Session of 2000
SENATE Substitute
for HOUSE BILL No. 2005
By Committee on Financial Institutions and
Insurance
3-20
12 AN ACT relating
to insurance; concerning risk-based capital require-
13 ments; concerning
health care; concerning accounting procedures and
14 investments by
insurance companies; concerning mortgage guaranty
15 insurance companies;
amending K.S.A. 40-12a09, 40-2a23 and 40-
16 2b22 and K.S.A. 1999
Supp. 40-2c01, 40-2121, 40-2209f, 40-2209m
17 and 40-3502 and
repealing the existing sections; also repealing K.S.A.
18 40-2a15 and
40-2b14.
19
20 Be it enacted by the Legislature of the
State of Kansas:
21 Section
1. K.S.A. 1999 Supp. 40-2c01 is hereby amended to read as
22 follows: 40-2c01. As used in this act:
23 (a) ``Adjusted
RBC report'' means an RBC report which has been
24 adjusted by the commissioner in accordance
with K.S.A. 1999 Supp. 40-
25 2c04, and amendments thereto.
26 (b) ``Corrective
order'' means an order issued by the commissioner
27 specifying corrective actions which the
commissioner has determined are
28 required to address a RBC level event.
29 (c) ``Domestic
insurer'' means any insurance company or risk reten-
30 tion group which is licensed and organized
in this state.
31 (d) ``Foreign
insurer'' means any insurance company or risk retention
32 group not domiciled in this state which is
licensed or registered to do
33 business in this state pursuant to article
41 of chapter 40 of the Kansas
34 Statutes Annotated or K.S.A. 40-209, and
amendments thereto.
35 (e) ``NAIC''
means the national association of insurance
36 commissioners.
37 (f) ``Life and
health insurer'' means any insurance company licensed
38 under article 4 or 5 of chapter 40 of the
Kansas Statutes Annotated or a
39 licensed property and casualty insurer
writing only accident and health
40 insurance.
41 (g) ``Property
and casualty insurer'' means any insurance company
42 licensed under articles 9, 10, 11, 12, 12a,
15 or 16 of chapter 40 of the
43 Kansas Statutes Annotated, but shall not
include monoline mortgage
2
1 guaranty insurers, financial guaranty
insurers and title insurers.
2
(h) ``Negative trend'' means, with respect to a life and
health insurer,
3 a negative trend over a period of
time, as determined in accordance with
4 the ``trend test calculation''
included in the RBC instructions defined in
5 subsection (j).
6 (i) ``RBC''
means risk-based capital.
7 (j) ``RBC
instructions'' mean the risk-based capital instructions prom-
8 ulgated by the NAIC, which are in
effect on December 31, 1998
1999,
9 and adopted as rules and
regulations by the commissioner.
10 (k) ``RBC level''
means an insurer's company action level RBC, reg-
11 ulatory action level RBC, authorized
control level RBC, or mandatory
12 control level RBC where:
13 (1) ``Company
action level RBC'' means, with respect to any insurer,
14 the product of 2.0 and its authorized
control level RBC;
15 (2) ``regulatory
action level RBC'' means the product of 1.5 and its
16 authorized control level RBC;
17 (3) ``authorized
control level RBC'' means the number determined
18 under the risk-based capital formula in
accordance with the RBC instruc-
19 tions; and
20 (4) ``mandatory
control level RBC'' means the product of .70 and the
21 authorized control level RBC.
22 (l) ``RBC plan''
means a comprehensive financial plan containing the
23 elements specified in K.S.A. 1999 Supp.
40-2c06, and amendments
24 thereto. If the commissioner rejects the
RBC plan, and it is revised by
25 the insurer, with or without the
commissioner's recommendation, the
26 plan shall be called the ``revised RBC
plan.''
27 (m) ``RBC
report'' means the report required by K.S.A. 1999 Supp.
28 40-2c02, and amendments thereto.
29 (n) ``Total
adjusted capital'' means the sum of:
30 (1) An insurer's
capital and surplus or surplus only if a mutual insurer;
31 and
32 (2) such other
items, if any, as the RBC instructions may provide.
