2009 California Insurance Code - Section 10820-10826 :: Article 3. Regulation

10820.  (a) The commissioner shall regulate the establishment and
conduct of purchasing alliances as set forth in this chapter.
   (b) No person or entity may market, sell, offer, or contract for a
package of one or more health benefit plans underwritten by two or
more carriers to two or more employers or small employers or their
eligible employees within a purchasing alliance without first being
registered by the commissioner pursuant to this chapter. This
subdivision does not apply to entities licensed by the Department of
Managed Health Care as health care service plans or entities licensed
by the Department of Insurance as disability insurers except that no
licensed health care service plan or licensed disability insurer may
be registered with the commissioner as a purchasing alliance. This
chapter does not apply to any entity exempt pursuant to Section
1349.2 of the Health and Safety Code.
   (c) A person or entity not registered by the commissioner as a
purchasing alliance and engaged in the purchase, sale, marketing or
distribution of health insurance or health care benefit plans shall
not hold itself out as an alliance, health insurance purchasing
alliance, purchasing alliance, health alliance, health insurance
purchasing cooperative, or purchasing cooperative, or otherwise use a
confusingly similar name.
   (d) The commissioner shall establish six geographic service
regions throughout which all purchasing alliances shall operate.
These regions shall be established with no region smaller than an
area in which the first three digits of all its postal ZIP Codes are
in common within a county and shall divide no county into more than
two service regions. Geographic service regions established pursuant
to this section shall, as a group, cover the entire state, and the
areas encompassed in geographic service regions shall be separate and
distinct from regions encompassed in other geographic service
regions. Geographic service regions may be noncontiguous.
   (e) Nothing in this chapter shall be deemed to be in conflict with
or limit the duties and powers granted to the commissioner under the
laws of this state.
   (f) Purchasing alliances shall report to the commissioner any
suspected or alleged law violations of this chapter.
   (g) Violations of this chapter shall be subject to the penalties
outlined hereafter.
   (h) The commissioner shall adopt reasonable rules and regulations
as are necessary to administer this chapter.
   (i) Nothing in this chapter shall be construed or interpreted to
apply to an entity that has been approved by the Director of the
Department of Managed Health Care, pursuant to Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code, to act as a solicitor and third-party administrator with
respect to a multiple carrier or health care service plan marketing
cooperative in which each carrier or health care service plan
contracts directly with subscribing groups or individuals for the
provision of health care, for the arranging for the provision of
health care, or for the provision of coverage for health care.

