Bill Text: IL SB2766 | 2015-2016 | 99th General Assembly | Engrossed

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Bill Title: Amends the Health Maintenance Organization Act. Makes changes to the definition of "organization" and "admitted assets". Removes language providing that a foreign corporation may qualify for a certification of authority to establish and operate a Health Maintenance Organization under the Act and makes conforming changes. Removes language concerning allocations of net worth and contingent reserves for certain companies. Removes obsolete and duplicative language concerning statutory deposits for certain organizations. Provides that Health Maintenance Organizations are subject to certain financial examination provisions of the Illinois Insurance Code. Makes technical changes. Effective immediately.

Spectrum: Partisan Bill (Democrat 2-0)

Status: (Engrossed - Dead) 2016-04-21 - Referred to Rules Committee [SB2766 Detail]

Download: Illinois-2015-SB2766-Engrossed.html

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AN ACT concerning regulation.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 5. The Health Maintenance Organization Act is
amended by changing Sections 1-2, 1-3, 2-1, 2-4, 2-6, 3-1, and
5-3 as follows:
(215 ILCS 125/1-2) (from Ch. 111 1/2, par. 1402)
Sec. 1-2. Definitions. As used in this Act, unless the
context otherwise requires, the following terms shall have the
meanings ascribed to them:
(1) "Advertisement" means any printed or published
material, audiovisual material and descriptive literature of
the health care plan used in direct mail, newspapers,
magazines, radio scripts, television scripts, billboards and
similar displays; and any descriptive literature or sales aids
of all kinds disseminated by a representative of the health
care plan for presentation to the public including, but not
limited to, circulars, leaflets, booklets, depictions,
illustrations, form letters and prepared sales presentations.
(2) "Director" means the Director of Insurance.
(3) "Basic health care services" means emergency care, and
inpatient hospital and physician care, outpatient medical
services, mental health services and care for alcohol and drug

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abuse, including any reasonable deductibles and co-payments,
all of which are subject to the limitations described in
Section 4-20 of this Act and as determined by the Director
pursuant to rule.
(4) "Enrollee" means an individual who has been enrolled in
a health care plan.
(5) "Evidence of coverage" means any certificate,
agreement, or contract issued to an enrollee setting out the
coverage to which he is entitled in exchange for a per capita
prepaid sum.
(6) "Group contract" means a contract for health care
services which by its terms limits eligibility to members of a
specified group.
(7) "Health care plan" means any arrangement whereby an any
organization undertakes to provide or arrange for and pay for
or reimburse the cost of basic health care services, excluding
any reasonable deductibles and copayments, from providers
selected by the Health Maintenance Organization and such
arrangement consists of arranging for or the provision of such
health care services, as distinguished from mere
indemnification against the cost of such services, except as
otherwise authorized by Section 2-3 of this Act, on a per
capita prepaid basis, through insurance or otherwise. A "health
care plan" also includes any arrangement whereby an
organization undertakes to provide or arrange for or pay for or
reimburse the cost of any health care service for persons who

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are enrolled under Article V of the Illinois Public Aid Code or
under the Children's Health Insurance Program Act through
providers selected by the organization and the arrangement
consists of making provision for the delivery of health care
services, as distinguished from mere indemnification. A
"health care plan" also includes any arrangement pursuant to
Section 4-17. Nothing in this definition, however, affects the
total medical services available to persons eligible for
medical assistance under the Illinois Public Aid Code.
(8) "Health care services" means any services included in
the furnishing to any individual of medical or dental care, or
the hospitalization or incident to the furnishing of such care
or hospitalization as well as the furnishing to any person of
any and all other services for the purpose of preventing,
alleviating, curing or healing human illness or injury.
(9) "Health Maintenance Organization" means an any
organization formed under the laws of this or another state to
provide or arrange for one or more health care plans under a
system which causes any part of the risk of health care
delivery to be borne by the organization or its providers.
(10) "Net worth" means admitted assets, as defined in
Section 1-3 of this Act, minus liabilities.
(11) "Organization" means a domestic any insurance
company, a nonprofit corporation authorized under the Dental
Service Plan Act or the Voluntary Health Services Plans Act, or
a corporation organized under the laws of this or another state

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for the purpose of operating one or more health care plans and
doing no business other than that of a Health Maintenance
Organization or an insurance company. "Organization" shall
also mean the University of Illinois Hospital as defined in the
University of Illinois Hospital Act or a unit of local
government health system operating within a county with a
population of 3,000,000 or more.
(12) "Provider" means any physician, hospital facility,
facility licensed under the Nursing Home Care Act, or facility
or long-term care facility as those terms are defined in the
Nursing Home Care Act or other person which is licensed or
otherwise authorized to furnish health care services and also
includes any other entity that arranges for the delivery or
furnishing of health care service.
(13) "Producer" means a person directly or indirectly
associated with a health care plan who engages in solicitation
or enrollment.
(14) "Per capita prepaid" means a basis of prepayment by
which a fixed amount of money is prepaid per individual or any
other enrollment unit to the Health Maintenance Organization or
for health care services which are provided during a definite
time period regardless of the frequency or extent of the
services rendered by the Health Maintenance Organization,
except for copayments and deductibles and except as provided in
subsection (f) of Section 5-3 of this Act.
(15) "Subscriber" means a person who has entered into a

