State of Illinois
91st General Assembly
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91_HB2722

 
                                              LRB9101904JSpcA

 1        AN  ACT  concerning  risk-based  capital  regulation  for
 2    health insurers, amending named Acts.

 3        Be it enacted by the People of  the  State  of  Illinois,
 4    represented in the General Assembly:

 5        Section  5.  The  Illinois  Insurance  Code is amended by
 6    changing Sections  35A-5,  35A-10,  35A-15,  35A-20,  35A-30,
 7    35A-55, and 35A-60 as follows:

 8        (215 ILCS 5/35A-5)
 9        Sec.  35A-5.  Definitions.   As used in this Article, the
10    terms listed in this Section have the meaning given herein.
11        "Adjusted RBC Report" means an RBC Report that  has  been
12    adjusted  by  the  Director in accordance with subsection (f)
13    (e) of Section 35A-10.
14        "Authorized  control  level   RBC"   means   the   number
15    determined under the risk-based capital formula in accordance
16    with the RBC Instructions.
17        "Company  action  level RBC" means the product of 2.0 and
18    the insurer's authorized control level RBC.
19        "Corrective Order" means an order issued by the  Director
20    in  accordance  with  Article  XII  1/2 specifying corrective
21    actions that the Director determines are required.
22        "Domestic insurer" means any insurance company  domiciled
23    in this State under Article II, Article III, Article III 1/2,
24    or  Article  IV  or  a health organization as defined by this
25    Article,  except  this  shall  include  only   those   health
26    maintenance  organizations  that  are "domestic companies" in
27    accordance  with  Section  5-3  of  the  Health   Maintenance
28    Organization  Act  and  only  those  limited  health  service
29    organizations  that  are  "domestic  companies" in accordance
30    with Section 4003 of the Limited Health Service  Organization
31    Act.
 
                            -2-               LRB9101904JSpcA
 1        "Foreign  insurer"  means  any foreign or alien insurance
 2    company licensed under Article VI that is  not  domiciled  in
 3    this  State  and  any health maintenance organization that is
 4    not a "domestic company" in accordance with  Section  5-3  of
 5    the  Health  Maintenance  Organization  Act  and  any limited
 6    health service organization that is not a "domestic  company"
 7    in accordance with Section 4003 of the Limited Health Service
 8    Organization Act.
 9        "Health  organization"  means an entity operating under a
10    certificate  of  authority  issued  pursuant  to  the  Health
11    Maintenance Organization Act, the Dental  Service  Plan  Act,
12    the Limited Health Service Organization Act, or the Voluntary
13    Health  Services  Plans  Act,  unless the entity is otherwise
14    defined as a "life,  health,  or  life  and  health  insurer"
15    pursuant to this Act.
16        "Life,  health,  or  life  and  health  insurer" means an
17    insurance company that has authority to transact the kinds of
18    insurance described in either or both clause  (a)  or  clause
19    (b)  of  Class  1  of  Section  4  or a licensed property and
20    casualty insurer writing only accident and health insurance.
21        "Mandatory control level RBC" means the product  of  0.70
22    and the insurer's authorized control level RBC.
23        "NAIC"   means  the  National  Association  of  Insurance
24    Commissioners.
25        "Negative trend" means, with respect to a  life,  health,
26    or life and health insurer, a negative trend over a period of
27    time,  as  determined  in  accordance  with  the  trend  test
28    calculation included in the RBC Instructions.
29        "Property   and  casualty  insurer"  means  an  insurance
30    company that has authority to transact the kinds of insurance
31    in either or both Class 2 or  Class  3  of  Section  4  or  a
32    licensed  insurer  writing  only  insurance  authorized under
33    clause (c) of Class 1, but does not include monoline mortgage
34    guaranty insurers, financial  guaranty  insurers,  and  title
 
                            -3-               LRB9101904JSpcA
 1    insurers.
 2        "RBC" means risk-based capital.
 3        "RBC   Instructions"   means  the  RBC  Report  including
 4    risk-based capital instructions adopted by the NAIC as  those
 5    instructions  may be amended by the NAIC from time to time in
 6    accordance with the procedures adopted by the NAIC.
 7        "RBC level" means an insurer's company action level  RBC,
 8    regulatory action level RBC, authorized control level RBC, or
 9    mandatory control level RBC.
10        "RBC   Plan"   means   a   comprehensive  financial  plan
11    containing  the  elements  specified  in  subsection  (b)  of
12    Section 35A-15.
13        "RBC Report" means the risk-based capital report required
14    under Section 35A-10.
15        "Receivership"  means  conservation,  rehabilitation,  or
16    liquidation under Article XIII.
17        "Regulatory action level RBC" means the  product  of  1.5
18    and the insurer's authorized control level RBC.
19        "Revised  RBC  Plan"  means  an  RBC Plan rejected by the
20    Director and revised by  the  insurer  with  or  without  the
21    Director's recommendations.
22        "Total   adjusted  capital"  means  the  sum  of  (1)  an
23    insurer's statutory capital and surplus  and  (2)  any  other
24    items that the RBC Instructions may provide.
25    (Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)