10821.  (a) An entity seeking to obtain a certificate of
registration to act as a purchasing alliance shall complete and file
with the commissioner an application designated by the commissioner.
An application will not be deemed filed until all information
necessary to properly process the application has been received by
the commissioner.
   (b) Upon filing, the commissioner shall make a determination
concerning the application and provide notice of file determination
to the applicant within 180 days of the date the application is
deemed filed. If approved, a copy of a certificate of registration,
in a form designed by the commissioner, shall be provided to the
purchasing alliance. The certificate of registration shall serve as
authorization to operate pursuant to this chapter.
   (c) A purchasing alliance shall maintain a minimum net worth of
forty thousand dollars ($40,000) plus one months operating expenses
as reserves. Net worth is defined as the excess of admitted assets
over all liabilities.
   (d) A purchasing alliance shall at all times maintain current
assets of at least ten thousand dollars ($10,000) in excess of
current liabilities, as such current assets and liabilities may be
defined pursuant to regulations made by the commissioner. In making
those regulations, the commissioner shall be guided by generally
accepted accounting principles followed by certified public
accountants in this state.
   (e) The entity that is seeking to obtain a certificate of
registration to act as a purchasing alliance shall file with the
commissioner the following information or documents:
   (1) At the time of initial registration, the entity shall provide
a written description as to how the entity intends to meet the public
policy objectives of increased access and improved quality of health
care services.
   The written description shall also demonstrate that the purchasing
alliance will have the technical expertise and physical capacity to
serve employers or small employers and their eligible employees in
this state.
   The written description shall also describe the scope of services
to be offered in this state and the resources and expertise to be
used to implement and administer those services.
   (2) Current partnership agreements, articles of incorporation,
trust documents, or similar documents establishing the group.
   (3) Current bylaws of the group.
   (4) A statement of grievance procedures relative to the
eligibility, enrollment, premium collection, and administrative
services provided by the alliance.
   (5) A statement of enrollment procedures and requirements,
including participation and contribution rules and requirements.
   (6) A statement of disenrollment criteria and procedures.
   (7) A statement of payment procedures, late payment procedures,
and grace periods.
   (8) A purchasing alliance shall demonstrate to the satisfaction of
the commissioner that its governance makes it an appropriate and
effective representative of employers or small employers and their
eligible employees' interests throughout this state. A purchasing
alliance shall organize and facilitate competition between multiple
unaffiliated carriers.
   (9) A list of owners, partners, officers, and directors of the
applicant and the contracted management company or third-party
administrator, if such are employed, and personal biographical
information or firm descriptions for each. The owners, partners,
officers, directors, and contracted managers and administrators shall
not have a prior record of administrative, civil, or criminal
violations within any financial service industry.
   The personal biographical information and firm descriptions shall
demonstrate by clear and convincing evidence that those involved in
the operation of the alliance have the expertise, experience, and
character to effectively and professionally represent employers or
small employers and their eligible employees in a fiduciary capacity.
   (10) Evidence of adequate security and prudence in the accounting,
deposit, collection, handling, and transfer of moneys. A purchasing
alliance shall affirmatively demonstrate adequate financial controls
to the satisfaction of the commissioner as a condition of being
issued a certificate of registration.
   (11) A description of the employers or small employers and their
eligible employees to which the purchasing alliance will be
marketing. A purchasing alliance shall demonstrate to the
satisfaction of the commissioner that it will fairly and
affirmatively offer, market, and sell all of its available small
employer health benefit plan products to all small employers
throughout all the service regions in this state.
   (12) Disclosure of any preexisting oral or written agreements.
   (13) Any other information required by the commissioner deemed
pertinent to the policies and operation of the alliance.
   (f) Thirty days prior to any amendment or modification to any of
the documents submitted pursuant to subdivision (e), the alliance
shall file with the commissioner a copy of the amended or modified
document. Any amendment or modification shall be deemed approved if
the commissioner has not disapproved the document within 30 days.

10821.5.  (a) The purchasing alliance shall furnish an annual
financial audit to the commissioner on the forms provided by the
commissioner. The annual financial audit may be filed either on a
calendar year basis on or before March 31, or, if approved in writing
by the commissioner in respect to any individual purchasing
alliance, on a fiscal year basis on or before 90 days after the end
of the fiscal year. The deadline for filing the annual audit may be
extended by the commissioner for good cause, as determined by the
commissioner for a period not to exceed 60 days. Failure to submit an
audit on time, or within any extended time that the commissioner may
grant, shall be grounds for an order by the commissioner to
prohibiting the alliance from accepting any new business pursuant to
this section. The audits shall be private, except that a synopsis of
the balance sheet on a form prescribed by the commissioner may be
made available to the public upon request. The audits shall be
conducted and prepared in accordance with generally accepted auditing
standards by an independent certified public accountant or
independent licensed public accountant whose certification or license
is in good standing at the time of the preparation. The fee for
filing of the audit shall be three hundred thirteen dollars ($313).
Any purchasing alliance that fails to file any audit or other report
on or before the date it is due shall pay to the commissioner a
penalty fee of one hundred eighteen dollars ($118) payable within 30
days of the due date of the audit and on failure to pay that fine or
any fee or file the audit required by this section, shall forfeit the
privilege of accepting new business until the delinquency is
corrected. The commissioner may refuse to accept an audit or order a
new audit for any of the following reasons:
   (1) Adverse result in any proceeding before the California Board
of Accountancy affecting the auditor's license.
   (2) The auditor has an affiliation with the purchasing alliance or
any of its officers or directors that could prevent his or her
reports on the purchasing alliance from being reasonably objective.
   (3) The auditor has been convicted of any misdemeanor or felony
based on his or her activities as an accountant.
   (4) Judgment adverse to the auditor in any civil action finding
him or her guilty of fraud, deceit, or misrepresentation in the
practice of his or her profession.
   (b) Financial and performance audits or examinations of the
purchasing alliance shall be conducted by the commissioner once every
two years. The cost of the examinations or audits are to be paid by
the purchasing alliance. The commissioner may impose conditions on
registration, or continued registration to remedy compliance or
performance problems.
   (c) At any time the commissioner determines, after notice and
hearing, that a purchasing alliance registered under this article has
willfully failed to comply with any of the provisions of this
section, the commissioner shall make his or her order prohibiting the
purchasing alliance from conducting its business for a period not to
exceed one year.
   Any purchasing alliance violating an order made under this
subdivision is subject to seizure under Article 14 (commencing with
Section 1010) of Chapter 1 of Part 2 of Division 1, is guilty of a
misdemeanor, and may have its certificate of registration revoked by
the commissioner. Any person aiding and abetting any purchasing
alliance in violation of that order is guilty of a misdemeanor.
   The purpose of this section is to maintain the solvency of the
purchasing alliance subject to this article and to protect the public
by preventing fraud and requiring fair dealing. The audit shall be
designed to ensure that the purchasing alliance is not a risk-bearing
entity, to ensure sound financial controls and money management, and
to prevent mismanagement or misappropriation of funds either through
neglect or malfeasance. In order to carry out those purposes the
commissioner shall make reasonable rules and regulations to govern
the conduct of the business of the purchasing alliance subject to
this chapter.
   (d) The commissioner shall establish fees for initial registration
of a purchasing alliance and for renewal of registration of a
purchasing alliance in an amount sufficient to cover the costs of
administering this chapter. A purchasing alliance shall pay the
initial registration fee at the time of application for registration,
and the renewal fee at the time of application for renewal.

