AN ACT Relating to the holding company act for health care service contractors and health maintenance organizations; adding a new section to chapter 42.17 RCW; adding a new chapter to Title 48 RCW; prescribing penalties; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The definitions in this section apply throughout this chapter, unless the context clearly requires otherwise.

(1) "Acquisition" or "acquire" means an agreement, arrangement, or activity, the consummation of which results in a person acquiring directly or indirectly the control of another person, and includes but is not limited to the acquisition of voting securities, all or substantially all of the assets, bulk reinsurance, consolidations, affiliations, and mergers.

(2) "Affiliate" of, or person "affiliated" with, a specific person, means a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(3) "Control," including the terms "controlling," "controlled by," and "under common control with," means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person whether through the ownership of voting securities, voting rights, by contract other than a commercial contract for goods, nonmanagement services, a debt obligation which is not convertible into a right to acquire a voting security, or otherwise, unless the power is the result of an official position with or corporate office held by the person.

(a) For a for-profit person, control is presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact. A person may file with the commissioner a disclaimer of control of a health carrier. The disclaimer must fully disclose all material relationships and bases for affiliation between the person and the health carrier as well as the basis for disclaiming the control. After furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support such a determination, the commissioner may:

(i) Allow a disclaimer; or

(ii) Disallow a disclaimer notwithstanding the absence of a presumption to that effect.

(b) For a nonprofit corporation organized under chapters 24.03 and 24.06 RCW, control is presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing a majority of voting rights of the person or the power to elect or appoint a majority of the board of directors, trustees, or other governing body of the person, unless the power is the result of an official position of, or corporate office held by, the person.

(4) "Domestic health carrier" means a health care service contractor as defined in RCW 48.44.010, or a health maintenance organization as defined in RCW 48.46.020, that is formed under the laws of this state.

(5) "Foreign health carrier" means a health care service contractor as defined in RCW 48.44.010, or a health maintenance organization as defined in RCW 48.46.020, that is formed under the laws of the United States, of a state or territory of the United States other than this state, or the District of Columbia.

(6) "Health carrier holding company system" means two or more affiliated persons, one or more of which is a health care service contractor or health maintenance organization.

(7) "Health coverage business" means the business of a disability insurer authorized under chapter 48.05 RCW, a health care service contractor registered under chapter 48.44 RCW, and a health maintenance organization registered under chapter 48.46 RCW, entering into any policy, contract, or agreement to arrange, reimburse, or pay for health care services.

(8) "Involved carrier" means an insurer, health care service contractor, or health maintenance organization, which either acquires or is acquired, is affiliated with an acquirer or acquired, or is the result of a merger.

(9) "Person" means an individual, corporation, partnership, association, joint stock company, limited liability company, trust, unincorporated organization, similar entity, or any combination acting in concert, but does not include a joint venture partnership exclusively engaged in owning, managing, leasing, or developing real or personal property.

(10) "Security holder" of a specified person means one who owns a security of that person, including (a) common stock, (b) preferred stock, (c) debt obligations convertible into the right to acquire voting securities, and any other security convertible into or evidencing the right to acquire (a) through (c) of this subsection.

(11) "Subsidiary" of a specified person means an affiliate controlled by that person directly or indirectly through one or more intermediaries.

(12) "Voting security" includes a security convertible into or evidencing a right to acquire a voting security.

NEW SECTION. Sec. 2. (1) No person may acquire control of a foreign health carrier registered to do business in this state unless a preacquisition notification is filed with the commissioner under this section and the waiting period has expired. If a preacquisition notification is not filed with the commissioner an involved carrier may be subject to an order under subsection (3) of this section. The acquired person may file a preacquisition notification.

(a) The preacquisition notification must be in the form and contain the information prescribed by the commissioner. The commissioner may require additional material and information necessary to determine whether the proposed acquisition, if consummated, would have the effect of substantially lessening competition, or tending to create a monopoly, in the health coverage business in this state. The required information may include an opinion of an economist as to the competitive impact of the acquisition in this state accompanied by a summary of the education and experience of the person indicating his or her ability to render an informed opinion.

(b) The waiting period required under this section begins on the date the commissioner receives the preacquisition notification and ends on the earlier of the sixtieth day after the date of the receipt by the commissioner of the preacquisition notification or the termination of the waiting period by the commissioner. Before the end of the waiting period, the commissioner may require the submission of additional needed information relevant to the proposed acquisition. If additional information is required, the waiting period ends on the earlier of the thirtieth day after the commissioner has received the additional information or the termination of the waiting period by the commissioner.

(2)(a) The commissioner may enter an order under subsection (3)(a) of this section with respect to an acquisition if:

(i) The health carrier fails to file adequate information in compliance with subsection (1)(a) of this section; or

(ii) The antitrust section of the office of the attorney general and any federal antitrust enforcement agency has chosen not to undertake a review of the proposed acquisition and the commissioner pursuant to his or her own review finds that there is substantial evidence that the effect of the acquisition may substantially lessen competition or tend to create a monopoly in the health coverage business.

