Article 2 - Certificate Of Authority; General Corporate And Financial Requirements - Illinois Statutes

      (215 ILCS 130/Art. 2 heading)ARTICLE 2. CERTIFICATE OF AUTHORITY; GENERAL CORPORATE AND FINANCIAL REQUIREMENTS

(215 ILCS 130/2001) (from Ch. 73, par. 1502‑1)     Sec. 2001. Certificate of authority; exception for corporate employee programs; applications; material modification of operation.     (a) No organization shall establish or operate a limited health service organization in this State without obtaining and maintaining a certificate of authority under this Act. No person other than an organization may lawfully establish or operate a limited health service organization in this State. This Act shall not apply to the establishment and operation of a limited health service organization exclusively providing or arranging for limited health services to employees of a corporate affiliate of such limited health service organization. This exclusion shall be available only to those limited health service organizations which require employee contributions which equal less than 50% of the total cost of the limited health care plan, with the remainder of the cost being paid by the corporate affiliate which is the employer of the participants in the plan.     (b) Any organization may apply to the Director for and obtain a certificate of authority to establish and operate a limited health service organization in compliance with this Act. A foreign corporation may qualify under this Act, subject to its obtaining and maintaining authorization to do business in this State as a foreign corporation.     (c) Each application for certificate of authority shall be filed in triplicate and verified by an officer or authorized representative of the applicant, shall be in a form prescribed by the Director, and shall set forth, without limiting what may be required by the Director, the following:         (1) A copy of the organization document.         (2) A copy of the bylaws, rules and regulations, or

similar document regulating the conduct of the internal affairs of the applicant.

(3) A list of the names, addresses, and official

positions of the persons who are to be responsible for the conduct of the affairs of the applicant; including but not limited to, all members of the board of directors, executive committee, the principal officers, and any person or entity owning or having the right to acquire 10% or more of the voting securities or subordinated debt of the applicant.

(4) A statement generally describing the

application, geographic area to be served, its facilities, personnel and the limited health service or services to be offered.

(5) A copy of the form of any contract made or be

made between the applicant and any providers regarding the provision of limited health services to enrollees.

(6) A copy of the form of any contract made, or to

be made between the applicant and any person listed in paragraph (3) of this subsection.

(7) A copy of the form of any contract made or to be

made between the applicant and any person, corporation, partnership or other entity for the performance on the applicant's behalf of any functions including, but not limited to, marketing, administration, enrollment, investment management and subcontracting for the provision of limited health services to enrollees.

(8) A copy of the form of any group contract which

is to be issued to employers, unions, trustees or other organizations and a copy of any form of evidence of coverage to be issued to any enrollee or subscriber and any advertising material.

(9) A copy of the applicant's most recent financial

statements audited by an independent certified public accountant. If the financial affairs of the applicant's parent company are audited by an independent certified public account, but those of the applicant are not, then a copy of the most recent audited financial statement of the applicant's parent, attached to which shall be consolidating financial statements of the parent including separate unaudited financial statements of the applicant, unless the Director determines that additional or more recent financial information is required for the proper administration of this Act.

(10) A copy of the applicant's financial plan,

including a 3 year projection of anticipated operating results, a statement of the sources of working capital and any other sources of funding and provisions for contingencies.

(11) A description of rate methodology.         (12) A description of the proposed method of

marketing.

(13) Except in the case of a foreign applicant

authorized to transact business in this State, a statement acknowledging that all lawful process in any legal action or proceeding against the applicant on a cause of action arising in this State is valid if served in accordance with Section 112 of the Illinois Insurance Code as now or hereafter amended.

(14) A description of the complaint procedures to be

established and maintained as required under Section 3002 of this Act.

(15) A description of the quality assessment and

utilization review procedures to be utilized by the applicant.

(16) The fee for filing an application for issuance

of a certificate of authority provided in Section 408 of the Illinois Insurance Code as now or hereafter amended.

(17) Such other information as the Director may

reasonably require to make the determinations required by this Act.

(Source: P.A. 86‑600.)

(215 ILCS 130/2002) (from Ch. 73, par. 1502‑2)     Sec. 2002. Issuance of certificate of authority.     (a) Issuance of a certificate of authority shall be granted if the following conditions are met:         (1) The requirements of subsection (c) of Section

2001 have been fulfilled.

(2) The persons responsible for conducting the

applicant's affairs are competent and trustworthy, possess good reputations and have had appropriate experience, training or education.

