Guidelines for the regulation of Alternative Financing and Delivery Systems (AFDS)

Issued and entered June 25, 2001 by Frank M. Fitzgerald, Commissioner of Financial and Insurance Services 
 

Section 3573 of Public Act 252 of 2000, MCL 500.3573, MSA 24.13573, which took effect June 29, 2000 provides that Alternative Financing and Delivery Systems (AFDS) may operate in a manner similar to a Health Maintenance Organization (HMO), although they fail to meet the standards of Chapter 35 of the Michigan Insurance Code, if the Commissioner finds that the proposed operations will benefit those persons served by it. The operation shall be authorized and regulated in the same manner as an HMO under Chapter 35 of the Code including the filing of periodic reports, except to the extent that the Commissioner finds that the regulation is inappropriate to the system of health care delivery and financing. This bulletin provides guidelines for the regulation of AFDS, recognizing that AFDS have categorical differences from HMOs that require those differences be taken into account when regulating the health delivery systems.

These guidelines have been developed to recognize the categorical differences between AFDS and HMOs. These differences acknowledge that AFDS do not provide diverse health services as required of HMOs, but rather provide services on a limited basis for their members. Examples of specific types of care provided by an AFDS may be dental care or vision care, only. These guidelines prescribe appropriate regulatory standards to be used by AFDS for compliance with Chapter 35 of the Insurance Code.

GUIDELINES

1. An AFDS' net worth standard should be the greater of $250,000 or 3 times the Managed Care Organization risk based capital authorized control level as found in Chapter 35, Section 3551, MSA 24.13551.

2. AFDS will be held to the same working capital standards as those indicated in Chapter 35, Section 3555, MSA 24.13555 for HMOs. Escrow accounts may not be included in the working capital calculation. Escrow account and trust deposits are restricted assets held for the benefit of enrollees in the event of an insolvency and, therefore, are not considered current assets and cannot be part of the working capital calculation.

3. The statutory deposit for an AFDS should be equal to 2.5% of premium revenue, with a minimum deposit of $100,000 and a maximum of $500,000. The inclusion of escrow accounts held under group contracts as part of the statutory deposit will be assessed on a case-by-case basis. The statutory deposit is intended to be used for the benefit of all members of the AFDS. The Office of Financial and Insurance Services will evaluate on a case-by-case basis if escrow accounts can be used to meet the statutory deposit requirements. The Office of Financial and Insurance Services will consider whether the escrow accounts provide preferential treatment to certain members when evaluating the inclusion of escrow accounts. If a determination is made to allow the use of escrow accounts for deposit purposes, minimum requirements for these escrow accounts will be developed to meet the deposit requirements.

4. AFDS must follow the guidelines for reporting financial and quality assurance found in Chapter 35.

5. AFDS are required to have public board members. However, consideration will be given to selection mechanisms that are equivalent to, but less expensive than, election by the membership. Each alternative selection mechanism will be reviewed on a case-by-case basis by the Commissioner.

6. An AFDS service area is not necessarily limited to the 30-minute travel time standard used under the Public Health Code. AFDS must demonstrate network adequacy as found in Sections 3530 and 3550.

7. Group contracts and rates are not subject to approval by the Office of Financial and Insurance Services if they are the result of collective bargaining and do not affect any other members of an AFDS. The contracts and rates still must be filed with the Office of Financial and Insurance Services in these cases.

8. AFDS that offer dental and vision benefits have a permanent exemption from open enrollment requirements because of the limited and optional nature of the benefits they offer. Permanent waivers for other types of AFDS will be considered on a case-by-case basis.

9. AFDS must continue to provide all subscribers with full subscriber certificates that contain all essential information about the benefits provided and other information as required by Section 3523.

10. AFDS must continue to offer benefits on an emergency basis. However, the required emergency services are limited to benefits for services only of the type offered by a particular AFDS.

11. The AFDS must have quality assurance standards that are consistent with the particular benefits that it provides. The standards for the particular benefit must adhere to those found in MCL 500.3508, MSA 24.13508 and MCL 500.3528, MSA 24.13528 of Insurance Code.

12. Waivers for AFDS from requirements to maintain reinsurance for possible insolvency will be considered on a case-by-case basis as long as the statutory net worth and deposit requirements are met.

13. All AFDS must have a financial plan to minimize the possible impact of an insolvency on the members. Waivers from purchasing outside coverage for insolvency will be evaluated and approved on a case-by-case basis as long as the statutory net worth and deposit requirements are met. The Office of Financial and Insurance Services will consider other measures the AFDS may have in place to minimize the effects of insolvency or the level of risk in the event of an insolvency.

14. AFDS must follow the external grievance procedures found in Chapter 22 of the Insurance Code.

AFDS can apply on a case-by-case basis for the Commissioner's consideration for waivers on other requirements not listed in this bulletin.

RIGHTS AND PROCEDURES

The guidelines of this bulletin are effective July 1, 2001. In conformity with Section (3)6 of the Administrative Procedures Act of 1969, MCL 24.203(6), MSA 3.560(103)(6), these guidelines are a statement of policy which the agency intends to follow, which does not have the force or effect of law, and which binds the agency but does not bind any other person.

The Office of Financial and Insurance Services shall use these guidelines in reviewing all filings for Alternative Financing and Distribution Systems for approval and compliance with Chapter 35 of the Michigan Insurance Code.

Any questions regarding this bulletin should be directed to:

Office of Financial and Insurance Services
Office of Financial Evaluation
611 West Ottawa Street
P.O. Box 30220
Lansing, Michigan 48909-7720
ATTN: Sally Haney

Phone: (517) 373-0739
Toll Free (877) 999-6442