(b) If the antitrust section of the office of the attorney general undertakes a review of the proposed transaction then the attorney general shall seek input from the commissioner throughout the review.

(c) If the antitrust section of the office of the attorney general does not undertake a review of the proposed acquisition and the review is being conducted by the commissioner, then the commissioner shall seek input from the attorney general throughout the review.

(3)(a)(i) If an acquisition violates the standards of this section, the commissioner may enter an order:

(A) Requiring an involved carrier to cease and desist from doing business in this state with respect to business as a health care service contractor or health maintenance organization; or

(B) Denying the application of an acquired or acquiring carrier for a license, certificate of authority, or registration to do business in this state.

(ii) The commissioner may not enter the order unless:

(A) There is a hearing;

(B) Notice of the hearing is issued before the end of the waiting period and not less than fifteen days before the hearing; and

Every order must be accompanied by a written decision of the commissioner setting forth his or her findings of fact and conclusions of law.

(iii) An order entered under (a) of this subsection may not become final earlier than thirty days after it is issued, during which time the involved carrier may submit a plan to remedy the anticompetitive impact of the acquisition within a reasonable time. Based upon the plan or other information, the commissioner shall specify the conditions, if any, under the time period during which the aspects of the acquisition causing a violation of the standards of this section would be remedied and the order vacated or modified.

(iv) An order under (a) of this subsection does not apply if the acquisition is not consummated.

(b) A person who violates a cease and desist order of the commissioner under (a) of this subsection and while the order is in effect, may, after notice and hearing and upon order of the commissioner, be subject at the discretion of the commissioner to one or more of the following:

(i) A monetary penalty of not more than ten thousand dollars for every day of violation; or

(ii) Suspension or revocation of the person's license, certificate of authority, or registration; or

(iii) Both (b)(i) and (b)(ii) of this subsection.

(c) A carrier or other person who fails to make a filing required by this section and who also fails to demonstrate a good faith effort to comply with the filing requirement, is subject to a civil penalty of not more than fifty thousand dollars.

(4) An order may not be entered under subsection (3)(a) of this section if:

(a) The acquisition will yield substantial economies of scale or economies in resource use that cannot be feasibly achieved in any other way, and the public benefits that would arise from the economies exceed the public benefits that would arise from more competition; or

(b) The acquisition will substantially increase the availability of health care coverage, and the public benefits of the increase exceed the public benefits that would arise from more competition.

(5)(a) Sections 8 (2) and (3) and 9 of this act do not apply to acquisitions covered under this section.

(b) This section does not apply to the following:

(i) An acquisition subject to approval or disapproval by the commissioner under section 3 of this act;

(ii) A purchase of securities solely for investment purposes so long as the securities are not used by voting or otherwise to cause or attempt to cause the substantial lessening of competition in the health coverage business in this state;

(iii) The acquisition of a person by another person when neither person is directly, nor through affiliates, primarily engaged in the business of a domestic or foreign health carrier, if preacquisition notification is filed with the commissioner in accordance with subsection (1) of this section sixty days before the proposed effective date of the acquisition. However, preacquisition notification is not required for exclusion from this section if the acquisition would otherwise be excluded from this section by this subsection (5)(b);

(iv) The acquisition of already affiliated persons;

(v) An acquisition if, as an immediate result of the acquisition:

(A) In no market would the combined market share of the involved carriers exceed five percent of the total market;

(B) There would be no increase in any market share; or

(I) The combined market share of the involved carriers exceed twelve percent of the total market; and

(II) The market share increase by more than two percent of the total market.

For the purpose of (b)(v) of this subsection, "market" means direct written premium in this state for a line of business as contained in the annual statement required to be filed by carriers licensed to do business in this state;

(vi) An acquisition of a health carrier whose domiciliary commissioner affirmatively finds: That the health carrier is in failing condition; there is a lack of feasible alternatives to improving such a condition; and the public benefits of improving the health carrier's condition through the acquisition exceed the public benefits that would arise from more competition, and the findings are communicated by the domiciliary commissioner to the commissioner of this state.

NEW SECTION. Sec. 3. (1) No person may acquire control of a domestic health carrier unless the person has filed with the commissioner and has sent to the health carrier a statement containing the information required by this section and the acquisition has been approved by the commissioner as prescribed in this section.

(2) The statement to be filed with the commissioner under this section must be made under oath or affirmation and must contain the following information:

(a) The name and address of the acquiring party. For purposes of this section, "acquiring party" means each person by whom or on whose behalf the acquisition of control under subsection (1) of this section is to be effected:

(i) If the acquiring party is an individual, his or her principal occupation and all offices and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past ten years;

(ii) If the acquiring party is not an individual, a report of the nature of its business operations during the past five years or for such lesser period as the person and any predecessors have been in existence; an informative description of the business intended to be done by the person's subsidiaries; any convictions of crimes during the past ten years; and a list of all individuals who are or who have been selected to become directors, trustees, or executive officers of the person, or who perform or will perform functions appropriate to those positions. The list must include for each such individual the information required by (a)(i) of this subsection.