33
(o) ``Commissioner'' means the commissioner of insurance.
34 Sec.
2. K.S.A. 1999 Supp. 40-2121 is hereby amended to read as
35 follows: 40-2121. (a) Following the close
of each fiscal year, the admin-
36 istering carrier shall determine the net
premiums, the plan expenses of
37 administration and the incurred losses for
the year. Any net loss of the
38 plan determined after taking into account
amounts transferred pursuant
39 to subsection (h) of K.S.A. 79-4804, and
amendments thereto, investment
40 income and other appropriate gains and
losses shall be assessed by the
41 board to all members of the association in
proportion to their respective
42 shares of total health insurance premiums
received in this state during
43 the calendar year coinciding with or ending
during the fiscal year of the
3
1 association or any other equitable
basis as may be provided in the plan
2 of operation. For health maintenance
organization members and insur-
3 ance arrangements, the proportionate
share of losses shall be determined
4 through application of an equitable
formula based upon claims paid on
5 the value of services provided. In
sharing losses, the board may abate or
6 defer in whole or in part the
assessment of a member if, in the opinion
7 of the board, payment of the
assessment would endanger the ability of
8 the member to fulfill its contractual
obligations. Health insurance benefits
9 paid by an insurance arrangement that
are less than an amount deter-
10 mined by the board to justify the cost of
collection shall not be considered
11 for purposes of determining assessments.
Net gains, if any, shall be held
12 at interest to offset future losses or
allocated to reduce future premiums.
13 In addition to any annual assessment at the
close of the fiscal year of the
14 plan authorized by this subsection, the
board may provide for interim
15 assessments of the members of the
association, subject to the approval of
16 the commissioner, as may be necessary to
assure the financial capability
17 of the association in meeting the incurred
or estimated claims expenses
18 of the plan and the operating and
administrative expenses of the plan.
19 (b) In addition
to any assessment authorized by subsection (a), the
20 board may assess the members of the
association for any initial costs
21 associated with developing and implementing
the plan to the extent such
22 costs exceed the funds transferred to the
uninsurable health insurance
23 plan fund pursuant to K.S.A. 40-2125 and
amendments thereto. Such
24 assessment shall be allocated among the
members of the association in
25 the manner prescribed by subsection (a) of
this section or any other eq-
26 uitable formula established by the board.
Assessments under this subsec-
27 tion shall not be subject to the credit
against premium tax under subsec-
28 tion (c).
29 (c) For taxable
years commencing after December 31, 1995, and
30 prior to January 1, 1998, 80% of any
assessment made against a member
31 of the association pursuant to subsection
(a) of this section may be claimed
32 by such member as a credit against such
member's premium or privilege
33 tax liability imposed by K.S.A. 12-2624,
40-252 or 40-3213 and amend-
34 ments thereto, for the taxable year in
which such assessment is paid. For
35 the tax year commencing after December 31,
1997, 70% of any assess-
36 ment made against a member of the
association pursuant to subsection
37 (a) of this section may be claimed by such
member as a credit against
38 such member's premium tax liability imposed
by K.S.A. 12-2624, 40-252
39 or 40-3213 and amendments thereto, for the
taxable year in which such
40 assessment is paid.
41 For the tax year
commencing after December 31, 1998, 65% of any
42 assessment made against a member of the
association pursuant to sub-
43 section (a) of this section may be claimed
by such member as a credit
4
1 against such member's premium tax
liability imposed by K.S.A. 12-2624,
2 40-252 or 40-3213 and amendments
thereto, for the taxable year in which
3 such assessment is paid.
4 For the tax year
commencing after December 31, 1999, 60% of any
5 assessment made against a member of
the association pursuant to sub-
6 section (a) of this section may be
claimed by such member as a credit
7 against such member's premium tax
liability imposed by K.S.A. 12-2624,
8 40-252 or 40-3213 and amendments
thereto, for the taxable year in which
9 such assessment is paid.
