HOUSE Substitute for SENATE BILL No. 439
An Act concerning insurance; amending K.S.A. 40-110, 40-19c06, 40-2209g, 40-2209m, 40-2241, 40-3207, 40-3208, 40-3210, 40-3211, 40-3213, 40-3214, 40-3215, 40-3219, 40-3220 and 40-3221 and K.S.A. 1997 Supp. 40-112, 40-221a, 40-2,105, 40-19c09, 40-2122, 40-2209, 40-2209d, 40-2209e, 40-2209f, 40-2228, 40-3202, 40-3203, 40-3204, 40-3209 and 40-3225 and repealing the existing sections; also repealing K.S.A. 40-2209k and 40-2209l and K.S.A. 1997 Supp. 40-1909.

Be it enacted by the Legislature of the State of Kansas:

    Section 1. K.S.A. 1997 Supp. 40-2,105 is hereby amended to read as
follows: 40-2,105. (a) On or after the effective date of this act, every
insurer which issues any individual or group policy of accident and sick-
ness insurance providing medical, surgical or hospital expense coverage
for other than specific diseases or accidents only and which provides for
reimbursement or indemnity for services rendered to a person covered
by such policy in a medical care facility, must provide for reimbursement
or indemnity under such individual policy or under such group policy,
except as provided in subsection (d), which shall be limited to not less
than 30 days per year when such person is confined for treatment of
alcoholism, drug abuse or nervous or mental conditions in a medical care
facility licensed under the provisions of K.S.A. 65-429 and amendments
thereto, a treatment facility for alcoholics licensed under the provisions
of K.S.A. 65-4014 and amendments thereto, a treatment facility for drug
abusers licensed under the provisions of K.S.A. 65-4605 and amendments
thereto, a community mental health center or clinic licensed under the
provisions of K.S.A. 75-3307b and amendments thereto or a psychiatric
hospital licensed under the provisions of K.S.A. 75-3307b and amend-
ments thereto. Such individual policy or such group policy shall also pro-
vide for reimbursement or indemnity, except as provided in subsection
(d), of the costs of treatment of such person for alcoholism, drug abuse
and nervous or mental conditions, limited to not less than 100% of the
first $100, 80% of the next $100 and 50% of the next $1,640 in any year
and limited to not less than $7,500 in such person's lifetime, in the facil-
ities enumerated when confinement is not necessary for the treatment or
by a physician licensed or psychologist licensed to practice under the laws
of the state of Kansas.

    (b) For the purposes of this section ``nervous or mental conditions''
means disorders specified in the diagnostic and statistical manual of men-
tal disorders, fourth edition, (DSM-IV, 1994) of the American psychiatric
association but shall not include conditions not attributable to a mental
disorder that are a focus of attention or treatment (DSM-IV, 1994).

    (c) The provisions of this section shall be applicable to health main-
tenance organizations organized under article 32 of chapter 40 of the
Kansas Statutes Annotated.

    (d) There shall be no coverage under the provisions of this section
for any assessment against any person required by a diversion agreement
or by order of a court to attend an alcohol and drug safety action program
certified pursuant to K.S.A. 8-1008 and amendments thereto.

    (e) The provisions of this section shall not apply to any medicare
supplement policy of insurance, as defined by the commissioner of in-
surance by rule and regulation.

    (f) The provisions of this section shall be applicable to the Kansas
state employees health care benefits program developed and provided by
the Kansas state employees health care commission.

    (g) The outpatient coverage provisions of this section shall not apply
to a high deductible health plan as defined in Section 301 of P.L. 104-
191 and any amendments thereto if such plan is purchased in connection
with a medical savings account pursuant to that act. After the amount of
eligible deductible expenses have been paid by the insured, the outpatient
costs of treatment of the insured for alcoholism, drug abuse and nervous
or mental conditions shall be paid on the same level they are provided
for a medical condition, subject to the yearly and lifetime maximums pro-
vided in subsection (a).

    Sec. 2. K.S.A. 40-19c06 is hereby amended to read as follows: 40-
19c06. (a) No subscription agreement, except as provided in subsection
(d), between a corporation organized under the nonprofit medical and
hospital service corporation act and a subscriber, shall entitle more than
one person to benefits, except that a ``family subscription agreement'' may
be issued, at an established subscription charge, to a husband and wife,
or husband, wife, and their dependent child or children and any other
person dependent upon the subscriber. Only the subscriber must be
named in the subscription agreement.

    (b) Every subscription agreement entered into by any such corpora-
tion with any subscriber shall be in writing and a certificate stating the
terms and conditions shall be furnished to the subscriber to be kept by
the subscriber. No such certificate form shall be made, issued or delivered
in this state unless it contains the following provisions: (1) A statement of
the nature of the benefits to be furnished and the period during which
they will be furnished, and if there are any benefits to be excepted, a
detailed statement of such exceptions printed as hereinafter specified; (2)
a statement of the terms and conditions, if any, upon which the subscrip-
tion agreement may be canceled or otherwise terminated at the option
of either party; (3) a statement that the subscription agreement includes
the endorsements and attached papers, if any, and contains the entire
contract; (4) a statement that no statement by the subscriber in the ap-
plication for a subscription agreement shall avoid the subscription agree-
ment or be used in any legal proceeding, unless such application or an
exact copy is included in or attached to such subscription agreement, and
that no agent or representative of such corporation, other than an officer
or officers designated therein, is authorized to change the subscription
agreement or waive any of its provisions; (5) a statement that if the sub-
scriber defaults in making any payments under the subscription agree-
ment, the subsequent acceptance of a payment by the corporation or by
one of its duly authorized agents shall reinstate the subscription agree-
ment but with respect to sickness and injury, only to cover such sickness
as may be first manifested more than 10 days after the date of such
acceptance; (6) a statement of the period of grace which will be allowed
the subscriber for making any payment due under the subscription agree-
ment. Such period shall not be less than 10 days; and (7) if applicable, a
statement of the kind of hospital in which the subscriber may receive
benefits and the types of benefits to which the subscriber may be entitled
to in such kinds of hospitals. The subscriber shall be entitled to benefits
in any nonparticipating hospital in Kansas which is licensed by the sec-
retary of health and environment and in which the average length of stay
of patient is similar to the average length of stay in participating hospitals.
The agreements issued by any corporation currently or previously organ-
ized under this act may include provisions allowing for direct payment of
benefits only to contracting health care providers.

    (c) In every such subscription agreement made, issued or delivered
in this state: (1) All printed portions shall be plainly printed; (2) the ex-
ceptions of the subscription agreement shall appear with the same prom-
inence as the benefits to which they apply; (3) if the subscription agree-
ment contains any provisions purporting to make any portion of the
articles of incorporation or bylaws of the corporation a part of the sub-
scription agreement, such portion shall be set forth in full; and (4) there
shall be a brief description of the subscription agreement on the first page
and on its filing back.

    (d) Any such corporations may issue a group or blanket subscription
agreement, provided the group of persons insured conforms to the
requirements of law applicable to other companies writing group or blan-
ket sickness and accident insurance policies and provided such subscrip-
tion agreement and the individual certificates issued to members of the
group shall comply in substance with this section. Any such subscription
agreement may provide for the adjustment of the premiums based upon
the experience at the end of the first year or of any subsequent year of
insurance, and such readjustment may be made retroactive in the form
of a rate credit or a cash refund.

    (e) (1) Any group subscription agreement issued pursuant to subsec-
tion (d) shall provide that an employee or member or such employee's or
member's covered dependents whose insurance under the group sub-
scription agreement has been terminated for any reason, including dis-
continuance of the group in its entirety or with respect to an insured class,
and who has been continuously insured under the group subscription
agreement or under any group policy or subscription agreement providing
similar benefits which it replaces for at least three months immediately
prior to termination, shall be entitled to have such coverage nonetheless
continued under the group policy for a period of six months and at the
end of such six-month period of continuation, such employee or member
or such employee's or member's covered dependents shall be entitled to
obtain, at the employee's, member's or dependent's option either:

    (A) A converted subscription agreement providing coverage equal to
80% of that afforded under the group subscription agreement for basic
hospital, surgical and medical benefits. Persons selecting this option shall
also be entitled to obtain major medical expense coverage which will
provide hospital, medical and surgical expense benefits to an aggregate
maximum of not less than $50,000. The major medical expense coverage
may be subject to a copayment by the covered person of not more than
20% of covered charges and a deductible stated on a per person, per
family, per illness, per benefit period, or per year basis or a combination
of such bases of not more than $500 per person subject to a maximum
annual deductible of $750 per family; or

    (B) a subscription agreement which imposes a deductible of not less
than $1,000 per subscriber and not less than $2,000 per family and sub-
jects the covered person to a copayment of not more than 20% of covered
charges with a $1,000 maximum copayment per subscriber and $2,000
maximum copayment per family per contract year and providing a lifetime
maximum benefit of not less than $1,000,000.

    (2) The requirements imposed by this subsection (e) shall not apply
to a group subscription agreement which provides benefits for specific
diseases or for accidental injuries only or any group subscription agree-
ment issued to an employer subject to the continuation and conversion
obligations set forth at title I, subtitle B, part 6 of the employee retirement
income security act of 1974 or at title XXII of the public health service
act, as each act was in effect on January 1, 1987, to the extent federal law
provides the employee or member or such employee's or member's cov-
ered dependents with equal or greater continuation or conversion rights,
or any employee or member or such employee's or member's covered
dependents whose termination of insurance under the group subscription
agreement occurred because:

    (A) Such person failed to pay any required contribution after receiv-
ing reasonable notice of such required contribution from the insurer in
accordance with rules and regulations adopted by the commissioner of
insurance;

    (B) any discontinued group coverage was replaced by similar group
coverage within 31 days; or the employee or member is or could be cov-
ered by medicare (title XVIII of the United States social security act as
added by the social security amendments of 1965 or as later amended or
superseded); or

    (C) the employee or member is or could be covered to the same
extent by any other insured or lawful self-insured arrangement which
provides expense incurred hospital, surgical or medical coverage and ben-
efits for individuals in a group under which the person was not covered
prior to such termination. In the event the group policy is terminated and
not replaced the insurer may issue an individual policy or certificate in
lieu of a conversion policy or the continuation of group coverage required
herein if the individual policy or certificate provides substantially similar
coverage for the same or less premium as the group subscription agree-
ment. In any event, the employee or member shall have the option to be
issued a conversion policy which meets the requirements set forth in this
subsection (e) in lieu of the right to continue group coverage.

    (3) Written application for the converted subscription agreement
shall be made and the first premium paid to the insurer not later than 31
days after termination of the group coverage and shall become effective
the day following the termination of insurance under the group subscrip-
tion agreement. In addition, the converted subscription agreement shall
be subject to the provisions contained in paragraphs (2), (3), (4), (5), (6),
(7), (8), (9), (10), (13), (14), (15), (16), (17), (18), (19), and (20) and (21)
of subsection (D) (j) of K.S.A. 40-2209, and amendments thereto.

    Sec. 3. K.S.A. 1997 Supp. 40-19c09 is hereby amended to read as
follows: 40-19c09. (a) Corporations organized under the nonprofit med-
ical and hospital service corporation act shall be subject to the provisions
of the Kansas general corporation code, articles 60 to 74, inclusive, of
chapter 17 of the Kansas Statutes Annotated, applicable to nonprofit cor-
porations, to the provisions of K.S.A. 40-214, 40-215, 40-216, 40-218, 40-
219, 40-222, 40-223, 40-224, 40-225, 40-226, 40-229, 40-230, 40-231, 40-
235, 40-236, 40-237, 40-247, 40-248, 40-249, 40-250, 40-251, 40-252,
40-254, 40-2,100, 40-2,101, 40-2,102, 40-2,103, 40-2,104, 40-2,105, 40-
2,116, 40-2,117, 40-2a01 et seq., 40-2111 to 40-2116, inclusive, 40-2215
to 40-2220, inclusive, 40-2221a, 40-2221b, 40-2229, 40-2230, 40-2250,
40-2251, 40-2253, 40-2254, 40-2401 to 40-2421, inclusive, and 40-3301
to 40-3313, inclusive, K.S.A. 1997 Supp. 40-2,153, 40-2,154, 40-2,160
and, 40-2,161 and sections 28 and 30, and amendments thereto, except
as the context otherwise requires, and shall not be subject to any other
provisions of the insurance code except as expressly provided in this act.

    (b) No policy, agreement, contract or certificate issued by a corpo-
ration to which this section applies shall contain a provision which ex-
cludes, limits or otherwise restricts coverage because medicaid benefits
as permitted by title XIX of the social security act of 1965 are or may be
available for the same accident or illness.

    (c) Violation of subsection (b) shall be subject to the penalties pre-
scribed by K.S.A. 40-2407 and 40-2411, and amendments thereto.

    Sec. 4. K.S.A. 1997 Supp. 40-2122 is hereby amended to read as
follows: 40-2122. (a) Except for those persons who meet the criteria set
forth in subsection (b), any person who has been a resident of this state
for at least six months prior to making application for coverage or any
federally defined eligible individual who is a legal domiciliary of this state,
shall be eligible for plan coverage if such person is able to The following
individuals shall be eligible for plan coverage provided they meet the
criteria set forth in subsection (b):

    (1) Any person who has been a resident of this state for at least six
months;

    (2) any person who is a legal domiciliary of this state who previously
was covered under the high risk pool of another state, provided they apply
for coverage under the plan within 63 days of losing such other coverage
for reasons other than fraud or nonpayment of premiums; or

    (3) any federally defined eligible individual who is a legal domiciliary
of this state.

    (b) Those individuals who are eligible for plan coverage under sub-
section (a) must provide evidence satisfactory to the administering carrier
that such person meets one of the following criteria:

    (1) Such person has had health insurance coverage involuntarily ter-
minated for any reason other than nonpayment of premium;

    (2) such person has applied for health insurance and been rejected
by two carriers because of health conditions;

    (3) such person has applied for health insurance and has been quoted
a premium rate which is in excess of the plan rate;

    (4) such person has been accepted for health insurance subject to a
permanent exclusion of a preexisting disease or medical condition; or

    (5) such person is a federally defined eligible individual.

    (b) (c) Each resident dependent of a person who is eligible for plan
coverage shall also be eligible for plan coverage.

    (c) (d) The following persons shall not be eligible for coverage under
the plan:

    (1) Any person who is eligible for medicare or a recipient of medicaid
benefits;

    (2) any person who has had coverage under the plan terminated less
than 12 months prior to the date of the current application, except that
this provision shall not apply with respect to an applicant who is a federally
defined eligible individual;

    (3) any person who has received accumulated benefits from the plan
equal to or in excess of the lifetime maximum benefits under the plan
prescribed by K.S.A. 40-2124 and amendments thereto;

    (4) any person having access to accident and health insurance through
an employer-sponsored group or self-insured plan; or

    (5) any person who is eligible for any other public or private program
that provides or indemnifies for health services.

    (c) (e) Any person who ceases to meet the eligibility requirements of
this section may be terminated at the end of a policy period.

