2005 California Health and Safety Code Sections 1374.60-1374.72 Contracts

HEALTH AND SAFETY CODE
SECTION 1374.60-1374.72

1374.60.  For purpose of this article, the following definitions
shall apply:
   (a) A "point-of-service plan contract" means any plan contract
offered by a health care service plan whereby the health care service
plan assumes financial risk for both "in-network coverage or
services" and "out-of-network coverage or services."
   The term "point-of-service plan contract" shall not apply to a
plan contract where the out-of-network coverage or service is
underwritten by an insurance company admitted in this state or is
provided by a self-insured employer and is offered in conjunction
with in-network coverage or services provided pursuant to a health
care service plan contract.
   (b) "Out-of-network coverage or services" means health care
services received either from (1) providers who are not employed by,
under contract with, or otherwise affiliated with the health care
service plan, except for health care services received from these
providers in an emergency or when referred or authorized by the plan
under procedures specifically reviewed and approved by the  director
or (2) providers who are employed by, under contract with, or
otherwise affiliated with a health care service plan in instances
when the "in-network coverage or services" requirements for care set
forth in the health care service plan's approved evidence of coverage
are not met.
   (c) "In-network coverage or services" means all of the following:
   (1) All the health care services provided or offered under the
requirements of this chapter that are received from a provider
employed by, under contract with, or otherwise affiliated with the
health care service plan and in accordance with the procedures set
forth in the plan's approved evidence of coverage.
   (2) Health care services received from a provider not affiliated
with the health care service plan when the plan arranges for the
enrollee to receive services from that provider.
   (3) Out-of-area emergency care provided in accordance with the
procedures set by the health care service plan to be followed in
securing these services.
1374.62.  A point-of-service plan contract, in which any risk for
out-of-network coverage or services is transferred from a health care
service plan through reinsurance, shall be subject to this article.
1374.64.  (a) Only a plan that has been licensed under this chapter
and in operation in this state for a period of five years or more, or
a plan licensed under this chapter and operating in this state for a
period of five or more years under a combination of (1) licensure
under this chapter and (2) pursuant to a certificate of authority
issued by the Department of Insurance may offer a point-of-service
contract.  A specialized health care service plan shall not offer a
point-of-service plan contract unless this plan was formerly
registered under the Knox-Mills Health Plan Act (Article 2.5
(commencing with Section 12530) of Chapter 6 of Part 2 of Division 3
of Title 2 of the Government Code), as repealed by Chapter 941 of the
Statutes of 1975, and offered point-of-service plan contracts
previously approved by the director on July 1, 1976, and on September
1, 1993.
   (b) A plan may offer a point-of-service plan contract only if the
director has not found the plan to be in violation of any
requirements, including administrative capacity, under this chapter
or the rules adopted thereunder and the plan meets, at a minimum, the
following financial criteria:
   (1) The minimum financial criteria for a plan that maintains a
minimum net worth of at least five million dollars ($5,000,000) shall
be:
   (A) (i) Initial tangible net equity so that the plan is not
required to file monthly reports with the  director as required by
Section 1300.84.3(d)(1)(G) of Title 10 of the California Code of
Regulations and then have and maintain adjusted tangible net equity
to be determined pursuant to either of the following:
   (I) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(1) or (2) of
Title 10 of the California Code of Regulations, multiply 130 percent
times the sum resulting from the addition of the plan's tangible net
equity required by Section 1300.76(a)(1) or (2) of Title 10 of the
California Code of Regulations and the number that equals 10 percent
of the plan's annualized health care expenditures for out-of-network
services for point-of-service enrollees.
   (II) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(3) of Title 10
of the California Code of Regulations, recalculate the plan's
tangible net equity under Section 1300.76(a)(3) of Title 10 of the
California Code of Regulations excluding the plan's annualized health
care expenditures for out-of-network services for point-of-service
enrollees, add together the number resulting from this recalculation
and the number that equals 10 percent of the plan's annualized health
care expenditures for out-of-network services for point of services
enrollees, and multiply this sum times 130 percent, provided that the
product of this multiplication must exceed 130 percent of the
tangible net equity required by Section 1300.76(a)(3) of Title 10 of
the California Code of Regulations so that the plan is not required
to file monthly reports to the director as required by Section
1300.84.3(d)(1)(G) of Title 10 of the California Code of Regulations.