(3) The applicant has demonstrated the willingness

and potential ability to assure that such limited health service will be provided in a manner to insure both availability and accessibility of adequate personnel and facilities and in a manner enhancing availability, accessibility, and continuity of service.

(4) The applicant has arrangements for an ongoing

quality of health care assessment program concerning health care processes and outcomes.

(5) The applicant is financially responsible and may

reasonably be expected to meet its obligations to enrollees and to prospective enrollees. In making this determination, the Director shall consider:

(A) the financial soundness of the applicant's

arrangements for limited health services and the minimum standard rates, copayments and other patient charges used in connection therewith.

(B) the adequacy of working capital, other

sources of funding, and provisions for contingencies.

(6) The limited health care plan furnishes limited

health services on a prepaid basis, through insurance or otherwise, except to the extent of reasonable requirements for copayments of a fixed amount.

(7) The agreements with providers for the provision

of limited health services contain the provisions required by Section 2008 of this Act.

(8) Any deficiencies identified by the Director have

been corrected.

(b) No certificate of authority shall be issued if the initial minimum net worth of the applicant is less than $100,000. The initial net worth shall be provided in cash and securities in combination and form acceptable to the Director. (Source: P.A. 86‑600.)

(215 ILCS 130/2003) (from Ch. 73, par. 1502‑3)     Sec. 2003. Powers of limited health service organizations. The powers of a limited health service organization include, but are not limited to the following:     (1) The purchase, lease, construction, renovation, operation or maintenance of limited health service facilities and their ancillary equipment, and such property as may reasonably be required for its principal office or for such other purposes as may be necessary in the transaction of the business of the organization.     (2) The making of loans to a provider group under contract with it and in furtherance of its program or the making of loans to a corporation or corporations under its control for the purpose of acquiring or constructing limited health service facilities or in furtherance of a program providing limited health services for enrollees.     (3) The furnishing of limited health services through providers which are under contract with or employed by the limited health service organization.     (4) The contracting with any person for the performance on its behalf of certain functions such as marketing, enrollment and administration.     (5) The contracting with an insurance company licensed in this State, or with a hospital, medical, voluntary, dental, vision or pharmaceutical service corporation authorized to do business in this State, for the provision of insurance, indemnity or reimbursement against the cost of limited health service provided by the limited health service organization.     (6) Rendering services related to the functions involved in the operation of its limited health service business including, but not limited to, providing limited health services, data processing, accounting, claims.     (7) Indemnity benefits covering out of area or emergency services directly related to the provision of limited health service.     (8) The offering of point‑of‑service products as authorized under Section 3009.     (9) Any other business activity reasonably complimentary or supplementary to its limited health service business to the extent approved by the Director. (Source: P.A. 86‑600; 87‑1079.)

(215 ILCS 130/2004) (from Ch. 73, par. 1502‑4)     Sec. 2004. Required minimum net worth; impairment.     (a) A limited health service organization issued a certificate of authority shall have and at all times maintain net worth of not less than the greater of:         (1) $50,000; or         (2) 2% of the organization's annual gross premium

income, up to a maximum of $500,000.

(b) A limited health service organization that has annual uncovered expenses in excess of $50,000, as reported on the most recent annual financial statement filed with the Director, shall maintain additional net worth equal to 25% of such uncovered expenses in excess of $50,000 in addition to the net worth required by subsection (a), subject to the maximum net worth set forth in item (2) of subsection (a).     (c) A limited health service organization that has been approved by the Director to offer a POS contract shall have and at all times maintain net worth of not less than the greater of:         (1) $100,000 if the LHSO's expenditures for

out‑of‑plan covered services do not exceed 10% of its total limited health expenditure in any calendar quarter; or

(2) $100,000 plus an additional $10,000 for each

percentage point that the LHSO's expenditures for out‑of‑plan covered services exceeds 10% of its total limited health service expenditure in any calendar quarter up to $200,000; or

(3) the amount set forth in item (2) of subsection

(a).

