Part 1.
TEXAS DEPARTMENT OF INSURANCE
Chapter 11.
HEALTH MAINTENANCE ORGANIZATIONS
The commissioner of insurance adopts the amendment to §11.2,
concerning definitions and adopts new §11.809, concerning risk-based
capital requirements for health maintenance organizations (HMOs). The amendment
and new section are adopted with changes to the text as proposed in the November
26, 1999, issue of the
Texas Register
(24
TexReg 10499).
The new section and the amendment are necessary to implement House Bill
3023, 76th Legislature. House Bill 3023 added §13C to the Texas Health
Maintenance Organization Act (Insurance Code Article 20A.13C) which authorizes
the commissioner of insurance to adopt rules requiring an HMO operating in
this state to maintain a specified net worth based on the risks inherent in
its method of operation. House Bill 3023 also repealed the requirement that
an HMO maintain a minimum surplus. The amendment to §11.2 deleted subsection
(b)(17) which defined "excess surplus" since that term is obsolete with the
repeal of a minimum surplus requirement. New definitions in §11.2(b)(48)-(54)
are necessary to clarify new §11.809 concerning risk-based capital for
HMOs. In response to a comment, §11.809(e)(4) was changed by deleting
the reference to "Insurance Code, Articles 20A.13A and 20A.13B" and substituting
"Insurance Code Article 20A.13C."
The risk-based capital formula provides the department with an important
tool in evaluating the financial condition of an HMO. The adopted amendment
and new section adopt by reference the National Association of Insurance Commissioners'
Managed Care Organization Risk-Based Capital Report (RBC Report). Risk-based
capital is a method of measuring the minimum amount of capital appropriate
for a managed care organization, such as an HMO, to support its overall business
operations in consideration of its size and risk profile. An HMO's risk-based
capital is calculated by applying factors to various asset, premium, and reserve
items. The factor is higher for those items with greater underlying risk and
lower for less risky items. The adequacy of an HMO's capital can then be measured
by comparing its total adjusted capital to its risk-based capital requirement
determined by the RBC Report. The RBC Report frequently uses the term "capital"
to refer to "net worth," the latter being the term used in the statute. In
accounting parlance, the words are practically synonymous, so the section
uses the term "capital" to be consistent with the terminology in the RBC Report.
Those HMOs that do not have total adjusted capital equal to or greater than
the risk-based capital which will be required by this section will incur the
cost of increasing their capital to the amount required by the section. This
cost will be incurred over several years in accordance with the phase-in provided
in the adopted section. As an alternative to increasing its net worth to comply
with the section, an HMO may reduce the risks inherent in its operation. Changes
have been made to the proposed text to correct typographical and grammatical
errors.
COMMENT: A commenter pointed out that the new section did not include the
four different levels of capital that are in the National Association of Insurance
Commissioners' Risk-Based Capital for Health Organizations Model Act.
REPLY: The department only adopts the National Association of Insurance
Commissioners' Risk-Based Capital Report for Managed Care Organizations. The
department believes the National Association of Insurance Commissioners' Risk-Based
Capital for Health Organizations Model Act which contains the capital levels
of "company action level," "regulatory action level," "mandatory control level,"
and "authorized control level," referred to by the commenter are not necessary
for effectively implementing risk-based capital for HMOs in Texas. The department
believes the adoption of "authorized control level" in §11.809 provides
flexibility and discretion for the department and HMOs in maintaining compliance
with the requirements of the section.
COMMENT: A commenter questioned whether §11.809(e)(4) was correct
in stating that the failure to meet risk-based capital results is a failure
to maintain minimum net worth since Insurance Code Article 20A.13A sets minimum
net worth requirements and §11.809 establishes a standard in excess of
those requirements.
REPLY: The department believes the commenter's reading of §11.809(e)(4)
is too narrow; however, to remove any ambiguity from the section, the department
deletes the reference to Insurance Code Articles 20A.13A and 20A.13B and substitutes
a reference to Insurance Code Article 20A.13C. The purpose of the section
is to require a minimum level of capital appropriate to the risks inherent
in the operations of an HMO and ensure the financial solvency of HMOs for
the protection of enrollees. In any case, the facts of the particular case
have to support any of the actions taken by the commissioner described in §11.809(e).
COMMENT: A commenter questioned whether §11.809(e)(4) authorizes the
commissioner to file suit to place an HMO into receivership if it fails to
maintain the risk-based capital required by the section, but still meets the
requirements of Insurance Code Articles 20A.13A and 20A.13B.
REPLY: Insurance Code, Article 20A.31 is not limited to receivership. It
also authorizes the commissioner to file suit for any violation of the HMO
Act, Insurance Code Chapter 20A. If the facts of a particular case support
a suit to place an HMO into receivership, then that action would be appropriate.
Therefore, it is possible that a receivership action could be instituted against
an HMO even if the HMO has the minimum net worth required by statute. Section
11.809 is designed to ensure the financial solvency of HMOs for the protection
of enrollees. Section 11.809(e) notifies HMOs that the commissioner is not
limited to seeking compliance with the section, but may take other actions
considered appropriate to remedy the failure to maintain the minimum amount
required by §11.809(b).
COMMENT: A commenter suggested §11.809(e)(5) be changed by inserting
"applicable" before "sanctions."
REPLY: The department does not agree with the suggestion. As a matter of
law, the department cannot pursue a sanction which is not applicable to an
HMO. The addition of the word "applicable" does not add clarity or meaning
to the rule.
The Texas Association of Health Plans commented against some provisions
of the new section.
Subchapter A. GENERAL PROVISIONS
28 TAC §11.2
The amendment to §11.2 is adopted under Insurance Code
Articles 20A.13C, 20A.22, 21.21 and Insurance Code, §36.001 (formerly
Insurance Code Article 1.03A). Article 20A.13C authorizes the commissioner
to adopt rules to establish guidelines requiring an HMO to maintain a specified
net worth based on the risks inherent in its method of operation. Article
20A.22 authorizes the commissioner to adopt reasonable regulations necessary
and proper to carry out Insurance Code Chapter 20A. Article 21.21 authorizes
the commissioner to adopt rules concerning unfair methods of competition.
Section 36.001(a) provides the commissioner with the authority to adopt rules
for the conduct and execution of the powers and duties of the department only
as authorized by a statute.
§11.2. Definitions.
(a)
The definitions found in the Texas Health Maintenance
Organization Act §2, as amended, codified in Texas Insurance Code Article
20A.02, are hereby incorporated into this chapter.
(b)
The following words and terms, when used in this chapter,
shall have the following meanings unless the context clearly indicates otherwise.
(1)
Act -- The Texas Health Maintenance Organization Act,
Senate Bill 180, enacted by Acts 1975, 64th Legislature, Chapter 214, pages
514-530, first effective December 1, 1975, as amended, codified as the Texas
Insurance Code Chapter 20A.
(2)
Admitted assets -- All assets as defined by statutory
accounting principles, as permitted and valued in accordance with §11.803
of this title (relating to Investments, Loans, and Other Assets).
(3)
Adverse determination -- A determination upon utilization
review that the health care services furnished or proposed to be furnished
to a patient are not medically necessary or not appropriate.
(4)
Affiliate -- A person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified.
(5)
Agent -- As defined in the Insurance Code Articles
20A.15 and 20A.15A, unless the context of the rule clearly indicates applicability
to any agents licensed under one specific article.
(6)
ANHC or approved nonprofit health corporation --
A nonprofit health corporation certified under Medical Practice Act §5.01(a)
(Texas Civil Statutes, Article 4495b).