   (ii) The failure of a plan offering a point-of-service plan
contract under this article to maintain adjusted tangible net equity
as determined by this subdivision shall require the filing of monthly
reports with the director pursuant to Section 1300.84.3(d) of Title
10 of the California Code of Regulations, in addition to any other
requirements that may be imposed by the  director on a plan under
this article and chapter.
   (iii) The calculation of tangible net equity under any report to
be filed by a plan offering a point-of-service plan contract under
this article and required of a plan pursuant to Section 1384, and the
regulations adopted thereunder, shall be on the basis of adjusted
tangible net equity as determined under this subdivision.
   (B) Demonstrates adequate working capital, including (i) a current
ratio (current assets divided by current liabilities) of at least
1:1, after excluding obligations of officers, directors, owners, or
affiliates, or (ii) evidence that the plan is now meeting its
obligations on a timely basis and has been doing so for at least the
preceding two years.  Short-term obligations of affiliates for goods
or services arising in the normal course of business that are payable
on the same terms as equivalent transactions with nonaffiliates
shall not be excluded.  For purposes of this subdivision, an
obligation is considered short term if the repayment schedule is 30
days or fewer.
   (C) Demonstrates a trend of positive earnings over the previous
eight fiscal quarters.
   (2) The minimum financial criteria for a plan that maintains a
minimum net worth of at least one million five hundred thousand
dollars ($1,500,000) but less than five million dollars ($5,000,000)
shall be:
   (A) (i) Initial tangible net equity so that the plan is not
required to file monthly reports with the  director as required by
Section 1300.84.3(d)(1)(G) of Title 10 of the California Code of
Regulations and then have and maintain adjusted tangible net equity
to be determined pursuant to either of the following:
   (I) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(1) or (2) of
Title 10 of the California Code of Regulations, multiply 130 percent
times the sum resulting from the addition of the plan's tangible net
equity required by Section 1300.76(a)(1) or (2) of Title 10 of the
California Code of Regulations and the number that equals 10 percent
of the plan's annualized health care expenditures for out-of-network
services for point-of-service enrollees.
   (II) In the case of a plan that is required to have and maintain a
tangible net equity as required by Section 1300.76(a)(3) of Title 10
of the California Code of Regulations, recalculate the plan's
tangible net equity under Section 1300.76(a)(3) excluding the plan's
annualized health care expenditures for out-of-network services for
point-of-service enrollees, add together the number resulting from
this recalculation and the number that equals 10 percent of the plan'
s annualized health care expenditures for out-of-network services for
point-of-services enrollees, and multiply this sum times 130
percent, provided that the product of this multiplication must exceed
130 percent of the tangible net equity required by Section 1300.76
(a)(3) of Title 10 of the California Code of Regulations so that the
plan is not required to file monthly reports to the  director as
required by Section 1300.84.3(d)(1)(G) of Title 10 of the California
Code of Regulations.
   (ii) The failure of a plan offering a point-of-service plan
contract under this article to maintain adjusted tangible net equity
as determined by this subdivision shall require the filing of monthly
reports with the director pursuant to Section 1300.84.3(d) of Title
10 of the California Code of Regulations, in addition to any other
requirements that may be imposed by the  director on a plan under
this article and chapter.
   (iii) The calculation of tangible net equity under any report to
be filed by a plan offering a point-of-service plan contract under
this article and required of a plan pursuant to Section 1384, and the
regulations adopted thereunder, shall be on the basis of adjusted
tangible net equity as determined under this subdivision.
   (B) Demonstrates adequate working capital, including (i) a current
ratio (current assets divided by current liabilities) of at least
1:1, after excluding obligations of officers, directors, owners, or
affiliates or (ii) evidence that the plan is now meeting its
obligations on a timely basis and has been doing so for at least the
preceding two years.  Short-term obligations of affiliates for goods
or services arising in the normal course of business that are payable
on the same terms as equivalent transactions with nonaffiliates
shall not be excluded.  For purposes of this subdivision, an
obligation is considered short term if the repayment schedule is 30
days or fewer.
