Z-1365.1 _______________________________________________
SENATE BILL 6290
_______________________________________________
State of Washington 54th Legislature 1996 Regular Session
By Senators Prentice, Fraser, Quigley and Pelz; by request of Insurance Commissioner
Read first time 01/10/96. Referred to Committee on Financial Institutions & Housing.
AN ACT Relating to minimum net worth requirements and the impairment of health care service contractors and health maintenance organizations; amending RCW 48.44.035, 48.44.037, and 48.46.235; adding a new section to chapter 48.44 RCW; and adding a new section to chapter 48.46 RCW.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1. RCW 48.44.035 and 1990 c 120 s 3 are each amended to read as follows:
(1) For purposes of this section only, "limited health care service" means dental care services, vision care services, mental health services, chemical dependency services, pharmaceutical services, podiatric care services, and such other services as may be determined by the commissioner to be limited health services, but does not include hospital, medical, surgical, emergency, or out-of-area services except as those services are provided incidentally to the limited health services set forth in this subsection.
(2) For purposes of this section only, a "limited health care service contractor" means a health care service contractor that offers one and only one limited health care service.
(3) Except as provided in subsection (4) of this section, every limited health care service contractor must maintain a minimum net worth of five hundred thousand dollars.
(4) A limited health care service contractor registered before the effective date of this act, must maintain a minimum net worth of:
(a) Twenty‑five percent of the amount required by subsection (1) of this section by December 31, 1996;
(b) Fifty percent of the amount required by subsection (1) of this section by December 31, 1997;
(c) Seventy‑five percent of the amount required by subsection (1) of this section by December 31, 1998; and
(d) One hundred percent of the amount required by subsection (1) of this section by December 31, 1999.
(5) For all limited health care service contractors that have had a certificate of registration for less than three years, their uncovered expenditures shall be either insured or guaranteed by a foreign or domestic carrier admitted in the state of Washington or by another carrier acceptable to the commissioner. All such contractors shall also deposit with the commissioner one-half of one percent of their projected premium for the next year in cash, approved surety bond, securities, or other form acceptable to the commissioner.
(((4))) (6)
For all limited health care service contractors that have had a certificate of
registration for three years or more, their uncovered expenditures shall be
assured by depositing with the insurance commissioner twenty-five percent of
their last year's uncovered expenditures as reported to the commissioner and
adjusted to reflect any anticipated increases or decreases during the ensuing
year plus an amount for unearned prepayments; in cash, approved surety bond,
securities, or other form acceptable to the commissioner. Compliance with
subsection (((3))) (5) of this section shall also constitute
compliance with this requirement.
(((5))) (7)
If the assets of a domestic limited health care service contractor fall below
the amount of its liabilities, plus the amount of any net worth required by
this section, the commissioner shall at once ascertain the amount of the
deficiency and serve notice upon the limited health care service contractor to
cure the deficiency within ninety days after the service of notice.
(8) If the deficiency is not made good in cash or in assets eligible under this section for the investment of an insurer's funds, and proof thereof filed with the commissioner within the ninety‑day period, the limited health care service contractor is deemed insolvent and shall be proceeded against as authorized under this chapter.
(9) If the deficiency is not made good the limited health care service contractor may not issue or deliver any individual or group contract after the expiration of the ninety‑day period.
(10) Limited health service contractors need not comply with RCW 48.44.030 or 48.44.037.
Sec. 2. RCW 48.44.037 and 1990 c 120 s 4 are each amended to read as follows:
(1)(((a)))
Except as provided in subsection (2) of this section, every health care service
contractor must ((have)) maintain a minimum net worth ((of
one million five hundred thousand dollars at the time of initial registration
under this chapter and a net worth of one million dollars thereafter. The
commissioner is authorized to establish standards for reviewing a health care
service contractor's financial integrity when, for any reason, its net worth is
reduced below one million dollars. When satisfied that such a health care
service contractor is financially stable and not hazardous to its enrolled
participants, the commissioner may waive compliance with the one million dollar
net worth standard otherwise required by this subsection. When such a health
care service contractor's net worth falls below five hundred thousand dollars,
the commissioner shall require that net worth be increased to one million
dollars.
(b) A health care
service contractor who fails to maintain the required net worth must cure that
defect in compliance with an order of the commissioner rendered in conformity
with rules adopted under chapter 34.05 RCW. The commissioner may take
appropriate action to assure that the continued operation of the health care
service contractor will not be hazardous to its enrolled participants)) equal to the greater of:
(a) Three million dollars; or
(b) Two percent of annual premium revenues as reported on the most recent annual financial statement filed with the commissioner on the first one hundred fifty million dollars of premium and one percent of annual premium on the premium in excess of one hundred fifty million dollars.
(2) A health care
service contractor registered before ((June 7, 1990,)) the effective
date of this act that, on the effective date of this act, has the minimum net
worth required by subsection (1) of this section must continue to maintain the
minimum net worth required by subsection (1) of this section. A health care
service contractor registered before the effective date of this act that, on
the effective date of this act, does not have the minimum net worth required by
subsection (1) of this section must maintain a net worth of:
(a) ((Twenty-five))
The amount required immediately prior to the effective date of this act
until December 31, 1996;
(b) Fifty
percent of the amount required by subsection (1) of this section by December
31, ((1990)) 1996;
(((b) Fifty)) (c)
Sixty-six and one-third percent of the amount required by subsection (1) of
this section by December 31, ((1991)) 1997;
(((c) Seventy-five))
(d) Eighty-three and one-third percent of the amount required by
subsection (1) of this section by December 31, ((1992)) 1998; and
(((d))) (e)
One hundred percent of the amount required by subsection (1) of this section by
December 31, ((1993)) 1999.
