Kentucky Administrative Regulations
Title 806 - PUBLIC PROTECTION CABINET - DEPARTMENT OF INSURANCE
Chapter 38 - Health Maintenance Organizations
Section 806 KAR 38:100 - Risk-based capital for health organizations
Universal Citation: 806 KY Admin Regs Service 38:100
Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO: KRS 304.2-150, 304.2-250(3), 304.2-260, 304.2-270, 304.32-140, 304.38-070, 304.38A-080, 304.38A-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS 304.38-150 authorizes the Commissioner of the Kentucky Department of Insurance to promulgate administrative regulations necessary for the proper administration of KRS 304.38. KRS 304.32-140(1), 304.38-070, 304.38A-080, and 304.38A-110(2) require the Commissioner of the Kentucky Department of Insurance to promulgate administrative regulations establishing requirements for risk-based capital. KRS 304.38-150 authorizes that the Commissioner of Insurance to promulgate reasonable administrative regulations necessary for the proper administration of KRS Subtitle 304.38. This administrative regulation establishes requirements for health maintenance organizations, limited health service corporations, and nonprofit health service corporations to comply with risk-based capital reporting requirements to aid in the department's financial monitoring.
Section 1. Definitions.
(1) "Adjusted
RBC report" means an RBC report that has been adjusted by the commissioner in
accordance with Section 2(3) of this administrative regulation.
(2) "Authorized control level event" means
any of the following events:
(a) The filing
of an RBC report by the health organization that indicates that the health
organization's total adjusted capital is greater than or equal to its Mandatory
Control Level RBC but less than its Authorized Control Level RBC;
(b) The notification by the commissioner to
the health organization of an adjusted RBC report that indicates the event in
paragraph (a) of this subsection, if the health organization does not challenge
the adjusted RBC report under Section 7 of this administrative
regulation;
(c) If, pursuant to
Section 7 of this administrative regulation, the health organization challenges
an adjusted RBC report that indicates the event in paragraph (a) of this
subsection, notification by the commissioner to the health organization that
the commissioner has, after a hearing, rejected the health organization's
challenge;
(d) The failure of the
health organization to respond to a corrective order, if the health
organization has not challenged the corrective order under Section 7 of this
administrative regulation; or
(e)
If the health organization has challenged a corrective order under Section 7 of
this administrative regulation and the commissioner has, after a hearing,
rejected the challenge or modified the corrective order, the failure of the
health organization to respond to the corrective order subsequent to rejection
or modification by the commissioner.
(3) "Commissioner" is defined by
KRS
304.1-050(1).
(4) "Company action level event" means any of
the following events:
(a) The filing of an
RBC report by a health organization that indicates that the health
organization's total adjusted capital is greater than or equal to its
Regulatory Action Level RBC but less than its Company Action Level
RBC;
(b) Notification by the
commissioner to the health organization of an adjusted RBC report that
indicates an event in paragraph (a) of this subsection, if the health
organization does not challenge the adjusted RBC report under Section 7 of this
administrative regulation;
(c)
Pursuant to Section 7 of this administrative regulation, if a health
organization challenges an adjusted RBC report that indicates the event in
paragraph (a) of this subsection, the notification by the commissioner to the
health organization that the commissioner has, after a hearing, rejected the
health organization's challenge; or
(d) A health maintenance organization that
has total adjusted capital greater than or equal to its Company Action Level
RBC but less than the product of its Authorized Control Level RBC and three and
zero-tenths (3.0) and triggers the trend test determined in accordance with the
trend test calculation included in the NAIC 2019 Risk-Based Capital Forecasting
& Instructions, Health.
(5) "Corrective order" means an order issued
by the commissioner specifying corrective actions that the commissioner has
determined are required, under the provisions of this administrative
regulation.
(6) "Department" is
defined by
KRS
304.1-050(2).
(7) "Domestic health organization" means a
health organization domiciled in this state.