   (C) Demonstrates a trend of positive earnings over the previous
eight fiscal quarters.
   (D) Demonstrates to the  director that it has obtained insurance
for the cost of providing any point-of-service enrollee with
out-of-network covered health care services, the aggregate value of
which exceeds five thousand dollars ($5,000) in any year.  This
insurance shall obligate the insurer to continue to provide care for
the period in which a premium was paid in the event a plan becomes
insolvent.  Where a plan cannot obtain insurance as required by this
subparagraph, then a plan may demonstrate to the  director that it
has made other arrangements, acceptable to the  director, for the
cost of providing enrollees out-of-network health care services; but
in this case the expenditure for total out-of-network costs for all
enrollees in all point-of-service contracts shall be limited to a
percentage, acceptable to the  director, not to exceed 15 percent of
total health care expenditures for all its enrollees.
   (c) Within 30 days of the close of each month a plan offering
point-of-service plan contracts under paragraph (2) of subdivision
(b) shall file with the  director a monthly financial report
consisting of a balance sheet and statement of operations of the
plan, which need not be certified, and a calculation of the adjusted
tangible net equity required under subparagraph (A).  The financial
statements shall be prepared on a basis consistent with the financial
statements furnished by the plan pursuant to Section 1300.84.2 of
Title 10 of the California Code of Regulations.  A plan shall also
make special reports to the  director as the director may from time
to time require.  Each report to be filed by a plan pursuant to this
subdivision shall be verified by a principal officer of the plan as
set forth in Section 1300.84.2(e) of Title 10 of the California Code
of Regulations.
   (d) If it appears to the director that a plan does not have
sufficient financial viability, or organizational and administrative
capacity to assure the delivery of health care services to its
enrollees, the director may, by written order, direct the plan to
discontinue the offering of a point-of-service plan contract.  The
order shall be effective immediately.
1374.65.  Point-of-service plan contracts shall:
   (a) Provide incentives, including financial incentives, for
enrollees to use in-network coverage or services.
   (b) Only offer coverage or services obtained out-of-network if it
also provides coverage or services on an in-network basis.
   (c) Shall not consider the following to be out-of-network coverage
or services:
   (1) Health care services received from a provider not affiliated
with the health care service plan when the plan arranges for the
enrollee to receive services from that provider.
   (2) Out-of-area emergency care provided in accordance with the
procedures set by the health care service plan to be followed in
securing these services.
1374.66.  Any health care service plan that offers a
point-of-service plan contract may do all of the following:
   (a) Limit or exclude coverage for specific types of services or
conditions when obtained out-of-plan.
   (b) Include annual out-of-pocket limits, copayments, and annual
and lifetime maximum benefit limits for out-of-network coverage or
services that are different or separate from any amounts or limits
applied to in-network coverage or services, and may impose a
deductible on coverage for out-of-network coverage or services.
   (c) To the extent permitted under this chapter, may limit the
groups to which a point-of-service plan contract is offered, and may
adopt nondiscriminatory renewal guidelines under which one or more
point-of-service plan contracts would be replaced with other than
point-of-service plan contracts.  If a point-of-service plan contract
is sold to a group, then the group shall offer it to all members of
that group who are eligible for coverage by the health care service
plan.
   (d) Treat as out-of-network services those services that an
enrollee obtains from a provider affiliated with the plan, but not in
accordance with the authorization procedures set forth in the health
care service plan's approved evidence of coverage.
   (e) Contracts between health care service plans and medical
providers, for the purpose of providing medical services under
point-of-service contracts, may include risk-sharing arrangements for
out-of-network services, but only if the risk sharing arrangements
meet all of the following conditions:
   (1) The contracting medical provider agrees to participate in
risk-sharing arrangements applicable to out-of-network services.
   (2) If the medical provider is reimbursed on a capitated or
prepaid basis, the contract shall clearly disclose the capitation or
prepayment amount to be paid to the medical provider for in-network
services received by enrollees under point-of-service contracts.
   (3) Any capitation or prepayment amounts paid to the medical
provider shall not place the medical provider directly at risk for or
directly transfer liability for out-of-network services received by
enrollees under point-of-service contracts.