(3)(a) In determining net worth, no debt shall be considered fully subordinated unless the subordination is in a form acceptable to the commissioner. An interest obligation relating to the repayment of a subordinated debt must be similarly subordinated.
(b) The interest expenses relating to the repayment of a fully subordinated debt shall not be considered uncovered expenditures.
(c) A subordinated debt incurred by a note meeting the requirement of this section, and otherwise acceptable to the commissioner, shall not be considered a liability and shall be recorded as equity.
(4) Every health care service contractor 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 the claims.
Liabilities shall be computed in accordance with regulations adopted by the commissioner upon reasonable consideration of the ascertained experience and character of the health care service contractor.
(5) All income from reserves on deposit with the commissioner shall belong to the depositing health care service contractor and shall be paid to it as it becomes available.
(6) Any funded reserve required by this chapter shall be considered an asset of the health care service contractor in determining the organization's net worth.
(7) A health care service contractor that has made a securities deposit with the commissioner may, at its option, withdraw the securities deposit or any part thereof after first having deposited or provided in lieu thereof an approved surety bond, a deposit of cash or securities, or any combination of these or other deposits of equal amount and value to that withdrawn. Any securities and surety bond shall be subject to approval by the commissioner before being substituted.
NEW SECTION. Sec. 3. A new section is added to chapter 48.44 RCW to read as follows:
(1) If the assets of a domestic health care service contractor fall below the amount of its liabilities, plus the amount of any net worth required by this chapter, the commissioner shall at once ascertain the amount of the deficiency and serve notice upon the health care service contractor to cure the deficiency within ninety days after the service of notice.
(2) If the deficiency is not made good in cash or in assets eligible under this chapter for the investment of an insurer's funds, and proof thereof filed with the commissioner within the ninety‑day period, the health care service contractor is deemed insolvent and shall be proceeded against as authorized by this chapter.
(3) If the deficiency is not made good the health care service contractor may not issue or deliver any individual or group contract after the expiration of the ninety‑day period.
Sec. 4. RCW 48.46.235 and 1990 c 119 s 5 are each amended to read as follows:
(1) Except as provided in subsection (2) of this section, every health maintenance organization must maintain a minimum net worth equal to the greater of:
(a) ((One)) Three
million dollars; or
(b) Two percent of annual premium revenues as reported on the most recent annual financial statement filed with the commissioner on the first one hundred fifty million dollars of premium and one percent of annual premium on the premium in excess of one hundred fifty million dollars; or
(c) An amount equal to the sum of three months' uncovered expenditures as reported on the most recent financial statement filed with the commissioner.
(2) A health
maintenance organization registered before ((June 7, 1990,)) the
effective date of this act that, on the effective date of this act, has the
minimum net worth required by subsection (1) of this section must continue to
maintain the minimum net worth required by subsection (1) of this section. A
health maintenance organization registered before the effective date of this
act that, on the effective date of this act, does not have the minimum net
worth required by subsection (1) of this section must maintain a minimum
net worth of:
(a) ((Twenty-five))
The amount required immediately prior to the effective date of this act
until December 31, 1996;
(b) Fifty
percent of the amount required by subsection (1) of this section by December
31, ((1990)) 1996;
(((b) Fifty)) (c)
Sixty-six and one-sixth percent of the amount required by subsection (1) of
this section by December 31, ((1991)) 1997;
(((c) Seventy-five))
(d) Eighty-three and one-third percent of the amount required by
subsection (1) of this section by December 31, ((1992)) 1998; and
(((d))) (e)
One hundred percent of the amount required by subsection (1) of this section by
December 31, ((1993)) 1999.
(3)(a) In determining net worth, no debt shall be considered fully subordinated unless the subordination clause is in a form acceptable to the commissioner. An interest obligation relating to the repayment of a subordinated debt must be similarly subordinated.
(b) The interest expenses relating to the repayment of a fully subordinated debt shall not be considered uncovered expenditures.
(c) A subordinated debt incurred by a note meeting the requirement of this section, and otherwise acceptable to the commissioner, shall not be considered a liability and shall be recorded as equity.
(4) 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 that have been incurred, whether reported or unreported, which are unpaid and for which such organization is or may be liable, and to provide for the expense of adjustment or settlement of such claims.
Such liabilities shall be computed in accordance with rules promulgated by the commissioner upon reasonable consideration of the ascertained experience and character of the health maintenance organization.
NEW SECTION. Sec. 5. A new section is added to chapter 48.46 RCW to read as follows:
(1) If the assets of a domestic health maintenance organization fall below the amount of its liabilities, plus the amount of any net worth required by this chapter, the commissioner shall at once ascertain the amount of the deficiency and serve notice upon the health maintenance organization to cure the deficiency within ninety days after the service of notice.
(2) If the deficiency is not made good in cash or in assets eligible under this chapter for the investment of an insurer's funds, and proof thereof filed with the commissioner within the ninety‑day period, the health maintenance organization is deemed insolvent and shall be proceeded against as authorized by this chapter.
(3) If the deficiency is not made good the health maintenance organization may not issue or deliver any health maintenance agreement after the expiration of the ninety‑day period.
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