10 The amendments
made to the Kansas uninsurable health insurance
11 plan act by chapter 190 of the 1997
Session Laws of Kansas shall expire
12 on January 1, 2001.
13 (d) In addition
to the assessments otherwise authorized herein, the
14 board shall assess all issuers of medicare
supplement policies covering
15 persons within this state to the extent
necessary to assure that the excess
16 losses, if any, are distributed among such
issuers of medicare supplement
17 policies in a ratio equal to the percentage
market share in Kansas of each
18 such issuer for medicare supplement
policies covering persons eligible
19 for medicare by reason of age. The
association shall also assess to such
20 issuers of medicare supplement policies the
costs the association incurs
21 in operating the reinsurance program,
making assessments, and collecting
22 and distributing moneys, which shall be
assessed pro rata to such issuers
23 based on the market share of such issuers
of medicare supplement poli-
24 cies covering persons eligible for medicare
by reason of age. Such as-
25 sessment shall occur not later than July 1
of each year, based on such
26 excess losses and such market shares for
the immediately preceding cal-
27 endar year. Issuers of medicare supplement
policies shall remit the
28 amount so assessed to the association
within the time frames established
29 by the board for payment of assessment
otherwise authorized herein. The
30 association shall pay to any issuer of
medicare supplement policies enti-
31 tled thereto such amount as is necessary to
result in the equalization
32 among all issuers of medicare supplement
policies in Kansas of excess
33 losses in a proportion equivalent to the
percentage market share in Kansas
34 of each issuer of medicare supplement
policies covering persons eligible
35 for medicare by reason of age. The amount
of such assessments received
36 by an insurer shall not be accounted for as
premium income nor shall
37 such amounts be subject to premium tax. The
amount of such assessments
38 shall not be available for use in premium
tax credits provided for under
39 subsection (c) of K.S.A. 1999 Supp.
40-2122, and amendments thereto.
40 The association shall have the ability to
enforce assessments through its
41 board.
42 Sec.
3. K.S.A. 1999 Supp. 40-2209f is hereby amended to read as
43 follows: 40-2209f. Health benefit plans
covering small employers that are
5
1 issued or renewed within this state
or outside this state covering persons
2 residing in this state shall be
subject to the following provisions, as
3 applicable:
4 (a) Such
policy may impose a preexisting conditions exclusion, not to
5 exceed 90 days following the date of
enrollment, for conditions whether
6 physical or mental, regardless of the
cause of the condition for which
7 medical advice, diagnosis, care or
treatment was recommended or re-
8 ceived in the six months prior to the
effective date of enrollment. Any
9 preexisting conditions exclusion
shall run concurrently with any waiting
10 period.
11 (b) Such policy
shall waive such a preexisting conditions exclusion to
12 the extent the employee or member or
individual dependent or family
13 member was covered by (1) a group or
individual sickness and accident
14 policy, (2) coverage under section 607(1)
of the employees retirement
15 income security act of 1974 (ERISA), (3) a
group specified in K.S.A. 40-
16 2222 and amendments thereto (4) part A or
part B of title XVIII of the
17 social security act, (5) title XIX of the
social security act, other than cov-
18 erage consisting solely of benefits under
section 1928, (6) chapter 55 of
19 title 10 United States code, (7) a state
children's health insurance program
20 established pursuant to title XXI of the
social security act, (8) medical
21 care program of the indian health service
or of a tribal organization, (9)
22 the Kansas uninsurable health plan act
pursuant to K.S.A. 40-2217 et seq.
23 and amendments thereto or similar health
benefits risk pool of another
24 state, (10) a health plan offered under
chapter 89 of title 5, United States
25 code, (11) a health benefit plan under
section 5(e) of the peace corps act
26 (22 U.S.C. 2504 (e) or (12) a group subject
to K.S.A. 12-2616 et seq. and
27 amendments thereto which provided hospital,
medical and surgical ex-
28 pense benefits within 63 days prior to the
effective date of coverage under
29 a health benefit plan with no gap in
coverage. A group policy shall credit
30 the periods of prior coverage specified in
this subsection without regard
31 to the specific benefits covered during the
period of prior coverage. Any
32 period that the employee or member is in a
waiting period for any cov-
33 erage under a group health plan or is in an
affiliation period shall be taken
34 into account in determining the continuous
period under this subsection.