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contractual relationship with the Health Maintenance
Organization for the provision of or arrangement of at least
basic health care services to the beneficiaries of such
contract.
(Source: P.A. 98-651, eff. 6-16-14; 98-841, eff. 8-1-14; 99-78,
eff. 7-20-15.)
(215 ILCS 125/1-3) (from Ch. 111 1/2, par. 1402.1)
Sec. 1-3. Definitions of admitted assets. "Admitted assets
Assets" includes the investments authorized or permitted by
Section 3-1 of this Act and, in addition thereto, only the
following:
(1) Amounts due from affiliates pursuant to management
contracts or service agreements which meet the
requirements of Section 141.1 of the Illinois Insurance
Code to the extent that the affiliate has liquid assets
with which to pay the balance and maintain its accounts on
a current basis; provided that the aggregate amount due
from affiliates may not exceed the lesser of 10% of the
organization's admitted assets or 25% of the
organization's net worth as defined in Section 3-1. Any
amount outstanding more than 3 months shall be deemed not
current. For purpose of this subsection "affiliates" are as
defined in Article VIII 1/2 of the Illinois Insurance Code.
(2) Amounts advanced to providers under contract to the
organization for services to be rendered to enrollees

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pursuant to the contract. Amounts advanced must be for
period of not more than 3 months and must be based on
historical or estimated utilization patterns with the
provider and must be reconciled against actual incurred
claims at least semi-annually. Amounts due in the aggregate
may not exceed 50% of the organization's net worth as
defined in Section 3-1. Amounts due from a single provider
may not exceed the lesser of 5% of the organization's
admitted assets or 10% of the organization's net worth.
(3) Amounts permitted under Section 2-7.
(Source: P.A. 91-357, eff. 7-29-99; 91-549, eff. 8-14-99;
92-16, eff. 6-28-01.)
(215 ILCS 125/2-1) (from Ch. 111 1/2, par. 1403)
Sec. 2-1. Certificate of authority - Exception for
corporate employee programs - Applications - Material
modification of operation.
(a) No organization shall establish or operate a Health
Maintenance Organization in this State without obtaining a
certificate of authority under this Act. No person other than
an organization may lawfully establish or operate a Health
Maintenance Organization in this State. This Act shall not
apply to the establishment and operation of a Health
Maintenance Organization exclusively providing or arranging
for health care services to employees of a corporate affiliate
of such Health Maintenance Organization. This exclusion shall

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be available only to those Health Maintenance Organizations
which require employee contributions which equal less than 50%
of the total cost of the health care plan, with the remainder
of the cost being paid by the corporate affiliate which is the
employer of the participants in the plan. This Act shall not
apply to the establishment and operation of a Health
Maintenance Organization exclusively providing or arranging
health care services under contract with the State to persons
committed to the custody of the Illinois Department of
Corrections.
This Act does not apply to the establishment and operation
of managed care community networks that are certified as
risk-bearing entities under Section 5-11 of the Illinois Public
Aid Code and that contract with the Department of Healthcare
and Family Services (formerly Illinois Department of Public
Aid) pursuant to that Section.
(b) Any organization may apply to the Director for and
obtain a certificate of authority to establish and operate a
Health Maintenance Organization in compliance with this Act. A
foreign corporation may qualify under this Act, subject to its
registration to do business in this State as a foreign
corporation.
(c) Each application for a certificate of authority shall
be filed in triplicate and verified by an officer or authorized
representative of the applicant, shall be in a form prescribed
by the Director, and shall set forth, without limiting what may

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be required by the Director, the following:
(1) A copy of the organizational document;
(2) A copy of the bylaws, rules and regulations, or
similar document regulating the conduct of the internal
affairs of the applicant, which shall include a mechanism
to afford the enrollees an opportunity to participate in an
advisory capacity in matters of policy and operations;
(3) A list of the names, addresses, and official
positions of the persons who are to be responsible for the
conduct of the affairs of the applicant; including, but not
limited to, all members of the board of directors,
executive committee, the principal officers, and any
person or entity owning or having the right to acquire 10%
or more of the voting securities or subordinated debt of
the applicant;
(4) A statement generally describing the applicant,
geographic area to be served, its facilities, personnel and
the health care services to be offered;
(5) A copy of the form of any contract made or to be
made between the applicant and any providers regarding the
provision of health care services to enrollees;
(6) A copy of the form of any contract made or to be
made between the applicant and any person listed in
paragraph (3) of this subsection;
(7) A copy of the form of any contract made or to be
made between the applicant and any person, corporation,

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partnership or other entity for the performance on the
applicant's behalf of any functions including, but not
limited to, marketing, administration, enrollment,
investment management and subcontracting for the provision
of health services to enrollees;
(8) A copy of the form of any group contract which is
to be issued to employers, unions, trustees, or other
organizations and a copy of any form of evidence of
coverage to be issued to any enrollee or subscriber and any
advertising material;
(9) Descriptions of the applicant's procedures for
resolving enrollee grievances which must include
procedures providing for enrollees participation in the
resolution of grievances;
(10) A copy of the applicant's most recent financial
statements audited by an independent certified public
accountant. If the financial affairs of the applicant's
parent company are audited by an independent certified
public accountant but those of the applicant are not, then
a copy of the most recent audited financial statement of
the applicant's parent, attached to which shall be
consolidating financial statements of the parent including
separate unaudited financial statements of the applicant,
unless the Director determines that additional or more
recent financial information is required for the proper
administration of this Act;

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(11) A copy of the applicant's financial plan,
including a three-year projection of anticipated operating
results, a statement of the sources of working capital, and
any other sources of funding and provisions for
contingencies;
(12) A description of rate methodology;
(13) A description of the proposed method of marketing;
(14) A copy of every filing made with the Illinois
Secretary of State which relates to the applicant's
registered agent or registered office;
(15) A description of the complaint procedures to be
established and maintained as required under Section 4-6 of
this Act;
(16) A description, in accordance with regulations
promulgated by the Illinois Department of Public Health, of
the quality assessment and utilization review procedures
to be utilized by the applicant;
(17) The fee for filing an application for issuance of
a certificate of authority provided in Section 408 of the
Illinois Insurance Code, as now or hereafter amended; and
(18) Such other information as the Director may
reasonably require to make the determinations required by
this Act.
(Source: P.A. 95-331, eff. 8-21-07.)
(215 ILCS 125/2-4) (from Ch. 111 1/2, par. 1406)

