule as the reimbursement methodology. The new rule adopts an appropriate multiplier that meets the statutory requirements of Texas Labor Code §413.011, taking into account all pertinent information and giving full consideration to stakeholder input. The statutory requirements of §413.011 mirror the factors, concerns, and objectives (access, quality, outcomes, utilization, cost) addressed by the WCRI. The commission has considered each in its evaluation, analysis, and adoption of the new multiplier of 200% of the Texas Medicaid Fee Schedule for dental services in the workers' compensation system.

The commission anticipates certain benefits to system participants as a result of adopting this new rule, and these benefits include: (1) for injured workers, access to dental treatments and services as a result of raising reimbursements; (2) for dental health care providers, receiving increased reimbursement for the infrequent provision of dental services in the workers' compensation system; (3) for employers, the prompt return to work of injured workers and the potential for decreased premiums; and (4) for insurance carriers, the injured workers' prompt return to work and decreased indemnity payments.

Commission staff met with dental providers to discuss the current reimbursement methodology contained in §134.202 of this title (relating to Medical Fee Guideline). That reimbursement is currently set at 125% of the Texas Medicaid Dental Fee Schedule.

The dental representative member of the commission's Medical Advisory Committee offered a sampling of 16 dental procedure codes as representative dental services that might be provided in workers' compensation cases. This sampling information contained preferred provider organization reimbursement amounts and the dental representative's usual, customary, and reasonable (UCR) charges. This data was compared to published dental reimbursement amounts for workers' compensation systems in three other states (Kansas, North Carolina, and Florida). The data reflected that total average reimbursement for the 16 codes ranged from 105% (Florida), 170% (Kansas), 228% (North Carolina) to 261% (UCR charges) of the Texas Medicaid Dental Fee Schedule.

The commission also met with carrier representatives and held a stakeholders meeting. A preproposal rule draft was shared with interested parties prior to the stakeholder meeting. As a result of the October 14, 2004 meeting, the commission requested system participants, providers and carriers, to submit their charge and reimbursement information relating to their 20 most frequently utilized dental codes for the 12-month period prior to the implementation of the current Medical Fee Guideline. The commission received information from a limited number of providers. The commission also received additional significant reimbursement information from three carriers.

The payers' reimbursement data specific to Texas workers' compensation reflected that average reimbursement ranged from 186% (Travis County) and 206% (Texas Mutual Insurance Company), to 216% (Texas Association of School Boards (TASB)) of the Texas Medicaid Dental Fee Schedule. The data for Travis County was incorrectly presented as 293% in the proposal, enlarging the reported range. Reanalysis of the data indicated total average reimbursement for Travis County was actually 186% of the Texas Medicaid Dental Fee Schedule, slightly reducing the statistical deviation of all data considered. This result did not affect the value of the adopted multiplier, 200%, as the total number of reported dental claims from Travis County for the select period was statistically insignificant.

Texas Labor Code §413.011 requires the commission to adopt necessary conversion factors or payment adjustment factors to establish fair and reasonable reimbursement in the Texas workers' compensation system. Additionally, the commission must take into account economic indicators in health care and the requirements found in subsection (d) of §413.011. The statute also states that the commission shall not adopt a conversion or payment adjustment factor based solely on those factors developed by the CMS.

The commission received information from system stakeholders including health care providers and carriers, and received UCR information from the dental representative on the Medical Advisory Committee and the Texas Dental Association. A health care information data collection service and the dental representative on the MAC provided payment information which included some information relating to preferred provider organization reimbursements. The commission also reviewed and compared data regarding reimbursement in workers' compensation systems in other states.

In considering subsection (d) of §413.011, the above information, and the specific data from three payers in the Texas workers' compensation system (discussed above), and the other data and information received and obtained, the adopted multiplier of 200% to be applied to the most current Texas Medicaid Dental Fee Schedule reimbursement rates for professional dental treatments and services, establishes fair and reasonable reimbursement that is designed to ensure continued access to quality care, along with appropriate medical cost control.

As previously stated in this preamble, dental treatments and services are infrequently provided in the workers' compensation system and, as such, are unlikely to be a significant contributor to Texas' high medical costs per claim. The adopted multiplier for dental treatment and services is higher than that of the 2002 Medical Fee Guideline because its multiplier of 125%, as applied to the Texas Medicaid Dental Fee Schedule, has been determined to be at the lower end of the average reimbursements for the dental procedure codes analyzed by commission staff. The multiplier of 200% has been chosen to ensure continued access to quality dental care for injured workers, and is responsive to the cited economic indicators in this segment of the medical services market.

Adopted new §134.303 establishes reimbursements for professional dental treatments and services. The new rule provides standardized reimbursement methods and billing procedures by aligning the workers' compensation reimbursement structure with the structures used by CMS and the Texas Medicaid Program.

There are changes from the text of subsection (a) as proposed, which establishes the applicability of this guideline to reimbursements for professional dental services. The dates of service to which this guideline applies have been changed from 'on or after June 1, 2005' to 'on or after June 15, 2005.' This change to the applicable dates of service from proposal is necessary to provide the requisite 20-day period between the filing date of the adopted rule with the Secretary of State and its effective date. Correspondingly, the rule now clarifies that for professional dental services provided August 1, 2003 through June 14, 2005, §134.202 of this title (relating to Medical Fee Guideline) shall be applicable. Further, professional dental services provided December 1, 1996 through July 31, 2003 shall be reimbursed in accordance with §134.302 of this title, concerning the commission's previous Dental Fee Guideline. Specific provisions contained in the Texas Workers' Compensation Act and commission rules shall take precedence over any provision adopted or utilized by Texas Medicaid in administering the Texas Medicaid Dental Fee Schedule. Subsection (a) establishes that Independent Review Organization (IRO) decisions regarding medical necessity are made on a case-by-case basis. The commission will monitor IRO decisions to determine whether commission rulemaking action would be appropriate. Subsection (a) additionally provides that whenever a component of the Texas Medicaid Dental Fee Schedule is revised and effective, use of the revised component shall be required for compliance with commission rules, decisions and orders for services rendered on or after the effective date of the revised component. This will prevent the new rule from falling out of synchronization with the Texas Medicaid Dental Fee Schedule and will achieve the standardization goals established in Texas Labor Code §413.011.

There are no changes from the text of subsection (b) as proposed, which requires system participants to utilize the Texas Medicaid Dental Fee Schedule, including its coding, billing, reporting, and reimbursement of dental treatments and services, in effect on the date a service is provided, with further application of any additions or exceptions in this section. This allows for the basic reimbursements of the Texas Medicaid Dental Fee Schedule to be applied to the Texas workers' compensation system.

There are no changes from the text of subsection (c) as proposed, which establishes the method to be used for determining the MAR for dental treatments and services in the Texas workers' compensation system. In establishing the multiplier of 200% to be applied to the current Texas Medicaid Dental Fee Schedule for the rule, the commission considered the statutory requirements and objectives and utilized current commission reimbursement levels, available dental provider payer information, and other states' workers' compensation reimbursements for comparable dental treatments and services.

Subsection (c) also provides that for products and services for which the Texas Medicaid Dental Fee Schedule does not establish a value, the carrier shall assign a relative value, which may be based on nationally recognized published relative value studies, published commission medical dispute decisions, and values assigned for services involving similar work and resource commitments.

There is a change from the text of subsection (d) as proposed regarding the reduced MAR for multiple procedures performed during the same operative session. Proposed subsection (d) provided for reimbursement of the procedure with the highest MAR value at 100% of its MAR, and reimbursement for each subsequent procedure at 50% of its MAR value. Based on public comment received suggesting that such a reduction provision defeats the goal of continued access to dental care, serving to limit the participation of dental professionals in the Texas workers' compensation system, subsection (d) as proposed is deleted. Subsequent subsections have been renumbered accordingly.

Subsection (d), proposed as subsection (e), provides that reimbursement for dental laboratory procedures is bundled with the maximum fees for the associated dental procedures. No additional reimbursement shall be due. With the exception of the renumbering, there are no changes to the text of this subsection as proposed.

Subsection (e), proposed as subsection (f), provides that in all cases as established by this rule, reimbursement for dental treatment and services is the lesser of the MAR amount; the health care provider's usual and customary charge; or the workers' compensation negotiated and/or contracted amount that applies to the billed service(s). With the exception of the renumbering, there are no changes to the text of this subsection as proposed.

The commission's Medical Advisor reviewed and made recommendations regarding this adopted rule.

Comments supporting new §134.303 as proposed were received from the following groups: Insurance Council of Texas; Texas Dental Association; and Texas Mutual Insurance Company.

Comments suggesting changes were received from Texas Mutual Insurance Company.

COMMENT: Commenters supported the adoption of new §134.303 which updates reimbursement guidelines for dental services and assists the insurance industry in providing improved access to dental treatment to injured employees.

RESPONSE: The commission agrees.

COMMENT: Commenter recommended the deletion of proposed subsection (d) regarding the reduced MAR for multiple procedures performed during the same operative session. The commenter illustrated that implementation of the multiple procedure rule in many instances would not result in increased reimbursement to the dental provider, and consequently would not serve as an incentive to ensure continued access to dental care.

RESPONSE: The commission agrees with commenter's recommendation. The commenter's illustration of proposed subsection (d), which proposed reimbursement of the procedure with the highest MAR value at 100% of its MAR, and reimbursement for each subsequent procedure at 50% of its MAR value, resulted in a reimbursement that was at, or very near, the reimbursement rate of Texas Labor Code §134.202, the 2002 Medical Fee Guideline. The commission further agrees that such a reduction provision defeats the goal of continued access to dental care, and may also limit the participation of dental professionals in the Texas workers' compensation system. Consequently, subsection (d) as proposed is deleted. Subsequent subsections have been renumbered accordingly.

COMMENT: The commenter suggested that the payment adjustment factor should be increased to 261% of the Texas Medicaid Dental Fee Schedule to reflect the usual, customary, and reasonable (UCR) charges.

RESPONSE: The commission disagrees that the payment adjustment factor should be set at 261% of the Medicaid rate, the Texas Dental Association's reported usual, customary, and reasonable charge. This rate is far outside the range of reimbursements reported by carriers (TASB, Travis County, and TMIC) as fair and reasonable reimbursement under §134.302 of this title (regarding the previous Dental Fee Guideline). The suggested rate would be a 108% increase over the 125% of Medicaid reimbursement rate and is contrary to the cost containment requirements of the Texas Workers' Compensation Act.

The new rule is adopted under Texas Labor Code §402.061, which authorizes the commission to adopt rules necessary to administer the Act; Texas Labor Code § 408.021, which entitles injured employees to all health care reasonably required by the nature of the injury as and when needed; Texas Labor Code §413.002, which requires the commission's Medical Review Division to monitor health care providers, insurance carriers and claimants to ensure compliance with commission rules; Texas Labor Code §413.007, which sets out information to be maintained by the commission's Medical Review Division; Texas Labor Code §413.011, which authorizes the commission by rule to establish medical policies and guidelines; Texas Labor Code §413.012, which requires review and revision of the medical policies and fee guidelines at least every two years; Texas Labor Code §413.013, which requires the commission by rule to establish programs related to health care treatments and services for dispute resolution, monitoring, and review; Texas Labor Code §413.014, which requires express preauthorization by the insurance carrier for health care treatments and services; Texas Labor Code §413.015, which requires insurance carriers to pay charges for medical services as provided in the statute and requires that the commission ensure compliance with the medical policies and fee guidelines through audit and review; Texas Labor Code §413.016, which provides for refund of payments made in violation of the medical policies and fee guidelines; Texas Labor Code §413.017, which provides a presumption of reasonableness for medical services fees that are consistent with the medical policies and fee guidelines; Texas Labor Code, §413.019, which provides for payment of interest on delayed payments refunds or overpayments; and Texas Labor Code §413.031, which provides a procedure for medical dispute resolution. The new rule is adopted under the Texas Labor Code §§402.061, 408.021, 413.002, 413.007, 413.011, 413.012, 413.013, 413.014, 413.015, 413.016, 413.017, 413.019, and 413.031.

§134.303.2005 Dental Fee Guideline.

(a) Applicability of this rule is as follows:

(1) This section applies to professional dental services provided in the Texas Workers' Compensation system.

(2) This section shall be applicable to professional dental services provided on or after June 15, 2005. For professional dental services provided August 1, 2003 through June 14, 2005, §134.202 of this title (relating to Medical Fee Guideline) shall be applicable. For professional dental services provided December 1, 1996 through July 31, 2003, §134.302 of this title (relating to Dental Fee Guideline) shall be applicable.

(3) Specific provisions contained in the Texas Workers' Compensation Act (the Act), or Texas Workers' Compensation Commission (commission) rules, including this rule, shall take precedence over any provision adopted by or utilized by Texas Medicaid in administering the Texas Medicaid Dental Fee Schedule. Independent Review Organization (IRO) decisions regarding medical necessity are made on a case-by-case basis. The commission will monitor IRO decisions to determine whether commission rulemaking action would be appropriate.

(4) Whenever a component of the Texas Medicaid Dental Fee Schedule is revised and effective, use of the revised component shall be required for compliance with commission rules, decisions and orders for services rendered on or after the effective date of the revised component.

(b) For coding, billing, reporting, and reimbursement of dental treatments and services, Texas Workers' Compensation system participants shall apply the Texas Medicaid Dental Fee Schedule in effect on the date a service is provided with any additions or exceptions in this section.

(c) To determine the maximum allowable reimbursements (MARs), the following apply:

(1) The fees listed for the procedure codes in the Texas Medicaid Dental Fee Schedule shall be multiplied by 200%.

(2) For products and services for which the Texas Medicaid Dental Fee Schedule does not establish a value, the carrier shall assign a relative value, which may be based on nationally recognized published relative value studies, published commission medical dispute decisions, and values assigned for services involving similar work and resource commitments.

(d) Reimbursement for dental laboratory procedures is bundled with the maximum fees for the associated dental procedures. No additional reimbursement shall be due.

(e) In all cases, reimbursement shall be the lesser of the:

(1) MAR amount;

(2) health care provider's usual and customary charge; or

(3) workers' compensation negotiated and/or contracted amount that applies to the billed service(s).

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502024

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Chapter 140. DISPUTE RESOLUTION--GENERAL PROVISIONS

28 TAC §140.1, §140.4

The Texas Workers' Compensation Commission (the commission) adopts amendments to §140.1, Definitions, and §140.4, Conduct and Decorum, concerning Dispute Resolution - General Provisions without changes to the proposed text published in the March 4, 2005 issue of the Texas Register (30 TexReg 1232).

As required by the Government Code §2001.033(1), the commission's reasoned justification for these rules are set out in this order which includes the preamble, which in turn includes the rules. This preamble contains a summary of the factual basis of the rules, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rules, and the reasons why the commission disagrees with some of the comments and proposals.

In addition to written comments, the public was provided the opportunity to comment on the proposed amendments at a public hearing held on April 7, 2005. No changes were made as a result of public comment.

Amendments to §140.1, relating to Definitions, change statutory citations to the current codified version of the Act.

