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



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



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



(A)  $2,000,000;



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



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



(D)  An amount equal to the sum of:



(i)  Eight per cent 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 per cent of annual hospital
expenditures paid on a managed hospital payment basis as reported on the most
recent financial statement filed with the commissioner;



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



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



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



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



(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 shall be similarly subordinated;



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



(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.



(b)  Deposit requirements are as follows:



(1)  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
the commissioner through which a custodial or controlled account is utilized,
cash, securities, or any combination of these or other measures that are
acceptable to the commissioner which at all times shall have a value of not
less than $300,000;



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



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



(4)  All income from deposits shall be an asset of the
health maintenance 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;



(5)  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 article 15 of chapter 431; and



(6)  The commissioner may reduce or eliminate the
deposit requirement if the health maintenance organization deposits with the
director of finance of this State, or the insurance commissioner, or other
official 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 commissioner
a certificate to such effect, duly authenticated by the appropriate state
official holding the deposit.



(c)  Every health maintenance organization,
when determining liabilities, shall 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 the organization is or may be
liable, and to provide for the expense of adjustment or settlement of claims. 
Such liabilities shall be computed in accordance with rules adopted by the
commissioner upon reasonable consideration of the ascertained experience and
character of the health maintenance organization.



(d)  Every contract between a health
maintenance organization and a participating provider of health care services
shall be in writing and shall set forth that in the event 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.  In the event that a
contract with a participating provider has not been reduced to writing as
required by this subsection or that a 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.  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.



(e)  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.  In considering such a plan, the
commissioner may require:



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



(2)  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;



(3)  Insolvency reserves;



(4)  Acceptable letters of credit; or



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



(f)  An agreement to provide health care
services between a provider and a health maintenance organization shall require
that a provider shall give the organization at least sixty days' advance notice
in the event of termination.



(g)  Each health maintenance organization shall
prepare for review by the commissioner on or before the forty-fifth day of each
quarter, a copy of its quarterly net solvency report verified by at least two
principal officers.  The commissioner may prescribe the forms on which the
reports are to be prepared.  Every health maintenance organization shall
maintain a copy of its current net solvency report on the premises of its
primary place of business.  The commissioner may order an examination, subject
to article 2 of chapter 431, to determine whether a health maintenance
organization is in compliance with this section.  Any health maintenance
organization that fails or refuses to prepare or produce for review the
quarterly net solvency report as required by this subsection shall be liable
for 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]