An Act To Update and Clarify the Law Regarding the Conversion of a Nonprofit Hospital and Medical Service Organization to a Domestic Stock Insurer
Maine Legislature, Session 121, LD 1490
Committee: Insurance and Financial Services
Sponsors: DOUGLASS, O'NEIL
Amends: 5 MRSA §194, 5 MRSA §194-A, 24 MRSA §2301, 24 MRSA §2308-A

Legislative Document 
No. 1490 
S.P.496 
In Senate, March 31, 2003 
An Act To Update and Clarify the Law Regarding the Conversion of 
a Nonprofit Hospital and Medical Service Organization to a 
Domestic Stock Insurer 
Submitted by the Department of Professional and Financial Regulation pursuant to Joint 
Rule 204. 
Reference to the Committee on Insurance and Financial Services suggested and ordered 
printed. 
Presented by Senator DOUGLASS of Androscoggin. 
Cosponsored by Representative O'NEIL of Saco. 
JOY J. O'BRIEN 
Secretary of the Senate 
Be it enacted by the People of the State of Maine as follows: 
Sec. I. 5 MRSA §194, sub-§I, as enacted by PL 2001, c. 550, 
Pt. A, §1, is amended to read: 
1. 
Definition. 
As used in this section and sections 194-A 
-"t""o,---=1,-"9'-:l4E.C:-:.oH~--,a..,n~d~-.Js""e....".c.lot-=i,,,o"'n"----"1 .... 9/.,;l4L:-=.uK, 
"pub 1 i c 
char i t y" me ans an en tit Y 
formed 
primarily for 
charitable purposes, 
including but 
not 
limited to: 
A. 
A 
corporation 
formed 
under Title 
or Title 
l3-B 
primarily for charitable purposes; and 
B. A charitable trust. 
Sec. 2. 
MRSA § 194-A, sub-§ 1, ,1, as enac ted by PL 1997, c . 
344, §1, is amended to read: 
I. 
"Materially changes its form" or "material change in 
form" 
means 
any 
transaction that 
the 
superintendent 
or 
Attorney General determines has transferred control of the 
organization to a 
BeBeRaf'it.aBJe-~~aBi&a1:ieB Eerson other 
than 
a 
public 
charity 
as 
defined 
in 
section 
194, 
substantially changed the organization's legal or regulatory 
status or substantially changed the organization's purposes, 
including, 
but not 
limited to, 
conversion, 
dissolution, 
merger, division, consolidation, amalgamation, 
disposition 
of substantially all of an organization's busine!ss, line of 
business or assets, lease, exchange, restructuring or bulk 
reinsurance transfer. 
Sec. 3. 5 MRSA §194-A, sub-§2, as enacted by PL 1997, c. 344, 
§1 and affected by §10, is amended to read: 
2. 
Charitab1e status 
of orqanization. 
Any 
nonprofit 
hospital and medical service organization is a cha.ritable and 
benevolent institution and a public charity and its assets are 
held for the purpose of fulfilling the charitable purposes 
of 
the organization. 
The charitable purposes mal' include, but are 
not limited to, the following: 
providing access to medical care 
through affordable health insurance and affordable managed care 
products for persons of all incomes; identifying and addressing 
the State's unmet health care needs, particularly with regard to 
medically uninsured and underserved populations; making services 
and care available through participating providers; and improving 
the quality of care for medically uninsured and underserved 
populations. 
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Page l-LR1914(1) 
A. 
If the organization materially changes its form 91l-9E 
ee~9Fe--~l'---~..,---aQQQ 
and 
the 
ownership 
of 
an 
organization is at issue or is relevant in any proceeding in 
court or before the superintendent, then 100"\, of the fair 
market value of the organization as of the date of the 
material change in form is must be owned by the charitable 
trust upon the approval or approval with modifications of 
the charitable trust plan or modified charitable trust plan 
by the court pursuant to subsection 5 or 6 and must be 
dedicated to the fulfillment of the charitable trust. 
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Sec. 4. 5 MRSA §194-A, sub-§3, as enacted by PL 1997, c. 344, 
§l, is repealed. 
Sec. 5. 5 MRSA §194-A, sub-§5, 1[8, as enacted by PL 1997, c. 