Adopted §140.4, relating to Conduct and Decorum, amends the language in subsection (c) to more accurately reflect that the presiding officer has the authority to enforce proper conduct and decorum by referring an action to the commission's division of Compliance and Practices for consideration as a possible administrative violation or taking other appropriate action.

System participants will benefit by additional clarity and updated citations which make the rule easier to understand

Comments supporting the proposed amendments to §140.1 and §140.4 were received from the Insurance Council of Texas (I.C.T.)

Comment: I.C.T. supports the proposed amendments to the rules. The proposed amendments will result in the rules citing the correct provisions of the Texas Labor Code and correction of the wording regarding referrals of administrative violations to TWCC's Division of Compliance and Practices.

Response: The commission agrees.

The amended rule is adopted pursuant to the Texas Labor Code §402.061 which requires the commission to adopt rules necessary for the implementation and enforcement of the Texas Workers' Compensation Act; Texas Labor Code §410.025, which authorizes the commission to prescribe the time within which a benefit review conference shall be scheduled; Texas Labor Code §410.027, which authorizes the commission to adopt rules governing the procedures under which benefit review conferences are conducted; Texas Labor Code §410.111, which authorizes the commission to provide rules governing the procedures under which arbitration is conducted; §410.157, which authorizes the commission to adopt rules governing the procedures under which contested case hearings are conducted.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502023

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Chapter 145. DISPUTE RESOLUTION--HEARINGS UNDER THE ADMINISTRATIVE PROCEDURE ACT

28 TAC §§145.1 - 145.28

The Texas Workers' Compensation Commission (the commission) adopts the repeal of §§145.1 - 145.28, concerning Dispute Resolution--Hearings Under the Administrative Procedure Act without changes to the proposal as published in the March 4, 2005, issue of the Texas Register (30 TexReg 1233).

The repeal removes rules that are now governed by the State Office of Administrative Hearings (SOAH) procedural rules in Title 1, Chapter 155 of the Texas Administrative Code that adjudicate certain disputes arising under the Texas Workers' Compensation Act, §§148.1 - 148.23 of this title (relating to Hearings Conducted by the State Office of Administrative Hearings), and §§149.1 - 149.10 of this title (relating to Memorandum of Understanding with the State Office of Administrative Hearings). There are no dispute resolution hearings pending under the rules being repealed.

As required by the Government Code §2001.033(1), the commission's reasoned justification for repeal of these rules is set out in this order which includes the preamble, which in turn includes the rules. This preamble contains a summary of the factual basis for repeal of the rules. No comments were received from interested parties or groups and associations.

These rules are being repealed because no pending hearings exist that are subject to the rules and future hearings will be governed by the above-referenced procedural rules of SOAH and the newly adopted rules in Chapters 148 and 149 as referenced above.

No comments supporting or opposing or otherwise commenting on the proposed repeal of these rules were received.

The repeal is adopted under the authority of the following statutes: Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act, and the Texas Labor Code, §402.073, which authorizes the commission and SOAH to adopt a memorandum of understanding governing administrative procedure law hearings conducted by SOAH for the commission and authorizes SOAH to conduct certain hearings; §413.031(k) that provides for a SOAH hearing after certain medical disputes; §413.055(c) that provides for a SOAH hearing to contest an interlocutory medical order of the commission; §411.049 that provides a hearing for an employer to contest findings of the commission under the Hazardous Employer Program; §408.0231(e) that provides for a hearing on certain sanctions by the commission against a doctor or insurance carrier; §415.034 that provides for a hearing to contest administrative violation sanctions initiated by the commission; and Texas Government Code, §2003.050 concerning procedural rules by SOAH the new rule/repeal is adopted pursuant to the Texas Labor Code §402.061 which requires the commission to adopt rules necessary for the implementation and enforcement of the Texas Workers Compensation Act.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502025

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Chapter 148. HEARINGS CONDUCTED BY THE STATE OFFICE OF ADMINISTRATIVE HEARINGS

The Texas Workers' Compensation Commission (the commission or TWCC) adopts the repeal of §§148.1 - 148.28 and adopts new §§148.1 - 148.23, concerning procedures governing certain hearings, conducted by the State Office of Administrative Hearings (SOAH), to adjudicate disputes arising under the Texas Workers' Compensation Act (the Act). New §§148.3, 148.4, 148.8, 148.12 and 148.16 are adopted with changes to the proposed text published in the March 4, 2005, issue of the Texas Register (30 TexReg 1234). The repeals of §§148.1 - 148.28 are adopted without changes to the proposal and new §§148.1, 148.2, 148.5, 148.6, 148.7, 148.9 - 148.11, 148.13 - 148.15, 148.17 - 148.23 are adopted without changes to the proposed text and will not be republished.

As required by the Government Code §2001.033(1), the commission's reasoned justification for these rules is set out in this order which includes the preamble, which in turn includes the rules. This preamble contains a summary of the factual basis of the rules, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rules, and the reasons why the commission disagrees with some of the comments and proposals.

The procedures addressed in these adopted rules are not applicable to benefit disputes, governed by Chapters 140, 142, and 143 of this title (related to Dispute Resolution-General Provisions; Benefit Contested Case Hearing; and Review by the Appeals Panel, respectively). These new procedural rules reflect changes in other commission rules and practices, coordinate commission rules with changes to the procedural rules of the State Office of Administrative Hearings, clarify the requirements for the commission's processing of requests for subpoenas and for the issuance of commissions requiring depositions, and provide related policies of the commission as, for example, the party who has the burden of proof in the contested case hearing.

Changes made to the proposed rules are in response to public comment received in writing and at a public hearing held on April 7, 2005, and are described in the summary of comments and responses section of this preamble. Other changes were made to clarify certain provisions, for consistency, or to correct typographical or grammatical errors. Changes in the proposed text are found in §§148.3, 148.4, 148.8, 148.12, and 148.16.

These new rules establish procedures, deadlines where applicable, and commission policies related to: (1) requesting SOAH hearings as permitted under the Act, commission rules, and the Administrative Procedure Act (APA) and for withdrawing those requests; (2) corrections of clerical errors in certain decisions and orders, (3) notice of hearing, (4) venue of hearings, (5) representation of certain parties at such hearings, (6) informal dispositions, (7) recording the hearing, (8) burden of proof standards, (9) final decisions or proposals for decision by SOAH, (10) required responses after certain decisions in administrative penalty hearings, (11) the record and transcript of the hearing, (12) payment of expenses for witnesses and deponents, (13) expenses of a party seeking judicial review, and (14) compliance expectations for orders in such hearings.

New §148.1 incorporates the definitions of terms in repealed §148.2(1) - (4) and (6) - (9) with revisions. In addition, newly defined terms or acronyms are included in paragraphs (2), (6), (7), (9) and (13). In paragraph (1), the definition of "Act" eliminates surplus verbiage "as specified in the Act." Paragraph (2) adds a new definition for "Administrative Law Judge or ALJ" to be consistent with terminology used by the State Office of Administrative Hearings (SOAH) in its procedural rules in Chapter 155, Title 1 (relating to Rules of Procedure). Proposed new paragraph (5) defines "Commission Representative" to reflect the practice of the commission to designate a commission representative only for some contested cases. The term "hearing officer" in existing paragraph (5) has not been included because SOAH utilizes the terms "Administrative Law Judge" or "ALJ" instead. New paragraph (6) defines "contested case" utilizing the basic definition in the Texas Government Code, §2001.003(1) and also includes references to sections of the Texas Labor Code that address contested cases handled by SOAH involving the Texas Workers' Compensation Act (Act). New paragraph (7) defines the acronym "IRO" because Independent Review Organizations, established in accordance with Insurance Code article 21.58C, perform certain reviews of health care under the Act and their decisions may be reviewed de novo in SOAH contested cases. Paragraph (8) revises the definition of "Party" to specifically include a state agency named or admitted as a party because the commission and certain other state agencies (for example, the State Office of Risk Management) can be parties to SOAH contested cases. New paragraph (9) defines a "person" utilizing the basic definition in the Texas Government Code, §2001.003(5). New paragraph (13) defines "TWCC Chief Clerk" because the TWCC Chief Clerk is the person designated by the commission to receive important forms, notifications, and other documents from SOAH and persons and parties to SOAH contested cases.

New §148.2 includes the "Scope and Applicability" provisions contained in repealed §148.1 with clarifying changes.

New subsection (a) adds the term "contested case," as defined in new §148.1 (relating to Definitions), to specify the type of hearings and to add the words "before the SOAH" to limit the applicability of these rules to contested cases where the Act provides for SOAH hearings. Other changes from the repealed §148.1 clarify and update the subsection.

New subsection (b) summarizes the cases that the commission's Chapter 148 rules will govern and specifies certain, related policies of the commission applicable to such cases (for example, the burden of proof policies contained in new §148.14 (relating to Burden of Proof)).

New subsection (c) incorporates the provisions of the repealed §148.1(b) except that the reference to Texas Labor Code, §408.023 is replaced with a reference to Texas Labor Code, §408.0231 because the latter section is the section that includes a right to a hearing. Also, the phrase "and in other cases not subject to §402.073(b) clarifies that the TWCC Commissioners render the final decision in cases not subject to Act, §402.073(b).

New §148.3: (1) clarifies how a person or state agency, including the staff of the commission, may send the commission a request for a contested case hearing before SOAH; (2) specifies how the "deemed" date of receipt for a request will be determined by the commission; (3) specifies how the commission will handle requests for contested case hearings after initial decisions are made in certain medical dispute cases; (4) specifies that late filings will be dismissed; and (5) specifies how requests for correction of clerical errors will be handled when made with a request for a hearing. Repealed §148.3(a) has been replaced with new subsection (a) to clarify the date, under the various provisions of the Act, when the 20-day rule limitations period for filing a request for a hearing begins. The language "(f)" was added in §148.3(a)(1) to the listed subsections of the Act, §413.031 because the commission, in its rules addressing these medical disputes, has indicated when an injured employee may initiate such a dispute. The language "receipt" was changed to read "issuance" in §148.3(a)(4) to be consistent with subsection (h)(3) of §134.650 of this title (relating to Prospective Review of Medical Care Not Requiring Preauthorization).

New subsection (b) establishes the date when a request for a hearing, other than a request made pursuant to Texas Labor Code §413.031 for certain medical disputes, will be deemed as filed with TWCC.

New subsection (c) specifies requirements for a request for a SOAH contested case hearing after an initial medical dispute decision has been rendered either by the commission's Medical Review division for a medical fee dispute or an IRO for an applicable medical necessity dispute. This subsection does not apply to requests for SOAH hearings after an IRO decision with respect to prospective medical necessity of spinal surgery (where such requests must be filed in accordance with §133.308(v) of this title (relating to Medical Dispute Resolution by Independent Review Organization). In addition, this rule does not apply to case reviews completed pursuant to the commission's alternate medical dispute process in accordance with §133.309 of this title (relating to Alternate Medical Necessity Dispute Resolution by Case Review Doctor) because under that rule the decision of the case review doctor constitutes the final administrative decision.

New subsection (d) clarifies that a request for a SOAH hearing will be dismissed if filed later than twenty days after receipt of the original medical dispute decision. The language "receipt of a notice" was changed to read "the starting date specified in subsection (a)" to reflect that the "starting date" for computing the 20-day period, in accordance with §102.3 of this title (relating to Computation of Time), will be the receipt of the notice except for medical interlocutory orders where the starting date will be the date the order was issued. New subsection (e) specifies how a request for a SOAH hearing will be handled by the commission if that request also contains a request for correction of a clerical error in the original decision.

New subsection (f) addresses correction of clerical errors discovered by the commission.

New subsection (g) specifies that the commission will send the request for hearing to SOAH within 20 working days of receipt unless a decision is withdrawn in accordance with proposed new §148.8 of this title (relating to Withdrawal of Hearing Request) or unless the parties have been notified of the commission's intent to revise the order or decision pursuant to subsections (e) or (f). While decisions will be forwarded as soon as practical, the maximum period of time should allow the parties time to informally resolve disputed matters and to then withdraw the request for hearing or should allow the commission adequate time to initiate a clerical correction process based upon information provided to it or based upon its review of the prior decision.

New subsections (h) and (i) contain the provisions of repealed §148.3(c) and (d) except that the term "adverse action" has been deleted as unnecessary. In §148.3(h) the language "must" was changed to read, "shall" to be consistent with the meaning for "shall" in the Code Construction Act (Texas Government Code §311.016). While both §180.8(c) of this title (relating to Notices of Violation, Warning Letters, and Notices of Intent) and §148.3(h) establish a duty to respond, §180.8(d) provides that failure to respond timely is deemed consent to the penalty.

New §148.4 provides that the commission may revise an order or decision of the Medical Review Division to correct a clerical error either at the request of one or more parties to such an order or decision or by decision of the commission's Executive Director or his designee. This is a companion section to new §148.3 and, in contrast, only addresses correction of a clerical error not associated with a request for a hearing. The procedures are similar to the procedures in §148.3 except that the commission's actions will be taken not later than 30 days after a request for clerical correction is received from a party and the commission's action in any particular request, shall either be to: (1) issue and deliver to the parties a corrected order or decision, (2) advise the parties in writing that the order or decision was correct as originally entered, or (3) advise the parties in writing that the order or decision cannot be corrected pursuant to this section (for example, if the requested clerical correction is not determined to be a clerical error issue). If a clerical correction is made by decision of the commission's executive director or his designee, the correction may be made either without notice to the parties (for example, concerning an obvious error or errors requiring immediate correction) or by a procedure that includes notice of the intended correction, a period for receiving response, and action of the commission's executive director or designee under the three options summarized previously. In §148.4(b) the language "must" was changed to read, "shall" to be consistent with the meaning for "shall" in the Code Construction Act. While a party requesting correction of a clerical error has a duty to provide the items listed, the commission will determine whether any omissions require that the correction be returned without further action on the request. In §148.4(e) the language "decision" was changed to "determination" to prevent possible confusion by system participants between a determination on a clerical error made by the Executive Director or his designee and a decision in a medical dispute under Texas Labor Code §413.031. However, any "determination" will be considered as a "decision" for purposes of any appeal processes. In the title of §148.4 the language "motion" was changed to "determination" to be consistent with the change above from "decision" to "determination."

New §148.5 includes provisions of repealed §148.4 except that repealed subsections (a) and (d) have been deleted because related commission policies are addressed elsewhere (in new Chapter 149 and in the SOAH procedural rules).

New subsection (a) contains provisions of repealed §148.4(b) except for: (1) revisions in accordance with the definitions in new §148.1 of this title (relating to Definitions); (2) language "and upon receipt of the docket number, location and setting date from SOAH" to recognize information that must be received from SOAH before a notice of hearing can be sent in accordance with Texas Government Code, §2001.052; (3) language "a notice regarding failure to appear and default judgments" to emphasize possible actions in a case pursuant to SOAH's procedure rule at §155.55 of Title 1 (relating to Failure to Attend Hearing and Default); and (4) language "...and any rules involved, nature of the hearing..." to clarify that rules will be specified only when any rules are involved and that the nature of the hearing will be specified in compliance with Texas Government Code, §2001.052(a)(1).

