§432:1-407  Protection against insolvency. (a)  Net worth requirements are as follows:

(1)  Before issuing a certificate of authoritypursuant to section 432:1-301, the commissioner shall require that the mutualbenefit society has an initial net worth of $2,000,000 and the society shallthereafter maintain the minimum net worth required under paragraph (2);

(2)  Except as provided in paragraphs (3) and (4),every mutual benefit society shall maintain a minimum net worth equal to thegreater 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; or

(C)  An amount equal to eight per cent of thesum of annual health care expenditures and operating expenses as reported onthe most recent 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 minimum net worth requirement set forth in[paragraph] (2)(C) shall be phased in as follows:

(A)  Fifty per cent of the required amount byDecember 31, 1997;

(B)  Seventy-five per cent of the requiredamount by December 31, 1998; and

(C)  One hundred per cent of the requiredamount by December 31, 1999.

(b)  Deposit requirements are as follows:

(1)  Unless otherwise provided below, each mutualbenefit society shall deposit with the commissioner or, at the discretion ofthe commissioner, with any organization or trustee acceptable to thecommissioner through which a custodial or controlled account is utilized, cash,securities, or any combination of these or other measures that are acceptableto the commissioner which at all times shall have a value of not less than$300,000;

(2)  A mutual benefit society that is in operation onJuly 3, 1997 shall make a deposit equal to $150,000.  Within one year afterJuly 3, 1997, a society that is in operation on July 3, 1997 shall make anadditional deposit of $150,000 for a total of $300,000;

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

(4)  All income from deposits shall be an asset of themutual benefit society.  A society that has made a securities deposit maywithdraw that deposit or any part thereof after making a substitute deposit ofcash, securities, or any combination of these or other measures of equal amountand value.  Any securities shall be subject to approval by the commissionerbefore being deposited or substituted;

(5)  The deposit shall be used to protect theinterests of the mutual benefit society's members and to assure continuation ofhealth care services to members of a society which is in rehabilitation,liquidation, or conservation.  The commissioner may use the deposit foradministrative costs directly attributable to a receivership or liquidation. If a society is placed in receivership or liquidation, the deposit shall be anasset subject to article 15 of chapter 431; and

(6)  The commissioner may reduce or eliminate thedeposit requirement if the mutual benefit society deposits with the director offinance or the insurance commissioner, for the protection of all subscribersand members, wherever located, cash, acceptable securities, or surety, anddelivers to the commissioner a certificate to that effect, duly authenticatedby the appropriate state official holding the deposit.

(c)  Every mutual benefit society, whendetermining liabilities, shall include an amount estimated in the aggregate toprovide for any unearned premium, and for the payment of all claims for healthcare expenditures which have been incurred, whether reported or unreported,which are unpaid and for which the organization is or may be liable, and toprovide for the expense of adjustment or settlement of claims.  The liabilitiesshall be computed in accordance with rules adopted by the commissioner uponreasonable consideration of the ascertained experience and character of thesociety.

(d)  Every contract between a mutual benefitsociety and a participating provider of health care services shall be inwriting and shall set forth that in the event the society fails to pay forhealth care services as set forth in the contract, the subscriber or membershall not be liable to the provider for any sums owed by the society.  If acontract with a participating provider has not been reduced to writing asrequired by this subsection, or if a contract fails to contain the requiredprohibition, the participating provider shall not collect or attempt to collectfrom the subscriber or member sums owed by the society.  No participatingprovider, or agent, trustee, or assignee thereof, may maintain any action atlaw against a subscriber or member to collect sums owed by the society.

(e)  The commissioner shall require that eachmutual benefit society have a plan for handling insolvency which allows forcontinuation 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 the insolvency;

(2)  Provisions in provider contracts that obligatethe provider to provide services for the duration of the period after thesociety's insolvency for which premium payment has been made and until themembers' 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 mutual benefit society shall require that aprovider shall give the organization at least sixty days' advance notice in theevent of termination.

(g)  Each domestic mutual benefit society 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.  Each domestic mutual benefit society 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 domestic mutual benefitsociety is in compliance with this section.  Any domestic mutual benefitsociety that fails or refuses to prepare or produce for review the quarterlynet solvency report as required by this subsection shall be liable for apenalty in an amount not less than $100 and not more than $500 per day. [L1997, c 367, pt of §1; am L 2001, c 185, §1]

 

Note

 

  L 1997, c 367, §3 provides:

  "SECTION 3.  This Act [enacting §§432:1-406 to 409 andamending §432:1-502] shall not apply to:

  (1) Societiesthat do not operate as a hospital, medical or indemnity society, or corporation;and

  (2) Laborunion mutual benefit societies under section 432:1-103(b)."