(b) The source, nature, and amount of the consideration used or to be used in effecting the acquisition of control, a description of any transaction in which funds were or are to be obtained for any such purpose, including a pledge of assets, a pledge of the health carrier's stock, or the stock of any of its subsidiaries or controlling affiliates, and the identity of persons furnishing the consideration. However, where a source of the consideration is a loan made in the lender's ordinary course of business, the identity of the lender must remain confidential if the person filing the statement so requests.

(c) Fully audited financial information as to the earnings and financial condition of each acquiring party for the preceding five fiscal years of each acquiring party, or for such lesser period as the acquiring party and any predecessors have been in existence, and similar unaudited information as of a date not earlier than ninety days before the filing of the statement. If the acquiring party and any predecessor has not had fully audited financial statements prepared during any of the preceding five years, then reviewed financial statements may be substituted for those years, except for the latest fiscal year which must be fully audited financial statements.

(d) Any plans or proposals that each acquiring party may have to liquidate the health carrier, to sell its assets or merge or consolidate it with any person, or to make any other material change in its business or corporate structure or management.

(e) The number of shares of any security or number and description of other voting rights referred to in section 1(3) of this act that each acquiring party proposes to acquire, the terms of the offer, request, invitation, agreement, or acquisition under section 1(3) of this act, and a statement as to the method by which the fairness of the proposal was arrived at.

(f) The amount of each class of any security referred to in section 1(3) of this act that is beneficially owned or concerning which there is a right to acquire beneficial ownership by each acquiring party.

(g) A full description of any contracts, arrangements, or understandings with respect to any security referred to in section 1(3) of this act in which an acquiring party is involved, including but not limited to transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. The description must identify the persons with whom the contracts, arrangements, or understandings have been entered into.

(h) A description of the purchase of any security referred to in section 1(3) of this act during the twelve calendar months before the filing of the statement, by an acquiring party, including the dates of purchase, names of the purchasers, and consideration paid or agreed to be paid for the security.

(i) A description of any recommendations to purchase any security referred to in section 1(3) of this act made during the twelve calendar months before the filing of the statement, by an acquiring party, or by anyone based upon interviews with outside parties or at the suggestion of the acquiring party.

(j) Copies of all tender offers for, requests or invitations for tenders of, exchange offers for, and agreements to acquire or exchange any securities referred to in section 1(3) of this act, and, if distributed, of additional soliciting material relating to the securities.

(k) The term of an agreement, contract, or understanding made with or proposed to be made with a broker‑dealer as to solicitation or securities referred to in section 1(3) of this act for tender, and the amount of fees, commissions, or other compensation to be paid to broker‑dealers with regard to the securities.

(l) Such additional information as the commissioner may prescribe by rule as necessary or appropriate for the protection of subscribers of the health carrier or in the public interest.

If the person required to file the statement referred to in subsection (1) of this section is a partnership, limited partnership, syndicate, or other group, the commissioner may require that the information required under (a) through (l) of this subsection must be given with respect to each partner of the partnership or limited partnership, each member of the syndicate or group, and each person who controls a partner or member. If a partner, member, or person is a corporation, or the person required to file the statement referred to in subsection (1) of this section is a corporation, the commissioner may require that the information required under (a) through (l) of this subsection must be given with respect to the corporation, each officer and director of the corporation, and each person who is directly or indirectly the beneficial owner of more than ten percent of the outstanding voting securities of the corporation.

If a material change occurs in the facts set forth in the statement filed with the commissioner and sent to the health carrier under this section, an amendment setting forth the change, together with copies of all documents and other material relevant to the change, must be filed with the commissioner and sent to the health carrier within two business days after the person learns of the change.

(3) If an offer, request, invitation, agreement, or acquisition referred to in subsection (1) of this section is proposed to be made by means of a registration statement under the Securities Act of 1933 or in circumstances requiring the disclosure of similar information under the Securities Exchange Act of 1934, or under a state law requiring similar registration or disclosure, the person required to file the statement referred to in subsection (1) of this section may use those documents in furnishing the information called for by that statement.

(4) The commissioner shall approve an exchange or other acquisition of control referred to in this section within sixty days after he or she declares the statement filed under this section to be complete and if a hearing is requested by the commissioner or either party to the transaction, after holding a public hearing. Unless the commissioner declares the statement to be incomplete and requests additional information, the statement is deemed complete sixty days after receipt of the statement by the commissioner. If the commissioner declares the statement to be incomplete and requests additional information, the sixty-day time period in which the statement is deemed complete shall be tolled until fifteen days after receipt by the commissioner of the additional information. If the commissioner declares the statement to be incomplete, the commissioner shall promptly notify the person filing the statement of the filing deficiencies and shall set forth with specificity the additional information required to make the filing complete. At the hearing, the person filing the statement, the health carrier, and any person whose significant interest is determined by the commissioner to be affected may present evidence, examine and cross‑examine witnesses, and offer oral and written arguments, and in connection therewith may conduct discovery proceedings in the same manner as is allowed in the superior court of this state. All discovery proceedings must be concluded not later than three business days before the commencement of the public hearing.

