Anyone who has ever been involved with any sort of benefits administration in the State of Texas has at some point either directly or indirectly been nuanced to the rules of Texas Senate Bill 51 that passed in 2005 and was effective January 1, 2006.
It stated that if you had a FULLY INSURED* plan issued in the State of Texas (think BCBS, UHC, Aetna or any of the regional hospital systems that sell insurance) that an employee could ONLY be terminated from a health plan either in the last day of the month in which the employee (or dependent) was last eligible for the coverage OR the last day of the month in which the insurance provider was terminated.
This was difficult for many employers in certain situations where they had terminations late in the month, and there was a weekend or holiday or data was being sent electronically, and the data feeds only went weekly or bi-weekly. In these instances ,the insurance provider would not receive the termination request in time and most would only provide a 2 – 3 business day window at the beginning of each month. This caused employers to have to pay for an entire extra month’s worth of premiums to the insurance provider for the month AFTER an employee or dependent was already gone.
Another issue we would see is for businesses who send a request in late OR don’t send in a request at all, they obviously were not checking their invoices each month which is another issue entirely BUT in instances like this, an employer could end up paying for premium for former employees for a LONG time.
This was all great for the fully insured insurance providers, but bad for employers, equating to, by my best guess, millions and millions of extra premium dollars for insurance providers over the years. Revenue that should have stayed in the business community.
*SB 51 and the new updates we will be discussing below are ONLY for fully insured plans. Self-Funded plans and Level Funded plans are regulated at the federal level, so these rules previously passed and/or the new updates do not apply to Self-Funded and Level Funded plans.
So, good news, and that is extremely rare in the benefits and insurance space, but Texas has finally made some updates to this archaic rule and done something that is good for Texas-based employers.
Effective May 30, 2025, Texas House Bill 2583 (HB 2583/SB 1332) introduces a targeted reform to the state’s group health insurance regulations—one that could save employers money while preserving essential protections for former employees.
What Is HB 2583?
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HB 2583, authored by Rep. Lacey Hull and Rep. Trey Wharton (companion legislation from the Senate – Senate 1332, Author, Senator Kelly Hancock and co-Author, Senator César Blanco) addresses a long-standing issue in Texas insurance law: the obligation of employers to continue paying health insurance premiums for former employees even after their eligibility for coverage has ended
As mentioned in the beginning of this article, under the previous SB 51 legislation, if an employer failed to notify the insurer in time that an employee was no longer eligible for coverage—due to resignation, termination, or other reasons—they could and most of the time would still be on the hook for premiums. This created a costly loophole, especially for small businesses, where administrative delays could lead to unnecessary expenses.
What Does the New Law Change?
HB 2583 allows insurers to waive employer premium payments for former employees if the employer missed the state-mandated notification deadline, as long as no claims were made during that period. This is a key point, the terminated employee cannot be out using the plan and have the employer still get the termination back-dated.
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If a former employee did not use any health services before the insurer was notified, the employer won’t have to pay the premium.
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If the former employee did use services, the employer is still responsible for the premium, ensuring that legitimate claims are covered and no one is left uninsured unexpectedly.
Why It Matters
This bill is a commonsense fix that balances cost savings with consumer protection:
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Reduces Waste: Employers no longer pay for unused coverage. (Finally!!!)
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Closes a Loophole: Prevents penalties from paperwork delays.
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Frees Up Resources: Businesses can redirect funds toward wages, benefits, or growth.
The bill has received broad support from health insurers, business groups, and consumer advocates alike.
Looking Ahead
HB 2583 is a reminder that even small legislative changes can have a big impact. By modernizing outdated rules, Texas is finally taking a step to help businesses operate more efficiently while still safeguarding the health coverage of its residents.
We here at HBC are always excited to see any sort of updates that help employers. With the cost of insurance continuing to go up year after year and nothing being done legislatively to curb any of the mandates that are driving these increases, this is a small step in the right direction.
If you are not the person in your company who handles employees adds and terms OR sends the requests for these changes, we kindly ask that you share this information with them so they are aware. Insurance companies are going to check their claims system to see if a former plan holder is using the plan or not, but as long as they are not, we should start seeing more flexibility when it comes to the administration, specifically retro-term requests made to the insurance providers.
Unlike most laws, this does not go into effect later this year or January 1 of next year, this passed and the Governor signed off immediately so this legislation went into effect immediately, impacting terminations as early as May 31st, 2025.
Thanks for the read!!!!
Ryan and the rest of the team from HBC