(7)
Basic health care service -- Health care services
which an enrolled population might reasonably require to maintain good health,
including, without limitations as to time and cost, those benefits as prescribed
in §§11.508 and 11.509 of this title (relating to Mandatory Benefit
Standards: Group, Individual and Conversion Agreements, and Additional Mandatory
Benefit Standards - Group Agreement Only), other than those limitations specifically
prescribed in this title.
(8)
Code -- The Texas Insurance Code, 1951, as amended.
(9)
Contract holder -- An individual, association, employer,
trust or organization to which an individual or group contract for health
care services has been issued.
(10)
Control -- As defined in the Insurance Code Article
21.49-1.
(11)
Controlled HMO -- An HMO controlled directly or
indirectly by a holding company.
(12)
Controlled person -- Any person, other than an HMO,
who is controlled directly or indirectly by a holding company.
(13)
Copayment -- A charge in addition to premium to
an enrollee for a service which is not fully prepaid.
(14)
Credentialing -- The review of qualifications and
other relevant information pertaining to a physician, dentist, or provider
who seeks a contract with an HMO.
(15)
Credentials -- Certificates, diplomas, licenses
or other written documentation which verifies proof of training, education,
and experience in a field of expertise.
(16)
Dentist -- An individual licensed to practice dentistry
by the Texas State Board of Dental Examiners.
(17)
General hospital -- A licensed establishment that:
(A)
offers services, facilities, and beds for use for more
than 24 hours for two or more unrelated individuals requiring diagnosis, treatment,
or care for illness, injury, deformity, abnormality, or pregnancy; and
(B)
regularly maintains, at a minimum, clinical laboratory
services, diagnostic X-ray services, treatment facilities including surgery
or obstetrical care or both, and other definitive medical or surgical treatment
of similar extent.
(18)
HMO -- A health maintenance organization as
defined in Insurance Code Article 20A.02(n).
(19)
Health status related factor -- Any of the following
in relation to an individual:
(A)
health status;
(B)
medical condition (including both physical and mental
illnesses);
(C)
claims experience;
(D)
receipt of health care;
(E)
medical history;
(F)
genetic information;
(G)
evidence of insurability (including conditions arising
out of acts of domestic violence, including family violence as defined by
the Insurance Code Article 21.21-5); or
(H)
disability.
(20)
Limited provider network -- A subnetwork within
an HMO delivery network in which contractual relationships exist between physicians,
certain providers, independent physician associations and/or physician groups
which limit the enrollees' access to only the physicians and providers in
the subnetwork.
(21)
Limited service HMO -- An HMO which has been issued
a certificate of authority to issue a limited service health care plan as
defined in the Insurance Code Article 20A.02(l).
(22)
Out of area benefits -- Benefits that the HMO covers
when its enrollees are outside the geographical limits of the HMO service
area.
(23)
Pathology services -- Services provided by a licensed
laboratory which has the capability of evaluating tissue specimens for diagnoses
in histopathology, oral pathology, or cytology.
(24)
Pharmaceutical services -- Services, including dispensing
prescription drugs, as defined in the Pharmacy Act, Texas Civil Statutes,
Article 4542a-1, §5 that are ordinarily and customarily rendered by a
pharmacy or pharmacist.
(25)
Pharmacist -- An individual licensed to practice
pharmacy under the Pharmacy Act, Texas Civil Statutes, Article 4542a-1.
(26)
Pharmacy -- A facility licensed under the Pharmacy
Act, Texas Civil Statutes, Article 4542a-1 §29.
(27)
Premium -- The prospectively determined rate that
is paid by or on behalf of an enrollee for specified health services.
(28)
Primary care physician or primary care provider
-- A physician or provider who is responsible for providing initial and primary
care to patients, maintaining the continuity of patient care, and initiating
referral for care.
(29)
Primary HMO -- An HMO that contracts directly with,
and issues an evidence of coverage to, individuals or organizations to arrange
for or provide a basic, limited, or single health care service plan to enrollees
on a prepaid basis.
(30)
Provider HMO -- An HMO that contracts directly with
a primary HMO to provide or arrange to provide health care services on behalf
of the primary HMO within the primary HMO's defined service area.
(31)
Psychiatric hospital -- A licensed hospital which
offers inpatient services, including treatment, facilities and beds for use
beyond 24 hours, for the primary purpose of providing psychiatric assessment
and diagnostic services and psychiatric inpatient care and treatment for mental
illness. Such services must be more intensive than room, board, personal services,
and general medical and nursing care. Although substance abuse services may
be offered, a majority of beds must be dedicated to the treatment of mental
illness in adults and/or children.
(32)
Qualified HMO -- An HMO which has been federally
approved under Title XIII of the Public Health Service Act, Public Law 93-222,
as amended.
(33)
Quality improvement -- A system to continuously
examine, monitor and revise processes and systems that support and improve
administrative and clinical functions.
(34)
Reference laboratory -- A licensed laboratory that
accepts specimens for testing from outside sources and depends on referrals
from other laboratories or entities. HMOs may contract with a reference laboratory
to provide clinical diagnostic services to their enrollees.
(35)
Reference laboratory specimen procurement services
-- The operation utilized by the reference laboratory to pick up the lab specimens
from the client offices or referring labs, etc. for delivery to the reference
laboratory for testing and reporting.
(36)
Referral specialists (other than primary care) --
Physicians or providers who set themselves apart from the primary care physician
or primary care provider through specialized training and education in a health
care discipline.
(37)
Schedule of charges -- Specific rates or premiums
to be charged for enrollee and dependent coverages.
(38)
Service area -- A geographic area within which direct
service benefits are available and accessible to HMO enrollees who live, reside
or work within that geographic area and which complies with §11.1606
of this title (relating to Organization of an HMO).
(39)
Single service HMO -- An HMO which has been issued
a certificate of authority to issue a single health care service plan as defined
in the Insurance Code Article 20A.02(y).
(40)
Special hospital -- A licensed establishment that:
(A)
offers services, facilities and beds for use for more
than 24 hours for two or more unrelated individuals who are regularly admitted,
treated and discharged and who require services more intensive than room,
board, personal services, and general nursing care;
(B)
has clinical laboratory facilities, diagnostic X-ray facilities,
treatment facilities or other definitive medical treatment;
(C)
has a medical staff in regular attendance; and
(D)
maintains records of the clinical work performed for each
patient.
(41)
Statutory surplus -- Admitted assets minus
accrued uncovered liabilities.
(42)
Subscriber -- If conversion or individual coverage,
the individual who is the contract holder and is responsible for payment of
premiums to the HMO; or if group coverage, the individual who is the certificate
holder and whose employment or other membership status, except for family
dependency, is the basis for eligibility for enrollment in the HMO.
(43)
Subsidiary -- An affiliate controlled by a specified
person directly or indirectly through one or more intermediaries.
(44)
Telemedicine -- As defined in the Insurance Code
Article 21.53F.
(45)
Urgent care -- Health care services provided in
a situation other than an emergency which are typically provided in a setting
such as a physician or provider's office or urgent care center, as a result
of an acute injury or illness that is severe or painful enough to lead a prudent
layperson, possessing an average knowledge of medicine and health, to believe
that his or her condition, illness, or injury is of such a nature that failure
to obtain treatment within a reasonable period of time would result in serious
deterioration of the condition or his or her health.
(46)
Utilization review -- A system for prospective or
concurrent review of the medical necessity and appropriateness of health care
services being provided or proposed to be provided to an individual within
this state. Utilization review shall not include elective requests for clarification
of coverage.
(47)
Voting security -- As defined in the Insurance Code
Article 21.49-1, including any security convertible into or evidencing a right
to acquire such security.
(48)
NAIC -- National Association of Insurance Commissioners.
