II

106TH CONGRESS

2D SESSION S. 3261

To provide for the establishment of an HMO Guaranty Fund to provide

payments to States to pay the outstanding health care provider claims

of insolvent health maintenance organizations.

IN THE SENATE OF THE UNITED STATES

OCTOBER 30 (legislative day, SEPTEMBER 22), 2000

Mr. REED introduced the following bill; which was read twice and referred to

the Committee on Finance

A BILL

To provide for the establishment of an HMO Guaranty Fund

to provide payments to States to pay the outstanding

health care provider claims of insolvent health maintenance organizations.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘HMO Guaranty Act

5 of 2000’’.

6 SEC. DEFINITIONS.

7 In this Act:
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1 (1) BOARD.—The term ‘‘Board’’ means the

2 Board of Directors appointed under section 3(d).

3 (2) CONTRACTUAL OBLIGATION.—The term

4 ‘‘contractual obligation’’ means an obligation by a

5 health maintenance organization, under an agree6 ment, policy, certificate, or evidence of coverage in7 volving a covered individual and the organization, to

8 pay or reimburse the covered individual (or a health

9 care provider who provided items or services to the

10 individual) for services provided prior to the declara11 tion of the insolvency of the health maintenance or12 ganization, that remains unpaid at the time of such

13 insolvency. Such term does not include claims by

14 former employees, including medical professional em15 ployees, for deferred compensation, severance, vaca16 tion, or other employment benefits.

17 (3) COVERED INDIVIDUAL.—The term ‘‘covered

18 individual’’ means an enrollee or member of a health

19 maintenance organization.

20 (4) GUARANTY FUND.—The term ‘‘Guaranty

21 Fund’’ means the Federal HMO Guaranty Fund es22 tablished under section 3.

23 (5) HEALTH CARE PROVIDER.—The term

24 ‘‘health care provider’’ means a physician, hospital,

25 or other person that is licensed or otherwise author-
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1 ized by the State to provide health care services, and

2 that provided health care services to an enrollee of

3 a health maintenance organization.

4 (6) HEALTH MAINTENANCE ORGANIZATION.—

5 The term ‘‘health maintenance organization’’ has the

6 meaning given such term by section 2791(b)(3) of

7 the Public Health Service Act (42 U.S.C. 300gg8 91(b)(3)).

9 (7) HEALTH MAINTENANCE ORGANIZATION

10 CONTRACT.—The term ‘‘covered health maintenance

11 organization contract’’ means a policy, certificate, or

12 other evidence of health care coverage that is issued

13 by a health maintenance organization.

14 (8) INSOLVENT ORGANIZATION.—The term ‘‘in15 solvent organization’’ means a health maintenance

16 organization that is declared insolvent by court of

17 competent jurisdiction and placed under the control

18 of a State Commissioner of Insurance for the pur19 pose of liquidation.

20 (9) SECRETARY.—The term ‘‘Secretary’’ means

21 the Secretary of Health and Human Services, in

22 consultation with the Secretary of Labor and the

23 Secretary of the Treasury.

24 (10) STATE.—The term ‘‘State’’ includes each

25 of the several States, the District of Columbia, the
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1 Commonwealth of Puerto Rico, the Northern Mar2 iana Islands, or any agency or instrumentality there3 of.

4 (11) UNCOVERED EXPENDITURES.—The term

5 ‘‘uncovered expenditures’’ means the expenditures

6 for the provision of health care services that are the

7 obligation of a health maintenance organization that

8 have not been paid by such organization and for

9 which no alternative payment arrangements have

10 been made.

11 SEC. 3. ESTABLISHMENT OF HMO GUARANTY FUND.

12 (a) IN GENERAL.—There is established in the Treas13 ury of the United States a fund to be known as the HMO

14 Guaranty Fund to be used as provided for in this Act.

15 (b) AMOUNTS IN FUND.—

16 (1) IN GENERAL.—There shall be deposited into

17 the Guaranty Fund—

18 (A) amounts collected under section 5(a);

19 (B) penalties collected under section 5(b);

20 and

21 (C) earnings on investments of monies in

22 the Guaranty Fund.

23 (2) INVESTMENTS.—

24 (A) IN GENERAL.—The Secretary of the

25 Treasury shall invest amounts in the Guaranty
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1 Fund that are not required to meet current

2 withdrawals. Such investments may be made

3 only in interest-bearing obligations of the

4 United States. For such purpose, such obliga5 tions may be acquired on original issue at the

6 issue price, or by purchase of outstanding obli7 gations at the market price.