26        (215 ILCS 5/35A-10)
27        Sec. 35A-10.  RBC Reports.
28        (a)  On or before each March 1 (the "filing date"), every
29    domestic  insurer  shall prepare and submit to the Director a
30    report of its RBC levels  as  of  the  end  of  the  previous
31    calendar  year  in  the  form  and containing the information
32    required by the RBC  Instructions.   Every  domestic  insurer
33    shall  also  file  its RBC Report with the NAIC in accordance
 
                            -4-               LRB9101904JSpcA
 1    with the RBC Instructions.   In  addition,  if  requested  in
 2    writing  by  the  chief  insurance regulatory official of any
 3    state in  which  it  is  authorized  to  do  business,  every
 4    domestic insurer shall file its RBC Report with that official
 5    no later than the later of 15 days after the insurer receives
 6    the written request or the filing date.
 7        (b)  A  life,  health,  or  life and health insurer's RBC
 8    shall be determined under the formula set forth  in  the  RBC
 9    Instructions.   The  formula shall take into account (and may
10    adjust for the covariance between):
11             (1)  the risk with respect to the insurer's assets;
12             (2)  the risk of adverse insurance  experience  with
13        respect to the insurer's liabilities and obligations;
14             (3)  the  interest  rate  risk  with  respect to the
15        insurer's business; and
16             (4)  all other business  risks  and  other  relevant
17        risks set forth in the RBC Instructions.
18    These  risks shall be determined in each case by applying the
19    factors in the manner set forth in the RBC Instructions.
20        (c)  A property  and  casualty  insurer's  RBC  shall  be
21    determined  in  accordance  with the formula set forth in the
22    RBC Instructions.  The formula shall take into  account  (and
23    may adjust for the covariance between):
24             (1)  asset risk;
25             (2)  credit risk;
26             (3)  underwriting risk; and
27             (4)  all  other  business  risks  and other relevant
28        risks set forth in the RBC Instructions.
29    These risks shall be determined in each case by applying  the
30    factors in the manner set forth in the RBC Instructions.
31        (d)  A  health  organization's RBC shall be determined in
32    accordance  with  the  formula   set   forth   in   the   RBC
33    Instructions.   The  formula  shall  take  the following into
34    account (and may adjust for the covariance between):
 
                            -5-               LRB9101904JSpcA
 1             (1)  asset risk;
 2             (2)  credit risk;
 3             (3)  underwriting risk; and
 4             (4)  all other business  risks  and  other  relevant
 5        risks set forth in the RBC Instructions.
 6    These  risks shall be determined in each case by applying the
 7    factors in the manner set forth in the RBC Instructions.
 8        (e) (d)  An excess of capital over the amount produced by
 9    the risk-based capital requirements contained  in  this  Code
10    and  the  formulas, schedules, and instructions referenced in
11    this  Code  is  desirable  in  the  business  of   insurance.
12    Accordingly,  insurers  should seek to maintain capital above
13    the RBC levels required by this Code.  Additional capital  is
14    used and useful in the insurance business and helps to secure
15    an  insurer  against various risks inherent in, or affecting,
16    the business of insurance  and  not  accounted  for  or  only
17    partially  measured  by  the  risk-based capital requirements
18    contained in this Code.
19        (f) (e)  If a domestic insurer files an RBC Report  that,
20    in  the judgment of the Director, is inaccurate, the Director
21    shall adjust the RBC Report to  correct  the  inaccuracy  and
22    shall notify the insurer of the adjustment.  The notice shall
23    contain a statement of the reason for the adjustment.
24    (Source: P.A. 88-364; 89-97, eff. 7-7-95.)

25        (215 ILCS 5/35A-15)
26        Sec. 35A-15.  Company action level event.
27        (a)  A  company  action  level  event  means  any  of the
28    following events:
29             (1)  The filing of an RBC Report by an insurer  that
30        indicates that:
31                  (A)  the  insurer's  total  adjusted capital is
32             greater than or equal to its regulatory action level
33             RBC, but less than its company action level RBC; or
 
