The Insurance Commissioner adopts and promulgates this chapter according to Health-General Article, §19-705, Annotated Code of Maryland, for the purpose of governing and regulating various phases of the operations of health maintenance organizations. All terms defined in the Health Maintenance Organization Act of 1975 which are used in this chapter have the same meaning as in the Act unless the terms are defined differently in this chapter. Terms Defined. “HMO” means a health maintenance organization. “Individual contract” means a contractual agreement for the provision of health care services on a prepaid basis entered into between an HMO and a subscriber, provided the contract covers only the following persons: The subscriber; The subscriber and the subscriber's dependents; or The subscriber's dependents. “Leasehold estate improvements” means improvements made to property which is leased by the HMO and used by it to provide health care directly. “Member” means the subscriber and any of the subscriber's dependents who are enrolled in the HMO. “Subscriber” means, for: Group HMO contracts, the person who is eligible to be covered under the contract, other than as a dependent, due to satisfaction of the eligibility requirements of the group; and Individual HMO contracts, the person who completes the application for coverage with the HMO. The scope of this chapter is the scope of Health-General Article, Title 19, Subtitle 7, Annotated Code of Maryland, as it relates to the Insurance Commissioner. The Act provides that an HMO may not engage in business as an HMO unless so authorized under a certificate of authority issued by the Insurance Commissioner. Application for a certificate of authority shall be submitted by the HMO not less than 90 days before the date it proposes to engage in business in this State. An application form will be furnished by the Commissioner on the request of the HMO. Each health maintenance organization, as defined in Health-General Article, §19-701(e), Annotated Code of Maryland, seeking a certificate of authority to transact business in Maryland shall file the following items: A copy of the basic organizational document of the HMO and any amendments to it, certified if applicable, by the Department of Assessments and Taxation. A copy of the HMO's current bylaws, if any, certified by the appropriate officer of the HMO. A list of the names, addresses, and official capacity with the HMO of the persons who are to be responsible for the conduct of its affairs, including all members of the governing body, the officers and directors in the case of a corporation, and the partners or associates in the case of a partnership or association. These persons shall disclose fully to the Commissioner and the governing body of the HMO the extent and nature of any contracts or arrangements between them and the HMO, including any possible conflicts of interest. A resume of the qualifications of the administrator, the medical director, the enrollment director, and of other persons associated with the HMO as requested by the Commissioner and the Maryland Department of Health. A statement generally describing the: HMO; HMO's operations; HMO's enrollment process; HMO's quality assurance mechanism; HMO's internal grievance procedures; Methods the HMO proposes to use to offer its members or public representatives an opportunity to participate in matters of policy and operation; Location of the facilities at which health care services will be regularly available to members; Type and specialty of physicians and health care personnel engaged to provide health care services; Number of physicians and personnel in each category; Health and medical records system to provide documentation of utilization by members. Forms of all health maintenance contracts the HMO proposes to offer to subscribers showing the benefits to which they are entitled, together with a table of the rates charged, or proposed to be charged, for each form of contract. A statement describing with reasonable certainty the geographic area or areas to be served by the HMO. A certified statement of the financial condition of the HMO, including: Sources of financial support; Assets and liabilities and minimum tangible net equity; Other financial information the Commissioner requires for adequate financial evaluation. Copies of proposed advertising and proposed techniques and methods of marketing the services of the HMO. A power of attorney duly executed by the HMO appointing the Commissioner and his duly authorized deputies, as the true and lawful attorney of the HMO 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 HMO. A certificate of compliance evidencing employee coverage under Workers' Compensation law (Labor and Employment Article, Title 9, Annotated Code of Maryland). An official written notification from the Maryland Department of Health that the HMO's proposed health-related services, operations, and functions falling under the regulatory jurisdictions of the Department appear to meet its requirements and have been approved by the Department in accordance with its regulations. Insurance—General Liability and Medical Malpractice. Evidence of insurance or a plan for self-insurance shall be presented and approved by the Commissioner both as to amounts and type of coverage before the HMO is licensed. Evidence of renewal shall be submitted with each annual report. Fiscal Requirements. In order to qualify for a certificate of authority, the HMO shall at the time of making its initial application demonstrate to the satisfaction of the Commissioner that: The HMO has on hand sufficient funds or a reasonably certain source of income to meet all organizational, administrative, promotional, and marketing expenses incurred or expected to be incurred before opening; On its date of opening, the HMO will have a net worth sufficient to cover all expenses which may reasonably be anticipated will be incurred during the first month of operation, and on that date the HMO will have cash on hand or on deposit at least equal to the anticipated expenses; The HMO can anticipate with reasonable certainty that its cash flow plus funds already on hand will be sufficient to meet all expenses which it anticipates will be incurred on an accrual basis during the first 3 months of operation; and The HMO has a prospective budget and expected cash flow analysis for the first 24 months of its anticipated operation demonstrating its financial viability based on reasonable assumptions. For purposes of this