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Sec. 2-4. Required minimum net worth; special contingent
reserve; deficiency; impairment.
(a) A health maintenance organization issued a certificate
of authority on or after the effective date of this amendatory
Act of 1987 shall have and at all times maintain net worth of
not less than $1,500,000. As an allocation of net worth,
organizations certified prior to the effective date of this
amendatory Act of 1987 shall maintain a special contingent
reserve. The special contingent reserve for an organization
certified between January 1, 1986 and the effective date of
this amendatory Act of 1987 shall be equal to 5% of its net
earned subscription revenue for health care services through
December 31st of the year in which certified. In subsequent
years such organization shall accumulate additions to the
contingent reserve in an amount which is equal to 2% of its net
earned subscription revenue for each calendar year. For
purposes of this Section, net earned subscription revenue means
premium minus reinsurance expenses. Maintenance of the
contingent reserve requires that net worth equals or exceeds
the contingent reserve at any balance sheet date.
(b) (Blank). Additional accumulations under subsection (a)
will no longer be required at such time that the total special
contingent reserve required by subsection (a) is equal to
$1,500,000.
(c) A deficiency in meeting amounts required in subsections
(a), (b), and (d-5) (d) will require (1) filing with the

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Director a plan for correction of the deficiency, acceptable to
the Director and (2) correction of the deficiency within a
reasonable time, not to exceed 60 days unless an extension of
time, not to exceed 60 additional days, is granted by the
Director. Such a deficiency will be deemed an impairment, and
failure to correct the deficiency in the prescribed time shall
be grounds for suspension or revocation pursuant to subsection
(h) of Section 5-5.
(d) (Blank). All health maintenance organizations issued a
certificate of authority on or prior to December 31, 1985 and
regulated under this Act must have and at all times maintain,
prior to December 31, 1988, the net worth and special
contingent reserve that was required for that particular
organization at the time it was certified. All such
organizations must have by December 31, 1988 and thereafter
maintain at all times, net worth of not less than $300,000 and
a special contingent reserve calculated and accumulated in the
same manner as required of a health maintenance organization
issued a certificate of authority on or between January 1, 1986
and the effective date of this amendatory Act of 1987. Such
calculation shall commence with the financial reporting period
first following certification.
All organizations issued a certificate of authority
between January 1, 1986 and the effective date of this
amendatory Act of 1987 must have and at all times maintain the
net worth and special contingent reserve that was required for

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that particular organization at the time it was certified.
(d-5) A health maintenance organization that offers a
point-of-service product must maintain minimum net worth of not
less than:
(1) the greater of 300% of the "authorized control
level" as defined by Article IIA of the Illinois Insurance
Code; or
(2) $3,500,000 if the health maintenance
organization's annual projected out-of-plan claims are
less than $500,000; or
(3) $4,500,000 if the health maintenance
organization's annual projected out-of-plan claims are
equal to or greater than $500,000 but less than $1,000,000;
or
(4) $6,000,000 if the health maintenance
organization's annual projected out-of-plan claims are
$1,000,000 or greater.
(e) Unless allowed by the Director, no health maintenance
organization, officer, director, trustee, producer, or
employee of such organization may renew, issue, or deliver, or
cause to be renewed, issued or delivered, any certificate,
agreement, or contract of coverage in this State, for which a
premium is charged or collected, when the organization writing
such coverage is insolvent or impaired, and the fact of such
insolvency or impairment is known to the organization, officer,
director, trustee, producer, or employee of such organization.

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An organization is impaired when a deficiency exists in meeting
the amounts required in subsections (a), (b), and (d-5) (d) of
Section 2-4.
However, the existence of an impairment does not prevent
the issuance or renewal of a certificate, agreement or contract
when the enrollee exercises an option granted under the plan to
obtain new, renewed or converted coverage.
Any organization, officer, director, trustee, producer, or
employee of such organization violating this subsection shall
be guilty of a Class A misdemeanor.
(Source: P.A. 92-135, eff. 1-1-02.)
(215 ILCS 125/2-6) (from Ch. 111 1/2, par. 1406.2)
Sec. 2-6. Statutory deposits.
(a) An organization subject to the provisions of this Act
shall make and maintain with the Director through December 30,
1993, for the protection of enrollees of the organization, a
deposit of securities which are authorized investments under
paragraphs (1) and (2) of subsection (h) of Section 3-1 having
a fair market value equal to at least $100,000. Effective
December 31, 1993 and through December 30, 1994, the deposit
shall have a fair market value at least equal to $200,000.
Effective December 31, 1994 and thereafter, the deposit shall
have a fair market value at least equal to $300,000. An
organization issued a certificate of authority on or after the
effective date of this Amendatory Act of 1993, shall make and

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maintain with the Director; for the protection of enrollees of
the organization, a deposit of securities which are authorized
investments under paragraphs (1) and (2) of subsection (h) of
Section 3-1 having a fair market value equal to at least
$300,000. The amount on deposit shall remain as an admitted
asset of the organization in the determination of its net
worth. The Director may release the required deposit of
securities upon receipt of an order of a court having proper
jurisdiction or upon: (i) certification by the organization
that it has no outstanding enrollee creditors, enrollees,
certificate holders, or enrollee obligations in effect and no
plans to engage in the business of insurance as a health
maintenance organization; (ii) receipt of a lawful resolution
of the organization's governing body effecting the surrender of
its certificate of authority, articles of incorporation, or
other organizational documents to their issuing governmental
officer for voluntary or administrative dissolution; and (iii)
receipt of the name and forwarding address for each of the
final officers and directors of the organization, together with
a plan of dissolution approved by the Director.
(b) An organization that offers a point-of-service
product, as permitted by Article 4.5, must maintain an
additional deposit in an amount that is not less than the
greater of 125% of the organization's annual projected
point-of-service claims or $300,000.
(Source: P.A. 92-75, eff. 7-12-01; 92-135, eff. 1-1-02; 92-651,

