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NO. 54. AN ACT RELATING TO REORGANIZATION FORMATIONS, HOSPITAL AND MEDICAL SERVICE CORPORATIONS, AND HEALTH MAINTENANCE ORGANIZATIONS.

(H.450)

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1. 8 V.S.A. 3308a is added to read:

3308a. REORGANIZATION FORMATIONS

Notwithstanding sections 3302, 3303, 3304, 3307, 3308 and 3309 of this title, the commissioner may permit the formation of an insurance company without capital or surplus to be merged with or into or consolidated with an existing insurance company authorized to do business under this chapter for the purpose of facilitating a reorganization or acquisition transaction, including a triangular merger transaction, involving such existing company. There shall be no more than one authorized insurance company surviving reorganization under this section.

Sec. 2. 8 V.S.A. 4512(a) is amended to read:

(a) Such hospital service corporation shall be a nonprofit sharing corporation without capital stock. It shall be maintained and operated solely for the benefit of the subscribers thereof and shall not be authorized to pay money in lieu of hospital service. A person, partnership, association or corporation shall not contract to furnish hospital service unless authorized so to do pursuant to the provisions of this chapter. Corporations formed under the provisions of this chapter shall have the privileges and be subject to the provisions of Title 11B as well as the applicable provisions of this chapter. In the event of a conflict between the provisions of Title 11B and the provisions of this chapter, the latter shall control.

Sec. 3. 8 V.S.A. 4512(b) is amended to read:

(b) Subject to the approval of the commissioner, a hospital service corporation may establish, maintain and operate a medical service plan as defined in section 4583 of this title*[, or it may merge with any corporation authorized by the commissioner to operate a medical service plan in the state, or it may merge with any other corporation which shall promptly apply for authorization]*. The commissioner may refuse approval if *[he]* the commissioner finds that the rates submitted are excessive, inadequate or unfairlydiscriminatory. The contracts of a hospital service corporation which operates a medical service plan under this subsection shall be governed by chapter 125 of this title to the extent that they provide for medical service benefits, and by this chapter to the extent that the contracts provide for hospital service benefits.

Sec. 4. 8 V.S.A. 4517 is amended to read:

4517. INVESTMENTS

Funds of a hospital service corporation may be invested *[in any security permitted as investments of a savings bank or savings bank and trust company]* in any prudent investment as permitted for an insurance company formed under chapter 101 of this title. The corporation shall file and obtain the commissioner’s prior approval of its investment guidelines. Any amendments to the investment guidelines must be approved by the commissioner prior to use.

Sec. 5. 8 V.S.A. 4523 is added to read:

4523. CHANGE IN CONTROL; MATERIAL TRANSACTIONS;

REDOMESTICATION; HOLDING COMPANY REPORTING

REQUIREMENTS

(a) No corporation permitted to engage in business under this chapter shall merge or consolidate with, sell, transfer or exchange more than a 10 percent interest in the corporation or its assets to, or sell, transfer or exchange more than 10 percent of its subscribers to, or otherwise transfer or commit more than a 10 percent interest in itself to, any other person, whether accomplished through one transaction or a series of transactions, without the commissioner’s prior written approval. No corporation permitted to engage in business under this chapter shall transfer its domicile to any other state or jurisdiction without the prior written approval of the commissioner.

(b) A corporation shall make application to the commissioner for approval of any transaction set forth in subsection (a) of this section describing in detail the proposed transaction and identifying the parties involved. The commissioner may require the filing of additional information as the commissioner finds necessary or appropriate for the full consideration of the application. The applicant shall establish to the commissioner’ssatisfaction that the transaction meets the general good of the state. The commissioner shall consider, but is not limited to, the following factors in the general good determination:

(1) whether, after the transaction, the corporation continues to satisfy the requirements for a permit to do business under this chapter;

(2) whether the effect of the transaction would be to substantially lessen competition in health insurance in this state or tend to create a monopoly therein;

(3) whether the financial condition of any acquiring party is such as might jeopardize the financial stability of the corporation, or prejudice the interest of its subscribers;

(4) whether the transaction contemplates the liquidation of the corporation or any other material change in its business or corporate structure or management, that would be unfair or unreasonable to its subscribers or not in the public interest;

(5) whether the competence, experience and integrity of those persons who would control the operation of the corporation are such that it would not be in the interest of the public to permit the transaction;

(6) whether the transaction will promote cost effective, high quality health care in the state; and

(7) such other factors as the commissioner deems relevant to the transaction.

