Code of Maryland Regulations
Title 31 - MARYLAND INSURANCE ADMINISTRATION
Subtitle 12 - HEALTH MAINTENANCE ORGANIZATIONS; ENTITIES THAT ACT AS HEALTH INSURERS
Chapter 31.12.06 - Managed Care Organizations - Financial Compliance Requirements
Section 31.12.06.02 - Financial Requirements
Universal Citation: MD Code Reg 31.12.06.02
Current through Register Vol. 51, No. 19, September 20, 2024
A. An applicant or MCO may not engage in business as an MCO unless determined by the Insurance Commissioner to be in compliance with the financial requirements of Health-General Article, §15-102.4, Annotated Code of Maryland.
B. Upon request, the MCO shall submit to the Administration the following documents:
(1) A copy of the articles of incorporation of the applicant or MCO and any amendments to it, certified by the Maryland Department of Assessments and Taxation;
(2) A copy of the applicant's or MCO's current bylaws, if any, certified by the appropriate officer of the applicant or MCO;
(3) A list of the names, addresses, and official capacity with the applicant or MCO of the individuals who are to be responsible for the conduct of the applicant's or MCO's affairs, including the members of the governing body, the officers, and directors;
(4) A resume of the qualifications of the administrator, the medical director, officers, and other individuals associated with the applicant or MCO as requested by the Commissioner and the Department;
(5) A statement generally describing the:
(a) Applicant or MCO and its corporate structure;
(b) Applicant's or MCO's operations;
(c) Location of the facilities at which health care services will be regularly available to enrollees;
(d) Number of physicians and personnel engaged or contracted with to provide health care services;
(6) A statement describing with reasonable certainty the geographic area or areas to be served by the applicant or MCO;
(7) A financial statement audited by an independent certified public accountant of the financial condition of the applicant or MCO, including:
(a) Assets, liabilities, and minimum tangible net equity;
(b) A prospective budget and expected cash flow analysis of the applicant or MCO for the first 24 months of its anticipated operation demonstrating its financial viability based on reasonable assumptions; and
(c) Other financial information the Commissioner requires for adequate financial evaluation;
(8) A power of attorney duly executed by the applicant or MCO appointing the Commissioner and the Commissioner's authorized deputies as the true and lawful attorney of the MCO in and for the State upon whom may be served all lawful process in any action, proceeding, or cause of action arising in this State against the MCO regarding the solvency and financial condition of the MCO; and
(9) A certificate of compliance evidencing employee coverage under Labor and Employment Article, §
9-105, Annotated Code of Maryland.
C. The list under §B(3) of this regulation shall include a full disclosure to the Commissioner of the extent and nature of any contracts or arrangements between any person listed in §B(3) of this regulation and the applicant or MCO, including any possible conflicts of interest. The applicant or MCO shall continually update the information required under §B(3)(a) of this regulation and make it available to the Commissioner at the Commissioner's request.
D. Insurance-----General Liability and Medical Malpractice.
(1) With the application, an applicant or MCO shall submit evidence of insurance for general liability and medical malpractice insurance.
(2) The minimum limits of coverage shall be $1 million for any one loss and $3 million in the aggregate.
(3) Evidence of renewal of coverage for the current year shall be submitted with the annual report.
E. Financial Requirements. In order to qualify for a determination of financial compliance, the applicant or MCO shall, at the time of making its initial application, demonstrate to the satisfaction of the Commissioner that the applicant or MCO has on hand sufficient liquid funds or a reasonably adequate cash flow to meet all organizational and administrative expenses incurred or expected to be incurred before commencing operations.