New subsection (b) contains provisions of repealed §148.4(c) except to use terms defined in new §148.1 of this title (relating to Definitions) and to clarify some of the notice information requirements may be provided by the commission's representative and, if so, would not be provided by the TWCC Chief Clerk.

New §148.6 includes the addition of "Texas" to the "Austin, Travis County" location for SOAH contested case hearings and deletes the provisions concerning appearing at the hearing or participating by telephone conference call because those procedures are specified in SOAH's rule in §155.45 of Title 1 (relating to Participation by Telephone).

New §148.7 does not include the language contained in repealed §148.7 because the SOAH rules of procedure in Chapter 155 of Title 1 (relating to Rules of Procedure) preempt TWCC procedural rules and because the SOAH rules address appearance and representation generally. However, because the Act contains specific requirements on representation of injured employees and insurance carriers and because the commission has interpreted those requirements in its rules in Chapter 150 of this title (relating to Representation Of Parties Before The Agency Qualifications of Representatives), new §148.7 addresses the additional qualification requirements for representatives of injured employees and insurance carriers.

New §148.8 clarifies that a request for withdrawal of hearing request should be sent to the TWCC Chief Clerk if the written request for withdrawal is submitted before a case is received by SOAH or after a proposal for decision is received from SOAH. Otherwise, the request should be submitted to SOAH in accordance with its procedural rules in Title 1, Chapter 155 (relating to Rules of Procedures). The last sentence of existing subsection (a) is deleted because a SOAH ALJ will make a legal determination of whether any subsequent requests for hearing constitute or include the same subject matters as a previous request for hearing and, if so, whether and how the subsequent hearing should proceed. Subsection (b), addresses the commission's withdrawal of a medical dispute decision and should result in reduced expenses for all parties. The decision-maker will be able to withdraw or amend the small percentage of decisions containing an obvious error, omission, or procedural defect when identified in requests for hearing, without necessitating formal hearings. In §148.8(a) the language "procedure" was changed to "procedural" to correct a grammatical error. In §148.8(b) the language "if the request has not yet been delivered to SOAH." has been added to the end of the sentence to avoid any possible conflict with Texas Government Code §2003.051 that prohibits a state agency from taking any adjudicative action relating to a matter referred to SOAH until after SOAH has concluded its involvement in a matter. In addition, in §148.8(b) the language "withdrawal of" has been added prior to the initial use of the term "request" for clarification purposes.

New §148.9 is the same as repealed §148.9 except for substitution of the acronym "ALJ" for "Hearing Officer" in accordance with the revised definitions in §148.1 of this title (relating to Definitions).

New §148.10 provides that a request for issuance of a subpoena shall be directed to the TWCC Chief Clerk in the commission's central office. SOAH has noted in the adoption of its rule §155.31(e) in Title 1 (relating to Discovery) that "... requests for issuance of subpoenas or commissions (requiring depositions) shall be directed to the referring agency. The absence of any reference to subpoenas for witnesses at hearing means the referring agency's subpoena rules apply." (27 TexReg 3336). A request for a subpoena shall include the following six requirements: (1) the actual subpoena, attached to the request, for TWCC to execute, (2) the name and address of the sheriff or constable to whom the subpoena should be addressed on the actual subpoena, (3) a good faith, itemized estimate of the anticipated, reimbursable costs that the requestor will pay to the person being subpoenaed calculated in accordance with §2001.089 of the Texas Government Code and a deposit for the same amount in the form of a negotiable instrument satisfactory to the commission, (4) as placed on the actual subpoena: the name, address and title, if any, of the witness, the date, time, and place where the witness is to appear and give testimony, the docket number of the SOAH proceeding, and a statement showing date of execution and return of the subpoena to the TWCC Chief Clerk (to be completed by the constable or sheriff upon service of the subpoena to the witness), (5) if the subpoena is for the production of books, records, writing, or other tangible items, a specific, detailed description of the items sought to be produced along with the information in number (4) above, and (6) a description of the reasonable steps to avoid imposing undue burden or expense on the person served.

The information specified is necessary for the commission to issue the subpoena under Texas Government Code §2001.089 and to provide the witness with specific instructions on where to appear and, if applicable, what to bring. The deposit is required under the authority of Texas Government Code §2001.089 and §2001.103. However, the party or agency requesting the subpoena is responsible for paying the applicable witness expenses under Texas Government Code §2001.103(b). The requirement for information showing "good cause" for the issuance of a subpoena is found in Texas Government Code §2001.089. One of the elements of "good cause" is a showing that the information sought from the witness is not available to the requestor from other sources. Lueg v. Tewell , 572 S.W.2d 97, 102 (Tex. App. - Corpus Christi 1978, no writ) citing Ex Parte Shepperd , 513 S.W.2d 813, 816 (Tex. 1974). Such case law interpreted "good cause" when that showing was required under the Texas Rules of Civil Procedure. While the "good cause" requirement subsequently was deleted in the Texas Rules of Civil Procedure, those Rules do require a party requesting a subpoena to take reasonable steps to avoid imposing undue burden or expense on the person served. The requestor, as part of the information showing good cause for the issuance of the subpoena, must provide a description of the reasonable steps to avoid imposing undue burden or expense on the person to be served with the subpoena. Finally, if a person fails to comply with a subpoena, enforcement actions provided in the rule are based upon authority provided in Texas Government Code, §2001.201 or Texas Labor Code §402.042(b)(3) and (9).

New §148.11 provides that a request for the issuance of a commission requiring deposition shall be directed to the TWCC Chief Clerk in the commission's central office. SOAH has noted in the adoption of its rule §155.31(e) in Title 1 (relating to Discovery) that "...requests for issuance of subpoenas or commissions (requiring depositions) shall be directed to the referring agency." (27 TexReg 3336). The new rule requires that a request for issuance of a commission requiring deposition include: (1) the actual commission requiring deposition, attached to the request, for the TWCC Chief Clerk to execute; (2) the name and address of the applicable officer to take the deposition; the date, time, and place where either the witness is to appear and give testimony or where the written responses are to be sent; a detailed description of any items the witness will be required to produce; and a statement showing date of execution and return of the commission to the TWCC Chief Clerk (to be completed by the officer designated to take the deposition upon service of the commission requiring deposition to that officer); (3) a good faith, itemized estimate of the anticipated, reimbursable costs that the requestor will pay to the person being deposed calculated in accordance with §2001.094 and a deposit for the same amount in the form of a negotiable instrument satisfactory to the commission; and (4) coordination by the requestor with the other party or parties and with the witness to determine a mutually agreeable location and time for the attendance of the witness and a statement whether such coordination has been made and whether the proposed location and time is by mutual agreement with the parties and witness.

The information specified is necessary for the TWCC to issue the commission requiring deposition, to provide the witness with specific instructions on where to appear or send the written responses and, if applicable, what to bring, and to reduce the expense to the commission and to other parties of having to reissue one or more commissions requiring deposition because the requestor had not attempted to coordinate an agreed time, date, and, if applicable, place with the other party or parties and with the witness. The deposit is required under the authority of Texas Government Code §§2001.094 and 2001.103. However, a party or agency requesting the commission requiring deposition is responsible for paying the applicable witness expenses under Texas Government Code §2001.103(b).

New subsection (b) provides that the issuance of a commission for an oral deposition is not required if the witness is a party or is retained by, employed by, or otherwise subject to the control of a party. This provision allows the parties to agree to such depositions in accordance with SOAH's rule at §155.31(n) of Title 1 (relating to Discovery).

New subsection (c) prohibits the taking of a deposition of a member of an agency, board or commission after a hearing date for the contested case has been set in accordance with Texas Government Code §2001.095. New subsection (e) refers to special provisions of the APA concerning depositions, for example, Texas Government Code §§2001.096, 2001.097, 2001.098, 2001.099, 2001.100, 2001.101, and 2001.102. Finally, if a person fails to comply with a deposition, enforcement actions provided in the rule are based upon authority provided in Texas Government Code §2001.201 or Texas Labor Code §402.042(b)(9).

New §148.12 contains the provisions in repealed §148.15 (relating to Ex Parte Communications). This section provides that §2001.061 applies to commissioners and employees of the commission as well as to the SOAH ALJs. The term "hearings officers" has been replaced with the term "ALJ" for consistency.

New §148.13 contains the provisions in repealed §148.20 with revisions. Subsection (a) has been revised to delete provisions now more fully addressed in SOAH's rule in §155.43 of Title 1 (relating to Making a Record of Contested Case) and clarify that the petitioner in a contested case is responsible for all costs associated with making a record of the hearing, including the costs of the court reporter at the hearing and the costs of the preparation of a verbatim record if one is required. Where more than one party is seeking affirmative relief, such costs will be assessed equally. The parties can agree to their own arrangements for a court reporter or allocation of associated costs among the parties. The commission finds the petitioner as the proper party to pay such costs since the petitioner has requested the hearing, e.g. disputing a previous decision in a medical dispute or an action taken by the commission after preliminary notices and opportunity for input have been received and considered.

Subsection (b) provides that a party, electing to use a means of making a record that is in addition to the means specified in SOAH's rules (currently §155.43 of Title 1 relating to Making a Record of Contested Case), is responsible for all associated costs of making that record and, if a verbatim transcript is made, shall provide SOAH and the commission with a copy of the audiotape or videotape free of charge. If a transcript is made, the party shall provide the commission with the original of the transcript free of charge. The responsibility for such costs has been made in accordance with Texas Government Code §2001.059(b) and Texas Labor Code §402.064. The party requesting the additional services should pay for those services. In addition, the commission often has a need to review the record of the hearing, for example, the videotape or other type of transcript. In an appropriate case, the commission staff may confirm, in writing, that the copy is either not needed or that the delivery of the copy can be delayed for a specified period of time or until a specified event occurs.

New §148.14 specifies the particular sections of the Act where the commission will have the burden of proof in hearings. These include hearings on sanctions under Texas Labor Code §402.072, sanctions on a doctor or an insurance carrier under §408.0231, identification of a hazardous employer based, at least in part, upon a fatality under §411.0415, findings by the commission relating to hazardous employers under §411.049, and administrative penalty assessments and other sanctions under §§415.021, 415.023, 415.032, and 415.034.

The burden of proof will be upon the party seeking relief in hearings conducted pursuant to Texas Labor Code §408.024 (when an insurance carrier seeks to be relieved of liability for health care that otherwise would be payable), §413.031 (when a party seeks to change the result of an initial medical dispute decision rendered by the commission's Medical Review division or an Independent Review Organization), and §413.055 (when a party disputes an interlocutory medical order issued by the commission pursuant to the rigorous requirements of §133.306 of this title (relating to Interlocutory Orders for Medical Benefits)). In each of these situations the party requesting the hearing is either seeking: (1) to overturn a previous decision of the commission after a previous proceeding has been held in which the party has had the opportunity to present its position and support its position or (2) is seeking to overturn liability normally established for a medical benefit under other provisions of the Act and the commission's rules. Setting the burden of proof upon the party contesting an earlier decision is in accordance with general judicial practices and encourages finality (and resulting reduction in dispute costs to system participants) of the original decision.

The burden of proof will be upon the Certified Self-Insurer in hearings conducted under Texas Labor Code §407.046 (concerning revocation of a certificate of authority to self-insure) because §407.046(d) of the Act impliedly places that burden by stating: "If the certified self-insurer fails to show cause why the certificate should not be revoked, the commission immediately shall revoke the certificate." In addition, the burden of proof will be upon the Certified Self-Insurer in hearings conducted under §407.133 (for failure to pay an assessment to the Texas Certified Self-Insurer Guaranty Association (TCSIGA) under Texas Labor Code §407.124 and §407.125) because the Certified Self-Insurer will be attempting to overturn an assessment, determined in part by TCSIGA under criteria specified in those sections of the Texas Labor Code and the provisions in Chapter 407 of the Texas Labor Code that assign to TCSIGA vital roles to fulfill (for example, §407.042 requiring the approval of TCSIGA before the commission votes to issue a certificate of authority and §407.130 specifying TCSIGA as a party in interest in a proceeding involving a workers' compensation claim against an impaired employer whose compensation obligations have been paid or assumed by TCSIGA. The burden of proof shall be upon the party challenging the decision of the Director of the commission's Self-Insurance division in hearings conducted under §407.066 because that decision was made after input from various parties, who can present their various positions and support those positions prior to the rendering of the Director's decision. The burden of showing a timely filing or good cause when an allegation of untimely filing has been made rests with the employer under §120.2 of this title (relating to Employer's First Report of Injury) because §120.2 establishes that burden of proof.

At least three general law principles support these burden of proof provisions. First, in appellate reviews, the losing party at the lower court (i.e. the appellant) has the burden of proof. Fort Bend County, Tex. v. Tex. Parks & Wildlife Comm'n , 818 S.W.2d 898, 900 (Tex. App. - Austin, 1991, no pet.) and Hammack v. Pub. Util. Comm'n. of Tex. , 131 S.W.3d 713, 729 (Tex. App. - Austin, 2004, pet. denied). Second, even in some statutory de novo reviews of agency actions, the administrative decision of the agency carries a presumption of validity and the party seeking to set aside the agency's decision has the burden of showing that it was not supported by substantial evidence. Mercer v. Ross , 701 S.W.2d 830, 831 (Tex. 1986). Third, in other, two-tier, administrative, decision-making procedures, courts (interpreting statutes that do not directly address burden of proof standards) generally have required a review of the first proceeding to see if the first decision is reasonably supported by substantial evidence. Gilder v. Meno , 926 S.W.2d 357, 360 (Tex. App. - Austin, 1996, no pet.); Board of Trustees of the Big Springs Firemen's Relief and Retirement Fund v. Firemen's Pension Commissioner , 808 S.W.2d 608, 611 (Tex. App. - Austin, 1991, no pet.); and Central Educ. Agency v. Upshur County Commissioners Court , 731 S.W.2d 559, 561-562 (Tex. 1987). In addition, these burden of proof provisions should further the legislative purpose of reducing disputes and appeals as noted by the commission in 27 TexReg 411.

Subsection (b) specifies an exception to proof by preponderance of the evidence for IRO appeals. Section 133.308(w) of this title (relating to Medical Dispute Resolution by Independent Review Organizations) provides: "In all appeals from reviews of prospective or retrospective necessity disputes, the IRO decision has presumptive weight."

Subsection (a) lists the types of hearings where the SOAH ALJs render final decisions in accordance with §402.073(b) of the Act (relating to Cooperation With State Office of Administrative Hearings). The provisions of repealed §148.22(b) thru (d) have not been included in new §148.15 because of the preemption by SOAH in accordance with §2003.050(b), Government Code and SOAH's adoption of its procedural rules in Chapter 155 of Title 1 (relating to Rules of Procedure) and because Texas Labor Code §401.021(1)(A) specifically excludes Subchapter F of the APA as a subchapter that governs a proceeding or hearing under the Act. Subchapter F of the APA includes §2001.141 that specifies the requirements for findings of fact and conclusions of law, separately stated, among other requirements of a final order. Texas Labor Code §401.021(1)(D) does include §2001.141(c) that provides: "Findings of fact may be based only on the evidence and on matters that are officially noticed."

