1. (a) Each HMO must establish and maintain records identifying and supporting each liability the HMO incurs. Each liability incurred by an HMO shall be reported on all financial statements filed with the department. A liability shall be incurred from the date a service was performed, a product was delivered, a title was transferred, or a contractual obligation entered into for an amount that is specified and unconditionally owed. Each HMO must segregate its liabilities into classification of "covered" or "uncovered." Agreements to loan money or to make future capital or surplus contributions do not, in themselves, cause liabilities to be covered. Any guarantee of future contributions to surplus which are directed and based on the payment of a debt will allow that debt to be reflected as a covered liability. A liability, for which provision is made other than by the assets of the HMO, may qualify as a covered liability if the amount owed:

   1. (1) is based on a provider contract with a hold-harmless clause as provided in §11.901(a)(1) of this title (relating to Required Provisions);
   2. (2) is subordinated in writing to the uncovered health care liabilities of the HMO; or
   3. (3) is unconditionally guaranteed and the guarantee is without monetary limit, as specified in §11.808 of this title (relating to Guarantee from a Sponsoring Organization), by a sponsoring organization which has a tangible net worth of at least $10 million in excess of all amounts that the sponsoring organization has guaranteed.

2. (b) Liabilities shall include, but are not limited to, the following:

   1. (1) gross premiums received in payment for all or any part of medical and other health care services to be provided by the HMO subsequent to that financial reporting period (unearned premiums);
   2. (2) the unpaid balance under any promissory note or other obligation evidencing amounts owed by the HMO without any adjustment for unrealized gains or losses due to an assumption of a loan or note payable at interest rates different from the prevailing rate at the time of assumption;
   3. (3) capital leases in an amount equal to the value of the admitted assets hypothecated by the lease or the present value of the total amounts owed under the remaining term of the lease in accordance with generally accepted accounting principles; in determining the present value of the lease payments, the rate of interest should be equivalent to the rate of interest on United States of America Treasury Notes as of December 31st of the preceding calendar year; and
   4. (4) incurred claim liabilities, including all liabilities and expenses relating to medical and health care services provided by HMO delivery network and non-network physicians and providers.
3. (c) An HMO shall not decrease its liabilities or establish an asset on its balance sheet for any capitated risk or other risk-sharing arrangement with a network physician or provider relating to out-of-service area or emergency care provided by any non-network physician or provider. For purposes of this subsection, non-network physician or provider means a physician or provider who has not directly or indirectly contracted with an HMO or an HMO's network physicians or providers to provide medical or health care services to the HMO's enrollees.

Source Note:The provisions of this §11.806 adopted to be effective June 27, 1991, 16 TexReg 3258; amended to be effective April 1, 1996, 21 TexReg 2253; amended to be effective November 2, 1998, 23 TexReg 11347; amended to be effective February 24, 2005, 30 TexReg 854.