§ 26-34-114 — Protection against insolvency

(a) 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 (b) of
this section.
(b) Except as provided in subsection (c) of this section,
every health maintenance organization must maintain a minimum
net worth equal to the greater of:
(i) Two percent (2%) of annual premium revenues as
reported on the most recent annual financial statement filed
with the commissioner on the first seventy-five million dollars
($75,000,000.00) of premium and one percent (1%) of annual
premium revenues on the premium in excess of seventy-five
million dollars ($75,000,000.00);
(ii) Three (3) times the average monthly uncovered
health care expenditures as reported on the most recent
financial statement filed with the commissioner;
(iii) One million dollars ($1,000,000.00); or
(iv) An amount equal to the sum of:
(A) 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
(B) 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.
(c) A health maintenance organization licensed before July
1, 1995 shall maintain a minimum net worth of:
(i) Twenty-five percent (25%) of the amount required
by subsection (b) of this section by December 31, 1995;
(ii) Fifty percent (50%) of the amount required by
subsection (b) of this section by December 31, 1996;
(iii) Seventy-five percent (75%) of the amount
required by subsection (b) of this section by December 31, 1997;
(iv) One hundred percent (100%) of the amount
required by subsection (b) of this section by December 31, 1998.
(d) 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.
(e) The interest expenses relating to the repayment of any
fully subordinated debt shall be considered covered expenses.
(f) Any fully subordinated debt incurred by a note meeting
the requirements of subsections (d) and (e) of this section, and
otherwise acceptable to the commissioner, shall not be
considered a liability and shall be recorded as equity.
(g) Unless otherwise provided in this section, 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 three
hundred thousand dollars ($300,000.00).
(h) An organization that is in operation on July 1, 1995,
shall make a deposit of cash, securities, combination thereof or
other measures of equal amount acceptable to the commissioner of
one hundred fifty thousand dollars ($150,000.00) on or before
August 1, 1995, and an additional deposit of cash, securities,
combination thereof or other measures of equal amount acceptable
to the commissioner of one hundred fifty thousand dollars
($150,000.00) on or before July 1, 1996.
(j) The deposit shall be an admitted asset of the health
maintenance organization in the determination of net worth. All
income from deposits belongs to the depositing organization,
shall be paid to it as it becomes available and 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 thereof or other measures of equal
amount and value. Any securities shall be approved by the
commissioner before being substituted.
(k) 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 chapter 28 of this code.
(m) The commissioner may reduce or eliminate any of the
deposit requirements set forth in this section if he is
satisfied that the health maintenance organization has deposited
with the state treasurer, insurance commissioner, or other
official body of the state or jurisdiction of domicile for the
protection of all subscribers and enrollees, wherever located,
of the health maintenance organization, 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.
(n) 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 the organization is or may be liable, and to
provide for the expense of adjustment or settlement of those
claims. The liabilities shall be computed in accordance with
accounting principles established by the commissioner upon
reasonable consideration of the ascertained experience and
character of the health maintenance organization.
(o) 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.
(p) In the event that the participating provider contract
has not been reduced to writing as required by this section 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.
(q) 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.
(r) 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:
(i) Insurance to cover the expenses to be paid for
continued benefits after an insolvency;
(ii) 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;
(iii) Insolvency reserves;
(iv) Acceptable letters of credit;
(v) Any other arrangements to assure that benefits
are continued as specified in this subsection.
(s) An agreement to provide health care services between a
provider and a health maintenance organization shall require
that if the provider terminates the agreement, the provider
shall give the organization at least sixty (60) days advance
notice of termination.