New subsection (b) includes the compliance provisions in repealed §148.22(e) with revisions: (1) to change the term "hearing officer" to "ALJ" consistent with new §148.1 (relating to Definitions); (2) to add language that will notify the recipient of the order in a compliance action of the date the compliance action must be completed, to determine the date of receipt of the order according to §102.5 of this title (relating to General Rules for Written Communications to and from the Commission), and to ensure that any administrative penalty is specified as a certain dollar amount and that the order will specify a period of time for payment of any administrative penalty not to exceed 30 days from the date that the order is received; and (3) to delete the last sentence as unnecessary. Compliance orders must have language necessary to ensure that the recipient of such orders knows exactly what is required and when such action needs to be taken. In addition, if timely action does not occur as ordered, the Commission will be able to take proper enforcement actions.

New subsection (c) specifies the manner of service of SOAH decisions to allow such service to be accomplished by a verifiable means that must be documented in the hearing file. This change recognizes existing and future changes in technology as well as the need for documentation of the service so that TWCC can take any necessary further actions (for example, actions that may be needed to enforce orders) after it receives the hearing file from SOAH. For the same reasons, additional language has been added to ensure that service by personal delivery is documented to contain the date of delivery and the person, any business title, and the person's business address that received the delivery.

New subsection (d) contains the provisions in repealed §148.22(h), with revisions. This subsection specifies the date when a SOAH decision becomes final. Repealed provisions have been revised: (1) to change the term "hearing officer" to "ALJ" consistent with new §148.1 (relating to Definitions); (2) to specify the date as the date of receipt determined in accordance with §102.5 of this title (relating to General Rules for Written Communications to and from the Commission); and (3) to delete the last sentence as unnecessary. The added provisions should ensure that the date a SOAH decision becomes final is determined consistently.

New subsection (e) contains the provisions of repealed §148.22(i) that the SOAH decision constitutes the exhaustion of administrative remedies with two revisions: (1) the term "hearing officer" is changed to "ALJ" consistent with new §148.1 (relating to Definitions), and (2) a clarification that no motion for rehearing is required pursuant to the APA or otherwise.

New subsection (f) contains the provisions for judicial review under the authority of the Act and the APA.

New §148.16 contains the provisions of repealed §148.23 with revisions.

Subsection (a) has been revised to replace the reference to §408.023 of the Act with §408.0231 of the Act because the latter is the section that includes a right to a hearing. Additional language has been added to reference other possible cases under §402.073(b) of the Act that require a proposal for decision. The last sentence of repealed §148.23(a) has been deleted because the procedures have been preempted by SOAH in accordance with §2003.050(b), Government Code and SOAH's adoption of its procedural rules in Chapter 155 of Title 1 (relating to Rules of Procedure) and specifically §155.59 (relating to Proposal for Decision).

Subsection (b) describes the basis for the proposal for decision, requires it be in writing and contain information cited in new §149.9 of this title (relating to Proposals for Decision in accordance with the Act, §§402.072, 407.046, and 408.0231).

New subsection (c) requires that SOAH furnish the proposal for decision to the TWCC Chief Clerk and that SOAH shall furnish the proposal for decision, by verifiable means, to the parties to the hearing and retain information on the date, address, person or entity served and the means of service to the parties to the hearing. These revisions will allow TWCC to determine the date of service of the proposal for decision so that the due dates for any exceptions by the parties can be determined.

New subsection (d) addresses the filing of briefs and exceptions to the proposal for decision and requires that the parties furnish their briefs and exceptions both to the SOAH ALJ and to the TWCC Chief Clerk so that commission staff may monitor the case and expeditiously make preparations for presentation of the case to the Commissioners.

New subsection (e) contains the provisions of repealed §148.23(g) revised to require that the parties furnish their briefs and replies both to the SOAH ALJ and to the TWCC Chief Clerk so that commission staff may monitor the case and expeditiously make preparations for presentation of the case to the Commissioners. In addition, the ten-day time limit for filing replies (to exceptions to a proposal for decision) has been changed to 15 days to be consistent with SOAH's rule at §155.59 of Title 1 (relating to Proposal for Decision).

New subsection (f) contains the provisions of repealed §148.23(h) revised to provide that the TWCC commissioners shall consider a case no later than 120 days either from the date the SOAH ALJ provides a proposal for decision or, if any exceptions or replies are filed by the parties, then the date of the ALJ's comments or response to such exceptions or replies. If the ALJ communicates to the commission that no ALJ response will be made to the exceptions or replies of the parties, the date of that ALJ communication to the commission will be the date when the 120 days commences. If the ALJ does not respond after exceptions or replies are filed, the 120-day period commences upon expiration of the 15-day period allowed for the ALJ response in SOAH's rules at §155.59(c)(4) of Title 1 (relating to Proposal for Decision). In addition, notification of the final decision of the Commissions will be made by verifiable means to reflect past and future changes in technology. The last sentence of repealed §148.23(h) is not included and is no longer necessary because the applicable provisions are contained in §102.5 of this title (relating to General Rules for Written Communications to and from the Commission).

New subsections (g) and (h) contain the provisions of repealed §148.23(i) revised to clarify that no motion for rehearing will be considered. No motion for rehearing will be considered because §401.021(1)(A), Labor Code specifically excludes Subchapter F of the APA as a subchapter that governs a proceeding or hearing under the Act. Subchapter F of the APA includes §§2001.145, 2001.146, and 2001.147 concerning motions for rehearing. Judicial review is in accordance with the Act and the APA §§2001.171, 2001.172, and 2001.174. In §148.16 (d), (e), and (f), each reference to SOAH's procedural rules was changed to add "of Title 1" to reflect the applicable title of the Texas Administrative Code.

New §148.17 contains the provisions of repealed §148.24 revised to : (1) change the term "hearing officer" to "ALJ" consistent with §148.1 of this title (relating to Definitions), (2) correct a reference to new §148.15(c) of this title, and (3) to note that the charged party shall file with the TWCC Chief Clerk rather than the commission's executive director.

New §148.18 contains the provisions of repealed §148.25, revised to change the term "hearing officer" to "ALJ" consistent with §148.1 of this title (relating to Definitions).

New §148.19 contains the provisions of repealed §148.26 revised to include videotape, if that method was used in the SOAH hearing.

New §148.20 revises and clarifies the provisions in repealed §148.27.

Subsection (a) specifies the amounts determined under the APA §2001.103 as the maximum amounts of reimbursement for a non-party witness who is subpoenaed or required to participate in a deposition.

Subsection (b) places the responsibility upon the party who is requesting the subpoena, the commission requiring deposition, or otherwise compelling the attendance of a witness, to pay the reasonable and necessary expenses of such witness in accordance with the APA, §2001.103(b).

Subsection (c) specifies that a party's failure to pay required witness expenses shall be deemed a violation of a commission rule.

Subsection (d) contains the documentation and information required by the commission from the party requesting the subpoena or commission requiring deposition, prior to refund of the deposit made under new §148.10(b)(3) or §148.11(d)(3). Such documentation and information is needed because: (1) the commission has previously issued the subpoena or commission requiring deposition that commands the witness to appear, (2) the party requesting the subpoena or commission requiring deposition is required to pay the reasonable and necessary costs of the witness, (3) any failure by the party to pay the required witness expenses may result in the witness seeking assistance from the commission for the unpaid but incurred expenses, (4) the commission has not been appropriated funds for payment of such expenses, and (5) the required deposit from the requesting party may be needed to resolve any failure of the party to pay the expenses of a non-party witness.

New §148.21 contains the provisions in repealed §148.28 revised to include the authority in the APA §2001.177 for the commission to require the party requesting judicial review to pay the expenses of preparing a certified copy of the entire record of the case.

New §148.22 specifies that a person commits an administrative violation by violating a commission rule if that person fails to comply with an order of the ALJ. Persons and parties, either participating in SOAH hearing or required to be witnesses in such hearings, must comply with ALJ orders. If noncompliance occurs, then TWCC may take administrative sanction actions as authorized under the Act.

New §148.23 specifies that any final order of SOAH is a final order of the commission and may be enforced by the commission under the Act, the APA, or commission rules. In addition, if an interim SOAH order survives the entry of a final order, the sending of a proposal for decision to the commission, or the dismissal or withdrawal of a case, such interim order will be considered an order of the commission and may be enforced by the commission in a manner permitted by the Act, the APA, or the rules of the commission. Examples of such orders are specified as orders to reimburse, orders to pay reasonable and necessary medical costs, orders to pay administrative fines, orders to refund, orders assessing attorney fees, orders assessing costs, and orders imposing discovery sanctions. This new section should provide additional support to ensure compliance with SOAH orders.

Comments: opposing the proposal were received from the following group: Insurance Council of Texas. Comments neither opposing nor supporting the proposal, but recommending changes, were received from Texas Mutual Insurance Company.

COMMENT: A commenter opposed repeal of the current Chapter 148 rules and adoption of the new Chapter 148 rules as unnecessary at this time due to legislation in House Bill No. 7 and Senate Bill No. 5 being considered by the 79th Texas Legislature that could eliminate the statutory provision for adjudication of medical dispute resolution appeals at SOAH.

RESPONSE: The commission disagrees. The Chapter 148 rules concern SOAH hearings on matters other than medical disputes including, for example, enforcement actions by the Compliance & Practices division and actions to remove doctors from the commission's Approved Doctor List. Additional revisions to the Chapter 148 rules can be made, if necessary, based upon the bills that become law after the current legislative session. The new Chapter 148 rules delete many unnecessary provisions that are addressed in SOAH's procedural rules in Title 1, Chapter 155. Finally, the new rules provide clarification and needed revisions prior to the effective date of any new legislation. Examples include: (1) the additional of specific requirements for requests for subpoenas and commissions requiring deposition and the requirements that must be met prior to obtaining a refund of the deposit covering the expected costs for each witness; (2) the procedures for filings with the commission (in addition to the required filing with SOAH) on exceptions and replies to a SOAH proposal for decision; (3) the clarification of when a request for a SOAH hearing will be deemed to have been received by the commission if such request is sent to the wrong office or address; (4) the additional procedures for requesting correction of a clerical error; (5) the additional clarification of burden of proof requirements; and (6) the clarification of possible enforcement actions of the commission if a party to a hearing disregards or fails to take necessary action on a SOAH order or decision.

COMMENT: A commenter recommended that the statutory reference to the Texas Workers' Compensation Act, §413.031(a), (b), (c), and (k) be changed to read "413.031(a) and (b)." The commenter concluded that the statutory reference was incorrect without further explanation and, in addition, noted that the subsection did not recognize reviews of fee disputes involving claimants who are not parties to disputes under 413.031(a) and (b) but are parties under 413.031(f).

RESPONSE: The commission agrees in part and disagrees in part. The commission agrees that subsection (f) of Texas Labor Code §413.031 is applicable and has changed §148.3(a)(1) to add subsection (f) to the proposed other subsections (a), (b), (c) and (k). The commission disagrees that subsections (c) and (k) should be deleted because subsection (c) clarifies the commission's authority to adjudicate medical fee disputes and subsection (k) contains SOAH hearings provisions that specifically eliminate SOAH from hearings, under section (l) concerning spinal surgery.

COMMENT: Commenters objected to the language in §148.3 (c) that excepts disputes under §133.309 of this title (relating to Alternate Medical Necessity Dispute Resolution by Case Review Doctor) (AMDR) from requests for a SOAH appeal. Subsection (n) (1) of §133.309 provides that: "The decision and order is final and is not subject to further review." The commenters objected because that rule was invalidated by Travis County District Judge Suzanne Covington in the lawsuit: Insurance Council of Texas, et. al. v. Texas Workers' Compensation Commission , 345th Judicial District Court of Travis County, Texas, Cause No. GN4-03210 and because the rule could be silent on the issue of AMDR decisions pending the resolution of the litigation. The commenter indicated that the commission does not possess statutory authority to deprive disputing parties of their right to due process.

RESPONSE: The commission disagrees with these comments because the judicial review process on the litigation challenge remains pending in appellate court. In addition, the commission can amend the rule, if necessary, when the judicial review process becomes final and a final court decision will prevail over any conflicting rule provisions. Further court action could result in the AMDR rule being effective with the resulting benefits to system participants described in the commission's adoption preamble to that rule at 29 TexReg 8567 - 8568. Finally, due process concerns were addressed both in the litigation case noted above and in the adoption preamble to §133.309 of this title (relating to Alternative Medical Necessity Dispute Resolution by Case Review Doctor).

COMMENT: A commenter recommended deletion of the language requiring appeals 20 days after receipt of notice due to a conflict with §134.650 (h)(3) that provides that an appeal of a medical interlocutory order under that section is timely if filed no later than 20 days from the date the order is issued .

RESPONSE: The commission agrees in part and disagrees in part. The commission agrees concerning the conflict as expressed by the commenter and has changed the language "receipt of a notice" in §148.3(d) to "the starting date specified in subsection (a)" to reflect that the "starting date" for computing the 20-day period for filing a request for a SOAH hearing, in accordance with §102.3 of this title (relating to Computation of Time), will be the date of issuance of the medical interlocutory order. Also, in §148.3(a)(4) the language "receipt" was changed to read "issuance" to be consistent with subsection (h)(3) of §134.650 of this title (relating to Prospective Review of Medical Care Not Requiring Preauthorization). The commission disagrees with deletion of the reference to the 20-day period in subsection (d) because the general period of time to file a request for a SOAH hearing should be specified, as an additional safeguard, in this subsection that provides that late-filed requests will be dismissed.

COMMENT: A commenter recommended the language "must" be changed to "shall" in §148.3(h) to provide consistency with standard practice regarding the use of "shall."

RESPONSE: The commission agrees. The use of "shall" is consistent with the Code Construction Act (Texas Government Code §311.016) because both §180.8(c) of this title (relating to Notices of Violation, Warning Letters, and Notices of Intent) and §148.3(h) establish a duty to respond and §180.8(d) provides that failure to respond timely is deemed consent to the penalty.

COMMENT: A commenter recommended that the language "must" be changed to "shall" in §148.4(b) to provide consistency with standard practice regarding the use of "shall."

RESPONSE: The commission agrees. The use of "shall" is consistent with the Code Construction Act (Texas Government Code §311.016). While a party requesting correction of a clerical error has a duty to provide the items listed, the commission will determine whether any omissions require that the correction be returned without further action on the request.

COMMENT: A commenter recommended that the term "decision" throughout the section be changed to read "determination" to prevent confusion between a determination made by the Executive Director of the commission or his designee and a decision from the Medical Review Division. A commenter, also, recommended that the language "motion" be changed to "determination" in the title of subsection (e) for consistency and because the Executive Director or his designee would not "move" themselves to take action to correct a clerical error. Any "determination" by the Executive Director or his designee to correct a clerical error will be considered a "decision" for purposes of any appeal procedures.