(5)(a) The commissioner shall approve an acquisition of control referred to in subsection (1) of this section unless, after a public hearing, he or she finds that:

(i) After the change of control, the domestic health carrier referred to in subsection (1) of this section would not be able to satisfy the requirements for registration as a health carrier;

If the antitrust section of the office of the attorney general does not undertake a review of the proposed acquisition and the review is being conducted by the commissioner, then the commissioner shall seek input from the attorney general throughout the review.

If the antitrust section of the office of the attorney general undertakes a review of the proposed transaction then the attorney general shall seek input from the commissioner throughout the review. As to the commissioner, in making this determination:

(A) The informational requirements of section 2(1)(a) of this act apply;

(B) The commissioner may not disapprove the acquisition if the commissioner finds that:

(I) The acquisition will yield substantial economies of scale or economies in resource use that cannot be feasibly achieved in any other way, and the public benefits that would arise from the economies exceed the public benefits that would arise from more competition; or

(II) The acquisition will substantially increase or will prevent significant deterioration in the availability of health care coverage, and the public benefits of the increase exceed the public benefits that would arise from more competition;

(C) The commissioner may condition the approval of the acquisition on the removal of the basis of disapproval, as follows, within a specified period of time:

(I) The financial condition of an acquiring party is such as might jeopardize the financial stability of the health carrier, or prejudice the interest of its subscribers;

(II) The plans or proposals that the acquiring party has to liquidate the health carrier, sell its assets, consolidate or merge it with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable to subscribers of the health carrier and not in the public interest;

(III) The competence, experience, and integrity of those persons who would control the operation of the health carrier are such that it would not be in the interest of subscribers of the health carrier and of the public to permit the merger or other acquisition of control; or

(IV) The acquisition is likely to be hazardous or prejudicial to the insurance‑buying public.

(b) The commissioner may retain at the acquiring person's expense any attorneys, actuaries, accountants, and other experts not otherwise a part of the commissioner's staff as may be reasonably necessary to assist the commissioner in reviewing the proposed acquisition of control. All reasonable costs of a hearing held under this section, as determined by the commissioner, including reasonable costs associated with the commissioner's use of investigatory, professional, and other necessary personnel, mailing of required notices and other information, and use of equipment or facilities, must be paid before issuance of the commissioner's order by the acquiring person.

(c) The commissioner may condition approval of an acquisition on the removal of the basis of disapproval within a specified period of time.

(6) Upon the request of a party to the acquisition the commissioner may order that this section does not apply to an offer, request, invitation, agreement, or acquisition as:

(a) Not having been made or entered into for the purpose and not having the effect of changing or influencing the control of a domestic health carrier; or

(b) Otherwise not comprehended within the purposes of this section.

(7) The following are violations of this section:

(a) The failure to file a statement, amendment, or other material required to be filed under subsection (1) or (2) of this section; or

(b) The effectuation or an attempt to effectuate an acquisition of control of a domestic health carrier unless the commissioner has given approval.

(8) The courts of this state have jurisdiction over every person not resident, domiciled, or authorized to do business in this state who files a statement with the commissioner under this section, and over all actions involving that person arising out of violations of this section, and such a person has performed acts equivalent to and constituting an appointment by that person of the commissioner to be the person's true and lawful attorney upon whom may be served all lawful process in an action, suit, or proceeding arising out of violations of this section. Copies of all such lawful process shall be served on the commissioner and transmitted by registered or certified mail by the commissioner to such a person at the person's last known address.

NEW SECTION. Sec. 4. (1) Every health carrier registered to do business in this state that is a member of a health carrier holding company system shall register with the commissioner, except a foreign health carrier subject to registration requirements and standards adopted by statute or regulation in the jurisdiction of its domicile that are substantially similar to those contained in:

(a) This section;

(b) Sections 5(1) and 6 of this act; and

(c) Either section 5(1)(b) of this act or a provision such as the following: Each registered health carrier shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions within fifteen days after the end of the month in which it learns of each change or addition.

A health carrier subject to registration under this section shall register within one hundred twenty days of the effective date of this act and thereafter within fifteen days after it becomes subject to registration, and annually thereafter by May 15th of each year for the previous calendar year, unless the commissioner for good cause shown extends the time for registration, and then within the extended time. The commissioner may require a health carrier authorized to do business in the state that is a member of a health carrier holding company system, but that is not subject to registration under this section, to furnish a copy of the registration statement, the summary specified in subsection (3) of this section, or other information filed by the health carrier with the regulatory authority of its domiciliary jurisdiction.