(49)
Annual financial statement -- The annual statement
to be used by HMOs, as promulgated by the NAIC and as adopted by the commissioner
under Insurance Code Articles 1.11 and 20A.10.
(50)
RBC -- Risk-based capital.
(51)
RBC formula -- NAIC risk-based capital formula.
(52)
Authorized control level -- The number determined
under the RBC formula in accordance with the RBC instructions.
(53)
RBC Report -- 1999 NAIC Managed Care Organizations
Risk-Based Capital Report including Overview and Instructions for Companies
published by the NAIC.
(54)
Total adjusted capital -- An HMO's statutory capital
and surplus/total net worth as determined in accordance with the statutory
accounting applicable to the annual financial statements required to be filed
pursuant to the Insurance Code, and such other items, if any, as the RBC instructions
provide.
This agency hereby certifies that the adoption has been
reviewed by legal counsel and found to be a valid exercise of the agency's
legal authority.
Filed with the Office of
the Secretary of State on March 10, 2000.
TRD-200001839
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 30, 2000
Proposal publication date: November 26, 1999
For further information, please call: (512) 463-6327
28 TAC §11.809
The new section is adopted under Insurance Code Articles 20A.13C,
20A.22, 21.21 and Insurance Code, §36.001 (formerly Insurance Code Article
1.03A). Article 20A.13C authorizes the commissioner to adopt rules to establish
guidelines requiring an HMO to maintain a specified net worth based on the
risks inherent in its method of operation. Article 20A.22 authorizes the commissioner
to adopt reasonable regulations necessary and proper to carry out Insurance
Code Chapter 20A. Article 21.21 authorizes the commissioner to adopt rules
concerning unfair methods of competition. Section 36.001(a) provides the commissioner
with the authority to adopt rules for the conduct and execution of the powers
and duties of the department only as authorized by a statute.
§11.809. Risk-Based Capital for HMOs.
(a)
Scope and Purpose. This section applies to all domestic
and foreign HMOs subject to the provisions of the Insurance Code Chapter 20A.
The purpose of Insurance Code Article 20A.13C and this section is to require
a minimum level of capital appropriate to the underwriting, financial, investment
risks and other business and relevant risks assumed by an HMO.
(b)
Phase In of Risk-Based Capital. The risk-based capital
requirements of this section are phased in as follows:
(1)
As of 12-31-99, HMOs are only required to file the RBC
Report for informational purposes;
(2)
As of 12-31-2000, HMOs must have 50% of the authorized
control level risk based capital in the RBC Report; and
(3)
As of 12-31-2001, and thereafter HMOs must have 70%
of the authorized control level risk-based capital in the RBC Report.
(c)
Adoption of RBC formula by reference and filing requirements.
The commissioner adopts by reference the 1999 NAIC Managed Care Organizations
Risk-Based Capital Report including Overview and Instructions for companies
which includes the RBC formula and the required diskettes. All HMOs subject
to this section are required to file the diskettes with the NAIC in accordance
with and by the due date specified in the RBC instructions.
(d)
Conflicts. In the event of a conflict between the Insurance
Code, any currently existing rule of the department or any specific requirement
of this section, and the RBC formula and/or the RBC instructions, the Insurance
Code, rule or specific requirement of this section shall take precedence and
in all respects control. It is the express intent of this section that the
adoption by reference of the RBC instructions does not repeal or modify or
amend any rule of the department or the Insurance Code.
(e)
Actions of commissioner. The commissioner, subject to
the phase-in provisions in subsection (b) of this section, may take the following
actions against an HMO that fails to maintain, at a minimum, 70% of the authorized
control level risk-based capital in the RBC Report as calculated in accordance
with the RBC instructions:
(1)
order the HMO to cease writing new business;
(2)
place the HMO in supervision or conservation;
(3)
find the HMO to be in hazardous financial condition
as provided by the Insurance Code Article 20.19 and §11.810 of this title
(relating to Hazardous Conditions for HMOs);
(4)
find the HMO to be in violation of the minimum net
worth requirements of Insurance Code Article 20A.13C and take action as provided
by Insurance Code Article 20A.31, or
(5)
apply any sanctions provided by the Insurance Code
or Title 28 of the Texas Administrative Code.
(f)
Prohibition on Announcements. Except as otherwise required
under the provisions of this section, the department believes that the comparison
of an HMO's total adjusted capital to its risk-based capital is a regulatory
tool which may indicate the need for corrective action with respect to the
HMO and such a comparison is not intended as a means to rank HMOs generally;
therefore, the making, publishing, disseminating, circulating or placing before
the public, or causing, directly or indirectly to be made, published, disseminated,
circulated or placed before the public, in a newspaper, magazine or other
publication, or in the form of a notice, circular, pamphlet, letter or poster,
or over any radio or television station, or in any other way, an advertisement,
announcement or statement containing an assertion, representation or statement
with regard to any component derived in the calculation, by any HMO, insurer,
agent, broker or person engaged in any manner in the insurance business would
be misleading and is, therefore, prohibited.
(g)
Limitations. In no event, shall the requirements of this
section reduce the amount of net worth, capital and/or surplus otherwise required
by provisions of the Insurance Code or Texas Administrative Code, or by order
of the commissioner.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed
with the Office of the Secretary of State on March 10, 2000.
TRD-200001840
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 30, 2000
Proposal publication date: November 26, 1999
For further information, please call: (512) 463-6327
28 TAC §§11.801 - 11.803, 11.807
The commissioner of insurance adopts amendments to §§11.801
- 11.803 and 11.807, concerning financial requirements for health maintenance
organizations (HMOs). The amended sections are adopted with changes to the
text as proposed in the November 26, 1999, issue of the
Texas Register
(24 TexReg 10503).
The amendments are necessary to implement House Bill 3023, 76th Legislature.
House Bill 3023 repealed Insurance Code Article 20A.13(i), (j), (k) and (l),
which established minimum surplus requirements for health maintenance organizations
doing business in Texas and enacted Insurance Code Articles 20A.13A and 20A.13B
which establish minimum net worth requirements for HMOs doing business in
Texas. House Bill 3023 also prescribed the investments an HMO must have to
represent the minimum net worth. The adopted sections conform those sections
to the provisions of House Bill 3023 concerning minimum net worth and the
types of assets that must support the minimum net worth. Subsection (d) of §11.801
is deleted in response to a comment. It would have required an HMO to increase
its net worth after a change of control to the amount required by Insurance
Code Article 20A.13A. Proposed §11.801(e) was changed to (d) to reflect
the deletion. To clarify §11.803(2), the department changed the first
sentence to read, "An HMO may invest its funds in excess of minimum surplus
in an amount at least equal to its uncovered liabilities..." from the proposed,
"An HMO may invest its funds which support its uncovered liabilities...."
Section 11.803(1) was changed by deleting "...and §11.801(d) of this
title (Relating to Minimum Net Worth)" since subsection (d) was deleted.
HMOs licensed after September 1, 1999, must have a minimum net worth of
$1,500,000 if they are authorized to provide basic health care services; $1,000,000
if they are authorized to provide limited health care services, and $500,000
if they are authorized to provide only a single health care service. Under
the new law, HMOs licensed before September 1, 1999, are required to increase
their net worth incrementally beginning December 31, 2000. Amended §11.803(1)
reflects the enactment of Insurance Code Article 20A.13A(d) which requires
that the minimum net worth be invested in those investments described in Insurance
Code Article 20A.13A(d). Amended §11.803(2)(G) concerning investments
in stocks in business corporations has been brought up to date with current
business forms. Amended §11.807 requires an HMO to give prior notice
to the commissioner of certain dividends or distributions.