8 (B) AVAILABILITY OF INCOME.—Any inter9 est derived from obligations held by the Guar10 anty Fund and the proceeds from any sale or

11 redemption of such obligations, are hereby ap12 propriated to the Fund.

13 (c) USE OF GUARANTY FUND.—Subject to section 4,

14 amounts in the Guaranty Fund shall be used to make pay15 ments to a State—

16 (1) to pay the outstanding health care provider

17 claims for uncovered expenditures, and to fulfill con18 tractual obligations to covered individuals, with re19 spect to an insolvent health maintenance organiza20 tion; and

21 (2) to provide for a temporary continuation of

22 health care coverage for covered individuals.

23 (d) BOARD OF DIRECTORS.—
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1 (1) IN GENERAL.—The Guaranty Fund shall be

2 administered by a Board of Directors to be com3 posed of 9 individuals of which—

4 (A) three directors shall be appointed by

5 the National Association of Insurance Commis6 sioners from among individuals who serve as in7 surance regulators of a State;

8 (B) three directors shall be appointed by a

9 national association which represents the health

10 maintenance organization industry of all States

11 (as determined by the Secretary) from among

12 representatives of health maintenance organiza13 tions; and

14 (C) three directors shall be—

15 (i) the Secretary of the Treasury, or

16 the designee of the Secretary;

17 (ii) the Secretary of Health and

18 Human Services, or the designee of the

19 Secretary; and

20 (iii) the Secretary of Labor, or the

21 designee of the Secretary.

22 (2) TERMS, VACANCIES.—The members of the

23 Board shall establish the terms of service of the

24 members of the Board appointed under subpara25 graphs (A) and (B) of paragraph (1). Any vacancy
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1 in the Board shall not affect its powers, and shall

2 be filled in the same manner as the original appoint3 ment.

4 (3) COMPENSATION OF MEMBERS.—

5 (A) IN GENERAL.—Except as provided in

6 subparagraph (B), each member of the Board

7 who is not an officer or employee of the Federal

8 Government shall serve without compensation.

9 All members of the Board who are officers or

10 employees of the United States shall serve with11 out compensation in addition to that received

12 for their services as officers or employees of the

13 United States.

14 (B) TRAVEL EXPENSES.—The members of

15 the Board shall be allowed travel expenses, in16 cluding per diem in lieu of subsistence, at rates

17 authorized for employees of agencies under sub18 chapter I of chapter 57 of title 5, United States

19 Code, while away from their homes or regular

20 places of business in the performance of serv21 ices for the Board. Such expenses shall be paid

22 from the Guaranty Fund.

23 (4) VOTING.—Each member of the Board shall

24 have 1 vote. The Board shall set policy and decide

25 all matters by a simple majority of the votes cast.
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1 (5) CHAIRPERSON.—The Board shall elect a

2 chairperson from among its members.

3 (6) MEETINGS.—The Board shall first meet not

4 later than 30 days after the date on which all mem5 bers are appointed under paragraph (1). Subsequent

6 meetings shall be at the call of the chairperson. The

7 Board may hold public hearings after giving proper

8 notice.

9 (7) FIDUCIARY DUTY.—With respect to the

10 members of the Board that are not appointed under

11 paragraph (1)(A), in carrying out the duties of the

12 Board such members shall have a fiduciary duty to

13 the Guaranty Fund that shall supersede any duty to

14 an employer or other special interest that the mem15 ber may otherwise represent.

16 (8) LIMITATIONS ON LIABILITY.—A member of

17 the Board shall not be liable, or in any way respon18 sible, for the obligations of the Guaranty Fund.

19 (e) DUTIES.—The Board shall—

20 (1) administer the Guaranty Fund;

21 (2) adopt bylaws that permit the Board to enter

22 into contracts to receive contributions and make dis23 tributions in accordance with this Act;
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1 (3) establish the application criteria and mate2 rials necessary to enable a State to submit an appli3 cation to the Guaranty Fund;

4 (4) review and make determination on applica5 tions received under section 4(b); and

6 (5) carry out other activities in accordance with

7 this Act.

8 SEC. 4. EXPENDITURES FROM THE GUARANTY FUND.

9 (a) IN GENERAL.—The Guaranty Fund shall be used

10 to make payments to a State to enable such State to pay

11 the claims of health care providers for health care services

12 provided to covered individuals prior to the declaration of

13 insolvency of a health maintenance organization and to

14 provide for a temporary continuation of health care cov15 erage for such individuals.

