FINANCIAL SOLVENCY

Sufficient Financial Resources
North Carolina laws mandate that HMOs have minimum financial resources to protect against insolvency. The statute sets out minimum requirements for working capital, deposits, net worth and reserves. For example, all HMOs must have a minimum deposit of at least $500,000 for full-service HMOs, and must maintain a minimum net worth of at least $1 million. The required contingency reserve is calculated on the basis of the HMO’s annual premiums. (NCGS 58-67-20(a), 25, 40, 110).

Additional Insolvency Protections
In addition to these monetary requirements, HMOs must ensure that providers do not collect sums from members that are owed by the HMO. If the HMO does not have this protection in its provider contracts then it must set up an additional special deposit to cover unpaid claims (NCGS 58-67-115). Each HMO must ensure that members can obtain benefits for the duration of the contract period for which premiums have been paid, even if the HMO lacks sufficient funds to continue operating (insolvency). In case of hospitalization, this applies until a member’s discharge. HMOs must also have other protections against insolvency that are approved by the Commissioner of Insurance, such as a reinsurance agreement that covers the HMO against excess losses; or any other arrangement that the Commissioner may require (NCGS 58-67-120, 11 NCAC 20.0202).

Obtaining Other Coverage Upon Insolvency
If an HMO does become insolvent, the Insurance Commissioner has the authority to order other carriers to offer a 30-day enrollment period for members of the insolvent plan. HMOs, which previously offered coverage to groups enrolled in the insolvent health care plan, are the first that will be required to offer coverage. The Commissioner may allocate the insolvent HMO’s group or non-group contracts to other HMOs (NCGS 58-67-125).

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