An Act relating to insurance; concerning certain terms and conditions of certain policies; lapse notice; reinstatement; amending K.S.A. 40-2221a and K.S.A. 1995 Supp. 40-2209 and 40-2209d and repealing the existing sections.

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

New Section 1. The provisions of sections 1 through 5 shall apply to all individual and group long-term care policies or certificates that are issued to residents of this state on and after the effective date of this act.

New Sec. 2. (a) No long-term care policy or certificate shall be issued until the insurer has received from the applicant either a written desig- nation of at least one person, in addition to the applicant, who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium, or a written waiver dated and signed by the applicant electing not to designate additional persons to receive such notice.

(b) The applicant has the right to designate at least one person who is to receive the notice of termination, in addition to the insured. Des- ignation of an additional person to receive notice of lapse or termination shall not constitute acceptance of any liability by such person for services provided to the insured. The designation shall include the full name and home address of such additional person.

(c) The policy or certificate shall include a waiver stated in clear terms in the case of an applicant who elects not to designate an additional per- son. The waiver shall state that the applicant has the right to designate at least one person other than the applicant who will receive notice of any lapse or termination of the long-term care policy or certificate and that the applicant elects not to designate an additional person to receive such notice.

(d) The insurer shall notify the insured of the right to change this written designation, no less often than once every two years.

New Sec. 3. When the policyholder or certificateholder pays pre- miums for a long-term care insurance policy or certificate through a pay- roll or pension deduction plan, the requirements contained in section 2 need not be met until 60 days after the policyholder or certificateholder is no longer on such a payment plan. The application or enrollment form for such policies or certificates shall clearly indicate the payment plan selected by the applicant.

New Sec. 4. No long-term care policy or certificate shall lapse or be terminated for nonpayment of premium unless the insurer, at least 30 days before the effective date of the lapse or termination, has given notice by first-class mail to the insured at the insured's last known address and to any person designated by the insured pursuant to section 2 to receive notice of lapse or termination. Notice shall not be given until 30 days after a premium is due and unpaid and will be deemed to have been given five days after the date of mailing.

New Sec. 5. Long-term care insurance policies or certificates shall include a provision which provides for reinstatement of coverage, in the event of lapse if the insurer is provided proof of cognitive impairment or the loss of functional capacity. This option shall be available to the insured if requested within five months after termination and shall allow for the collection of past due premium, where appropriate. The standard of proof of cognitive impairment or loss of functional capacity shall not be more stringent than the benefit eligibility criteria for cognitive impairment or the loss of functional capacity contained in the policy or certificate.

Sec. 6. K.S.A. 1995 Supp. 40-2209 is hereby amended to read as follows: 40-2209. (A) 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 mem- ber of an insured group and no individual dependent or family member may be excluded from eligibility or coverage under a policy providing 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. An eligible employee, member or dependent who requests enrollment follow- ing the open enrollment opportunity shall be considered a late enrollee. However, an eligible employee, member or dependent shall not be consid- ered a late enrollee if:

(1) The individual:

(a) Was covered under another group policy which provided hospital, medical or surgical expense benefits at the time the individual was eligible to enroll;

(b) states, 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;

(c) has lost coverage under another group policy providing hospital, medical or surgical expense benefits as a result of the termination of em- ployment, the termination of the other policy's coverage, death of a spouse or divorce; and

(d) requests enrollment within 31 days after the termination of cov- erage under the other policy; or

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

No group policy providing hospital, medical or surgical expense ben- efits 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 waiting period, not to exceed 90 days for benefits for conditions, including related conditions, for which diagnosis, treatment or advice was sought or received in the 90 days prior to the effective date of coverage. Such policy shall waive such a waiting period to the extent the employee or member or individual dependent or family member was covered by a group or individual sickness and accident policy, coverage under section 607(1) of the employees retire- ment income act of 1974 (ERISA), a group specified in K.S.A. 40-2222 and amendments thereto or a group subject to K.S.A. 12-2616 et seq. and amendments thereto which provided hospital, medical and surgical ex- pense benefits within 31 days prior to the effective date of coverage with no gap in coverage. Any group policy may impose participation require- ments, define 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 and may be issued to such group upon 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 three employees of such employer, for the benefit of persons other than the employer. 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.

(B) 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 warran- ties, 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 indivi- dual'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 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.

(C) 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.

(D) 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 employ- ee'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 con- forms 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) The employee or member or such employee's or member's covered dependents failed to pay any required contribution after receiving reasonable notice of such required contribution from the insurer in accordance with rules and regulations adopted by the commis- sioner of insurance; (b) any discontinued group coverage was replaced by similar group coverage within 31 days; (c) 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) 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 med- ical 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 continuation of group coverage required herein if the individual policy or certificate pro- vides 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 (D) in lieu of the right to continue group coverage.

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 (D)(21)(b)(ii).

