N.J. Admin. Code § 11:24-11.1

Current through Register Vol. 56, No. 24, December 18, 2024

Section 11:24-11.1 - Minimum net worth

(a) In order to obtain a certificate of authority, an HMO shall have a minimum net worth, determined on a SAP basis, of at least $ 1,500,000 in cash or cash equivalents, as adjusted annually by the CPI, together with such other guarantees and assets as the Commissioner may determine appropriate to assure the solvency of the HMO, based on its business plan, beginning on July 1, 1997.

(b) Except as (d) below applies, in order to maintain its certificate of authority, an HMO shall maintain at all times a minimum net worth, determined on a SAP basis, equal to the greater of:

1. $ 1,000,000 adjusted annually by the CPI, beginning on July 1, 1997;

2. Two percent of the annual premium revenues as reported by the HMO on its most recent annual financial statement filed with the Commissioner for the first $ 150,000,000 of premium reported and one percent of the annual premium in excess of the first $ 150,000,000 of premium reported;

3. An amount equal to the sum of three months of uncovered health care expenditures, as reported on the financial statement filed most recently with the Commissioner; or

4. An amount equal to the sum of eight percent of the annual health care expenditures (not including those expenditures paid on a capitated basis to a provider and those made on a managed hospital payment basis), as reported on the four quarterly financial statements most recently filed with the Commissioner, plus four percent of the annual hospital expenditures paid on a managed hospital payment basis, as reported in the four quarterly financial statements most recently filed with the Commissioner. If an HMO is issued an initial certificate of authority on or after July 1, 1997, its minimum net worth shall be phased in over a 48 month period, running from the date that its new certificate of authority is effective, as follows:

i. Twenty-five percent of the amount required in (b)4 above, or the greater of (b)1, 2 or 3 above, whichever is greatest, until the end of the 23rd month following the month in which its new certificate of authority was effective;

ii. Fifty percent of the amount required in (b)4 above, or the greater of (b)1, 2 or 3 above, whichever is greatest from months 24 through 35;

iii. Seventy-five percent of the amount required in (b)4 above, or the greater of (b)1, 2 or 3 above, whichever is greatest, from months 36 through 47; and

iv. One hundred percent of the amount required in (b)4 above beginning in the 48th month following the month in which its new certificate of authority was effective.

(c) In order to maintain its certificate of authority, a minimum of 60 percent of an HMO's admitted assets shall be cash, cash equivalents, investments as set forth at N.J.S.A. 17B:20-1a, or other forms of investments acceptable to the Commissioner considering the amount of the HMO's assets and the proportion of admitted assets to the HMO's minimum net worth requirement.

(d) Every HMO shall submit a capital and surplus (minimum net worth) guarantee on a form established and available from the Department, executed by an affiliate or parent of the HMO that is not in an unsafe or unsound financial condition, consistent with N.J.A.C. 11:2-27, Determination of Insurers in a Hazardous Financial Condition, incorporated herein by reference, except that an HMO that has no such parent or affiliate available to execute a capital and surplus guarantee shall demonstrate to the satisfaction of the Commissioner that other additional financial resources are available to the HMO to maintain the HMO's minimum net worth requirement. All guarantors shall satisfy the following requirements:

1. The guarantor shall have liquid assets, letters of credit or a similar instrument available to support the guarantee in a manner and amount acceptable to the Commissioner.

2. If the guarantor is publicly held, the HMO shall submit the guarantor's quarterly and annual Securities and Exchange Commission (SEC) filing no later than 15 days after such filing has been made with the SEC. If not publicly held, the HMO shall submit the guarantor's unaudited quarterly financial statement no later than 45 days after the end of the calendar quarter.

3. All guarantors shall meet the following requirements:

i. The guarantor shall be a United States corporation actively engaged in business for a period of not less than five years;

ii. The guarantor shall have a satisfactory evaluation from Dun and Bradstreet, Standard and Poor's, Duff and Phelps or Moody's for at least three years;

iii. The guarantor shall have a net worth of at least $ 25 million; and

iv. If the guarantor fails to meet any of the requirements in (d)3i through iii above, a letter of credit or other form of financial security acceptable to the Commissioner shall be required.

