Sec. 101.5. Demonstration of financial responsibility

(a) No agreement to transfer financial risk through a capitation arrangement may be entered into between an insurer and a health care provider unless such health care provider is financially responsible by virtue of having met the standards set forth in this section.

(b) Financial security deposit.

The financial security deposit required by this Part (required amount) shall at all times be at least equivalent to 12.5 percent of the estimated annual in-network capitation revenue to be received from the insurer under the financial risk transfer agreement then in force, and may consist of either securities in trust, a letter of credit or funds held by the insurer as described below or a combination of securities, a letter of credit, funds held and a provider stop loss insurance policy or other acceptable means which complies with the requirements of this Part. For purposes of this section, the estimated annual in-network capitation to be paid to a financially solvent health care provider pursuant to a capitation arrangement with the insurer shall exclude that portion of the capitation revenue which will be required to pay for the health care services to be rendered: directly by the health care provider which is not an intermediary entity; directly by the health care provider's guaranteeing parent corporation if such parent is a health care facility; by the employees of the health care provider; by the employees of the health care provider's guaranteeing parent corporation if such parent is a health care facility; by any participating provider who is paid pursuant to a capitation arrangement with the health care provider (provided that payment to the participating provider is made no later than the first day of the month following its receipt by the health care provider); or by any participating provider who is paid a salary pursuant to a contractual arrangement with the health care provider.

(1) Securities in trust.

(i) Securities which shall be held in trust for the insurer in compliance with the requirements of sections 126.2, 126.3, 126.4 and 126.5 of this Title (Regulation 114).

(ii) If the aggregate market value of the securities in trust shall fall below the required amount, the insurer must require the health care provider to immediately deposit with the trustee additional securities of like character.

(2) Letter of credit.

(i) A letter of credit, with the insurer as beneficiary, which shall comply with the requirements of sections 79.1, 79.2 and 79.3 of this Title (Regulation 133).

(ii) If the face value of the letter of credit shall fall below the required amount, the insurer must require the health care provider to immediately increase the value of the letter of credit.

(3) Funds held by the insurer. Amounts (funds) which are owed by the insurer to a health care provider pursuant to a risk sharing arrangement and which are reported as a liability on the insurer's books of account may qualify as a financial security deposit if the insurer and health care provider agree that such amounts shall be subject to the provisions of this Part which govern a financial security deposit. To effectuate compliance with this paragraph the insurer shall deposit cash up to the amount of such payable into a separate account to be maintained in the form of cash or cash equivalents and such account shall be subject to the provisions of subdivisions (e) and (f) of this section. The funds in this account, including any interest accrued thereon shall be held by and under the control of the insurer and have a market value at least equal to the required amount.

(4) Provider stop loss insurance. If a health care provider elects to meet a portion of its financial responsibility requirement by purchasing a provider stop loss insurance policy approved by the superintendent, then the amount of the provider stop loss insurance coverage, net of any retention amounts or participation limits to be paid by the health care provider, may be used to offset up to 50 percent of the required financial security deposit. Under this paragraph a health care provider may only use aggregate provider stop loss insurance. The participating provider shall have no beneficial interest in such stop loss coverage.

(5) In lieu of the provider stop loss insurance, the superintendent may permit the use of other acceptable means which the superintendent determines would provide the insurer with protection equivalent to provider stop loss insurance. Any such means shall be approved by the superintendent and comply in substance with the minimum provisions and requirements set forth in this Part for provider stop loss insurance.

(c) A health care provider will be eligible for the elimination of the otherwise applicable financial security deposit where:

(1) in the case of a health care provider under contract with one or more entities certified pursuant to article 44 of the Public Health Law, including the line of business HMO of an Insurance Law article 43 corporation, the financial statement of the health care provider, as required by section 101.9(a)(3) of this Part, evidences that the amount of liquid assets (cash and marketable securities) and the net worth of the health care provider or the consolidated liquid assets and net worth of the parent corporation of the health care provider, in cases where the health care provider's obligations have been guaranteed by the parent corporation, are equal to or exceed five percent of the health care provider's total estimated annual in-network capitation revenue from all article 44 entities;

(2) in the case of a health care provider under contract with one or more insurance companies, including the non-HMO business written by article 43 corporations, the financial statement of the health care provider, as required by section 101.9(a)(3) of this Part, evidences that the amount of liquid assets (cash and marketable securities) and the net worth of the health care provider or the consolidated liquid assets and net worth of the parent corporation of the health care provider, in cases where the health care provider's obligations have been guaranteed by the parent corporation, is equal to or exceeds:

(i) in the case of liquid assets, five percent of the health care provider's total estimated annual in-network capitation revenue from all insurance companies; and

(ii) in the case of net worth, 12.5 percent of the health care provider's total estimated annual in-network capitation revenue from all insurance companies; or

(3) in the case of a health care provider who is receiving capitation from more than one type of licensee (e.g. HMO and accident and health insurer) must evidence compliance with the standards set forth in paragraph (1) of this subdivision for capitation received from entities certified pursuant to article 44 of the Public Health Law and compliance with the standards set forth in paragraph (2) of this subdivision for capitation received from insurance companies.

(d) During the first year that a financial risk transfer agreement is in effect the amount of the required securities in trust, letter of credit, or funds held as set forth in subdivision (b) of this section, may be accrued over a period of time not to exceed 12 months; provided that at the end of three months the amount shall not be less than 25 percent, at the end of six months shall not be less than 50 percent, at the end of nine months shall not be less than 75 percent and after one year shall not be less than 100 percent of the amount required.

(e) All proceeds from the financial security deposit which are received by the insurer or, as respects funds held by the insurer, which are maintained by the insurer in a separate account shall be held by the insurer and only used to indemnify itself for any amounts owed by the health care provider pursuant to the underlying financial risk transfer agreement and, notwithstanding section 101.4(a)(1) of this Part, to indemnify participating providers for any amounts which are owed by the health care provider for services rendered to the insurer's subscribers who are covered by the underlying financial risk transfer agreement. However, any indemnification to the insurer for a deficit in the health care provider's out-of-network escrow account shall be limited to the most recent 12-month period and any indemnification to participating providers shall not exceed the amount of such proceeds or funds. Any indemnification to the insurer or to eligible participating providers shall be pursuant to a plan approved by the superintendent which plan shall provide that distributions to eligible participating providers shall commence within 90 days of the insurer's receipt of the proceeds or the transfer of the funds from the separate account. Such plan shall provide for the return of any such proceeds or funds to the health care provider after satisfaction of all amounts due to the insurer and participating providers, as set forth in this subdivision.

(f) Release of the financial security deposit.

The required financial security deposit shall be maintained until such time as the underlying financial risk transfer agreement terminates or is cancelled, in accordance with the terms of such agreement; or until the health care provider qualifies for the elimination of the financial security deposit, pursuant to the provisions of subdivision (c) of this section. In the event of termination or cancellation, the necessary financial security deposit shall be released periodically by the insurer in accordance with the calculation of the required amount and after the insurer has given due consideration to any projected out-of- network deficit and any amounts which may be due to participating providers by the health care provider. To the extent such deposit was funded using a provider stop loss insurance or other acceptable means, then the amount of any release shall first be applied to that part of the deposit which was satisfied by the stop loss insurance or other acceptable means. The provisions of this subdivision shall not apply to a financial security deposit where the underlying financial risk transfer agreement was terminated by the superintendent pursuant to the provisions of section 101.9(a)(7) of this Part.