44-4718. Equity requirements.

(1) Each prepaid limited health service organization shall, at all times, have and maintain a tangible net equity at least equal to the greater of (a) fifty thousand dollars or (b) two percent of the organization's annual gross premium income, up to a maximum of the required capital and surplus of an accident and health insurer.

(2) A prepaid limited health service organization that has uncovered expenses in excess of fifty thousand dollars, as reported on the most recent annual financial statement filed with the director, shall maintain tangible net equity equal to twenty-five percent of the uncovered expense in excess of fifty thousand dollars in addition to the tangible net equity required by subsection (1) of this section.

(3) For the purpose of this section: (a) Net equity shall mean the excess of total assets over total liabilities, excluding liabilities which have been subordinated in a manner acceptable to the director; and (b) tangible net equity shall mean net equity reduced by the value assigned to intangible assets, including, but not limited to: (i) Goodwill; (ii) going-concern value; (iii) organizational expense; (iv) starting-up costs; (v) obligations of officers, directors, owners, or affiliates, except short-term obligations of affiliates for goods or services arising in the normal course of business which are payable on the same terms as equivalent transactions with nonaffiliates and which are not past due; (vi) long-term prepayments of deferred charges; and (vii) nonreturnable deposits.

(4)(a) Each prepaid limited health service organization shall deposit, with the director or with any organization or trustee acceptable to the director through which a custodial or controlled account is utilized, cash, securities, or any combination of these or other measures that is acceptable to the director in an amount equal to twenty-five thousand dollars plus twenty-five percent of the tangible net equity required in subsection (1) of this section not to exceed one hundred thousand dollars.

(b) The deposit shall be an admitted asset of the prepaid limited health service organization in the determination of tangible net equity.

(c) All income from deposits shall be an asset of the prepaid limited health service organization. A prepaid limited health service organization may withdraw a deposit or any part thereof after making a substitute deposit of equal amount and value. Any securities shall be approved by the director before being substituted.

(d) The deposit shall be used to protect the interests of the prepaid limited health service organization's enrollees and to assure continuation of limited health services to enrollees of a prepaid limited health service organization that is in rehabilitation or conservation. If a prepaid limited health service organization is placed in receivership or liquidation, the deposit shall be an asset subject to the liquidation laws of the state.

(e) The director may reduce or eliminate the deposit requirement if the prepaid limited health service organization has made an acceptable deposit with the state or jurisdiction of domicile for the protection of all enrollees, wherever located, and delivers to the director a certificate to such effect, duly authenticated by the appropriate state official holding the deposit.

(5) Upon application by a prepaid limited health service organization, the director may waive some or all of the requirements of subsection (1) of this section for any period of time the director deems proper upon a finding that either (a) the prepaid limited health service organization has a net equity of five million dollars or more or (b) an entity having a net equity of five million dollars or more furnishes to the director a written commitment which is acceptable to the director to provide for the uncovered expenses of the prepaid limited health service organization. For the purposes of this subsection, uncovered expense shall mean the cost of limited health services that are the obligation of a prepaid limited health service organization (i) for which an enrollee may be liable in the event of the insolvency of the organization and (ii) for which alternative arrangements acceptable to the director have not been made to cover the costs. Costs incurred by a provider who has agreed in writing not to bill enrollees, except for permissible supplemental charges, shall be considered covered expenses.

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