F. Determination of Financial Condition.
(1) In a determination of the financial condition of an applicant or MCO, only the following shall be considered as admitted assets for both applicants and, on an ongoing basis, for MCOs:
(a) Cash, in the possession of the applicant or MCO or in transit under its control, and the balance of any deposit of the applicant or MCO in a solvent Maryland bank or trust company;
(b) Amounts due and payable to the applicant or MCO under contracts with the Department, net of any Department withholds, on the date the amounts become due and payable, but not more than 90 days past due;
(c) Medical, surgical, and dental equipment, net of depreciation, and net of any liens, encumbrances, pledges, or judgments, that is used directly to provide health care benefits to medical assistance beneficiaries;
(d) Prepaid charges on health care contracts with hospitals, or other health care institutions when approved by the Commissioner, including premiums prepaid for malpractice or general liability insurance;
(e) Pharmaceutical and medical supply inventories;
(f) Cost of land and depreciated cost of buildings owned and occupied by the applicant or MCO and used by it to directly provide health care, in excess of any encumbrances on it in an amount not greater than 20 percent of total admitted assets as reported by the applicant or MCO for:
(i) An existing MCO as reported in its annual statement as of December 31 preceding the date of acquisition, or
(ii) An applicant MCO as reported in the certified audited financial statement submitted as part of the application;
(g) Leasehold estate improvements not exceeding 20 percent of total admitted assets as reported by the applicant or MCO for:
(i) An existing MCO as reported in its annual statement as of December 31 preceding the date of acquisition to the extent that the initial cost is amortized over the useful life of the improvements but not beyond the termination of the lease, or
(ii) An applicant MCO as reported in the certified audited financial statement submitted as part of the application;
(h) Electronic, mechanical, and computer hardware, and any operating system software, used for data processing and accounting purposes, which is free and clear of any liens, encumbrances, pledges, or judgments, the cost of which shall be depreciated in full over a period not to exceed 5 calendar years;
(i) Other assets, not inconsistent with the provisions of H and I of this regulation, deemed by the Commissioner available for the provision of health care, at values to be determined by the Commissioner.
(2) Investments and securities owned and held by the applicant or MCO, must be held free and clear of any liens, encumbrances, pledges or judgments, and the income due or accrued thereon. No investment shall be made or engaged in by any domestic applicant or MCO unless the same have been authorized or ratified by the board of directors or by a committee thereof charged with the duty of supervising investments. All investments of the applicant or MCO may be held in a custodial account pursuant to the requirements of COMAR 31.04.09, Annotated Code of Maryland.
G. Assets Not Admitted.
(1) The following may not be considered as admitted assets in the determination of the financial condition of an applicant or MCO:
(a) Good will, trade names, and other like intangible assets;
(b) Advances to officers, whether secured or not, and advances to employees, agents, and other persons on personal security only;
(c) The amount, if any, by which the aggregate book value of the investments as carried in the ledger assets of the applicant or MCO exceeds the aggregate value as reported in the applicant or MCO's annual statement;
(d) Office or administrative furniture and fixtures, leasehold improvements other than leasehold estate improvements which qualify under §F(1)(g) of this regulation, vehicles, and maintenance equipment;
(e) Amount estimated as receivable under coordination of benefits and subrogation provisions; and
(f) Any other amounts receivable in excess of 90 days past due.
(2) All assets not allowed and all other assets of doubtful value or character included in any statement by an applicant or MCO to the Commissioner, or in any examiner's report to the Commissioner, shall also be reported to the extent of the value disallowed, as deductions from the gross assets of the applicant or MCO.
H. Liabilities Chargeable Against Assets. In any determination of the financial condition of an applicant or MCO, liabilities to be charged against its assets shall include but not be limited to:
(1) The estimated amount necessary to pay for all accrued benefits to enrollees and all claims, both reported or unreported, incurred on or before the date of the statement, together with estimated costs of adjusting or settling disputed claims;
(2) The pro rata amount of premium charges paid by or on behalf of enrollees for any period of coverage beyond the date of the statement; and
(3) Any other liabilities, including but not limited to federal income taxes, payroll taxes, expenses, and other obligations due or accrued at the date of the statement.
I. Deposit of Securities. Every MCO to be considered in compliance with financial requirements shall deposit and maintain in trust with the State Treasurer, for the protection of its enrollees or its enrollees and creditors, cash or government securities of the type described in Insurance Article, § 5-701(b), Annotated Code of Maryland, in the market value amount of $100,000.
J. Valuation of Investments.
(1) All obligations having a fixed term and rate shall be:
(a) If purchased at par, at the par value;
(b) If purchased above or below par, on the basis of the purchased price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made.
(2) Common, preferred, or guaranteed stocks shall be valued at market value. Market value may be from the original broker-dealer transaction advice and one of the following:
(a) A nationally recognized rating agency such as Moody's Investor Service, Standard and Poor's Corporation, or any other similar organization approved by the Maryland Insurance Administration at the request of the MCO;
(b) A nationally recognized publication such as the Wall Street Journal or Barron's; or
(c) Written documentation from a registered broker-dealer or investment adviser.
(3) The written documentation substantiating the values reported by the MCO in the annual and/or quarterly statements shall be maintained by the MCO and readily available for review by the Insurance Administration at financial examinations.
Disclaimer: These regulations may not be the most recent version. Maryland may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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