10822.  After the issuance or reissuance of a certificate of
registration to act as a purchasing alliance, the holder shall
continue to comply with the requirements as to its business set forth
in this chapter and in the other applicable sections of this code,
and in the other laws of this state.

10823.  In addition to any other grounds specified in this chapter,
the following constitute grounds for denial, nonrenewal, suspension,
or revocation of an application or existing certificate of
registration, following notice and an opportunity for hearing:
   (a) Failure to comply with the provisions of this chapter.
   (b) Failure to disclose a preexisting oral or written agreement
during the alliance application process.
   (c) Failure to fairly and affirmatively offer, market, and sell
all of the health benefit plan designs offered through a purchasing
alliance that are sold or offered to small employers to all small
employers.
   (d) Failure to have adequate controls or failure to follow
approved procedures.
   (e) Failure to meet minimum standards in a financial or
performance audit or examination.
   (f) Failure to comply with a lawful order of the commissioner.
   (g) Committing an unfair or deceptive act or practice as defined
in Section 17200 of the Business and Professions Code or under
Chapter 6.5 (commencing with Section 790) of Part 2 of Division 1.
   (h) Filing any necessary form with the commissioner that contains
fraudulent information or omission.
   (i) Misappropriation, conversion, illegal withholding, or refusal
to pay over upon proper demand any moneys that belong to a person or
participating carrier otherwise not entitled to the alliance and that
have been entrusted to the alliance in its fiduciary capacity.
   (j) Operation of the purchasing alliance that is at variance with
the basic organizational documents as filed pursuant to this chapter
or as published by the purchasing alliance, or in any manner contrary
to that described in, or reasonably inferred from, the purchasing
alliance's application for certification and annual report, or any
modification thereof, unless amendments allowing the variation have
been submitted to, and approved by, the commissioner pursuant to this
chapter.
   (k) The continued operation of the purchasing alliance will
constitute a substantial risk to its subscribers and enrollees.
   (l) The purchasing alliance has violated, attempted to violate, or
conspired to violate, directly or indirectly, or assisted in or
abetted a violation or conspiracy to violate any provision of this
chapter or any rule or regulation adopted by the commissioner
pursuant to this chapter.
   (m) The purchasing alliance has permitted, or aided or abetted,
any violation by an employee or contractor who is a holder of any
license, certificate, permit, or registration issued pursuant to the
Business and Professions Code, the Health and Safety Code, or this
code, which violation would constitute grounds for discipline against
that licensee, or certificate, permit, or registration holder.
   (n) The purchasing alliance has aided, abetted, or permitted the
commission of any illegal acts.
   (o) The purchasing alliance, its management company, or any other
affiliate of the purchasing alliance, or any controlling person,
officer, director, or other person occupying a principal management
or supervisory position in the purchasing alliance, management
company, or affiliate, has been convicted or pleaded no contest to a
crime, or committed any act involving dishonesty, fraud, or deceit,
which crime or act is substantially related to the qualifications,
functions, or duties of that person under this chapter. The
commissioner may revoke or deny a certificate issued under this
chapter irrespective of a subsequent order under Section 1203.4 of
the Penal Code.