                            -6-               LRB9101904JSpcA
 1                  (B)  The insurer, if a life,  health,  or  life
 2             and  health insurer, has total adjusted capital that
 3             is greater than or equal to its company action level
 4             RBC, but less than the  product  of  its  authorized
 5             control level RBC and 2.5 and has a negative trend.
 6             (2)  The notification by the Director to the insurer
 7        of  an  Adjusted  RBC  Report  that  indicates  an  event
 8        described in paragraph (1), provided the insurer does not
 9        challenge the Adjusted RBC Report under Section 35A-35.
10             (3)  The notification by the Director to the insurer
11        that  the  Director  has,  after  a hearing, rejected the
12        insurer's challenge under Section 35A-35 to  an  Adjusted
13        RBC   Report   that  indicates  the  event  described  in
14        paragraph (1).
15        (b)  In the event of a company action  level  event,  the
16    insurer  shall prepare and submit to the Director an RBC Plan
17    that does all of the following:
18             (1)  Identifies the conditions  that  contribute  to
19        the company action level event.
20             (2)  Contains  proposed  corrective actions that the
21        insurer intends to take and that are expected  to  result
22        in  the  elimination of the company action level event. A
23        health organization  is  not  prohibited  from  proposing
24        recognition of a parental guarantee or a letter of credit
25        to  eliminate the company action level event; however the
26        Director shall, at his discretion, determine  whether  or
27        the  extent  to  which the proposed parental guarantee or
28        letter of credit is an acceptable part of a  satisfactory
29        RBC Plan or Revised RBC Plan.
30             (3)  Provides projections of the insurer's financial
31        results in the current year and at least the 4 succeeding
32        years, both in the absence of proposed corrective actions
33        and  giving  effect  to  the proposed corrective actions,
34        including projections of statutory operating income,  net
 
                            -7-               LRB9101904JSpcA
 1        income,  capital,  and surplus.  The projections for both
 2        new and renewal business may include separate projections
 3        for each major line of business and  separately  identify
 4        each significant income, expense, and benefit component.
 5             (4)  Identifies  the  key  assumptions affecting the
 6        insurer's  projections  and  the   sensitivity   of   the
 7        projections to the assumptions.
 8             (5)  Identifies   the   quality   of,  and  problems
 9        associated with, the insurer's  business  including,  but
10        not  limited  to, its assets, anticipated business growth
11        and associated surplus strain, extraordinary exposure  to
12        risk, mix of business, and use of reinsurance, if any, in
13        each case.
14        (c)  The  insurer  shall  submit  the  RBC  Plan  to  the
15    Director  within 45 days after the company action level event
16    occurs  or  within  45  days  after the Director notifies the
17    insurer that the Director has, after a hearing, rejected  its
18    challenge under Section 35A-35 to an Adjusted RBC Report.
19        (d)  Within  60 days after an insurer submits an RBC Plan
20    to the  Director,  the  Director  shall  notify  the  insurer
21    whether  the  RBC  Plan  shall  be  implemented or is, in the
22    judgment of the Director, unsatisfactory.   If  the  Director
23    determines  the  RBC Plan is unsatisfactory, the notification
24    to  the  insurer  shall  set  forth  the  reasons   for   the
25    determination  and may set forth proposed revisions that will
26    render the RBC Plan  satisfactory  in  the  judgment  of  the
27    Director.   Upon  notification from the Director, the insurer
28    shall prepare a Revised RBC Plan, which  may  incorporate  by
29    reference  any  revisions  proposed  by  the  Director.   The
30    insurer  shall  submit  the  Revised RBC Plan to the Director
31    within 45 days after the Director notifies the  insurer  that
32    the  RBC  Plan  is unsatisfactory or within 45 days after the
33    Director notifies the insurer that the Director has, after  a
34    hearing,  rejected  its challenge under Section 35A-35 to the
 
                            -8-               LRB9101904JSpcA
 1    determination that the RBC Plan is unsatisfactory.
 2        (e)  In the event the Director notifies an  insurer  that
 3    its  RBC  Plan  or  Revised  RBC  Plan is unsatisfactory, the
 4    Director may, at the Director's discretion and subject to the
 5    insurer's right to a hearing under Section 35A-35, specify in
 6    the  notification  that  the   notification   constitutes   a
 7    regulatory action level event.
 8        (f)  Every  domestic  insurer  that  files an RBC Plan or
 9    Revised RBC Plan with the Director shall file a copy  of  the
10    RBC  Plan  or  Revised  RBC  Plan  with  the  chief insurance
11    regulatory official in any state  in  which  the  insurer  is
12    authorized   to   do   business  if  that  state  has  a  law
13    substantially similar to the  confidentiality  provisions  in
14    subsection  (a)  of  Section  35A-50  and  if  that  official
15    requests  in  writing  a copy of the plan.  The insurer shall
16    file a copy of the RBC Plan or Revised RBC Plan in that state
17    no later than the  later  of  15  days  after  receiving  the
18    written  request  for  the  copy or the date on which the RBC
19    Plan or Revised RBC Plan is filed under subsection (c) or (d)
20    of this Section.
21    (Source: P.A. 88-364; 89-97, eff. 7-7-95.)

22        (215 ILCS 5/35A-20)
23        Sec. 35A-20.  Regulatory action level event.
24        (a)  A regulatory action level event  means  any  of  the
25    following events:
26             (1)  The filing of an RBC Report by the insurer that
27        indicates  that  the  insurer's total adjusted capital is
28        greater than or equal to  its  authorized  control  level
29        RBC, but less than its regulatory action level RBC.
30             (2)  The  notification by the Director to an insurer
31        of an  Adjusted  RBC  Report  that  indicates  the  event
32        described in paragraph (1), provided the insurer does not
33        challenge the Adjusted RBC Report under Section 35A-35.
 