(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) (i) 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, 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) the benefits provided under the sources referred to in paragraph (i) above for such person or benefits provided or available under the sources referred to in paragraphs (ii) and (iii) above for such person, together with the benefits provided by the converted policy, would result in over-insurance according to the insurer's standards. The insurer's stan- dards must bear some reasonable relationship 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 insurance 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) 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) such person is covered for similar benefits under any arrangement of coverage for individuals in a group, whether on an insured or uninsured basis; or

(c) 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.

The converted policy may provide that the insurer may refuse to renew the policy and the coverage of any person insured for the following rea- sons only:

(a) Either the benefits provided under the sources referred to in par- agraphs (i) and (ii) above for such person or benefits provided or available under the sources referred to in paragraph (iii) above 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 commissioner of insurance, or the converted policyholder fails to provide the requested information;

(b) fraud or material misrepresentation in applying for any benefits under the converted policy;

(c) eligibility of the insured person for coverage under 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) or under 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 converted policy; or

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

(8) 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) If the converted policy provides that any hospital, surgical or med- ical benefits payable may be reduced by the amount of any such benefits payable under the group policy after the termination of the individual's insurance or the converted policy includes provisions so that during the first policy year the benefits payable under the converted policy, 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 pro- vide credit for deductibles, copayments and other conditions satisfied under the group policy.

(10) Subject to the provisions and conditions of this act, if the group insurance policy from which conversion is made insures the employee or member for basic hospital or surgical expense insurance, the employee or member shall be entitled to obtain a converted policy providing, at the insured's option, coverage on an expense incurred basis under any one of the plans meeting the following requirements: Plan A

(a) hospital room and board daily expense benefits in a maximum dollar amount approximating the average semiprivate rate charged in metropolitan areas of this state, for a maximum duration of 70 days,

(b) miscellaneous hospital expense benefits of a maximum amount of 10 times the hospital room and board daily expense benefits, and

(c) surgical operation expense benefits according to a surgical sched- ule consistent with those customarily offered by the insurer under group or individual health insurance policies and providing a maximum benefit of $800, or Plan B

(a) hospital room and board daily expense benefits in a maximum dollar amount equal to 75% of the maximum dollar amount determined for plan A, for a maximum duration of 70 days,

(b) miscellaneous hospital expense benefits of a maximum amount of 10 times the hospital room and board daily expense benefits, and

(c) surgical operation expense benefits according to a surgical sched- ule consistent with those customarily offered by the insurer under group or individual health insurance policies and providing a maximum benefit of $600, or Plan C

(a) hospital room and board daily expense benefits in a maximum dollar amount equal to 50% of the maximum dollar amount determined for plan A, for a maximum duration of 70 days,

(b) miscellaneous hospital benefits of a maximum amount of 10 times the hospital room and board daily expense benefits, and

(c) surgical operation expense benefits according to a surgical sched- ule consistent with those customarily offered by the insurer under group or individual health insurance policies and providing a maximum benefit of $400.

The maximum dollar amounts of plan A shall be determined by the commissioner of insurance and may be redetermined by such official from time to time as to converted policies issued as new policies subsequent to such redetermination. At the request of the insured, such redetermi- ned amounts shall, subject to the provisions of condition (17) and sub- mission of reasonable evidence of insurability, be made available to the holders of converted policies which have been in effect at least three years on the date the redetermined amounts become effective. At the option of the insurer, any such requested increase or decrease in coverage on outstanding policies or any renewal thereof need not be made effective until the first policy anniversary date following the insured's request. Such redetermination shall not be made more often than once in three years. The maximum dollar amounts in plans A, B and C shall be rounded to the nearest multiple of $10.

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

(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.

2. A maximum payment of $250,000 per covered person for all cov- ered medical expenses incurred during the covered person's lifetime.

(ii) The smaller of the following amounts:

1. The maximum benefit provided under the group policy.

2. A maximum payment of $250,000 for each unrelated injury or sick- ness.

(b) Payment of benefits at the rate of 80% of covered medical ex- penses 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) A deductible for each benefit period which, at the option of the insurer, shall be (a) the sum of the benefits deductible and $100, or (b) 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 prac- tice 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 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 (a)(ii) above, 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) The benefit period shall be each calendar year when the maxi- mum benefit is determined by paragraph (a)(i) above or 24 months when the maximum benefit is determined by paragraph (a)(ii) above.

(e) The term ``covered medical expenses,'' as used above, shall in- clude 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 intensive care unit. Any surgical schedule shall be consistent with those customarily offered by the insurer under group or individual health insurance policies and must provide at least a $1,200 maximum benefit.

(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 conditions (10) and (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- ditions (10) and (11), provide a policy of comprehensive medical expense benefits without first dollar coverage. The policy shall conform to the requirements of condition (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.

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

(14) In the event coverage would be continued under the group pol- icy 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.