COMMENT: A commenter stated that §11.801(d) was contrary to the new
Insurance Code Article 20A.13, since the new law provides for a phase in of
the new minimum net worth requirements for HMOs licensed before September
1, 1999.
REPLY: While the department does not believe that the requirement of subsection
(d) is contrary to legislative intent, it has deleted (d) from the adopted
section and will handle the net worth requirements of each change of control
on a case by case basis.
COMMENT: A commenter asked whether "lawful money" in §11.802 included
certificates of deposit issued by a bank.
REPLY: Attorney General's Opinion, WW-1331(1962), ruled that bank certificates
of deposit are "lawful money of the United States" under the provisions of
the Insurance Code. Since the Legislature used the term "lawful money of the
United States of America" in Article 20A.13A, the same term was used in the
regulation with the intent to follow the ruling of the Attorney General.
COMMENT: A commenter recommended that §11.802(a)(1) be changed to
eliminate the requirement that a certificate of deposit be issued by a Texas
bank.
REPLY: Since no change to §11.802(a)(1) was proposed in the Texas
Register, the department cannot consider the commenter's request. The department
further believes such a proposal would be unwise since the purpose of the
requirement is to facilitate the ability of the department or a receiver to
acquire control of an HMO's assets in the event the department or a receiver
has to take control of the affairs of an HMO for the protection of enrollees
or the public.
COMMENT: A commenter noted that §11.803 imposed a significant restriction
on HMO investments by changing the standard in the section of "surplus in
excess of minimum surplus" to "net worth in excess of minimum net worth."
REPLY: The department recognizes that in most cases the change in standard
will reduce the amount an HMO can invest in an affected investment; however,
the department believes the broad investment authority granted to an HMO in §§11.803(2)
and 11.803(3) is more than adequate to allow an HMO to invest its funds productively.
Prior to the amendment of art. 20A.13, covered liabilities were not deducted
from the assets of an HMO so that surplus, from an accounting point of view,
was overstated. With the adoption of House Bill 3023, which adopted a net
worth requirement, the new standard in §11.803 is consistent with the
new legislative amendment.
COMMENT: A commenter requested clarification of §11.803(2) regarding
the investment of an HMO's funds that are in excess of its minimum net worth
and which support uncovered liabilities.
REPLY: To clarify §11.803(2), the department has changed the first
sentence to read, "An HMO may invest its funds in excess of minimum net worth
in an amount at least equal to its uncovered liabilities..." from the proposed
"An HMO may invest its funds which support its uncovered liabilities...."
"Uncovered liabilities" is defined in Insurance Code Article 20A.02(w) as
those liabilities that are not guaranteed by another person. Since uncovered
liabilities are not guaranteed by another person, the department, through
this section, requires an HMO to possess investments of reasonable quality
and diversification in at least the amount of the uncovered liabilities.
COMMENT: A commenter suggested the thirty day notice requirement in §11.807
be changed to ten days to be consistent with the similar requirement in the
Insurance Holding Company System Act (Insurance Code Article 21.49-1).
REPLY: The department disagrees. The amendment to §11.807 only addresses
extraordinary dividends which, under Insurance Code Article 21.49-1 §4(c),
requires thirty days notice to the commissioner. HMOs can declare and pay
other dividends without notice to the department, while insurers subject to
the Insurance Holding Company Act are required to give ten days notice to
the department on such other dividends.
COMMENT: A commenter also asked what the current capitalization requirement
is, in view of the repeal of the statutory surplus minimum as of September
1, 1999 and the imposition of the net worth requirement which goes into effect
for existing HMOs on December 31, 2000.
REPLY: The department recognizes there is no current statutory minimum
surplus or net worth requirement for HMOs; however, the department expects
each HMO to maintain the capital appropriate for its projected profits or
losses and to have a plan in place to be in compliance with the minimum net
worth requirement when it becomes effective December 31, 2000. The department
notes that there currently are sufficient administrative remedies to address
HMOs that may be in a hazardous financial condition, which may be used until
the minimum net worth requirements become effective December 31, 2000.
The Texas Association of Health Plans commented against some provisions
of the proposal.
The amendments are adopted under Insurance Code Articles 20A.22,
20A.13A, 20A.13B, and Insurance Code §36.001 (formerly Insurance Code
Article 1.03A). Article 20A.22 authorizes the commissioner to promulgate reasonable
regulations necessary and proper to carry out Insurance Code Chapter 20A.
Insurance Code Articles 20A.13A and 20A.13B establish the minimum net worth
requirement of health maintenance organizations and the phase-in of those
minimum requirements. Section 36.001(a) provides the commissioner of insurance
with the authority to adopt rules for the conduct and execution of the powers
and duties of the department only as authorized by a statute.
§11.801. Minimum Net Worth.
(a)
On or after September 1, 1999, at the time of the initial
qualifying examination, an applicant for a certificate of authority to operate
an HMO must have unencumbered assets of the type described in subsection (b)
of this section in excess of all of its liabilities equal to or greater than
the required net worth established in Insurance Code Article 20A.13A. An HMO
licensed before September 1, 1999, must comply with the minimum net worth
requirement in Insurance Code, Article 20A.13B.
(b)
The types of assets required for an applicant to possess
at the time of the qualifying examination are lawful money of the United States
of America, bonds of this state, bonds or other evidences of indebtedness
of the United States of America or any of its agencies when such obligations
are guaranteed as to principal and interest by the United States of America,
or bonds or other interest-bearing evidences of indebtedness of any counties
or municipalities of this state. Lawful money of the United States of America
includes deposits in an institution that is a member of the Federal Deposit
Insurance Corporation. Demand deposits, savings deposits or time deposits,
of the type that are federally insured in solvent banks and savings and loan
associations and branches thereof, which are organized under the laws of the
United States of America or under the laws of any state of the United States
of America may not exceed the greater of:
(1)
the amount of federal deposit insurance coverage pertaining
to such deposit; or
(2)
10% of the issuing financial institution's net worth,
provided that such net worth is in excess of $25 million;
(c)
After the qualifying examination, the applicant must maintain
unencumbered assets in excess of all of its liabilities by an amount equal
to or greater than the minimum net worth requirement until it receives its
certificate of authority, and thereafter, the HMO must meet the minimum net
worth requirements of the Insurance Code Article 20A.13A, by maintaining unencumbered
assets in excess of its liabilities equal to or greater than the minimum net
worth requirement.
(d)
Notwithstanding subsections (b) and (c) of this section,
foreign HMOs seeking admission to this state which are actively conducting
business in other states, in addition to approved non-profit health corporations
authorized under the Insurance Code Article 21.52F, shall be required, at
a minimum, to comply with the Insurance Code Article 20A.13A at the time of
the qualifying examination.
§11.802. Statutory Deposit Requirements.
(a)
Statutory deposits made pursuant to the Insurance Code
Article 20A.13 must consist of funds in the form of lawful money of the United
States of America, bonds of this state, bonds or other evidences of indebtedness
of the United States of America or any of its agencies when such obligations
are guaranteed as to principal and interest by the United States of America,
or bonds or other interest-bearing evidences of indebtedness of any counties
or municipalities of this state.
(1)
Certificates of deposit must be issued by a solvent, federally
insured and Texas domiciled bank. However, the amount of total deposits by
the HMO in the same depository bank may not exceed the greater of:
(A)
the limits of federal insurance coverage pertaining to
such deposits; or
(B)
10% of the issuing depository bank's net worth, provided
that such net worth is in excess of $25 million.
(2)
Bonds of this state, bonds or other evidences
of indebtedness of the United States of America or any of its agencies when
such obligations are guaranteed as to principal and interest by the United
States of America, or bonds or other interest-bearing evidences of indebtedness
of any counties or municipalities of this state must be valued at the lesser
of current fair market value or amortized cost.
