PURPOSE: This rule implements sections 354.410, 354.415, 354.450, 354.455, 354.470.1(4) and 354.480, RSMo as this rule is necessary and proper to carry out the provisions of sections 354.400–354.550, RSMo.

1. (1) A health maintenance organization
2. (HMO) must maintain a capital account as required by section 354.410.6., RSMo. The capital account is the equivalent of net worth and shall be equal to the assets of the HMO less its liabilities, which is also the equivalent of “net of any accrued liabilities” as used in section 354.410.6., RSMo. Assets and liabilities will be admitted and determined under the provisions of this rule.
3. (2) Assets of an HMO will be admitted and included in determining the financial condition of the HMO only if included within one

4. (1) or more of the following list of admissible assets:

   1. (A) Investable funds under section 354.450, RSMo are as follows:

      1. 1. Any asset or investment described in

and limited by sections 375.1070—375.1075, RSMo, and 376.300, 376.305 and 376.307, RSMo; and

1. 2. Any asset or investment described in

and limited by section 354.415.1(1), RSMo. Under section 354.415.2, RSMo, the HMO must file notice and adequate supporting information with the director for any asset or investment in excess of five hundred thousand dollars ($500,000). If the director does not disapprove the notice within sixty (60) days of the date of filing, the notice shall be deemed approved; and

1. (B) Other assets as follows:

   1. 1. Reinsurance recoverables pursuant to

section 375.246, RSMo;

1. 2. Data processing system pursuant to

section 375.325, RSMo;

1. 3. Premium receivable from any agency

of this state, of any political subdivision of this state or of the United States;

1. 4. Accrued interest receivable, if accord-

ing to generally accepted standards of accounting for HMOs such interest is probably collectible;

1. 5. Inventory of medical, pharmaceutical

and optical supplies, furniture, equipment and fixtures, but only if according to generally accepted standards of accounting for HMOs such supplies, furniture, equipment and fixtures are used by the HMO in connection with the direct provision of health care services;

1. 6. Funds paid by the HMO into escrow

for the purpose of purchasing or building offices or medical facilities but only if according to generally accepted standards of accounting for HMOs such offices or facilities are for use by the HMO in connection with the direct provision of health care services;

1. 7. Goodwill and other intangible assets.

Any goodwill or intangible asset must be amortized on a straight-line basis over a period of five (5) years or less. Any goodwill or intangible asset accrued after September 1, 1989 will be admissible only with the prior consent of the director;

1. 8. Amounts receivable from HMOs,

health service corporations, insurance companies, self-insurance plans and third-party tortfeasors on account of coordination of benefits or subrogation, limited to the less of the actual amounts receivable or the amounts received during the prior year;

1. 9. Any other asset expressly approved in

writing by the director.

1. (3) No asset shall be admissible except as stated in section (2). The following is a nonexclusive list of nonadmitted assets and no item listed may be admitted under section 376.307, RSMo:

   1. (A) Premiums receivable net of bad debt allowance when the receivable is greater than ninety (90) days past due, except as allowed in paragraph (2)(B)3.;
   2. (B) Prepaid expenses, except as allowed in paragraph (2)(B)6.;
   3. (C) Security deposits;
   4. (D) Automobiles;
   5. (E) Office furniture and equipment in excess of fifty percent (50%) of its depreciated value;
   6. (F) Computer software;
   7. (G) Letters of credit, except to secure reinsurance credit as outlined in section 375.246, RSMo, pledges to purchase stock or other guarantees by outside organizations;
   8. (H) Capital leases; and
   9. (I) Any asset expressly disapproved in writing by the director.

2. (4) Liabilities shall be determined by the instructions to the National Association of Insurance Commissioners (NAIC) blank annual statement form for HMOs except the following need not be reflected as liabilities:

   1. (A) Capital leases; and
   2. (B) Any debt subordinated and approved under 20 CSR 200-1.070.

3. (5) In determining whether an HMO is financially responsible and may reasonably be expected to meet its obligations to enrollees and prospective enrollees under sections 354.410.1(3) and 354.470.1(4), RSMo and whether the continued operation of the HMO would be hazardous either to the enrollees or to the people of this state under section 354.480, RSMo, the director requires compliance with the following minimum standards:

   1. (A) A new HMO forming initially, and for its first full calendar year of operation, must have net worth of at least ten percent (10%) of the yearly average of the three (3)-year annual premium projected in its applications for a certificate of authority, or three hundred thousand dollars ($300,000) if an individual practice association, or one hundred fifty thousand dollars ($150,000) if a medical group/staff, whichever is greater. After an HMO has been in business from January 1 through December 31 of a year, that is, one

4. (1) full calendar year, it shall be treated as an existing HMO;

   1. (B) An existing HMO must maintain a net worth of at least two percent (2%) of annual premium as shown in the HMO’s most recently filed annual statement, three hundred thousand dollars ($300,000) for an individual practice association, or one hundred fifty thousand dollars ($150,000) for a medical group/staff model, whichever is greater. The two percent (2%) of annual premium previously mentioned shall be phased in as follows:

      1. 1. Two-thirds of one percent (2/3 of 1%)

of annual premium as of December 31, 1989;

1. 2. One and one-third percent (1 1/3%)

of annual premium as of December 31, 1990; and

1. 3. Two percent (2%) of annual premium

as of December 3, 1991 and after that date; and

1. (C) On any policy of insolvency insurance, the named insured must include the director of the Missouri Department of Insurance and his/her successor(s) in office.

AUTHORITY: section 354.485, RSMo 2000.* This rule was previously filed as 4 CSR 190- 11.125. Original rule filed April 19, 1989, effective Sept. 1, 1989. Amended: Filed Sept. 15, 1992, effective June 7, 1993. Amended: Filed Nov. 23, 1998, effective July 30, 1999. Amended: Filed Dec. 14, 2000, effective July 30, 2001.

*Original authority: 354.485, RSMo 1983.