Departmental Interpretation of South Carolina Code of Laws Section38-33-50A(8) Regarding Point-of-Service Options

(Issued upon July 26, 1999)

To:       All Insurers Licensed to Transact Accident and Health Insurance Business  within the State of South Carolina and All South Carolina Licensed Health Maintenance Organizations

From:  Mr. Ernst N. Csiszar, Director

Re:       Departmental Interpretation of South Carolina Code of Laws Section 38-33-50A(8)Regarding Point-of-Service Options

I. Purpose

The purpose of this Bulletin is to advise HMOs of the process for offering a point-of-service option under Section 38-33-50(A)(8) of the South Carolina Code of Laws. Previously, HMOs have been required to partner with an insurer in order to offer a point-of-service option. HMOs are now permitted to offer both the in-network coverage as well as the out-of-network coverage as provided for in the evidence of coverage. HMOs and insurers who offer jointly a point-of service option may issue one evidence of coverage as long as the benefits offered by each party are clearly identified therein, as provided for in Section 38-33-80(A)(1).

II. Definitions

A. "Department" means the South Carolina Department of Insurance.

B. "Evidence of coverage" means a certificate, agreement or contract issued to an enrollee setting out the coverage to which he is entitled.

C. "Health Maintenance Organization" means a person that undertakes to provide or arrange for basic health care services to enrollees for a fixed prepaid premium.

D. "In-network coverage" means covered health care services or supplies obtained from providers who are employed by, under contract with or referred by the HMO and emergency services.

E. "Network plan" means health insurance coverage of a health insurance issuer under which the financing and delivery of medical care, including items and services paid for as medical care, are provided, in whole or in part, through a defined set of providers under contract with the issuer.

F. "Out-of-network coverage" means non-emergency, self-referred covered health care services or supplies obtained from providers who are not otherwise employed by or under contract with the HMO or services from an affiliated specialist without a referral.

G. "Point-of-service option" means a network plan that provides benefits for services or supplies provided by network providers and provides benefits for services or supplies provided by out-of-network providers.

III. Authorization Process

Outlined below is the authorization process for HMOs wishing to offer a point-of-service option under Section 38-33-50(A)(8) of the South Carolina Code of Laws.

A. The HMO must have a certificate of authority in good standing with the South Carolina Department of Insurance.

B. The HMO must:

1. File a notice describing the point-of-service option for approval with the South Carolina Department of Insurance in accordance with Section 38-33-30(C)(1);

2. Submit an additional deposit to the South Carolina Department of Insurance in an amount that shall be equal to the greater of:

a. $100,000; or

b. 120% of the current average monthly claims payable in addition to the corresponding incurred but not reported (IBNR) claims for out-of-network coverage.

The amount of such deposit will be reviewed by the Department on an annual basis. The additional deposit is not required for HMOs who offer a point-of service option jointly with an insurer;

3. Submit a pro forma balance sheet and income statement for the next three calendar years demonstrating the expected percentage of premium income and total claims incurred due to the point-of-service option, and the potential effect on surplus of the point-of-service option;

4. Submit information regarding the automated systems and methods to be used to adequately track and reserve for the point-of-service option;

5. Comply with applicable reserve requirements of South Carolina Code of Laws Section 38-9-180 and Regulation 69-7; and

6. Submit evidence that stop-loss coverage will cover out-of-network coverage. Bulletin 99-2

IV. Requirements

Once an HMO has been authorized by the Department to offer a point-of-service option, it must meet the following additional requirements.

1. The HMO must file, for approval, all forms to be used for the point-of-service option. In addition, rates must be filed and approved for individual products.

2. Point-of-service activity must be confined to the HMO's service area that has been approved by the South Carolina Department of Insurance. All enrollees must either work or reside in the approved service area.

3. The HMO must not actively market the point-of-service option as an out-of-service area continuation of coverage or conversion option.

It is the Department's interpretation of this Act that while HMOs are permitted to offer point-of-service options, the primary business of an HMO should remain the providing for or arranging of basic health care services through the HMO's organized health services delivery system. As such, the Department reserves the right to establish limits on the percentage of an HMO's total health care expenditures for out-of-network coverage if deemed necessary. Further, all mandated health benefits shall be offered under both the in-network and the out-of-network coverages. Additionally, any lifetime maximums and annual limits may be cumulative between the in-network and the out-of-network coverages.

V. Governing Law

Benefits provided by an HMO under the point-of-service option shall be governed by Chapters 33 and 71 of Title 38 of the South Carolina Code of Laws.

Mr. Ernst N. Csiszar

Director of Insurance

Columbia, South Carolina

July 26, 1999.