(a) Except as otherwise provided, Subchapter A of this chapter shall apply to any health benefit plan providing health care benefits covering two or more eligible employees of a small employer, whether provided on a group or individual franchise basis, regardless of whether the policy was issued in this state, if the plan meets one of the following conditions:   (1) a portion of the premium or benefits is paid by a small employer;   (2) the health benefit plan is treated by the employer or by a covered individual as part of a plan or program for the purposes of 26 United States Code §106 or §162;   (3) the health benefit plan is a group policy issued to a small employer; or   (4) the health benefit plan is an employee welfare benefit plan under 29 CFR §2510.3-1(j). (b) Except as provided by Insurance Code Article 26.06(a), or subsection (a) of this section, this subchapter does not apply to an individual health insurance policy that is subject to individual underwriting, even if the premium is remitted through a payroll deduction method. (c) For an employer who was not in existence throughout the calendar year preceding the year in which the determination of whether the employer is a small employer is made, the determination is based on the average number of employees the employer reasonably expects to employ on business days in the calendar year in which the determination is made. (d) An insurance policy, evidence of coverage, contract, or other document that is delivered, issued for delivery, or renewed to small employers and their employees on or after July 1, 1997 shall comply with all provisions of the Insurance Code, Chapter 26, Subchapters A - G and with this subchapter. (e) An insurance policy, evidence of coverage, contract or other document establishing coverage under a health benefit plan for small employers and their employees that is delivered, issued for delivery or renewed before July 1, 1997, is governed by the law and this chapter as it existed before that date until the first renewal date of that policy, evidence of coverage, contract or other document establishing coverage on or after July 1, 1997. (f) If a health carrier continues to provide coverage to small employers and their employees under health benefit plans delivered or issued for delivery before July 1, 1997, and elects not to continue to offer, deliver, or issue for delivery health benefit plans to small employers and their employees, the health carrier will only be considered a small employer carrier for purposes of renewing such existing plans. In this case, the health carrier shall notify the small employer of certain information. The notice shall be provided at least 30 days prior to the first renewal date occurring on or after July 1, 1997. The notice shall:   (1) state that the health carrier (the current health carrier of the small employer's employee health benefit plans) has elected not to continue to offer new health benefit plans in the small employer market;   (2) offer the small employer the option of continuing the existing health benefit plan or plans, with amendments to comply with Insurance Code, Chapter 26, Subchapters A - G and this subchapter; and   (3) state that other health benefit plans may be available to the small employer through other small employer carriers and that such other plans should be compared against existing plans to determine which plan is more beneficial. (g) If a health carrier continues to provide coverage to small employers and their employees under health benefit plans delivered or issued for delivery before July 1, 1997, and elects to continue to offer, issue, and issue for delivery health benefit plans to small employers and their employees, the health carrier shall notify the small employer of certain information. The notice shall be provided at least 30 days prior to the first renewal date occurring on or after July 1, 1997. The notice shall:   (1) offer the small employer the option of continuing the existing health benefit plan or plans, with amendments to comply with Chapter 26, or purchasing new small employer benefit plans in accordance with the Insurance Code, Chapter 26, Subchapters A - G, and this subchapter; and   (2) provide notice that such other plans should be compared against existing plans to determine which plan is more beneficial. (h) The provisions of the Insurance Code, Chapter 26, Subchapters A - G, and this subchapter shall apply to a health benefit plan provided to a small employer or to the employees of a small employer without regard to whether the health benefit plan is offered under or provided through a group policy or trust arrangement of any size sponsored by an association or discretionary group. (i) If a small employer or the employees of a small employer are issued a health benefit plan under the provisions of Insurance Code, Chapter 26, Subchapters A - G, and this subchapter, and the small employer subsequently employs more than 50 eligible employees or less than two eligible employees, the provisions of Insurance Code, Chapter 26, and this subchapter shall continue to apply to that particular health plan subject to the provisions of §26.15 of this chapter (relating to Renewability of Coverage and Cancellation). A health carrier providing coverage to such an employer shall, within 60 days of becoming aware that the employer has more than 50 eligible employees or less than two eligible employees, but not later than the first renewal date occurring after the small employer has ceased to be a small employer qualifying for coverage under Insurance Code Article 26.06(a) and this subchapter, notify the employer that the protections provided under Insurance Code, Chapter 26, Subchapters A - G, and this subchapter shall cease to apply to the employer, if such employer fails to renew its current health benefit plan; fails to comply with the contribution, minimum group size (as set forth in subsection (a) of this section), or participation requirements of this subchapter; or elects to enroll in a different health benefit plan. The notice requirement of this subsection does not apply to a health carrier electing, pursuant to this subchapter, to issue coverage to a group consisting of one eligible employee. (j) If a small employer has employees in more than one state, the provisions of the Insurance Code, Chapter 26, Subchapters A - G, and this subchapter shall apply to a health benefit plan issued to the small employer if:   (1) the majority of eligible employees of such small employer are employed in this state on the issue date or renewal date; or   (2) the primary business location of the small employer is in this state on the issue date or renewal date and no state contains a majority of the eligible employees of the small employer. (k) A governmental entity's health benefit plan (subject to Insurance Code Articles 3.51-1, 3.51-2, 3.51-4, 3.51-5, 3.51-5A, or Chapter 1578) that is provided through health insurance coverage and that otherwise meets the requirements of being a small employer is subject to the provisions of Insurance Code, Chapter 26, Subchapters A - G and this subchapter. The portion of a non-federal governmental entity's health benefit plan that is self-insured may elect not to comply with §2721 of the Public Health Services Act as added by the Health Insurance Portability and Accountability Act of 1996.

Source Note: The provisions of this §26.5 adopted to be effective December 30, 1993, 18 TexReg 9375; amended to be effective April 9, 1996, 21 TexReg 2648; amended to be effective March 5, 1998, 23 TexReg 2297; amended to be effective April 6, 2005, 30 TexReg 1931