                            -9-               LRB9101904JSpcA
 1             (3)  The notification by the Director to the insurer
 2        that  the  Director  has,  after  a hearing, rejected the
 3        insurer's challenge under Section 35A-35 to  an  Adjusted
 4        RBC   Report   that  indicates  the  event  described  in
 5        paragraph (1).
 6             (4)  The failure of  the  insurer  to  file  an  RBC
 7        Report  by  the  filing  date,  unless  the  insurer  has
 8        provided   an   explanation   for  the  failure  that  is
 9        satisfactory to the Director and has  cured  the  failure
10        within 10 days after the filing date.
11             (5)  The  failure  of  the  insurer to submit an RBC
12        Plan to the Director within the time period set forth  in
13        subsection (c) of Section 35A-15.
14             (6)  The notification by the Director to the insurer
15        that  the  insurer's  RBC Plan or revised RBC Plan is, in
16        the judgment of the Director, unsatisfactory and that the
17        notification constitutes a regulatory action level  event
18        with  respect  to  the insurer, provided the insurer does
19        not challenge the determination under Section 35A-35.
20             (7)  The notification by the Director to the insurer
21        that the Director has,  after  a  hearing,  rejected  the
22        insurer's   challenge   under   Section   35A-35  to  the
23        determination made by the Director under paragraph (6).
24             (8)  The notification by the Director to the insurer
25        that the insurer has failed to adhere to its RBC Plan  or
26        Revised  RBC  Plan,  but  only  if  that  failure  has  a
27        substantial  adverse effect on the ability of the insurer
28        to eliminate the company action level event in accordance
29        with its RBC Plan or Revised RBC Plan  and  the  Director
30        has  so  stated in the notification, provided the insurer
31        does  not  challenge  the  determination  under   Section
32        35A-35.
33             (9)  The notification by the Director to the insurer
34        that  the  Director  has,  after  a hearing, rejected the
 
                            -10-              LRB9101904JSpcA
 1        insurer's  challenge  under   Section   35A-35   to   the
 2        determination made by the Director under paragraph (8).
 3        (b)  In the event of a regulatory action level event, the
 4    Director shall do all of the following:
 5             (1)  Require  the  insurer  to prepare and submit an
 6        RBC Plan or, if applicable, a Revised  RBC  Plan  to  the
 7        Director within 45 days after the regulatory action level
 8        event  occurs  or  within  45  days  after  the  Director
 9        notifies  the  insurer  that  the  Director  has, after a
10        hearing, rejected its challenge under Section  35A-35  to
11        either  an  Adjusted  RBC  Report  or a Revised RBC Plan.
12        However, if the insurer previously prepared and submitted
13        an RBC Plan or a Revised RBC Plan in accordance with  any
14        provision  of  this  Article,  the Director may determine
15        that the previously prepared RBC Plan or Revised RBC Plan
16        satisfies the requirement of this subsection (b)(1).
17             (2)  Perform any  examination  or  analysis  of  the
18        assets,  liabilities,  and  operations  of  the  insurer,
19        including  a  review of its RBC Plan or Revised RBC Plan,
20        that the Director deems necessary.
21             (3)  After the  examination  or  analysis,  issue  a
22        Corrective  Order  specifying  the corrective actions the
23        Director determines are required.
24        (c)  In determining corrective actions, the Director  may
25    take  into  account  any  factors the Director deems relevant
26    based  upon  the  examination  or  analysis  of  the  assets,
27    liabilities, and operations of the insurer including, but not
28    limited to, the results of any sensitivity  tests  undertaken
29    under the RBC Instructions. The regulatory action level event
30    shall  be deemed sufficient grounds for the Director to issue
31    a Corrective Order in accordance with Article XII  1/2.   The
32    Director  shall  have rights, powers, and duties with respect
33    to the insurer that are set forth in Article XII 1/2 and  the
34    insurer   shall  be  entitled  to  the  protections  afforded
 
                            -11-              LRB9101904JSpcA
 1    insurers under Article XII 1/2.
 2        (d)  The  Director  may  retain   actuaries,   investment
 3    experts,   and  other  consultants  necessary  to  review  an
 4    insurer's RBC Plan or Revised RBC Plan,  examine  or  analyze
 5    the  assets,  liabilities, and operations of the insurer, and
 6    formulate the Corrective Order with respect to  the  insurer.
 7    The  fees,  costs,  and  expenses  related  to the actuaries,
 8    investment experts, and other consultants shall be reasonable
 9    and customary for the nature of  the  services  provided  and
10    shall   be  borne  by  the  affected  insurer  or  the  party
11    designated by the Director.
12    (Source: P.A. 89-97, eff. 7-7-95; 90-794, eff. 8-14-98.)

