Texas Senate Bill 1332: A Shift in Employer Premium Liability for Late Terminations

Introduction: A New Legislative Chapter in Texas Insurance Regulation

In a significant move for employers, insurance carriers, and benefits administrators alike, the State of Texas has enacted Senate Bill 1332 (“SB 1332”), introducing a notable amendment to its long-standing approach to premium liability in the context of late eligibility terminations under insured group health plans.

As of May 21, 2025, SB 1332 is in effect. This newly enacted law provides insurers with discretionary power to waive premium liabilities under specific conditions when employers submit untimely termination notices for former employees. However, this leniency only applies if no health services were utilized by the employee post-eligibility termination.

This legislative update seeks to alleviate the administrative strain brought by its predecessor—Senate Bill 51 (SB 51)—while preserving fiscal responsibility and ensuring that coverage continues to meet defined eligibility standards.

Understanding the Foundation: Texas Senate Bill 51 and Its Implications

The Original Legislative Framework: What Did SB 51 Require?

Enacted in 2006, SB 51 imposed a clear-cut rule on plan sponsors, primarily employers administering insured group health plans. Under this law, employers were required to pay insurance premiums through the end of the month in which they notified their insurer of a participant’s ineligibility—regardless of the actual date that ineligibility occurred.

Moreover, the law included a narrow exception: if an employee became ineligible during the final seven days of any given month, employers were granted a grace period extending to the third business day of the following month to report the change. Notably, this deadline excluded Saturdays, Sundays, and official state holidays.

Scope and Applicability of SB 51

SB 51 applied exclusively to fully insured plans—not to self-funded or ERISA-exempt plans. Specifically, the law governed policies for:

  • Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO) medical benefits.

  • PPO vision benefits (excluding dental coverage).

  • HMO vision and dental under single-service arrangements.

Thus, employers with self-insured or out-of-state plans were unaffected. However, for Texas-based insured employers, SB 51 posed significant risks—especially as administrative systems grew more reliant on automated data processes.

Administrative Challenges Under SB 51: The EDI Dilemma

The Role of Electronic Data Interchange (EDI)

As benefits administration evolved, more employers adopted Electronic Data Interchange (EDI) feeds—automated systems that transmit plan participant data between employers and insurers. These feeds typically run on a weekly or bi-weekly schedule, creating a timing gap that made compliance with SB 51’s narrow termination window increasingly difficult.

Real-World Scenarios: When Automation Becomes a Liability

Consider the following case: An employee terminates employment on May 29, and the employer’s EDI system only transmits updates every Friday. If May 29 falls on a Thursday, the next EDI transmission might not occur until June 6. By that point, the reporting deadline—June 4, excluding weekends and holidays—would have passed, triggering an entire month of additional premium liability for a terminated employee who may never have accessed any covered services during that time.

Such circumstances often result in employers being financially penalized for unintentional administrative lag. And when a former employee does not elect COBRA or state continuation, and no healthcare services are utilized, the frustration mounts over what is perceived as a purely bureaucratic cost.

SB 1332: A Legislative Course Correction

Key Provisions of SB 1332

Recognizing the friction between technological realities and legal obligations, SB 1332 introduces much-needed flexibility. The bill, which garnered bipartisan support and was signed by Governor Greg Abbott on May 30, 2025, authorizes insurance carriers to exercise discretion in waiving premium obligations under certain circumstances:

  • The employer submits a late notice of an employee’s loss of eligibility.

  • No covered healthcare, vision, or dental services were accessed by the former employee after the eligibility end date.

This discretion is not mandatory, meaning insurers are not compelled to waive the premiums but may choose to do so under the right conditions.

Legal Mechanism and Effective Date

Due to the bill’s supermajority passage in the Texas legislature, it became law even in the absence of the Governor's signature, as per Texas legislative protocol. As a result, SB 1332 took effect on May 21, 2025, in time to apply to group health plan terminations occurring in late May 2025, with administrative action processed as early as June 2025.

Implications for Employers: What Actions Should Be Taken?

Proactive Coordination with Insurance Carriers

Even with the passage of SB 1332, employers must remain proactive. Since waiver of premium liability is entirely discretionary, employers should:

  • Engage with insurance providers to understand how each carrier will interpret and apply SB 1332.