(d) A deficiency in meeting amounts required in subsection (a), (b), or (c) shall require (1) filing with the Director a plan of correction of the deficiency, acceptable to the Director and (2) correction of the deficiency within a reasonable time, not to exceed 60 days unless an extension of time, not to exceed 60 additional days, is granted by the Director. Such a deficiency will be deemed an impairment, and failure to correct the deficiency in the prescribed time shall be grounds for suspension or revocation pursuant to subsection (h) of Section 4005 of this Act.     (e) Unless allowed by the Director, no limited health service organization, officer, director, trustee, producer or employee of such organization may renew, issue, or deliver, or cause to be renewed, issued or delivered, any evidence of coverage in this State, for which a premium is charged or collected, when the organization writing such coverage is insolvent or impaired, and the fact of such insolvency or impairment is known to the organization, officer, director, producer or employee of such organization. An organization is impaired when a deficiency exists in meeting the amounts required in subsection (a), (b), or (c) of this Section. However, the existence of an impairment does not prevent the issuance or renewal of any evidence of coverage when the enrollee exercises an option granted under the plan to obtain new, renewed or converted coverage. Any organization, officer, director, producer or employee of such organization violating this subsection shall be guilty of a Class A misdemeanor. (Source: P.A. 87‑1079; 88‑667, eff. 9‑16‑94.)

(215 ILCS 130/2005) (from Ch. 73, par. 1502‑5)     Sec. 2005. Claims Liabilities. (a) Every limited health service organization shall, at all times, maintain liabilities in an amount estimated in the aggregate to provide for the payment of all claims incurred and any due and unpaid provider capitation, whether reported or unreported, which are unpaid and for which such organization is or may be liable, and to provide for the expense of adjustment or settlement of such claims. Such liabilities shall be computed in accordance with regulations promulgated by the Director upon reasonable consideration of the ascertained experience and character of such business for the purpose of adequately protecting enrollees and securing the solvency of such organizations.     (b) Whenever the claim and claim expense experience of any such organization shows the liabilities calculated in accordance with such regulations to be inadequate, the Director may require such organization to maintain additional liabilities. (Source: P.A. 86‑600.)

(215 ILCS 130/2006) (from Ch. 73, par. 1502‑6)     Sec. 2006. Statutory deposits.     (a) An organization subject to the provisions of this Act shall make and maintain with the Director, for the protection of enrollees of the organization, a deposit of securities that are in the form authorized under Section 2‑6 of the Health Maintenance Organization Act having a fair market value equal to the minimum net worth required under subsection (a) of Section 2004. The amount on deposit shall remain as an admitted asset of the organization in the determination of its net worth. The Director may release the required deposit of securities required by this Section upon receipt of an order of a court having proper jurisdiction or upon: (i) certification by the organization that it has no outstanding enrollee creditors, enrollees, certificate holders, or enrollee obligations in effect and no plans to engage in the business of insurance as a limited health service organization; (ii) receipt of a lawful resolution of the organization's governing body effecting the surrender of its certificate of authority, articles of incorporation, or other organizational documents to their issuing governmental officer for voluntary or administrative dissolution; and (iii) receipt of the name and forwarding address for each of the final officers and directors of the organization, together with a plan of dissolution approved by the Director.     (b) An LHSO that offers a POS contract shall, in addition to the deposit required by subsection (a), deposit and maintain with the Director cash or securities that are authorized investments under Section 1003 having a fair market value equal to the greater of:         (1) $50,000 if the LHSO's expenditures for

out‑of‑plan covered services do not exceed 10% of its total limited health expenditures in any calendar quarter; or

(2) $100,000 if the LHSO's expenditures for

out‑of‑plan covered services exceeds 10% but are less than 20% of its total limited health services expenditure in any calendar quarter; or

(3) 120% of its current actual monthly out‑of‑plan

covered service claims expense plus incurred but not reported balances for out‑of‑plan covered services.

(c) The combined deposit amount required in subsections (a) and (b) shall not exceed $200,000. (Source: P.A. 92‑75, eff. 7‑12‑01.)

