Managed Healthcare Executive - December 2008 - (Page 10)

{ LETTER OF THE LAW } Financial turmoil means greater scrutiny of insurers We are seeing more uniformity in regulation, due in large part to the National Association of Insurance Commissioners (NAIC) promoting greater consistency. The required capitalization of regulated enThere will be renewed interest in solvency tities is set at a speci c dollar amount by statute regulation for entities that hold in each state. This minimum statutory capital signi cant funds from the general public and surplus amount ranges from as low as $1 million in some states to as high as $10 million BY BARRY SENTERFITT in others. However, as an additional measure, most states have now adopted a complicated formulaic approach to determining a compan the midst of the current U.S. nancial ny’s required capital—the NAIC Risk-Based turmoil, there are many uncertainties with Capital (RBC) regulation. This law looks at respect to the future of our nation’s nanseveral factors, including the risk and divercial institutions. A signi cant upgrade in the si cation of assets and the volume of business monitoring powers and examination authority underwritten, to come up with an individualof regulatory agencies is going to be unleashed. ized calculation of required minimum capital The enhancement of regulatory powers is gofor each regulated entity. As a general rule, the ing to trickle down to other government entiregulated entity should have total capital and ties that are supposed to protect the public trust. surplus that is no less than 25% of its annual Next to nancial institutions, the industry premium volume (on a net basis). entrusted with the greatest accumulation of Each regulated entity, whether public or public funds is the insurance industry. Colprivately held, is required to submit nancial lectively, U.S. employers and other purchasers statements each quarter, with the year-end of health bene t plans invest approximately $1 statement being audited. These nancial retrillion annually in insurance premiums and ports must set forth the RBC calculation and other funds earmarked for healthcare expendi- include several exhibits that provide detailed Barry Senter tt is a partner tures. American insurance companies, HMOs analyses of the company’s liquidity, pro tabilin the insurance industry and other regulated MCOs should expect to ity and underwriting activities. practice of Akin Gump Strauss Hauer & Feld LLP see greater scrutiny of their nancial condition. Each regulated entity also is limited in in the rm’s Austin, Texas, Health insurers and MCOs, primarily the way that it invests its assets. Each state has of ce. regulated at the state level, fall under the jurisregulations to limit the types of assets that may diction of state health and insurance departbe invested in as well as the percentage that ments, with the latter being charged with may be invested in any one asset. Furthermore, oversight of the nancial component. The size the regulated entity is prohibited from pledgof the insurance department sta s vary from ing its assets to secure its debts or the debts of state to state. any other person, and generally it may not guarantee the debts of any other person. WEIGHTS AND MEASURES The Insurance Holding Company Act, adThe nancial well-being of these companies is opted in each state, regulates the activities that measured and evaluated primarily by monitor- an insurer or an HMO may engage in with its ing their capitalization, the investment of their unregulated a liates. These laws prevent the assets, their transactions with a liated entities, unregulated activities of a liates from dragand their risk-sharing and reinsurance arrange- ging down the regulated entity. MHE ments. The standards required with respect to each of these functions are set by each state and This column is written for informational purposes only are conditions for doing business in each state. and should not be construed as legal advice. I 10 DECEMBER 2008

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Managed Healthcare Executive - December 2008 For Your Benefit Editorial Advisors Contents News Analysis Politics & Policy Letter of the Law Puerto Rico’s PLAN State Report Bundled Payment Technology Drug Class Overview Managed Care Outlook Desktop Resource Ad/Edit Index

Managed Healthcare Executive - December 2008

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