    (d) (f) All plan members, insurers and insurance arrangements shall
notify in writing persons denied health insurance coverage, for any reason,
of the availability of coverage through the Kansas health insurance asso-
ciation.

    Sec. 5. K.S.A. 1997 Supp. 40-2209 is hereby amended to read as
follows: 40-2209. (A) (a) (1) Group sickness and accident insurance is
declared to be that form of sickness and accident insurance covering
groups of persons, with or without one or more members of their families
or one or more dependents. Except at the option of the employee or
member and except employees or members enrolling in a group policy
after the close of an open enrollment opportunity, no individual employee
or member of an insured group and no individual dependent or family
member may be excluded from eligibility or coverage under a policy pro-
viding hospital, medical or surgical expense benefits both with respect to
policies issued or renewed within this state and with respect to policies
issued or renewed outside this state covering persons residing in this state.
For purposes of this section, an open enrollment opportunity shall be
deemed to be a period no less favorable than a period beginning on the
employee's or member's date of initial eligibility and ending 31 days
thereafter.

    (2) An eligible employee, member or dependent who requests en-
rollment following the open enrollment opportunity or any special en-
rollment period for dependents as specified in subsection (3) shall be
considered a late enrollee. An accident and sickness insurer may exclude
a late enrollee, except during an open enrollment period. However, an
eligible employee, member or dependent shall not be considered a late
enrollee if:

    (a) (A) The individual:

    (i) Was covered under another group policy which provided hospital,
medical or surgical expense benefits or was covered under section 607(1)
of the employee retirement income security act of 1974 (ERISA) at the
time the individual was eligible to enroll;

    (ii) states in writing, at the time of the open enrollment period, that
coverage under another group policy which provided hospital, medical or
surgical expense benefits was the reason for declining enrollment, but
only if the group policyholder or the accident and sickness insurer re-
quired such a written statement and provided the individual with notice
of the requirement for a written statement and the consequences of such
written statement;

    (iii) has lost coverage under another group policy providing hospital,
medical or surgical expense benefits or under section 607(1) of the em-
ployee retirement income security act of 1974 (ERISA) as a result of the
termination of employment, reduction in the number of hours of em-
ployment, termination of employer contributions toward such coverage,
the termination of the other policy's coverage, death of a spouse or di-
vorce or legal separation or was under a COBRA continuation provision
and the coverage under such provision was exhausted; and

    (iv) requests enrollment within 30 days after the termination of cov-
erage under the other policy; or

    (b) (B) a court has ordered coverage to be provided for a spouse or
minor child under a covered employee's or member's policy.

    (3) (a) (A) If an accident and sickness insurer issues a group policy
providing hospital, medical or surgical expenses and makes coverage avail-
able to a dependent of an eligible employee or member and such de-
pendent becomes a dependent of the employee or member through mar-
riage, birth, adoption or placement for adoption, then such group policy
shall provide for a dependent special enrollment period as described in
subsection (3)(b) (B) of this section during which the dependent may be
enrolled under the policy and in the case of the birth or adoption of a
child, the spouse of an eligible employee or member may be enrolled if
otherwise eligible for coverage.

    (b) (B) A dependent special enrollment period under this subsection
shall be a period of not less than 30 days and shall begin on the later of
(i) the date such dependent coverage is made available, or (ii) the date
of the marriage, birth or adoption or placement for adoption.

    (c) (C) If an eligible employee or member seeks to enroll a dependent
during the first 30 days of such a dependent special enrollment period,
the coverage of the dependent shall become effective: (i) in the case of
marriage, not later than the first day of the first month beginning after
the date the completed request for enrollment is received; (ii) in the case
of the birth of a dependent, as of the date of such birth; or (iii) in the
case of a dependent's adoption or placement for adoption, the date of
such adoption or placement for adoption.

    (4) (a) (A) No group policy providing hospital, medical or surgical
expense benefits issued or renewed within this state or issued or renewed
outside this state covering residents within this state shall limit or exclude
benefits for specific conditions existing at or prior to the effective date of
coverage thereunder. Such policy may impose a preexisting conditions
exclusion, not to exceed 90 days following the date of enrollment for
benefits for conditions (whether mental or physical), regardless of the
cause of the condition for which medical advice, diagnosis, care or treat-
ment was recommended or received in the 90 days prior to the effective
date of coverage enrollment. For the purposes of this section, the term
``preexisting conditions exclusion'' shall mean, with respect to coverage,
a limitation or exclusion of benefits relating to a condition based on the
fact that the condition was present before the date of enrollment for such
coverage whether or not any medical advice, diagnosis, care or treatment
was recommended or received before such date. Any preexisting condi-
tions exclusion shall run concurrently with any waiting period.

    (b) (B) Such policy may impose a waiting period after full-time em-
ployment starts before an employee is first eligible to enroll in any ap-
plicable group policy.

    (c) (C) A health maintenance organization which offers such policy
which does not impose any preexisting conditions exclusion may impose
an affiliation period for such coverage, provided that: (i) such application
period is applied uniformly without regard to any health status related
factors and (ii) such affiliation period does not exceed two months. The
affiliation period shall run concurrently with any waiting period under the
plan.

    (d) (D) A health maintenance organization may use alternative meth-
ods from those described in this subsection to address adverse selection
if approved by the commissioner.

    (E) For the purposes of this section, the term ``preexisting conditions
exclusion'' shall mean, with respect to coverage, a limitation or exclusion
of benefits relating to a condition based on the fact that the condition was
present before the date of enrollment for such coverage whether or not
any medical advice, diagnosis, care or treatment was recommended or
received before such date.

    (F) For the purposes of this section, the term ``date of enrollment''
means the date the individual is enrolled under the group policy or, if
earlier, the first day of the waiting period for such enrollment.

    (G) For the purposes of this section, the term ``waiting period'' means
with respect to a group policy the period which must pass before the
individual is eligible to be covered for benefits under the terms of the
policy.

    (5) Genetic information shall not be treated as a preexisting condition
in the absence of a diagnosis of the condition related to such information.

    (6) A group policy providing hospital, medical or surgical expense
benefits may not impose any preexisting condition exclusion relating to
pregnancy as a preexisting condition.

    (7) A group policy providing hospital, medical or surgical expense
benefits may not impose any preexisting condition waiting period in the
case of a child who is adopted or placed for adoption before attaining 18
years of age and who, as of the last day of a 30-day period beginning on
the date of the adoption or placement for adoption, is covered by a policy
specified in subsection (A) (a). This subsection shall not apply to coverage
before the date of such adoption or placement for adoption.

    (8) Such policy shall waive such a preexisting conditions exclusion to
the extent the employee or member or individual dependent or family
member was covered by (a) (A) a group or individual sickness and acci-
dent policy, (b) (B) coverage under section 607(1) of the employees re-
tirement income security act of 1974 (ERISA), (c) (C) a group specified
in K.S.A. 40-2222 and amendments thereto, (d) (D) part A or part B of
title XVIII of the social security act, (e) (E) title XIX of the social security
act, other than coverage consisting solely of benefits under section 1928,
(f) (F) a state children's health insurance program established pursuant
to title XXI of the social security act, (G) chapter 55 of title 10 United
States code, (g) (H) a medical care program of the indian health service
or of a tribal organization, (h) (I) the Kansas uninsurable health plan act
pursuant to K.S.A. 40-2217 et seq. and amendments thereto or a similar
health benefits risk pool of another state, (i) (J) a health plan offered
under chapter 89 of title 5, United States code, (j) (K) a health benefit
plan under section 5(e) of the peace corps act (22 U.S.C. 2504(e), or (k)
(L) a group subject to K.S.A. 12-2616 et seq. and amendments thereto
which provided hospital, medical and surgical expense benefits within 63
days prior to the effective date of coverage with no gap in coverage. A
group policy shall credit the periods of prior coverage specified in sub-
section (A) (a)(7) without regard to the specific benefits covered during
the period of prior coverage. Any period that the employee or member
is in a waiting period for any coverage under a group health plan or is in
an affiliation period shall not be taken into account in determining the
continuous period under this subsection.

    (B) (b) (1) An accident and sickness insurer which offers group pol-
icies providing hospital, medical or surgical expense benefits shall provide
a certification as described in subsection (B) (b)(2): (a) (A) At the time
an eligible employee, member or dependent ceases to be covered under
such policy or otherwise becomes covered under a COBRA continuation
provision; (b) (B) in the case of an eligible employee, member or de-
pendent being covered under a COBRA continuation provision, at the
time such eligible employee, member or dependent ceases to be covered
under a COBRA continuation provision; and (c) (C) on the request on
behalf of such eligible employee, member or dependent made not later
than 24 months after the date of the cessation of the coverage described
in subsection (B) (b)(1)(a) (A) or (B) (b)(1)(b) (B), whichever is later.

    (2) The certification described in this subsection is a written certifi-
cation of (a) (A) the period of coverage under a policy specified in sub-
section (A) (a) and any coverage under such COBRA continuation pro-
vision, and (b) (B) any waiting period imposed with respect to the eligible
employee, member or dependent for any coverage under such policy.

    (C) (c) Any group policy may impose participation requirements, de-
fine full-time employees or members and otherwise be designed for the
group as a whole through negotiations between the group sponsor and
the insurer to the extent such design is not contrary to or inconsistent
with this act.

    (D) (d) (1) An accident and sickness insurer offering a group policy
providing hospital, medical or surgical expense benefits must renew or
continue in force such coverage at the option of the policyholder or cer-
tificateholder except as provided in subsection (2) paragraph (2) below.

    (2) An accident and sickness insurer may nonrenew or discontinue
coverage under a group policy providing hospital, medical or surgical
expense benefits based only on one or more of the following circum-
stances:

    (a) (A) If the policyholder or certificateholder has failed to pay any
premium or contributions in accordance with the terms of the group
policy providing hospital, medical or surgical expense benefits or the ac-
cident and sickness insurer has not received timely premium payments;

    (b) (B) if the policyholder or certificateholder has performed an act
or practice that constitutes fraud or made an intentional misrepresenta-
tion of material fact under the terms of such coverage;

    (c) (C) if the policyholder or certificateholder has failed to comply
with a material plan provision relating to employer contribution or group
participation rules;

    (d) (D) if the accident and sickness insurer is ceasing to offer coverage
in such group market in accordance with subsections (D) (d)(3) or (D)
(d)(4);

    (e) (E) in the case of accident and sickness insurer that offers cov-
erage under a policy providing hospital, medical or surgical expense ben-
efits through an enrollment area, there is no longer any eligible employee,
member or dependent in connection with such policy who lives, resides
or works in the medical service enrollment area of the accident and sick-
ness insurer ( or in the area for which the accident and sickness insurer
is authorized to do business); or

    (f) (F) in the case of a group policy providing hospital, medical or
surgical expense benefits which is offered through an association or trust
pursuant to subsections (F) (f)(3) or (F) (f)(5), the membership of the
employer in such association or trust ceases but only if such coverage is
terminated uniformly without regard to any health status related factor
relating to any eligible employee, member or dependent.

    (3) In any case in which an accident and sickness insurer which offers
a group policy providing hospital, medical or surgical expense benefits
decides to discontinue offering such type of group policy, such coverage
may be discontinued only if:

    (a) (A) The accident and sickness insurer notifies all policyholders
and certificateholders and all eligible employees or members of such dis-
continuation at least 90 days prior to the date of the discontinuation of
such coverage;

    (b) (B) the accident and sickness insurer offers to each policyholder
who is provided such group policy providing hospital, medical or surgical
expense benefits which is being discontinued the option to purchase any
other group policy providing hospital, medical or surgical expense bene-
fits currently being offered by such accident and sickness insurer; and

    (c) (C) in exercising the option to discontinue coverage and in offer-
ing the option of coverage under paragraph (b) subparagraph (B), the
accident and sickness insurer acts uniformly without regard to the claims
experience of those policyholders or certificateholders or any health status
related factors relating to any eligible employee, member or dependent
covered by such group policy or new employees or members who may
become eligible for such coverage.

    (4) If the accident and sickness insurer elects to discontinue offering
group policies providing hospital, medical or surgical expense benefits or
group coverage to a small employer pursuant to K.S.A. 40-2209f and
amendments thereto, such coverage may be discontinued only if:

    (a) (A) The accident and sickness insurer provides notice to the in-
surance commissioner, to all policyholders or certificateholders and to all
eligible employees and members covered by such group policy providing
hospital, medical or surgical expense benefits at least 180 days prior to
the date of the discontinuation of such coverage;

    (b) (B) all group policies providing hospital, medical or surgical ex-
pense benefits offered by such accident and sickness insurer are discon-
tinued and coverage under such policies are not renewed; and

    (c) (C) the accident and sickness insurer may not provide for the
issuance of any group policies providing hospital, medical or surgical ex-
pense benefits in the discontinued market during a five year period be-
ginning on the date of the discontinuation of the last such group policy
which is nonrenewed.

    (E) (e) (1) An accident and sickness insurer offering a group policy
providing hospital, medical or surgical expense benefits may not establish
rules for eligibility (including continued eligibility) of any employee,
member or dependent to enroll under the terms of the group policy based
on any of the following factors in relation to the eligible employee, mem-
ber or dependent: (a) (A) Health status, (b) (B) medical condition, (in-
cluding both physical and mental illness), (c) (C) claims experience, (d)
(D) receipt of health care, (e) (E) medical history, (f) (F) genetic infor-
mation, (g) (G) evidence of insurability, (including conditions arising out
of acts of domestic violence), or (h) (H) disability. This subsection shall
not be construed to require a policy providing hospital, medical or surgical
expense benefits to provide particular benefits other than those provided
under the terms of such group policy or to prevent a group policy pro-
viding hospital, medical or surgical expense benefits from establishing
limitations or restrictions on the amount, level, extent or nature of the
benefits or coverage for similarly situated individuals enrolled under the
group policy.

    (F) (f) Group accident and health insurance may be offered to a
group under the following basis:

    (1) Under a policy issued to an employer or trustees of a fund estab-
lished by an employer, who is the policyholder, insuring at least two em-
ployees of such employer, for the benefit of persons other than the em-
ployer. The term ``employees'' shall include the officers, managers,
employees and retired employees of the employer, the partners, if the
employer is a partnership, the proprietor, if the employer is an individual
proprietorship, the officers, managers and employees and retired em-
ployees of subsidiary or affiliated corporations of a corporation employer,
and the individual proprietors, partners, employees and retired employ-
ees of individuals and firms, the business of which and of the insured
employer is under common control through stock ownership contract, or
otherwise. The policy may provide that the term ``employees'' may include
the trustees or their employees, or both, if their duties are principally
connected with such trusteeship. A policy issued to insure the employees
of a public body may provide that the term ``employees'' shall include
elected or appointed officials.

    (2) Under a policy issued to a labor union which shall have a consti-
tution and bylaws insuring at least 25 members of such union.