(8) "Foreign health organization" means a
health organization that is licensed to do business in this state under KRS
Subtitle 304.38, 304.38A, or 304.32 but is not domiciled in this
state.
(9) "Health organization"
means a health maintenance organization, limited health service organization,
dental or vision plan, hospital, medical and dental indemnity or service
corporation, or other managed care organization licensed under KRS Subtitle
304.38, 304.38A, or 304.32, except for an organization that is licensed as
either a life and health insurer or a property and casualty insurer under KRS
Subtitle 304.24 or 304.3 and that is otherwise subject to either the life or
property and casualty RBC requirements.
(10) "Mandatory control level event" means
any of the following events:
(a) The filing of
an RBC report that indicates that the health organization's total adjusted
capital is less than its Mandatory Control Level RBC;
(b) Notification by the commissioner to the
health organization of an adjusted RBC report that indicates the event in
paragraph (a) of this subsection, if the health organization does not challenge
the adjusted RBC report under Section 7 of this administrative regulation;
or
(c) Pursuant to Section 7 of
this administrative regulation, the health organization challenges an adjusted
RBC report that indicates the event in paragraph (a) of this subsection,
notification by the commissioner to the health organization that the executive
director has, after a hearing, rejected the health organization's
challenge.
(11) "NAIC"
means the National Association of Insurance Commissioners.
(12) "RBC" means risk-based
capital.
(13) "RBC instructions"
means the RBC report including risk-based capital instructions adopted by the
NAIC, as these RBC instructions are amended by the NAIC from time to time in
accordance with the procedures adopted by the NAIC.
(14) "RBC level" means a health
organization's company action level RBC, regulatory action level RBC,
authorized control level RBC, or mandatory control level RBC in which:
(a) "Company Action Level RBC" means, with
respect to any health organization, the product of two and zero-tenths (2.0)
and its Authorized Control Level RBC;
(b) "Regulatory Action Level RBC" means the
product of one and five-tenths (1.5) and its Authorized Control Level
RBC;
(c) "Authorized Control Level
RBC" means the number determined under the risk-based capital formula in
accordance with the RBC instructions; and
(d) "Mandatory Control Level RBC" means the
product of 0.70 and the Authorized Control Level RBC.
(15) "RBC plan" means a comprehensive
financial plan containing the elements established in Section 3(2) of this
administrative regulation.
(16)
"RBC report" means the report required in Section 2 of this administrative
regulation.
(17) "Regulatory action
level event" means, with respect to a health organization, any of the following
events:
(a) The filing of an RBC report by the
health organization that indicates that the health organization's total
adjusted capital is greater than or equal to its Authorized Control Level RBC
but less than its Regulatory Action Level RBC;
(b) Notification by the commissioner to a
health organization of an adjusted RBC report that indicates the event in
paragraph (a) of this subsection, if the health organization does not challenge
the adjusted RBC report under Section 7 of this administrative
regulation;
(c) If, pursuant to
Section 7 of this administrative regulation, the health organization challenges
an adjusted RBC report that indicates the event in paragraph (a) of this
subsection, the notification by the commissioner to the health organization
that the commissioner has, after a hearing, rejected the health organization's
challenge;
(d) The failure of the
health organization to file an RBC report by the filing date, unless the health
organization has provided an explanation for the failure and has cured the
failure within ten (10) days after the filing date;
(e) The failure of the health organization to
submit an RBC plan to the commissioner within the time period established in
Section 3(3) of this administrative regulation;
(f) Notification by the commissioner to the
health organization that:
1. The RBC plan or
revised RBC plan submitted by the health organization is unsatisfactory;
and
2. Notification constitutes a
regulatory action level event with respect to the health organization, if the
health organization has not challenged the determination under Section 7 of
this administrative regulation;
(g) If, pursuant to Section 7 of this
administrative regulation, the health organization challenges a determination
by the commissioner under this paragraph, the notification by the commissioner
to the health organization that the commissioner has, after a hearing, rejected
the challenge;
(h) Notification by
the commissioner to the health organization that the health organization has
failed to adhere to its RBC plan or revised RBC plan, but only if the failure
has a substantial adverse effect on the ability of the health organization to
eliminate the company action level event in accordance with its RBC plan or
revised RBC plan and the commissioner has stated so in the notification, if the
health organization has not challenged the determination under Section 7 of
this administrative regulation; or
(i) If, pursuant to Section 7 of this
administrative regulation, the health organization challenges a determination
by the commissioner under this paragraph, the notification by the commissioner
to the health organization that the commissioner has, after a hearing, rejected
the challenge.