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eff. 7-11-02.)
(215 ILCS 125/3-1) (from Ch. 111 1/2, par. 1407.3)
Sec. 3-1. Investment Regulations.
(a) Any health maintenance organization may invest its
funds as provided in this Section and not otherwise. A health
maintenance organization that is organized as a domestic an
insurance company may also acquire the investment assets
authorized for an Illinois-domiciled insurance company
insurance company pursuant to the laws applicable to an
insurance company in the organization's state of domicile.
Notwithstanding the provisions of this Section, the Director
may, after notice and hearing, order an organization to limit
or withdraw from certain investments, or discontinue certain
investment practices, to the extent the Director finds that
such investments or investment practices are hazardous to the
financial condition of the organization.
(b) No investment or loan shall be made or engaged in by
any health maintenance organization unless the same have been
authorized or ratified by the board of directors or by a
committee thereof charged with the duty of supervising
investments and loans. Nothing contained in this subsection
shall prevent the board of directors of any such organization
from depositing any of its securities with a committee
appointed for the purpose of protecting the interest of
security holders or with the authorities of any state where it

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is necessary to do so in order to secure permission to transact
its appropriate business therein, and nothing contained in this
subsection shall prevent the board of directors of such
organization from depositing any securities as collateral for
the securing of any bond required for the business of the
organization.
(c) No health maintenance organization shall pay any
commission or brokerage for the purchase or sale of property
whether real or personal, in excess of that usual and customary
at the time and in the locality where such purchases or sales
are made, and information regarding payments of commissions and
brokerage shall be maintained.
(d) A health maintenance organization may not directly or
indirectly, unless it has notified the Director in writing of
its intention to enter into the transaction at least 30 days
prior thereto, or any shorter period as the Director may
permit, and the Director has not disapproved it within that
period:
(1) make a loan to or other investment in an officer or
director of the organization or a person in which the
officer or director has any direct or indirect financial
interest;
(2) make a guarantee for the benefit of or in favor of
an officer or director of the organization or a person in
which the officer or director has any direct or indirect
financial interest; or

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(3) enter into an agreement for the purchase or sale of
property from or to an officer or director of the
organization or a person in which the officer or director
has any direct or indirect financial interest.
For the purposes of this Section, an officer or director
shall not be deemed to have a financial interest by reason of
an interest that is held directly or indirectly through the
ownership of equity interests representing less than 2% of all
outstanding equity interests issued by a person that is a party
to the transaction, or solely by reason of that individual's
position as a director or officer of a person that is a party
to the transaction.
This subsection does not apply to a transaction between an
organization and any of its subsidiaries or affiliates that is
entered into in compliance with Section 131.20a of the Illinois
Insurance Code, other than a transaction between an insurer and
its officer or director.
(e) In applying the percentage limitations imposed by this
Section there shall be used as a base the total of all assets
which would be admitted by this Section without regard to
percentage limitations. All legal measurements used as a base
in the determination of all investment qualifications shall
consist of the amounts determined at the most recent year end
adjusted for subsequent acquisition and disposition of
investments.
(f) Valuation of investments. Investments shall be valued

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in accordance with the published valuation standards of the
National Association of Insurance Commissioners. Securities
investments as to which the National Association of Insurance
Commissioners has not published valuation standards in its
Valuations of Securities manual or its successor publication
shall be valued as follows:
(1) All obligations having a fixed term and rate shall,
if not in default as to principal or interest, be valued as
follows: if purchased at par, at the par value; if
purchased above or below par, on the basis of the purchase
price adjusted so as to bring the value to par at maturity
and so as to yield in the meantime the effective rate of
interest at which the purchase was made;
(2) Common, preferred or guaranteed stocks shall be
valued at market value.
(3) Other security investments shall be valued in
accordance with regulations promulgated by the Director
pursuant to paragraph (6) of this subsection.
(4) Other investments, including real property, shall
be valued in accordance with regulations promulgated by the
Director pursuant to paragraph (6) of this subsection, but
in no event shall such other investments be valued at more
than the purchase price. The purchase price for real
property includes capitalized permanent improvements, less
depreciation spread evenly over the life of the property
or, at the option of the company, less depreciation

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computed on any basis permitted under the Internal Revenue
Code and regulations thereunder. Such investments that
have been affected by permanent declines in value shall be
valued at not more than market value.
(5) Any investment, including real property, not
purchased by the Health Maintenance Organization but
acquired in satisfaction of a debt or otherwise shall be
valued in accordance with the applicable procedures for
that type of investment contained in this subsection. For
purposes of applying the valuation procedures, the
purchase price shall be deemed to be the market value at
the time the investment is acquired or, in the case of any
investment acquired in satisfaction of debt, the amount of
the debt, including interest, taxes and expenses,
whichever amount is less.
(6) The Director shall promulgate rules and
regulations for determining and calculating values to be
used in financial statements submitted to the Department
for investments.
(g) Definitions. As used in this Section, unless the
context otherwise requires.
(1) "Business Corporation" means corporations
organized for other than not for profit purposes.
(2) "Business Entity" includes sole proprietorships,
corporations, associations, partnerships and business
trusts.

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(3) "Bank or Trust Company" means any bank or trust
company organized under the laws of the United States or
any State thereof if said bank or trust company is
regularly examined pursuant to such laws and said bank or
trust company has the insurance protection afforded by an
agency of the United States government.
(4) "Capital" means capital stock paid-up, if any, and
its use in a provision does not imply that a non-profit
Health Maintenance Organization without stated capital
stock is excluded from the provision. The capital of such
an organization will be zero.
(5) "Direct" when used in connection with "obligation"
means that the designated obligor shall be primarily liable
on the instrument representing the obligation.
(6) "Facility" means and includes real estate and any
and all forms of tangible personal property and services
used constituting an operating unit.
(7) "Guaranteed or insured" means that the guarantor or
insurer will perform or insure the obligation of the
obligor or will purchase the obligation to the extent of
the guaranty or insurance.
(8) "Mortgage" shall include a trust deed or other lien
on real property securing an obligation for the payment of
money.
(9) "Servicer" means a business entity that has a
contractual obligation to service a pool of mortgage loans.