RESPONSE: The commission agrees. The language "decision" has been changed to "determination" to prevent possible confusion by system participants between a determination on a clerical error made by the Executive Director or his designee and a decision in a medical dispute under Texas Labor Code §413.031. Similarly, the language "motion" has been changed to "determination" in the title to subsection (e) for purposes of consistency.

COMMENT: A commenter recommended that the word "procedure" be changed to "procedural" in the last sentence of §148.8(a).

RESPONSE: The Commission agrees. The language "procedure" was changed to "procedural" to correct a grammatical error.

COMMENT: A commenter recommended adding the language "if the request has not yet been delivered to SOAH" at the end of §148.8(b). The commenter noted that Texas Government Code §2003.051 prohibits a state agency that has referred a matter to SOAH from taking any adjudicative action relating to the matter until SOAH has concluded its involvement in the matter. The commenter also noted that Texas Government Code §2003.050 provides that the procedural rules of the state agency govern matters relating to the hearing only to the extent that SOAH adopts the agency's procedural rules by reference. A commenter, also, recommended deletion of the phrase "in which case the request shall be filed in accordance with §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization)." The commenter stated that, since no request was being discussed, the phrase should be deleted.

RESPONSE: The Commission agrees in part and disagrees in part. The Commission agrees to the recommended addition of language. In §148.8(b), the language "if the request has not yet been delivered to SOAH" has been added to the end of the sentence. This should avoid any possible conflict with Texas Government Code §2003.051. The Commission disagrees with the recommended deletion of language "in which case the request shall be filed in accordance with §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization)." The language "request" immediately prior to that phrase refers to a withdrawal of hearing request and language "withdrawal of" has been added immediately prior to "request" for clarification purposes. The entire phrase addressing spinal surgery cases is important because those cases are not handled by SOAH and because withdrawal of hearing requests should be sent in accordance with §133.308(v)(1) because the hearing is conducted separately under Texas Labor Code Chapter 410 and the implementing regulations of the commission in Chapter 142 of this title (relating to Dispute Resolution--Benefit Contested Case Hearing). Concerning the commenter's reference to Texas Government Code §2003.050, SOAH has confirmed that "agencies may have their own procedural rules in areas not covered by SOAH procedural rules." 22 TexReg 12720. SOAH's procedural rule in §155.56 (c) of Title 1 (relating to Dismissal Proceedings) does not cover either a party's withdrawal request made before a request for hearing is received by SOAH from the referring agency or the withdrawal of a medical dispute decision by the commission before a request for hearing is received by SOAH from the commission.

COMMENT: A commenter recommended deletion of the phrase "except in cases of appeals pursuant to §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization) in which case the decision of the IRO shall be given presumptive weight." The commenter stated that such language had been rejected in two SOAH decisions in Docket No. 453-03-0186.M2 (December 16, 2002) and in Docket No. 453-04-0620.M2 (November 24, 2003). The commenter noted that no quantum of evidence necessary to overcome the presumption is stated and summarized the Appeal Panel Decision no. 021958-s to the effect that, in the absence of such quantum of evidence language, Texas courts defer to fact finders to determine whether the opposing party has offered evidence which rebuts the presumption. The commenter asserted that this phrase constitutes an impermissible procedural rule as found in SOAH Docket No. 453-03-3355.M5 (January 23, 2004). Finally, the commenter said there is no rational justification for attaching presumptive weight to an Independent Review Organization (IRO) decision based upon the commenter's judgment that "the quality of such decisions has been consistently poor..." and testimony in the litigation case (noted in the COMMENT on §148.3 (c)) that SOAH had overturned IRO decisions approximately 77% of the time in the year 2003 and approximately 91% of the time in the year 2004.

RESPONSE: The commission disagrees. The two SOAH decisions cited by the commenter do not support the conclusion that SOAH has rejected the commission's "presumptive weight" rule for IRO decisions. SOAH Docket No. 453-03-0186.M2 utilized Appeal Panel Decision 121958-s as support for the conclusion that "The presumption is subject to the same rules governing presumptions generally. Its effect is to shift the burden of producing evidence to the party against whom it operates. ...Once that burden is discharged and evidence contradicting the presumption has been offered, the presumption disappears ..." While that SOAH decision rejected the carrier's position that the burden of proof was under the standard of showing that the great weight of the medical evidence was to the contrary of the IRO decision, it recognized the presumption as operating under general Texas law principles for rebuttable presumptions. SOAH Docket No. 453-04-0620.M2 rejected the presumptive weight because of evidence in that case strongly contradicting that presumption, i.e. the mistake of the IRO reviewer's major misunderstanding that the injured worker had returned to his work at this regular job rather than a brief return to work for several weeks in a light duty position. Such a decision is consistent with recognition in general Texas case law on the legal effect of rebuttable presumptions summarized in the following.

The commenter is correct that the commission has not specified a quantum of evidence that would be necessary to overcome the presumption. Rather, general Texas case law on the legal effect of rebuttable presumptions applies. See: General Motors Corp. v. Saenz, 873 S.W.2d 353, 359 (Tex. 1993). While the Administrative Law Judge in SOAH Docket No. 453-03-3355 noted in his decision that "unless specifically adopted by SOAH, the procedural rules of an agency do not apply to a SOAH hearing and entered Finding of Fact No. 18 to that effect, his "Decision and Order" does not contain any conclusion of law addressing this issue. The decision does contain Conclusion of Law no. 5 finding that the "Petitioner has the burden of proof in this matter. 28 TEX. ADMIN. CODE §148.21(h) and §133.308(w)." On the other hand, the "Decision and Order" in SOAH Docket No. 453-02-3523.M2 contains a specific Conclusion of Law no. 6 stating: "The IRO decision carries presumptive weight in this matter. 28 Tex. Admin. Code §133.308(v)." The Administrative Law Judge found sufficient evidence in the record of that case for the Petitioner to overcome that presumption.

With these inconsistent, individual decisions in SOAH cases, the commission is not aware of any policy by SOAH that a particular decision or even a group of decisions establishes precedent to be followed in subsequent SOAH decisions. The commission is aware that individual SOAH decisions have considered and failed to accord precedential value to contrary positions taken in other SOAH decisions.

When the SOAH procedural rules were promulgated, SOAH specifically envisioned that the Commission burden of proof rule would remain in effect. In response to a comment in the rulemaking process concerning the desirability of having parties make good faith efforts to resolve their disputes at the lower Medical Review Division level, SOAH responded "....the burden of proof in a hearing before SOAH generally rests with the party against whom the Division issued its decision (see, 28 TEX. ADMIN. Code §148.21(h)). This burden should encourage parties to file complete documentation with the division." 22 TexReg 10205. The use of the prospective phrase "should encourage" in that last sentence shows clear intent that the agency rule would continue to govern the issue of burden of proof at SOAH hearings where a Commission Medical Review Division order is being appealed. Elsewhere in that same adoption preamble, SOAH again acknowledges the on-going validity of the agency "burden of proof rule" when it says: "......in TWCC medical necessity proceedings, the agency issues the notice of hearing but rarely appears as a party; thus, both participating parties are subjects of the notice of hearing, but only the one aggrieved by the decision of TWCC's Medical Review Division has the burden of proof." 22 Tex.Reg. 10205. In the following response to a public comment received, SOAH states "With regard to 28 TAC §148.21 (relating to Evidence), specifically subsection (h) of that section (relating to Burden of Proof), SOAH finds that Texas Labor Code §413.031, concerning medical appeals, states the burden is on the party seeking relief, thus obviating the need for a rule on that issue." Thus, SOAH again affirms that the agency rule on the subject will control such that a SOAH rule is not needed, and gives statutory authority for that position. Since the promulgation of its procedural rules SOAH has, through its rulings, acted consistently with the above-referenced preamble statements concerning the proper allocation of burden of proof (for example, see SOAH Docket No. 453-04-0105.M5).

Moreover, case law confirms that courts have given favorable consideration to state agency regulatory presumptions based upon the policy considerations faced by such agencies. Barry v. Barchi , 443 U.S. 55, 62 (1979) and Weinberger v. Salf , 422 U.S. 749, 784 (1975). SOAH has confirmed that ". . . agencies may have their own procedural rules." 22 TexReg 12720. SOAH's procedural rule in §155.41(b) of Title 1 (relating to "Procedure at Hearing) provides how the burden of proof will be established if not contained in agency policy. Thus, presumptions are not simply procedural rules; they also contain policy components that have been generally recognized by the courts.

The Commission is unable to verify the commenter's percentage figures regarding the number of IRO decisions overturned at SOAH. Commission data shows that for medical necessity disputes appealed to SOAH by this commenter, 45% of the IRO decisions appealed in 2003 were overturned and in 2004 26% of the appealed decisions were overturned.

In addition, the commenter may have utilized economic considerations when choosing which IRO decisions to appeal to SOAH (e.g. a set of cases in which the injured worker or health care provider had prevailed at the IRO and a subset of cases in which its medical experts agreed that a strong case could be made to contest the IRO decision). Without being provided the relevant information on such factors affecting the commenter's calculation of the percentage figures it offered, the reliability of those figures to support its judgment (on the quality of IRO decisions) cannot be confirmed. Moreover, the commission's Medical Advisor has reviewed numerous IRO decisions and has concluded that a substantial majority of the reviewed decisions were based upon sound medical judgment. While those reviews were not based on a random sample of IRO decisions and reflect a general recall of various decisions reviewed over several years, the Medical Advisor's conclusions do not confirm the comment's judgment on the quality of IRO decisions.

The Commission has previously stated its rational justification for attaching presumptive weight to an IRO decision. "HB-2600 mandated the use of IROs in order to utilize a medical opinion independent of the disputing parties and the commission. Utilizing the independent medical expert removes the commission from resolving the issues of medical necessity in prospective and retrospective disputes. Texas Labor Code §413.031 provides that it is a defense from the insurance carrier if the carrier timely complies with the decision of the IRO, and therefore, gives greater weight to the decision of the IRO doctor when compared with the treating doctor or a doctor's opinion obtained by the carrier. The rebuttable presumption places upon the losing party at an appeal to SOAH the burden of prove, by a preponderance of the evidence, that the independent medical decision was not correct. This requirement is consistent with present requirements for these appeals and furthers the legislative purpose of reducing disputes and appeals." 27 TexReg 412 (January 11, 2002).

In addition, the Commission recognizes the statutory oversight by the Texas Department of Insurance (TDI) over Independent Review Organizations as authorized by Texas Insurance Code article 21.58C, §2(a)(4); the authority of TDI under Texas Insurance Code article 21.58C, §12(b)(3) to set standards for the qualifications and independence of each health care provider or physician making review determinations for an IRO; and the standards set by TDI, effective November 26, 1997, in §12.202 of this title (relating to Personnel and Credentialing). Those standards, in part, require reviewers to be licensed, qualified, in good standing, and appropriately trained. In addition, Texas Insurance Code article 21.58C §2(h) provides that "Information that reveals the identity of a physician or individual health care provider who makes a review determination for an independent review organization is confidential." This need for confidentiality of the reviewer, the non-participation of IROs at SOAH appeals, and the different economic considerations that may be present between insurance carriers and injured workers or health care providers (e.g. decisions on obtaining expert medical testimony for SOAH hearings), are other factors that could affect the percentage statistics provided by the commenter.

COMMENT: A commenter recommended that all references in this section to SOAH procedural rules be made to Title 1 Chapter 155 of the Texas Administrative Code because the proposed references are made as if the rules are contained in Title 28 of the Code. A commenter, also, recommended the filing times be eliminated from §148.16(d) and (e) because SOAH already provides filing times.

RESPONSE: The commission agrees in part and disagrees in part. The Commission agrees that Title 1 should be added to each reference to the SOAH procedural rules in subsections (d), (e), and (f) and has done so. The Commission disagrees that the filing times in subsections (d) and (e) should be eliminated because both subsections require filings be made not only to SOAH, in accordance with SOAH rules, but also to TWCC under the same filing times. The Commission has changed the filing period of time for replies (to exceptions on a proposal for decision) from 10 days to 15 days to reflect the same time period specified in the recently amended §155.59(c)(1) of Title 1 (relating to Proposal for Decision).

28 TAC §§148.1 - 148.28

The repeals are adopted under the authority of the following statutes: Texas Labor Code, §401.021(1), which specifies the provisions of the Administrative Procedure Act that are applicable to the commission; §402.061, which authorizes the commission to adopt rules necessary to administer the Texas Workers' Compensation Act; §402.071, which specifies that the commission shall establish qualifications for "representatives" as defined by §401.011(37), Texas Labor Code; §402.072, which specifies that only the commission may impose certain types of sanctions; §402.073, which authorizes SOAH to conduct certain hearings; §407.046(b) and (c), which authorizes a hearing when the commission proposes to revoke a certificate of authority granted to a certified self-insurer; §407.066, which provides for a hearing after the director of the commission's division of self-insurance regulation resolves a dispute concerning the deposit, renewal, termination, release, or return of all or part of the security, liability arising out of the submission or failure to submit security, or the adequacy of the security or reasonableness of the administrative costs, including legal fees, that arise among: a surety, an insurer of an agreement of assumption and guarantee of workers' compensation liabilities, an issuer of a letter of credit, a custodian of the security deposit, a certified self-insurer, or the Texas Certified Self-Insurer Guaranty Association; §407.133, which authorizes the commission, after a hearing, to suspend or revoke the certificate of authority to self-insure of a certified self-insurer who fails to pay an assessment required under §407.124, Texas Labor Code; §407.023, which authorizes the commission to establish criteria for deleting doctors from the commission's list of approved doctors; §408.0231(e), which provides for a hearing on certain sanctions by the commission against a doctor or insurance carrier; §408.024, which authorizes a hearing if the commission intends to relieve an insurance carrier of liability for health care that is furnished by a health care provider or another person selected in a manner inconsistent with the requirements of Subchapter B, Chapter 408, Texas Labor Code; §411.0415, which provides that the commission may request a hearing if the commission determines that the case history of an employee's fatality indicates that the employer or the work environment was a proximate cause of the fatality, §411.042, which providers for the notification process by the commission to identify an employer as a hazardous employer; §411.049(b), which provides for a hearing for an employer to contest findings of the commission under the Hazardous Employer Program; §413.014, which authorizes the commission to adopt rules that provide that preauthorization and concurrent review are required for specified health care treatments and services; §413.031(k), which provides for a SOAH hearing after the original decision in certain medical disputes; §413.055 that provides a hearing to a party that disputes an interlocutory order of the commission for the payment of all of part of medical benefits; §415.021, which authorizes the commission to assess administrative penalties against a person who commits an administrative violation and to enter a cease and desist order against a person who engages in certain types of conduct; §415.032, which provides the commission's notification process for a possible administrative violation and the request for hearing process by the charged party; §415.034(a), which provides for a hearing to contest administrative violation sanctions by the commission; and Texas Government Code, §2001.003, which provides definitions of terms used in the Administrative Procedure Act; §2001.061, which prohibits certain types of ex parte communications in hearings; §2001.062, which provides the process for a decision by the state agency after SOAH has issued a proposal for decision; §2001.089, which provides for the process for a state agency to issue a subpoena; §2001.090 which provides for official notice of certain evidence and for use of the special skills or knowledge of the state agency and its staff in evaluating evidence; §2001.094, which provides the process for a state agency to issue a commission requiring deposition; §§2001.171, 2001.174, 2001.176, and 2001.177, which provide a process for judicial review after a final administrative decision has been rendered in a contested case hearing and which authorize a state agency, by rule, to require a party who appeals such a decision to pay all or a part of the cost of preparation of the original or a certified copy of the record of the agency proceeding that is required to be sent to the reviewing court; and §2003.050 concerning procedural rules by SOAH.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502027