(2) A health carrier subject to registration shall file the registration statement on a form prescribed by the commissioner, containing the following current information:

(a) The capital structure, general financial condition, ownership, and management of the health carrier and any person controlling the health carrier;

(b) The identity and relationship of every member of the health carrier holding company system;

(c) The following agreements in force, and transactions currently outstanding or that have occurred during the last calendar year between the health carrier and its affiliates:

(i) Loans, other investments, or purchases, sales, or exchanges of securities of the affiliates by the health carrier or of the health carrier by its affiliates;

(ii) Purchases, sales, or exchange of assets;

(iii) Transactions not in the ordinary course of business;

(iv) Guarantees or undertakings for the benefit of an affiliate that result in an actual contingent exposure of the health carrier's assets to liability, other than subscriber contracts entered into in the ordinary course of the health carrier's business;

(v) All management agreements, service contracts, and cost‑sharing arrangements;

(vi) Reinsurance agreements;

(vii) Dividends and other distributions to shareholders; and

(viii) Consolidated tax allocation agreements;

(d) Any pledge of the health carrier's stock, including stock of a subsidiary or controlling affiliate, for a loan made to a member of the health carrier holding company system; and

(e) Other matters concerning transactions between registered health carriers and affiliates as may be included from time to time in registration forms adopted or approved by the commissioner by rule.

(3) Registration statements must contain a summary outlining all items in the current registration statement representing changes from the prior registration statement.

(4) No information need be disclosed on the registration statement filed under subsection (2) of this section if the information is not material for the purposes of this section. Unless the commissioner by rule or order provides otherwise, sales, purchases, exchanges, loans or extensions of credit, investments, or guarantees, involving two percent or less of a health carrier's admitted assets as of the 31st day of the previous December are not material for purposes of this section.

(5) A person within a health carrier holding company system subject to registration shall provide complete and accurate information to a health carrier, where the information is reasonably necessary to enable the health carrier to comply with this chapter.

(6) The commissioner shall terminate the registration of a health carrier under this section that demonstrates that it no longer is a member of a health carrier holding company system.

(7) The commissioner may require or allow two or more affiliated health carriers subject to registration under this section to file a consolidated registration statement.

(8) The commissioner may allow a health carrier registered to do business in this state and part of a health carrier holding company system to register on behalf of an affiliated health carrier that is required to register under subsection (1) of this section and to file all information and material required to be filed under this section.

(9) This section does not apply to a health carrier, information, or transaction if, and to the extent that, the commissioner by rule or order exempts the health carrier, information, or transaction from this section.

(10) A person may file with the commissioner a disclaimer of affiliation with an authorized health carrier, or a health carrier or a member of a health carrier holding company system may file the disclaimer. The disclaimer must fully disclose all material relationships and bases for affiliation between the person and the health carrier as well as the basis for disclaiming the affiliation. After a disclaimer has been filed, the health carrier is relieved of any duty to register or report under this section that may arise out of the health carrier's relationship with the person unless and until the commissioner disallows the disclaimer. The commissioner shall disallow the disclaimer only after furnishing all parties in interest with notice and opportunity to be heard and after making specific findings of fact to support the disallowance.

(11) Failure to file a registration statement or a summary of the registration statement required by this section within the time specified for the filing is a violation of this section.

NEW SECTION. Sec. 5. (1) Transactions within a health carrier holding company system to which a health carrier subject to registration is a party are subject to the following standards:

(a) The terms must be fair and reasonable;

(b) Charges or fees for services performed must be fair and reasonable;

(c) Expenses incurred and payment received must be allocated to the health carrier in conformity with customary statutory accounting practices consistently applied;

(d) The books, accounts, and records of each party to all such transactions must be so maintained as to clearly and accurately disclose the nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties; and

(e) The health carrier's net worth after the transaction must exceed the health carrier's company action level risk-based capital. In addition, the commissioner may disapprove a transaction if the health carrier's risk-based capital net worth is less than the product of 2.5 and the health carrier's authorized control level risk-based capital and the commissioner reasonably believes that the health carrier's net worth is at risk of falling below its company action level risk-based capital due to anticipated future financial losses not reflected in the risk-based capital calculation. This subsection (1)(e) does not prohibit transactions that improve or help maintain the health carrier's net worth.

(2) The following transactions, excepting those transactions which are subject to approval by the commissioner elsewhere within this title, involving a domestic health carrier and a person in its health carrier holding company system may not be entered into unless the health carrier has notified the commissioner in writing of its intention to enter into the transaction and the commissioner does not declare the notice to be incomplete at least thirty days before, or such shorter period as the commissioner may permit, and the commissioner has not disapproved it within that period. Unless the commissioner declares the notice to be incomplete and requests additional information, the notice is deemed complete thirty days after receipt of the notice by the commissioner. If the commissioner declares the notice to be incomplete, the thirty-day time period in which the notice is deemed complete shall be tolled until fifteen days after the receipt by the commissioner of the additional information:

(a) Sales, purchases, exchanges, loans or extensions of credit, guarantees, or investments if the transactions are equal to or exceed the lesser of (i) two months of the health carrier's annualized claims and administrative costs, (ii) five percent of the health carrier's admitted assets, or (iii) twenty‑five percent of net worth, as of the 31st day of the previous December;

(b) Loans or extensions of credit to any person who is not an affiliate, if the health carrier makes the loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, an affiliate of the health carrier making the loans or extensions of credit, if the transactions are equal to or exceed the lesser of (i) two months of the health carrier's annualized claims and administrative costs, (ii) three percent of the health carrier's admitted assets, or (iii) twenty‑five percent of net worth, as of the 31st day of the previous December;

(c) Reinsurance agreements or modifications to them in which the reinsurance premium or a change in the health carrier's liabilities equals or exceeds five percent of the health carrier's net worth, as of the 31st day of the previous December, including those agreements that may require as consideration the transfer of assets from a health carrier to a nonaffiliate, if an agreement or understanding exists between the health carrier and nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the health carrier;

(d) Management agreements, service contracts, and cost‑sharing arrangements; and

(e) Other acquisitions or dispositions of assets involving more than five percent of the health carrier's admitted assets, specified by rule, that the commissioner determines may adversely affect the interests of the health carrier's subscribers.