    (3) Under a policy issued to the trustees of a fund established by two
or more employers or business associations or by one or more labor un-
ions or by one or more employers and one or more labor unions, which
trustees shall be the policyholder, to insure employees of the employers
or members of the union or members of the association for the benefit
of persons other than the employers or the unions or the associations.
The term ``employees'' shall include the officers, managers, employees
and retired employees of the employer and the individual proprietor or
partners if the employer is an individual proprietor or partnership. The
policy may provide that the term ``employees'' shall include the trustees
or their employees, or both, if their duties are principally connected with
such trusteeship.

    (4) A policy issued to a creditor, who shall be deemed the policyhol-
der, to insure debtors of the creditor, subject to the following require-
ments: (a) The debtors eligible for insurance under the policy shall be all
of the debtors of the creditor whose indebtedness is repayable in install-
ments, or all of any class or classes determined by conditions pertaining
to the indebtedness or to the purchase giving rise to the indebtedness.
(b) The premium for the policy shall be paid by the policyholder, either
from the creditor's funds or from charges collected from the insured
debtors, or from both.

    (5) A policy issued to an association which has been organized and is
maintained for the purposes other than that of obtaining insurance, in-
suring at least 25 members, employees, or employees of members of the
association for the benefit of persons other than the association or its
officers. The term ``employees'' shall include retired employees. The pre-
miums for the policies shall be paid by the policyholder, either wholly
from association funds, or funds contributed by the members of such
association or by employees of such members or any combination thereof.

    (6) Under a policy issued to any other type of group which the com-
missioner of insurance may find is properly subject to the issuance of a
group sickness and accident policy or contract.

    (G) (g) Each such policy shall contain in substance: (1) A provision
that a copy of the application, if any, of the policyholder shall be attached
to the policy when issued, that all statements made by the policyholder
or by the persons insured shall be deemed representations and not war-
ranties, and that no statement made by any person insured shall be used
in any contest unless a copy of the instrument containing the statement
is or has been furnished to such person or the insured's beneficiary.

    (2) A provision setting forth the conditions under which an individ-
ual's coverage terminates under the policy, including the age, if any, to
which an individual's coverage under the policy shall be limited, or, the
age, if any, at which any additional limitations or restrictions are placed
upon an individual's coverage under the policy.

    (3) Provisions setting forth the notice of claim, proofs of loss and
claim forms, physical examination and autopsy, time of payment of claims,
to whom benefits are payable, payment of claims, change of beneficiary,
and legal action requirements. Such provisions shall not be less favorable
to the individual insured or the insured's beneficiary than those corre-
sponding policy provisions required to be contained in individual accident
and sickness policies.

    (4) A provision that the insurer will furnish to the policyholder, for
the delivery to each employee or member of the insured group, an in-
dividual certificate approved by the commissioner of insurance setting
forth in summary form a statement of the essential features of the insur-
ance coverage of such employee or member, the procedure to be followed
in making claim under the policy and to whom benefits are payable. Such
certificate shall also contain a summary of those provisions required under
paragraphs (2) and (3) of this subsection (g) in addition to the other
essential features of the insurance coverage. If dependents are included
in the coverage, only one certificate need be issued for each family unit.

    (H) (h) No group disability income policy which integrates benefits
with social security benefits, shall provide that the amount of any disability
benefit actually being paid to the disabled person shall be reduced by
changes in the level of social security benefits resulting either from
changes in the social security law or due to cost of living adjustments
which become effective after the first day for which disability benefits
become payable.

    (I) (i) A group policy of insurance delivered or issued for delivery or
renewed which provides hospital, surgical or major medical expense in-
surance, or any combination of these coverages, on an expense incurred
basis, shall provide that an employee or member or such employee's or
member's covered dependents whose insurance under the group policy
has been terminated for any reason, including discontinuance of the
group policy in its entirety or with respect to an insured class, and who
has been continuously insured under the group policy or under any group
policy providing similar benefits which it replaces for at least three
months immediately prior to termination, shall be entitled to have such
coverage nonetheless continued under the group policy for a period of
six months and have issued to the employee or member or such em-
ployee's or member's covered dependents by the insurer, at the end of
such six-month period of continuation, a policy of health insurance which
conforms to the applicable requirements specified in this subsection. This
requirement shall not apply to a group policy which provides benefits for
specific diseases or for accidental injuries only or a group policy issued to
an employer subject to the continuation and conversion obligations set
forth at title I, subtitle B, part 6 of the employee retirement income
security act of 1974 or at title XXII of the public health service act, as
each act was in effect on January 1, 1987 to the extent federal law provides
the employee or member or such employee's or member's covered de-
pendents with equal or greater continuation or conversion rights; or an
employee or member or such employee's or member's covered depend-
ents shall not be entitled to have such coverage continued or a converted
policy issued to the employee or member or such employee's or member's
covered dependents if termination of the insurance under the group pol-
icy occurred because:

    (a) (1) The employee or member or such employee's or member's
covered dependents failed to pay any required contribution after receiv-
ing reasonable notice of such required contribution from the insurer in
accordance with rules and regulations adopted by the commissioner of
insurance; (b) (2) any discontinued group coverage was replaced by sim-
ilar group coverage within 31 days; (c) (3) the employee or member is or
could be covered by medicare (title XVIII of the United States social
security act as added by the social security amendments of 1965 or as
later amended or superseded); or (d) (4) the employee or member is or
could be covered to the same extent by any other insured or lawful self-
insured arrangement which provides expense incurred hospital, surgical
or medical coverage and benefits for individuals in a group under which
the person was not covered prior to such termination. In the event the
group policy is terminated and not replaced the insurer may issue an
individual policy or certificate in lieu of a conversion policy or the con-
tinuation of group coverage required herein if the individual policy or
certificate provides substantially similar coverage for the same or less
premium as the group policy. In any event, the employee or member
shall have the option to be issued a conversion policy which meets the
requirements set forth in this subsection (I) in lieu of the right to continue
group coverage.

    (j) The continued coverage and the issuance of a converted policy
shall be subject to the following conditions:

    (1) Written application for the converted policy shall be made and
the first premium paid to the insurer not later than 31 days after termi-
nation of coverage under the group policy or not later than 31 days after
notice is received pursuant to subsection (I)(21)(b)(ii) paragraph 20 of
this subsection.

    (2) The converted policy shall be issued without evidence of insura-
bility.

    (3) The terminated employee or member shall pay to the insurer the
premium for the six-month continuation of coverage and such premium
shall be the same as that applicable to members or employees remaining
in the group. Failure to pay such premium shall terminate coverage under
the group policy at the end of the period for which the premium has been
paid. The premium rate charged for converted policies issued subsequent
to the period of continued coverage shall be such that can be expected
to produce an anticipated loss ratio of not less than 80% based upon
conversion, morbidity and reasonable assumptions for expected trends in
medical care costs. In the event the group policy is terminated and is not
replaced, converted policies may be issued at self-sustaining rates that
are not unreasonable in relation to the coverage provided based on con-
version, morbidity and reasonable assumptions for expected trends in
medical care costs. The frequency of premium payment shall be the fre-
quency customarily required by the insurer for the policy form and plan
selected, provided that the insurer shall not require premium payments
less frequently than quarterly.

    (4) The effective date of the converted policy shall be the day follow-
ing the termination of insurance under the group policy.

    (5) The converted policy shall cover the employee or member and
the employee's or member's dependents who were covered by the group
policy on the date of termination of insurance. At the option of the in-
surer, a separate converted policy may be issued to cover any dependent.

    (6) The insurer shall not be required to issue a converted policy cov-
ering any person if such person is or could be covered by medicare (title
XVIII of the United States social security act as added by the social se-
curity amendments of 1965 or as later amended or superseded). Fur-
thermore, the insurer shall not be required to issue a converted policy
covering any person if:

    (a) (A) (i) Such person is covered for similar benefits by another hos-
pital, surgical, medical or major medical expense insurance policy or hos-
pital or medical service subscriber contract or medical practice or other
prepayment plan or by any other plan or program, or

    (ii) such person is eligible for similar benefits (whether or not covered
therefor) under any arrangement of coverage for individuals in a group,
whether on an insured or uninsured basis, or

    (iii) similar benefits are provided for or available to such person, pur-
suant to or in accordance with the requirements of any state or federal
law, and

    (b) (B) the benefits provided under the sources referred to in para-
graph clause (A) (i) above for such person or benefits provided or available
under the sources referred to in paragraphs clauses (A) (ii) and (A) (iii)
above for such person, together with the benefits provided by the con-
verted policy, would result in over-insurance according to the insurer's
standards. The insurer's standards must bear some reasonable relation-
ship to actual health care costs in the area in which the insured lives at
the time of conversion and must be filed with the commissioner of in-
surance prior to their use in denying coverage.

    (7) A converted policy may include a provision whereby the insurer
may request information in advance of any premium due date of such
policy of any person covered as to whether:

    (a) (A) Such person is covered for similar benefits by another hospital,
surgical, medical or major medical expense insurance policy or hospital
or medical service subscriber contract or medical practice or other pre-
payment plan or by any other plan or program;

    (b) (B) such person is covered for similar benefits under any arrange-
ment of coverage for individuals in a group, whether on an insured or
uninsured basis; or

    (c) (C) similar benefits are provided for or available to such person,
pursuant to or in accordance with the requirements of any state or federal
law.

    (8) The converted policy may provide that the insurer may refuse to
renew the policy and the coverage of any person insured for the following
reasons only:

    (a) (A) Either the benefits provided under the sources referred to in
paragraphs clauses (A) (i) and (A) (ii) above of paragraph 6 for such
person or benefits provided or available under the sources referred to in
paragraph clause (A) (iii) above of paragraph 6 for such person, together
with the benefits provided by the converted policy, would result in
over-insurance according to the insurer's standards on file with the com-
missioner of insurance, or the converted policyholder fails to provide the
requested information;

    (b) (B) fraud or material misrepresentation in applying for any ben-
efits under the converted policy;

    (c) (C) eligibility of the insured person for coverage under medicare
(title XVIII of the United States social security act as added by the social
security amendments of 1965 or as later amended or superseded) or un-
der any other state or federal law (except title XIX of the social security
act of 1965) providing for benefits similar to those provided by the con-
verted policy; or

    (d) (D) other reasons approved by the commissioner of insurance.

    (8) (9) An insurer shall not be required to issue a converted policy
which provides coverage and benefits in excess of those provided under
the group policy from which conversion is made.

    (9) (10) If the converted policy provides that any hospital, surgical or
medical benefits payable may be reduced by the amount of any such
benefits payable under the group policy after the termination of the in-
dividual's insurance or the converted policy includes provisions so that
during the first policy year the benefits payable under the converted pol-
icy, together with the benefits payable under the group policy, shall not
exceed those that would have been payable had the individual's insurance
under the group policy remained in force and effect, the converted policy
shall provide credit for deductibles, copayments and other conditions sat-
isfied under the group policy.

    (10) (11) Subject to the provisions and conditions of this act, if the
group insurance policy from which conversion is made insures the em-
ployee or member for major medical expense insurance, the employee
or member shall be entitled to obtain a converted policy providing cata-
strophic or major medical coverage under a plan meeting the following
requirements:

    (a) (A) A maximum benefit at least equal to either, at the option of
the insurer, paragraphs (i) or (ii) below:

    (i) The smaller of the following amounts:

    1. The maximum benefit provided under the group policy. or 2. a
maximum payment of $250,000 per covered person for all covered med-
ical expenses incurred during the covered person's lifetime.

    (ii) The smaller of the following amounts:

    1. The maximum benefit provided under the group policy. or 2. a
maximum payment of $250,000 for each unrelated injury or sickness.

    (b) (B) Payment of benefits at the rate of 80% of covered medical
expenses which are in excess of the deductible, until 20% of such expenses
in a benefit period reaches $1,000, after which benefits will be paid at
the rate of 100% during the remainder of such benefit period. Payment
of benefits for outpatient treatment of mental illness, if provided in the
converted policy, may be at a lesser rate but not less than 50%.

    (c) (C) A deductible for each benefit period which, at the option of
the insurer, shall be (a) (i) the sum of the benefits deductible and $100,
or (b) (ii) the corresponding deductible in the group policy. The term
``benefits deductible,'' as used herein, means the value of any benefits
provided on an expense incurred basis which are provided with respect
to covered medical expenses by any other hospital, surgical, or medical
insurance policy or hospital or medical service subscriber contract or
medical practice or other prepayment plan, or any other plan or program
whether on an insured or uninsured basis, or in accordance with the
requirements of any state or federal law and, if pursuant to condition (12)
the conditions of paragraph (13), the converted policy provides both basic
hospital or surgical coverage and major medical coverage, the value of
such basic benefits.

    If the maximum benefit is determined by paragraph clause (a)(ii) above
of this paragraph, the insurer may require that the deductible be satisfied
during a period of not less than three months if the deductible is $100 or
less, and not less than six months if the deductible exceeds $100.

    (d) (D) The benefit period shall be each calendar year when the max-
imum benefit is determined by paragraph (a) clause (A)(i) above of this
paragraph or 24 months when the maximum benefit is determined by
paragraph clause (a) (A)(ii) above of this paragraph.

    (e) (E) The term ``covered medical expenses,'' as used above, shall
include at least, in the case of hospital room and board charges 80% of
the average semiprivate room and board rate for the hospital in which
the individual is confined and twice such amount for charges in an inten-
sive care unit. Any surgical schedule shall be consistent with those cus-
tomarily offered by the insurer under group or individual health insurance
policies and must provide at least a $1,200 maximum benefit.

    (11) (12) The conversion privilege required by this act shall, if the
group insurance policy insures the employee or member for basic hospital
or surgical expense insurance as well as major medical expense insurance,
make available the plans of benefits set forth in condition 10 paragraph
11. At the option of the insurer, such plans of benefits may be provided
under one policy.

    The insurer may also, in lieu of the plans of benefits set forth in con-
dition 10 paragraph (11), provide a policy of comprehensive medical ex-
pense benefits without first dollar coverage. The policy shall conform to
the requirements of condition (10) paragraph (11). An insurer electing
to provide such a policy shall make available a low deductible option, not
to exceed $100, a high deductible option between $500 and $1,000, and
a third deductible option midway between the high and low deductible
options.

    (12) (13) The insurer, at its option, may also offer alternative plans
for group health conversion in addition to those required by this act.

    (13) (14) In the event coverage would be continued under the group
policy on an employee following the employee's retirement prior to the
time the employee is or could be covered by medicare, the employee may
elect, in lieu of such continuation of group insurance, to have the same
conversion rights as would apply had such person's insurance terminated
at retirement by reason of termination of employment or membership.

    (14) (15) The converted policy may provide for reduction of coverage
on any person upon such person's eligibility for coverage under medicare
(title XVIII of the United States social security act as added by the social
security amendments of 1965 or as later amended or superseded) or un-
der any other state or federal law providing for benefits similar to those
provided by the converted policy.