344, §1, is amended to read: 
B. 
An organization may not convert to a domestic stock 
insurer under Title 24, section 2301, subsection 9-D until 
the 
Superior 
Court 
has 
approved 
or 
approved 
with 
modifications the organization's charitable trust plan. 
The 
court may not approve or approve with modifications the 
charitable trust plan unless it finds that the charitable 
trust plan meets the following requirements. 
(l) 
The plan must describe the charitable trust or 
trusts that will receive the ownership inb~rest in the 
organization following its conversion to 
a 
domestic 
stock 
insurer. 
For 
purposes 
of 
this 
section, 
a 
charitable trust: 
(a) Must be a new or existing trust or 
BeBpFeEi:~ 
public benefit corporation formed under the laws 
of 
this 
State, 
but 
may 
not 
include 
the 
organization 
or 
any 
person 
controlled 
by 
the 
organization; 
(b) 
Must be a charitable entity that qualifies 
for federal income tax exemption under the United 
States Internal Revenue Code of 1986, as amended, 
Section 501 (c}(3) or (c}(4); 
(c) 
May 
not 
be 
controlled 
by 
the 
converted 
domestic stock insurer; 
(d) 
May not have more than one of its directors 
serve as a director of the domestic stock insurer; 
(e) 
May not have as a 
director any person who 
has 
been 
a 
director 
or 
officer 
of 
the 
organization, the domestic stock insurer or any 
affiliate 
of 
either 
during 
the 
3-year 
period 
preceding the date of appointment as a director of 
the charitable trust; and 
(f) 
Must have a board of directors representing 
the people of the State including, but not limited 
to, 
persons 
representing 
the 
intere'sts 
of 
the 
medically uninsured and underserved populations. 
(2) 
The charitable mission of the chari table trust 
must 
include, 
but is 
not 
limited to, 
serving 
the 
State's unmet health care needs for the 
t~Y1?e of care 
historically covered by the organization, particularly 
with 
regard to medically 
uninsured 
and 
underserved 
populations and providing access to care and improving 
quality of care for those populations. 
(3) 
The charitable trust plan must provide for the 
fair and equitable use by the charitable trust of its 
ownership interest in the organization to fulfill the 
charitable mission of the charitable trust. 
(4) 
The 
charitable 
trust 
plan 
must 
require 
the 
charitable trust to report annually to the Attorney 
General 
as 
to its charitable activities 
and grant 
making relating to the use of its ownership interest in 
the 
organization 
and 
to 
make 
that 
annual 
report 
available to the public at both the Department of the 
Attorney General and the office of the charitable trust. 
(5) 
The 
charitable 
trust 
plan 
must 
require 
the 
charitable trust, at all times when the charitable 
trust owns stock in any converted stock insurer and for 
calendar years after any such ownership, to provide 
audited financial statements on a calendar-year basis 
and 
other 
reports, 
as 
may 
be 
required, 
to 
the 
superintendent and the Attorney General at the time and 
in the manner as either the Attorney General or the 
superintendent prescribes. 
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sa9see~i9R-6T 
(7) 
The charitable trust must have in place procedures 
and 
policies 
to 
prohibit 
conflicts 
of 
interest, 
including those associated with grant-making activities 
that 
may 
benefit 
the 
converted 
stock 
insurer, 
its 
affiliates, 
any 
person 
who 
owns 
or 
controls 
any 
ownership 
interest 
in 
either 
the 
converted 
stock 
insurer or its affiliates and any directors or officers 
of the converted stock insurer or its affiliates. 
Sec. 6. 5 MRSA §194-A, sub-§5, 1fD, as enacted by PL 1997, c. 
344, §1, is amended to read: 
D. 
In 
approving, 
disapproving 
or 
approving 
with 
modification the charitable trust plan, the Superior Court 
may not review or decide the fair market value of the 
organization, including the methodologies for determining.L 
allocating and transferring the fair market value of the 
organizationT---~~---me~h9Q9~9~y----~r---~~~~~---aRQ 
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paFp9ses-~~~~-~he-~~~-~~-9F-~~-~~--maF*e~ 
valae--&f--t-be--9F§aRiBa~i9R. 
