Protection against insolvency.

(a) Unless otherwise provided below, each health maintenance organization shall deposit with the commissioner, or with any organization or trustee acceptable to him through which a custodial or controlled account is utilized, cash, securities, or any combination of these or other measures acceptable to him in the amount set forth in this section.

(b) The amount for an organization that is beginning operation shall be the greater of: (1) five percent of its estimated expenditures for health care services for its first year of operation, (2) twice its estimated average monthly uncovered expenditures for its first year of operation, or (3) $100,000. At the beginning of each succeeding year, unless not applicable, the organization shall deposit with the commissioner, or organization, or trustee, cash, securities, or any combination of these or other measures acceptable to the commissioner, in an amount equal to four percent of its estimated annual uncovered expenditures for that year.

(c) Unless not applicable, an organization that is in operation on May 29, 1986, shall make a deposit equal to the larger of: (1) one percent of the preceding 12 months uncovered expenditures, or (2) $100,000 on the first day of the fiscal year beginning six months or more after May 29, 1986.

In the second fiscal year, if applicable, the amount of the additional deposit shall be equal to two percent of its estimated annual uncovered expenditures. In the third fiscal year, if applicable, the additional deposit shall be equal to three percent of its estimated annual uncovered expenditures for that year, and in the fourth fiscal year and subsequent years, if applicable, the additional deposit shall be equal to four percent of its estimated annual uncovered expenditures for each year. Each year's estimate, after the first year of operation shall reasonably reflect the prior year's operating experience and delivery arrangements.

(d) The commissioner may waive any of the deposit requirements set forth in subsections (a) and (b) above whenever satisfied that the organization has sufficient net worth and an adequate history of generating net income to assure its financial viability for the next year, or its performance and obligations are guaranteed by an organization with sufficient net worth and an adequate history of generating net income, or the assets of the organization or its contracts with insurers, health care service plans, governments, or other organizations are reasonably sufficient to assure the performance of its obligations; provided, however, that a minimum deposit of $100,000 shall be required in all cases.

(e) When an organization has achieved a net worth composed of investments authorized under Section 27-21A-11, but not including land, buildings, and equipment, of at least $1 million or has achieved a net worth including direct investments in organization-related land, buildings, and equipment of at least $5 million, the annual deposit requirement shall not apply.

The annual deposit requirement shall not apply to an organization if the total amount of the accumulated deposit is equal to 25 percent of its estimated annual uncovered expenditures for the next calendar year, or the capital and surplus requirements for the formation for admittance of an accident and health insurer in this state, whichever is less.

If the organization has a guaranteeing organization which has been in operation for at least five years and has a net worth not including land, buildings, and equipment of at least $1 million or which has been in operation for at least 10 years and has a net worth including direct investments in organization-related land, buildings, and equipment of at least $5 million, the annual deposit requirement shall not apply; provided, however, that if the guaranteeing organization is sponsoring more than one organization, the net worth requirement shall be increased by a multiple equal to the number of such organizations. This requirement to maintain a deposit in excess of the deposit required of an accident and health insurer shall not apply during any time that the guaranteeing organization maintains for each organization it sponsors a net worth of at least equal to the capital and surplus requirements for an accident and health insurer.

(f) All income from deposits shall belong to the depositing organization and shall be paid to it as it becomes available. A health maintenance organization that has made a securities deposit may withdraw that deposit or any part thereof after making a substitute deposit of cash, securities, or any combination of these or other measures of equal amount and value. Any securities shall be approved by the commissioner before being substituted.

(g) In any year in which an annual deposit is not required of an organization, at the organization's request the commissioner shall reduce the required, previously accumulated deposit by $100,000 for each $250,000 of net worth in excess of the amount that allows the organization not to make the annual deposit. If the amount of net worth no longer supports a reduction of its required deposit, the organization shall immediately redeposit $100,000 for each $250,000 of reduction in net worth, provided that its total deposit shall not exceed the maximum required under this section.

(h) Each health maintenance organization shall have and maintain a capital account of at least $100,000 in addition to any deposit requirements under this section. The capital account shall be net of any accrued liabilities and be in the form of cash, securities, or any combination of these or other measures acceptable to the commissioner.

(i) There is created a nonprofit unincorporated legal entity to be known as the Alabama Health Maintenance Organization Guaranty Association. All health maintenance organizations authorized to transact business in this state shall participate in this guaranty association which shall protect all enrollees of such organizations in this state against failure in the performance of obligations due to the impairment or insolvency of a health maintenance organization. The association shall be separate from, but shall be modeled on the Alabama Life and Disability Guaranty Association, Sections 27-44-1, et seq. and the commissioner shall take such actions and promulgate, in accordance with the provisions of Section 27-2-17, such regulations as he may deem necessary to effectuate the provisions of this subsection.

(Acts 1986, No. 86-471, p. 854, §12.)