Article 6. Operation and Renewal Requirements and Procedures - California Health and Safety Code Section 1377

1377.  (a) Every plan which reimburses providers of health care
services that do not contract in writing with the plan to provide
health care services, or which reimburses its subscribers or
enrollees for costs incurred in having received health care services
from providers that do not contract in writing with the plan, in an
amount which exceeds 10 percent of its total costs for health care
services for the immediately preceding six months, shall comply with
the requirements set forth in either paragraph (1) or (2):
   (1) (A) Place with the director, or with any organization or
trustee acceptable to the director through which a custodial or
controlled account is maintained, a noncontracting provider
insolvency deposit consisting of cash or securities that are
acceptable to the director that at all times have a fair market value
in an amount at least equal to 120 percent of the sum of the
   (i) All claims for noncontracting provider services received for
reimbursement, but not yet processed.
   (ii) All claims for noncontracting provider services denied for
reimbursement during the previous 45 days.
   (iii) All claims for noncontracting provider services approved for
reimbursement, but not yet paid.
   (iv) An estimate of claims for noncontracting provider services
incurred, but not reported.
   (B) Each plan licensed pursuant to this chapter prior to January
1, 1991, shall, upon that date, make a deposit of 50 percent of the
amount required by subparagraph (A), and shall maintain additional
cash or cash equivalents as defined by rule of the director, in the
amount of 50 percent of the amount required by subparagraph (A), and
shall make a deposit of 100 percent of the amount required by
subparagraph (A) by January 1, 1992.
   (C) The amount of the deposit shall be reasonably estimated as of
the first day of the month and maintained for the remainder of the
   (D) The deposit required by this paragraph is in addition to the
deposit that may be required by rule of the director and is an
allowable asset of the plan in the determination of tangible net
equity as defined in subdivision (b) of Section 1300.76 of Title 28
of the California Code of Regulations. All income from the deposit
shall be an asset of the plan and may be withdrawn by the plan at any
   (E) A health care service plan that has made a deposit may
withdraw that deposit or any part of the deposit if (i) a substitute
deposit of cash or securities of equal amount and value is made, (ii)
the fair market value exceeds the amount of the required deposit, or
(iii) the required deposit under this paragraph is reduced or
eliminated. Deposits, substitutions, or withdrawals may be made only
with the prior written approval of the director, but approval shall
not be required for the withdrawal of earned income.
   (F) The deposit required under this section is in trust and may be
used only as provided by this section. The director or, if a
receiver has been appointed, the receiver shall use the deposit of an
insolvent health care service plan, as defined in Sections 1394.7
and 1394.8, for payment of covered claims for services rendered by
noncontracting providers under circumstances covered by the plan. All
claims determined by the director or receiver, in his or her
discretion, to be eligible for reimbursement under this section shall
be paid on a pro rata basis based on assets available from the
deposit to pay the ultimate liability for incurred expenditures.
Partial distribution may be made pending final distribution. Any
amount of the deposit remaining shall be paid into the liquidation or
receivership of the health care service plan. The director may also
use the deposit of an insolvent health care service plan for payment
of any administrative costs associated with the administration of
this section. The department, the director, and any employee of the
department shall not be liable, as provided by Section 820.2 of the
Government Code, for an injury resulting from an exercise of
discretion pursuant to this section. Nothing in this section shall be
construed to provide immunity for the acts of a receiver, except
when the director is acting as a receiver.
   (G) The director may, by regulation, prescribe the time, manner,
and form for filing claims.
   (H) The director may permit a plan to meet a portion of this
requirement by a deposit of tangible assets acceptable to the
director, the fair market value of which shall be determined on at
least an annual basis by the director. The plan shall bear the cost
of any appraisal or valuations required hereunder by the director.
   (2) Maintain adequate insurance, or a guaranty arrangement
approved in writing by the director, to pay for any loss to
providers, subscribers, or enrollees claiming reimbursement due to
the insolvency of the plan.
   (b) Whenever the reimbursements described in this section exceed
10 percent of the plan's total costs for health care services over
the immediately preceding six months, the plan shall file a written
report with the director containing the information necessary to
determine compliance with subdivision (a) no later than 30 business
days from the first day of the month. Upon an adequate showing by the
plan that the requirements of this section should be waived or
reduced, the director may waive or reduce these requirements to an
amount as the director deems sufficient to protect subscribers and
enrollees of the plan consistent with the intent and purpose of this
   (c) Every plan which reimburses providers of health care service
on a fee-for-services basis; or which directly reimburses its
subscribers or enrollees, to an extent exceeding 10 percent of its
total payments for health care services, shall estimate and record in
the books of account a liability for incurred and unreported claims.
Upon a determination by the director that the estimate is
inadequate, the director may require the plan to increase its
estimate of incurred and unreported claims. Every plan shall promptly
report to the director whenever these reimbursables exceed 10
percent of its total expenditures for health care services.
   As used herein, the term "fee-for-services" refers to the
situation where the amount of reimbursement paid by the plan to
providers of service is determined by the amount and type of service
rendered by the provider of service.
   (d) In the event an insolvent plan covered by this section fails
to pay a noncontracting provider sums for covered services owed, the
provider shall first look to the uncovered expenditures insolvency
deposit or the insurance or guaranty arrangement maintained by the
plan for payment. When a plan becomes insolvent, in no event shall a
noncontracting provider, or agent, trustee, or assignee thereof,
attempt to collect from the subscriber or enrollee sums owed for
covered services by the plan or maintain any action at law against a
subscriber or enrollee to collect sums owed by the plan for covered
services without having first attempted to obtain reimbursement from
the plan.
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Last modified: February 16, 2015