   (4) The risk-sharing arrangements for out-of-network services may
provide a bonus or incentive to the medical provider to attempt to
reduce the utilization of out-of-network services, but shall not
place the medical provider at risk for any amounts in excess of the
amounts used by the plan to budget for or fund the risk-sharing pool
for out-of-network services.
   (5) The contract between the medical provider and the plan shall
clearly disclose the mathematical method by which funding for the
risk-sharing arrangement is established, the mathematical method by
which and the extent to which payments for out-of-network services
are debited against the risk-sharing funds, and the method by which
the risk-sharing arrangement is reconciled on no less than an annual
basis.
   (6) The contract is approved by the  director.
1374.67.  A health care service plan offering a point-of-service
plan contract is subject to the following limitations:
   (a) A health care service plan shall limit its offering of
point-of-service plan contracts so that no more than 50 percent of
the plan's total premium revenue in any fiscal quarter is earned from
point-of-service plan contracts.
   (b) A health care service plan offering a point-of-service plan
contract shall not expend in any fiscal-year quarter more than 20
percent of its total health care expenditures for all its enrollees
for out-of-network services for point-of-service enrollees.
   (c) If the amount specified in subdivision (a) or (b) is exceeded
by 2 percent in any quarter, the health care service plan shall come
into compliance with subdivisions (a) and (b) by the end of the next
following quarter.  If compliance with the amount specified in
subdivisions (a) and (b) is not demonstrated in the health care
service plan's next quarterly report, the director may prohibit the
health care service plan from offering a point-of-service plan
contract to new groups, or may require the health care service plan
to amend one or more of its point-of-service contracts at the time of
renewal to delete some or all of the out-of-network coverage or
services as may be necessary for the plan to demonstrate compliance
to the  director's satisfaction.
   (d) The limitation imposed by this section shall not apply to a
plan which in substantial part indemnified subscribers and enrollees
pursuant to contracts issued under such plan's former registration
under the Knox-Mills Health Plan Act in 1975 and as of that date, and
on September 1, 1993, was offering point-of-service plan contracts
previously approved by the director.
1374.68.  A health care service plan that offers a point-of-service
plan contract shall do all of the following:
   (a) Deposit with the  director or, at the discretion of the
director, with any organization or trustee acceptable to the director
through which a custodial or controlled account is maintained, cash,
securities, or any combination of these, which is acceptable to the
director, that at all times have a fair market value equal to the
greater of either one of the following:
   (1) Two hundred thousand dollars ($200,000).
   (2) One hundred twenty percent of the plan's current monthly
claims payable plus incurred but not reported balance for coverage
out-of-network coverage or services provided under point-of-service
contracts.
   (b) Track out-of-network point-of-service utilization separately
from in-network utilization.
   (c) Record point-of-service utilization in a manner that will
permit utilization and cost reporting as the  director may require.
   (d) Demonstrate to the satisfaction of the  director that the
health care service plan has the fiscal, administrative, and
marketing capacity to control its point-of-service plan contract
enrollment, utilization, and costs so as not to jeopardize the
financial viability or organizational and administrative capacity of
the health care service plan.
   (e) Maintain the deposit required under subdivision (a) in a
manner agreed to by the  director, subject to subdivision (a) of
Section 1377 and any regulations adopted thereunder.
   (f) Any deposit made pursuant to this section shall be a credit
against any deposit required by subdivision (a) of Section 1377.
1374.69.  At least 20 business days prior to offering a
point-of-service plan contract, a health care service plan shall file
a notice of material modification in accordance with Section 1352.
The notice of material modification shall include, but not be limited
to, provisions specifying how the health care service plan shall
accomplish all of the following:
   (a) Design the benefit levels and conditions of coverage for
in-network coverage and services and out-of-network point-of-service
utilization.
   (b) Provide or arrange for the provision of adequate systems to do
all of the following:
   (1) Process and pay claims for all out-of-network coverage and
services.
   (2) Generate accurate financial and utilization data and reports
on a timely basis, so that it and any authorized regulatory agency
can evaluate the health care service plan's experience with
point-of-service plan contracts and monitor compliance with
point-of-service plan contract projections established by the health
care service plan and regulatory requirements.