(3) A domestic health carrier may not enter into transactions that are part of a plan or series of like transactions with persons within the health carrier holding company system if the aggregate amount of the transactions within a twelve-month period exceed the statutory threshold amount. If the commissioner determines that the separate transactions entered into over a twelve‑month period exceed the statutory threshold amount, the commissioner may apply for an order as described in section 8(1) of this act.

(4) The commissioner, in reviewing transactions under subsection (2) of this section, shall consider whether the transactions comply with the standards set forth in subsection (1) of this section.

(5) If a health carrier complies with the terms of a management agreement, service contract, or cost-sharing agreement that has not been disapproved by the commissioner under subsection (2) of this section, then the health carrier is not required to obtain additional approval from the commissioner for individual transactions conducted under the terms of the management agreement, service contract, or cost-sharing agreement. The commissioner, however, retains the authority to examine the individual transactions to determine their compliance with the terms of the management agreement, service contract, or cost-sharing agreement and subsection (1) of this section.

(6) This section does not authorize or permit a transaction that, in the case of a health carrier not a member of the same health carrier holding company system, would be otherwise contrary to law.

NEW SECTION. Sec. 6. (1)(a) Subject to subsection (2) of this section, each registered health carrier shall report to the commissioner all dividends and other distributions to shareholders or members not within the ordinary course of business within five business days after their declaration and at least fifteen business days before payment and shall provide the commissioner such other information as may be required by rule.

(b) Any payment of a dividend or other distribution to shareholders or members which would reduce the net worth of the health carrier below the greater of (i) the minimum required by RCW 48.44.037 for a health care service contractor or RCW 48.46.235 for a health maintenance organization or (ii) the company action level RBC under RCW 48.43.300(9)(a) is prohibited.

(2)(a) No domestic health carrier may pay an extraordinary dividend or make any other extraordinary distribution to its shareholders or members until: (i) Thirty days after the commissioner has received sufficient notice of the declaration, unless the commissioner declares the notice to be incomplete and requests additional information in which event the thirty days shall be tolled until fifteen days after receipt by the commissioner of the additional information or thirty days after the original receipt of the notice by the commissioner, whichever is later, and the commissioner has not within that period disapproved the payment; or (ii) the commissioner has approved the payment within the thirty-day period.

(b) For purposes of this section, an extraordinary dividend or distribution is a dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions not within the ordinary course of business made within the period of twelve consecutive months ending on the date on which the proposed dividend is scheduled for payment or distribution, exceeds the lesser of: (i) Ten percent of the health carrier's net worth as of the 31st day of the previous December; or (ii) the net income of the health carrier for the twelve-month period ending the 31st day of the previous December, but does not include pro rata distributions of any class of the company's own securities.

(c) Notwithstanding any other provision of law, a health carrier may declare an extraordinary dividend or distribution that is conditional upon the commissioner's approval. The declaration confers no rights upon shareholders or members until: (i) The commissioner has approved the payment of the dividend or distribution; or (ii) the commissioner has not disapproved the payment within the thirty‑day period referred to in (a) of this subsection.

(3) For the purpose of this section, "distribution" means a direct or indirect transfer of money or other property, except its own shares, or incurrence of indebtedness by a health carrier to or for the benefit of its members or shareholders in respect to any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a distribution in partial or complete liquidation, or upon voluntary or involuntary dissolution; a purchase, redemption, or other acquisition of shares; or a distribution of indebtedness in respect to any of its shares. It does not include any remuneration to a shareholder or member made as consideration for services or items provided by such shareholder or member, including but not limited to remuneration in exchange for health care services, equipment or supplies, or administrative support services or equipment.

NEW SECTION. Sec. 7. (1) Subject to the limitation contained in this section and in addition to the powers that the commissioner has under RCW 48.44.145 relating to the examination of health care service contractors and under RCW 48.46.120 relating to the examination of health maintenance organizations, the commissioner also may order a health carrier registered under section 4 of this act to produce such records, books, or other information papers in the possession of the health carrier or its affiliates as are reasonably necessary to ascertain the financial condition of the health carrier or to determine compliance with this title. If the health carrier fails to comply with the order, the commissioner may examine the affiliates to obtain the information.