The commissioner shall investigate and hold at least one public hearing on the application. The public hearing shall be held within 30 days of the filing of a complete application with the commissioner, and at least 20 days’ notice thereof shall be given by the commissioner to the person filing the application. The applicant shall give seven days’ notice to any person as ordered by the commissioner. The commissioner may order such public notice as may be deemed necessary for full consideration of the transaction. The commissioner shall make a determination within 30 days after the conclusion of such hearing. If a determination of general good is made, the commissioner shall give the corporation a certificate to that effect.

(c) The commissioner may consider the review or portion of a review of thetransaction by the insurance department of another state, district or territory of the United States, if the commissioner finds that the review or portion of review conducted by the other jurisdiction is substantially similar in nature and scope as a review or portion of review under this section.

(d) Any corporation permitted to engage in business under this chapter may, upon the approval of the commissioner under subsections (a) and (b) of this section, and in compliance with such conditions as may be imposed by the commissioner, transfer its domicile, in accordance with the laws thereof, to any other state or jurisdiction, and upon such a transfer shall cease to be a domestic corporation and its corporate or other legal existence in this state shall cease upon the filing of proof of such redomestication with the secretary of state and upon payment to the secretary of state of a filing fee in the amount of $100.00. Such corporation shall be permitted to do business in this state under this chapter as a foreign corporation, upon compliance with the qualification requirements for foreign corporations under section 4520 of this title. The commissioner may require any corporation redomesticating under this section to form an adequately capitalized affiliate or subsidiary corporation under this chapter, whenever the commissioner determines that such a requirement is in the best interests of members or subscribers and will promote the general good of the state.

(e) A corporation permitted to do business under this chapter shall comply with the standards and reporting requirements set forth in sections 3684 and 3685 of this title.

(f) Nothing in this section shall be construed to limit the application of Title 11B to any transaction reviewable under this section.

Sec. 6. 8 V.S.A. 4581(b) is amended to read:

(b) Subject to the approval of the commissioner, a medical service corporation may establish, maintain and operate a hospital service plan as defined in section 4511 of this title*[, or it may merge with any corporation authorized by the commissioner to operate a hospital service plan in the state, or it may merge with any other corporation which shall promptly apply for such authorization]*. The commissioner may refuse approval if *[he]* the commissioner finds that the rates submitted are excessive, inadequate or unfairlydiscriminatory. The contracts of a medical service corporation which operates a hospital service plan under this subsection shall be governed by chapter 123 of this title to the extent that they provide for hospital service benefits, and by this chapter to the extent that the contracts provide for medical service benefits.

Sec. 7. 8 V.S.A. 4583 is amended to read:

4583. PURPOSES AND DEFINITION

A medical service corporation is a nonprofit sharing corporation without capital stock, organized under the laws of this state for the purpose of establishing, maintaining and operating a plan whereby medical or medical and dental services may be provided at the expense of the corporation by duly licensed physicians and dentists to subscribers under contract, entitling each subscriber to certain medical services or medical and dental services as provided in such contract. Corporations formed under the provisions of this chapter shall have the privileges and be subject to the provisions of Title 11B as well as the applicable provisions of this chapter. In the event of a conflict between the provisions of Title 11B and the provisions of this chapter, the latter shall control.

Sec. 8. 8 V.S.A. 4589 is amended to read:

4589. INVESTMENTS

Funds of a medical service corporation may be invested *[in any security permitted as investments of a savings bank or savings bank and trust company]* in any prudent investment as permitted for an insurance company formed under chapter 101 of this title. The corporation shall file and obtain the commissioner’s prior approval of its investment guidelines. Any amendments to the investment guidelines must be approved by the commissioner prior to use.

Sec. 9. 8 V.S.A. 4595 is added to read:

4595. CHANGE IN CONTROL; MATERIAL TRANSACTIONS;

REDOMESTICATION; HOLDING COMPANY REPORTING

REQUIREMENTS

(a) No corporation permitted to engage in business under this chapter shall merge or consolidate with, sell, transfer or exchange more than a 10 percent interest in thecorporation or its assets to, or sell, transfer or exchange more than 10 percent of its subscribers to, or otherwise transfer or commit more than a 10 percent interest in itself to, any other person, whether accomplished through one transaction or a series of transactions, without the commissioner’s prior written approval. No corporation permitted to engage in business under this chapter shall transfer its domicile to any other state or jurisdiction without the prior written approval of the commissioner.