13        (215 ILCS 5/35A-30)
14        Sec. 35A-30.  Mandatory control level event.
15        (a)  A mandatory control level event  means  any  of  the
16    following events:
17             (1)  The filing of an RBC Report that indicates that
18        the  insurer's  total  adjusted  capital is less than its
19        mandatory control level RBC.
20             (2)  The notification by the Director to the insurer
21        of an  Adjusted  RBC  Report  that  indicates  the  event
22        described in paragraph (1), provided the insurer does not
23        challenge the Adjusted RBC Report under Section 35A-35.
24             (3)  The notification by the Director to the insurer
25        that  the  Director  has,  after  a hearing, rejected the
26        insurer's challenge under Section 35A-35 to the  Adjusted
27        RBC   Report   that  indicates  the  event  described  in
28        paragraph (1).
29        (b)  In the event of a mandatory control level event with
30    respect to a life, health, or life and  health  insurer,  the
31    Director shall take actions necessary to place the insurer in
32    receivership   under   Article  XIII.   In  that  event,  the
33    mandatory control level  event  shall  be  deemed  sufficient
 
                            -12-              LRB9101904JSpcA
 1    grounds  for  the Director to take action under Article XIII,
 2    and the Director shall have the rights,  powers,  and  duties
 3    with  respect  to  the  insurer that are set forth in Article
 4    XIII.  If the Director takes  action  under  this  subsection
 5    regarding  an  Adjusted  RBC  Report,  the  insurer  shall be
 6    entitled to the protections of Article XIII. If the  Director
 7    finds  that  there  is  a  reasonable  expectation  that  the
 8    mandatory  control  level  event  may be eliminated within 90
 9    days after it occurs, the Director may delay action  for  not
10    more than 90 days after the mandatory control level event.
11        (c)  In  the case of a mandatory control level event with
12    respect to a  property and  casualty  insurer,  the  Director
13    shall  take  the  actions  necessary  to place the insurer in
14    receivership under Article XIII or, in the case of an insurer
15    that is writing no  business  and  that  is  running-off  its
16    existing  business,  may  allow  the  insurer to continue its
17    run-off under the supervision of  the  Director.   In  either
18    case,  the mandatory control level event is deemed sufficient
19    grounds for the Director to take action under  Article  XIII,
20    and  the  Director  has  the  rights, powers, and duties with
21    respect to the insurer that are set forth  in  Article  XIII.
22    If  the  Director  takes  action  regarding  an  Adjusted RBC
23    Report, the insurer shall be entitled to the  protections  of
24    Article   XIII.  If  the  Director  finds  that  there  is  a
25    reasonable expectation that the mandatory control level event
26    may be  eliminated  within  90  days  after  it  occurs,  the
27    Director may delay action for not more than 90 days after the
28    mandatory control level event.
29        (d)  In  the case of a mandatory control level event with
30    respect to a health organization, the Director shall take the
31    actions necessary to place the insurer in receivership  under
32    Article XIII or, in the case of an insurer that is writing no
33    business  and  that is running-off its existing business, may
34    allow  the  insurer  to  continue  its  run-off   under   the
 
                            -13-              LRB9101904JSpcA
 1    supervision  of  the Director.  In either case, the mandatory
 2    control level event is  deemed  sufficient  grounds  for  the
 3    Director  to take action under Article XIII, and the Director
 4    has the rights,  powers,  and  duties  with  respect  to  the
 5    insurer  that are set forth in Article XIII.  If the Director
 6    takes action regarding an Adjusted RBC  Report,  the  insurer
 7    shall be entitled to the protections of Article XIII.  If the
 8    Director  finds  that  there is a reasonable expectation that
 9    the mandatory control level event may be eliminated within 90
10    days after it occurs, the Director may delay action  for  not
11    more than 90 days after the mandatory control level event.
12    (Source: P.A. 88-364; 89-97, eff. 7-7-95.)

13        (215 ILCS 5/35A-55)
14        Sec.   35A-55.  Provisions   of   Article   supplemental;
15    exemptions.
16        (a)  The  provisions  of this Article are supplemental to
17    the provisions of any other laws of this  State  and  do  not
18    preclude  or  limit  other  powers  or duties of the Director
19    under any other laws.
20        (b)  The Director may exempt from the application of this
21    Article any domestic property and casualty insurer that:
22             (1)  writes direct business only in this State;
23             (2)  writes direct annual premiums of $2,000,000  or
24        less; and
25             (3)  assumes  no  reinsurance  in  excess  of  5% of
26        direct premium written.
27        (c)  The Director may exempt from the application of this
28    Article any company that is organized  under  Article  IV  of
29    this  Code,  that  writes direct business only in this State,
30    and that assumes no reinsurance in excess  of  5%  of  direct
31    written premiums.
32        (d)  The Director may exempt from the application of this
33    Article  any  domestic  health organization upon a showing by
 
                            -14-              LRB9101904JSpcA
 1    the health organization of the  reasons  for  requesting  the
 2    exemption  and  a determination by the Director of good cause
 3    for an exemption.
 4        (e) (d)  The Director may by rule impose upon any insurer
 5    exempted  from  the  application  of   this   Article   under
 6    subsection  (b), or (c), or (d) of this Section conditions to
 7    the exemption that require maintenance of  adequate  capital.
 8    These  conditions  shall  not exceed the requirements of this
 9    Article.
10    (Source: P.A. 88-364; 89-97, eff. 7-7-95.)