(b)
Before the issuance of the certificate of authority, the
HMO must submit funds as described in subsection (a) of this section in the
amount required by the Insurance Code Article 20A.13, with four completed
originals of security deposit report form number 120, one original pledge
document on bank letterhead, and the applicable fees pursuant to §7.1301(d)
of this title (relating to Regulatory Fees) to the bond and securities officer
of the department.
(c)
Each HMO must annually determine the amount of statutory
deposit required as specified in the Insurance Code Article 20A.13 and deposit
any required additional funds by March 15 in the manner set forth as follows:
(1)
Any additional statutory deposit required shall be in
funds as described in subsection (a) of this section and shall be accompanied
by four completed originals of security deposit report form 120 and the applicable
fee.
(2)
If any statutory deposit is to be released, such
request for release must be accompanied by four completed originals of withdrawal
form number 121 and the applicable fee. If the commissioner directs such a
release, the bond and securities officer of the department shall execute a
release of any pledge and the funds shall be returned to the HMO.
(d)
For any substitution of funds, the HMO must submit four
completed originals of security deposit report form number 120, four completed
originals of withdrawal form number 121, one original pledge document on bank
letterhead, and the applicable fees.
(e)
If the HMO wishes to request a release of all or part
and/or a waiver of the statutory deposit requirements as permitted by the
Insurance Code Article 20A.13, a written request must be submitted to the
commissioner no less than 60 days prior to the March 15 due date. Such request
for any release or waiver must provide adequate information, including the
following, to justify the release:
(1)
Specification of the pertinent provision(s) of the Insurance
Code under which the release or waiver is being requested;
(2)
The amount of the statutory deposit for which a release
or waiver is being requested;
(3)
If a waiver is being requested, the period of time
over which the waiver is requested;
(4)
Supporting documentation that justifies such release
or waiver including:
(A)
Reasons for requesting the release or waiver;
(B)
Discussion as to impact of granting a release and/or waiver
and assurance that the HMO and its enrollees will not be harmed if the release
or waiver is granted;
(C)
Evidence that the HMO has reported net profits for the
previous 12 months;
(D)
Evidence that the HMO's net worth is in a positive position;
(E)
If a request is based upon a guarantee:
(i)
a copy of the guarantee;
(ii)
a copy of the most current financial statements of the
sponsoring organization;
(iii)
disclosure of the number of guarantees that the sponsoring
organization has issued; and
(iv)
disclosure of the dollar amount of all obligations guaranteed
and the amounts reflected as liabilities and the amounts guaranteed that are
not reflected as liabilities in the sponsoring organization's consolidated
financial statements;
(5)
If the request is based on projected uncovered
expenses:
(A)
Projections for the next calendar year which includes
an income statement, a balance sheet, a cash flow statement and enrollment,
including assumptions on which the projections are based;
(B)
An explanation as to why expenses are classified as "covered";
and
(C)
A reconciliation with explanation for any differences
between submitted projections and the previous calendar year's actual experience.
(6)
If a release is requested under subsections
(d) or (e) of the Insurance Code Article 20A.13:
(A)
Evidence that the dollar amount of uncovered health care
expenses are likely to continue and will not exceed the amount remaining on
deposit; and
(B)
Explanation as to the reasons for the decrease in uncovered
health care expenses from that which was incurred during previous years.
(7)
If the commissioner approves the release or
waiver, the HMO must submit the forms required by subsection (c)(2) of this
section.
(f)
Whenever conditions upon which a waiver were granted change
to the extent that the HMO is no longer able to qualify for the waiver, the
HMO must deposit adequate funds to comply with the requirements of the Insurance
Code Article 20A.13, within 30 days.
(g)
All interest income when due on the statutory deposit
funds may be paid directly to the HMO by the bank.
§11.803. Investments, Loans, and Other Assets.
The admitted assets of domestic and foreign HMOs must comply with the
provisions of this section.
(1)
Investment of minimum net worth. An HMO must maintain
assets in an amount equivalent to its required minimum net worth in accordance
with Insurance Code Article 20A.13A(d). Demand deposits, savings deposits
or time deposits, of the type that are federally insured in solvent banks
and savings and loan associations and branches thereof, which are organized
under the laws of the United States of America or under the laws of any state
of the United States of America may not exceed the greater of:
(A)
the amount of federal deposit insurance coverage pertaining
to such deposit; or
(B)
10% of the issuing financial institution's net worth,
provided that such net worth is in excess of $25 million;
(2)
Investments to support uncovered liabilities.
An HMO may invest its funds in excess of minimum net worth in an amount at
least equal to uncovered liabilities only in the following:
(A)
any investments allowed in paragraph (1) of this section;
(B)
direct general obligations of any state of the United
States of America for the payment of money, or obligations for the payment
of money, to the extent guaranteed or insured as to the payment of principal
and interest by any state of the United States of America, provided:
(i)
such state has the power to levy taxes for the prompt
payment of the principal and interest of such obligations; and
(ii)
such state shall not be in default in the payment of
principal or interest on any of its direct, guaranteed, or insured general
obligations at the date of such investment;
(C)
bonds, interest-bearing warrants, or other obligations
issued by authority of law by any county, city, town, school district, or
other municipality or political subdivision which is now or hereafter may
be construed or organized under the laws of any state in the United States
of America and which is authorized to issue such bonds, warrants, or other
obligations under the constitution and laws of the state in which it is situated,
provided:
(i)
legal provision has been made by a tax to meet said obligations
or a special revenue or income to meet the principal and interest payments
as they accrue upon such obligations has been appropriated, pledged, or otherwise
provided; and
(ii)
such county, city, town, school district, or other municipality
or political subdivision shall not be in default in the payment of principal
or interest on any of its obligations at the date of such investment;
(D)
bonds, interest-bearing warrants, or other obligations
issued by authority of law by any educational institution which is now or
hereafter may be construed or organized under the laws of any state in the
United States, and which is authorized to issue such bonds and warrants under
the constitution and laws of the state in which it is situated, provided:
(i)
legal provision has been made by a tax to meet said obligations
or a special revenue or income to meet the principal and interest payments
as they accrue upon such obligations shall have been appropriated, pledged,
or otherwise provided; and
(ii)
such educational institution shall not be in default
in the payment of principal or interest on any of its obligations at the date
of such investment;
(E)
investments issued by insurers or HMOs subject to the
following conditions:
(i)
an HMO may not make an investment under this subparagraph
in any other HMO or insurer unless such other HMO or insurer is duly licensed
to do business in its domestic state and at the time of such investment is
in compliance with the minimum capital and surplus requirements then applicable
under the provisions of that state's statutes and regulations; provided, however,
an HMO may make an investment pursuant to this paragraph in another HMO which
has not yet received its certificate of authority to conduct the business
of an HMO in its domestic state or which does not yet possess the minimum
capital and surplus required by its domestic state if such investment will
be sufficient to give the investing HMO at least 50% control in such other
HMO, as the term "control" is defined in §11.1201 of this title (relating
to Definitions);
(ii)
an HMO may not invest, except as provided in subparagraphs
(F) and (G) of this paragraph, in any other HMO or insurer unless such investment
with subsequent investments shall result within 180 days of the first investment
in the investing HMO having control in such other HMO or insurer, as the term
"control" is defined in §11.1201 of this title (relating to Definitions);
(iii)
in no event may an HMO invest more than 50% of its net
worth in excess of minimum net worth in any one other HMO or insurer;
(iv)
in no event may the total investments made by an HMO
in all other HMOs or insurers pursuant to this subparagraph exceed 75% of
the investing HMO's net worth in excess of minimum net worth;
(v)
the restrictions of clauses (iii) and (iv) of this subparagraph
shall not apply if the HMO is purchasing 100% of the stock of another HMO
for the purpose of merger, which is anticipated to take place no later than
three months from the purchase date, unless said period is extended by the
commissioner, and the resulting assets of the surviving HMO meet the requirements