(b) A corporation shall make application to the commissioner for approval of any transaction set forth in subsection (a) of this section describing in detail the proposed transaction and identifying the parties involved. The commissioner may require the filing of additional information as the commissioner finds necessary or appropriate for the full consideration of the application. The applicant shall establish to the commissioner’s satisfaction that the transaction meets the general good of the state. The commissioner shall consider, but is not limited to, the following factors in the general good determination:

(1) whether, after the transaction, the corporation continues to satisfy the requirements for a permit to do business under this chapter;

(2) whether the effect of the transaction would be to substantially lessen competition in health insurance in this state or tend to create a monopoly therein;

(3) whether the financial condition of any acquiring party is such as might jeopardize the financial stability of the corporation, or prejudice the interest of its subscribers;

(4) whether the transaction contemplates the liquidation of the corporation or any other material change in its business or corporate structure or management, that would be unfair or unreasonable to its subscribers or not in the public interest;

(5) whether the competence, experience and integrity of those persons who would control the operation of the corporation are such that it would not be in the interest of the public to permit the transaction;

(6) whether the transaction will promote cost effective, high quality health care in the state; and

(7) such other factors as the commissioner deems relevant to the transaction.

The commissioner shall investigate and hold at least one public hearing on the application. The public hearing shall be held within 30 days of the filing of a complete application with the commissioner, and at least 20 days’ notice thereof shall be given by the commissioner to the person filing the application. The commissioner may order such public notice as may be deemed necessary for full consideration of the transaction. The commissioner shall make a determination within 30 days after the conclusion of the hearing. If a determination of general good is made, the commissioner shall give the corporation a certificate to that effect.

(c) The commissioner may consider the review or portion of a review of the transaction by the insurance department of another state, district or territory of the United States, if the commissioner finds that the review or portion of review conducted by the other jurisdiction is substantially similar in nature and scope as a review or portion of review under this section.

(d) Any corporation permitted to engage in business under this chapter may, upon the approval of the commissioner under subsections (a) and (b) of this section, and in compliance with such conditions as may be imposed by the commissioner, transfer its domicile, in accordance with the laws thereof, to any other state or jurisdiction, and upon such a transfer, it shall cease to be a domestic corporation and its corporate or other legal existence in this state shall cease upon the filing of proof of such redomestication with the secretary of state and upon payment to the secretary of state of a filing fee in the amount of $100.00. Such corporation shall be permitted to do business in this state under this chapter as a foreign corporation, upon compliance with the qualification requirements for foreign corporations under section 4593 of this title. The commissioner may require any corporation redomesticating under this section to form an adequately capitalized affiliate or subsidiary corporation under this chapter, whenever the commissioner determines that such a requirement is in the best interests of members or subscribers and will promote the general good of the state.

(e) A corporation permitted to do business under this chapter shall comply with the standards and reporting requirements set forth in sections 3684 and 3685 of this title.

(f) Nothing in this section shall be construed to limit the application of Title 11B to any transaction reviewable under this section.

Sec. 10. 8 V.S.A. 5107(f) is added to read:

(f) For the sole purpose of applying the provisions, conditions and limitations of this chapter and any other section of this title and Title 18 to a health maintenance organization formed as a limited liability company, the references in this chapter and any other section of this title and Title 18 applicable to a health maintenance organization formed as a corporation shall be applied in an equivalent manner to a health maintenance organization formed as a limited liability company or foreign limited liability company.

The members of the limited liability company shall be treated in an equivalent manner as shareholders of a corporation. The ownership interests in the limited liability company shall be treated in an equivalent manner as the securities of a corporation. The managers of a limited liability company shall be treated in an equivalent manner as directors or executive officers of a corporation. The person signing the articles of organization of the limited liability company shall be treated in an equivalent manner as the incorporators of a corporation. Nothing in this section shall be construed to affect the tax status, tax elections, or tax benefits of a health maintenance organization formed as a limited liability company or of any of its members. Notwithstanding the application of this section to a health maintenance organization formed as a limited liability company, such limited liability company shall not be deemed to be a corporation for any purpose.