(2) The commissioner may retain at the registered health carrier's expense those attorneys, actuaries, accountants, and other experts not otherwise a part of the commissioner's staff as are reasonably necessary to assist in the conduct of the examination under subsection (1) of this section. Persons so retained are under the direction and control of the commissioner and shall act in a purely advisory capacity.

(3) Each registered health carrier producing for examination records, books, and papers under subsection (1) of this section are liable for and shall pay the expense of the examination in accordance with RCW 48.03.060.

(4) Chapter 48.03 RCW applies to this chapter except to the extent expressly modified by this chapter.

NEW SECTION. Sec. 8. (1) Whenever it appears to the commissioner that a health carrier or a director, officer, employee, or agent of the health carrier has committed or is about to commit a violation of this chapter or any rule or order of the commissioner under this chapter, the commissioner may apply to the superior court for Thurston county or to the court for the county in which the principal office of the health carrier is located for an order enjoining the health carrier or the director, officer, employee, or agent from violating or continuing to violate this chapter or any such rule or order, and for such other equitable relief as the nature of the case and the interest of the health carrier's subscribers or the public may require.

(2) No security that is the subject of an agreement or arrangement regarding acquisition, or that is acquired or to be acquired, in contravention of this chapter or of a rule or order of the commissioner under this chapter may be voted at a shareholders' meeting, or may be counted for quorum purposes. Any action of shareholders requiring the affirmative vote of a percentage of shares may be taken as though the securities were not issued and outstanding, but no action taken at any such meeting may be invalidated by the voting of the securities, unless the action would materially affect control of the health carrier or unless the courts of this state have so ordered. If a health carrier or the commissioner has reason to believe that a security of the health carrier has been or is about to be acquired in contravention of this chapter or of a rule or order of the commissioner under this chapter, the health carrier or the commissioner may apply to the superior court for Thurston county or to the court for the county in which the health carrier has its principal place of business to enjoin an offer, request, invitation, agreement, or acquisition made in contravention of section 3 of this act or a rule or order of the commissioner under that section to enjoin the voting of a security so acquired, to void a vote of the security already cast at a meeting of shareholders, and for such other relief as the nature of the case and the interest of the health carrier's subscribers or the public may require.

(3) If a person has acquired or is proposing to acquire voting securities in violation of this chapter or a rule or order of the commissioner under this chapter, the superior court for Thurston county or the court for the county in which the health carrier has its principal place of business may, on such notice as the court deems appropriate, upon the application of the health carrier or the commissioner seize or sequester voting securities of the health carrier owned directly or indirectly by the person, and issue such order with respect to the securities as may be appropriate to carry out this chapter.

(4) Notwithstanding any other provisions of law, for the purposes of this chapter, the situs of the ownership of the securities of domestic health carriers is in this state.

(5) Subsections (2) and (3) of this section do not apply to acquisitions under section 2 of this act.

NEW SECTION. Sec. 9. (1) The commissioner may require, after notice and hearing, a health carrier failing, without just cause, to file a registration statement as required in this chapter, to pay a penalty of not more than ten thousand dollars per day. The maximum penalty under this section is one million dollars. The commissioner may reduce the penalty if the health carrier demonstrates to the commissioner that the imposition of the penalty would constitute a financial hardship to the health carrier. The commissioner shall transfer a fine collected under this section to the state treasurer for deposit into the general fund.

(2) Every director or officer of a health carrier holding company system who knowingly violates this chapter, or participates in, or assents to, or who knowingly permits an officer or agent of the health carrier to engage in transactions or make investments that have not been properly reported or submitted under section 4(1), 5(2), or 6 of this act, or that violate this chapter, shall pay, in their individual capacity, a civil forfeiture of not more than ten thousand dollars per violation, after notice and hearing. In determining the amount of the civil forfeiture, the commissioner shall take into account the appropriateness of the forfeiture with respect to the gravity of the violation, the history of previous violations, and such other matters as justice may require.

(3) Whenever it appears to the commissioner that a health carrier subject to this chapter, or a director, officer, employee, or agent of the health carrier, has engaged in a transaction or entered into a contract that is subject to sections 5 and 6 of this act and that would not have been approved had approval been requested, the commissioner may order the health carrier to cease and desist immediately any further activity under that transaction or contract. After notice and hearing the commissioner may also order the health carrier to void any such contracts and restore the status quo if that action is in the best interest of the subscribers or the public.

(4) Whenever it appears to the commissioner that a health carrier or a director, officer, employee, or agent of the health carrier has committed a willful violation of this chapter, the commissioner may refer the matter to the prosecuting attorney of Thurston county or the county in which the principal office of the health carrier is located. A health carrier that willfully violates this chapter may be fined not more than one million dollars. Any individual who willfully violates this chapter may be fined in his or her individual capacity not more than ten thousand dollars, or be imprisoned for not more than three years, or both.

(5) An officer, director, or employee of a health carrier holding company system who willfully and knowingly subscribes to or makes or causes to be made a false statement, false report, or false filing with the intent to deceive the commissioner in the performance of his or her duties under this chapter, upon conviction thereof, shall be imprisoned for not more than three years or fined not more than ten thousand dollars or both. The officer, director, or employee upon whom the fine is imposed shall pay the fine in his or her individual capacity.