This paragraph does not in any 
way limit the appeal rights of any person under the Maine 
Rules of Civil Procedure, Rule 80(c) or under the Maine 
Administrative Procedure Act from the superintendent's final 
agency action on these matters pursuant to Title- 24, section 
2301, subsection 9-D. 
Sec. 7. 5 MRSA §194-A, sub-§6, as enacted by PL 1997, c. 344, 
§l, is amended to read: 
6. 
Modified charitable trust plan required fol[' a material 
change in fona. 
An 
organization shall notify 
t:he 
Attorney 
General and the superintendent of the organization's intent to 
engage in any transaction described in subsection 1, paragraph I 
at least 60 days prior to engaging in that transaction. 
Upon the 
superintendent's or the Attorney General's determination that a 
transaction described in sUbsection 1, paragraph I is a material 
change in form, notice must be given to the organization and the 
Attorney General or superintendent, 
as applicable. 
Within 90 
days after the superintendent or the Attorney General issues a 
notice of the determination that 
a 
transaction described in 
subsection 1, paragraph I is a material change in form, other 
than through conversion to a domestic stock insurer pursuant to 
Title 24, 
section 2301, 
subsection 9-D, 
the Attorney General 
shall file 
an 
action in Superior 
Court 
under 
t.he 
Attorney 
General's charitable authority requesting the court ,to order the 
organization to submit to the superintendent, the court and the 
Attorney General a modified charitable trust plan containing the 
provisions set forth in sUbsection 5, paragraph I as the court 
determines are reasonable under the circumstances, together with 
any additional provisions as the court determines are reasonably 
requi red to coordinate the modi f ied char i table trus t 
pI an wi th 
any 
proceeding 
instituted 
or 
to 
be 
institut4~d 
by 
the 
superintendent in connection with the material change in form. 
The Superior Court, after hearing, shall approve, approve with 
modifications or disapprove the modified charitable trust plan. 
The superintendent has the right to intervene in the Superior 
Court proceeding. 
In the event that either the superintendent or 
the court determines that a valuation of the organization is 
necessary, 
the 
superintendent 
shall 
conduct 
the 
valuation 
consistent with Title 24, 
section 2301, 
subsection 9-D. 
The 
superintendent 
may 
hold 
proceedings 
as 
the 
superintendent 
determines necessary to review an organization's proposal to 
materially change its form. 
If the modified charitable trust 
plan includes the creation of a charitable trust or 
BeB~Fe~i~ 
public benefit corporation, the charitable trust or 
BeB~Fe~i~ 
public benefit corporation may not include the organization or 
any person controlled by the organization. 
Sec. 8. 5 MRSA §194-A, sub-§7,'1rB to D, as enacted by PL 1997, 
c. 344, §1, is amended to read: 
B. 
Each health insurance affiliate shall expressly have 
corporate 
purposes 
that are 
consistent with or 
are 
in 
furtherance of the charitable and benevolent purposes of its 
ReRpFeEi~-aRQ-eaaFi~aBle public charity owners. 
(1) 
Subj ect to subparagraph (2), the health insurance 
affiliate may further its purposes as described in this 
paragraph by: 
(a) 
The provision of direct services that are 
consistent with 
or further the charitable and 
benevolent 
purposes 
of 
its 
ReRpFe~i&---aRQ 
eaaFi~aBle public charity owners; or 
(b) 
The payment of distributions or dividends to 
any ReRpFeEi~-aRQ-eaaFi~aBle public charity owner. 
(2) 
The payment by the health insurance affiliate of 
distributions 
or 
dividends 
to 
any 
owner 
does 
not 
fulfill 
a 
health insurance affiliate's purposes 
as 
described in this paragraph if the payment of such 
distributions or dividends unreasonably interferes with 
the health insurance affiliate's ability to fulfill its 
purposes as described in this paragraph through the 
provlslon 
of 
direct 
services 
as 
described 
in 
subparagraph (1), division (a). 
Payment of dividends 
and distributions may be made to a for-profit owner 
consistent 
with 
this 
subparagraph 
but 
may 
not 
be 
considered to fulfill the health insurance affiliate's 
purposes as described in this paragraph. 