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The service provided shall include, but is not limited to,
collection of principal and interest, keeping the accounts
current, maintaining or confirming in force hazard
insurance and tax status and providing supportive
accounting services.
(10) "Single credit risk" means the direct, guaranteed
or insured obligations of any one business entity including
affiliates thereof.
(11) "Surplus" means the amount properly shown as total
net worth on a company's balance sheet, plus all voluntary
reserves, but not including capital paid-up.
(12) "Tangible net worth" means the par value of all
issued and outstanding capital stock of a corporation (or
in the case of shares having no par value, the stated
value) and the amounts of all surplus accounts less the sum
of (a) such intangible assets as deferred charges,
organization and development expense, discount and expense
incurred in securing capital, good will, trade-marks,
trade-names and patents, (b) leasehold improvements, and
(c) any reserves carried by the corporation and not
otherwise deducted from assets.
(13) "Unconditional" when used in connection with
"obligation" means that nothing remains to be done or to
occur to make the designated obligor liable on the
instrument, and that the legal holder shall have the status
at least equal to that of general creditor of the obligor.

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(h) Authorized investments. Any Health Maintenance
Organization, except those organized as a domestic an insurance
company, may acquire the assets set forth in paragraphs 1
through 17, inclusive. A Health Maintenance Organization that
is organized as an insurance company may acquire the investment
assets authorized for an insurance company pursuant to the laws
applicable to an Illinois-domiciled insurance company in the
organization's state of domicile. Any restriction, exclusion
or provision appearing in any paragraph shall apply only with
respect to the authorization of the particular paragraph in
which it appears and shall not constitute a general prohibition
and shall not be applicable to any other paragraph. The
qualifications or disqualifications of an investment under one
paragraph shall not prevent its qualification in whole or in
part under another paragraph, and an investment authorized by
more than one paragraph may be held under whichever authorizing
paragraph the organization elects. An investment which
qualified under any paragraph at the time it was acquired or
entered into by an organization shall continue to be qualified
under that paragraph. An investment in whole or in part may be
transferred from time to time, at the election of the
organization, to the authority of any paragraph under which it
qualifies, whether originally qualifying thereunder or not.
(1) Direct obligations of the United States for the
payment of money, or obligations for the payment of money
to the extent guaranteed or insured as to the payment of

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principal and interest by the United States.
(2) Direct obligations for the payment of money, issued
by an agency or instrumentality of the United States, or
obligations for the payment of money to the extent
guaranteed or insured as to the payment of principal and
interest by an agency or instrumentality of the United
States.
(3) Direct, general obligations of any state of the
United States for the payment of money, or obligations for
the payment of money to the extent guaranteed or insured as
to the payment of principal and interest by any state of
the United States, on the following conditions:
(i) Such state has the power to levy taxes for the
prompt payment of the principal and interest of such
obligations; and
(ii) Such state shall not be in default in the
payment of principal or interest on any of its direct,
guaranteed or insured obligations at the date of such
investment.
(4) Direct, general obligations of any political
subdivision of any state of the United States for the
payment of money, or obligations for the payment of money
to the extent guaranteed as to the payment of principal and
interest by any political subdivision of any state of the
United States, on the following conditions:
(i) The obligations are payable or guaranteed from

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ad valorem taxes;
(ii) Such political subdivision is not in default
in the payment of principal or interest on any of its
direct or guaranteed obligations;
(iii) No investment shall be made under this
paragraph in obligations which are secured only by
special assessments for local improvements; and
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in
obligations issued or guaranteed by any one such
political subdivision.
(5) Anticipation obligations of any political
subdivision of any state of the United States, including
but not limited to bond anticipation notes, tax
anticipation notes and construction anticipation notes,
for the payment of money within 12 months from the issuance
of the obligation, on the following conditions:
(i) Such anticipation notes must be a direct
obligation of the issuer under conditions set forth in
paragraph 4;
(ii) Such political subdivision is not in default
in the payment of the principal or interest on any of
its direct general obligations or any obligation
guaranteed by such political subdivision;
(iii) The anticipated funds must be specifically
pledged to secure the obligation;

SB2766 Engrossed - 26 - LRB099 16157 EGJ 43559 b
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the
anticipation obligations issued by any one such
political subdivision.
(6) Obligations of any state of the United States, a
political subdivision thereof, or a public instrumentality
of any one or more of the foregoing, for the payment of
money, on the following conditions:
(i) The obligations are payable from revenues or
earnings of a public utility of such state, political
subdivision, or public instrumentality which are
specifically pledged therefor;
(ii) The law under which the obligations are issued
requires such rates for service shall be charged and
collected at all times that they will produce
sufficient revenue or earnings together with any other
revenues or moneys pledged to pay all operating and
maintenance charges of the public utility and all
principal and interest on such obligations;
(iii) No prior or parity obligations payable from
the revenues or earnings of that public utility are in
default at the date of such investment;
(iv) An organization shall not invest more than 20%
of its admitted assets under this paragraph; and
(v) An organization shall not invest under this
Section more than 2% of its admitted assets in the

