40-3227. Deposit requirements; waiver of deposit; plan for continuation of benefits following insolvency.
40-3227
40-3227. Deposit requirements; waiver of deposit; plan for continuation ofbenefits following insolvency.(a) Except as provided in paragraph (e), before issuing any certificate ofauthority, the commissioner shallrequire that the health maintenance organization have an initial net worth of$1,500,000 and shall thereafter maintain the minimum net worth required undersubsection (b).
(b) Except as provided in subsections (c) and (d) of this section, everyhealth maintenance organization shall maintain a minimum net worth equal to thegreater of:
(1) $1,000,000; or
(2) two percent of annual premium revenues as reported on the most recentannual financial statement filed with the commissioner on the first$150,000,000 of premium and 1% of annual premium on the premium inexcess of $150,000,000; or
(3) an amount equal to the sum of three months uncovered health careexpenditures as reported on the most recent financial statement filed with thecommissioner; or
(4) an amount equal to the sum of:
(A) Eight percent of annual health care expenditures except those paid on acapitated basis or managed hospital payment basis as reported on the mostrecent financial statement filed with the commissioner; and
(B) four percent of annual hospital expenditures paid on a managed hospitalpayment basis as reported on the most recent financial statement filed with thecommissioner.
(c) A health maintenance organization licensed on or before the day precedingthe effective date of this section must maintain a minimum net worth of:
(1) Twenty-five percent of the amount required by subsection (b) by December31, 2000;
(2) 50% of the amount required by subsection (b) by December 31,2001;
(3) 75% of the amount required by subsection (b) by December31, 2002; and
(4) 100% of the amount required by subsection (b) by December31, 2003.
(d) In determining net worth, no debt shall be considered fully subordinatedunless the subordination clause is in a form acceptable to the commissioner. Aninterest obligation relating to the repayment of any subordinated debt shall besimilarly subordinated. The interest expenses relating to the repayment of afully subordinated debt shall be considered covered expenses. A debt incurredby a note meeting the requirements of this section, and otherwise acceptable tothe commissioner, shall not be considered a liability and shall be recorded asequity.
(e) The net worth requirements of subsections (a) through (d) shall not applyto any health organization contracting with the Kansas department of social andrehabilitation services to provide services provided under title XIX and titleXXI of the social security act or any other public benefits, provided thepublicbenefit contracts represent at least 90% of the premium volume of the healthorganization.
(f) Unless otherwise provided below, each healthmaintenance organizationdoing business in this state shall deposit with any organization or trusteeacceptable to the commissioner through which a custodial or controlled accountis utilized, cash, securities or any combination of these or other measures,for the benefit of all of the enrollees of the health maintenanceorganization,that are acceptablein the amount of $150,000 for a medical group or staff model healthmaintenance organization or $300,000 for an individual practice association.
(g) The commissioner may waive any of the depositrequirementsset forth in subsection (f) whenever satisfiedthat: (1) The organizationhas sufficient net worth and an adequate history of generating net incometo assure its financial viability for the next year; or (2) the organization'sperformance and obligations are guaranteed by an organization with sufficientnet worth and an adequate history of generating net income; or (3) the assetsof the organization or its contracts with insurers, hospital or medicalservice corporations, governments or other organizations are reasonablysufficient to assure the performance of its obligations.
(h) The deposit requirements imposed by this act shall notapply tohealthmaintenance organizations not organized under the laws of this state to theextent an amount equal to or exceeding that required by this act has beendeposited with the commissioner or an organization or trustee acceptable tothe department of insurance of its state of domicile for the benefit ofKansas enrollees.
(i) All income from deposits shall belong to thedepositingorganizationand shall be paid to it as it becomes available. A health maintenanceorganization that has made a securities deposit may withdraw that deposit orany part thereof after making a substitute deposit of cash, securities or anycombination of these or other measures of equal amount and value. Anysecurities shallbe approved by the commissioner before being substituted.
(j) Every health maintenance organization, when determiningliability, shall include an amount estimated in the aggregate to provide foranyunearned premium and for the payment of all claims for health care expendituresthat have been incurred, whether reported or unreported, that are unpaid andfor which the organization is or may be liable, and to provide for the expenseof adjustment or settlement of those claims.
(k) The commissioner shall require that each healthmaintenanceorganizationhave a plan for handling insolvency which allows for continuation of benefitsfor the duration of the contract period for which premiums have been paid andcontinuation of benefits to members who are confined on the date of insolvencyin an inpatient facility until their discharge or expiration of benefits. Inconsidering such a plan, the commissioner may require:
(1) Insurance to cover the expenses to be paid for continued benefits afteran insolvency;
(2) provisions in provider contracts that obligate the provider to provideservices for the duration of the period after the health maintenanceorganization's insolvency for which premium payment has been made and until theenrollees' discharge from inpatient facilities;
(3) insolvency reserves;
(4) acceptable letters of credit; or
(5) any other arrangements to assure that benefits are continued asspecified in this subsection (k).
History: L. 1984, ch. 176, § 2;L. 1988, ch. 162, § 3;L. 1996, ch. 169, § 11;L. 2000, ch. 147, § 40; July 1.