(3) 
If the nonprofit hospital 
and medical 
service 
organization holding an ownership interest in a health 
insurance affiliate materially changes its form and the 
Superior 
Court 
has 
approved 
or 
approved 
with 
modifications 
a 
charitable 
trust 
plan 
or 
modified 
charitable trust plan, 
the purposes as described in 
this 
paragraph 
of 
the 
health 
insurance 
affilia~e 
terminate 
unless 
the 
Superior 
Court 
determines 
otherwise. 
C. 
Any 
eaaFi~aBle--eR~i~y public charity that 
owns 
or 
controls 
an 
ownership 
interest 
in 
a 
health 
insurance 
affiliate must be treated as having acquired that ownership 
interest in furtherance of the charitable purposes of the 
eaaFi~aBle-eR~i~y public charity. 
D. 
The 
Attorney 
General 
may 
enforce 
the 
purposes 
as 
described in paragraph B of a health insurance affiliate 
under 
this 
subsection 
under 
the 
Attorney 
General's 
charitable authority to the 
insurance 
affiliate 
were 
9~~aBiaa~i9B public charity. 
same extent as if the health 
a 
B9BPF9fi~--~--€haEi~aBle 
Sec. 9. 24 MRSA §2301, first 1[, as amended by PL 1993, c . 702 , 
Pt. A, §1, is further amended to read: 
Any 
corporation 
organized 
under 
special 
Act 
of 
the 
Legislature 9~~ under Title 13, chapter 81 or as a public benefit 
corporation under Title 13-B for the following purposes may be 
authorized by the superintendent on the terms 
and conditions 
provided for in this chapter, except that when such a corporation 
was previously organized by special Act of the Legislature, this 
chapter 
does 
not 
apply 
when 
inconsistent with that 
Act 
as 
previously amended: 
Sec. 10. 24 MRSA §2301, sub-§3-C, as enacted by PL 1997, c. 
344, §2, is amended to read: 
3-C. 
Nonprofit purposes. 
A nonprofit hospital and medical 
service organization that is authorized to provide nonprofit 
hospital service plans under subsection 1 aBeL nonprofit medical 
service plans pursuant to subsection 2 or nonprofit health care 
plans pursuant to subsection 3 is a charitable and benevolent 
institution, in accordance with Title 5, section 194-A, 
and a 
public charity and its assets 
are held for 
the 
purpose of 
fulfilling the charitable purposes of the organiz2ltion, 
which 
purposes mgy include, but are not limited to, 
thE~ following: 
providing 
access 
to 
medical 
care 
through 
affordable 
health 
insurance and affordable managed care products for persons of all 
incomes; identifying and addressing the State's unmet health care 
needs, 
particularly with 
respect 
to medically 
uninsured 
and 
underserved 
populations; 
making 
services 
and 
care 
available 
through participating providers; 
and improving the quality of 
care for medically uninsured and underserved populations. 
Sec. 11. 24 MRSA §2301, sub-§7, as amended by PL 1993, c. 702, 
Pt. A, §1 is further amended to read: 
7. 
Administrative services. A corporation has t:he right to 
utilize its organization 
and facilities, 
either directly or 
through another legal entity owned by it and similar corporations 
located in other states, to perform services for 
the United 
States or State or the units or agencies of either; or any 
ehaFi~aBle--t>£--aG-ap-FG-f.,i.t;.-9E~aBil5at:i9B public charity involved in 
health care; 
Sec. 12. 24 MRSA §2301, sub-§9-B, as amended by PL 1997, c. 
344, §3, is repealed. 
Sec. 13. 24 MRSA §2301, sub-§9-D,~, as amended by PL 2001, 
c. 550, Pt. B, §2, is further amended by repealing subparagraph 
( 9) • 
Sec. 14. 24 MRSA §2301, sub-§9-D, ,E, as enacted by PL 1997, 
c. 344, §4, is amended to read: 
E. 