10824.  (a) The commissioner may take disciplinary action against a
purchasing alliance if the commissioner determines that the
purchasing alliance has committed any of the acts set forth in
Section 10823. The disciplinary action may include censuring the
purchasing alliance, or prohibiting for a period not exceeding 24
months or barring permanently, a person, partnership, corporation, or
trust from acting as a purchasing alliance.
   (b) The commissioner shall notify the purchasing alliance of any
order that suspends or bars a person from engaging in operations as a
purchasing alliance. It shall be unlawful for any purchasing
alliance, after receipt of notice of the order, to enroll any new
employers or small employers.
   (c) The commissioner may prohibit any person from serving as an
officer, director, employee, or associate of any purchasing alliance
or solicitor firm of any purchasing alliance, or any management
company of any purchasing alliance, or as a solicitor or agent if any
of the following applies:
   (1) The prohibition is in the public interest and the person has
committed or caused, participated in, or had knowledge of, and failed
to properly report a violation of this chapter by a purchasing
alliance, management company, or solicitor firm.
   (2) The person was an officer, director, employee, associate, or
provider of a purchasing alliance or of a management company or
solicitor firm of any purchasing alliance whose certificate has been
suspended or revoked pursuant to this section and the person had
knowledge of and failed to report, or participated in, any of the
prohibited acts for which the certificate was suspended or revoked.
   (3) The person was an officer director, employee, or associate of
a purchasing alliance that has been the subject of an order of
suspension or bar from engaging in operations as a purchasing
alliance under this section and the person had knowledge of, or
participated in, any of the prohibited acts for which the order was
issued. A proceeding for the issuance of an order under this
subdivision may be included with a proceeding against a purchasing
alliance under this section, or may conduct a separate proceeding.
   (4) The person has been convicted or pleaded no contest to a
crime, or committed any act involving dishonesty, fraud, or deceit,
which crime or act is substantially related to the qualifications,
functions, or duties of the person under this chapter.
   (d) Any disciplinary action under Section 10823 and this section
shall be conducted in accordance with the Administrative Procedure
Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division
3 of Title 2 of the Government Code).

10825.  (a) A purchasing alliance whose certificate has been revoked
or suspended for more than one year may petition the commissioner to
reinstate the certificate as provided by Section 11522 of the
Government Code. No petition may be considered if the petitioner is
under criminal sentence for a violation of this chapter, or for any
offense that would constitute grounds for discipline or denial of
registration under this chapter, including any period of probation or
parole.
   (b) A purchasing alliance that is barred or suspended for more
than one year from acting as such, or that is subject to an order
imposing discipline that by its terms is effective for more than one
year, may petition the commissioner to reduce by order the penalty in
a manner generally consistent with the provisions of Section 11522
of the Government Code. No petition may be considered if the
petitioner is under criminal sentence for a violation of this
chapter, or for any offense that would constitute grounds for
discipline or denial of registration under this chapter, including
any period of probation or parole.
   (c) The petition for restoration shall be in the form prescribed
by the commissioner and the commissioner may condition the granting
of the petition on any additional information and undertakings that
the commissioner may require in order to determine whether the
purchasing alliance, if restored, would engage in business in full
compliance with the objectives and provisions of this chapter and the
rules and regulations adopted by the commissioner under this
chapter.
   (d) The commissioner may prescribe a fee not to exceed one
thousand dollars ($1,000) for the filing of a petition for
restoration pursuant to this section. In addition, the commissioner
may condition the granting of the petition to a purchasing alliance
upon payment of the assessment due and unpaid as of December 15
during the preceding 12-calendar-month period, and if the purchasing
alliance's suspension or revocation was in effect for more than 12
months, upon the filing of a new application for registration as a
purchasing alliance and the payment of the fee for certification.

10826.  (a) Any person who violates any provision of this chapter,
or who violates any rule or order adopted or issued pursuant to this
chapter, shall be liable for a civil penalty not to exceed two
thousand five hundred dollars ($2,500) for each violation, which
shall be assessed and recovered in a civil action brought in the name
of the people of the state by the commissioner in any court of
competent jurisdiction.
   (b) As applied to the civil penalties for acts in violation of
this chapter, the remedies provided by this article and by other
sections of this chapter are not exclusive, and may be sought and
employed in any combination to enforce this chapter.
   (c) No action may be maintained to enforce any liability created
under article unless brought before the expiration of four years
after the act or transaction constituting the violation.
   (d) The commissioner shall be able to recover the costs of
investigating an alleged violation of this chapter in which a
violation has been determined.