(e) In determining net worth, a debt shall not be considered fully subordinated unless the subordination clause states that:

1. Principal and/or interest shall be paid to the lender only from free and divisible surplus as verified by the audited financial statement of the HMO;

2. Upon the dissolution or liquidation of the HMO, no payment shall be made with respect to the surplus note or other note made with that lender unless and until all other liabilities of the HMO have been paid in full; and

3. Written approval shall be obtained from the Commissioner prior to any full or partial repayment of any principal or interest under the note.

(f) Any debt incurred by a note meeting the requirements of (e) above and which is otherwise acceptable to the Commissioner shall not be considered a liability, but shall be reported as equity by the HMO.

(g) The interest expenses relating to the repayment of any fully subordinated debt shall be a covered expenditure.

(h) Every HMO shall be subject to the standards and corrective actions set forth at N.J.A.C. 11:2-27, Determination of Insurers in a Hazardous Financial Condition, which shall be in addition to the requirements of N.J.A.C. 11:24-11.6(f).

(i) No HMO shall enter into transactions for loans or other transfers of funds from or to the HMO without providing at least 30 days prior written notice of the transaction to the Commissioner.

1. The Commissioner may disapprove the transaction if, in the Commissioner's opinion, the transaction will adversely affect the HMO and cause it to be in a hazardous financial condition, in accordance with N.J.A.C. 11:2-27.

2. The Commissioner may disapprove the transaction pending receipt of additional information from the HMO.

3. The disapproval shall specify in writing the reasons for the disapproval.

i. If the disapproval includes a request for additional information, the disapproval shall include the date by which the additional information is due from the HMO.

ii. An HMO shall have no less than five business days in which to respond to a disapproval with a request for more information.

4. If the Commissioner does not disapprove of the transaction within 30 days of the date that the written notice is received by the Department, the transaction shall be deemed approved.

i. With respect to filings for which additional information has been requested, if the Commissioner does not disapprove the transaction within 30 days following receipt by the Department of the additional information as requested, the transaction shall be deemed approved.

(j) No HMO shall pay out dividends except in accordance with N.J.S.A. 17:27A-4 and N.J.A.C. 11:1-35.

N.J. Admin. Code § 11:24-11.1

Public Notice: Increase in medical component of the Consumer Price Index.
See: 29 N.J.R. 2484(a).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 30 N.J.R. 1330(a).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 31 N.J.R. 801(a).
Amended by R.1999 d.201, effective 6/21/1999.
See: 31 N.J.R. 610(a), 31 N.J.R. 1631(a).
In (b)4, inserted "to a provider" following "basis"; inserted a new (c); rewrote former (c) as (d); deleted former (d); in (i), deleted ", in accordance with N.J.S.A. 26:2J-5" at the end of the introductory paragraph; and in (j), substituted ", adversely impact compliance with other provisions of this chapter, or" for "and" following "HMO".
Public Notice: Increase in medical component of the Consumer Price Index.
See: 32 N.J.R. 1259(a).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 33 N.J.R. 1145(a).
Amended by R.2001 d.126, effective 4/16/2001.
See: 33 N.J.R. 159(a), 33 N.J.R. 1196(a).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 34 N.J.R. 1556(b).
Amended by R.2002 d.265, effective 8/19/2002.
See: 34 N.J.R. 885(a), 34 N.J.R. 3014(a).
Rewrote (j).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 35 N.J.R. 1596(a).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 36 N.J.R. 1836(d).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 37 N.J.R. 1089(b).
Public Notice: Department of Banking and Insurance; Division of Insurance; Office of the Commissioner: Minimum net worth requirements for Health Maintenance Organizations: increase in medical component of the Consumer Price Index.
See: 38 N.J.R. 1607(c).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 39 N.J.R. 1322(b).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 40 N.J.R. 1937(b).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 41 N.J.R. 1275(a).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 42 N.J.R. 674(c).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 43 N.J.R. 751(b).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 44 N.J.R. 599(c).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 45 N.J.R. 701(b).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 46 N.J.R. 2046(d).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 48 N.J.R. 662(a), 720(b).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 49 N.J.R. 1107(c).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 50 N.J.R. 1324(a).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 51 N.J.R. 481(b).
Public Notice: Increase in medical component of the Consumer Price Index.
See: 52 N.J.R. 1621(b).