The superintendent may not issue final approval of a 
conversion plan unless the superintendent finds that: 
(1) 
The terms and conditions of the conversion plan 
are fai{r and equitable and, in determining what is fair 
and equitable, co.nsideration may be given to, but is 
not limited to, the factors set forth in paragraph L; 
(2) 
The conversion plan is subject to approval by the 
vote of not less than 2/3 of the organization I s board 
of directors; 
(3) 
The conversion plan provides for the issuance of 
capital stock or assets of the converted stock insurer 
or 
a 
combination 
of 
stock 
and 
assets, 
without 
consideration, 
to the charitable trust equal to 
ERe 
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100~ of 
the fair market value 
of 
the 
organization; 
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eapi~al-~~e€k-~--&&&&~&-eF-~he-~~~-&~*-iR6~~e~ 
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(5) 
Immediately after, and giving effect to the terms 
of, the conversion, the converted stock ,insurer would 
be in safe and sound financial condition and would have 
paid-in capital stock and surplus in amounts not less 
than the minimum paid-in capital stock and surplus set 
forth under Title 
24-A, 
section 410 
required of 
a 
domestic 
stock 
insurer 
authorized 
to 
transact 
like 
kinds of insurance: 
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~eElHeti9R---i-n---... &l1:Hll&--~---n&W--&-I:l54BeiH;----wr-.i-t-t-e-n---e~ 
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iREliviElHa:ls-~-i~~~a~&~-a£y-~~-~--aElvaRta~e 
ta~eH~a-tae-eeRve~si9R-p:laRt 
(7) 
The conversion plan provides that during the first 
years after the conversion, to avoid dilution of the 
value of 
the 
shares 
issued in the 
conversion, 
the 
converted stock insurer 
and its affilia'tes 
may 
not 
issue shares greater in seniority, 
including voting 
rights or dividends, than the shares issued under the 
conversion plan. 
The 
superintendent 
may 
waive 
the 
provisions 
contained 
in 
this 
subparagraph 
if 
the 
superintendent, 
in 
the 
superintendent's 
sole 
discretion, determines that the charitable trust has 
control, as defined in Title 24-A, section 222, of the 
converted stock insurer; 
(8 ) 
The 
conversion 
plan 
is 
consistent 
with 
the 
charitable trust plan and does not adversely affect the 
distribution 
of 
the 
organization's 
value 
to 
the 
charitable trust: and 
(9) 
The conversion plan complies with all applicable 
law. 
Sec. 15. 24 MRS A §2301, sub-§9-D, ,G, as enacted by PL 1997, 
c_ 344, §4, is repealed. 
Sec. 16. 24 MRSA §2301, sub-§9-D,", as enacted by PL 1997, c. 
344, §4, is amended by amending subparagraph (1) to rE!ad: 
(1) 
The appraisal must enable determinations of value 
for purposes off-
the amount of cash or other assets 
that the charitable trust will be entitled to receive, 
without 
consideration, 
under 
the 
provisions 
of 
the 
conversion plan required by paragraph E, 
subparagraph 
ilh 
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Sec. 17. 24 MRSA §2308-A, sub-§I, ,C, as enacted by PL 1997, 
c. 344, §5, is amended to read: 
C. 
"Nonprofit hospital and medical service organization" or 
"organizatiop." 
means 
a 
corporation 
or 
other 
entity 
authorized by the superintendent and organized pursuant to 
this chapter for the purpose of providing nonprofit hospital 
service plans within the meaning of section 2301, subsection 
aReL nonprofit medical service plans within the meaning of 
section 2301, subsection 
2T---I-t--eees--no-t--4Rel~ee and any 
organization that provides only nonprofit health care plans 
within the meaning of section 2301, sUbsection 3 e£-a-Real~R 
4Rs~£aRee-a~~4l4a~e. 
SUMMARY 
This bill is intended to 
implement the 
requirements of 
Public Law 2001, chapter 550, which directed the Superintendent 
of Insurance to submit legislation to the 121st Legislature not 
later than January 1, 
2003, 
to clarify that 100% of the net 
proceeds of a charitable organization covered by the nonprofit 
health 
and 
medical 
services organization conversion 
law 
are 
deemed 
public 
assets 
and 
to 
make 
any 
other 
changes 
the 
superintendent considers appropriate. 
The proposed amendments 
incl ude technical corrections to ensure consistency with Public 
Law 2001, chapter 550 as well as provide clarification that 100% 
of the net proceeds of any such conversion are public assets.