16 (b) PROCEDURE.—

17 (1) IN GENERAL.—Upon the declaration by a

18 court of competent jurisdiction that a health mainte19 nance organization is insolvent, the official respon20 sible for regulating health insurance in the State in

21 which the declaration is made may submit an appli22 cation to the Guaranty Fund for payment under this

23 Act.
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1 (2) CONTENTS OF APPLICATION.—An applica2 tion submitted by a State under paragraph (1) shall

3 include the following:

4 (A) LIQUIDATION OF ASSETS AND RETURN

5 OF UNUSED FUNDS.—The application shall con6 tain an accounting of amounts received (or ex7 pected to be received) as a result of the liquida8 tion of the assets of the insolvent organization.

9 (B) FUND AMOUNT.—The application shall

10 contain a request for a specific amount of funds

11 that will be used for the uncovered expenditures

12 and contractual obligations of an insolvent or13 ganization.

14 (C) UNCOVERED EXPENDITURES.—The

15 application shall contain an estimate of the ag16 gregate number of uncovered individuals and

17 aggregate amount of uncovered expenditures

18 with respect to the insolvent organization in19 volved.

20 (D) CONTINUATION COVERAGE.—The ap21 plication shall contain an estimate of the aggre22 gate amount of funds needed to provide con23 tinuation coverage to uncovered individuals.

24 (c) CONSIDERATION BY BOARD.—Not later than 30

25 days after the date on which the Guaranty Fund receives
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1 a completed application from a State under subsection (b),

2 the Board shall make a determination with respect to pay3 ments to the States.

4 (d) LIMITATION.—The aggregate amount that may

5 be paid to a State under this section with respect to a

6 single uncovered individual shall not exceed $300,000.

7 (e) USE FOR CONTINUATION COVERAGE.—

8 (1) IN GENERAL.—A State may use amounts

9 provided under this section to provide for the con10 tinuation of health care coverage for an uncovered

11 individual through a health maintenance organiza12 tion or other health care coverage that has been de13 termined appropriate by the official responsible for

14 regulating health insurance in the State in collabora15 tion with the Board.

16 (2) LIMITATION.—The period of continuation

17 coverage with respect to an uncovered individual

18 under paragraph (1) shall terminate on the earlier

19 of—

20 (A) the date that is 1 year after the date

21 on which the health maintenance organization

22 was declared insolvent; or

23 (B) or the date on which the contractual

24 obligation of the health maintenance organiza25 tion to the individual was to terminate.
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1 (f) REPAYMENT OF FUNDS.—The State shall repay

2 to the Guaranty Fund an amount equal to—

3 (1) any amounts not utilized by the State on

4 the date on which the liquidation of the insolvent or5 ganization is completed; and

6 (2) any amounts recovered through liquidation

7 that have not been accounted for in the application

8 of the State under subsection (b)(2)(A).

9 SEC. 5. CONTRIBUTIONS TO THE GUARANTY FUND.

10 (a) ASSESSMENT ON HEALTH MAINTENANCE ORGA11 NIZATIONS.—

12 (1) IN GENERAL.—Not later than January 1,

13 2001, and every 6 months thereafter, each health

14 maintenance organization that is licensed by a State

15 to provide health care coverage shall pay to the

16 Guaranty Fund an amount to be determined in ac17 cordance with an assessment schedule to be estab18 lished by the Secretary not later than 180 days after

19 the date of enactment of this Act.

20 (2) DEFERMENT.—The Board, after consulta21 tion with the official responsible for regulating

22 health insurance in the State involved may exempt,

23 abate, or defer, in whole or in part, the assessment

24 of a health maintenance organization under para25 graph (1) if the organization demonstrates that the
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1 payment of the assessment would endanger the abil2 ity of the organization to fulfill its contractual obli3 gations or place the organization in an unsound fi4 nancial condition.

5 (3) PROHIBITION.—A health maintenance orga6 nization shall not adjust the amount of premiums

7 paid by enrollees to account for the assessment paid

8 under paragraph (1).

9 (b) FAILURE TO PAY.—A health maintenance organi10 zation that fails to pay an assessment under subsection

11 (a)(1) within 30 days after the date on which such assess12 ment was to be paid shall be subject to a civil penalty

13 in an amount not to exceed $1,000 per day.

14 SEC. 6. STATE PREEMPTION.

15 (a) IN GENERAL.—Nothing in this Act shall be con16 strued to preempt or supersede any provision of State law

17 that establishes, implements, or continues in effect any

18 standard or requirement relating to health maintenance

19 organizations.

20 (b) DEFINITION.—In this section, the term ‘‘State

21 law’’ means all laws, decisions, rules, regulations or other

22 State actions that have the effect of law.

Æ