(18)
"Revised RBC plan" means an RBC plan that was:
(a) Rejected by the commissioner;
and
(b) Revised by the health
organization, with or without the commissioner's recommendation.
(19) "Total adjusted capital"
means the sum of:
(a) A health organization's
statutory capital and surplus (net worth) as determined in accordance with the
statutory accounting applicable to the annual financial statements required to
be filed under
KRS
304.3-240 or
304.32-090;
and
(b) Other items, if any, as the
RBC instructions provide.
Section 2. RBC Reports.
(1) A domestic health organization shall, on
or prior to each March 1 (filing date), prepare and submit to the commissioner
a report of its RBC levels as of the end of the calendar year just ended, in
the NAIC 2019 Risk-Based Capital Forecasting & Instructions, Health. In
addition, a domestic health organization shall file its RBC report with the:
(a) NAIC in accordance with the RBC
instructions; and
(b) Insurance
commissioner in any state in which the health organization is authorized to do
business, if the insurance commissioner has notified the health organization of
its request in writing, in which case the health organization shall file its
RBC report not later than the later of:
1.
Fifteen (15) days from the receipt of notice to file its RBC report with that
state; or
2. The filing
date.
(2) A
health organization's RBC shall be determined in accordance with the formula
established in the RBC instructions. The formula shall take the following into
account, and may adjust for the covariance between, determined in each case by
applying the factors in the manner established in the RBC instructions:
(a) Asset risk;
(b) Credit risk;
(c) Underwriting risk; and
(d) All other business and relevant risks as
are established in the RBC instructions.
(3) If a domestic health organization files
an RBC report that is inaccurate, then the commissioner shall adjust the RBC
report to correct the inaccuracy and shall notify the health organization of
the adjustment. The notice shall contain a statement of the reason for the
adjustment.
Section 3. Company Action Level Event.
(1) If a company
action level event occurs, the health organization shall prepare and submit to
the commissioner an RBC plan that shall:
(a)
Identify the conditions that contribute to the company action level
event;
(b) Contain proposals of
corrective actions that the health organization intends to take and that would
be expected to result in the elimination of the company action level
event;
(c) Provide projections of
the health organization's financial results in the current year and at least
the two (2) succeeding years, both in the absence of proposed corrective
actions and giving effect to the proposed corrective actions, including
projections of statutory balance sheets, operating income, net income, capital
and surplus, and RBC levels. The projections for both new and renewal business
may include separate projections for each major line of business and separately
identify each significant income, expense, and benefit component;
(d) Identify the key assumptions impacting
the health organization's projections and the sensitivity of the projections to
the assumptions; and
(e) Identify
the quality of, and problems associated with, the health organization's
business, including its assets, anticipated business growth and associated
surplus strain, extraordinary exposure to risk, and mix of business and use of
reinsurance, if any, in each case.
(2) The RBC plan shall be submitted:
(a) Within forty-five (45) days of the
company action level event; or
(b)
If the health organization challenges an adjusted RBC report pursuant to
Section 7 of this administrative regulation, within forty-five (45) days after
notification to the health organization that the commissioner has, after a
hearing, rejected the health organization's challenge.