35 (c) A carrier may
exclude a late enrollee except during an open en-
36 rollment period.
37 (d) Except as
expressly provided by this act, every carrier doing busi-
38 ness in the small employer market retains
the authority to underwrite and
39 rate individual accident and sickness
insurance policies, and to rate small
40 employer groups using generally accepted
actuarial practices.
41 (e) No health
benefit plan issued by a carrier may limit or exclude,
42 by use of a rider or amendment applicable
to a specific individual, cov-
43 erage by type of illness, treatment,
medical condition or accident, except
6
1 for preexisting conditions as
permitted under subsection (a).
2 (f) In the
absence of the small employer's decision to the contrary,
3 all health benefit plans shall make
coverage available to all the eligible
4 employees of a small employer without
a waiting period. The decision of
5 whether to impose a waiting period
for eligible employees of a small
6 employer shall be made by the small
employer, who may only choose
7 from the waiting periods offered by
the carrier. No waiting period shall
8 be greater than 90 days and shall
permit coverage to become effective no
9 later than the first day of the month
immediately following completion
10 of the waiting period.
11 (g) The
benefit structure of any health benefit plan subject to this
act
12 may be changed by the carrier to
make it consistent with the benefit
13 structure contained in health
benefit plans developed by the board for
14 marketing to new groups but this
shall not preclude the development and
15 marketing of other health benefit
plans to small employers.
16
(h) (1) Except as provided in subsection (f),
requirements used by a
17 small employer carrier in determining
whether to provide coverage to a
18 small employer, including requirements for
minimum participation of el-
19 igible employees and minimum employer
contributions, shall be applied
20 uniformly among all small employers with
the same number of eligible
21 employees applying for coverage or
receiving coverage from the small
22 employer carrier.
23 (2) A small
employer carrier may vary application of minimum par-
24 ticipation requirements and minimum
employer contribution require-
25 ments only by the size of the small
employer group.
26 (3)
(A) Except as provided in provision (B), in applying
minimum
27 participation requirements with respect to
a small employer, a small em-
28 ployer carrier shall not consider employees
or dependents who have qual-
29 ifying existing coverage in a health
benefit plan sponsored by another
30 employer in determining whether the
applicable percentage of partici-
31 pation is met.
32 (B) With respect
to a small employer, a small employer carrier may
33 consider employees or dependents who have
coverage under another
34 health benefit plan sponsored by such small
employer in applying mini-
35 mum participation requirements.
36 (i)
(h) For the purposes of this section, the term
``preexisting condi-
37 tions exclusion'' shall mean, with respect
to coverage, a limitation or ex-
38 clusion of benefits relating to a condition
based on the fact that the con-
39 dition was present before the date of
enrollment for such coverage
40 whether or not any medical advice,
diagnosis, care or treatment was rec-
41 ommended or received before such date.
42 (j)
(i) For the purposes of this section, the term ``date
of enrollment''
43 means the date the individual is enrolled
under the group policy or, if
7
1 earlier, the first day of the waiting
period for such enrollment.
2
(k) (j) For the purposes of this
section, the term ``waiting period''
3 means with respect to a group policy
the period which must pass before
4 the individual is eligible to be
covered for benefits under the terms of the
5 policy.
6 Sec.
4. K.S.A. 1999 Supp. 40-2209m is hereby amended to read as
7 follows: 40-2209m. (a) Each small
employer carrier shall actively market
8 health benefit plan coverage to
eligible small employers in the state.
