1. (a) Except as provided in subsection (b), each plan licensed pursuant to the provisions of the Act shall, at all times, have and maintain a tangible net equity at least equal to the greater of:

   1. (1) $1 million; or
   2. (2) the sum of two percent (2%) of the first $150 million of annualized premium revenues plus one percent (1%) of annualized premium revenues in excess of $150 million; or

   3. (3) an amount equal to the sum of:

      1. (A) eight percent (8%) of the first $150 million of annualized health care expenditures except those paid on a capitated basis or managed hospital payment basis; plus
      2. (B) four percent (4%) of the annualized health care expenditures, except those paid on a capitated basis or managed hospital payment basis, which are in excess of $150 million; plus
      3. (C) four percent (4%) of annualized hospital expenditures paid on a managed hospital payment basis.

2. (b) Each plan licensed pursuant to the provisions of the Knox-Keene Act and which offers only specialized health care service contracts shall, at all times, have and maintain a tangible net equity at least equal to the greater of:

   1. (1) $50,000; or
   2. (2) the sum of two percent (2%) of the first $7,500,000 of annualized premium revenues plus one percent (1%) of annualized premium revenues in excess of $7,500,000; or

   3. (3) an amount equal to the sum of:

      1. (A) eight percent (8%) of the first $7,500,000 of annualized health care expenditures, except those paid on a capitated or managed hospital payment basis; plus
      2. (B) four percent (4%) of the annualized health care expenditures, except those paid on a capitated basis or managed hospital payment basis, which are in excess of $7,500,000; plus
      3. (C) four percent (4%) of annualized hospital expenditures paid on a managed hospital payment basis.

3. (c) For the purpose of this section “net equity” means the excess of total assets over total liabilities, excluding liabilities that have been subordinated in a manner acceptable to the Director. “Tangible net equity” means net equity reduced by the value assigned to intangible assets including, but not limited to, goodwill; going concern value; organizational expense; starting-up costs; obligations of officers, directors, owners, or affiliates which are not fully secured, except short-term obligations of affiliates for goods or services arising in the normal course of business which are payable on the same terms as equivalent transactions with nonaffiliates and which are not more than sixty (60) days past due; long term prepayments of deferred charges, and nonreturnable deposits. An obligation is fully secured for the purposes of this subsection if it is secured by tangible collateral, other than by securities of the plan or an affiliate, with an equity of at least one-hundred and ten percent (110%) of the amount owing.

   1. (1) Beginning October 2, 2020, “positive tangible net equity” of an organization, as defined in Health and Safety Code section 1375.4(g), shall be at least equal to the greater of:

      1. (A) one percent (1%) of annualized revenues; or
      2. (B) four percent (4%) of annualized non-capitated medical expenses.
   2. (2) The tangible net equity of an organization shall be determined pursuant to the criteria listed in subdivision (c) of this section.
   3. (3) Beginning October 1, 2019 and ending October 1, 2020, an organization shall comply with the positive tangible net equity requirement of no less than one dollar ($1.00).
4. (d) For the purpose of this section, “capitated basis” means fixed per member per month payment or percentage of premium payment wherein the provider assumes the full risk for the cost of contracted services without regard to the type, value or frequency of services provided. For purposes of this definition, capitated basis includes the cost associated with operating staff model facilities.
5. (e) For the purpose of this section, “managed hospital payment basis” means agreements wherein the financial risk is primarily related to the degree of utilization rather than to the cost of services.

Note: Authority cited: Section 1344, Health and Safety Code. Reference: Section 1376, Health and Safety Code.

History

1. Amendment of subsections (b) and (c) filed 4-27-79; effective thirtieth day thereafter (Register 79, No. 17).

2. Amendment of subsection (a), new subsections (b), (c),(d), (f) and (g), renumbering of former subsection (b) and repealer of former subsection (c) filed 12-14-90; operative 12-31-91 (Register 91, No. 6).

3. Editorial correction of printing error (Register 91, No. 17).

4. Change without regulatory effect amending subsections (d)-(e) filed 7-18-2000 pursuant to section 100, title 1, California Code of Regulations (Register 2000, No. 29).

5. Amendment of subsection (b), repealer of subsections (c)-(d), subsection relettering and amendment of newly designated subsection (c) filed 12-9-2015; operative 4-1-2016 (Register 2015, No. 50).

6. Amendment filed 7-10-2019; operative 10-1-2019 (Register 2019, No. 28).