    (15) (16) Subject to the conditions set forth above, the continuation
and conversion privileges shall also be available:

    (a) (A) To the surviving spouse, if any, at the death of the employee
or member, with respect to the spouse and such children whose coverage
under the group policy terminates by reason of such death, otherwise to
each surviving child whose coverage under the group policy terminates
by reason of such death, or, if the group policy provides for continuation
of dependents' coverage following the employee's or member's death, at
the end of such continuation;

    (b) (B) to the spouse of the employee or member upon termination
of coverage of the spouse, while the employee or member remains in-
sured under the group policy, by reason of ceasing to be a qualified family
member under the group policy, with respect to the spouse and such
children whose coverage under the group policy terminates at the same
time; or

    (c) (C) to a child solely with respect to such child upon termination
of such coverage by reason of ceasing to be a qualified family member
under the group policy, if a conversion privilege is not otherwise provided
above with respect to such termination.

    (16) (17) The insurer may elect to provide group insurance coverage
which complies with this act in lieu of the issuance of a converted indi-
vidual policy.

    (17) (18) A notification of the conversion privilege shall be included
in each certificate of coverage.

    (18) (19) A converted policy which is delivered outside this state must
be on a form which could be delivered in such other jurisdiction as a
converted policy had the group policy been issued in that jurisdiction.

    (19) (20) The insurer shall give the employee or member and such
employee's or member's covered dependents: (a) (A) Reasonable notice
of the right to convert at least once during the six-month continuation
period; or (b) (B) for persons covered under 29 U.S.C. 1161 et seq., notice
of the right to a conversion policy required by this subsection (D) (d)
shall be given at least 30 days: (i) prior to the end of the continuation
period provided by 29 U.S.C. 1161 et seq., or (ii) from the date the
employer ceases to provide any similar group health plan to any employee.
Such notices shall be provided in accordance with rules and regulations
adopted by the commissioner of insurance.

    (J) (k) (1) No policy issued by an insurer to which this section applies
shall contain a provision which excludes, limits or otherwise restricts cov-
erage because medicaid benefits as permitted by title XIX of the social
security act of 1965 are or may be available for the same accident or
illness.

    (2) Violation of this subsection shall be subject to the penalties pre-
scribed by K.S.A. 40-2407 and 40-2411, and amendments thereto.

    (K) (l) The commissioner is hereby authorized to adopt such rules
and regulations as may be necessary to carry out the provisions of this
section.

    Sec. 6. K.S.A. 1997 Supp. 40-2209d is hereby amended to read as
follows: 40-2209d. As used in this act:

    (a) ``Actuarial certification'' means a written statement by a member
of the American academy of actuaries or other individual acceptable to
the commissioner that a small employer carrier is in compliance with the
provisions of K.S.A. 40-2209h and amendments thereto, based upon the
person's examination, including a review of the appropriate records and
of the actuarial assumptions and methods used by the small employer
carrier in establishing premium rates for applicable health benefit plans.

    (b) ``Approved service area'' means a geographical area, as approved
by the commissioner to transact insurance in this state, within which the
carrier is authorized to provide coverage.

    (c) ``Base premium rate'' means, for each class of business as to a
rating period, the lowest premium rate charged or that could have been
charged under the rating system for that class of business, by the small
employer carrier to small employers with similar case characteristics for
health benefit plans with the same or similar coverage.

    (d) ``Basic small employer health care plan'' means a health benefit
plan developed by the board pursuant to K.S.A. 40-2209k and amend-
ments thereto.

    (e) ``Board'' means the board of directors of the program.

    (f) (d) ``Carrier'' or ``small employer carrier'' means any insurance
company, nonprofit medical and hospital service corporation, nonprofit
optometric, dental, and pharmacy service corporations, municipal
group-funded pool, fraternal benefit society or health maintenance or-
ganization, as these terms are defined by the Kansas Statutes Annotated,
that offers health benefit plans covering eligible employees of one or more
small employers in this state.

    (g) (e) ``Case characteristics'' means, with respect to a small employer,
the geographic area in which the employees reside; the age and sex of
the individual employees and their dependents; the appropriate industry
classification as determined by the carrier, and the number of employees
and dependents and such other objective criteria as may be approved
family composition by the commissioner. ``Case characteristics'' shall not
include claim experience, health status and duration of coverage since
issue.

    (h) (f) ``Class of business'' means all or a separate grouping of small
employers established pursuant to K.S.A. 40-2209g and amendments
thereto.

    (i) (g) ``Commissioner'' means the commissioner of insurance.

    (j) (h) ``Department'' means the insurance department.

    (k) (i) ``Dependent'' means the spouse or child of an eligible em-
ployee, subject to applicable terms of the health benefits plan covering
such employee and the dependent eligibility standards established by the
board.

    (l) (j) ``Eligible employee'' means an employee who works on a full-
time basis, with a normal work week of 30 or more hours, and includes
a sole proprietor, a partner of a partnership or an independent contractor,
provided such sole proprietor, partner or independent contractor is in-
cluded as an employee under a health benefit plan of a small employer
but does not include an employee who works on a part-time, temporary
or substitute basis.

    (m) (k) ``Financially impaired'' means a member which, after the ef-
fective date of this act, is not insolvent but is:

    (1) Deemed by the commissioner to be in a hazardous financial con-
dition pursuant to K.S.A. 40-222d and amendments thereto; or

    (2) placed under an order of rehabilitation or conservation by a court
of competent jurisdiction.

    (n) (l) ``Health benefit plan'' means any hospital or medical expense
policy, health, hospital or medical service corporation contract, and a plan
provided by a municipal group-funded pool, or a health maintenance
organization contract offered by an employer or any certificate issued
under any such policies, contracts or plans. ``Health benefit plan'' does
not include policies or certificates covering only accident, credit, dental,
disability income, long-term care, hospital indemnity, medicare supple-
ment, specified disease, vision care, coverage issued as a supplement to
liability insurance, insurance arising out of a workers compensation or
similar law, automobile medical-payment insurance, or insurance under
which benefits are payable with or without regard to fault and which is
statutorily required to be contained in any liability insurance policy or
equivalent self-insurance.

    (o) (m) ``Index rate'' means, for each class of business as to a rating
period for small employers with similar case characteristics, the arithmetic
average of the applicable base premium rate and the corresponding high-
est premium rate.

    (p) (n) ``Initial enrollment period'' means the period of time specified
in the health benefit plan during which an individual is first eligible to
enroll in a small employer health benefit plan. Such period shall be no
less favorable than a period beginning on the employee's or member's
date of initial eligibility and ending 31 days thereafter.

    (q) (o) ``Late enrollee'' means an eligible employee or dependent who
requests enrollment in a small employer's health benefit plan following
the initial enrollment period provided under the terms of the first plan
for which such employee or dependent was eligible through such small
employer, however an eligible employee or dependent shall not be con-
sidered a late enrollee if:

    (1) The individual:

    (A) Was covered under another employer-provided health benefit
plan or was covered under section 607(1) of the employee retirement
income security act of 1974 (ERISA) at the time the individual was eli-
gible to enroll;

    (B) states in writing, at the time of the initial eligibility, that coverage
under another employer health benefit plan was the reason for declining
enrollment but only if the group policyholder or the accident and sickness
issuer required such a written statement and provided the individual with
notice of the requirement for a written statement and the consequences
of such written statement;

    (C) has lost coverage under another employer health benefit plan or
under section 607(1) of the employee retirement income security act of
1974 (ERISA) as a result of the termination of employment, reduction in
the number of hours of employment, termination of employer contribu-
tions toward such coverage, the termination of the other plan's coverage,
death of a spouse, or divorce or legal separation; and

    (D) requests enrollment within 63 days after the termination of cov-
erage under another employer health benefit plan; or

    (2) the individual is employed by an employer who offers multiple
health benefit plans and the individual elects a different health benefit
plan during an open enrollment period; or

    (3) a court has ordered coverage to be provided for a spouse or minor
child under a covered employee's plan.

    (r) (p) ``New business premium rate'' means, for each class of busi-
ness as to a rating period, the lowest premium rate charged or offered,
or which could have been charged or offered, by the small employer
carrier to small employers with similar case characteristics for newly is-
sued health benefit plans with the same or similar coverage.

    (s) ``Plan of operation'' means the articles, bylaws and operating rules
of the program adopted by the board pursuant to K.S.A. 40-2209l and
amendments thereto.

    (t) (q) ``Preexisting conditions exclusion'' means a policy provision
which excludes or limits coverage for charges or expenses incurred during
a specified period not to exceed 90 days following the insured's effective
date of coverage enrollment as to a condition (, whether physical or men-
tal), regardless of the cause of the condition for which medical advice,
diagnosis, care or treatment was recommended or received in the six
months immediately preceding the effective date of coverage enrollment.

    (u) (r) ``Premium'' means moneys paid by a small employer or eligible
employees or both as a condition of receiving coverage from a small em-
ployer carrier, including any fees or other contributions associated with
the health benefit plan.

    (v) ``Program'' means the Kansas small employer health reinsurance
program, established under K.S.A. 40-2209l and amendments thereto.

    (w) (s) ``Rating period'' means the calendar period for which pre-
mium rates established by a small employer carrier are assumed to be in
effect but any period of less than one year shall be considered as a full
year.

    (x) ``SEHC plan'' means the Kansas small employer health care plan
which shall be a health benefit plan for small employers established by
the board in accordance with K.S.A. 40-2209k and amendments thereto.

    (y) (t) `` Waiting period'' means a period of time after full-time em-
ployment begins before an employee is first eligible to enroll in any ap-
plicable health benefit plan offered by the small employer.

    (z) (u) ``Small employer'' means any person, firm, corporation, part-
nership or association eligible for group sickness and accident insurance
pursuant to subsection (A) (a) of K.S.A. 40-2209 and amendments thereto
actively engaged in business whose total employed work force consisted
of, on at least 50% of its working days during the preceding year, of at
least two and no more than 50 eligible employees, the majority of whom
were employed within the state. In determining the number of eligible
employees, companies which are affiliated companies or which are eli-
gible to file a combined tax return for purposes of state taxation, shall be
considered one employer. Except as otherwise specifically provided, pro-
visions of this act which apply to a small employer which has a health
benefit plan shall continue to apply until the plan anniversary following
the date the employer no longer meets the requirements of this defini-
tion.

    (aa) ``Standard small employer health care plan'' means a basic SEHC
plan with specified benefit enhancements and such deductible and co-
insurance provisions as may be developed by the board pursuant to K.S.A.
40-2209k and amendments thereto.

    (bb) (v) ``Affiliate'' or ``affiliated'' means an entity or person who di-
rectly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, a specified entity or
person.

    Sec. 7. K.S.A. 1997 Supp. 40-2209e is hereby amended to read as
follows: 40-2209e. (a) Any individual or group health benefit plan issued
to a group authorized by subsection (A) (a) of K.S.A. 40-2209 and amend-
ments thereto shall be subject to the provisions of this act if it provides
health care benefits covering employees of a small employer and if it
meets any one of the following conditions:

    (1) Any portion of the premium is paid by a small employer, or any
covered individual, whether through wage adjustments, reimbursement,
withholding or otherwise;

    (2) the health benefit plan is treated by the employer or any of the
covered individuals as part of a plan or program for the purposes of sec-
tion 106 or section 162 of the United States internal revenue code; or

    (3) with the permission of the board, the carrier elects to renew or
continue a health benefit plan covering employees of an employer who
no longer meets the definition of a ``small employer.''

    (b) For purposes of this act an aggregation of two or more small
employers covered under a trust arrangement or a policy issued to an
association of small employers pursuant to subsection (A)(3) or (5) of
K.S.A. 40-2209 and amendments thereto shall permit employee or mem-
ber units of more than two but less than 51 employees or members and
their dependents to participate in any health benefit plan to which this
act applies. Any group which includes employee or member units of 50
or fewer employees shall be subject to the provisions of this act notwith-
standing its inclusion of employee or member units with more than 50
employees or members.

    (c) Except as expressly provided for in this act, no law requiring the
coverage or the offer of coverage of a health care service or benefit shall
apply to any SEHC plan offered or delivered to a small employer.

    (d) Except as expressly provided in this act, no health benefit plan
offered to a small employer shall be subject to:

    (1) Any law that would inhibit any carrier from contracting with pro-
viders or groups of providers with respect to health care services or ben-
efits;

    (2) any law that would impose any restriction on the ability to nego-
tiate with providers regarding the level or method of reimbursing care or
services provided under the health benefit plan.

    (e) (d) Individual policies of accident and sickness insurance issued
to individuals and their dependents totally independent of any group,
association or trust arrangement permitted under K.S.A. 40-2209 and
amendments thereto shall not be subject to the provisions of this act.

    Sec. 8. K.S.A. 1997 Supp. 40-2209f is hereby amended to read as
follows: 40-2209f. Health benefit plans covering small employers that are
issued or renewed within this state or outside this state covering persons
residing in this state shall be subject to the following provisions, as ap-
plicable:

    (a) Provisions of preexisting conditions shall not exclude or limit cov-
erage for a period beyond 90 days following the individual's effective date
of coverage and may only relate to conditions (whether physical or men-
tal) regardless of the cause of the condition for which medical advice,
diagnosis, care or treatment was recommended or received, during the
six months immediately preceding the effective date of coverage. Any
preexisting conditions exclusion shall run concurrently with any waiting
period.

    (b) Such policy may impose a preexisting conditions exclusion, not to
exceed 90 days following the date of enrollment, for conditions (whether
physical or mental), regardless of the cause of the condition for which
medical advice, diagnosis, care or treatment was recommended or re-
ceived in the six months prior to the effective date of coverage enrollment.
Any preexisting conditions exclusion shall run concurrently with any wait-
ing period.

    (b) Such policy shall waive such a preexisting conditions exclusion to
the extent the employee or member or individual dependent or family
member was covered by (1) a group or individual sickness and accident
policy, (2) coverage under section 607(1) of the employees retirement
income security act of 1974 (ERISA), (3) a group specified in K.S.A.
40-2222 and amendments thereto (4) part A or part B of title XVIII of
the social security act, (5) title XIX of the social security act, other than
coverage consisting solely of benefits under section 1928, (6) chapter 55
of title 10 United States code, (7) a state children's health insurance pro-
gram established pursuant to title XXI of the social security act, (5) (8)
medical care program of the indian health service or of a tribal organi-
zation, (6) (9) the Kansas uninsurable health plan act pursuant to K.S.A.
40-2217 et seq. and amendments thereto or similar health benefits risk
pool of another state, (7) (10) a health plan offered under chapter 89 of
title 5, United States code, (8) (11) a health benefit plan under section
5(e) of the peace corps act (22 U.S.C. 2504 (e) or (9) (12) a group subject
to K.S.A. 12-2616 et seq. and amendments thereto which provided hos-
pital, medical and surgical expense benefits within 63 days prior to the
effective date of coverage under a health benefit plan with no gap in
coverage. A group policy shall credit the periods of prior coverage spec-
ified in this subsection without regard to the specific benefits covered
during the period of prior coverage. Any period that the employee or
member is in a waiting period for any coverage under a group health plan
or is in an affiliation period shall be taken into account in determining
the continuous period under this subsection.