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

28 TAC §§148.1 - 148.23

The new rules are adopted under the authority of the following statutes: Texas Labor Code, §401.021(1), which specifies the provisions of the Administrative Procedure Act that are applicable to the commission; §402.061, which authorizes the commission to adopt rules necessary to administer the Texas Workers' Compensation Act; §402.071, which specifies that the commission shall establish qualifications for "representatives" as defined by §401.011(37), Texas Labor Code; §402.072, which specifies that only the commission may impose certain types of sanctions; §402.073, which authorizes SOAH to conduct certain hearings; §407.046(b) and (c), which authorizes a hearing when the commission proposes to revoke a certificate of authority granted to a certified self-insurer; §407.066, which provides for a hearing after the director of the commission's division of self-insurance regulation resolves a dispute concerning the deposit, renewal, termination, release, or return of all or part of the security, liability arising out of the submission or failure to submit security, or the adequacy of the security or reasonableness of the administrative costs, including legal fees, that arise among: a surety, an insurer of an agreement of assumption and guarantee of workers' compensation liabilities, an issuer of a letter of credit, a custodian of the security deposit, a certified self-insurer, or the Texas Certified Self-Insurer Guaranty Association; §407.133, which authorizes the commission, after a hearing, to suspend or revoke the certificate of authority to self-insure of a certified self-insurer who fails to pay an assessment required under §407.124, Texas Labor Code; §407.023, which authorizes the commission to establish criteria for deleting doctors from the commission's list of approved doctors; §408.0231(e), which provides for a hearing on certain sanctions by the commission against a doctor or insurance carrier; §408.024, which authorizes a hearing if the commission intends to relieve an insurance carrier of liability for health care that is furnished by a health care provider or another person selected in a manner inconsistent with the requirements of Subchapter B, Chapter 408, Texas Labor Code; §411.0415, which provides that the commission may request a hearing if the commission determines that the case history of an employee's fatality indicates that the employer or the work environment was a proximate cause of the fatality, §411.042, which providers for the notification process by the commission to identify an employer as a hazardous employer; §411.049(b), which provides for a hearing for an employer to contest findings of the commission under the Hazardous Employer Program; §413.014, which authorizes the commission to adopt rules that provide that preauthorization and concurrent review are required for specified health care treatments and services; §413.031(k), which provides for a SOAH hearing after the original decision in certain medical disputes; §413.055 that provides a hearing to a party that disputes an interlocutory order of the commission for the payment of all of part of medical benefits; §415.021, which authorizes the commission to assess administrative penalties against a person who commits an administrative violation and to enter a cease and desist order against a person who engages in certain types of conduct; §415.032, which provides the commission's notification process for a possible administrative violation and the request for hearing process by the charged party; §415.034(a), which provides for a hearing to contest administrative violation sanctions by the commission; and Texas Government Code, §2001.003, which provides definitions of terms used in the Administrative Procedure Act; §2001.061, which prohibits certain types of ex parte communications in hearings; §2001.062, which provides the process for a decision by the state agency after SOAH has issued a proposal for decision; §2001.089, which provides for the process for a state agency to issue a subpoena; §2001.090 which provides for official notice of certain evidence and for use of the special skills or knowledge of the state agency and its staff in evaluating evidence; §2001.094, which provides the process for a state agency to issue a commission requiring deposition; §§2001.171, 2001.174, 2001.176, and 2001.177, which provide a process for judicial review after a final administrative decision has been rendered in a contested case hearing and which authorize a state agency, by rule, to require a party who appeals such a decision to pay all or a part of the cost of preparation of the original or a certified copy of the record of the agency proceeding that is required to be sent to the reviewing court; and §2003.050 concerning procedural rules by SOAH.

§148.3.Requesting a Hearing.

(a) When requests are due. The person requesting a hearing shall file a written request addressed to the TWCC Chief Clerk, in accordance with the instructions provided in the TWCC notice letter regarding submission of an appeal, not later than 20 days after:

(1) receipt of a findings and decision from the medical review division on a review of a medical service or a medical fee under the Act, §413.031(a), (b), (c), (f), and (k), or;

(2) receipt of an IRO decision under the Act, §413.031, except with respect to a prospective necessity dispute regarding spinal surgery in which case the request shall be filed in accordance with §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization), or;

(3) receipt of a commission refund order issued pursuant to a commission audit or review;

(4) issuance of an interlocutory order for payment under the Act, §413.055, or;

(5) receipt of a notice of administrative violation under the Act, §415.032; or

(6) receipt of a notice of identification as a hazardous employer under the Act, §411.042; or

(7) receipt of a notice of sanction under the Act, §408.0231; or

(8) receipt of a notice of the intent of the commission to determine the legal rights, duties, or privileges of a party within the scope of §148.2 of this title (relating to Scope and Applicability).

(b) Date deemed filed or received. When a request for a hearing is addressed to the TWCC Chief Clerk but is sent to an office other than the TWCC Chief Clerk, the date filed or received shall be the date the request is received in the central office. When a request for a hearing is not addressed to the TWCC Chief Clerk, it will not be considered as received by the Commission unless it is actually received by the TWCC Chief Clerk. Otherwise, a request for a hearing is deemed filed as of the date of the TWCC date stamp placed on the document or other evidence of receipt.

(c) Requests under §413.031 of the Act. If the request for a hearing is based on a receipt of a findings and decision from the medical review division on a review of a medical service or a medical fee under the Act, §413.031, or receipt of an IRO decision under the Act, §413.031, (except with respect to a prospective necessity dispute regarding spinal surgery in which case the request shall be filed in accordance with §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization and except with respect to disputes handled in accordance with §133.309 of this title (relating to Alternate Medical Necessity Dispute Resolution by Case Review Doctor)), to be deemed a request for hearing the request shall:

(1) contain a statement indicating that it is a request for a hearing;

(2) include a copy of the findings and decision on which a hearing is being requested; and

(3) be signed by a requestor or respondent as defined by §133.305 of this title (relating to Medical Dispute Resolution - General), or its representative.

(4) include a certificate of service demonstrating that the request has been sent to the other party in accordance with the requirements of §133.307 of this title (relating to Medical Dispute Resolution of a Medical Fee Dispute), or §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization) in substance as follows: "I hereby certify that I have on this ___ day of __________, 20 __, served a copy of the attached instrument on (state the name of the other parties on whom a copy was served) by (state the manner of service.)"

(d) Late filings. A written request for hearing filed with the TWCC Chief Clerk later than 20 days after the starting date specified in subsection (a) of a matter set forth in subsection (a) of this section shall be dismissed.

(e) Request for correction of clerical error. If the request for hearing is a request to correct a clerical error, the executive director, or the director's designee, may at any time prior to delivery of the request for a hearing to SOAH, revise the order or decision to correct the clerical error.

(1) When a party requests a correction of clerical error and intends that request to constitute a request for hearing pursuant to this section, the request shall:

(A) meet all of the requirements of subsection (c)(1) - (4) of this section;

(B) include markings on a copy of the findings and decision indicating the alleged error;

(C) state the requested correction, and the reasons for making it.

(2) A party affected by the proposed correction to the order or decision may file a response to the request with the TWCC Chief Clerk no later than 10 days after receipt of a party's request for correction of clerical error.

(3) After notice and opportunity to respond under paragraph (2) of this subsection, the commission shall either:

(A) issue and deliver to the parties a corrected order or decision; or

(B) deliver the request for hearing to SOAH.

(f) Correction of clerical error discovered by commission. Upon receipt of a request for hearing, the executive director, or the director's designee, may at any time prior to delivery of the request for a hearing to SOAH, advise the parties in writing by verifiable means of the commission's intent to revise the order or decision to correct the clerical error.

(1) Any party affected by the proposed correction to the order or decision may file a response to the notice with the TWCC Chief Clerk no later than 10 days after receipt of the notice of the commission's intent to revise the order or decision.

(2) Following notice of the commission's intent to revise the order or decision, and after notice and opportunity to respond under paragraph (1) of this subsection, the commission shall either:

(A) issue and send to the parties a corrected order or decision; or

(B) send the request for hearing to SOAH.

(g) Delivery of request. The commission shall send the request for a hearing to SOAH within twenty working days of receipt, if the decision has not been withdrawn under the provisions contained in §148.8 of this title (relating to Withdrawal of Hearing Request), unless the parties have been notified of the commission's intent to revise the order or decision pursuant to subsections (e) or (f) of this section.

(h) Notice of alleged violation. If the notice is a notice of alleged violation, the person charged shall file an answer not later than the 20th day after the date of receipt of the notice. The answer must either consent to the proposed sanction, and remit the amount of the penalty, if any, or request a hearing.

(i) Commission request for hearing. Notwithstanding the provisions of subsection (a) of this section, the commission may request a hearing as permitted by the Act and the implementing rules to the Act, including, but not limited to the Act, §407.046(b) and §411.0415(c).

§148.4.Correction of Clerical Error in Medical Review Division Decisions or Orders Absent a Request for Hearing.

(a) Correction of clerical error at request of party. Notwithstanding the provisions of §148.3 of this title (relating to Requesting a Hearing), the executive director or the director's designee may at any time revise an order or decision of the medical review division to correct clerical error:

(1) at the request of a party or parties affected by the order or decision; or

(2) on the executive director or the director's designee's decision.

(b) Contents of request. When a party requests correction of clerical error, the request shall:

(1) include a copy of the order or decision marked to indicate the alleged error;

(2) state the requested correction, and the reasons for making it;

(3) be filed with the medical review division; and

(4) include a certificate of service demonstrating that the request has been sent to all other parties affected by the order or decision in substance as follows: "I hereby certify that I have on this ___ day of __________, 20 __, served a copy of the attached instrument on (state the name of the other parties on whom a copy was served) by (state the manner of service.)"

(c) Time to file response. A party affected by the proposed correction to the order or decision may file a response to the request no later than 10 days after receipt of the request.

(d) Notice of action. No later than 30 days after the request was filed under subsection (b) of this section, the medical review division shall either:

(1) issue and deliver to the parties a corrected order or decision;

(2) advise the parties in writing that the order or decision was correct as originally entered; or

(3) advise the parties in writing that the order or decision cannot be corrected pursuant to this section.

(e) Correction of clerical error on the determination of the executive director or the executive director's designee. When a clerical error is corrected on the determination of the executive director or the executive director's designee, a copy of the corrected order or decision will be delivered to all affected parties. A clerical error may be corrected on the determination of the executive director or the executive director's designee without prior notice to the parties.

(f) Notice of intent to revise decision or order at discretion of executive director or director's designee. Notwithstanding the provisions of subsection (e) of this section, when the executive director or the director's designee intends to correct a clerical error, at the discretion of the executive director or the director's designee, a notice may be sent advising the parties in writing by verifiable means of the intent to revise the order or decision to correct the clerical error.

(1) Any party affected by the order or decision may file a response to the notice with the medical review division no later than 10 days after receipt of the notice of the commission's intent to revise the order or decision.

(2) No later than 30 days after notice of the commission's intent to revise the order or decision, and after notice and opportunity to respond under paragraph (1) of this subsection, the commission shall either:

(A) issue and deliver to the parties a corrected order or decision;

(B) advise the parties in writing that the order or decision was correct as originally entered; or

(C) advise the parties in writing that the order or decision cannot be corrected pursuant to this section.

(g) Request for correction of clerical error versus request for hearing. A request to correct clerical error shall not be deemed a request for hearing unless it complies with the requirements specified in §148.3(e) of this title (relating to Requesting a Hearing).

§148.8.Withdrawal of Hearing Request.

(a) The petitioner may, at any time before the decision and order is signed, submit a written request to withdraw the request for a hearing. If the written request is made before the case is received by SOAH or after a proposal for decision is received from SOAH, the request should be sent to the TWCC Chief Clerk. Otherwise, the request should be submitted to SOAH in accordance with its procedural rules in Title 1 Chapter 155 (relating to Rules Of Procedures).

(b) Notwithstanding the provisions of subsection (a) of this section, a findings and decision of the commission's medical review division in a review of a medical service or medical fee under the Act, §413.031, or receipt of an IRO decision from the medical review division on a review of a medical service or a medical fee under the Act, §413.031, except with respect to a prospective necessity dispute regarding spinal surgery in which case the withdrawal of request shall be filed in accordance with §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization), may be withdrawn by the commission within fifteen working days after the commission receives the request for hearing before SOAH if the request has not yet been delivered to SOAH.

§148.12.Ex Parte Communications.

The APA, §2001.061 applies to commissioners and employees of the commission and to the ALJs of SOAH. It provides that:

(1) unless required for the disposition of ex parte matters authorized by law, members or employees of an agency assigned to render a decision or to make findings of fact and conclusions of law in a contested case may not communicate, directly or indirectly, in connection with any issue of fact or law with any agency, person, party, or their representatives, except on notice and opportunity for all parties to participate; and

(2) under the APA, §2001.090, a member of an agency or employees of an agency assigned to render a decision or to make findings of fact and conclusions of law in a contested case, including SOAH, may communicate ex parte with employees of the commission, who have not participated in any hearing in the case for the purpose of utilizing the special skills or knowledge of the commission and its staff in evaluating the evidence.

§148.16.Proposal for Decision by the ALJ.

(a) Proposal For Decision. In contested cases held under the Act, §§402.072, 407.046, and 408.0231, and in other cases not subject to §402.073(b) of the Act (relating to Cooperation with SOAH), and after all evidence has been heard, the ALJ shall adjourn the hearing.

(b) Description of Proposal Decision. The proposal for decision shall be based solely upon the record of the individual case. It shall be in writing and include information specified in §149.9 of this title (relating to Proposals for Decision in accordance with the Act, §§402.072, 407.046, and 408.0231).

(c) Furnishing decision. SOAH shall furnish the proposal for decision to the TWCC Chief Clerk and shall furnish the proposal for decision by verifiable means and retain information on the date, address, person or entity served, and the means of service to the parties to the hearing. The TWCC Chief Clerk shall notify the Chief of Staff and the General Counsel of the receipt of a proposal for decision from SOAH.

(d) Filing of briefs and exceptions. Any party may file briefs and exceptions to the proposal for decision, with SOAH and the TWCC Chief Clerk, for consideration by the ALJ and the commission no later than 15 days after receiving the proposal for decision. Any brief and exceptions filed by any party shall be served by that party on all other parties in the manner provided by §§155.23 of Title 1 (relating to Filing Documents or Serving Documents on the Judge) and 155.25 of Title 1 (relating to Serving a Document to Parties) except that an additional copy shall be served upon the TWCC Chief Clerk in accordance with §102.5 of this title (relating to General Rules for Written Communications to and from the Commission).