9 (b)
(1) Except as provided in paragraph (2), no small employer
car-
10 rier, agent or broker shall, directly or
indirectly, engage in the following
11 activities:
12 (A) Encouraging
or directing small employers to refrain from filing
13 an application for coverage with the small
employer carrier because of
14 the health status, claims experience,
industry, occupation or geographic
15 location of the small employer;
16 (B) encouraging
or directing small employers to seek coverage from
17 another carrier because of the health
status, claims experience, industry,
18 occupation or geographic location of the
small employer.
19 (2) The
provisions of paragraph (1) shall not apply with respect to
20 information provided by a small employer
carrier or producer to a small
21 employer regarding the established
geographic service area or a restricted
22 network provision of a small employer
carrier.
23 (c)
(1) Except as provided in paragraph (2), no small employer
car-
24 rier shall, directly or indirectly, enter
into any contract, agreement or
25 arrangement with an agent or broker that
provides for or results in the
26 compensation paid to such person for the
sale of a health benefit plan to
27 be varied because of the health status,
claims experience, industry, oc-
28 cupation or geographic location of the
small employer.
29 (2) Paragraph (1)
shall not apply with respect to a compensation ar-
30 rangement that provides compensation to an
agent or broker on the basis
31 of percentage of premium, provided that the
percentage shall not vary
32 because of the health status, claims
experience, industry, occupation or
33 geographic area of the small employer.
34 (d) No small
employer carrier shall terminate, fail to renew or limit
35 its contract or agreement of representation
with an agent or broker for
36 any reason related to the health status,
claims experience, occupation, or
37 geographic location of the small employers
placed by the agent or broker
38 with the small employer carrier.
39 (e) No small
employer carrier, agent or broker shall induce or oth-
40 erwise encourage a small employer to
separate or otherwise exclude an
41 employee from health coverage or benefits
provided in connection with
42 the employee's employment.
43 (f) Denial by a
small employer carrier of an application for coverage
8
1 from a small employer shall be in
writing and shall state the reason or
2 reasons for the denial.
3 (g) The
commissioner may adopt rules and regulations setting forth
4 additional standards to provide for
the fair marketing and broad availa-
5 bility of health benefit plans to
small employers in this state.
6 (h) If a
small employer carrier enters into a contract, agreement or
7 other arrangement with a third-party
administrator to provide adminis-
8 trative, marketing or other services
related to the offering of health ben-
9 efit plans to small employers in this
state, the third-party administrator
10 shall be subject to this section as if it
were a small employer carrier.
11 (i) The
board shall make available a broadly publicized toll free
tel-
12 ephone number for access by small
employers to information concerning
13 this act and the health benefit
plans developed pursuant to K.S.A. 40-
14 2209.
15
(j) Except as provided in paragraph (l), for the
purposes of this act,
16 carriers that are affiliated companies or
that are eligible to file a consol-
17 idated tax return shall be treated as one
carrier and any restrictions or
18 limitations imposed by this act shall apply
as if all health benefit plans
19 issued to small employers in this state by
such affiliated carriers were
20 issued by one carrier.
21 (k)
(j) An affiliated carrier that is a health maintenance
organization
22 having a certificate of authority under
K.S.A. 40-3201 et seq. and amend-
23 ments thereto, may be considered to be a
separate carrier for the purpose
24 of this act.
25 Sec.
5. K.S.A. 40-12a09 is hereby amended to read as follows:
40-
26 12a09. Each company organized pursuant to
this act shall file an annual
27 statement each year in accordance with the
requirements for domestic
28 insurers writing the same kind of
insurance. Any company organized pur-
29 suant to this act may state its
liabilities for losses and loss adjustment
30 expenses on a present value basis
in any statement or report which the
31 company is required to file so long
as the company's surplus as reported
32 upon such basis remains above $1
million, unless the commissioner de-
33 termines the method used by the
company to arrive at the present value
34 of its liabilities for losses and
loss adjustment expense is based upon un-
35 reasonable
assumptions.