11        (215 ILCS 5/35A-60)
12        Sec. 35A-60.  Phase-in of Article.
13        (a)  For RBC Reports filed with respect to  the  December
14    31,  1993  annual  statement,  instead  of  the provisions of
15    Sections 35A-15, 35A-20, 35A-25, and  35A-30,  the  following
16    provisions apply:
17             (1)  In  the  event of a company action level event,
18        the Director shall take no action under this Article.
19             (2)  In the event of a regulatory action level event
20        under paragraph (1), (2), or (3)  of  subsection  (a)  of
21        Section  35A-20,  the  Director  shall  take  the actions
22        required under Section 35A-15.
23             (3)  In the event of a regulatory action level event
24        under paragraph (4),  (5),  (6),  (7),  (8),  or  (9)  of
25        subsection (a) of Section 35A-20 or an authorized control
26        level event, the Director shall take the actions required
27        under Section 35A-20.
28             (4)  In  the  event  of  a  mandatory  control level
29        event, the Director shall take the actions required under
30        Section 35A-25.
31        (b)  For RBC Reports required to be filed by property and
32    casualty insurers with  respect  to  the  December  31,  1995
33    annual  statement,  instead  of  the  provisions  of  Section
 
                            -15-              LRB9101904JSpcA
 1    35A-15,  35A-20, 35A-25, and 35A-30, the following provisions
 2    apply:
 3             (1)  In the event of a company  action  level  event
 4        with  respect  to  a domestic insurer, the Director shall
 5        take no regulatory action under this Article.
 6             (2)  In the event of a an  regulatory  action  level
 7        event  under  paragraph (1), (2) or (3) of subsection (a)
 8        of Section 35A-20, the Director shall  take  the  actions
 9        required under Section 35A-15.
10             (3)  In  the  event  of a an regulatory action level
11        event under paragraph (4), (5), (6), (7), (8), or (9)  of
12        subsection (a) of Section 35A-20 or an authorized control
13        level event, the Director shall take the actions required
14        under Section 35A-20.
15             (4)  In  the  event  of  a  mandatory  control level
16        event, the Director shall take the actions required under
17        Section 35A-25.
18        (c)  For RBC Reports  required  to  be  filed  by  health
19    organizations  with  respect  to the December 31, 1999 annual
20    statement and the December 31, 2000 annual statement, instead
21    of the provisions of Sections  35A-15,  35A-20,  35A-25,  and
22    35A-30, the following provisions apply:
23             (1)  In  the  event  of a company action level event
24        with respect to a domestic insurer,  the  Director  shall
25        take no regulatory action under this Article.
26             (2)  In the event of a regulatory action level event
27        under  paragraph  (1),  (2),  or (3) of subsection (a) of
28        Section 35A-20,  the  Director  shall  take  the  actions
29        required under Section 35A-15.
30             (3)  In the event of a regulatory action level event
31        under  paragraph  (4),  (5),  (6),  (7),  (8),  or (9) of
32        subsection (a) of Section 35A-20 or an authorized control
33        level event, the Director shall take the actions required
34        under Section 35A-20.
 
                            -16-              LRB9101904JSpcA
 1             (4)  In the  event  of  a  mandatory  control  level
 2        event, the Director shall take the actions required under
 3        Section 35A-25.
 4        This  subsection  does not apply to a health organization
 5    that provides or arranges for a health care plan under  which
 6    enrollees  may  access  health  care services from contracted
 7    providers  without  a  referral  from  their   primary   care
 8    physician.
 9        Nothing  in this subsection shall preclude or limit other
10    powers or duties of the Director under any other laws.
11    (Source: P.A. 88-364; 89-97, eff. 7-7-95.)

12        Section 10.  The Dental Service Plan Act  is  amended  by
13    changing Section 25 as follows:

14        (215 ILCS 110/25) (from Ch. 32, par. 690.25)
15        Sec.   25.  Application  of  Insurance  Code  provisions.
16    Dental service plan corporations and all  persons  interested
17    therein   or  dealing  therewith  shall  be  subject  to  the
18    provisions of Articles IIA and Article XII 1/2  and  Sections
19    3.1, 133, 140, 143, 143c, 149, 355.2, 367.2, 401, 401.1, 402,
20    403,  403A,  408,  408.2,  and  412,  and  subsection (15) of
21    Section 367 of the Illinois Insurance Code.
22    (Source: P.A. 86-600; 87-587; 87-1090.)