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revenue obligations issued in connection with any one
facility.
(7) Obligations of any state of the United States, a
political subdivision thereof, or a public instrumentality
of any of the foregoing, for the payment of money, on the
following conditions:
(i) The obligations are payable from revenues or
earnings, excluding revenues or earnings from public
utilities, specifically pledged therefor by such
state, political subdivision or public
instrumentality;
(ii) No prior or parity obligation of the same
issuer payable from revenues or earnings from the same
source has been in default as to principal or interest
during the 5 years next preceding the date of such
investment, but such issuer need not have been in
existence for that period, and obligations acquired
under this paragraph may be newly issued;
(iii) An organization shall not invest in excess of
20% of its admitted assets under this paragraph;
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the
revenue obligations issued in connection with any one
facility; and
(v) An organization shall not invest under this
paragraph more than 2% of its admitted assets in

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revenue obligations payable from revenue or earning
sources which are the contractual responsibility of
any one single credit risk.
(8) Direct, unconditional obligations of a solvent
business corporation for the payment of money, including
obligations to pay rent for equipment used in its business
or obligations for the payment of money to the extent
guaranteed or insured as to the payment of principal and
interest by any solvent business corporation, on the
following conditions:
(i) The corporation shall be incorporated under
the laws of the United States or any state of the
United States;
(ii) The corporation shall have tangible net worth
of not less than $1,000,000;
(iii) No such obligation, guarantee or insurance
of the corporation has been in default as to principal
or interest during the 5 years preceding the date of
investment, but the corporation need not have had
obligations guarantees or insurance outstanding during
that period and need not have been in existence for
that period, and obligations acquired under this
paragraph may be newly issued;
(iv) An organization shall not invest more than 2%
of its admitted assets in obligations issued,
guaranteed or insured by any one such corporation;

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(v) An organization may invest under this
paragraph up to an additional 2% of its admitted assets
in obligations which (i) are issued, guaranteed or
insured by any one or more such corporations, each
having a tangible net worth of not less than
$25,000,000 and (ii) mature within 12 months from the
date of acquisition;
(vi) An organization may invest not more than 1/2
of 1% of its admitted assets in such obligations of
corporations which do not meet the condition of
subparagraph (ii) of this paragraph; and
(vii) An organization shall not invest more than
75% of its admitted assets under this paragraph.
(9) Direct, unconditional obligations for the payment
of money issued or obligations for the payment of money to
the extent guaranteed as to principal and interest by a
solvent not for profit corporation, on the following
conditions:
(i) The corporation shall be incorporated under
the laws of the United States or of any state of the
United States;
(ii) The corporation shall have been in existence
for at least 5 years and shall have assets of at least
$2,000,000;
(iii) Revenues or other income from such assets and
the services or commodities dispensed by the

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corporation shall be pledged for the payment of the
obligations or guarantees;
(iv) No such obligation or guarantee of the
corporation has been in default as to principal or
interest during the 5 years next preceding the date of
such investment, but the corporation need not have had
obligations or guarantees outstanding during that
period and obligations which are acquired under this
paragraph may be newly issued;
(v) An organization shall not invest more than 15%
of its admitted assets under this paragraph; and
(vi) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the
obligations issued or guaranteed by any one such
corporation.
(10) Direct, unconditional nondemand obligations for
the payment of money issued by a solvent bank, mutual
savings bank or trust company on the following conditions:
(i) The bank, mutual savings bank or trust company
shall be incorporated under the laws of the United
States, or of any state of the United States;
(ii) The bank, mutual savings bank or trust company
shall have tangible net worth of not less than
$1,000,000;
(iii) Such obligations must be of the type which
are insured by an agency of the United States or have a

SB2766 Engrossed - 31 - LRB099 16157 EGJ 43559 b
maturity of no more than 1 day;
(iv) An organization shall not invest under this
paragraph more than the amount which is fully insured
by an agency of the United States plus 2% of its
admitted assets in nondemand obligations issued by any
one such financial institution; and
(v) An organization may invest under this
paragraph up to an additional 8% of its admitted assets
in nondemand obligations which (1) are issued by any
such banks, mutual savings banks or trust companies,
each having a tangible net worth of not less than
$25,000,000 and (2) mature within 12 months from the
date of acquisition.
(11) Preferred or guaranteed stocks issued or
guaranteed by a solvent business corporation incorporated
under the laws of the United States or any state of the
United States, on the following conditions:
(i) The corporation shall have tangible net worth
of not less than $1,000,000;
(ii) If such stocks have been outstanding prior to
purchase, an organization shall not invest under this
paragraph in such stock if prescribed current or
cumulative dividends are in arrears;
(iii) An organization shall not invest more than 33
1/3% of its admitted assets under this paragraph and an
organization shall not invest more than 15% of its

SB2766 Engrossed - 32 - LRB099 16157 EGJ 43559 b
admitted assets under this paragraph in stocks which,
at the time of purchase, are not Sinking Fund Stocks.
An issue of preferred or guaranteed stock shall be a
Sinking Fund Stock when (1) such issue is subject to a
100% mandatory sinking fund or similar arrangement
which will provide for the redemption of the entire
issue over a period not longer than 40 years from the
date of purchase; (2) annual mandatory sinking fund
installments on each issue commence not more than 10
years from the date of issue; and (3) each annual
sinking fund installment provides for the purchase or
redemption of at least 2 1/2% of the original number of
shares of such issue; and
(iv) An organization shall not invest under this
paragraph more than 2% of its admitted assets in the
preferred or guaranteed stocks of any one such
corporation.
(12) Common stock issued by any solvent business
corporation incorporated under the laws of the United
States, or of any state of the United States, on the
following conditions:
(i) The issuing corporation must have tangible net
worth of $1,000,000 or more;
(ii) An organization may not invest more than an
amount equal to its net worth under this paragraph; and
(iii) An organization may not invest under this

