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.