set forth in this subchapter within three months after said merger, unless
said period of time is extended by the commissioner;
(F)
bonds, debentures, bills of exchange, commercial notes,
or any other bills and obligations of any corporation incorporated under the
laws of any state of the United States of America or of the United States
of America, which issuing corporation has an investment grade rating according
to Standard and Poors or Moody's;
(G)
equity interests, including common stocks issued by any
business entity created under the laws of the United States of America or
of any state of the United States, provided:
(i)
the business entity is solvent, with a net worth of at
least $1 million;
(ii)
if the business entity is a dividend paying business
entity, no cumulative dividends are in arrears;
(iii)
an HMO shall not be permitted to invest in a partnership,
as a general partner, except through a wholly owned subsidiary;
(iv)
the restrictions of clauses (i) and (ii) of this subparagraph
shall not apply if the business entity of which the HMO wishes to purchase
the equity interest is, or is to be, a contracted provider of services;
(H)
shares of mutual funds doing business under the Investment
Company Act of 1940 (15 U.S.C. §80a-1, et seq.) and shares in real estate
investment trusts as defined in the Internal Revenue Code of 1986 (26 U.S.C. §856),
provided that such mutual funds and real estate investment trusts be solvent
with at least $1 million of net assets as of the date of its latest annual,
or more recent, certified audited financial statement;
(I)
loans by an HMO that are secured by valid first liens
on improved real estate, provided that:
(i)
there is a title insurance policy or attorney's opinion
evidencing that the borrower owns the real estate;
(ii)
there is an appraisal of the real estate and the loan
does not exceed 75% of such appraised value;
(iii)
there is an executed note evidencing the loan;
(iv)
there is a recorded deed of trust;
(v)
if any part of the value of buildings is included in the
value of the real estate:
(I)
each such building is insured against loss by a company
authorized to do business in Texas or in the state in which the real estate
is located; and
(II)
the insurance policy is made payable to the HMO and is
in an amount equal to at least 50% of the value of such building, provided
that such insurance coverage need not exceed the outstanding balance owed
to the HMO when the outstanding balance falls below 50% of the value of such
building;
(vi)
the commissioner has the right to obtain an independent
appraisal, at the HMO's expense, of real estate securing any loan;
(J)
loans to individuals secured by collateral, specified
in paragraph (1) of this section and subparagraphs (A)-(D) of this paragraph,
but the amount loaned may not exceed the value of the securities held as collateral;
(K)
loans, without limit, whether secured or unsecured that
are not in default, to medical and other health care providers under contract
with the HMO for the provision of health care services, but in no event shall
the value of any such loan or loans made under this subparagraph exceed the
maker's ability to repay the loan or loans; the maker's ability to repay the
loan or loans shall be determined by allowing only assets that an HMO may
hold to be considered toward determining any excess of assets over all liabilities
of the maker;
(L)
real estate acquired by way of security for loans previously
contracted or for moneys due; all such real property not qualifying under
any other provisions of this section shall be sold and disposed of within
five years after the HMO has acquired title to same unless the time for disposal
is extended by the commissioner;
(M)
investments in improved, income-producing real estate,
the value of which real estate and improvements shall be depreciated cost
or market value, whichever is less;
(N)
additional investments which are not otherwise specified
by this section, provided:
(i)
the amount of any one such investment shall not exceed
10% of the net worth in excess of the minimum net worth of the HMO; and
(ii)
the total amount of investments authorized by this paragraph
shall not exceed the HMO's net worth in excess of its minimum net worth.
(3)
Other assets. An HMO may have assets beyond
those required to be held for its minimum net worth and uncovered liabilities
which are either necessary for its operations or invested as permitted by
this section. Assets an HMO may find necessary in its operations include,
but are not limited to, the following:
(A)
uncollected premiums or subscriptions with an adequate
provision for uncollectable premiums or subscriptions;
(B)
advances of capitation or other fees expected to be paid
for the next month to medical and other health care service providers under
contract with the HMO; provided that no termination of the contract may take
place prior to the end of the period for which advances were paid;
(C)
equipment, vehicles, furniture, office equipment, and
other labor saving devices used both directly and indirectly for the provision
of medical services and the administration of the HMO, provided a detailed
inventory is maintained with each item marked by an identifying number and
a proof of cost is maintained, the items being required to be valued at depreciated
costs, depreciation being based on a method permitted in accordance with generally
accepted accounting principles;
(D)
inventories of necessary supplies, it being the duty of
the HMO to sufficiently prove the value of such inventories; and
(E)
real estate and leasehold estates, including buildings
and improvements, and leasehold improvements on rented space, for the accommodation
of the HMO's current or expected business operations used in the provision
or support of health care services, including space for rent to any health
care provider under contract with the HMO which property shall be used in
the provision of health care services to members of the HMO by that provider.
(4)
Valuation. Except where elsewhere specifically
provided, investments, loans and assets are valued in accordance with the
Purposes and Procedures of the Securities Valuation Office of the National
Association of Insurance Commissioners as it applies to entities not required
to maintain an asset valuation reserve. If no such standard applies, then
the valuation shall be their liquidating value.
(5)
Evidence of ownership. A domestic HMO may own certificated
and uncertificated securities, as evidenced by book entry of banks and securities
brokerage limited as follows:
(A)
banks must be members of the Federal Deposit Insurance
Corporation.
(B)
securities brokerage firms are incorporated securities
brokers and dealers that:
(i)
are subject to the regulations of the Securities and Exchange
Commission of the United States of America;
(ii)
are members of the Securities Investor Protection Corporation;
and
(iii)
have a tangible net worth of not less than $100 million.
(C)
securities held by a bank or securities brokerage firm
must be held in accordance with a custodial agreement entered into between
the bank or securities brokerage firm and the HMO.
(D)
Amounts invested in uncertificated securities through
a securities brokerage firm may not exceed that amount of insurance protection
provided by the Securities Investor Protection Corporation except that additional
amounts may be invested whenever a securities brokerage firm has in effect
additional coverage through an excess securities bond issued by an insurance
company licensed in Texas and having a statutory net worth of at least 30
times the face amount of the excess securities bond, but in no event having
a statutory net worth of less than $100 million according to its last filed
annual statement, and then the limit on the amount that may be invested in
uncertificated securities through one securities brokerage firm shall be extended
to the total amount covered by the Securities Investor Protection Corporation
and the excess securities bond, combined. The HMO shall be responsible for
maintaining in its files a copy of the excess securities bond with a letter
or copy of a letter furnished by its securities brokerage firm from the insurance
company verifying the date through which premium is paid that the excess securities
bond is in effect. The letter shall also reflect the excess bond number, face
amount, company, and address of insuring company and the name and title of
the individual signing the letter. Whenever the date is exceeded, the HMO
shall be responsible for obtaining a similar letter updating the information.
Certificated and uncertificated securities may be evidenced by transaction
records such as receipts, invoices, and statements issued by banks and securities
brokerage firms evidencing that the records of the bank or securities brokerage
firm reflect the HMO's or its nominee's ownership of said securities. In addition,
certificated securities shall be maintained in the possession of the HMO as
its nominee, subject to obtaining any required approval under the Insurance
Code Article 1.28, if located outside the State of Texas, and registered securities
shall be in the name of the HMO or its nominee. An HMO may designate a depository
where certificated securities are to be held, provided access to said securities
is under the control of officers and employees of the HMO or its nominee as
designated by the HMO's board of directors. Certificated securities purchased
in transit from the vendor need not be in the HMO's or nominee's possession
within a period of 45 days from the purchase date. Certificated securities
in transit for the purpose of sale within 45 days of shipping date also are
exempted from the requirement that they be in the possession of the HMO or
its nominee.
