§432D-8  Protection against insolvency.  (a) Net worth requirements are as follows:

(1)  Before issuing any certificate of authority, thecommissioner shall require that the health maintenance organization has aninitial net worth of $2,000,000 and shall thereafter maintain the minimum networth required under paragraph (2);

(2)  Except as provided in paragraphs (3) and (4),every health maintenance organization shall maintain a minimum net worth equalto the greater of:

(A)  $2,000,000;

(B)  Two per cent of annual premium revenues asreported on the most recent annual financial statement filed with thecommissioner on the first $150,000,000 of premium revenues and one per cent ofannual premium revenues on the premium revenues in excess of $150,000,000;

(C)  An amount equal to the sum of three monthsuncovered health care expenditures as reported on the most recent financialstatement filed with the commissioner; or

(D)  An amount equal to the sum of:

(i)  Eight per cent of annual health careexpenditures except those paid on a capitated basis or managed hospital paymentbasis as reported on the most recent financial statement filed with thecommissioner; and

(ii)  Four per cent of annual hospitalexpenditures paid on a managed hospital payment basis as reported on the mostrecent financial statement filed with the commissioner;

(3)  The minimum net worth requirement set forth inparagraph (2)(A) shall be phased in as follows:

(A)  Seventy-five per cent of the requiredamount by January 1, 2001; and

(B)  One hundred per cent of the requiredamount by December 31, 2002; and

(4)  The following shall apply in determiningcompliance with the requirements of this subsection:

(A)  In determining net worth, no debt shall beconsidered fully subordinated unless the subordination clause is in a formacceptable to the commissioner.  Any interest obligation relating to therepayment of any subordinated debt shall be similarly subordinated;

(B)  The interest expenses relating to therepayment of any fully subordinated debt shall be considered covered expenses;and

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

(b)  Deposit requirements are as follows:

(1)  Unless otherwise provided below, each healthmaintenance organization shall deposit with the commissioner or, at thediscretion of the commissioner, with any organization or trustee acceptable tothe commissioner through which a custodial or controlled account is utilized,cash, securities, or any combination of these or other measures that areacceptable to the commissioner which at all times shall have a value of notless than $300,000;

(2)  A health maintenance organization that is inoperation on January 1, 1996, shall make a deposit equal to $150,000.  Withinone year after January 1, 1996, a health maintenance organization that is inoperation on January 1, 1996, shall make an additional deposit of $150,000 for atotal of $300,000;

(3)  Deposits shall be an admitted asset of the healthmaintenance organization in the determination of net worth;

(4)  All income from deposits shall be an asset of thehealth maintenance organization.  A health maintenance organization that hasmade a securities deposit may withdraw that deposit or any part thereof aftermaking a substitute deposit of cash, securities, or any combination of these orother measures of equal amount and value.  Any securities shall be approved bythe commissioner before being deposited or substituted;

(5)  The deposit shall be used to protect theinterests of the health maintenance organization's enrollees and to assurecontinuation of health care services to enrollees of a health maintenanceorganization which is in rehabilitation or conservation.  The commissioner mayuse the deposit for administrative costs directly attributable to areceivership or liquidation.  If the health maintenance organization is placedin receivership or liquidation, the deposit shall be an asset subject to theprovisions of article 15 of chapter 431; and

(6)  The commissioner may reduce or eliminate thedeposit requirement if the health maintenance organization deposits with thedirector of finance of this State, or the insurance commissioner, or otherofficial body of the state or jurisdiction of domicile of such health maintenance organization, for the protection of all subscribers and enrollees,wherever located, cash, acceptable securities, or surety, and delivers to the commissionera certificate to such effect, duly authenticated by the appropriate stateofficial holding the deposit.

(c)  Every health maintenance organization,when determining liabilities, shall include an amount estimated in theaggregate to provide for any unearned premium and for the payment of all claimsfor health care expenditures which have been incurred, whether reported orunreported, which are unpaid and for which the organization is or may beliable, and to provide for the expense of adjustment or settlement of claims. Such liabilities shall be computed in accordance with rules adopted by thecommissioner upon reasonable consideration of the ascertained experience andcharacter of the health maintenance organization.

(d)  Every contract between a healthmaintenance organization and a participating provider of health care servicesshall be in writing and shall set forth that in the event the healthmaintenance organization fails to pay for health care services as set forth inthe contract, the subscriber or enrollee shall not be liable to the providerfor any sums owed by the health maintenance organization.  In the event that acontract with a participating provider has not been reduced to writing asrequired by this subsection or that a contract fails to contain the requiredprohibition, the participating provider shall not collect or attempt to collectfrom the subscriber or enrollee sums owed by the health maintenanceorganization.  No participating provider, or agent, trustee, or assignee thereof,may maintain any action at law against a subscriber or enrollee to collect sumsowed by the health maintenance organization.

(e)  The commissioner shall require that eachhealth maintenance organization have a plan for handling insolvency which allowsfor continuation of benefits for the duration of the contract period for whichpremiums have been paid and continuation of benefits to members who areconfined on the date of insolvency in an inpatient facility until theirdischarge or expiration of benefits.  In considering such a plan, thecommissioner may require:

(1)  Insurance to cover the expenses to be paid forcontinued benefits after an insolvency;

(2)  Provisions in provider contracts that obligatethe provider to provide services for the duration of the period after thehealth maintenance organization's insolvency for which premium payment has beenmade and until the enrollees' discharge from inpatient facilities;

(3)  Insolvency reserves;

(4)  Acceptable letters of credit; or

(5)  Any other arrangements acceptable to thecommissioner to assure that benefits are continued as specified above.

(f)  An agreement to provide health careservices between a provider and a health maintenance organization shall requirethat a provider shall give the organization at least sixty days' advance noticein the event of termination.

(g)  Each health maintenance organization shallprepare for review by the commissioner on or before the forty-fifth day of eachquarter, a copy of its quarterly net solvency report verified by at least twoprincipal officers.  The commissioner may prescribe the forms on which thereports are to be prepared.  Every health maintenance organization shallmaintain a copy of its current net solvency report on the premises of itsprimary place of business.  The commissioner may order an examination, subjectto article 2 of chapter 431, to determine whether a health maintenanceorganization is in compliance with this section.  Any health maintenanceorganization that fails or refuses to prepare or produce for review thequarterly net solvency report as required by this subsection shall be liablefor a penalty in an amount not less than $100 and not more than $500 per day.[L 1995, c 179, pt of §1; am L 2001, c 185, §2]