83-41-325 - Minimum net worth requirement; deposits generally; computation of liabilities; contracts between health maintenance organizations and participating providers of services; insolvency plans.

§ 83-41-325. Minimum net worth requirement; deposits generally; computation of liabilities; contracts between health maintenance organizations and participating providers of services; insolvency plans.
 

(1)  Before issuing any certificate of authority, the commissioner shall require that the health maintenance organization have an initial net worth of One Million Five Hundred Thousand Dollars ($1,500,000.00) and shall thereafter maintain the minimum net worth required under subsection (2). 

(2)  Except as provided in subsections (3) and (4) of this section, every health maintenance organization must maintain a minimum net worth equal to the greater of: 

(a) One Million Dollars ($1,000,000.00); or 

(b) Two percent (2%) of annual premium revenues as reported on the most recent annual financial statement filed with the commissioner on the first One Hundred Fifty Million Dollars ($150,000,000) of premium and one percent (1%) of annual premium on the premium in excess of One Hundred Fifty Million Dollars ($150,000,000.00); or 

(c) An amount equal to the sum of three (3) months uncovered health care expenditures as reported on the most recent financial statement filed with the commissioner; or 

(d) For a health maintenance organization in which seventy-five percent (75%) or more of the providers are paid on a capitated basis, an amount equal to the sum of: 

(i) Eight percent (8%) of annual health care expenditures except those paid on a capitated basis or managed hospital payment basis as reported on the most recent financial statement filed with the commissioner; and 

(ii) Four percent (4%) of annual hospital expenditures paid on a managed hospital payment basis as reported on the most recent financial statement filed with the commissioner. 

(3)  A health maintenance organization licensed before July 1, 1995 must maintain a minimum net worth of: 

(a) Twenty-five percent (25%) of the amount required by subsection (2) by December 31, 1995; 

(b) Fifty percent (50%) of the amount required by subsection (2) by December 31, 1996; 

(c) Seventy-five percent (75%) of the amount required by subsection (2) by December 31, 1997; 

(d) One hundred percent (100%) of the amount required by subsection (2) by December 31, 1998. 

(4) (a)  In determining net worth, no debt shall be considered fully subordinated unless the subordination clause is in a form acceptable to the commissioner. Any interest obligation relating to the repayment of any subordinated debt must be similarly subordinated. 

(b) The interest expenses relating to the repayment of any fully subordinated debt shall be considered covered expenses. 

(c) Any debt incurred by a note meeting the requirements of this section, and otherwise acceptable to the commissioner, shall not be considered a liability and shall be recorded as equity. 

(5)  Unless otherwise provided below, each health maintenance organization shall deposit with the commissioner or, at the discretion of the commissioner, with any organization or trustee acceptable to him through which a custodial or controlled account is utilized, cash, securities, or any combination of these or other measures that are acceptable to him which at all times shall have a value of not less than Five Hundred Thousand Dollars ($500,000.00). 

(6)  A health maintenance organization that is in operation on July 1, 1995 shall make a deposit equal to Two Hundred Fifty Thousand Dollars ($250,000.00). 
 

In the second year, the amount of the additional deposit for a health maintenance organization that is in operation on July 1, 1995 shall be equal to Two Hundred Fifty Thousand Dollars ($250,000.00), for a total of Five Hundred Thousand Dollars ($500,000.00). 

(7)  The deposit shall be an admitted asset of the health maintenance organization in the determination of net worth. 

(8)  All income from deposits shall be an asset of the organization. A health maintenance organization that has made a securities deposit may withdraw that deposit or any part thereof after making a substitute deposit of cash, securities, or any combination of these or other measures of equal amount and value. Any securities shall be approved by the commissioner before being deposited or substituted. 

(9)  The deposit shall be used to protect the interests of the health maintenance organization's enrollees and to assure continuation of health care services to enrollees of a health maintenance organization which is in rehabilitation or conservation. The commissioner may use the deposit for administrative costs directly attributable to a receivership or liquidation. If the health maintenance organization is placed in receivership or liquidation, the deposit shall be an asset subject to the provisions of the liquidation act. 

(10)  The commissioner may reduce or eliminate the deposit requirement if the health maintenance organization deposits with the state treasurer, commissioner, or other official body of the state or jurisdiction of domicile for the protection of all subscribers and enrollees, wherever located, of such health maintenance organization, cash, acceptable securities or surety, and delivers to the commissioner a certificate to such effect, duly authenticated by the appropriate state official holding the deposit. 

(11)  If the commissioner becomes aware of a need for additional deposits he may order a health maintenance organization to place with the State Treasurer additional deposits to meet the need to protect the securities. 

(12)  Every health maintenance organization shall, when determining liabilities, include an amount estimated in the aggregate to provide for any unearned premium and for the payment of all claims for health care expenditures which have been incurred, whether reported or unreported, which are unpaid and for which such organization is or may be liable, and to provide for the expense of adjustment or settlement of such claims, and guaranteed renewal reserves if applicable. 
 

The liabilities shall be computed in accordance with regulations promulgated by the commissioner upon reasonable consideration of the ascertained experience and character of the health maintenance organization. 

(13)  Every contract between a health maintenance organization and a participating provider of health care services shall be in writing and shall set forth that if the health maintenance organization fails to pay for health care services as set forth in the contract, the subscriber or enrollee shall not be liable to the provider for any sums owed by the health maintenance organization. 

(14)  If the participating provider contract has not been reduced to writing as required or that the contract fails to contain the required prohibition, the participating provider shall not collect or attempt to collect from the subscriber or enrollee sums owed by the health maintenance organization. 

(15)  No participating provider, or agent, trustee or assignee thereof, may maintain any action at law against a subscriber or enrollee to collect sums owed by the health maintenance organization. 

(16)  The commissioner shall require that each health maintenance organization have a plan for handling insolvency which allows for continuation of benefits for the duration of the contract period for which premiums have been paid and continuation of benefits to members who are confined on the date of insolvency in an inpatient facility until their discharge or expiration of benefits. The commissioner in his discretion may require: 

(a) Insurance to cover the expenses to be paid for continued benefits after an insolvency; 

(b) Provisions in provider contracts that obligate the provider to provide services for the duration of the period after the health maintenance organization's insolvency for which premium payment has been made and until the enrollees' discharge from inpatient facilities; 

(c) Insolvency reserves; 

(d) Acceptable letters of credit; 

(e) Any other arrangements to assure that benefits are continued as specified above. 

(17)  An agreement to provide health care services between a provider and a health maintenance organization must require that if the provider terminates the agreement, the provider shall give the health maintenance organization at least sixty (60) days' advance notice of termination. 
 

Sources: Laws,  1995, ch. 613, § 13, eff from and after July 1, 1995.