(6) This section does not apply to acquisitions under section 2 of this act.

NEW SECTION. Sec. 10. Whenever it appears to the commissioner that a person has committed a violation of this chapter that so impairs the financial condition of a domestic health carrier as to threaten insolvency or make the further transaction of business by it hazardous to its subscribers or the public, the commissioner may proceed as provided in RCW 48.31.030 and 48.31.040 to take possession of the property of the domestic health carrier and to conduct the business of the health carrier.

NEW SECTION. Sec. 11. (1) If an order for liquidation or rehabilitation of a domestic health carrier has been entered, the receiver appointed under the order may recover on behalf of the health carrier:

(a) From a parent corporation or a holding company, a person, or an affiliate, who otherwise controlled the health carrier, the amount of distributions, other than distributions of shares of the same class of stock, paid by the health carrier on its capital stock; or

(b) A payment in the form of a bonus, termination settlement, or extraordinary lump sum salary adjustment, made by the health carrier or its subsidiary to a director, officer, or employee;

Where the distribution or payment under (a) or (b) of this subsection is made at anytime during the one year before the petition for liquidation, conservation, or rehabilitation, as the case may be, subject to the limitations of subsections (2) through (4) of this section.

(2) No such distribution is recoverable if it is shown that when paid, the distribution was lawful and reasonable, and that the health carrier did not know and could not reasonably have known that the distribution might adversely affect the ability of the health carrier to fulfill its contractual obligations.

(3) A person who was a parent corporation, a holding company, or a person, who otherwise controlled the health carrier, or an affiliate when the distributions were paid, is liable up to the amount of distributions or payments under subsection (1) of this section the person received. A person who controlled the health carrier at the time the distributions were declared is liable up to the amount of distributions he or she would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they are jointly and severally liable.

(4) The maximum amount recoverable under this section is the amount needed in excess of all other available assets of the impaired or insolvent health carrier to pay the contractual obligations of the impaired or insolvent health carrier.

(5) To the extent that a person liable under subsection (3) of this section is insolvent or otherwise fails to pay claims due from it under those provisions, its parent corporation, holding company, or person, who otherwise controlled it at the time the distribution was paid, is jointly and severally liable for a resulting deficiency in the amount recovered from the parent corporation, holding company, or person, who otherwise controlled it.

NEW SECTION. Sec. 12. Whenever it appears to the commissioner that a person has committed a violation of this chapter that makes the continued operation of a health carrier contrary to the interests of subscribers or the public, the commissioner may, after giving notice and an opportunity to be heard, suspend, revoke, or refuse to renew the health carrier's registration to do business in this state for such period as he or she finds is required for the protection of subscribers or the public. Such a suspension, revocation, or refusal to renew the health carrier's registration must be accompanied by specific findings of fact and conclusions of law.

NEW SECTION. Sec. 13. Confidential proprietary and trade secret information provided to the commissioner under sections 2 through 5 and 7 of this act are exempt from public inspection and copying and shall not be subject to subpoena directed to the commissioner or any person who received the confidential proprietary financial and trade secret information while acting under the authority of the commissioner. This information shall not be made public by the commissioner, the national association of insurance commissioners, or any other person, except to insurance departments of other states, without the prior written consent of the health carrier to which it pertains unless the commissioner, after giving the health carrier that would be affected by the disclosure notice and hearing under chapter 48.04 RCW, determines that the interest of policyholders, subscribers, members, shareholders, or the public will be served by the publication, in which event the commissioner may publish information related to the transactions or filings in the manner and time frame he or she reasonably deems appropriate and sensitive to the interest in preserving confidential proprietary and trade secret information. The commissioner is authorized to use such documents, materials, or information in the furtherance of any regulatory or legal action brought as part of the commissioner's official duties. The confidentiality created by this act shall apply only to the commissioner, any person acting under the authority of the commissioner, the national association of insurance commissioners and its affiliates and subsidiaries, and the insurance departments of other states.

NEW SECTION. Sec. 14. A new section is added to chapter 42.17 RCW to read as follows:

Confidential proprietary and trade secret information provided to the commissioner under sections 2 through 5 and 7 of this act are exempt from disclosure under this chapter.

NEW SECTION. Sec. 15. (1) A person aggrieved by an act, determination, rule, order, or any other action of or failure to act by the commissioner under this chapter may proceed in accordance with chapters 34.05 and 48.04 RCW.

NEW SECTION. Sec. 16. The commissioner may adopt rules to implement and administer this chapter.

NEW SECTION. Sec. 17. If an insurance company holding a certificate of authority from the commissioner under chapter 48.05 RCW is a member of both a health carrier holding company system under this chapter and an insurance holding company system under chapter 48.31B RCW, then chapter 48.31B RCW applies to the authorized insurance company.

NEW SECTION. Sec. 18. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 19. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.

NEW SECTION. Sec. 20. Sections 1 through 13 and 15 through 18 of this act constitute a new chapter in Title 48 RCW.