(e) Filing replies. Any party may file a reply to a brief and exceptions filed under subsection (f) of this section, with SOAH and the TWCC Chief Clerk, for consideration by the ALJ and the commission no later than fifteen days after the filing of the brief and exceptions. Any reply filed by any party shall be served by that party on all other parties in the manner provided by §§155.23 of Title 1 (relating to Filing Documents or Serving Documents on the Judge) and 155.25 of Title 1 (relating to Serving a Document to Parties) except that an additional copy shall be served upon the TWCC Chief Clerk in accordance with §102.5 of this title (relating to General Rules for Written Communications to and from the Commission).

(f) Decision by the commission. The commission shall consider the case at a posted meeting of the commission, no later than 120 days after SOAH provides the commission with the proposal for decision, or the date of the ALJ's comments or response to any exceptions or briefs and any replies to such exceptions or briefs or the expiration of the ALJ's deadline for such response in accordance with §155.59 of Title 1 (relating to Proposal for Decision). Parties to a contested case will be notified of the final decision of the commissioners by verifiable means.

(g) Exhaustion of administrative remedies. The notification to a party of the commission's final decision constitutes exhaustion of all administrative remedies. No motion for rehearing will be considered.

(h) Judicial Review. A party dissatisfied with a decision of the commission may seek judicial review as provided in the Act in accordance with the APA. Judicial review will be in accordance with the Act and the APA §§2001.171, 2001.172, and 2001.174.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502026

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Chapter 149. MEMORANDUM OF UNDERSTANDING WITH THE STATE OFFICE OF ADMINISTRATIVE HEARINGS

The Texas Workers' Compensation Commission (the commission) adopts the repeal and new §§149.1 - 149.10, concerning the commission's Memorandum of Understanding with the State Office of Administrative Hearings (SOAH). Section 149.7 is adopted with changes to the proposed text as published in the March 4, 2005, issue of the Texas Register (30 TexReg 1248). The repeal of §§149.1 - 149.10 is adopted without changes to the proposal and new §§149.1 - 149.6 and 149.8 - 148.10 are adopted without changes to the proposed text and will not be republished.

The interagency agreement between the commission and SOAH is required by §402.073(a) of the Texas Labor Code. SOAH has reviewed these rules and indicated their agreement with the rules as adopted.

As required by the Government Code §2001.033(1), the commission's reasoned justification for these rules is set out in this order which includes the preamble, which in turn includes the rules. This preamble contains a summary of the factual basis of the rules, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rules, and the reasons why the commission disagrees with some of the comments and proposals.

Changes from the rules as proposed were made to new rule §149.7 in response to comments received in writing and at a public hearing held on April 7, 2005.

These new rules include elimination of provisions of the repealed Chapter 149 rules that have been preempted by SOAH in accordance with §2003.050(b), Texas Government Code and SOAH's adoption of its procedural rules in Chapter 155 of Title 1 (relating to Rules of Procedures). SOAH declined to adopt any specific procedural rules of the commission. 22 TexReg 12721. SOAH has stated that its procedural rules are not intended to affect agency rules that pertain to events that occur before SOAH takes jurisdiction or after SOAH loses jurisdiction over a case and that agencies may have their own procedural rules in areas not covered by SOAH procedural rules. 22 TexReg 12720. SOAH has stated that its procedural rules were established "...to continue with the general, established practice at SOAH that the referring agencies initially issue subpoenas and commissions. ...The general procedure has worked efficiently for SOAH, and referring agencies have been able to handle the task as a ministerial matter without confusion. ...the SOAH ALJ will rule on motions to quash the subpoena or commission based on lack of a showing of good cause or for other alleged deficiencies." 22 TexReg 12728.

New §149.1 includes definitions of terms contained in repealed §149.2, with revisions to the definition of "contested case" to include additional references to hearings in the Act, and new definitions for the acronyms "APA" (the Administrative Procedure Act) and "IRO" (an Independent Review Organizations).

New §149.2 includes the "General Statement" in repealed §149.1, with clarifying changes. The general statement sets out the purpose of the Memorandum of Understanding between the commission and SOAH.

New §149.3 contains the provisions in repealed §149.3, updates reference to forms used by system participants to request SOAH hearings, and contains guidelines for the length of time for hearings to be set. Subsection (c) has been added to provide commission policy relating to the need for prompt hearings depending on the type of contested case referred to SOAH.

New §149.4 sets out and clarifies the contents of a notice of hearing in a SOAH case and the time period for providing such notice.

New §149.5 references the statutes and rules governing SOAH hearings. The rule does not include the "Filing Requirements" contained in repealed §149.6 because these provisions are preempted by SOAH's procedural rules.

New §149.6 contains updated and clarifying provisions concerning statutory confidentiality requirements.

New §149.7 allows withdrawal of a findings and decision of the commission's medical review division or an IRO decision within 15 working days of the date the request for hearing is received by the Commission. Procedures for accomplishing this withdrawal and subsequent dismissal are also addressed in this section. The language "withdrawal of" had been added immediately prior to the language "request" in the last sentence to clarify the type of request being addressed. The entire phrase addressing spinal surgery cases is important because those cases are not handled by SOAH and because withdrawal of hearing requests should be sent in accordance with §133.308(v)(1) because the hearing is conducted separately under Texas Labor Code Chapter 410 and the implementing regulations of the commission in Chapter 142 of this title (relating to Dispute Resolution--Benefit Contested Case Hearing).

New §§149.8, 149.9, and 149.10 contain the provisions of repealed §§149.7, 149.8 and 149.9 with minor modifications. The former requirement to utilize the Texas Rules of Form was deleted to allow use of other citation formats. Language is included to allow for changes that have occurred and will occur in technology for verifiable means of transmittal, and to allow amendment of a proposal for decision by an ALJ or comments by an ALJ. A requirement has been added that SOAH find in a proposal for decision whether the commission is authorized by the Act or commission rules to take disciplinary or sanction action against the Petitioner in the SOAH hearing.

No groups or associations provided comments supporting or opposing the proposed rules. A comment suggesting changes to the rules as proposed was received from Texas Mutual Insurance Company.

Summaries of the comments and commission responses are as follows:

COMMENT: A commenter recommended deletion of the phrase "in which case the request shall be filed in accordance with §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organizations)." The commenter stated that, since the request being referred to in §149.7 is a request for hearing rather than a request to withdraw, this phrase should be deleted.

RESPONSE: The commission disagrees. The language "request" immediately prior to that phrase refers to a withdrawal of hearing request and language "withdrawal of" has been added, immediately prior to "request" for clarification purposes. The entire phrase addressing spinal surgery cases is important because those cases are not handled by SOAH and because withdrawal of hearing requests should be sent in accordance with §133.308(v)(1) because the hearing is conducted separately under Texas Labor Code Chapter 410 and the implementing regulations of the commission in Chapter 142 of this title (relating to Dispute Resolution--Benefit Contested Case Hearing).

28 TAC §§149.1 - 149.10

The repeals are adopted under the following statutes: Texas Labor Code, §401.021(1), which specifies the provisions of the Administrative Procedure Act that are applicable to the commission; §402.061, which authorizes the commission to adopt rules necessary to administer the Texas Workers' Compensation Act; §402.071, which specifies that the commission shall establish qualifications for "representatives" as defined by §401.011(37), Texas Labor Code; §402.072, which specifies that only the commission may impose certain types of sanctions; §402.073, which authorizes SOAH to conduct certain hearings; §§402.082 thru 402.092, which require that information in or derived from a commission claim file regarding an injured employee and information maintained in an investigation file of the commission be kept confidential; §407.046(b) and (c), which authorizes a hearing when the commission proposes to revoke a certificate of authority granted to a certified self-insurer; §407.066, which provides for a hearing after the director of the commission's division of self-insurance regulation resolves a dispute concerning the deposit, renewal, termination, release, or return of all or part of the security, liability arising out of the submission or failure to submit security, or the adequacy of the security or reasonableness of the administrative costs, including legal fees, that arise among: a surety, an insurer of an agreement of assumption and guarantee of workers' compensation liabilities, an issuer of a letter of credit, a custodian of the security deposit, a certified self-insurer, or the Texas Certified Self-Insurer Guaranty Association; §407.133, which authorizes the commission, after a hearing, to suspend or revoke the certificate of authority to self-insure of a certified self-insurer who fails to pay an assessment required under §407.124, Texas Labor Code; §407.023, which authorizes the commission to establish criteria for deleting doctors from the commission's list of approved doctors; §408.0231(e), which provides for a hearing on certain sanctions by the commission against a doctor or insurance carrier; §408.024, which authorizes a hearing if the commission intends to relieve an insurance carrier of liability for health care that is furnished by a health care provider or another person selected in a manner inconsistent with the requirements of Subchapter B, Chapter 408, Texas Labor Code; §411.0415, which provides that the commission may request a hearing if the commission determines that the case history of an employee's fatality indicates that the employer or the work environment was a proximate cause of the fatality, §411.042, which providers for the notification process by the commission to identify an employer as a hazardous employer; §411.049(b), which provides for a hearing for an employer to contest findings of the commission under the Hazardous Employer Program; §413.014, which authorizes the commission to adopt rules that provide that preauthorization and concurrent review are required for specified health care treatments and services; §413.031(k), which provides for a SOAH hearing after the original decision in certain medical disputes; §§413.0511 thru 413.0514, which provide that certain information collected, assembled, or maintained by or on behalf of the commission under §413.0511 or §413.0512 constitutes an investigation file for purposes of §402.092, Texas Labor Code and must be kept confidential except as otherwise specified in those sections; §413.055 that provides a hearing to a party that disputes an interlocutory order of the commission for the payment of all of part of medical benefits; §415.021, which authorizes the commission to assess administrative penalties against a person who commits an administrative violation and to enter a cease and desist order against a person who engages in certain types of conduct; §415.032, which provides the commission's notification process for a possible administrative violation and the request for hearing process by the charged party; §415.034(a), which provides for a hearing to contest administrative violation sanctions by the commission; Texas Government Code, §2001.003, which provides definitions of terms used in the Administrative Procedure Act; §2001.051, which provides an opportunity for a contested case hearing under the Administrative Procedure Act, §2001.052, which provides for the required contents of a notice of hearing in a contested case hearing; §2001.058, which provides for consideration by SOAH of agency rules and limitations upon a state agency making changes to a finding of fact or conclusion of law made by SOAH; §2001.061, which prohibits certain types of ex parte communications in hearings; §2001.062, which provides the process for a decision by the state agency after SOAH has issued a proposal for decision; §2001.089, which provides for the process for a state agency to issue a subpoena; §2001.090 which provides for official notice of certain evidence and for use of the special skills or knowledge of the state agency and its staff in evaluating evidence; §2001.094, which provides the process for a state agency to issue a commission requiring deposition; §§2001.171, 2001.171, 2001.174, 2001.176, and 2001.177, which provide a process for judicial review after a final administrative decision has been rendered in a contested case hearing and which authorize a state agency, by rule, to require a party who appeals such a decision to pay all or a part of the cost of preparation of the original or a certified copy of the record of the agency proceeding that is required to be sent to the reviewing court; and §2003.050 concerning procedural rules by SOAH.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502028

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

28 TAC §§149.1 - 149.10

The new rules are adopted under the following statutes: Texas Labor Code, §401.021(1), which specifies the provisions of the Administrative Procedure Act that are applicable to the commission; §402.061, which authorizes the commission to adopt rules necessary to administer the Texas Workers' Compensation Act; §402.071, which specifies that the commission shall establish qualifications for "representatives" as defined by §401.011(37), Texas Labor Code; §402.072, which specifies that only the commission may impose certain types of sanctions; §402.073, which authorizes SOAH to conduct certain hearings; §§402.082 thru 402.092, which require that information in or derived from a commission claim file regarding an injured employee and information maintained in an investigation file of the commission be kept confidential; §407.046(b) and (c), which authorizes a hearing when the commission proposes to revoke a certificate of authority granted to a certified self-insurer; §407.066, which provides for a hearing after the director of the commission's division of self-insurance regulation resolves a dispute concerning the deposit, renewal, termination, release, or return of all or part of the security, liability arising out of the submission or failure to submit security, or the adequacy of the security or reasonableness of the administrative costs, including legal fees, that arise among: a surety, an insurer of an agreement of assumption and guarantee of workers' compensation liabilities, an issuer of a letter of credit, a custodian of the security deposit, a certified self-insurer, or the Texas Certified Self-Insurer Guaranty Association; §407.133, which authorizes the commission, after a hearing, to suspend or revoke the certificate of authority to self-insure of a certified self-insurer who fails to pay an assessment required under §407.124, Texas Labor Code; §407.023, which authorizes the commission to establish criteria for deleting doctors from the commission's list of approved doctors; §408.0231(e), which provides for a hearing on certain sanctions by the commission against a doctor or insurance carrier; §408.024, which authorizes a hearing if the commission intends to relieve an insurance carrier of liability for health care that is furnished by a health care provider or another person selected in a manner inconsistent with the requirements of Subchapter B, Chapter 408, Texas Labor Code; §411.0415, which provides that the commission may request a hearing if the commission determines that the case history of an employee's fatality indicates that the employer or the work environment was a proximate cause of the fatality, §411.042, which providers for the notification process by the commission to identify an employer as a hazardous employer; §411.049(b), which provides for a hearing for an employer to contest findings of the commission under the Hazardous Employer Program; §413.014, which authorizes the commission to adopt rules that provide that preauthorization and concurrent review are required for specified health care treatments and services; §413.031(k), which provides for a SOAH hearing after the original decision in certain medical disputes; §§413.0511 thru 413.0514, which provide that certain information collected, assembled, or maintained by or on behalf of the commission under §413.0511 or §413.0512 constitutes an investigation file for purposes of §402.092, Texas Labor Code and must be kept confidential except as otherwise specified in those sections; §413.055 that provides a hearing to a party that disputes an interlocutory order of the commission for the payment of all of part of medical benefits; §415.021, which authorizes the commission to assess administrative penalties against a person who commits an administrative violation and to enter a cease and desist order against a person who engages in certain types of conduct; §415.032, which provides the commission's notification process for a possible administrative violation and the request for hearing process by the charged party; §415.034(a), which provides for a hearing to contest administrative violation sanctions by the commission; Texas Government Code, §2001.003, which provides definitions of terms used in the Administrative Procedure Act; §2001.051, which provides an opportunity for a contested case hearing under the Administrative Procedure Act, §2001.052, which provides for the required contents of a notice of hearing in a contested case hearing; §2001.058, which provides for consideration by SOAH of agency rules and limitations upon a state agency making changes to a finding of fact or conclusion of law made by SOAH; §2001.061, which prohibits certain types of ex parte communications in hearings; §2001.062, which provides the process for a decision by the state agency after SOAH has issued a proposal for decision; §2001.089, which provides for the process for a state agency to issue a subpoena; §2001.090 which provides for official notice of certain evidence and for use of the special skills or knowledge of the state agency and its staff in evaluating evidence; §2001.094, which provides the process for a state agency to issue a commission requiring deposition; §§2001.171, 2001.171, 2001.174, 2001.176, and 2001.177, which provide a process for judicial review after a final administrative decision has been rendered in a contested case hearing and which authorize a state agency, by rule, to require a party who appeals such a decision to pay all or a part of the cost of preparation of the original or a certified copy of the record of the agency proceeding that is required to be sent to the reviewing court; and §2003.050 concerning procedural rules by SOAH.