(3) Within sixty (60) days after the
submission by a health organization of an RBC plan to the commissioner, the
commissioner shall notify the health organization whether or not the RBC plan
shall be implemented or is unsatisfactory. If the commissioner determines the
RBC plan fails to address the requirements of subsection (1)(a) through (e),
the notification to the health organization shall state the reasons for the
determination, and establish revisions to correct the RBC plan. Upon
notification from the commissioner, the health organization shall prepare a
revised RBC plan, which may incorporate by reference any revisions proposed by
the commissioner, and shall submit the revised RBC plan to the commissioner:
(a) Within forty-five (45) days after the
notification from the commissioner; or
(b) If the health organization challenges the
notification from the commissioner under Section 7 of this administrative
regulation, within forty-five (45) days after a notification to the health
organization that the commissioner has, after a hearing, rejected the health
organization's challenge.
(4) If the commissioner notifies a health
organization that the health organization's RBC plan or revised RBC plan is
unsatisfactory, the commissioner may, subject to the health organization's
right to a hearing under Section 7 of this administrative regulation, specify
in the notification that the notification constitutes a regulatory action level
event.
(5) Every domestic health
organization that files an RBC plan or revised RBC plan with the commissioner
shall file a copy of the RBC plan or revised RBC plan with the insurance
commissioner in any state in which the health organization is authorized to do
business if:
(a) The state has an RBC
provision substantially similar to Section 8(1) of this administrative
regulation; and
(b) The insurance
commissioner of that state has notified the health organization of its request
for the filing in writing, in which case the health organization shall file a
copy of the RBC plan or revised RBC plan in that state no later than the later
of:
1. Fifteen (15) days after the receipt of
notice to file a copy of its RBC plan or revised RBC plan with the state;
or
2. The date on which the RBC
plan or revised RBC plan is filed under subsections (3) and (4) of this
section.
Section 4. Regulatory Action Level Event.
(1) If a regulatory action level event
occurs, the commissioner shall:
(a) Require
the health organization to prepare and submit an RBC plan or, if applicable, a
revised RBC plan;
(b) Perform an
examination or analysis of the assets, liabilities, and operations of the
health organization including a review of its RBC plan or revised RBC plan;
and
(c) Subsequent to the
examination or analysis, issue an order specifying corrective
actions.
(2) In
determining corrective actions, the commissioner shall take into account
relevant factors with respect to the health organization, based upon the
commissioner's examination or analysis of the assets, liabilities, and
operations of the health organization, including the results of any sensitivity
tests undertaken pursuant to the RBC instructions. The RBC plan or revised RBC
plan shall be submitted:
(a) Within forty-five
(45) days after the occurrence of the regulatory action level event;
(b) If the health organization challenges an
adjusted RBC report pursuant to Section 7 of this administrative regulation and
the challenge is made in good faith within forty-five (45) days after the
notification to the health organization that the commissioner has, after a
hearing, rejected the health organization's challenge; or
(c) If the health organization challenges a
revised RBC plan pursuant to Section 7 of this administrative regulation and
the challenge is made in good faith, within forty-five (45) days after the
notification to the health organization that the commissioner has, after a
hearing, rejected the health organization's challenge.
(3) The commissioner may retain actuaries and
investment experts and other consultants as necessary to review the health
organization's RBC plan or revised RBC plan; examine or analyze the assets,
liabilities, and operations, including contractual relationships, of the health
organization, and formulate the corrective order with respect to the health
organization. The fees, costs, and expenses relating to consultants shall be
borne by the affected health organization or other party as directed by the
commissioner.
Section 5. Authorized Control Level Event. If an authorized control level event occurs with respect to a health organization, the commissioner shall:
(1) Take action as required under Section 4
of this administrative regulation regarding a health organization with a
regulatory action level event; or
(2) If it is in the best interests of the
policyholders and creditors of the health organization and of the public, take
action as necessary to cause the health organization to be placed under
regulatory control under KRS Subtitle 304.33. If the commissioner takes action,
the authorized control level event shall be sufficient grounds for the action.