23        Section 15.  The Health Maintenance Organization  Act  is
24    amended by changing Section 5-3 as follows:

25        (215 ILCS 125/5-3) (from Ch. 111 1/2, par. 1411.2)
26        Sec. 5-3.  Insurance Code provisions.
27        (a)  Health Maintenance Organizations shall be subject to
28    the  provisions of Sections 133, 134, 137, 140, 141.1, 141.2,
29    141.3, 143, 143c, 147, 148, 149, 151, 152, 153,  154,  154.5,
30    154.6,  154.7,  154.8, 155.04, 355.2, 356m, 356v, 356w, 356x,
 
                            -17-              LRB9101904JSpcA
 1    367i, 401, 401.1, 402, 403, 403A, 408, 408.2, 409, 412,  444,
 2    and  444.1,  paragraph  (c) of subsection (2) of Section 367,
 3    and Articles IIA, VIII 1/2, XII, XII  1/2,  XIII,  XIII  1/2,
 4    XXV, and XXVI of the Illinois Insurance Code.
 5        (b)  For  purposes of the Illinois Insurance Code, except
 6    for Sections 444 and 444.1 and Articles XIII  and  XIII  1/2,
 7    Health  Maintenance Organizations in the following categories
 8    are deemed to be "domestic companies":
 9             (1)  a  corporation  authorized  under  the   Dental
10        Service  Plan  Act or the Voluntary Health Services Plans
11        Act;
12             (2)  a corporation organized under the laws of  this
13        State; or
14             (3)  a  corporation  organized  under  the  laws  of
15        another  state, 30% or more of the enrollees of which are
16        residents of this State, except a corporation subject  to
17        substantially  the  same  requirements  in  its  state of
18        organization as is a  "domestic  company"  under  Article
19        VIII 1/2 of the Illinois Insurance Code.
20        (c)  In  considering  the merger, consolidation, or other
21    acquisition of control of a Health  Maintenance  Organization
22    pursuant to Article VIII 1/2 of the Illinois Insurance Code,
23             (1)  the  Director  shall give primary consideration
24        to the continuation of  benefits  to  enrollees  and  the
25        financial  conditions  of the acquired Health Maintenance
26        Organization after the merger,  consolidation,  or  other
27        acquisition of control takes effect;
28             (2)(i)  the  criteria specified in subsection (1)(b)
29        of Section 131.8 of the Illinois Insurance Code shall not
30        apply and (ii) the Director, in making his  determination
31        with  respect  to  the  merger,  consolidation,  or other
32        acquisition of control, need not take  into  account  the
33        effect  on  competition  of the merger, consolidation, or
34        other acquisition of control;
 
                            -18-              LRB9101904JSpcA
 1             (3)  the Director shall have the  power  to  require
 2        the following information:
 3                  (A)  certification by an independent actuary of
 4             the   adequacy   of   the  reserves  of  the  Health
 5             Maintenance Organization sought to be acquired;
 6                  (B)  pro forma financial statements  reflecting
 7             the combined balance sheets of the acquiring company
 8             and the Health Maintenance Organization sought to be
 9             acquired  as of the end of the preceding year and as
10             of a date 90 days prior to the acquisition, as  well
11             as   pro   forma   financial  statements  reflecting
12             projected combined  operation  for  a  period  of  2
13             years;
14                  (C)  a  pro  forma  business  plan detailing an
15             acquiring  party's  plans  with   respect   to   the
16             operation  of  the  Health  Maintenance Organization
17             sought to be acquired for a period of not less  than
18             3 years; and
19                  (D)  such  other  information  as  the Director
20             shall require.
21        (d)  The provisions of Article VIII 1/2 of  the  Illinois
22    Insurance  Code  and this Section 5-3 shall apply to the sale
23    by any health maintenance organization of greater than 10% of
24    its enrollee population  (including  without  limitation  the
25    health  maintenance organization's right, title, and interest
26    in and to its health care certificates).
27        (e)  In considering any management  contract  or  service
28    agreement  subject to Section 141.1 of the Illinois Insurance
29    Code, the Director (i) shall, in  addition  to  the  criteria
30    specified  in  Section  141.2 of the Illinois Insurance Code,
31    take into account the effect of the  management  contract  or
32    service   agreement   on  the  continuation  of  benefits  to
33    enrollees  and  the  financial  condition   of   the   health
34    maintenance  organization to be managed or serviced, and (ii)
 
