Texas Attorney General Opinion: GA-0327 Page: 3 of 15
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The Honorable Mike Stafford - Page 3
I. Insurance Principles
A. Self-Funded Insurance
You inform us that the Plan is self funded. See Request Letter, supra note 1, at 1.
In order to properly address your questions, a general discussion of insurance and self-funded
insurance is warranted. The word insurance has "comprehensive and varied" meanings, see
Southwest Nat'I Bankv. Employers'Indem. Corp., 12 S.W.2d 189, 191 (Tex. Comm'n App. 1929,
judgm't adopted), but at a very basic level "[i]nsurance is a contract by which one party for
consideration assumes particular risks on behalf of another party and promises to pay him a certain
or ascertainable sum of money on the occurrence of a specified contingency." See Stewart Title
Guar. Co. v. Cheatham, 764 S.W.2d 315, 318-19 (Tex. App.-Texarkana 1988, writ denied). The
shifting or distribution of risk is a requisite of a true insurance contract. See Group Life & Health
Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211 (1979); Steere TankLines, Inc. v. United States, 577
F.2d 279, 280 (5th Cir. 1978).
An entity that self insures does not shift any risk, but instead retains the risk of loss. See
Hertz Corp. v. Robineau, 6 S.W.3d 332, 335-36 (Tex. App.-Austin 1999, no pet.). Because it does
not shift risk, self-funded insurance does not constitute insurance. See Helvering v. Le Gierse, 312
U.S. 531, 539 (1941) (stating elements of risk-shifting and risk-distribution are essential elements
of insurance); Steere Tank Lines, Inc., 577 F.2d at 280. An entity that self insures in order to protect
itself against loss will usually set aside funds to provide a pool of funds from which claims will be
paid. See generally Health Ins. Ass 'n ofAm., Inc. v. Shalala, 23 F.3d 412, 414-15 (D.C. Cir. 1994).
Where a self-funding entity contracts with a third party as an administrator but retains the risk, such
an entity is still considered self funded. See Longoria v. Cearley, 796 F. Supp. 997, 1002-03 (W.D.
Tex. 1992). The question, considering substance over form, "whether a plan is self-funded or
insured is very fact specific." Id. at 1003. Because fact determinations are not appropriate for the
opinion process, see Tex. Att'y Gen. Op. Nos. GA-0139 (2004) at 3, 5, GA-0003 (2002) at 1,
JC-0328 (2000) at 4, we rely on your characterization of the Plan as self funded.
We must consider the applicability of ERISA, the federal Employee Retirement
Income Security Act of 1974 which regulates employee pension and benefit plans, because a self-
funded benefit plan is involved. See Employee Retirement Income Security Act (ERISA) of 1974,
29 U.S.C. 1001-1461 (2000). ERISA generally preempts state laws relating to employee benefit
plans, see 29 U.S.C. 1144, including self-funded health insurance plans. See FMC Corp. v.
Holliday, 498 U.S. 52, 61 (1990) (holding that ERISA preempts state antisubrogation laws relating
to self-funded health plans). However, ERISA expressly excludes an employee benefit plan from
its preemption scheme if a plan is a government plan. See 29 U.S.C. 1003(b)(1) (2000). A
government plan means a "plan established or maintained for its employees by the Government of
the United States, by the government of any State or political subdivision thereof." Id. 1002(32).
Thus, the Plan is expressly excluded from ERISA because it is a government plan.
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Texas. Attorney-General's Office. Texas Attorney General Opinion: GA-0327, text, 2005; (texashistory.unt.edu/ark:/67531/metapth275223/m1/3/: accessed December 11, 2018), University of North Texas Libraries, The Portal to Texas History, texashistory.unt.edu; crediting UNT Libraries Government Documents Department.