If the commissioner takes actions under this subsection pursuant to an adjusted
RBC report, the health organization shall be entitled to protections as are
afforded to health organizations under the provisions of Section
KRS
304.33-130 pertaining to summary
proceedings.
Section 6. Mandatory Control Level Event.
(1) If a
mandatory control level event occurs, the commissioner shall take action as
necessary to place the health organization under regulatory control under KRS
Subtitle 304.33. The mandatory control level event shall be sufficient grounds
for the commissioner to take action.
(2) If the commissioner takes actions
pursuant to an adjusted RBC report, the health organization shall be entitled
to the protections of Section
KRS
304.33-130 pertaining to summary
proceedings.
(3) The commissioner
may forego action for up to ninety (90) days after the mandatory control level
event if there is a reasonable expectation that the mandatory control level
event will be eliminated within the ninety (90) day period.
Section 7. Hearings. Upon the occurrence of any of the following events the health organization shall have the right to a confidential departmental hearing, on a record, at which the health organization may challenge any determination or action by the commissioner. The health organization shall notify the commissioner of its request for a hearing within five (5) days after the notification by the commissioner of any of the following events:
(1) Notification to a health organization by
the commissioner of an adjusted RBC report;
(2) Notification to a health organization by
the commissioner that:
(a) The health
organization's RBC plan or revised RBC plan is unsatisfactory; and
(b) Notification constitutes a regulatory
action level event with respect to the health organization;
(3) Notification to a health
organization by the commissioner that the health organization has failed to
adhere to its RBC plan or revised RBC plan and that the failure has a
substantial adverse effect on the ability of the health organization to
eliminate the company action level event with respect to the health
organization in accordance with its RBC plan or revised RBC plan; or
(4) Notification to a health organization by
the commissioner of a corrective order with respect to the health
organization.
Section 8. Confidentiality; Prohibition on Announcements, and Prohibition on Use in Rate-making.
(1)
(a) If in the possession or the control of
the Department of Insurance, the following shall be confidential:
1. RBC reports, to the extent that the
information is not required to be stated in a publicly available annual
statement schedule; and
2. RBC
plans, including the results or report of any examination or analysis of a
health organization performed and any corrective order issued by the
commissioner pursuant to examination or analysis with respect to a domestic
health organization or foreign health organization.
(b) The commissioner may use the documents,
materials, or other information in paragraph (a) of this subsection, in
accordance with
KRS
304.2-150,
304.2-250(3),
304.2-260,
and 304.2270.
(2) In
order to assist the performance of the commissioner's duties, the commissioner
may:
(a) Share documents, materials, or other
information obtained under this administrative regulation, in accordance with
KRS
304.2-150,
304.2-250(3),
304.2-260(5),
and
304.2-270;
(b) Receive documents, materials, or
information, including otherwise confidential and privileged documents,
materials, or information, from the NAIC and its affiliates and subsidiaries,
and from regulatory and law enforcement officials of other foreign or domestic
jurisdictions, and shall maintain as confidential or privileged any document,
material, or information received with notice or the understanding that it is
confidential or privileged under the laws of the jurisdiction that is the
source of the document, material, or information; and
(c) Enter into agreements governing sharing
and use of information consistent with this section.
(3)
(a)
Except as otherwise required or authorized under the provisions of this
administrative regulation, a health organization, agent, broker, or other
person engaged in any manner in the insurance business shall not make an
assertion, representation, or statement with regard to the RBC levels of any
health organization, or any component derived in the calculation, by:
1.
a.
Making, publishing, disseminating, circulating, or placing before the public;
or
b. Causing, directly or
indirectly, to be made published, disseminated, circulated, or placed before
the public; and
2. Using:
a. A newspaper, magazine, or other
publication;
b. A notice, circular,
pamphlet, letter, or poster;
c. A
radio or television station;
d. An
advertisement, announcement, or statement; or
e. Any other means that places the
information before the public.
