Brief ⁽¹⁾

SB 619, as amended, enacts the Health Organization Risk Based Capital Act. The bill requires domestic health organizations to prepare and submit annually to the Insurance Commissioner a report of its risk based capital (RBC) levels as of the end of the calendar year. Foreign health organizations, upon the written request of the Insurance Commissioner, also must submit the RBC report and, in the absence of action by the home state regulator of the foreign health organization, the Commissioner may take actions prescribed in this Act.

The RBC report will be made in a form and contain the information required by risk based capital instructions prepared by the National Association of Insurance Commissioners (NAIC). The report also is to be filed with the NAIC, and insurance regulators in any state in which the health organization does business, if requested by the regulator. The Kansas Commissioner also may share or exchange documents, including confidential documents, with other state, federal, or international regulators and law enforcement authorities who agree to maintain the confidential status of the documents. Specific rule and regulation authority is given to the Commissioner to establish protocols governing the exchange of information.

"Health organization" is defined as a health maintenance organization (HMO), limited health service organization; dental or vision plan; hospital, medical, and dental indemnity or service corporation, or any other managed care organization licensed under the laws of Kansas. Any health organization contracting with the Department of Social and Rehabilitation Services that provides services under Title XIX (Medicaid program) and Title XXI (state child health insurance program) or under any other public benefits contract representing at least 90 percent of the premium volume of the health organization, is exempt from filing the RBC report.

The purpose of the report is to assist the Commissioner in determining the capital adequacy of the health organization based upon its asset risk, its credit risk, its underwriting risk, and any other business risk contained in the RBC instructions. The bill provides various levels of regulatory action the Commissioner may take against a health organization depending upon its RBC level disclosed in the report. For calendar years 2000 and 2001, any regulatory action taken on the basis of an RBC report will be modified by the Commissioner in order to allow health organizations time in which to meet the risk based capital requirements. Penalties after 2001 could range from no action to placement of an organization under the statutes governing impaired or insolvent insurers.

The Commissioner has the authority to adopt rules and regulations necessary for the implementation of the Act.

SB 619 also makes several amendments that are part of and supplemental to the current Health Maintenance Organization Act. The amendments:

• Require an HMO to place an insolvency deposit with the Commissioner if its uncovered expenditures exceed 10 percent of total health care expenditures for two consecutive months (The Commissioner would use the funds to pay claims of enrollees for uncovered expenditures);



• Allow the Commissioner, in the case of insolvency, to order other carriers that participated in the enrollment process with an insolvent HMO to offer the enrollees of the insolvent HMO a 30-day enrollment period and the same coverage that the insolvent HMO had offered;



• Make it an unconscionable act under the Kansas Consumer Protection Act for a provider to bill an HMO enrollee for money owed to the provider by the HMO;



• Require a new HMO to have an initial net worth of $1,500,000 and to maintain a net worth equal to those set out in the bill based on a percentage of annual premium revenues;



• Exempt from net worth capital requirements health maintenance organizations contracting with the Department of Social and Rehabilitation Services that provides services under Title XIX (Medicaid program) and Title XXI (state child health insurance program) or under any other public benefits contract representing at least 90 percent of the premium volume of the health organization;



• Allow all existing health maintenance organizations to meet and maintain the minimum net worth requirement in 25 percent increments over a period of four years, arriving at 100 percent of the minimum requirement by December 31, 2003; and



• Place health maintenance organizations under the Impaired or Insolvent Insurers Act.

Background

SB 619 was recommended by the Insurance Commissioner who noted that since 1997 the nation has experienced over 25 HMO insolvencies and the trend in the marketplace is for more consolidation among HMOs and an increased number of insolvencies among the rest of the HMO field. The bill provides the Commissioner with authority to help prevent those insolvencies and to address decisively any impaired HMO.

As amended, the bill is supported by the Kansas Association of Health Plans, HealthNet, the Department of Social and Rehabilitation Services, and Kaiser Permanente.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html