regulation, amounts due and payable to the HMO directly or indirectly under contracts with federal, State, or local governmental agencies or with any of their instrumentalities may be regarded as an asset on the date the amounts become due and payable and any amounts becoming due within the first month of operation may be included in net worth or be considered as funds on hand or a part of the HMO's cash flow for purposes of §F(1)(b) and (c) of this regulation. If the HMO has received a loan, other than a first mortgage loan on real estate, fixtures, chattels, and equipment, from a State or national bank, and, if under the terms of the loan agreement the loan is subordinated to the rights of enrollees under the benefit provisions of their subscription agreements, the HMO may, for purposes of this regulation, take credit as income for up to 75 percent of the outstanding balance of the loan which is neither due nor callable before 1 year from the date the credit is taken. This credit may be taken only if, based on the cash flow analysis, all amounts falling due or becoming callable under the loan agreement may reasonably be expected to be available from the operation of the HMO on or before the respective due dates of amounts payable or callable under the loan agreement. Any interest accruing on the loan shall be treated as a current expense during each month of the HMO's budget and cash flow analysis. Exceptions in whole or in part as to the fiscal requirements of this regulation may be made by the Commissioner in the Commissioner's discretion for such periods as the Commissioner determines if: The HMO is funded primarily or substantially under programs sponsored by federal, State, or local governmental agencies or their instrumentalities, or by well established and reputable foundations for demonstration or charitable purposes, or by organizations except under §§501(c)(3) and 501(c)(4) of the Internal Revenue Code; The HMO has contracts with its provider physicians and hospitals under which the providers agree to continue furnishing their services for a stated period (not less than 30 days) even if the revenues of the HMO are insufficient to pay the providers for their services; or The HMO has an agreement with a Maryland licensed insurer or nonprofit health service plan under which the insurer or plan agrees to issue to enrollees in the HMO standard forms of hospital, medical, and surgical insurance at standard premium rates without any underwriting or other requirement other than an application and payment of the first monthly premium by the enrollee if the HMO is unable to continue in operation. Determination of Financial Condition. In any determination of the financial condition of any HMO, there shall be allowed as assets only the following: Cash in the possession of the HMO or in transit under its control, and the balance of any deposit of the HMO in a solvent bank or trust company; Investments, securities, properties, and loans acquired or held in accordance with this regulation and income due or accrued thereon; Member charges in the course of collection, not more than 90 days past due (the foregoing limitation does not apply to amounts payable directly or indirectly by federal, State, or local governmental agencies or their instrumentalities); Notes and like written obligations not past due, taken for member charges or contracts permitted to be issued on that basis, to the extent of the unearned charges reserve carried thereon; Medical, surgical, and dental equipment directly used to provide health care; Prepaid charges on contracts with other organizations, hospitals, or other persons as approved by the Commissioner; Pharmaceutical and medical supply inventories; accounts receivable for health care provided, not including notes receivable, less adequate reserves for bad debts; Cost of land and depreciated cost of buildings owned and occupied by the HMO and used to directly provide health care, in excess of any encumbrances on it; Leasehold estate improvements, provided the initial cost is amortized over the useful life of the improvements but not beyond the termination of the lease; Federal funds may be counted as assets as approved by the Commissioner for that fiscal year in which funds are committed, awarded, or otherwise made available; Electronic, mechanical, and computer hardware including the operating system software used for data processing and accounting purposes, the cost of which shall be amortized in full over a period not to exceed 10 calendar years; and Other assets, not inconsistent with the foregoing provisions, deemed by the Commissioner available for the provision of health care, at values to be determined by the Commissioner. The following may not be allowed as assets in determination of the financial condition of an HMO: Good will, trade names, and other like intangible assets; Advances to officers, whether secured or not, and advances to employees, agents, and other persons on personal security only; Stock of the HMO, owned by it, or any equity in it or loans secured by it, or any proportionate interest in the stock through the ownership by the HMO or an interest in another firm, corporation, or business unit; The amount, if any, by which the aggregate book value of investments as carried in the ledger assets of the HMO exceeds the aggregate value thereof as determined by the values approved annually by the Securities Valuation Office of the National Association of Insurance Commissioners; All assets not allowed and all other assets of doubtful value or character included in any statement by an HMO 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 HMO; Furniture and fixtures, leasehold improvements other than leasehold estate improvements which qualify under §G(9) of this regulation, vehicles, and maintenance equipment. Liabilities Chargeable Against Assets. In any determination of the financial condition of an HMO, liabilities to be charged against its assets shall include: The amount of its capital stock outstanding, if any; 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; 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 Its other liabilities, including but not limited to taxes, expenses, and other obligations due or accrued at the date of the statement. Earned Charges. Earned charges shall include premium charges on all contracts written, including all determined excess and additional charges, less return charges, less charges returned or credited to members as dividends, and less charges on