  • Document internal policies to ensure prompt notification of employee eligibility changes.

  • Request written guidance or contractual amendments where possible to clarify when waivers will be granted.

Reviewing and Updating EDI Schedules

Given the ongoing reliance on EDI for data transmission, employers are advised to:

  • Review transmission schedules with their third-party EDI vendors.

  • Explore more frequent feeds or manual overrides for end-of-month terminations.

  • Implement pre-termination checks during the final week of each month to catch last-minute eligibility changes.

These small operational shifts can prevent costly premium obligations from slipping through the cracks due to timing issues.

Understanding Carrier Discretion: What Does It Mean in Practice?

The Nature of “Discretion” in Insurance Law

Under SB 1332, the term “discretion” is paramount. It empowers carriers but does not obligate them. This means that:

  • Carriers can choose to strictly enforce SB 51 rules despite SB 1332.

  • Decisions may vary case-by-case, based on claims history, contract terms, or administrative precedent.

  • Employers cannot rely on an automatic waiver even if the employee did not use services post-termination.

Anticipating Carrier Behavior

Some carriers may adopt uniform internal policies for consistency, while others may evaluate requests individually. Factors influencing their decision may include:

  • The employer’s past record of timely reporting.

  • The potential cost to the carrier if the waiver is granted.

  • Whether the employee in question was actively utilizing services before or after termination.

Additional Legal Considerations and Potential Risks

Claims Utilization Audits

Insurers may perform retrospective reviews of claims submitted by the former employee to verify non-utilization. If any covered service—even a routine prescription refill or telehealth consultation—was processed after eligibility ended, the waiver cannot be granted.

COBRA and State Continuation Coverage

If the employee elects COBRA or Texas state continuation, coverage continues by law, and premium obligations follow accordingly. However, if no continuation election is made and no services are used, SB 1332 offers a financial reprieve for employers.

The Broader Impact: Aligning Policy with Practicality

Bridging Legal Compliance and Technological Infrastructure

SB 1332 signals a maturation of health benefits legislation in Texas. It acknowledges that automated systems, while efficient, are not infallible. The law’s discretionary waiver provides a safety net for employers who are operating in good faith but face systemic delays beyond their immediate control.

Economic Relief for Small and Mid-Sized Employers

While large corporations may have dedicated HRIS systems and full-time benefits coordinators, small and medium-sized businesses (SMBs) often face disproportionate impacts from a single late termination. For them, a one-month premium—especially for high-cost family coverage—can be a non-trivial financial burden. SB 1332 offers much-needed budgetary flexibility.

Recommendations for Employers Moving Forward

1. Educate Internal Teams

Ensure that HR professionals, benefits administrators, and payroll departments understand:

  • The deadlines under SB 51.

  • The waiver provisions of SB 1332.

  • How to document employee eligibility changes and service usage (or lack thereof).

2. Request Carrier Policy Documents

Ask your insurance carriers for formal policies on how they intend to interpret and apply SB 1332. These should ideally be integrated into your benefits administration protocols.

3. Establish Internal Checks and Balances

Implement monthly internal audits or alerts during the last week of each month to review potential terminations. Design workflows that support manual overrides when automation cannot keep pace.

4. Monitor Claim Histories Proactively

Before requesting a premium waiver, verify internally that no post-termination claims exist for the employee. This will strengthen your position when petitioning the carrier.

5. Advocate for Industry Best Practices

Participate in industry forums, chambers of commerce, or HR networks to collectively advocate for uniform application of SB 1332 across all insurers.

Conclusion: SB 1332 as a Progressive Yet Cautious Reform

Texas Senate Bill 1332 represents a measured evolution in healthcare coverage regulation—offering employers an avenue for relief from burdensome premiums, but without removing accountability or diminishing insurers’ oversight.

While the discretionary nature of the waiver keeps control in the hands of carriers, it provides a path forward for employers struggling with the rigid constraints of SB 51. By combining policy awareness, administrative vigilance, and collaboration with carriers, employers can better navigate this nuanced regulatory environment.

In a rapidly evolving digital landscape where compliance intersects with automation, SB 1332 stands as a legislative recognition of the need for flexibility, fairness, and administrative pragmatism.

Mark C