SB2766 Engrossed - 33 - LRB099 16157 EGJ 43559 b
paragraph an amount equal to more than 10% of its net
worth in the common stock of any one corporation.
(13) Shares of common stock or units of beneficial
interest issued by any solvent business corporation or
trust incorporated or organized under the laws of the
United States, or of any state of the United States, on the
following conditions:
(i) If the issuing corporation or trust is advised
by an investment advisor which is the organization or
an affiliate of the organization, the issuing
corporation or trust shall have net assets of $100,000
or more, or if the issuing corporation or trust has an
unaffiliated investment advisor, the issuing
corporation or trust shall have net assets of
$10,000,000 or more;
(ii) The issuing corporation or trust is
registered as an investment company with the
Securities and Exchange Commission under the
Investment Company Act of 1940, as amended;
(iii) An organization shall not invest under this
paragraph more than the greater of $100,000 or 10% of
its admitted assets in any one bond fund, municipal
bond fund or money market fund;
(iv) An organization shall not invest under this
paragraph more than 10% of its net worth in any one
common stock fund, balanced fund or income fund;

SB2766 Engrossed - 34 - LRB099 16157 EGJ 43559 b
(v) An organization shall not invest more than 50%
of its admitted assets in bond funds, municipal bond
funds and money market funds under this paragraph; and
(vi) An organization's investments in common stock
funds, balanced funds or income funds when combined
with its investments in common stocks made under
paragraph (12) shall not exceed the aggregate
limitation provided by subparagraph (ii) of paragraph
(12).
(14) Shares of, or accounts or deposits with savings
and loan associations or building and loan associations, on
the following conditions:
(i) The shares, accounts, or deposits, or
investments in any form legally issuable shall be of a
withdrawable type and issued by an association which
has the insurance protection afforded by the Federal
Savings and Loan Insurance Corporation; but
nonwithdrawable accounts which are not eligible for
insurance by the Federal Savings and Loan Insurance
Corporation shall not be eligible for investment under
this paragraph;
(ii) The association shall have tangible net worth
of not less than $1,000,000;
(iii) The investment shall be in the name of and
owned by the organization, unless the account is under
a trusteeship with the organization named as the

SB2766 Engrossed - 35 - LRB099 16157 EGJ 43559 b
beneficiary;
(iv) An organization shall not invest more than 50%
of its admitted assets under this paragraph; and
(v) Under this paragraph, an organization shall
not invest in any one such association an amount in
excess of 2% of its admitted assets or an amount which
is fully insured by the Federal Savings and Loan
Insurance Corporation, whichever is greater.
(15) Direct, unconditional obligations for the payment
of money secured by the pledge of any investment which is
authorized by any of the preceding paragraphs, on the
following conditions:
(i) The investment pledged shall by its terms be
legally assignable and shall be validly assigned to the
organization;
(ii) The investment pledged shall have a fair
market value which is at least 25% greater than the
amount invested under this paragraph, except that a
loan may be made up to 100% of the full fair market
value of collateral that would qualify as an investment
under paragraph (1) provided it qualifies under
condition (i) of this paragraph; and
(iii) An organization's investment under this
paragraph when added to its investment of the category
of the collateral pledged shall not cause the sum to
exceed the limits provided by the paragraph

SB2766 Engrossed - 36 - LRB099 16157 EGJ 43559 b
authorizing that category of investments.
(16) Real estate (including leasehold estates and
leasehold improvements) for the convenient accommodation
of the organization's business operations, including home
office, branch office, medical facilities and field office
operations, on the following conditions:
(i) Any parcel of real estate acquired under this
paragraph may include excess space for rent to others,
if it is reasonably anticipated that such excess will
be required by the organization for expansion or if the
excess is reasonably required in order to have one or
more buildings that will function as an economic unit;
(ii) Such real estate may be subject to a mortgage;
and
(iii) The greater of the admitted value of the
asset as determined by subsection (f) or the
organization's equity plus all encumbrances on such
real estate owned by a company under this paragraph
shall not exceed 20% of its admitted assets, except
with the permission of the Director if he finds that
such percentage of its admitted assets is insufficient
to provide convenient accommodation for the company's
business; provided, however, an organization that
directly provides medical services may invest an
additional 20% of its admitted assets in such real
estate, not requiring the permission of the Director.

SB2766 Engrossed - 37 - LRB099 16157 EGJ 43559 b
(17) Any investments of any kind, in the complete
discretion of the organization, without regard to any
condition of, restriction in, or exclusion from paragraphs
(1) to (16), inclusive, and regardless of whether the same
or a similar type of investment has been included in or
omitted from any such paragraph, on the following
condition: An organization shall not invest under this
paragraph more than the lesser of (i) 10% of its admitted
assets, or (ii) 50% of the amount by which its net worth
exceeds the minimum requirements of a new health
maintenance organization to qualify for a certificate of
authority.
(Source: P.A. 92-140, eff. 7-24-01; 92-651, eff. 7-11-02.)
(215 ILCS 125/5-3) (from Ch. 111 1/2, par. 1411.2)
Sec. 5-3. Insurance Code provisions.
(a) Health Maintenance Organizations shall be subject to
the provisions of Sections 132, 132.1, 132.2, 132.3, 132.4,
132.5, 132.6, 132.7, 133, 134, 136, 137, 139, 140, 141.1,
141.2, 141.3, 143, 143c, 147, 148, 149, 151, 152, 153, 154,
154.5, 154.6, 154.7, 154.8, 155.04, 155.22a, 355.2, 355.3,
355b, 356g.5-1, 356m, 356v, 356w, 356x, 356y, 356z.2, 356z.4,
356z.5, 356z.6, 356z.8, 356z.9, 356z.10, 356z.11, 356z.12,
356z.13, 356z.14, 356z.15, 356z.17, 356z.18, 356z.19, 356z.21,
356z.22, 364.01, 367.2, 367.2-5, 367i, 368a, 368b, 368c, 368d,
368e, 370c, 370c.1, 401, 401.1, 402, 403, 403A, 408, 408.2,

