On December 26, 2014, the New Jersey legislature adopted the Solvency Modernization Act, P.L. 2014 c. 81 which authorized the Commissioner (Commissioner) of the New Jersey Department of Banking and Insurance (Department) to adjust the amount of capital and surplus required of a hospital service corporation, medical service corporation, dental service corporation, dental plan organization, health service corporation, prepaid subscription service organization, and licensed organized delivery system (Health Organization) to enable New Jersey to assure NAIC accreditation beginning in January, 2015. The statutory changes brought about by the Solvency Modernization Act are virtually verbatim to N.J.S.A. 17:17-6 et seq. and 17B:18-67 et seq., as well as N.J.S.A. 26:2J-1 et seq., authorizing the Commissioner to increase minimum capital and surplus requirements for property/casualty and life/health insurers and for health maintenance organizations (HMOs).
Proposed new rules, N.J.A.C. 11:2-39A implement the required capital and surplus for Health Organizations. This proposal also is virtually identical to N.J.A.C. 11:2-39 with respect to risk-based capital (RBC) for insurers and HMOs. These proposed new rules similarly track the NAIC Model RBC requirements for Health Organizations. As the NAIC Model for Health Organizations also applies to HMOs (addressed in New Jersey at N.J.A.C. 11:2-39) and to maintain consistency with regard to national standards adopted by the NAIC, the Department proposes to apply the proposed new rules to HMOs and to delete reference to HMOs in the existing N.J.A.C. 11:2-39. Adoption of NAIC RBC requirements for Health Organizations is also required for a State insurance department to maintain NAIC accreditation, effective January 1, 2015.
The new proposed rules and amendments will apply RBC reporting requirements and standards to Health Organizations and are designed to require that Health Organizations maintain appropriate levels of capital and surplus commensurate with their business risk to ensure that Health Organizations can timely meet their financial obligations. A detailed summary of the regulatory proposal is set forth in the proposed regulations linked here. Notably, however, the proposed rules will not apply to a domestic Health Organization that:
- writes direct business only in this State;
- assumes no reinsurance in excess of 5% of direct written premiums;
- writes direct annual premium for comprehensive medical business of $2 million or less; or
- is a dental plan organization, prepaid prescription service organization, or licensed organized delivery system that covers less than 2,000 lives.
The proposal requires that RBC reports be filed with the insurance Commissioner in any state in which the Health Organization is authorized to do business, at the request of that insurance Commissioner. A Health Organization’s RBC shall be determined in accordance with a formula set forth in the RBC instructions, taking into account the following factors:
- asset risks
- credit risks
- underwriting risks
- all other business risks and such other relevant risks as are outlined in the RBC instructions.
As set forth at proposed N.J.A.C. 11:2-39A.10, RBC reports and other documents obtained under the proposed new rules are entitled to confidentiality.
Comments on the proposed regulations may be submitted to Denise Illes, Legislative and Regulatory Affairs, at the Department at the address and fax number set forth in the linked proposal.