36 Sec.
6. K.S.A. 1999 Supp. 40-3502 is hereby amended to read as
37 follows: 40-3502. As used in this act the
following terms shall have the
38 meanings respectively ascribed to them
herein:
39 (a) ``Mortgage
guaranty insurance company'' means any corporation,
40 company, association, reciprocal exchange,
persons or partnerships writ-
41 ing contracts of mortgage guaranty
insurance and shall be governed by
42 the provisions of this act and the other
provisions of chapter 40 of the
43 Kansas Statutes Annotated applicable to
companies organized or oper-
9
1 ating under the provisions of K.S.A.
40-1101 et seq., and amendments
2 thereto, to the extent such other
provisions are not inconsistent with the
3 requirements of this act.
4
(b) ``Mortgage guaranty insurance'' means and includes: (1)
Insur-
5 ance against financial loss by reason
of nonpayment of principal, interest
6 or other sums agreed to be paid under
the terms of any note or bond or
7 other evidence of indebtedness
secured by a mortgage, deed of trust, or
8 other instrument constituting a lien
or charge on real estate, when the
9 improvement on such real estate is a
residential building or a condomin-
10 ium or townhouse unit or buildings designed
for occupancy by not more
11 than four families;
12 (2) insurance
against financial loss by reason of nonpayment of prin-
13 cipal, interest or other sums agreed to be
paid under the terms of any
14 note or bond or other evidence of
indebtedness secured by a mortgage,
15 deed of trust or other instrument
constituting a lien or charge on real
16 estate, when the improvement on such real
estate is a building or build-
17 ings designed for occupancy by five or more
families or designed to be
18 occupied for industrial or commercial
purposes; or
19 (3) insurance
against financial loss by reason of nonpayment of rent
20 or other sums agreed to be paid under the
terms of a written lease for
21 the possession, use or occupancy of real
estate, when the improvement
22 on such real estate is a building or
buildings designed to be occupied for
23 industrial or commercial purposes.
24 (c) ``Authorized
real estate security'' means an amortized note, bond
25 or other evidence of indebtedness, not
exceeding (97%) (100%) of the
26 fair market value of the real estate,
secured by a mortgage, deed of trust,
27 or other instrument which constitutes, or
is equivalent to, a first lien or
28 charge on real estate, when: (1) The real
estate loan secured in such
29 manner is one of a type which a bank,
savings and loan association, or an
30 insurance company, which is supervised and
regulated by a department
31 of this state or an agency of the federal
government, is authorized to make,
32 or would be authorized to make,
disregarding any requirement applicable
33 to such an institution that the amount of
the loan not exceed a certain
34 percentage of the value of the real
estate;
35 (2) the
improvement on such real estate is a building or buildings
36 designed for occupancy as specified by
paragraphs (1) or (2) of subsection
37 (b); and
38 (3) the lien on
such real estate may be subject to and subordinate to
39 the following:
40 (i) The lien of
any public bond, assessment or tax, when no install-
41 ment, call or payment of or under such
bond, assessment or tax is delin-
42 quent; and
43 (ii) outstanding
mineral, oil, water or timber rights, rights-of-way,
10
1 easements or rights-of-way of
support, sewer rights, building restrictions
2 or other restrictions or covenants,
conditions or regulations of use, or
3 outstanding leases upon such real
property under which rents or profits
4 are reserved to the owner
thereof.
5
(d) ``Contingency reserve'' means an additional premium
reserve es-
6 tablished to protect policyholders
against the effect of adverse economic
7 cycles.
8
(e) ``Single risk'' means the insurance provided with respect
to each
9 separate loan or lease covered by an
individual policy of mortgage guar-
10 anty insurance or an individual certificate
issued pursuant to K.S.A. 40-
11 3511, and amendments thereto.
12 Sec. 7. K.S.A. 40-12a09, 40-2a23
and 40-2b22 and K.S.A. 1999 Supp.
13 40-2c01, 40-2121, 40-2209f, 40-2209m and
40-3502 are hereby repealed.
14 Sec. 8. On
January 1, 2001, K.S.A. 40-2a15 and 40-2b14 are hereby
15 repealed.
16 Sec. 9. This act shall
take effect and be in force from and after its
17 publication in the statute book.
18