.06 Determination of Financial Condition.

A. Additional Assets. In any determination of the financial condition of an applicant or provider-sponsored organization, in addition to the assets under Regulation .05 of this chapter, the following assets are allowed:

(1) Cash in the possession of the applicant or provider-sponsored organization or in transit under its control, and the balance of any deposit of the applicant or provider-sponsored organization in a solvent bank or trust company;

(2) Investments and securities owned and held by the applicant or provider-sponsored organization, free and clear of any liens, encumbrances, pledges, or judgements, and the income due or accrued on the investments and securities;

(3) Member premium charges in the course of collection, not more than 90 days past due (the foregoing limitation does not apply to amounts payable directly by the federal government under the Medicare+Choice contract);

(4) Health care delivery assets in accordance with Regulation .05C of this chapter;

(5) Prepaid charges on contracts with other organizations or hospitals, or other persons as approved by the Commissioner;

(6) Pharmaceutical and medical supply inventories;

(7) Cost of land and depreciated cost of buildings owned and occupied by the applicant or provider-sponsored organization and used to directly provide health care, in excess of any encumbrances on it;

(8) Leasehold estate improvements, if the initial cost is amortized over the useful life of the improvements but not beyond the termination of the lease;

(9) Electronic, mechanical, and computer hardware including the operating system software used for data processing and accounting purposes, the cost of which shall be amortized in full over a period not to exceed 5 calendar years; and

(10) Other assets, not inconsistent with the foregoing provisions, deemed by the Commissioner available for the provision of health care, at values to be determined by the Commissioner.

B. Non-Admitted Assets. The following may not be allowed as assets in determining the financial condition of an applicant or provider-sponsored organization:

(1) Deferred acquisition costs;

(2) Subject to the provisions of Regulation .05 of this chapter, good will, trade names, and other similar intangible assets;

(3) Advances to officers, whether secured or not, and advances to employees, agents, and other persons on personal security only;

(4) Stock of the applicant or provider-sponsored organization, owned by it, or any equity in it or loans secured by it, or any proportionate interest in the stock through the ownership by the applicant or provider-sponsored organization or an interest in another firm, corporation, or business unit;

(5) The amount, if any, by which the aggregate book value of investments as carried in the ledger assets of the applicant or provider-sponsored organization exceeds the aggregate value of the investments as determined by the values approved annually by the Securities Valuation Office of the National Association of Insurance Commissioners; and

(6) Furniture and fixtures, leasehold improvements other than leasehold estate improvements which qualify under §A(8) of this regulation, vehicles, and maintenance equipment.

C. Liabilities Chargeable Against Assets. In any determination of the financial condition of an applicant or provider-sponsored organization, liabilities to be charged against its assets shall include:

(1) The amount of its capital stock outstanding, if any;

(2) The estimated amount necessary to pay for all accrued benefits to enrollees and all claims, both reported or unreported, incurred on or before the date of the statement, together with estimated costs of adjusting or settling disputed claims;

(3) The pro rata amount of premium charges paid by or on behalf of enrollees for any period of coverage beyond the date of the statement; and

(4) Its other liabilities, including but not limited to taxes, expenses, and other obligations due or accrued at the date of the statement.

D. Earned Charges.

(1) Charge Defined.

(a) In this section, "charge" means consideration for health services regardless of the name given to the consideration.

(b) In this section, "charge" includes an assessment, membership fee, policy fee, survey fee, inspection fee, service fee, or similar fee or charge in consideration for the provider-sponsored organization contract.

(2) Earned charges shall include Medicare+Choice contract charges and premium charges, including all determined excess and additional charges, less:

(a) Return charges;

(b) Charges on canceled contracts; and

(c) Unearned charges on contracts in force as shown by the provider-sponsored organization's annual statement.

(3) Every provider-sponsored organization shall maintain an unearned charge reserve on all health care contracts in force. This reserve shall be set up as a liability.

(4) All prepaid charges shall be considered unearned.

E. Standards for Investments.

(1) An applicant or provider-sponsored organization may not make or engage in an investment unless the investment has been authorized or ratified by:

(a) The board of directors; or

(b) A committee of the board of directors charged with the duty of supervising investments.

(2) All investments of the applicant or provider-sponsored organization may be held in a custodial account pursuant to COMAR 31.09.04.