(6)
Sale of investment. Section 7.4 of this title
(relating to Admissible Assets) shall apply to investments not specifically
allowed under this subchapter. The commissioner may require any investment
to be sold which would otherwise be authorized under the provisions of this
section if the commissioner finds that such investment would cause the investing
HMO to operate in a condition which is hazardous to its enrollees, creditors,
or the general public.
§11.807. Dividends.
(a)
Except as provided in subsection (b) of this section,
dividends may be declared by an HMO at any time from any and all admitted
assets in excess of all liabilities, as long as that HMO meets or exceeds
its deposit, minimum net worth and risk-based capital requirements.
(b)
An HMO shall give the commissioner at least 30 days' notice
before the HMO shall make or pay any dividend or distribution of cash or other
property (excluding pro rata distributions of any class of the HMO's own securities),
whose fair market value together with that of other dividends or distributions
made within the preceding 12 months exceeds the greater of 10% of the HMO's
net worth as of the 31st day of December next preceding, or the net gain from
operations of such HMO.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on March 10, 2000.
TRD-200001842
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 30, 2000
Proposal publication date: November 26, 1999
For further information, please call: (512) 463-6327
28 TAC §11.810
The commissioner of insurance adopts new §11.810, concerning
financial requirements for health maintenance organizations (HMOs). The section
is adopted with changes to the text as proposed in the November 26, 1999,
issue of the
Texas Register
(24 TexReg 10507).
The Texas Health Maintenance Organization Act (Insurance Code Chapter 20A)
provides comprehensive regulation of the financial condition of HMOs by the
department. Insurance Code Article 20A.19 directs the commissioner to take
action whenever the financial condition of an HMO indicates a condition such
that the continued operation of the HMO might be hazardous to enrollees, creditors,
or the general public. Section 11.810 implements Insurance Code Article 20A.19,
which also authorizes the commissioner to adopt rules to fix uniform standards
and criteria for early warning that the continued operation of any HMO might
be hazardous to its enrollees, creditors, or the general public, and to fix
standards for evaluating the financial condition of any HMO. The conditions
described in the section were developed by the department by drawing on its
experience in regulating HMOs. The conditions existed with HMOs in hazardous
condition and, in the department's opinion, the conditions were an indicator
or early warning that the HMO was developing financial problems. The section
will aid in the identification of an HMO in a hazardous condition and facilitate
corrective action by the department. This will provide greater protection
to the public from the risk of an HMO operating in a hazardous condition.
Section 11.810(b)(7) was changed in response to a comment. The section is
changed to clarify the department's intent that it is the fact that the HMO
does not know the financial condition of an essential service provider that
may indicate the existence of a hazardous condition. In §11.810(b)(22),
"policyholder" is changed to "enrollees" to correct a typographical error.
An HMO does not have policyholders. None of the changes result in the introduction
of new subject matter or enlarge the class of persons subject to the proposal
as originally published.
While the conditions enumerated in the section are often referred to as
"hazardous conditions," the existence of one or more of the prescribed conditions
does not mean that an HMO is necessarily in hazardous condition and the commissioner
is not required to take action when one or more of these conditions exist.
The conditions are examples of circumstances which, when considered in the
context of the state of affairs of an HMO, can be an early warning that the
continued operation of an HMO might be hazardous to its enrollees, creditors
and the general public. Based on the experience of the department, the existence
of one or more of the conditions described in the section justifies an inquiry
into the described condition and a detailed analysis of its causes to determine
whether a hazardous condition exists. HMOs may also use the section to assist
them in identifying possible hazardous conditions and taking corrective action.
Whenever the financial condition of any HMO indicates that its continued operation
might be hazardous to its enrollees, creditors and the general public, the
commissioner may, after notice and opportunity for hearing, order the HMO
to take such action as may be reasonably necessary to rectify the existing
condition, including but not necessarily limited to, reducing the total amount
of present and potential liability for benefits by reinsurance, reducing the
volume of new business being accepted, reducing expenses, suspending or limiting
writing of new business for a period of time, increasing the HMO's capital
and surplus or suspending or revoking the HMO's certificate of authority.
COMMENT: A commenter raised an objection and stated that paragraphs (1),
(6), (9) and (19) of subsection (b) of the section do not pertain to financial
matters nor are they indicators of financial problems.
REPLY: The department believes Insurance Code Article 20A.19 authorizes
the commissioner to identify conditions that do not pertain to financial matters
or indicate financial problems. Article 20A.19 authorizes the commissioner
to adopt rules to establish uniform standards or criteria for early warning
that the continued operation of any HMO might be hazardous to its enrollees,
creditors or the general public. Based on the department's experience, the
conditions described in the section have existed in HMOs whose financial condition
was such that its operation was hazardous to its enrollees, creditors and
the general public. The condition may not describe a financial matter such
as a minimum net worth or liquidity standard, but the department's experience
indicates that the condition existed in HMOs whose financial condition became
hazardous to enrollees, creditors and the general public and that condition
was an indicator of the development of the hazardous condition.
COMMENT: Two commenters noted that an HMO could voluntarily discontinue
its National Committee on Quality Assurance accreditation, therefore, §11.810(b)(1)
should not be listed as a hazardous condition.
REPLY: The department disagrees. The condition described in §11.810(b)(1)
is an example that the existence of the condition may or may not indicate
that the operation of an HMO is hazardous. Based on the department's experience,
an inquiry as to why the accreditation was discontinued could reveal that
an HMO determined that it did not have adequate resources to commit to the
quality levels required for a National Committee on Quality Assurance accreditation
or that the accreditation was discontinued to avoid an action by the National
Committee on Quality Assurance to revoke the accreditation.
COMMENT: A commenter stated, with regard to §11.810(b)(7), there is
no law that requires an administrative or management company to submit financial
statements to the department and that an HMO may not have the ability to require
such an administrative or management company to submit financial statements
to the department.
REPLY: The condition described in §11.810(b)(7) attempts to identify
a situation where an HMO is relying on another entity to provide it services
on a risk sharing basis; that is, the HMO is sharing part of its revenue with
the entity in return for services. If the entity is financially unsound, it
may not be able to deliver the services. The department has identified those
arrangements involving the sharing of revenue as involving risk and the HMO
should be aware of the financial condition of its partner in those arrangements.
To that end, the rule seeks to identify that situation where the HMO is not
able to obtain information about the financial condition of its partner. The
paragraph has been reworded to clarify the department's intent.
COMMENT: A commenter stated that the word "frequent" in §11.810(b)(13)
is subjective and requested guidance on its meaning.
REPLY: The exact meaning of "frequent" will depend on the period of time
being reviewed. If an HMO's parent has made several contributions in one year,
the department would consider that frequent. If the HMO's parent has made
contributions each year over a five year period, that would be frequent. Generally,
frequent contributions indicate the HMO is losing money. Each HMO is licensed
by the department as a self-sustaining entity; therefore, habitual reliance
on parental support indicates the HMO is not a self-sustaining business enterprise.
COMMENT: A commenter stated that the language "experience, competence and
trustworthiness" in §11.810(b)(15) is subjective.