cancelled contracts, and less unearned charges on contracts in force as shown by the HMO's annual statement. Every HMO shall maintain an unearned charge reserve on all health care contracts in force, which reserve shall be set up as a liability. All prepaid charges shall be deemed unearned. “Charges” means the consideration for health services by whatever name called. Any “assessment”, or any “membership”, “policy”, “survey”, “inspection”, “service”, or similar fee or charge in consideration for an HMO contract is deemed part of the charge. Deposit of Securities. The Insurance Commissioner may not issue or renew a certificate of authority for any HMO unless it has deposited and maintains in trust with the State Treasurer, for the protection of its members or its members and creditors, cash or government securities of the type described in Insurance Article, §5-701(b), Annotated Code of Maryland, in the amount of $100,000. The Insurance Commissioner may, in the Commissioner's discretion, waive the requirement for deposit of securities for any HMO which is domiciled in a state other than Maryland if that state has a security deposit greater than that of Maryland, provided that the deposit is for the benefit of all of the subscribers of that HMO including all Maryland residents. In determining whether to waive the requirement for deposit of securities, the Commissioner shall consider, but not be limited to, the following factors: The number of states in which the HMO is licensed to operate; The number of states in which the HMO has deposited securities; and Whether the residents of states other than Maryland have priority over nonresidents to the securities deposited in their states. This security deposit requirement does not apply to any HMO operating solely under contracts with the Maryland Medical Assistance Programs pursuant to Title XIX of the Social Security Act, 42 U.S.C. §1396 et seq. The Insurance Commissioner may, in his discretion, waive the requirement for deposit of securities for any HMO, which is domiciled in Maryland or a state other than Maryland, if the Insurance Commissioner is satisfied that the deposit is not necessary to protect the members or creditors of that HMO. The HMO shall notify the Commissioner within 10 days of any transfer of ownership or more than an aggregate of 10 percent of the stock or ownership interest in the HMO occurring during any 12-month period. No name other than that approved by the Commissioner may be used. The name of the HMO may not be changed without prior approval of the Commissioner. HMOs shall be subject to the applicable procedures and requirements for filings, forms, and rates as outlined in COMAR 31.12.02. The manner of marketing health care contracts shall be fully set forth in writing by the HMO before licensing, and any substantive alterations in marketing procedures must be approved by the Commissioner before use. Each licensed health maintenance organization, unless the time is extended for good cause shown, shall file a report with the Commissioner, certified by an audit of a certified public accounting firm, showing its financial condition on the last day of the preceding calendar year. The report shall be on the form adopted by the Commissioner and shall annually be filed with the Commissioner on or before the first day of March. The report shall be supplemented with a description of any changes in the information submitted with the last previous annual report or with the HMO's original application for a certificate of authority. If the fiscal year of the HMO does not coincide with the calendar year, at the request of the HMO the Commissioner may, in his discretion, accept a certified audit showing the HMO's financial condition at the end of its last completed fiscal year, the audit to be accomplished by an annual report for the corresponding fiscal year to be filed on or before the 60th day following the last day of the fiscal year. As a condition for granting this exception, the Commissioner will require the HMO to also file on or before the first day of the following March an unaudited calendar year report. The Commissioner may make an examination of the operation of any health maintenance organization as often as the Commissioner deems necessary for the protection of the interest of the people of Maryland, but the examinations may not be less frequent than once every 5 years. The expense of each examination shall be assessed against the HMO being examined and the HMO shall remit the cost of the examination to the Commissioner. Unless the Commissioner grants an exemption from the requirements of this section, the HMO shall secure insurance coverage to provide: Payments or services required to be made or furnished under the health care contract to those enrollees who are injured or become ill outside the geographic limits served by the HMO; and Reinsurance protection to the HMO in event of catastrophic or unusual losses which would be in excess of the levels of loss which the HMO assumes in the basis of its calculation of premium charges. Any exemption to requirements of §A of this regulation shall be for a period of 1 year, and may be renewed from year to year thereafter. Any requests for renewal shall be made by the HMO at least 90 days before the expiration date of the then current exemption. With the approval of the Commissioner, the HMO may reinsure any portion or aspect of its operation. Health-General Article, §§19-705(a), 19-707, 19-708, 19-710, and 19-728, Annotated Code of Maryland Effective date: October 1, 1977 (4:18 Md. R. 1422) Regulation .02A and C amended effective August 5, 1991 (18:15 Md. R. 1725) Regulation .02D—F adopted effective August 5, 1991 (18:15 Md. R. 1725) Regulation .02D amended effective November 9, 1992 (19:22 Md. R. 1988) Regulation .04G, H, and K amended effective August 5, 1991 (18:15 Md. R. 1725) Regulation .04K adopted effective June 29, 1987 (14:13 Md. R. 1472) Regulation .10 amended effective August 5, 1991 (18:15 Md. R. 1725) Regulation .12B amended effective August 5, 1991 (18:15 Md. R. 1725) Regulation .13C amended effective August 5, 1991 (18:15 Md. R. 1725) Chapter recodified from COMAR 09.30.54 to COMAR 31.12.01 effective September 7, 1998 (25:18 Md. R. 1439) Regulation .08 repealed effective October 10, 2005 (32:20 Md. R. 1657) Regulation .10 repealed effective October 10, 2005 (32:20 Md. R. 1657) Regulation .12A amended effective April 2, 2012 (39:6 Md. R. 412) Regulation .13 repealed effective October 10, 2005 (32:20 Md. R. 1657)