   (3) Track and monitor the quality of health care obtained
out-of-network by plan enrollees to the extent reasonable and
possible.
   (4) Respond promptly to enrollee grievances and complaints,
written or oral, including those regarding services obtained
out-of-network.
   (5) Meet the requirements for a point-of-service plan contract set
forth in this section and any additional requirements that may be
required by the director.
   (c) Comply initially and on an ongoing basis with the requirements
of this article.
   (d) This section shall become operative July 1, 1995.
1374.71.  No plan formerly registered under the Knox-Mills Health
Plan Act (Article 2.5 (commencing with Section 12530) of Chapter 6 of
Part 2 of Division 3 of Title 2 of the Government Code) in 1975
shall be required to file a notice of material modification under
Section 1374.69 or 1374.70 for any point-of-service plan contract
previously approved by the director under this chapter and offered by
plan on or before September 1, 1993.
1374.72.  (a) Every health care service plan contract issued,
amended, or renewed on or after July 1, 2000, that provides hospital,
medical, or surgical coverage shall provide coverage for the
diagnosis and medically necessary treatment of severe mental
illnesses of a person of any age, and of serious emotional
disturbances of a child, as specified in subdivisions (d) and (e),
under the same terms and conditions applied to other medical
conditions as specified in subdivision (c).
   (b) These benefits shall include the following:
   (1) Outpatient services.
   (2) Inpatient hospital services.
   (3) Partial hospital services.
   (4) Prescription drugs, if the plan contract includes coverage for
prescription drugs.
   (c) The terms and conditions applied to the benefits required by
this section, that shall be applied equally to all benefits under the
plan contract, shall include, but not be limited to, the following:
   (1) Maximum lifetime benefits.
   (2) Copayments.
   (3) Individual and family deductibles.
   (d) For the purposes of this section, "severe mental illnesses"
shall include:
   (1) Schizophrenia.
   (2) Schizoaffective disorder.
   (3) Bipolar disorder (manic-depressive illness).
   (4) Major depressive disorders.
   (5) Panic disorder.
   (6) Obsessive-compulsive disorder.
   (7) Pervasive developmental disorder or autism.
   (8) Anorexia nervosa.
   (9) Bulimia nervosa.
   (e) For the purposes of this section, a child suffering from,
"serious emotional disturbances of a child" shall be defined as a
child who (1) has one or more mental disorders as identified in the
most recent edition of the Diagnostic and Statistical Manual of
Mental Disorders, other than a primary substance use disorder or
developmental disorder, that result in behavior inappropriate to the
child's age according to expected developmental norms, and (2) who
meets the criteria in paragraph (2) of subdivision (a) of Section
5600.3 of the Welfare and Institutions Code.
   (f) This section shall not apply to contracts entered into
pursuant to Chapter 7 (commencing with Section 14000) or Chapter 8
(commencing with Section 14200) of Division 9 of Part 3 of the
Welfare and Institutions Code, between the State Department of Health
Services and a health care service plan for enrolled Medi-Cal
beneficiaries.
   (g) (1) For the purpose of compliance with this section, a plan
may provide coverage for all or part of the mental health services
required by this section through a separate specialized health care
service plan or mental health plan, and shall not be required to
obtain an additional or specialized license for this purpose.
   (2) A plan shall provide the mental health coverage required by
this section in its entire service area and in emergency situations
as may be required by applicable laws and regulations.  For purposes
of this section, health care service plan contracts that provide
benefits to enrollees through preferred provider contracting
arrangements are not precluded from requiring enrollees who reside or
work in geographic areas served by specialized health care service
plans or mental health plans to secure all or part of their mental
health services within those geographic areas served by specialized
health care service plans or mental health plans.
   (3) Notwithstanding any other provision of law, in the provision
of benefits required by this section, a health care service plan may
utilize case management, network providers, utilization review
techniques, prior authorization, copayments, or other cost sharing.
   (h) Nothing in this section shall be construed to deny or restrict
in any way the department's authority to ensure plan compliance with
this chapter when a plan provides coverage for prescription drugs.



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