(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.

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

(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) to the spouse of the employee or member upon termination of coverage of the spouse, while the employee or member remains insured 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) 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.

(17) If the benefit levels required in condition (10) exceed the benefit levels provided under the group policy, the conversion policy may offer benefits which are substantially similar to those provided under the group policy either at the time the group policy was discontinued in its entirety and not replaced or as the group policy is in effect at the time the benefits under the converted policies are determined or redetermined in lieu of those required in condition (10).

(18) 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.

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

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

(21) The insurer shall give the employee or member and such em- ployee's or member's covered dependents: (a) Reasonable notice of the right to convert at least once during the six-month continuation period; or (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) 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.

(E) (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.

Sec. 7. K.S.A. 1995 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) ``Carrier'' or ``small employer carrier'' means any insurance com- pany, nonprofit medical and hospital service corporation, nonprofit op- tometric, dental, and pharmacy service corporations, municipal group- funded pool, fraternal benefit society or health maintenance organization, 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) ``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) ``Class of business'' means all or a separate grouping of small em- ployers established pursuant to K.S.A. 40-2209g and amendments thereto.

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

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

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

(l) ``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, pro- vided such sole proprietor, partner or independent contractor is included 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 substi- tute basis.

(m) ``Financially impaired'' means a member which, after the effec- tive 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) ``Health benefit plan'' means any hospital or medical expense pol- icy, 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) ``Index rate'' means, for each class of business as to a rating period for small employers with similar case characteristics, the arithmetic av- erage of the applicable base premium rate and the corresponding highest premium rate.

(p) ``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) ``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 at the time the individual was eligible to enroll;

(B) states, at the time of the initial eligibility, that coverage under another employer health benefit plan was the reason for declining en- rollment;

(C) has lost coverage under another employer health benefit plan as a result of the termination of employment, the termination of the other plan's coverage, death of a spouse, or divorce; and

(D) requests enrollment within 31 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 and request for enrollment is made within 31 days after issuance of such court order.

(r) ``New business premium rate'' means, for each class of business 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 issued 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) ``Preexisting conditions provision'' 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 as to a condition or related conditions for which diag- nosis, treatment or advice was sought or received in the six months im- mediately preceding the effective date of coverage.

(u) ``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) ``Rating period'' means the calendar period for which premium 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) ``Service waiting period'' means a period of time after full-time employment begins before an employee is first eligible to enroll in any applicable health benefit plan offered by the small employer.

(z) ``Small employer'' means any person, firm, corporation, partner- ship or association eligible for group sickness and accident insurance pur- suant to subsection (A) of K.S.A. 40-2209 and amendments thereto ac- tively engaged in business whose total employed work force consisted of, on at least 50% of its working days during the preceding year, 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 eligible to file a combined tax return for purposes of state taxation, shall be considered one em- ployer. Except as otherwise specifically provided, provisions 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 em- ployer no longer meets the requirements of this definition.

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

Sec. 8. K.S.A. 40-2221a is hereby amended to read as follows: 40- 2221a. (a) Except as otherwise provided in K.S.A. 40-2221b, no medicare supplement policy of insurance, as defined by the commissioner of in- surance by rule and regulation rules and regulations, issued or delivered in this state shall be terminated for failure to pay premiums when due unless the insurer sends to the insured a notice, addressed to the insured's last address of record with such insurer, indicating the policy terminated due to failure to pay the required premium as of the premium due date. Such notice shall be enclosed in an envelope on the front of which the following language appears in bold-faced type in a conspicuous place: IMPORTANT --- PREMIUM RENEWAL NOTICE ENCLOSED. Such notice shall be sent no later than 45 days following the date on which premium was due, and shall inform the insured of the amount of premium that would be required to reinstate the policy and of the time within which such premium must be remitted to the insurer to effect such reinstatement. Upon Except as provided in subsection (b), upon payment of the required premium by the insured to the insurer within 45 days of the insurer's having mailed such notice, the policy shall be automatically reinstated as continuous coverage without lapse by the in- surer without imposing upon the insured any new exclusions, reductions or waiting periods and without requiring of the insured proof of insura- bility.

(b) Medicare supplement policies of insurance, as defined by the com- missioner of insurance by rules and regulations, shall be reinstated in the event of lapse if the insurer is provided proof of cognitive impairment or the loss of functional capacity within five months after termination and the insured requests such reinstatement. Collection of past due premium will be allowed, where appropriate. The standard of proof of cognitive impairment or loss of functional capacity shall be established by clinical diagnosis by a person licensed to practice medicine and surgery and qual- ified to make such diagnosis.

Sec. 9. K.S.A. 40-2221a and K.S.A. 1995 Supp. 40-2209 and 40- 2209d are hereby repealed.

Sec. 10. This act shall take effect and be in force from and after its publication in the statute book.

Approved April 20, 1996.