PA 07-178—sHB 7263

Insurance and Real Estate Committee

Judiciary Committee

Finance, Revenue and Bonding Committee

Public Health Committee

AN ACT CONCERNING HEALTH CARE CENTERS AND INSOLVENCY PROTECTION

SUMMARY: This act makes several changes to laws affecting health care centers (i. e. , HMOs). It requires an HMO to deposit $500,000 with the insurance commissioner or designated trustee. The commissioner must use the deposit to provide health care services to the HMO's enrollees if the HMO is placed in receivership (i. e. , rehabilitation or conservation) and may use them for related administrative costs.

By law, an HMO may provide out-of-network (OON) benefits to its enrollees, subject to certain financial requirements. Prior law prohibited an HMO's OON benefits from exceeding 10% of its total quarterly health care expenditures (i. e. , claims and expenses). The act instead permits OON benefits to exceed 10% of total expenditures if the HMO first (1) obtains the insurance commissioner's approval and (2) deposits an amount equal to at least 120% of its uncovered expenditures with the commissioner or designated trustee.

Prior law required contracts between an HMO and a contracted health care provider to specify that if the HMO failed to pay the provider, the enrollee would not be liable for the amount the HMO owed. The act instead requires the contract to include language it specifies that holds enrollees harmless (i. e. , not liable) for amounts the HMO owes. It also requires the contract to inform the provider that it is an unfair trade practice to (1) ask an enrollee for more than his or her copayment or deductible or (2) report an enrollee to a credit agency for not paying a bill for which the HMO is liable.

EFFECTIVE DATE: October 1, 2007

RECEIVERSHIP DEPOSIT

The act requires each HMO to deposit with the commissioner cash, securities, any combination of these, or other measures acceptable to the commissioner. At the commissioner's discretion, deposits may be given to any acceptable organization or trustee through which a custodian or controlled account is used. The deposit must be worth at least $500,000 at all times. An HMO in operation on October 1, 2007 must deposit $250,000 (presumably in 2007) and another $250,000 in the second year (presumably 2008) to meet the requirement.

The act specifies that an HMO's deposits and all income from them are the HMO's admitted assets when determining its net worth. An HMO that has made a securities deposit may withdraw all or part of it after making a substitute deposit of equal amount and value. The insurance commissioner must approve any securities before they are deposited.

The act requires that the deposits be used to protect the interests of the HMO's enrollees and to assure continuation of health care services to them when the HMO is in rehabilitation or conservation. It permits the commissioner to use the deposits for administrative costs directly related to a receivership or liquidation. If the HMO is placed in rehabilitation or liquidation, the deposit is considered an asset subject to the provisions of the Insurers Rehabilitation and Liquidation Act.

UNCOVERED EXPENDITURES DEPOSIT

The act requires an HMO to place an uncovered expenditures insolvency deposit with the insurance commissioner, or with an acceptable organization or trustee through which a custodial or controlled account is maintained, whenever uncovered expenditures exceed 10% of its total health care expenditures.

The deposit must be in cash or securities acceptable to the commissioner and must at all times have a fair market value equal to 120% of the HMO's uncovered expenditures liability for enrollees in Connecticut, including claims incurred but not yet reported to the HMO. The HMO must calculate the deposit amount as of a month's first day and maintain that amount for the rest of the month. The act requires the HMO to file with the insurance commissioner, within 45 days after each quarter ends, a financial report demonstrating compliance.

Under the act, the uncovered expenditures insolvency deposit is in addition to the $500,000 receivership deposit. It and all income from it are the HMO's admitted assets when determining net worth, and may be withdrawn quarterly with the commissioner's approval.

The act permits an HMO to withdraw all or part of the deposit if (1) a substitute deposit of equal amount and value is made, (2) the fair market value exceeds the amount of the required deposit, or (3) the required deposit is reduced or eliminated. Deposits, substitutions, or withdrawals require the commissioner's prior written approval.

The act requires that the deposit be held in trust separate and apart from all other money, funds, and accounts and it may be used only as provided. It permits the commissioner to use the deposit for paying enrollees' claims for uncovered expenditures and related administrative costs. The commissioner must pay claims on a prorated basis based on available assets. Partial distribution may be made pending final distribution. Any deposit remaining must be paid into the HMO's liquidation or receivership.

The act permits the commissioner to adopt regulations that set the time, manner, and form for filing uncovered expenditure claims. The commissioner may also adopt regulations or issue an order requiring an HMO to file annual, quarterly, or more frequent reports deemed necessary to demonstrate compliance. The commissioner may require that the reports include liability for uncovered expenditures as well as an audit opinion.

PROVIDER CONTRACT HOLD HARMLESS PROVISION

The act requires a contract between an HMO and a participating provider to contain the language it includes or a variation the insurance commissioner approves. The language specifies that the provider and HMO agree that if the HMO does not pay the provider, becomes insolvent, or breaches the contract, the provider will not collect or attempt to collect the amount the HMO owes from the HMO's enrollee or take any recourse against him or her. It also specifies that the provider will continue to render health care services to the enrollee for the period of time for which the enrollee's premiums were paid or until he or she is discharged from an inpatient facility, whichever is longer.

BACKGROUND

Uncovered Expenditures

“Uncovered expenditures” are health care costs an HMO is obligated to pay, but for which an enrollee may be liable if the HMO is insolvent. Uncovered expenditures do not include (1) expenses for which a provider has agreed not to bill the enrollee even if the HMO does not pay the provider or (2) services another person or organization, other than the HMO, guarantees, insures, or assumes.

Insurers Rehabilitation and Liquidation Act

The Insurers Rehabilitation and Liquidation Act gives the insurance commissioner broad authority to supervise, rehabilitate, or liquidate a financially impaired or insolvent HMO to protect the interests of enrollees, claimants, creditors, and the general public. Among other actions, the commissioner can void fraudulent transfers, preferences, and liens; seek recovery of premiums; dispute claims; prohibit certain financial transactions; and distribute an insolvent HMO's remaining assets to enrollees and other claimants.

Unfair Trade Practice

The Connecticut Unfair Trade Practices Act (CUTPA) prohibits businesses from engaging in unfair and deceptive acts or practices. It allows the Department of Consumer Protection commissioner to define “unfair trade practice” in regulations, investigate complaints, issue cease and desist orders, order restitution in cases involving less than $5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. It also allows individuals to sue. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys fees; and impose civil penalties of up to $5,000 for willful violations and $25,000 for violation of a restraining order.

OLR Tracking: JLK: JR: JL: RO