§149.7.Action Upon Withdrawal of Decision.

If a findings and decision of the commission's medical review division in a review of a medical service or medical fee under the Act, §413.031, or an IRO decision under the Act, §413.031, is withdrawn by the commission within fifteen working days after the commission receives the request for hearing before SOAH the commission shall file a request to withdraw the case from the SOAH docket. SOAH shall then issue an order dismissing the case without prejudice from the SOAH docket. This provision does not apply to a prospective medical necessity dispute regarding spinal surgery, in which case the withdrawal of request shall be filed in accordance with §133.308 of this title (relating to Medical Dispute Resolution by Independent Review Organization).

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502029

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: March 4, 2005

For further information, please call: (512) 804-4288

Chapter 166. WORKERS' HEALTH AND SAFETY--ACCIDENT PREVENTION SERVICES

28 TAC §166.4, §166.6

The Texas Workers' Compensation Commission (the commission) adopts amendments to §166.4 concerning Required Accident Prevention Services, and §166.6 concerning Exchange of Information for the Inspection, with changes to the proposed text published in the February 4, 2005, issue of the Texas Register (30 TexReg 467).

As required by the Government Code §2001.033(1), the commission's reasoned justification for this rule is set out in this order, which includes the preamble, which in turn includes the rule. This preamble contains a summary of the factual basis of the rule, a summary of comments received from interested parties, names of those groups and associations who commented and whether they were for or against adoption of the rule, and the reasons why the commission agrees or disagrees with some of the comments and proposals.

Changes were made to the proposed rules at §166.4(c)(8) and (c)(2)(E) in response to written public comment and after opportunity for comment at a public hearing on February 17, 2005. The written comments received are described in the summary of comments and responses section of this preamble.

The amendments make §166.4 and §166.6 consistent with §413.021 of the Texas Labor Code, which was passed by the 77th Texas Legislature in 2001 as part of House Bill 2600. Texas Labor Code §413.021(b) provides examples of the types of return-to-work services that can be provided. The rule amendments add another category of information (ie. the availability of return to work coordination services) to the list of what must be included in an existing required notice to policyholders. The information is required to be provided by the insurance carrier to increase awareness of the carrier's available service regarding injured employee return-to-work coordination. The amendments also include adding documentation related to employee return-to-work coordination services to an existing list of information that investigators can require to be made available. The gathering of return-to-work information during these inspections is not intended to prescribe the organization of return-to-work functions within the structure of the entity being inspected. Rather, it allows the agency to take advantage of this on-site inspection as an opportunity to gather documentation and verify that return-to-work coordination services are being offered. This constitutes the most efficient use of limited agency resources.

Comments on the proposed amendments to §166.4 and §166.6 were received from the following groups: American Insurance Association (AIA), Insurance Council of Texas (ICT), Property Casualty Insurers Association of America (PCI), and Church Mutual Insurance Company. The comments received from AIA on the proposed Amendments were identical to its comments on the Pre-Proposal draft made available to the public. Alterations were made and reflected in the proposal, based on that input. It appears to the Commission that AIA may not have realized that these changes were made when it resubmitted the same comments during the comment period on the proposed rules. However, because the AIA comments were not withdrawn or changed, the Commission will explain why it believes those earlier alterations the agency made do address the AIA comments such that no further changes were needed in response to them. The comments from ICT stated they wished to join with AIA in their comments regarding these rule amendments.

Changes to §166.4(c)(8) and (c)(2)(E) are effective for policies issues on or after September 1, 2005 to allow carriers time to adjust forms and letters.

Summaries of the comments and commission responses are as follows:

Comment: Two commenters indicated it is inappropriate and unnecessary to require carriers to provide return to work (RTW) coordination services in conjunction with accident prevention services. Their concern was that the rule, as amended, would require insurers to provide return to work services in conjunction with accident prevention services. They stated that imposing this requirement would make it more difficult for an insurer to prepare for accident prevention services audits because return to work is not generally associated with loss control but, rather, with claims management. In addition, they were concerned that return to work services would have to be provided at no additional charge even if the service offered went beyond "basic" RTW coordination services.

Response: The Commission agrees. The concerns expressed in the comments appear to be a response to language in the pre-proposal draft. After receipt of pre-proposal stakeholder input, the language of the proposed amendment was changed to eliminate this confusion. This was done by removing the RTW coordination services from the list of accident prevention services required at no additional charge. Notification of RTW coordination services was added as an additional requirement with no reference to charging for the service. This text was not changed on adoption. The Commission is not requiring insurance companies to provide RTW coordination services in conjunction with accident prevention services. It is requiring the insurance companies to notify their policyholders of the availability of RTW coordination services along with their notification of the availability of accident prevention services.

Comment: Two commenters indicated they were concerned that adding information regarding the availability of RTW coordination services to the list of materials that may be requested as part of the audit indicated that it was the commission's intent to include RTW coordination services as part of accident prevention services audits.

Response: It is not the intent of the commission to include RTW coordination services as an actual part of its accident prevention services inspections. The amendment adds RTW coordination services information to the list of types of information that may be requested by Division inspectors, while simultaneously conducting the accident prevention services inspection, to make more efficient use of Commission resources. The Commission recognizes that they are two different functions and requirements. The Commission notes that the commenter used the word "audit" however, pursuant to Rule 166.5, the Division "inspects" the accident prevention services of each insurance company rather than "audits" it.

Comment: Commenter indicated it was concerned that the Commission was mandating the organizational integration of accident prevention services with RTW coordination services by having them combined in these amendments. They recommended §166.4(c)(8) provide a separate contact for accident prevention services and RTW coordination services. They also recommended that ability of the commission to seek information on a carrier's RTW coordination services be deleted from §166.6(b)(3) and be included in a separate rule. The commenter's concern was that the RTW information would not be available from the accident prevention services department of the insurance company.

Response: The Commission agrees in part. In response to the first concern, §166.4(c)(8) has been revised to allow the provision of separate contact information within the organizational structure of the carrier's company. This allows the carrier to choose the most appropriate contact within the organization. The Commission disagrees with the deletion of the requirement that the carrier provide RTW coordination services information upon request because the request for this RTW information is a request to the insurance company as a whole not a particular department of the carrier.

Comment: Commenter requested that insurance companies be allowed to provide the information required on a separate page as opposed to the declarations page.

Response: Section 166.4(c)(8) provides that the information may be on the declarations page or on the front of the policy. The Commission believes these are the appropriate options, given the intent that the information be prominently displayed in the policy.

The amendments are adopted under Texas Labor Code §413.021 which requires insurance carriers to (with the agreement of a participating employer) provide employers with return-to-work coordination services as necessary to facilitate an employee's return to employment, Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act, the Texas Labor Code, §411.061, which requires an insurance company to provide accident prevention services, and Texas Labor Code §§411.063-411.068 , which require an insurance company to provide qualified accident prevention services, set certain specifications for the program, require an insurance company to annually submit information to the commission, require biennial inspections by the division, and provide for an administrative penalty for violation of the requirements.

§166.4.Required Accident Prevention Services and Notification of Return-to-Work Coordination Services.

(a) An insurance company writing workers' compensation insurance in Texas shall maintain or provide accident prevention facilities and services and shall have them inspected by the Division. An insurance company writing only excess or reinsurance is not required to maintain or provide such facilities or services.

(b) An insurance company shall provide accident prevention services to policyholders at no additional charge.

(c) An accident prevention service program as required by the Texas Labor Code, §411.061, shall provide, at a minimum:

(1) an evaluation of the policyholder's need for accident prevention services every 12 months based on the following criteria:

(A) hazard, including classification by hazard group, probability of serious or catastrophic type accidents, probability of frequent accidents, and probability of occupational illness or disease;

(B) experience, including loss ratio, experience modifiers, frequency rate, and severity rate; and

(C) size, including total number of employees, number of locations per policyholder business and number of employees per location.

(2) service in accordance with the following requirements:

(A) provide services requested by policyholders within 15 days of the date services were first requested, if appropriate services can be provided from the insurance company offices and within 30 days of the date of first request, if the services require an on-site visit. Services may be provided at a later time if circumstances require and the time is agreed upon by the policyholder.

(B) an on-site visit, or provision of other appropriate services, on a periodic basis and at least every 12 months to each policyholder with:

(i) a premium of less than $25,000 and a loss ratio greater than 100%; or

(ii) a premium of $25,000 or more;

(C) a mandatory on-site visit on a periodic basis and at least every 12 months to each policyholder with:

(i) a premium of $25,000 or more and a loss ratio greater than 100%; or

(ii) a premium between $5,000 and $24,999, inclusive, and a loss ratio greater than 250%;

(D) a visit to the insured within three working days of notification and/or knowledge of a fatality. If the fatality occurred outside of Texas or was the result of an accident on a common carrier, no visit is required; and

(E) written solicitation of comments from each policyholder, at least every 12 months, to determine the need for safety information or assistance. Such letter shall specifically explain that accident prevention services, including surveys, recommendations, training programs, consultations, analysis of accident causes, industrial hygiene and industrial health services are available at no additional charge and shall be provided upon request directly to the policyholder. This requirement is in addition to the requirements in paragraph (8) of this subsection. For policies issued on or after September 1, 2005, the letter shall also include the insurance carrier's notification to the employer of the availability of return-to-work coordination services.

(3) a sufficient number of qualified personnel performing the duties of field safety representative to provide service at the frequency required in paragraph (2) of this subsection;

(4) written procedures for:

(A) determining the appropriate accident prevention services to be provided to a policyholder;

(B) the time frame and manner in which the services identified under paragraph (2) of this subsection will be delivered to a policyholder;

(C) providing safety training to policyholders and providing promotional and course materials that are available for each safety training program; and

(D) providing written reports to the insurance company and the policyholders which identify hazardous conditions and work practices on the policyholder's premises;

(5) written records, reports, and evidence of all accident prevention services provided to each policyholder;

(6) written notification at least every 12 months to each policyholder of actual claims experience;

(7) written documentation of loss analysis at least every 12 months to each policyholder with:

(A) a premium of $25,000 or more; or

(B) a premium between $5,000 and $24,999, inclusive, and a loss ratio of greater than 250%;

(8) evidence that each workers' compensation insurance policy delivered or issued for delivery in Texas contains the following notice on the declarations page or on the front of the policy in at least 10-point bold type:

(A) for policies issued before September 1, 2005, "(Name of company) is required by law to provide its policyholders with certain accident prevention services as required by the Texas Labor Code, §411.066, at no additional charge. If you would like more information call (insurance company's loss control division or provider's telephone number). If you have any questions about this requirement, call the Division of Workers' Health and Safety, Texas Workers' Compensation Commission at 1-800-452-9595." or

(B) for policies issued on or after September 1, 2005, "(Name of company) is required by law to provide its policyholders with certain accident prevention services as required by the Texas Labor Code, §411.066, at no additional charge and return-to-work coordination services as required by Texas Labor Code §413.021. If you would like more information, call (insurance company's) loss control division at (telephone number) for accident prevention services or (phone number) for return-to-work coordination services. If you have any questions about this requirement, call the Division of Workers' Health and Safety, Texas Workers' Compensation Commission at 1-800-687-7080"; and

(9) annual reports as required by §166.3 of this title (relating to Annual Report to the Commission).

§166.6.Exchange of Information for the Inspection.

(a) Pre-Inspection Exchange of Information.

(1) At least 45 days prior to the date set for inspection, the insurance company shall provide the Division with:

(A) a list of policyholder accounts by policyholder name, policy number, effective date or expiration date of policy, written premium before any adjustments, including deductibles or discounts, and Texas locations. The list shall be taken from the insurance company's most current records, separated by affiliated companies, arranged in descending order by premium, and include all policies which had been in effect or have been written since the policyholder list was prepared for the last inspection of the insurance company's accident prevention services by the Division; and

(B) a list of the name, location, status (whether employee or contractor), and proof of qualifications as set forth in the Texas Labor Code §411.062 and §166.8 of this title (relating to Qualification of Field Safety Representatives) of each person acting as a field safety representative for the insurance company.

(2) Within 10 days of receipt of the list, the Division shall select the specific accounts to be evaluated and notify the insurance company of those accounts. The list of policyholder accounts will be kept confidential to the extent permitted by law. The Division shall return the list to the insurance company at the time of the inspection.

(3) At least 35 days prior to the date set for inspection, the insurance company shall provide the Division with the completed Accident Prevention Services Questionnaire provided by the Commission. The questionnaire shall have been completed and signed by an individual authorized by the insurance company to be responsible and whose signature has been notarized on the questionnaire form.

(4) For each account selected by the Division, the insurance company shall prepare an accident prevention services worksheet on the form prescribed by the Commission.

(5) At least five days prior to the date of the inspection, the insurance company shall file the completed worksheets with the Division.

(b) Information to be Made Available at the Inspection.

(1) The insurance company shall make available the following information, as of the date of the last inspection or start of writing workers' compensation coverage, whichever is later, at the time and site of the inspection:

(A) the loss control files corresponding to the requested worksheets;

(B) evidence that the policyholder has been provided the notice required by this chapter and any other material used to notify policyholders of the accident prevention services;

(C) a copy of all accident prevention services procedures;

(D) a copy of loss runs for each selected account that will include:

(i) number of injuries;

(ii) accident or illness types;

(iii) body parts involved;

(iv) injury causes; and

(v) fatalities;

(E) if continuing education or training are required by the Commission, a record of any training received by the field safety representatives since the previous inspection;

(F) a sample of policyholder training materials, audio-visual aids, and training programs; and

(G) other information requested by the inspector which is necessary to complete the inspection.

(2) The insurance company shall also provide the information required by subsection (a) of this section which is not already in the possession of the Division.

(3) Upon request from the Division inspector, the insurance company shall provide copies of documents requested, accompanied by a notarized Business Record Affidavit. Information which may be requested shall be limited to records of surveys, consultations, recommendations, training provided, training materials available, loss runs and loss analyses, industrial health and hygiene services, accident prevention procedures and field safety representative qualifications. In addition, upon request from the Division inspector, the insurance company shall provide return-to-work coordination services information. The Business Record Affidavit form shall be provided by the inspector and shall be completed and signed by an individual authorized by the insurance company.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 20, 2005.

TRD-200502018

Susan Cory

General Counsel

Texas Workers' Compensation Commission

Effective date: June 9, 2005

Proposal publication date: February 4, 2005

For further information, please call: (512) 804-4288