    (c) A carrier may exclude a late enrollee except during an open en-
rollment period.

    (d) Except as expressly provided by this act, every carrier doing busi-
ness in the small employer market retains the authority to underwrite and
rate individual accident and sickness insurance policies, and to rate small
employer groups using generally accepted actuarial practices.

    (e) No health benefit plan issued by a carrier may limit or exclude,
by use of a rider or amendment applicable to a specific individual, cov-
erage by type of illness, treatment, medical condition or accident, except
for preexisting conditions as permitted under subsection (a).

    (f) In the absence of the small employer's decision to the contrary,
all health benefit plans shall make coverage available to all the eligible
employees of a small employer without a waiting period. The decision of
whether to impose a waiting period for eligible employees of a small
employer shall be made by the small employer, who may only choose
from the waiting periods offered by the carrier. No waiting period shall
be greater than 90 days and shall permit coverage to become effective no
later than the first day of the month immediately following completion
of the waiting period.

    (g) The benefit structure of any health benefit plan subject to this act
may be changed by the carrier to make it consistent with the benefit
structure contained in health benefit plans developed by the board for
marketing to new groups but this shall not preclude the development and
marketing of other health benefit plans to small employers.

    (h) (1) Except as provided in subsection (f), requirements used by a
small employer carrier in determining whether to provide coverage to a
small employer, including requirements for minimum participation of el-
igible employees and minimum employer contributions, shall be applied
uniformly among all small employers with the same number of eligible
employees applying for coverage or receiving coverage from the small
employer carrier.

    (2) A small employer carrier may vary application of minimum par-
ticipation requirements and minimum employer contribution require-
ments only by the size of the small employer group.

    (3) (A) Except as provided in provision (B), in applying minimum
participation requirements with respect to a small employer, a small em-
ployer carrier shall not consider employees or dependents who have qual-
ifying existing coverage in a health benefit plan sponsored by another
employer in determining whether the applicable percentage of partici-
pation is met.

    (B) With respect to a small employer, a small employer carrier may
consider employees or dependents who have coverage under another
health benefit plan sponsored by such small employer in applying mini-
mum participation requirements.

    (i) For the purposes of this section, the term ``preexisting conditions
exclusion'' shall mean, with respect to coverage, a limitation or exclusion
of benefits relating to a condition based on the fact that the condition was
present before the date of enrollment for such coverage whether or not
any medical advice, diagnosis, care or treatment was recommended or
received before such date.

    (j) For the purposes of this section, the term ``date of enrollment''
means the date the individual is enrolled under the group policy or, if
earlier, the first day of the waiting period for such enrollment.

    (k) For the purposes of this section, the term ``waiting period'' means
with respect to a group policy the period which must pass before the
individual is eligible to be covered for benefits under the terms of the
policy.

    Sec. 9. K.S.A. 40-2209g is hereby amended to read as follows: 40-
2209g. From and after January 1, 1993: (a) A small employer carrier may
establish a class of business only to reflect substantial differences in ex-
pected claims experience or administrative costs related to the following
reasons:

    (1) The small employer carrier uses more than one type of system
for the marketing and sale of health benefit plans to small employers;

    (2) the small employer carrier has acquired a class of business from
another small employer carrier; or

    (3) the small employer carrier provides coverage to one or more as-
sociation groups that meet the requirements of subsection (A) (f)(5) of
K.S.A. 40-2209 and amendments thereto.

    (b) A small employer carrier may establish up to nine separate classes
of business under subsection (a).

    (c) The commissioner may adopt rules and regulations to provide for
a period of transition in order for a small employer carrier to come into
compliance with subsection (b) in the instance of acquisition of an addi-
tional class of business from another small employer carrier.

    (d) The commissioner may approve the establishment of additional
classes of business upon application to the commissioner and a finding
by the commissioner that such action would enhance the efficiency and
fairness of the small employer marketplace.

    Sec. 10. K.S.A. 40-2209m is hereby amended to read as follows:
40-2209m. (a) Each small employer carrier shall actively market health
benefit plan coverage, including the basic and standard health benefit
plans, to eligible small employers in the state. If a small employer carrier
denies coverage not subject to this act to a small employer on the basis
of the health status or claims experience of the small employer or its
employees or dependents, the small employer carrier shall offer the small
employer the opportunity to purchase a basic health benefit plan and a
standard health benefit plan.

    (b) (1) Except as provided in paragraph (2), no small employer car-
rier, agent or broker shall, directly or indirectly, engage in the following
activities:

    (A) Encouraging or directing small employers to refrain from filing
an application for coverage with the small employer carrier because of
the health status, claims experience, industry, occupation or geographic
location of the small employer;

    (B) encouraging or directing small employers to seek coverage from
another carrier because of the health status, claims experience, industry,
occupation or geographic location of the small employer.

    (2) The provisions of paragraph (1) shall not apply with respect to
information provided by a small employer carrier or producer to a small
employer regarding the established geographic service area or a restricted
network provision of a small employer carrier.

    (c) (1) Except as provided in paragraph (2), no small employer car-
rier shall, directly or indirectly, enter into any contract, agreement or
arrangement with an agent or broker that provides for or results in the
compensation paid to such person for the sale of a health benefit plan to
be varied because of the health status, claims experience, industry, oc-
cupation or geographic location of the small employer.

    (2) Paragraph (1) shall not apply with respect to a compensation ar-
rangement that provides compensation to an agent or broker on the basis
of percentage of premium, provided that the percentage shall not vary
because of the health status, claims experience, industry, occupation or
geographic area of the small employer.

    (d) A small employer carrier shall provide reasonable compensation
to licensed agents and brokers, if any, as provided under the plan of
operation of the program for the sale of a basic or standard health benefit
plan.

    (e) No small employer carrier shall terminate, fail to renew or limit
its contract or agreement of representation with an agent or broker for
any reason related to the health status, claims experience, occupation, or
geographic location of the small employers placed by the agent or broker
with the small employer carrier.

    (f) (e) No small employer carrier, agent or broker shall induce or
otherwise encourage a small employer to separate or otherwise exclude
an employee from health coverage or benefits provided in connection
with the employee's employment.

    (g) (f) Denial by a small employer carrier of an application for cov-
erage from a small employer shall be in writing and shall state the reason
or reasons for the denial.

    (h) (g) The commissioner may adopt rules and regulations setting
forth additional standards to provide for the fair marketing and broad
availability of health benefit plans to small employers in this state.

    (i) (h) If a small employer carrier enters into a contract, agreement
or other arrangement with a third-party administrator to provide admin-
istrative, marketing or other services related to the offering of health
benefit plans to small employers in this state, the third-party administrator
shall be subject to this section as if it were a small employer carrier.

    (j) (i) The board shall make available a broadly publicized toll free
telephone number for access by small employers to information concern-
ing this act and the health benefit plans developed pursuant to K.S.A. 40-
2209k 40-2209.

    (k) (j) Except as provided in paragraph (l), for the purposes of this
act, carriers that are affiliated companies or that are eligible to file a
consolidated tax return shall be treated as one carrier and any restrictions
or limitations imposed by this act shall apply as if all health benefit plans
issued to small employers in this state by such affiliated carriers were
issued by one carrier.

    (l) (k) An affiliated carrier that is a health maintenance organization
having a certificate of authority under K.S.A. 40-3201 et seq. and amend-
ments thereto, may be considered to be a separate carrier for the purpose
of this act.

    Sec. 11. K.S.A. 1997 Supp. 40-2228 is hereby amended to read as
follows: 40-2228. (a) The commissioner may adopt reasonable rules and
regulations:

    (1) To establish specific standards for policy provisions of long-term
care insurance policies. Such standards shall be in addition to and in
accordance with applicable laws of this state, and shall address terms of
renewability, initial and subsequent conditions of eligibility, nonduplica-
tion of coverage provisions, coverage of dependents, preexisting condi-
tions, termination of insurance, probationary periods, limitations, excep-
tions, reductions, elimination periods, requirements for replacement,
recurrent conditions and definitions of terms; and

    (2) to specify prohibited policy provisions not otherwise specifically
authorized by statute which, in the opinion of the commissioner, are un-
just, unfair or unfairly discriminatory to any person insured under a long-
term care insurance policy.

    (b) Rules and regulations adopted by the commissioner shall:

    (1) Recognize the unique, developing and experimental nature of
long-term care insurance; and

    (2) recognize the appropriate distinctions necessary between group
and individual long-term care insurance policies.

    (c) The commissioner may adopt rules and regulations establishing
loss-ratio standards for long-term care insurance policies if a specific ref-
erence to long-term care insurance policies is contained in the rules and
regulations.

    (d) No long-term care insurance policy may:

    (1) Be canceled, nonrenewed, or otherwise terminated solely on the
grounds of the age or the deterioration of the mental or physical health
of the insured individual or certificateholder; or

    (2) contain a provision establishing any new waiting period in the
event existing coverage is converted to or replaced by a new or other form
within the same company, except with respect to an increase in benefits
voluntarily selected by the insured individual or group policyholder.

    (e) (1) No long-term insurance policy or certificate shall use a defi-
nition of preexisting condition which is more restrictive than the follow-
ing: ``Preexisting condition'' means a condition for which medical advice
or treatment was recommended by, or received from a provider of health
care services, within six months preceding the effective date of coverage
of an insured person.

    (2) No long-term care insurance policy shall exclude coverage for a
loss or confinement which is the result of a preexisting condition unless
such loss or confinement begins within six months following the effective
date of coverage of an insured person.

    (3) The commissioner may extend the limitation periods set forth in
subsections (e)(1) and (e)(2) above as to specific age group categories or
specific policy forms upon finding that the extension is not contrary to
the best interest of the public.

    (4) The definition of preexisting condition shall not prohibit an in-
surer from using an application form designed to elicit the complete
health history of an applicant, and, on the basis of the answers on that
application, from underwriting in accordance with that insurer's estab-
lished underwriting standards.

    (f) No long-term care insurance policy shall require prior institution-
alization as a condition precedent to the payment of benefits.

    (g) In order to provide for fair disclosure in the sale of long-term care
insurance policies:

    (1) An outline of coverage shall be delivered to an applicant for a
long-term care insurance policy at the time of application. In the case of
direct response solicitations, the insurer shall deliver the outline of cov-
erage upon the applicant's request, but regardless of request, shall make
such delivery no later than at the time of policy delivery. Such outline of
coverage shall include:

    (A) A description of the principal benefits and coverage provided in
the policy;

    (B) a statement of the principal exclusions, reductions and limitations
contained in the policy;

    (C) a statement of the renewal provisions, including any reservation
in the policy of a right to change premiums; and

    (D) a statement that the outline of coverage is a summary of the
policy issued or applied for, and that the policy should be consulted to
determine governing contractual provisions.

    (2) A certificate issued pursuant to a group long-term care insurance
policy which policy is delivered or issued for delivery in this state shall
include the information required by subsection (B) (g)(4) of K.S.A. 40-
2209, and amendments thereto.

    (h) No policy shall be advertised, marketed or offered as long-term
care insurance unless it complies with the provisions of this act.

    Sec. 12. K.S.A. 40-2241 is hereby amended to read as follows: 40-
2241. (a) Any small employer health benefit plan organized for the pur-
poses described in K.S.A. 40-2240 and amendments thereto shall be au-
thorized to enter into contracts with carriers for the health care insurance
described in K.S.A. 40-2244 and 40-2245, and amendments thereto, or
health care providers for services on behalf of its member employees. A
small employer health benefit plan may contract with more than one
carrier to provide insurance.

    (b) Where appropriate, the small employer health benefit plan shall
provide options under which eligible employees may arrange coverage
for their family members. Options for additional coverage for employees
and their family members at an additional cost or premium may be pro-
vided.

    (c) The small employer health benefit plan and any carrier may con-
tract for coverage within the scope of this act notwithstanding any man-
dated coverages otherwise required by state law. The provisions of K.S.A.
40-2,100 to 40-2,105, inclusive, 40-2,114 and subsection (D) (i) of 40-
2209 and K.S.A. 40-2229 and 40-2230, and amendments thereto, shall
not be mandatory with respect to any health benefit plan under this act.

    (d) The small employer health benefit plan may impose a maximum
aggregate amount on the benefits available to any covered employee or
dependents from the health benefit plan provided under this act.

    (e) The provisions of K.S.A. 40-2209 and 40-2215 and amendments
thereto shall apply to all contracts issued under this section or the act of
which this section is a part and to health benefit plans as defined in K.S.A.
40-2239 and amendments thereto, and the provisions of such sections
shall apply to small employer health benefit plans.

    Sec. 13. K.S.A. 1997 Supp. 40-3202 is hereby amended to read as
follows: 40-3202. As used in this act:

    (a) ``Commissioner'' means the commissioner of insurance of the
state of Kansas.

    (b) ``Basic health care services'' means but is not limited to usual
physician, hospitalization, laboratory, x-ray, emergency and preventive
services and out-of-area coverage.

    (c) ``Capitated basis'' means a fixed per member per month payment
or percentage of premium payment wherein the provider assumes risk
for the cost of contracted services without regard to the type, value or
frequency of services provided. For purposes of this definition, capitated
basis includes the cost associated with operating staff model facilities.

    (d) ``Certificate of coverage'' means a statement of the essential fea-
tures and services of the health maintenance organization coverage which
is given to the subscriber by the health maintenance organization, medi-
care provider organization or by the group contract holder.

    (e) ``Copayment'' means an amount an enrollee must pay in order to
receive a specific service which is not fully prepaid.

    (f) ``Deductible'' means an amount an enrollee is responsible to pay
out-of-pocket before the health maintenance organization begins to pay
the costs associated with treatment.

    (g) ``Director'' means the secretary of health and environment.

    (h) ``Disability'' means an injury or illness that results in a substantial
physical or mental limitation in one or more major life activities such as
working or independent activities of daily living that a person was able to
do prior to the injury or illness.

    (i) ``Enrollee'' means a person who has entered into a contractual
arrangement or on whose behalf a contractual arrangement has been
entered into with a health maintenance organization or the medicare pro-
vider organization for health care services.

    (j) ``Grievance'' means a written complaint submitted in accordance
with the health maintenance organization's formal grievance procedure
by or on behalf of the enrollee regarding any aspect of the health main-
tenance organization or the medicare provider organization relative to
the enrollee.

    (k) ``Group contract'' means a contract for health care services which
by its terms limits eligibility to members of a specified group. The group
contract may include coverage for dependents.

    (l) ``Group contract holder'' means the person to which a group con-
tract has been issued.

    (m) ``Health care services'' means basic health care services and other
services, medical equipment and supplies which may include, but are not
limited to, medical, surgical and dental care; psychological, obstetrical,
osteopathic, optometric, optic, podiatric, nursing, occupational therapy
services, physical therapy services, chiropractic services and pharmaceu-
tical services; health education, preventive medical, rehabilitative and
home health services; inpatient and outpatient hospital services, extended
care, nursing home care, convalescent institutional care, laboratory and
ambulance services, appliances, drugs, medicines and supplies; and any
other care, service or treatment for the prevention, control or elimination
of disease, the correction of defects or the maintenance of the physical
or mental well-being of human beings.