(215 ILCS 130/2007) (from Ch. 73, par. 1502‑7)     Sec. 2007. Annual statement; audited financial reports.     (a) A limited health service organization shall file with the Director by March 1st in each year 2 copies of its financial statement for the year ending December 31st immediately preceding on forms prescribed by the Director, which shall conform substantially to the form of statement adopted by the National Association of Insurance Commissioners. Unless the Director provides otherwise, the annual statement is to be prepared in accordance with the annual statement instructions and the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners. The Director shall have power to make such modifications and additions in this form as he may deem desirable or necessary to ascertain the condition and affairs of the organization. The Director shall have authority to extend the time for filing any statement by any organization for reasons which he considers good and sufficient. The statement shall be verified by oaths of the president and secretary of the organization or, in their absence, by 2 other principal officers. In addition, any organization may be required by the Director, when he considers that action to be necessary and appropriate for the protection of enrollees, creditors, shareholders, subscribers, or claimants, to file, within 60 days after mailing to the organization a notice that such is required, a supplemental summary statement as of the last day of any calendar month occurring during the 100 days next preceding the mailing of such notice designated by him on forms prescribed and furnished by the Director. The Director may require supplemental summary statements to be certified by an independent actuary deemed competent by the Director or by an independent certified public accountant.     (b) Audited financial reports shall be filed on or before June 1 of each year for the 2 calendar years immediately preceding and shall provide an opinion expressed by an independent certified public accountant on the accompanying financial statement of the limited health service organization and detailed reconciliation for any differences between the accompanying financial statements and each of the related financial statements filed in accordance with subsection (a) of this Section. Any organization failing, without just cause, to file the annual audited financial statement as required in this Act shall be required, after the notice and opportunity for hearing, to pay a penalty of $100 for each day's delay, to be recovered by the Director of Insurance. The penalty so recovered shall be paid into the General Revenue Fund of the State of Illinois. The Director may reduce the penalty if the organization demonstrates to the Director that the imposition of the penalty would constitute a financial hardship to the organization.     (c) The Director may require that additional summary financial information be filed no more often than 3 times per year on reporting forms provided by him. However, he may request certain key information on a more frequent basis if necessary for a determination of the financial viability of the organization.     (d) The Director shall have the authority to extend the time for filing any statements by an organization for reasons which the Director considers good and sufficient. (Source: P.A. 91‑549, eff. 8‑14‑99.)

(215 ILCS 130/2008) (from Ch. 73, par. 1502‑8)     Sec. 2008. Provider contracts.     (a) All contracts with providers or with entities which subcontract for the provision of limited health services to enrollees on a prepayment or other basis and any contract with any subcontractor thereof shall contain the following hold‑harmless clause: "The provider agrees that in no event including, but not limited to, nonpayment by the organization of amounts due the provider under this contract, insolvency of the organization or any breach of this contract by the organization, shall the provider or its assignees or subcontractors have a right to seek any type of payment from, bill, charge, collect a deposit from or have any recourse against the enrollee, persons acting on the enrollee's behalf (other than the organization), the employer or group contractholder for services provided pursuant to this contract except for the payment of applicable copayments for services covered by the organization or fees for services not covered by the organization. The requirements of this clause shall survive any termination of this contract for services rendered prior to such termination, regardless of the cause of such termination. The organization's enrollees shall be third party beneficiaries of this clause. This clause supersedes any oral or written agreement now existing or hereafter entered into between the provider and the enrollee or persons acting on the enrollee's behalf (other than the organization).". To the extent that any provider or subcontractor's contract, fails to incorporate such provisions, such provisions shall be deemed incorporated into such contracts by operation of law.     (b) All provider and subcontractor contracts must contain provisions whereby the provider or subcontractor shall provide, arrange for or participate in the quality assessment programs mandated by this Act, unless the Department of Insurance certifies that such programs will be fully implemented without any participation or action from such contracting provider.     (c) The Director may promulgate rules requiring that provider contracts contain provisions concerning reasonable notices to be given between the parties and for the organization to provide reasonable notice to its enrollees and to the Director. Notice shall be given for such events as, but not limited to, termination of insurance protection, quality assessment or availability of medical area. (Source: P.A. 86‑600; 86‑1408.)

(215 ILCS 130/2009) (from Ch. 73, par. 1502‑9)     Sec. 2009. Subordinated indebtedness. An organization having a certificate of authority under this Act may borrow or assume a liability for the repayment of a sum of money upon a written agreement that the loan or advance with interest thereon not exceeding a reasonable rate shall be repaid only out of net worth of the organization in excess of such minimum net worth as is stipulated in and by the agreement. The agreement shall first be submitted to and approved by the appropriate authoritative body of the organization and the Director. Repayment of principal or payment of interest may be made only with the approval of the Director when he is satisfied that the financial condition of the organization warrants such action, but such approval may not be withheld if the organization shall have and submit satisfactory evidence of net worth of not less than the amount stipulated in the repayment of principal or interest payment clause of the agreement. No loan or advance made under this Section or interest accruing thereon shall form a part of the legal liabilities of the organization until authorized for payment by the Director, but until such authorization all statements published by the organization or filed with the Director shall show the amount thereof then remaining unpaid as a special surplus account. Nothing in this Section shall be construed to mean that an organization may not otherwise borrow money, but the amount so borrowed with accrued interest thereon shall be carried by the company as a liability. (Source: P.A. 86‑600.)