(b) A health organization may publish an
announcement in a written publication:
1. If
the sole purpose is to rebut:
a. A materially
false statement with respect to the comparison of the health organization's
total adjusted capital to its RBC levels; or
b. An inappropriate comparison of any other
amount to the health organization's RBC levels;
2. If these materially false statements or
inappropriate comparisons are published in a written publication; and
3. If the health organization is able to
demonstrate to the commissioner, with substantial proof, the falsity or
inappropriateness of the statement.
(4) The RBC instructions, RBC reports,
adjusted RBC reports, RBC plans, and revised RBC plans shall be solely for use
by the commissioner in monitoring the solvency of health organizations and the
need for possible corrective action with respect to health organizations and
shall not be used by the commissioner for ratemaking, nor considered or
introduced as evidence in any rate proceeding, nor used by the commissioner to
calculate or derive any elements of an appropriate premium level or rate of
return for any line of insurance that a health organization or any affiliate is
authorized to write.
Section 9. Supplemental Provisions; Rules; Exemption.
(1) The provisions of this administrative
regulation shall be supplemental to any other provisions of the laws of this
state and shall not preclude or limit any other powers or duties of the
commissioner under the law, including KRS Subtitle 304.32, 304.33, 304.37, or
304.38, 304.2-065, or
806
KAR 3:150.
(2) If requested, the commissioner shall
exempt from the application of this administrative regulation a domestic health
organization that:
(a) Writes direct business
only in this state;
(b) Assumes no
reinsurance in excess of five (5) percent of direct premium written;
and
(c) Writes direct annual
premiums for comprehensive medical business of $2,000,000 or less or is a
limited health service organization that covers less than 2,000
lives.
Section 10. Foreign Health Organizations.
(1)
(a) A
foreign health organization shall, upon the written request of the
commissioner, submit to the commissioner an RBC report as of the end of the
calendar year just ended the later of:
1. The
date an RBC report would be required to be filed by a domestic health
organization under this administrative regulation; or
2. Fifteen (15) days after the request is
received by the foreign health organization.
(b) A foreign health organization shall,
within thirty (30) days of the written request of the commissioner, submit to
the commissioner a copy of any RBC plan that is filed with the insurance
commissioner of any other state.
(2)
(a) The
commissioner may require a foreign health organization to file an RBC plan if a
company action level event, regulatory action level event, or authorized
control level event occurs with respect to the foreign health organization:
1. As determined under the RBC statute
applicable in the foreign health organization's state of domicile;
2. Under the provisions of this
administrative regulation, if no RBC statute is in force in the state of
domicile; or
3. If the insurance
commissioner of the state of domicile fails to require the foreign health
organization to file an RBC plan in the manner established under the RBC
statute of the domicile state.
(b) If the commissioner chooses to require
the filing specified in paragraph (a) of this subsection, the failure of the
foreign health organization to file the RBC plan shall be grounds to order the
organization to cease and desist from writing new insurance business in the
state of Kentucky.
(3)
If a mandatory control level event occurs with respect to a foreign health
organization and no domiciliary receiver has been appointed with respect to the
foreign health organization under the rehabilitation and liquidation statute
applicable in the state of domicile of the foreign health organization:
(a) The commissioner may make application to
the Franklin Circuit Court permitted under the KRS Subtitle 304.33 with respect
to the liquidation of property of foreign health organizations found in this
state; and
(b) The occurrence of
the mandatory control level event shall be considered adequate grounds for the
application.
Section 11. Incorporation by Reference.
(1) "NAIC 2019 Risk-Based Capital Forecasting
& Instructions Health" is incorporated by reference.
(2) This material may be inspected, copied,
or obtained, subject to applicable copyright law, at the Kentucky Department of
Insurance, Mayo-Underwood Building, 500 Mero Street,, Frankfort, Kentucky
40601, Monday through Friday, 8 a.m. to 4:30 p.m.
STATUTORY AUTHORITY: KRS 304.32-140(1), 304.38-070, 304.38A-080, 304.38-150, 304.38A-110(2)
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