    (n) ``Health maintenance organization'' means an organization which:

    (1) Provides or otherwise makes available to enrollees health care
services, including at a minimum those basic health care services which
are determined by the commissioner to be generally available on an in-
sured or prepaid basis in the geographic area served;

    (2) is compensated, except for reasonable copayments, for the pro-
vision of basic health care services to enrollees solely on a predetermined
periodic rate basis;

    (3) provides physician services directly through physicians who are
either employees or partners of such organization or under arrangements
with a physician or any group of physicians or under arrangements as an
independent contractor with a physician or any group of physicians;

    (4) is responsible for the availability, accessibility and quality of the
health care services provided or made available.

    (o) ``Individual contract'' means a contract for health care services
issued to and covering an individual. The individual contract may include
dependents of the subscriber.

    (p) ``Individual practice association'' means a partnership, corpora-
tion, association or other legal entity which delivers or arranges for the
delivery of basic health care services and which has entered into a services
arrangement with persons who are licensed to practice medicine and
surgery, dentistry, chiropractic, pharmacy, podiatry, optometry or any
other health profession and a majority of whom are licensed to practice
medicine and surgery. Such an arrangement shall provide:

    (1) That such persons shall provide their professional services in ac-
cordance with a compensation arrangement established by the entity; and

    (2) to the extent feasible for the sharing by such persons of medical
and other records, equipment, and professional, technical and adminis-
trative staff.

    (q) ``Medical group'' or ``staff model'' means a partnership, associa-
tion or other group:

    (1) Which is composed of health professionals licensed to practice
medicine and surgery and of such other licensed health professionals,
including but not limited to dentists, chiropractors, pharmacists, optom-
etrists and podiatrists as are necessary for the provision of health services
for which the group is responsible;

    (2) a majority of the members of which are licensed to practice med-
icine and surgery; and

    (3) the members of which: (A) As their principal professional activity
over 50% individually and as a group responsibility are engaged in the
coordinated practice of their profession for a health maintenance organ-
ization; (B) pool their income and distribute it among themselves accord-
ing to a prearranged salary or drawing account or other plan, or are sal-
aried employees of the health maintenance organization; (C) share
medical and other records and substantial portions of major equipment
and of professional, technical and administrative staff; and (D) establish
an arrangement whereby the enrollee's enrollment status is not known to
the member of the group who provides health services to the enrollee.

    (r) ``Medicare provider organization'' means an organization which:

    (1) Is a provider-sponsored organization as defined by Section 4001
of the Balanced Budget Act of 1997 (PL 105-33); and

    (2) provides or otherwise makes available to enrollees basic health
care services pursuant to Section 4001 of the Balanced Budget Act of 1997
(PL 105-33).

    (r) (s) ``Net worth'' means the excess of assets over liabilities as de-
termined by the commissioner from the latest annual report filed pur-
suant to K.S.A. 40-3220 and amendments thereto.

    (s) (t) ``Person'' means any natural or artificial person including but
not limited to individuals, partnerships, associations, trusts or corpora-
tions.

    (t) (u) ``Physician'' means a person licensed to practice medicine and
surgery under the healing arts act.

    (u) (v) ``Provider'' means any physician, hospital or other person
which is licensed or otherwise authorized in this state to furnish health
care services.

    (v) (w) ``Uncovered expenditures'' means the costs of health care
services that are covered by a health maintenance organization for which
an enrollee would also be liable in the event of the organization's insol-
vency as determined by the commissioner from the latest annual state-
ment filed pursuant to K.S.A. 40-3220 and amendments thereto.

    Sec. 14. K.S.A. 1997 Supp. 40-3203 is hereby amended to read as
follows: 40-3203. (a) Except as otherwise provided by this act, it shall be
unlawful for any person to provide health care services in the manner
prescribed in subsection (n) or subsection (r) of K.S.A. 40-3202 and
amendments thereto without first obtaining a certificate of authority from
the commissioner.

    (b) Applications for a certificate of authority shall be made in the form
required by the commissioner and shall be verified by an officer or au-
thorized representative of the applicant and shall set forth or be accom-
panied by:

    (1) A copy of the basic organizational documents of the applicant such
as articles of incorporation, partnership agreements, trust agreements or
other applicable documents;

    (2) a copy of the bylaws, regulations or similar document, if any, reg-
ulating the conduct of the internal affairs of the applicant;

    (3) a list of the names, addresses, official capacity with the organi-
zation and biographical information for all of the persons who are to be
responsible for the conduct of its affairs, including all members of the
governing body, the officers and directors in the case of a corporation
and the partners or members in the case of a partnership or corporation;

    (4) a sample or representative copy of any contract or agreement
made or to be made between the health maintenance organization or
medicare provider organization and any class of providers and a copy of
any contract made or agreement made or to be made, excluding individual
employment contracts or agreements, between third party administrators,
marketing consultants or persons listed in subsection (3) and the health
maintenance organization or medicare provider organization;

    (5) a statement generally describing the organization, its enrollment
process, its operation, its quality assurance mechanism, its internal griev-
ance procedures, in the case of a health maintenance organization the
methods it proposes to use to offer its enrollees an opportunity to partic-
ipate in matters of policy and operation, the geographic area or areas to
be served, the location and hours of operation of the facilities at which
health care services will be regularly available to enrollees in the case of
staff and group practices, the type and specialty of health care personnel
and the number of personnel in each specialty category engaged to pro-
vide health care services in the case of staff and group practices, and a
records system providing documentation of utilization rates for enrollees.
In cases other than staff and group practices, the organization shall pro-
vide a list of names, addresses and telephone numbers of providers by
specialty;

    (6) copies of all contract forms the organization proposes to offer
enrollees together with a table of rates to be charged;

    (7) the following statements of the fiscal soundness of the organiza-
tion:

    (A) Descriptions of financing arrangements for operational deficits
and for developmental costs if operational one year or less;

    (B) a copy of the most recent unaudited financial statements of the
health maintenance organization or medicare provider organization;

    (C) financial projections in conformity with statutory accounting
practices prescribed or otherwise permitted by the department of insur-
ance of the state of domicile for a minimum of three years from the
anticipated date of certification and on a monthly basis from the date of
certification through one year. If the health maintenance organization or
medicare provider organization is expected to incur a deficit, projections
shall be made for each deficit year and for one year thereafter. Financial
projections shall include:

    (i) Monthly statements of revenue and expense for the first year on
a gross dollar as well as per-member-per-month basis, with quarters con-
sistent with standard calendar year quarters;

    (ii) quarterly statements of revenue and expense for each subsequent
year;

    (iii) a quarterly balance sheet; and

    (iv) statement and justification of assumptions;

    (8) a description of the procedure to be utilized by a health mainte-
nance organization or medicare provider organization to provide for:

    (A) Offering enrollees an opportunity to participate in matters of pol-
icy and operation of the a health maintenance organization;

    (B) monitoring of the quality of care provided by such organization
including, as a minimum, peer review; and

    (C) resolving complaints and grievances initiated by enrollees;

    (9) a written irrevocable consent duly executed by such applicant, if
the applicant is a nonresident, appointing the commissioner as the person
upon whom lawful process in any legal action against such organization
on any cause of action arising in this state may be served and that such
service of process shall be valid and binding in the same extent as if
personal service had been had and obtained upon said nonresident in this
state;

    (10) a plan, in the case of group or staff practices, that will provide
for maintaining a medical records system which is adequate to provide
an accurate documentation of utilization by every enrollee, such system
to identify clearly, at a minimum, each patient by name, age and sex and
to indicate clearly the services provided, when, where, and by whom, the
diagnosis, treatment and drug therapy, and in all other cases, evidence
that contracts with providers require that similar medical records systems
be in place;

    (11) evidence of adequate insurance coverage or an adequate plan
for self-insurance to respond to claims for injuries arising out of the fur-
nishing of health care; and

    (12) such other information as may be required by the commissioner
to make the determinations required by K.S.A. 40-3204 and amendments
thereto.; and

    (13) in lieu of any of the application requirements imposed by this
section on a medicare provider organization, the commissioner may ac-
cept any report or application filed by the medicare provider organization
with the appropriate examining agency or official of another state or
agency of the federal government.

    (c) The commissioner may promulgate rules and regulations the com-
missioner deems necessary to the proper administration of this act to
require a health maintenance organization or medicare provider organi-
zation, subsequent to receiving its certificate of authority to submit the
information, modifications or amendments to the items described in sub-
section (b) to the commissioner prior to the effectuation of the modifi-
cation or amendment or to require the health maintenance organization
to indicate the modifications to the commissioner. Any modification or
amendment for which the approval of the commissioner is required shall
be deemed approved unless disapproved within 30 days, except the com-
missioner may postpone the action for such further time, not exceeding
an additional 30 days, as necessary for proper consideration.

    Sec. 15. K.S.A. 1997 Supp. 40-3204 is hereby amended to read as
follows: 40-3204. (a) The commissioner shall notify any person filing an
application for a certificate of authority within 60 days of such filing if
such application is not complete or sufficient and the reasons therefor,
or that payment of the fees required by K.S.A. 40-3213 and amendments
thereto has not been made or that the commissioner is not satisfied with
the sufficiency of the information supplied pursuant to the provisions of
K.S.A. 40-3203 and amendments thereto or that the organization has
failed to demonstrate its ability to assure that health care services will be
provided.

    (b) The commissioner shall, within 60 days after the receipt of a com-
pleted application and any prescribed fees, issue a certificate of authority
to any person filing such application if the commissioner finds that:

    (1) The persons responsible for the conduct of the affairs of the ap-
plicant are competent, trustworthy and possess good reputations;

    (2) any deficiencies identified by the commissioner in the application
have been corrected;

    (3) the health maintenance organization or medicare provider organ-
ization will effectively provide or arrange for the provision of basic health
care services on a prepaid basis, through insurance or otherwise except
to the extent of reasonable requirements for copayments and/or deduc-
tibles; and

    (4) in the case of a health maintenance organization, that the health
maintenance organization is in compliance with K.S.A. 40-3227 and
amendments thereto and in the case of a medicare provider organization,
that the medicare provider organization is in compliance with such de-
posit or solvency requirements as the commissioner may establish by rules
and regulations.

    Sec. 16. K.S.A. 40-3207 is hereby amended to read as follows: 40-
3207. When the commissioner has reasonable cause to believe that
grounds for the denial, suspension or revocation of a certificate exists or
when the commissioner levies an administrative penalty, such commis-
sioner shall notify the health maintenance organization or medicare pro-
vider organization in writing stating the grounds upon which the com-
missioner believes the certificate should be denied, suspended or revoked
or the penalty levied. The applicant may, within 15 days from receipt of
such notice, make written request to the commissioner for a hearing
thereon. The commissioner shall hear such party or parties within 20 days
after receipt of such request in accordance with the provisions of the
Kansas administrative procedure act.

    Upon the request of the commissioner, a representative of the secretary
of health and environment who is licensed to practice medicine and sur-
gery shall be in attendance at the hearing and shall participate in the
proceedings. Recommendations received pursuant to this subsection may
be rejected or accepted in full or in part by the commissioner. Nothing
in this subsection shall be construed to limit or modify in any way the
authority given by the provisions of this act to the commissioner to deny,
suspend or revoke a certificate or to levy an administrative penalty in lieu
of suspension or revocation.

    Sec. 17. K.S.A. 40-3208 is hereby amended to read as follows: 40-
3208. (a) The powers of a health maintenance organization or medicare
provider organization shall include but not be limited to the following:

    (1) The purchase, lease, construction, renovation, operation, or main-
tenance of hospitals, medical facilities, or both, and their ancillary equip-
ment, and such property as may reasonably be required for its principal
office or for such other purposes as are necessary in the transaction of
the business of the organization;

    (2) the furnishing of health care services through providers which are
under contract with or employed by the health maintenance organization;

    (3) the contracting with any person for the performance on its behalf
of certain functions such as marketing, enrollment and administration;

    (4) the contracting with an insurance company licensed in this state,
or with a hospital or medical service corporation or dental service cor-
poration authorized to do business in this state, for the provision of in-
surance, indemnity or reimbursement against the cost of health care serv-
ices provided by the health maintenance organization;

    (5) the offering, in addition to health care services, of indemnity ben-
efits covering out-of-area or emergency services; and

    (6) receiving and accepting from governmental or private agencies
payments covering all or part of the cost of the services provided or ar-
ranged for by the organization.

    (b) Health maintenance organizations shall provide in their arrange-
ments with all contracting parties and providers that if there be valid
medicaid coverage, providing benefits for the same loss or condition, the
medicaid coverage shall be the source of last resort of any provider pay-
ment.