SB2766 Engrossed - 38 - LRB099 16157 EGJ 43559 b
409, 412, 444, and 444.1, paragraph (c) of subsection (2) of
Section 367, and Articles IIA, VIII 1/2, XII, XII 1/2, XIII,
XIII 1/2, XXV, and XXVI of the Illinois Insurance Code.
(b) For purposes of the Illinois Insurance Code, except for
Sections 444 and 444.1 and Articles XIII and XIII 1/2, Health
Maintenance Organizations in the following categories are
deemed to be "domestic companies":
(1) a corporation authorized under the Dental Service
Plan Act or the Voluntary Health Services Plans Act;
(2) a corporation organized under the laws of this
State; or
(3) a corporation organized under the laws of another
state, 30% or more of the enrollees of which are residents
of this State, except a corporation subject to
substantially the same requirements in its state of
organization as is a "domestic company" under Article VIII
1/2 of the Illinois Insurance Code.
(c) In considering the merger, consolidation, or other
acquisition of control of a Health Maintenance Organization
pursuant to Article VIII 1/2 of the Illinois Insurance Code,
(1) the Director shall give primary consideration to
the continuation of benefits to enrollees and the financial
conditions of the acquired Health Maintenance Organization
after the merger, consolidation, or other acquisition of
control takes effect;
(2)(i) the criteria specified in subsection (1)(b) of

SB2766 Engrossed - 39 - LRB099 16157 EGJ 43559 b
Section 131.8 of the Illinois Insurance Code shall not
apply and (ii) the Director, in making his determination
with respect to the merger, consolidation, or other
acquisition of control, need not take into account the
effect on competition of the merger, consolidation, or
other acquisition of control;
(3) the Director shall have the power to require the
following information:
(A) certification by an independent actuary of the
adequacy of the reserves of the Health Maintenance
Organization sought to be acquired;
(B) pro forma financial statements reflecting the
combined balance sheets of the acquiring company and
the Health Maintenance Organization sought to be
acquired as of the end of the preceding year and as of
a date 90 days prior to the acquisition, as well as pro
forma financial statements reflecting projected
combined operation for a period of 2 years;
(C) a pro forma business plan detailing an
acquiring party's plans with respect to the operation
of the Health Maintenance Organization sought to be
acquired for a period of not less than 3 years; and
(D) such other information as the Director shall
require.
(d) The provisions of Article VIII 1/2 of the Illinois
Insurance Code and this Section 5-3 shall apply to the sale by

SB2766 Engrossed - 40 - LRB099 16157 EGJ 43559 b
any health maintenance organization of greater than 10% of its
enrollee population (including without limitation the health
maintenance organization's right, title, and interest in and to
its health care certificates).
(e) In considering any management contract or service
agreement subject to Section 141.1 of the Illinois Insurance
Code, the Director (i) shall, in addition to the criteria
specified in Section 141.2 of the Illinois Insurance Code, take
into account the effect of the management contract or service
agreement on the continuation of benefits to enrollees and the
financial condition of the health maintenance organization to
be managed or serviced, and (ii) need not take into account the
effect of the management contract or service agreement on
competition.
(f) Except for small employer groups as defined in the
Small Employer Rating, Renewability and Portability Health
Insurance Act and except for medicare supplement policies as
defined in Section 363 of the Illinois Insurance Code, a Health
Maintenance Organization may by contract agree with a group or
other enrollment unit to effect refunds or charge additional
premiums under the following terms and conditions:
(i) the amount of, and other terms and conditions with
respect to, the refund or additional premium are set forth
in the group or enrollment unit contract agreed in advance
of the period for which a refund is to be paid or
additional premium is to be charged (which period shall not

SB2766 Engrossed - 41 - LRB099 16157 EGJ 43559 b
be less than one year); and
(ii) the amount of the refund or additional premium
shall not exceed 20% of the Health Maintenance
Organization's profitable or unprofitable experience with
respect to the group or other enrollment unit for the
period (and, for purposes of a refund or additional
premium, the profitable or unprofitable experience shall
be calculated taking into account a pro rata share of the
Health Maintenance Organization's administrative and
marketing expenses, but shall not include any refund to be
made or additional premium to be paid pursuant to this
subsection (f)). The Health Maintenance Organization and
the group or enrollment unit may agree that the profitable
or unprofitable experience may be calculated taking into
account the refund period and the immediately preceding 2
plan years.
The Health Maintenance Organization shall include a
statement in the evidence of coverage issued to each enrollee
describing the possibility of a refund or additional premium,
and upon request of any group or enrollment unit, provide to
the group or enrollment unit a description of the method used
to calculate (1) the Health Maintenance Organization's
profitable experience with respect to the group or enrollment
unit and the resulting refund to the group or enrollment unit
or (2) the Health Maintenance Organization's unprofitable
experience with respect to the group or enrollment unit and the

SB2766 Engrossed - 42 - LRB099 16157 EGJ 43559 b
resulting additional premium to be paid by the group or
enrollment unit.
In no event shall the Illinois Health Maintenance
Organization Guaranty Association be liable to pay any
contractual obligation of an insolvent organization to pay any
refund authorized under this Section.
(g) Rulemaking authority to implement Public Act 95-1045,
if any, is conditioned on the rules being adopted in accordance
with all provisions of the Illinois Administrative Procedure
Act and all rules and procedures of the Joint Committee on
Administrative Rules; any purported rule not so adopted, for
whatever reason, is unauthorized.
(Source: P.A. 97-282, eff. 8-9-11; 97-343, eff. 1-1-12; 97-437,
eff. 8-18-11; 97-486, eff. 1-1-12; 97-592, eff. 1-1-12; 97-805,
eff. 1-1-13; 97-813, eff. 7-13-12; 98-189, eff. 1-1-14;
98-1091, eff. 1-1-15.)
Section 99. Effective date. This Act takes effect upon
becoming law.