You have asked our opinion eon questions regarding the interpretation of an approp+iations rider affecting the Medicaid Reserve Fund x&i& is an aspect of the State’s participation, in medical assistance programs under Title XIX of the Social~Security- Act (42 USCA $ $ 1396-1396-i).

State’s program is authorized by the Medical Assistance Act of 1967, 695j-1, V. T. C. S, , which was enact.ed pursuant to Article 3! 5 51-a Article of the Constitution.

As part of its T,itle XIX program, Texas has contracted with Texas Blue Cross-Blue: Shield (Group Hospital Services, Inc. ),(hereafter Blue Cross) for the provision of medical benefits to qualified recipients.

State pays a premium for each eli,gible individual. Federal matching constitute more than sixty per cent of the premiums. The contract designed so that Blue Cross will receive sufficient premiums to equal ,its expenses, and certain other charges consisting of (1) benefits paid,. (2) administrative expenses, (3) taxes, (4) a community support or risk charge and ( 5) maintenance of the statutor.ily required reserve. To the extent that premiums exceed expenses and charges the excess is credited to the Medicaid Reserve. If the premiums are insufficient to offset expenses, is entitled to recover its deficit. from the Reserve, and if the Reserve is insufficient Blue Cross has a right to recover from the Reserve *2 The Honorable Raymond W. Vowel1 (H- 308)

surplus accumulated in subsequent years. At the termination of the contract any balance in the Reserve will be paid to the State. is required by the contract to invest any funds in the

Re:serve which are in excess of the amount needed to discharge the obliga- tions of the program. The income, reduced by 0. 3% of the invested which constitutes an administrative charge payable to Blue Cross, returned to the Reserve. The Reserve fund exceeds $30 million, an amount considered by the federal government to be considerably more’than sound management practices dictate. the basis of your

The rider to your appropriation which forms question provides:

“( 39) None of the funds held in reserve by Texas Blue Cross-Blue Shield shall be used to pay monthly premium charges for individuals eligible for medicaid untrl all State funds appropriated, in .item number 50A for Blue Cross ,premiums have been exhausted. ” Acts 1913’; 63rd Leg., ch. 659, p. 1866.

You ask if the rider precludes the negotiation of a premium which would reasonably be expected to have the effect of reducing the si se of the reserve. We limit our answer to that question.

We believe there are numerous reasons compelling the conclusion that the rider does not preclude the negotiation of such a premium.

contract between the State and Blue Cross was in existence prior to the adoption of the rider, and since the rider involves. the contract, the con- tract obviously was within the contemplation of the Legislature.

purpose of the Reserve Fund is to permit Blue Cross to.look to it to offset its deficit. Clearly the rider was not,intended to so fundamentally alter the purpose of the Fund as to require the State to pay premiums which .are designed to insure against any necessity to invade the reserves. Such,aninterpretation would amount to a legislative g,rant of a valuable

The’Honorable Raymond W. Vowel1 (H-308) benefit to a private corporation for which ,the State received nothing in return. ‘We.,do not believe this was theintent of the Legislature or the effect of the rid,er. Furthermore, if the rider ,had that effect, the pro- vision would be subject to serious qu,estions involving.its constitutionality: S,ee Article 3, 5 0 50 and 51, Constitution of Texas.

The~refore, it is our opinion that the Department is not precluded form negotiating a premium for its Title XIX program wh,ich can be expected to result in a reduction of the Medicaid Reserve. Indeed,’ it may be required to do so. 42 USCA § 1396a (a), (4); Article 6953-I, $ 3(l) and (6), V. T. C. S. ; and Article ~695c,$ 4 (12), V. T. C. S.

SUMMARY The premium negotiated by the Department of Public. Welfare and a health,insurance organization for provision of benefits underTexas’Title XIX program may be,of a size designed to reduce the s’ize of the Medicaid,Reserve.

Very,truly yours, A,ttorney~General of Texas DAVID M. KENDALL, Chairman

Opinion Committee