    Sec. 18. K.S.A. 1997 Supp. 40-3209 is hereby amended to read as
follows: 40-3209. (a) All forms of group and individual certificates of cov-
erage and contracts issued by the organization to enrollees or other mar-
keting documents purporting to describe the organization's health care
services shall contain as a minimum:

    (1) A complete description of the health care services and other ben-
efits to which the enrollee is entitled;

    (2) the locations of all facilities, the hours of operation and the serv-
ices which are provided in each facility in the case of individual practice
associations or medical staff and group practices, and, in all other cases,
a list of providers by specialty with a list of addresses and telephone
numbers;

    (3) the financial responsibilities of the enrollee and the amount of
any deductible, copayment or coinsurance required;

    (4) all exclusions and limitations on services or any other benefits to
be provided including any deductible or copayment feature and all re-
strictions relating to pre-existing conditions;

    (5) all criteria by which an enrollee may be disenrolled or denied
reenrollment;

    (6) service priorities in case of epidemic, or other emergency condi-
tions affecting demand for medical services;

    (7) in the case of a health maintenance organization, a provision that
an enrollee or a covered dependent of an enrollee whose coverage under
a health maintenance organization group contract has been terminated
for any reason but who remains in the service area and who has been
continuously covered by the health maintenance organization for at least
three months shall be entitled to obtain a converted contract or have such
coverage continued under the group contract for a period of six months
following which such enrollee or dependent shall be entitled to obtain a
converted contract in accordance with the provisions of this section. The
converted contract shall provide coverage at least equal to the conversion
coverage options generally available from insurers or mutual nonprofit
hospital and medical service corporations in the service area at the ap-
plicable premium cost. The group enrollee or enrollees shall be solely
responsible for paying the premiums for the alternative coverage. The
frequency of premium payment shall be the frequency customarily re-
quired by the health maintenance organization, mutual nonprofit hospital
and medical service corporation or insurer for the policy form and plan
selected, except that the insurer, mutual nonprofit hospital and medical
service corporation or health maintenance organization shall require pre-
mium payments at least quarterly. The coverage shall be available to all
enrollees of any group without medical underwriting. The requirement
imposed by this subsection shall not apply to a contract which provides
benefits for specific diseases or for accidental injuries only, nor shall it
apply to any employee or member or such employee's or member's cov-
ered dependents when:

    (A) Such person was terminated for cause as permitted by the group
contract approved by the commissioner;

    (B) any discontinued group coverage was replaced by similar group
coverage within 31 days; or

    (C) the employee or member is or could be covered by any other
insured or noninsured arrangement which provides expense incurred hos-
pital, surgical or medical coverage and benefits for individuals in a group
under which the person was not covered prior to such termination. Writ-
ten application for the converted contract shall be made and the first
premium paid not later than 31 days after termination of the group cov-
erage or receipt of notice of conversion rights from the health mainte-
nance organization, whichever is later, and shall become effective the day
following the termination of coverage under the group contract. The
health maintenance organization shall give the employee or member and
such employee's or member's covered dependents reasonable notice of
the right to convert at least once within 30 days of termination of coverage
under the group contract. The group contract and certificates may include
provisions necessary to identify or obtain identification of persons and
notification of events that would activate the notice requirements and
conversion rights created by this section but such requirements and rights
shall not be invalidated by failure of persons other than the employee or
member entitled to conversion to comply with any such provisions. In
addition, the converted contract shall be subject to the provisions con-
tained in paragraphs (2), (4), (5), (6), (7), (8), (9), (12), (13), (14), (15),
(16) and (18) (17) and (19) of subsection (I) (j) of K.S.A. 40-2209, and
amendments thereto;

    (8) (A) group contracts shall contain a provision extending payment
of such benefits until discharged or for a period not less than 31 days
following the expiration date of the contract, whichever is earlier, for
covered enrollees and dependents confined in a hospital on the date of
termination;

    (B) a provision that coverage under any subsequent replacement con-
tract that is intended to afford continuous coverage will commence im-
mediately following expiration of any prior contract with respect to cov-
ered services not provided pursuant to subparagraph (8)(A); and

    (9) an individual contract shall provide for a 10-day period for the
enrollee to examine and return the contract and have the premium re-
funded, but if services were received by the enrollee during the 10-day
period, and the enrollee returns the contract to receive a refund of the
premium paid, the enrollee must pay for such services.

    (b) No health maintenance organization or medicare provider organ-
ization authorized under this act shall contract with any provider under
provisions which require enrollees to guarantee payment, other than co-
payments and deductibles, to such provider in the event of nonpayment
by the health maintenance organization or medicare provider organiza-
tion for any services which have been performed under contracts between
such enrollees and the health maintenance organization or medicare pro-
vider organization. Further, any contract between a health maintenance
organization or medicare provider organization and a provider shall pro-
vide that if the health maintenance organization or medicare provider
organization fails to pay for covered health care services as set forth in
the contract between the health maintenance organization or medicare
provider organization and its enrollee, the enrollee or covered depend-
ents shall not be liable to any provider for any amounts owed by the health
maintenance organization or medicare provider organization. If there is
no written contract between the health maintenance organization or med-
icare provider organization and the provider or if the written contract
fails to include the above provision, the enrollee and dependents are not
liable to any provider for any amounts owed by the health maintenance
organization or medicare provider organization.

    (c) No group or individual certificate of coverage or contract form or
amendment to an approved certificate of coverage or contract form shall
be issued unless it is filed with the commissioner. Such contract form or
amendment shall become effective within 30 days of such filing unless
the commissioner finds that such contract form or amendment does not
comply with the requirements of this section.

    (d) Every contract shall include a clear and understandable descrip-
tion of the health maintenance organization's or medicare provider or-
ganization's method for resolving enrollee grievances.

    (e) The provisions of subsections (A), (B), (C), (D) and (E) of K.S.A.
40-2209 and 40-2215 and amendments thereto shall apply to all contracts
issued under this section, and the provisions of such sections shall apply
to health maintenance organizations.

    (f) In lieu of any of the requirements of subsection (a), the commis-
sioner may accept certificates of coverage issued by a medicare provider
organization in conformity with requirements imposed by any appropri-
ate federal regulatory agency.

    Sec. 19. K.S.A. 40-3210 is hereby amended to read as follows: 40-
3210. Any health maintenance organization or medicare provider organ-
ization issued a certificate and otherwise in compliance with this act may
enter into contracts in this state to provide an agreed upon set of health
care services to enrollees or groups of enrollees in exchange for a prepaid
per capita or prepaid aggregate fixed sum.

    Sec. 20. K.S.A. 40-3211 is hereby amended to read as follows: 40-
3211. (a) The commissioner may make an examination of the affairs of
any health maintenance organization or medicare provider organization
and providers with whom such organization has contracts, agreements or
other arrangements as often as the commissioner deems it necessary for
the protection of the interests of the people of this state but not less
frequently than once every three years.

    (b) At least once every three years and at such other times as the
commissioner may require, a health maintenance organization or medi-
care provider organization shall obtain an on-site quality of care assess-
ment by an independent quality review organization acceptable to the
commissioner for the purpose of evaluating levels of health care delivery
according to industry standards as prevailing from time to time. The find-
ings of said independent quality review organization shall be expressed
by it in a written opinion relating to the general quality of care provided
by the health maintenance organization or medicare provider organiza-
tion and its related contractors of health care services. Failure to obtain
such quality of care assessment or the rendering of an unfavorable opinion
by the independent quality review organization shall give the commis-
sioner cause to institute action in accordance with K.S.A. 40-3205, 40-
3206 or 40-3207, and amendments thereto.

    (c) Every health maintenance organization and provider or medicare
provider organization and any of the medicare provider organization pro-
viders shall submit its books and records relating its operation to such
examinations. Medical records of individuals and records of providers
under a contract to the health maintenance organization or medicare pro-
vider organization shall be subject to such examination, but the identity
of patients shall not be disclosed in any report to the commissioner or
the commissioner's agents or representatives. For the purpose of exam-
inations, the commissioner may administer oaths to, and examine the
officers and agents of the health maintenance organization or medicare
provider organization and the principals of such providers.

    (d) The fees and expenses of examinations under this section shall be
assessed against the organization being examined and remitted to the
commissioner. The fees and expenses of the commissioner shall be in
accordance with K.S.A. 40-223, and amendments thereto.

    (e) In lieu of such examination, the commissioner may accept the
report of an examination made by the appropriate examining agency or
official of another state or agency of the federal government.

    Sec. 21. K.S.A. 40-3213 is hereby amended to read as follows: 40-
3213. (a) Every health maintenance organization and medicare provider
organization subject to this act shall pay to the commissioner the follow-
ing fees:

    (1) For filing an application for a certificate of authority, one hundred
fifty dollars ($150) $150;

    (2) For filing each annual report, fifty dollars ($50) $50;

    (3) For filing an amendment to the certificate of authority, ten dollars
($10) $10.

    (b) Every health maintenance organization subject to this act which
has operated for a period of three years but not more than five years shall
pay annually to the commissioner at the time such organization files its
annual report a privilege fee in an amount equal to one-half of one per
cent (.005) per annum of the total of all premiums, subscription charges
or any other term which may be used to describe the charges made by
such organization to enrollees; and after operating for a period of more
than five (5) years from the time of organization a health maintenance
organization shall pay annually to the commissioner at the time such or-
ganization files its annual report, a privilege fee in an amount equal to
one percent (1%) per annum of the total of all premiums, subscription
charges or any other term which may be used to describe the charges
made by such organization to enrollees. In such computations all such
organizations shall be entitled to deduct therefrom any premiums or sub-
scription charges returned on account of cancellations and dividends re-
turned to enrollees. If the commissioner shall determine at any time that
the application of the privilege fee would cause a denial of, reduction in
or elimination of federal financial assistance to the state or to any health
maintenance organization subject to this act, the commissioner is hereby
authorized to terminate the operation of such privilege fee.

    (c) For the purpose of insuring the collection of the privilege fee
provided for by subsection (b) of this section, every health maintenance
organization subject to this act and required by subsection (b) of this
section to pay such privilege fee shall at the time it files its annual report,
as required by K.S.A. 40-3220 and amendments thereto, make a return,
verified by affidavits of its chief officer or principal managing director, to
the commissioner, stating the amount of all premiums, assessments and
charges received by the health maintenance organization, whether in cash
or notes, during the year ending on the last day of the preceding calendar
year. Upon the receipt of such returns the commissioner of insurance
shall verify the same and assess the fees upon such organization on the
basis and at the rate provided herein and such fees shall thereupon be-
come due and payable.

    (d) Premiums or other charges received by an insurance company
from the operation of a health maintenance organization subject to this
act shall not be subject to any fee or tax imposed under the provisions of
K.S.A. 40-252, or any and amendments thereto.

    (e) Fees charged under this section shall be remitted to the state
treasurer for deposit in the state general revenue fund.

    Sec. 22. K.S.A. 40-3214 is hereby amended to read as follows: 40-
3214. Except as otherwise provided in this act, health maintenance or-
ganizations and medicare provider organizations certificated under the
provisions of this act shall not be subject to regulation under articles 18,
19 and 19a of chapter 40 of the Kansas Statutes Annotated or acts amen-
datory thereof or supplemental thereto.

    Solicitation of enrollees by a duly certificated health maintenance or-
ganization or medicare provider organization or its representatives shall
not be construed to be a violation of any provisions of law relating to
solicitation or advertising by health professionals. A list of locations of
services and a list of providers who have current agreements with the
health maintenance organization may be made available to prospective
enrollees, and shall be made available to prospective enrollees upon re-
quest.

    Nothing in any professional practices act of any provider shall be con-
strued to prohibit a provider from being employed by or under contract
to provide health care services for a health maintenance organization or
medicare provider organization granted a certificate of authority under
the provisions of this act.

    Any health maintenance organization authorized under this act shall
not be deemed to be practicing any act for which a provider is licensed
and shall be exempt from laws relating to the practice of any act for which
a provider is licensed.

    Sec. 23. K.S.A. 40-3215 is hereby amended to read as follows: 40-
3215. The commissioner shall promulgate rules and regulations necessary
to carry out the provisions of this act. The commissioner shall collect and
make available in a single volume all health maintenance organization
rules and regulations promulgated by the commissioner.

    Sec. 24. K.S.A. 40-3219 is hereby amended to read as follows: 40-
3219. Nothing in this act shall prohibit any health maintenance organi-
zation or medicare provider organization from meeting the requirements
of any federal law which would authorize the health maintenance organ-
ization or medicare provider organization to receive federal financial as-
sistance or to enroll beneficiaries assisted by federal funds.

    Sec. 25. K.S.A. 40-3220 is hereby amended to read as follows: 40-
3220. Every health maintenance organization and medicare provider or-
ganization authorized under this act shall annually on or before the first
day of March, file a verified report with the commissioner, showing its
condition on the last day of the preceding calendar year, on forms pre-
scribed by the commissioner. Such report shall include: (a) A financial
statement of the organization, including its balance sheet and receipts
and disbursements for the preceding year and (b) such other information
relating to the performance of health maintenance organizations as shall
be required by the commissioner.

    Sec. 26. K.S.A. 40-3221 is hereby amended to read as follows: 40-
3221. Any person who is an officer or principal managing director of the
affairs of a health maintenance organization or medicare provider organ-
ization shall be fully and personally liable and accountable for any willful
and intentional violations of the provisions of this act, by himself such
person or by persons under his such person's control: Provided, however,.
It is not intended through this legislation to modify the existing law of
Kansas regarding personal or corporate liability for negligence or mal-
practice.

    Sec. 27. K.S.A. 1997 Supp. 40-3225 is hereby amended to read as
follows: 40-3225. (a) Any director, officer or partner of a health mainte-
nance organization or medicare provider organization who receives, col-
lects, disburses or invests funds in connection with the activities of such
organization shall be responsible for such funds in a fiduciary relationship
to the health maintenance organization or medicare provider organiza-
tion.

    (b) A health maintenance organization shall maintain in force a fi-
delity bond or fidelity insurance on such employees and officers, directors
and partners in the amount not less than $250,000 for each health main-
tenance organization or a maximum of $5,000,000 in aggregate main-
tained on behalf of health maintenance organizations owned by a common
parent corporation, or such sum as may be prescribed by the commis-
sioner.

    New Sec. 28. (a) This section shall be known and may be cited as
the ``diabetes coverage act.''

    (b) Any individual or group health insurance policy, medical service
plan, contract, hospital service corporation contract, hospital and medical
service corporation contract, fraternal benefit society or health mainte-
nance organization which provides coverage for accident and health serv-
ices and which is delivered, issued for delivery, amended or renewed on
or after January 1, 1999, also, shall provide coverage for equipment, and
supplies, limited to hypodermic needles and supplies used exclusively
with diabetes management and outpatient self-management training and
education, including medical nutrition therapy, for the treatment of in-
sulin dependent diabetes, insulin-using diabetes, gestational diabetes and
noninsulin using diabetes if prescribed by a health care professional le-
gally authorized to prescribe such services and supplies under the law.
Such coverage shall include coverage for insulin only if such coverage also
includes coverage of prescription drugs.

    (c) Diabetes outpatient self-management training and education shall
be provided by a certified, registered or licensed health care professional
with expertise in diabetes. The coverage for outpatient self-management
training and education shall be required pursuant to this section only if
ordered by a health care professional legally authorized to prescribe such
services and the diabetic (1) is treated at a program approved by the
American diabetes association; (2) is treated by a person certified by the
national certification board for diabetes educators; or (3) is, as to nutri-
tional education, treated by a licensed dietitian pursuant to a treatment
plan authorized by such healthcare professional.

    (d) (1) The benefits provided in this act shall be subject to the same
annual deductible or co-insurance and the same requirement of medical
necessity established for all other covered benefits within a given policy.
In the case of a policy requiring that services be provided by or upon
referral from a primary care physician, the benefits provided by this act
shall be subject to such requirement.

    (2) Private third party payors may not reduce or eliminate coverage
due to the requirements of this act.

    (3) Enforcement of the provisions of this act shall be performed by
the commissioner of insurance.

    (e) The provisions of this act shall not apply to any medicare supple-
ment policy of insurance, as defined by the commissioner of insurance
by rule and regulation, any policy of long-term care insurance, as defined
by K.S.A. 40-2227, and amendments thereto, any specified disease or
specified accident coverage or any accident only coverage as defined by
the commissioner of insurance by rule and regulation, whether written
on a group, blanket, or individual basis.

    Sec. 29. K.S.A. 1997 Supp. 40-221a is hereby amended to read as
follows: 40-221a. (a) Any insurance company organized under the laws of
this state may (1) with the consent of the commissioner of insurance, cede
all of its risks to any other solvent insurance company authorized to trans-
act business in this state or accept all of the risks of any other company,
(2) accept all or any part of an individual risk or all or any part of a
particular class of risks which it is authorized to insure, and (3) cede all
or any part of an individual risk or all or any part of a particular class of
risks to another solvent insurer or insurers having the power to accept
such reinsurance.