REPLY: Insurance Code Article 20A.05(a)(2) requires the commissioner to
find that a person who proposes to operate an HMO be competent, trustworthy
and possess a good reputation, as a condition precedent to granting a license
to an HMO. The department believes that the standard expressed in §11.810(b)(15)
is similar to that required to license an HMO. While not an exact standard,
such as 10 years experience operating a similar sized managed care organization,
or never been convicted of a felony involving moral turpitude, the terms require
the experience, competence and trustworthiness necessary to operate a particular
HMO. This requires the exercise of judgment based on the facts before the
department.
COMMENT: A commenter stated that the use of the term "appropriate" in §11.810(b)(18)
was subjective. The commenter stated that this is already covered by the premium
deficiency reserve requirement in §11.706 of this title (relating to
Determination of Reasonability of Rates). It created a no win situation with
a small group where the laws require an HMO to accept the highest risk cases
with a limit on the rate increases which are lower than would be considered
appropriate to the risk from an actuarial perspective.
REPLY: The department recognizes that certain specific fact situations
may be within the condition described in §11.810(b)(18). That is why
the existence of a condition may or may not be a basis for the commissioner
finding that an HMO is in hazardous condition. In actual practice, failure
to follow policies appropriate to a risk will result in a loss to the HMO.
Policies are developed to provide prudent guidance in business decisions.
The department reviews these policies to assure they will result in safe and
sound business operations. Failure to follow a policy may mean that management
of the company is unaware of the effect of decisions until the financial results
are posted after the fact. This can be hazardous to enrollees, creditors and
the public.
COMMENT: A commenter stated that §11.810(b)(22), which authorizes
the commissioner to find an HMO in hazardous condition based on any condition
the commissioner finds which may present a hazard to enrollees, creditors,
or the general public, whether or not the criteria are published, should be
tightened by requiring objective evidence.
REPLY: Section 11.810(b)(22) is necessary to make it clear that the conditions
described in the rule are not the only conditions the department may find
to be potentially hazardous. In the future, it is possible that additional
conditions will be added to this list. Insurance Code Article 20A.19 does
not contemplate that the commissioner's authority to find an HMO in hazardous
condition be limited to the conditions described in a rule. Insurance Code
Article 20A.19(a) states, "Whenever the financial condition of any health
maintenance organization indicates a condition such that the continued operation
of the health maintenance organization might be hazardous to its enrollees,
creditors, or the general public, then the commissioner may, after notice
and opportunity for hearing, order the health maintenance organization to
take such action as may be reasonably necessary to rectify the existing condition...."
In Insurance Code Article 20A.19(b), the commissioner is authorized to promulgate
rules relating to this matter, but nowhere does the statute indicate that
the commissioner is limited to taking action only if the condition is described
by rule. By promulgating rules, HMOs are provided guidance on conditions the
department considers potentially hazardous, but the statute does not require
that a condition be adopted as rule. Since Insurance Code Article 20A.19(a)
does not require objective evidence to support a finding that an HMO is in
hazardous condition, the department does not believe it is appropriate to
include such a requirement in §11.810(b)(22).
For with changes: The Texas HealthCare Information Council and Texas Association
of Health Plans.
The new section is adopted under Insurance Code Article 20A.19
and §36.001 (formerly Insurance Code Article 1.03A). Article 20A.19 authorizes
the commissioner of insurance to adopt rules to fix uniform standards and
criteria for early warning that the continued operation of an HMO might be
hazardous to its enrollees, creditors, or the general public, and to fix standards
for evaluating the financial condition of an HMO. Section 36.001(a) provides
the commissioner of insurance with the authority to adopt rules for the conduct
and execution of the powers and duties of the department only as authorized
by a statute.
§11.810. Hazardous Conditions for HMOs.
(a)
Purpose. The purpose of this section is to enumerate conditions
which may indicate an HMO is in hazardous condition and which may be a basis
for the commissioner of insurance to initiate an action against an HMO under
Insurance Code Articles 20A.20 or 20A.21. In evaluating any of the conditions
in this section, all circumstances concerning the HMO's operation must be
evaluated in making an ultimate conclusion that an HMO is in hazardous condition.
The evaluation of the information relating to these conditions is a part of
the examination process. The conditions enumerated in this section do not
conclusively indicate that an HMO is in hazardous condition. One or more of
the conditions can exist in an HMO which is in satisfactory condition; however,
one or more of these conditions has often been found in an HMO which was unable
to perform its obligations to enrollees, creditors or the general public,
or has required the commissioner to initiate regulatory action to protect
enrollees, creditors and the general public.
(b)
An HMO may be found to be in hazardous condition, after
notice and opportunity for hearing, when one or more of the following conditions
are found to exist by the commissioner:
(1)
an HMO's federal qualification designation and/or National
Committee on Quality Assurance accreditation is revoked or discontinued;
(2)
an HMO's reported claims in process exceed 12% of
annualized medical and hospital expenses (12% is approximately a 45 day backlog);
(3)
an HMO's parent or sponsoring organization is operating
in a hazardous condition;
(4)
an HMO's annual CPA report or actuarial opinion contains
a material adverse finding or findings;
(5)
an HMO fails to comply with the Texas Health Maintenance
Organization Act (Insurance Code Chapter 20A) or Title 28, Texas Administrative
Code, Chapter 11;
(6)
an HMO has an inadequate provider network;
(7)
an HMO contracts with a management or administrative
company on a capitated or percentage of premium basis and such administrative
or management company refuses to submit financial statements to the HMO;
(8)
an HMO does not file a financial statement with the
department within the time required by the Insurance Code, or as requested
by the department;
(9)
a health care provider that is under contract, directly
or indirectly, with an HMO, has a pattern of balance billing;
(10)
an HMO files financial information with the department
which is false or misleading;
(11)
an HMO does not amend its financial statement when
requested by the department;
(12)
an HMO overstates its net worth by 25% or more;
(13)
an HMO relies on its parent's forgiveness of debt
or frequent surplus contributions to finance its operations or to maintain
its minimum net worth or risk based capital;
(14)
an HMO does not maintain books and records sufficient
to permit examiners to determine the financial condition of the HMO, examples
of which include, but are not limited to:
(A)
books and records of a domestic HMO are maintained outside
the State of Texas in violation of the Insurance Code Article 1.28; or
(B)
an HMO moves, or maintains, the location of the books
and records necessary to conduct an examination without notifying the department
of such location;
(15)
an HMO's management does not have the experience,
competence, or trustworthiness to operate the HMO in a safe and sound manner;
(16)
an HMO's management has been found to have engaged
in unlawful transactions;
(17)
an HMO has a pattern of denial or nonpayment of
emergency care;
(18)
an HMO does not follow its policy on rating and
underwriting standards appropriate to the risk;
(19)
an administrative or judicial order, initiated by
an insurance regulatory agency of another state, is issued against an HMO,
its parent or affiliate, or a regulatory action is initiated by another agency
within the state of domicile;
(20)
an HMO does not have the minimum net worth required
by Insurance Code Articles 20A.13A or 20A.13B;
(21)
an HMO does not meet the requirements of §11.809
of this title (relating to Risk-Based Capital for HMOs); or
(22)
an HMO is in any condition that the commissioner
finds may present a hazard to enrollees, creditors, or the general public.
This agency hereby certifies that the adoption has been
reviewed by legal counsel and found to be a valid exercise of the agency's
legal authority.
Filed with the Office of
the Secretary of State on March 10, 2000.
TRD-200001841
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 30, 2000
Proposal publication date: November 26, 1999
For further information, please call: (512) 463-6327
Subchapter J. STOVETOP FIRE SUPPRESSION DEVICE APPROVAL
Subchapter I. FINANCIAL REQUIREMENTS
Chapter 34.
STATE FIRE MARSHALL