TribBlog: Insurance Department Could Ban Discretionary Clauses

The Texas Department of Insurance has drafted rules that would ban health insurance policies from including so-called “discretionary clauses.” Those are the rules that many patients hate, which allow their health insurers to decide exactly what they cover and what they don’t — and give the insurers a degree of protection from litigation.

The proposed rule — which is still in very early draft form — will obviously be fought tooth and nail by insurers. But it will also likely be opposed by small business owners, who fear that insurance companies will hike their premiums if they don’t have the protective clauses in place to dissuade lawsuits.  

The agency also offered a possible alternative, one that would allow discretionary clauses “only in relation to medical status determination and benefit trigger issues in life, accident, health and disability insurance products.” In that case, insurance providers denying coverage would have to provide an independent review process for patients.

There will be months of public comment ahead on this one.

The whole discretionary clause discussion was prompted by the state's consumer advocate for insurance, which asked the TDI commissioner to ban the practice. (According to other media reports, 22 other states have banned it already). Since the request was made, insurance providers have been urged not to include discretionary clauses in their contracts.

But the insurance providers argue getting rid of discretionary clauses will actually harm consumers. Because insurance companies will be forced to defend themselves in more lawsuits, they say, the costs will naturally get passed along in the form of higher insurance premiums.