56-32-112 - Capital requirements Required deposits. - Tennessee Statutes

56-32-112. Capital requirements Required deposits.

(a)  To ensure the public's interest in the delivery of health care services by fiscally sound HMOs, each HMO must provide the commissioner evidence of compliance with the following minimum net worth requirements:

     (1)  Before issuing any certificate of authority, the commissioner shall require that the HMO have an initial net worth of one million five hundred thousand dollars ($1,500,000), and thereafter HMOs must maintain the minimum net worth as set forth in this section. “Net worth” means the excess of total admitted assets over total admitted liabilities, but the liabilities shall not include fully subordinated debt approved by the commissioner;

     (2)  Except as provided in subdivisions (a)(3) and (4), every HMO must maintain a minimum net worth equal to the greater of:

          (A)  One million five hundred thousand dollars ($1,500,000); or

          (B)  An amount totaling four percent (4%) of the first one hundred fifty million dollars ($150,000,000) of annual premium revenue as reported on the most recent annual statement filed with the commissioner and one and one half percent (1.5%) of the annual premium revenue in excess of one hundred fifty million dollars ($150,000,000). “Premium revenue” or “premiums,” as used in this chapter includes, but is not limited to, any and all payments made by the state to any entity providing health care services pursuant to any federal waiver received by the state that waives any or all of Title XIX of the federal Social Security Act, compiled in 42 U.S.C. § 1396 et seq., and regulations promulgated pursuant to Title XIX, or pursuant to any other federal law as adopted by amendment to the required Title XIX state plan;

     (3)  An HMO licensed before March 1, 1997 must maintain a minimum net worth of one hundred percent (100%) of the amount required by subdivision (a)(2) after June 30, 1998;

     (4)  In determining net worth, no debt shall be considered fully subordinated unless in a form approved by the commissioner. Any interest obligation relating to the repayment of any subordinated debt must be similarly subordinated. The interest expenses relating to the repayment of any fully subordinated debt shall be considered covered expenses;

     (5)  For purposes of calculating an HMO's net worth, “admitted assets” includes the following, as may be subsequently modified by the commissioner:

          (A)  Petty cash and other cash funds in the organization's principal or official branch office that are under the organization's control;

          (B)  Immediately withdrawable funds on deposit in demand accounts, in a bank or trust company organized and regularly examined under the laws of the United States or any state, and insured by an agency of the United States government, or like funds actually in the principal or official branch office at statement date and in transit to a bank or trust company with authentic deposit credit given before the close of business on the fifth bank working day following the statement date;

          (C)  The amount fairly estimated as recoverable on cash deposited in a closed bank or trust company, if the assets qualified under this section before the suspension of the bank or trust company;

          (D)  Receivables due from persons that are not more than ninety (90) days past due;

          (E)  Amounts due under reinsurance arrangements from insurance companies authorized to do business in this state;

          (F)  Undisputed tax refunds or other receivables due from the United States or this state;

          (G)  Amounts on deposit under subsection (b); and

          (H)  Investments determined as allowable by the commissioner under § 56-32-111;

     (6)  An HMO must maintain a positive working capital. As used in this section only, “working capital” means current assets, including admitted stocks and admitted bonds, minus current liabilities; and

     (7)  If the working capital or net worth is less than the required minimum, the HMO must submit for approval by the commissioner a written plan within thirty (30) days after the commissioner has given the HMO notice of the net worth or working capital deficiency. The commissioner may take action against the HMO under § 56-32-116 or § 56-32-117 if:

          (A)  An HMO does not propose a plan to correct its working capital or net worth deficiency within the time frame described in subdivision (a)(7);

          (B)  An HMO violates a plan that has been approved;

          (C)  The commissioner determines that an improper working capital or net worth status cannot be corrected within a reasonable time; or

          (D)  The commissioner determines that an organization is in such financial condition that the transaction of further business would be hazardous to its enrollees, its creditors, or the public.

(b)  To ensure that an HMO provides for contract and medical services in the case of insolvency or liquidation, each HMO must maintain deposits in custodial or controlled accounts as described in this section.

     (1)  Before issuing any certificate of authority, the commissioner shall require each HMO to deposit with the commissioner or, at the discretion of the commissioner, with any organization or trustee acceptable to the commissioner through which a custodial or controlled account is utilized, cash, securities, or any combination of these or other measures that are acceptable to the commissioner that at all times shall have a value of not less than nine hundred thousand dollars ($900,000);

     (2)  An HMO that is in operation on June 1, 1997, shall maintain a deposit equal to nine hundred thousand dollars ($900,000), in the manner set forth in subdivision (b)(1);

     (3)  In addition to the deposit requirements in this section, an HMO shall also maintain on deposit in the manner set forth in subdivision (b)(1) one hundred thousand dollars ($100,000) for each ten million dollars ($10,000,000) or fraction of ten million dollars ($10,000,000) of annual premium revenue in excess of twenty million dollars ($20,000,000) and less than one hundred million dollars ($100,000,000) as reported on the most recent annual financial statement filed with the commissioner, and fifty thousand dollars ($50,000) for each ten million dollars ($10,000,000) or fraction of ten million dollars ($10,000,000) of annual premium revenue in excess of one hundred million dollars ($100,000,000) as reported on the most recent annual financial statement filed with the commissioner;

     (4)  In any year in which the accumulated deposit of an HMO is more than the amount required to be maintained by the organization under the terms of this section, at the organization's request the commissioner shall reduce the previously accumulated deposit by the amount that the deposit exceeds the amount of deposit required by this section;

     (5)  The deposit shall be an admitted asset of the HMO in the determination of net worth;

     (6)  All income from deposits shall be an asset of the organization. An HMO that has been allowed by the commissioner to make a securities deposit may withdraw that deposit or any part of the deposit after making a substitute deposit of cash, securities, or any combination of these or other measures of equal amount and value as approved by the commissioner. No substitute deposit shall be allowed unless approved in advance by the commissioner; and

     (7)  The deposit shall be used and shall be considered held in trust to protect the interests of the HMO's enrollees and to assure continuation of health care services to enrollees of an HMO that is in rehabilitation or liquidation. If the HMO is placed voluntarily or involuntarily in rehabilitation or liquidation, the deposit shall immediately prior to the filing of the rehabilitation or liquidation proceeding vest in the state of Tennessee.

(c)  Every HMO shall, when determining liabilities for purposes of calculating the organization's net worth, include an amount estimated in the aggregate to provide for any unearned premium and for the payment of all claims for health care expenditures that have been incurred, whether reported or unreported, are unpaid and for which the organization is or may be liable, and to provide for the expense of adjustment or settlement of the claims. The liabilities may be computed in accordance with rules and regulations promulgated by the commissioner upon reasonable consideration of the ascertained experience and character of the HMO.

[Acts 1986, ch. 713, § 12; 1997, ch. 59, § 1; 2000, ch. 708, § 2; T.C.A. § 56-32-212.]