Sec. 11. 8 V.S.A. 5107(g) is added to read:

(g) In the case of a health maintenance organization formed as a limited liability company, no such company where one or more members is organized as a nonprofit organization may have as a member an organization which is not a nonprofit organization.

Sec. 12. 8 V.S.A. 3441(d) is added to read:

(d) Notwithstanding the provisions of subsection (a) of this section, the commissioner, in his or her discretion, may disapprove any proposed mutual holding company formationif he or she determines that the proposal is contrary to the financial interests of the policyholders.

Sec. 13. 18 V.S.A. 9406 is amended to read:

9406. EXPENDITURE ANALYSIS; UNIFIED HEALTH CARE BUDGET

(a) Beginning July 1, 1994, and annually thereafter, the commissioner shall adopt a unified health care budget and develop an expenditure analysis to promote the policies set forth in section 9401 of this title.

(1) The budget shall:

(A) Serve as the basic framework within which health care costs are controlled, resources directed, and quality and access assured.

(B) Identify the total amount of money that has been and is projected to be expended annually for all health care services provided by health care facilities and providers in Vermont, and for all health care services provided to residents of this state.

(C) Be consistent with the health resource management plan or the state health plan, whichever applies.

(2) When preparing the budget, the board shall consider health care costs and the impact of the budget on those who receive, provide and pay for health care services.

(3) Based on the advice and recommendations of the technical panel, the commissioner shall adopt, by rule, the various sectors of the health care system to be separately identified in the budget, the methods and processes to be used to allocate resources among such sectors, the economic indicators to be used to define the parameters of the rate of growth in the cost of the system and various sectors of the system, and processes and criteria for responding to exceptional and unforeseen circumstances which affect the system and the budget.

(4) The commissioner shall enter into discussions with health care facilities and with health care provider bargaining groups created under section 9409 of this title concerning matters related to the unified health care budget.

(b)(1) Annually the division of health care administration shall prepare a ten-year projection of health care expenditures made on behalf of Vermont residents, based on the format of the health care budget and expenditure analysis adopted by the commissioner under this section, projecting expenditures in broad sectors such as hospital, physician, home health, or pharmacy. The projection shall include estimates for:

(A) Expenditures for the health plans of any hospital and medical service corporation, health maintenance organizations, Medicaid program, or other health plan regulated by this state which covers more than five percent of the state population.

(B) Expenditures for Medicare, all self-insured employers, and all other health insurance.

(2) Each health plan payer identified under subdivision (1)(A) of this subsection shall comment on the division's proposed projections, including comments concerning whether the plan agrees with the proposed projection, alternative projections developed by the plan, and a description of what mechanisms, if any, the plan has identified to reduce its health care expenditures. Comments shall also include a comparison of the plan's actual expenditures with the applicable projections for the prior year, and an evaluation of the efficacy of any cost containment efforts the plan has made.

(3) The division's projections prepared under this subsection shall be used as a tool in the evaluation of health insurance rate and trend filings with the department. The division's projections shall be made available to the public oversight commission in connection with the hospital budget review process under subchapter 7 of this chapter.

(4) The division shall prepare a report of the final projections made under this subsection, and file the report with the general assembly on or before January 1, 1999, and annually thereafter on January 1 of each year.

Sec. 14. STUDY OF MUTUAL INSURANCE HOLDING COMPANY

TRANSACTIONS; IMPLEMENTATION OF SUBCHAPTER 3A OF

CHAPTER 101 OF TITLE 8

(a) The commissioner of banking, insurance, securities, and health care administration shall review and report to the general assembly, on or before December 1, 1997 withfindings and recommendations relating to:

(1) available and appropriate measures for the protection of the policyholders of a mutual insurance company during reorganization under subchapter 3A of chapter 101 of Title 8; and

(2) available and appropriate measures to protect members of a mutual insurance holding company in stock offerings by a stock subsidiary of a mutual insurance holding company formed under subchapter 3A of chapter 101 of Title 8.

(b) The commissioner shall promulgate rules by October 1, 1997 implementing subchapter 3A of chapter 101 of Title 8. Such rules may address stock offerings by a stock subsidiary organized under subchapter 3A of chapter 101 of Title 8.

Sec. 14a. SUNSET

8 V.S.A. 3441(g)(health maintenance organization formed as limited liability company) is repealed on July 1, 1998.

Sec. 15. EFFECTIVE DATE

This act shall take effect from passage.

Approved: June 26, 1997