                            -19-              LRB9101904JSpcA
 1    need not take into  account  the  effect  of  the  management
 2    contract or service agreement on competition.
 3        (f)  Except  for  small employer groups as defined in the
 4    Small Employer Rating, Renewability  and  Portability  Health
 5    Insurance  Act and except for medicare supplement policies as
 6    defined in Section 363 of  the  Illinois  Insurance  Code,  a
 7    Health  Maintenance Organization may by contract agree with a
 8    group or other enrollment unit to effect  refunds  or  charge
 9    additional premiums under the following terms and conditions:
10             (i)  the  amount  of, and other terms and conditions
11        with respect to, the refund or additional premium are set
12        forth in the group or enrollment unit contract agreed  in
13        advance of the period for which a refund is to be paid or
14        additional  premium  is to be charged (which period shall
15        not be less than one year); and
16             (ii)  the amount of the refund or additional premium
17        shall  not  exceed  20%   of   the   Health   Maintenance
18        Organization's profitable or unprofitable experience with
19        respect  to  the  group  or other enrollment unit for the
20        period (and, for  purposes  of  a  refund  or  additional
21        premium,  the profitable or unprofitable experience shall
22        be calculated taking into account a pro rata share of the
23        Health  Maintenance  Organization's  administrative   and
24        marketing  expenses,  but shall not include any refund to
25        be made or additional premium to be paid pursuant to this
26        subsection (f)).  The Health Maintenance Organization and
27        the  group  or  enrollment  unit  may  agree   that   the
28        profitable  or  unprofitable experience may be calculated
29        taking into account the refund period and the immediately
30        preceding 2 plan years.
31        The  Health  Maintenance  Organization  shall  include  a
32    statement in the evidence of coverage issued to each enrollee
33    describing the possibility of a refund or additional premium,
34    and upon request of any group or enrollment unit, provide  to
 
                            -20-              LRB9101904JSpcA
 1    the group or enrollment unit a description of the method used
 2    to   calculate  (1)  the  Health  Maintenance  Organization's
 3    profitable experience with respect to the group or enrollment
 4    unit and the resulting refund to the group or enrollment unit
 5    or (2) the  Health  Maintenance  Organization's  unprofitable
 6    experience  with  respect to the group or enrollment unit and
 7    the resulting additional premium to be paid by the  group  or
 8    enrollment unit.
 9        In   no  event  shall  the  Illinois  Health  Maintenance
10    Organization  Guaranty  Association  be  liable  to  pay  any
11    contractual obligation of an insolvent  organization  to  pay
12    any refund authorized under this Section.
13    (Source: P.A.   89-90,  eff.  6-30-95;  90-25,  eff.  1-1-98;
14    90-177, eff.  7-23-97;  90-372,  eff.  7-1-98;  90-583,  eff.
15    5-29-98;  90-655,  eff. 7-30-98; 90-741, eff. 1-1-99; revised
16    9-8-98.)

17        Section 20.  The Limited Health Service Organization  Act
18    is amended by changing Section 4003 as follows:

19        (215 ILCS 130/4003) (from Ch. 73, par. 1504-3)
20        Sec.  4003.  Illinois Insurance Code provisions.  Limited
21    health  service  organizations  shall  be  subject   to   the
22    provisions  of  Sections  133,  134,  137, 140, 141.1, 141.2,
23    141.3, 143, 143c, 147, 148, 149, 151, 152, 153,  154,  154.5,
24    154.6,  154.7,  154.8,  155.04, 355.2, 356v, 401, 401.1, 402,
25    403, 403A, 408, 408.2, 409, 412, 444, and 444.1 and Articles
26    IIA, VIII 1/2, XII, XII 1/2, XIII, XIII 1/2, XXV, and XXVI of
27    the Illinois Insurance Code.  For purposes  of  the  Illinois
28    Insurance  Code,  except  for  Sections  444  and  444.1  and
29    Articles   XIII   and   XIII   1/2,  limited  health  service
30    organizations in the following categories are  deemed  to  be
31    domestic companies:
32             (1)  a corporation under the laws of this State; or
 
                            -21-              LRB9101904JSpcA
 1             (2)  a  corporation  organized  under  the  laws  of
 2        another  state, 30% of more of the enrollees of which are
 3        residents of this State, except a corporation subject  to
 4        substantially  the  same  requirements  in  its  state of
 5        organization as is a domestic company under Article  VIII
 6        1/2 of the Illinois Insurance Code.
 7    (Source: P.A.  90-25,  eff.  1-1-98;  90-583,  eff.  5-29-98;
 8    90-655, eff. 7-30-98.)

 9        Section  25.   The Voluntary Health Services Plans Act is
10    amended by changing Section 10 as follows:

11        (215 ILCS 165/10) (from Ch. 32, par. 604)
12        Sec.  10.  Application  of  Insurance  Code   provisions.
13    Health  services plan corporations and all persons interested
14    therein  or  dealing  therewith  shall  be  subject  to   the
15    provisions  of  Articles IIA and Article XII 1/2 and Sections
16    3.1, 133, 140, 143, 143c, 149, 354, 355.2, 356r, 356t,  356u,
17    356v,  356w,  356x,  367.2,  401, 401.1, 402, 403, 403A, 408,
18    408.2, and 412, and paragraphs (7) and (15) of Section 367 of
19    the Illinois Insurance Code.
20    (Source: P.A.  89-514,  eff.  7-17-96;  90-7,  eff.  6-10-97;
21    90-25,  eff.  1-1-98;  90-655,  eff.  7-30-98;  90-741,  eff.
22    1-1-99.)

23        Section 99.  Effective date.  This Act takes effect  upon
24    becoming law.

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