    (b) Any insurance company organized under the laws of this state
may take credit as an asset or as a deduction from loss and unearned
premium reserves on such ceded risks to the extent reinsured by an in-
surer or insurers authorized to transact business in this state, but such
credit on ceded risks reinsured by any insurer which is not authorized to
transact business in this state may be taken in an amount not exceeding:

    (1) The amount of deposits by, and funds withheld from, the assum-
ing insurer pursuant to express provision therefor in the reinsurance con-
tract, as security for the payment of the obligations thereunder, if such
deposits or funds are held subject to withdrawal by, and under the control
of, the ceding insurer or are placed in trust for such purposes in a bank
which is insured by the federal deposit insurance corporation or its suc-
cessor, if withdrawals from such trust cannot be made without the consent
of the ceding company;

    (2) the amount of a clean and irrevocable letter of credit issued by a
bank which is insured by the federal deposit insurance corporation or its
successor if such letter of credit is initially issued for a term of at least
one year and by its terms is automatically renewed at each expiration date
for at least an additional one-year term unless at least 30 days prior written
notice of intention not to renew is given to the ceding company by the
issuing bank or the assuming company and provided that such letter of
credit is issued under arrangements satisfactory to the commissioner of
insurance as constituting security to the ceding insurer substantially equal
to that of a deposit under paragraph (1) of this subsection; or

    (3) the amount of loss and unearned premium reserves on such ceded
risks to an assuming insurer which maintains a trust fund in a qualified
United States financial institution, as defined in (b)(3)(D), for the pay-
ment of the valid claims of its United States policyholders and ceding
insurers, their assigns and successors in interest. The assuming insurer
shall report annually to the commissioner information substantially the
same as that required to be reported on the national association of insur-
ance commissioners annual statement form by licensed insurers to enable
the commissioner to determine the sufficiency of the trust fund. In the
case of a single assuming insurer, the trust shall consist of a trusteed
account representing the assuming insurer's liability attributable to busi-
ness written in the United States and, in addition, the assuming insurer
shall maintain a trusteed surplus of not less than $20,000,000. In the case
of a group including incorporated and individual unincorporated under-
writers, the trust shall consist of a trusteed account representing the
group's liabilities attributable to business written in the United States and,
in addition, the group shall maintain a trusteed surplus of which
$100,000,000 shall be held jointly for the benefit of United States ceding
insurers of any member of the group; the incorporated members of the
group shall not be engaged in any business other than underwriting as a
member of the group and shall be subject to the same level of solvency
regulation and control by the group's domiciliary regulator as are the
unincorporated members; and the group shall make available to the com-
missioner an annual certification of the solvency of each underwriter by
the group's domiciliary regulator and its independent public accountants.

    (A) Such trust must be in a form approved by the commissioner of
insurance. The trust instrument shall provide that contested claims shall
be valid and enforceable upon the final order of any court of competent
jurisdiction in the United States. The trust shall vest legal title to its assets
in the trustees of the trust for its United States policyholders and ceding
insurers, their assigns and successors in interest. The trust and the assum-
ing group or insurer shall be subject to examination as determined by the
commissioner. The trust, described herein, must remain in effect for as
long as the assuming group or insurer shall have outstanding obligations
due under the reinsurance agreements subject to the trust.

    (B) No later than February 28 of each year the trustees of the trust
shall report to the commissioner in writing setting forth the balance of
the trust and listing the trust's investments at the preceding year end and
shall certify the date of termination of the trust, if so planned, or certify
that the trust shall not expire prior to the next following December 31.

    (C) The credit authorized under subsection (b)(3) shall not be al-
lowed unless the assuming group or insurer agrees in the reinsurance
agreements:

    (i) That in the event of the failure of the assuming group or insurer
to perform its obligations under the terms of the reinsurance agreement,
the assuming group or insurer, at the request of the ceding insurer, shall
submit to the jurisdiction of any court of competent jurisdiction in any
state of the United States, will comply with all requirements necessary to
give such court jurisdiction, and will abide by the final decision of such
court or of any appellate court in the event of an appeal; and

    (ii) to designate the commissioner or a designated attorney as its true
and lawful attorney upon whom may be served any lawful process in any
action, suit or proceeding instituted by or on behalf of the ceding com-
pany.

    (iii) This provision is not intended to conflict with or override the
obligation of the parties to a reinsurance agreement to arbitrate their
disputes, if such an obligation to do so is created in the agreement.

    (D) A ``qualified United States financial institution'' means, for pur-
poses of those provisions of this law specifying those institutions that are
eligible to act as a fiduciary of a trust, an institution that:

    (i) Is organized, or (in the case of a U.S. branch or agency office of
a foreign banking organization) licensed, under the laws of the United
States or any state thereof and has been granted authority to operate with
fiduciary powers; and

    (ii) is regulated, supervised and examined by federal or state author-
ities having regulatory authority over banks and trust companies.

    The foregoing provisions of paragraphs (1), (2) and (3) of subsection
(b) shall not apply to a domestic title insurance company subject to the
provisions of K.S.A. 40-1107a and amendments thereto.

    (c) Any reinsurance ceded by a company organized under the laws of
this state or ceded by any company not organized under the laws of this
state and transacting business in this state must, pursuant to express pro-
visions contained in the reinsurance agreement, be payable by the assum-
ing insurer on the basis of the liability of the ceding company under the
contract or contracts reinsured without diminution because of the insol-
vency of the ceding company and any such reinsurance agreement which
may be canceled on less than 90 days' notice must provide in the rein-
surance agreement for a run-off of the reinsurance in force at the date
of cancellation.

    New Sec. 30. (a) Any individual or group health insurance policy,
medical service plan, contract, hospital service corporation contract, hos-
pital and medical service corporation contract, fraternal benefit society
or health maintenance organization which provides coverage for accident
and health services and which is delivered, issued for delivery, amended
or renewed on or after July 1, 1998, also, shall provide coverage for pros-
tate cancer screening for men 40 years of age or over who are sympto-
matic or in a high-risk category and for all men 50 years of age or older.
The screening shall consist, at a minimum, of a prostate-specific antigen
blood test and a digital rectal examination. A policy, provision, contract,
plan or agreement may apply to prostate cancer screening the same de-
ductibles, coinsurance and other limitations as apply to other covered
services.

    (b) The provisions of this section shall not apply to any medicare
supplement policy of insurance, as defined by the commissioner of in-
surance by rule and regulation, any policy of long-term care insurance,
as defined by K.S.A. 40-2227 and amendments thereto, any specified
disease or specified accident coverage or any accident only coverage as
defined by the commissioner of insurance by rule and regulation, whether
written on a group, blanket or individual basis.

    Sec. 31. K.S.A. 40-110 is hereby amended to read as follows: 40-110.
The commissioner of insurance is hereby authorized to appoint an assis-
tant commissioner of insurance, actuaries, two (2) special attorneys who
shall have been regularly admitted to practice, an executive secretary,
policy examiners, two (2) field representatives, and a secretary to the
commissioner. Such appointees shall each receive an annual salary to be
determined by the commissioner of insurance, within the limits of avail-
able appropriations, but in no case shall such annual salary exceed the
salary of the commissioner of insurance as established by law. He but in
no case shall any such annual salary exceed the salary of the commissioner
of insurance as established by law, except that the commissioner of in-
surance may appoint two actuaries, who are members in good standing
of either the American Academy of Actuaries or the Casualty Actuarial
Society or the Society of Actuaries, whose annual salaries may exceed the
annual salary of the commissioner. The commissioner is also authorized
to appoint, within the provisions of the civil service law, and available
appropriations, such other employees as shall be necessary to administer
the provisions of this act. The field representatives authorized by this
section may be empowered to conduct inquiries, investigations, or to re-
ceive complaints: Provided, however, That such. Such field representa-
tives shall not be empowered to make, or direct to be made, an exami-
nation of the affairs and financial condition of any insurance company in
the process of organization, or applying for admission or doing business
in this state.

    The appointees herein provided for authorized by this section shall take
the proper official oath and shall be in no way interested, except as pol-
icyholders, in any insurance company. In the absence of the commissioner
of insurance the assistant commissioner shall perform the duties of the
commissioner of insurance, but shall in all cases execute papers in the
name of the commissioner of insurance, by himself as assistant. The com-
missioner of insurance shall be responsible for all acts of an official nature
done and performed by his the commissioner's assistant or any person
employed in his such office. All the appointees authorized by this section
shall hold their office at the will and pleasure of the commissioner of
insurance.

    Sec. 32. K.S.A. 1997 Supp. 40-112 is hereby amended to read as
follows: 40-112. (a) For the purpose of maintaining the insurance de-
partment and the payment of expenses incident thereto, there is hereby
established the insurance department service regulation fund in the state
treasury which shall be administered by the commissioner of insurance.
All expenditures from the insurance department service regulation fund
shall be made in accordance with appropriation acts upon warrants of the
director of accounts and reports issued pursuant to vouchers approved
by the commissioner of insurance or by a person or persons designated
by the commissioner.

    (b) On and after the effective date of this act, all fees received by the
commissioner of insurance pursuant to any statute and the portion of taxes
received pursuant to K.S.A. 40-252 and amendments thereto, which is
certified by the commissioner of insurance to be necessary for the pur-
poses of the insurance department service regulation fund and which,
together with the total amount of fees deposited to the credit of the
insurance department service regulation fund pursuant to this subsection,
does not total more than $4,800,000 for any fiscal year, and 1% of taxes
received pursuant to K.S.A. 40-252 and amendments thereto shall be re-
mitted to the state treasurer for deposit in the state treasury and credited
to the insurance department service regulation fund. The total amount
credited to the insurance department service regulation fund pursuant to
this subsection for any fiscal year shall not exceed $4,800,000.

    (c) Except as otherwise provided by this section, the commissioner
of insurance shall make an annual assessment for the fiscal year ending
June 30, 1993, and for each fiscal year thereafter, on each group of affil-
iated insurers whose certificates of authority to do business in this state
are in good standing at the time of the assessment. The total amount of
all such assessments for a fiscal year shall be equal to the amount sufficient
which, when combined with the total amount to be credited to the in-
surance department service regulation fund pursuant to subsection (b) is
equal to the amount approved by the legislature to fund the insurance
company regulation program. With respect to each group of affiliated
insurers, such assessment shall be in proportion to the amount of total
assets of the group of affiliated insurers as reported to the commissioner
of insurance pursuant to K.S.A. 40-225 and amendments thereto for the
immediately preceding calendar year, shall not be less than $500 and shall
not be more than the amount equal to .0000015 of the amount of total
assets of the group of affiliated insurers or $25,000, whichever is less. The
total assessment for any fiscal year after the fiscal year ending June 30,
1993, shall not increase by any amount greater than 15% of the total
budget approved by the legislature to fund the insurance company reg-
ulation program for the fiscal year immediately preceding the fiscal year
for which the assessment is made. In the event the total amount of the
assessment would be less than the aggregate amount resulting by assess-
ing the $500 minimum on each insurer, the commissioner may establish
a lower minimum to be assessed equally on each insurer.

    (d) Assessments payable under this section shall be past due if not
paid to the insurance department within 45 days of the billing date of
such assessment. A penalty equal to 10% of the amount assessed shall be
imposed upon any past due payment and the total amount of the assess-
ment and penalty shall bear interest at the rate of 1.5% per month or any
portion thereof.

    (e) On or after July 1, 1992, when When there exists in the insurance
department service regulation fund a deficiency which would render such
fund temporarily insufficient during any fiscal year to meet the insurance
department's funding requirements, the commissioner of insurance shall
certify the amount of the insufficiency. Upon receipt of any such certi-
fication, the director of accounts and reports shall transfer an amount of
moneys equal to the amount so certified from the state general fund to
the insurance department service regulation fund. On June 30 of any fiscal
year during which an amount or amounts are certified and transferred
under this subsection, the director of accounts and reports shall provide
for the repayment of the amounts so transferred and shall transfer the
amount equal to the total of all such amounts transferred during the fiscal
year from the insurance department service regulation fund to the state
general fund.

    (f) Any unexpended balance in the insurance department service reg-
ulation fund at the close of a fiscal year shall remain credited to the
insurance department service regulation fund for use in the succeeding
fiscal year and shall be used to reduce future assessments or to accom-
modate cash flow demands on the fund.

    (g) The commissioner of insurance shall exempt the assessment of
any insurer which, as of December 31 of the calendar year preceding the
assessment, has a surplus of less than two times the minimum amount of
surplus required for a certificate of authority on and after May 1, 1994,
and which is subject to the premium tax liability imposed on insurers
organized under the laws of this state. The commissioner of insurance
may also exempt or defer, in whole or in part, the assessment of any other
insurer if, in the opinion of the commissioner of insurance, immediate
payment of the total assessment would be detrimental to the solvency of
the insurer.

    (h) As used in this section:

    (1) ``Affiliates'' or ``affiliated'' has the meaning ascribed by K.S.A.
40-3302 and amendments thereto;

    (2) ``group'' or ``group of affiliated insurers'' means the affiliated in-
surers of a group and also includes an individual, unaffiliated insurer; and

    (3) ``insurer'' means any insurance company, as defined by K.S.A. 40-
201 and amendments thereto, any fraternal benefit society, as defined by
K.S.A. 40-738 and amendments thereto, any reciprocal or interinsurance
exchange under K.S.A. 40-1601 through 40-1614 and amendments
thereto, any mutual insurance company organized to provide health care
provider liability insurance under K.S.A. 40-12a01 through 40-12a09 and
amendments thereto, any nonprofit dental service corporation under
K.S.A. 40-19a01 through 40-19a14 and amendments thereto, any non-
profit medical and hospital service corporation under K.S.A. 40-19c01
through 40-19c11 and amendments thereto, any health maintenance or-
ganization, as defined by K.S.A. 40-3202 and amendments thereto, or any
captive insurance company, as defined by K.S.A. 40-4301 and amend-
ments thereto, which is authorized to do business in Kansas.

    Sec. 33. K.S.A. 40-110, 40-19c06, 40-2209g, 40-2209k, 40-2209l,
40-2209m, 40-2241, 40-3207, 40-3208, 40-3210, 40-3211, 40-3213, 40-
3214, 40-3215, 40-3219, 40-3220 and 40-3221 and K.S.A. 1997 Supp. 40-
112, 40-221a, 40-2,105, 40-19c09, 40-2122, 40-2209, 40-2209d, 40-2209e,
40-2209f, 40-2228, 40-3202, 40-3203, 40-3204, 40-3209 and 40-3225 are
hereby repealed.

    Sec. 34. This act shall take effect and be in force from and after its
publication in the statute book.

I hereby certifiy that the above Bill originated in the
Senate, and passed that body

__________________________________

Senate adopted
Conference Committe Report __________________________________

__________________________________

President of the Senate.

__________________________________

Secretary of the Senate.

Passed the House
as amended __________________________

House adopted
Conference Committee Report __________________________

__________________________________

Speaker of the House.

__________________________________

Chief Clerk of the House.

Approved __________________________

__________________________________

Governor.