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



(1)  Before issuing a certificate of authority
pursuant to section 432:1-301, the commissioner shall require that the mutual
benefit society has an initial net worth of $2,000,000 and the society shall
thereafter 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 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; or



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



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



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



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



(b)  Deposit requirements are as follows:



(1)  Unless otherwise provided below, each mutual
benefit society 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 mutual benefit society that is in operation on
July 3, 1997 shall make a deposit equal to $150,000.  Within one year after
July 3, 1997, a society that is in operation on July 3, 1997 shall make an
additional deposit of $150,000 for a total of $300,000;



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



(4)  All income from deposits shall be an asset of the
mutual benefit society.  A society 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 subject to approval by the commissioner
before being deposited or substituted;



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



(6)  The commissioner may reduce or eliminate the
deposit requirement if the mutual benefit society deposits with the director of
finance or the insurance commissioner, for the protection of all subscribers
and members, wherever located, cash, acceptable securities, or surety, and
delivers to the commissioner a certificate to that effect, duly authenticated
by the appropriate state official holding the deposit.



(c)  Every mutual benefit society, 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.  The liabilities
shall be computed in accordance with rules adopted by the commissioner upon
reasonable consideration of the ascertained experience and character of the
society.



(d)  Every contract between a mutual benefit
society and a participating provider of health care services shall be in
writing and shall set forth that in the event the society fails to pay for
health care services as set forth in the contract, the subscriber or member
shall not be liable to the provider for any sums owed by the society.  If a
contract with a participating provider has not been reduced to writing as
required by this subsection, or if a contract fails to contain the required
prohibition, the participating provider shall not collect or attempt to collect
from the subscriber or member sums owed by the society.  No participating
provider, or agent, trustee, or assignee thereof, may maintain any action at
law against a subscriber or member to collect sums owed by the society.



(e)  The commissioner shall require that each
mutual benefit society 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 the insolvency;



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



(g)  Each domestic mutual benefit society 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.  Each domestic mutual benefit society 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 domestic mutual benefit
society is in compliance with this section.  Any domestic mutual benefit
society 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
1997, 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 and
amending §432:1-502] shall not apply to:



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



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