CHAPTER 106 SENATE BILL No. 291 An  Act relating to the Kansas health insurance association; creating a reinsurance program
for medical supplement policies issued to persons eligible for medicare; prohibiting
denial of coverage to such persons; amending K.S.A. 1998 Supp. 40-2118, 40-2119, 40-
2121 and 40-2221 and repealing the existing sections.
Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 1998 Supp. 40-2118 is hereby amended to read as
follows: 40-2118. As used in this act, unless the context otherwise re-
quires, the following words and phrases shall have the meanings ascribed
to them in this section:

      (a) ``Administering carrier'' means the insurer or third-party admin-
istrator designated in K.S.A. 40-2120, and amendments thereto.

      (b) ``Association'' means the Kansas health insurance association es-
tablished in K.S.A. 40-2119, and amendments thereto.

      (c) ``Board'' means the board of directors of the association.

      (d) ``Church plan'' means a plan as defined under section 3(33) of
the Employee Retirement Income Security Act of 1974.

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

      (f) ``Creditable coverage'' means with respect to an individual, cov-
erage of the individual under any of the following:

      (1) A group health plan.

      (2) health insurance coverage;

      (3) part A or Part B of Title XVIII of the Social Security Act;

      (4) title XIX of the Social Security Act, other than coverage consisting
solely of benefit under Section 1928;

      (5) chapter 55 of Title 10, United States Code;

      (6) a medical care program of the Indian Health Service or of a tribal
organization;

      (7) a state health benefit risk pool;

      (8) a health plan offered under Chapter 89 of Title 5, United States
Code;

      (9) a public health plan as defined under regulations promulgated
by the secretary of health and human services; and

      (10) a health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(d)).

      (g) ``Dependent'' means a resident spouse or resident unmarried
child under the age of 19 years, a child who is a student under the age
of 23 years and who is financially dependent upon the parent, or a child
of any age who is disabled and dependent upon the parent.

      (h) ``Federally defined eligible individual'' means an individual:

      (1) For whom, as of the date the individual seeks coverage under
this section, the aggregate of the periods of creditable coverage is 18 or
more months and whose most recent prior coverage was under a group
health plan, government plan or church plan;

      (2) who is not eligible for coverage under a group health plan, Part
A or B of Title XVII of the Social Security Act, or a state plan under Title
XIX of the Social Security Act, or any successor program, and who does
not have any other health insurance coverage;

      (3) with respect to whom the most recent coverage was not termi-
nated for factors relating to nonpayment of premiums or fraud; and

      (4) who had been offered the option of continuation coverage under
COBRA or under a similar program, who elected such continuation cov-
erage, and who has exhausted such continuation coverage.

      (i) ``Excess loss'' means the total dollar amount by which claims ex-
pense incurred for any issuer of a medicare supplement policy or certif-
icate delivered or issued for delivery to persons in this state eligible for
medicare by reason of disability and who are under age 65 exceeds 65%
of the premium earned by such issuer during a calendar year.

      (i) (j) ``Governmental plan'' means a plan as defined under section
3(32) of the Employee Retirement Income Security Act of 1974 and any
plan maintained for its employees by the government of the United States
or by any agency or instrumentality of such government.

      (j) (k) ``Group health plan'' means an employee benefit plan as de-
fined by section 3(1) of the Employee Retirement Income Security Act
of 1974 to the extent that the plan provides any hospital, surgical or med-
ical expense benefits to employees or their dependents (as defined under
the terms of the plan) directly or through insurance, reimbursement or
otherwise.

      (k) (l) ``Health insurance'' 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 insurance'' does not
include policies or certificates covering only accident, credit, dental, dis-
ability income, long-term care, hospital indemnity, medicare supplement,
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 ben-
efits 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.

      (l) (m) ``Health maintenance organization'' means any organization
granted a certificate of authority under the provisions of the health main-
tenance organization act.

      (m) (n) ``Insurance arrangement'' means any plan, program, contract
or any other arrangement under which one or more employers, unions
or other organizations provide to their employees or members, either
directly or indirectly through a group-funded pool, trust or third-party
administrator, health care services or benefits other than through an in-
surer.

      (n) (o) ``Insurer'' means any insurance company, fraternal benefit
society, health maintenance organization and nonprofit hospital and med-
ical service corporation authorized to transact health insurance business
in this state.

      (o) (p) ``Medicaid'' means the medical assistance program operated
by the state under title XIX of the federal social security act.

      (p) (q) ``Medicare'' means coverage under both parts A and B of title
XVIII of the federal social security act, 42 USC 1395.

      (r) ``Medicare supplement policy'' means a group or individual policy
of accident and sickness insurance or a subscriber contract of hospitals
and medical service associations or health maintenance organizations,
other than a policy issued pursuant to a contract under section 1876 of
the federal social security act (42 USC 1395 et seq.) or an issued policy
under a demonstration project specified in 42 USC 1395ss(g)(1), which
is advertised, marketed or designed primarily as a supplement to reim-
bursements under medicare for the hospital, medical or surgical expenses
of persons eligible for medicare.

      (q) (s) ``Member'' means all insurers and insurance arrangements
participating in the association.

      (r) (t) ``Plan'' means the Kansas uninsurable health insurance plan
created pursuant to this act.

      (s) (u) ``Plan of operation'' means the plan to create and operate the
Kansas uninsurable health insurance plan, including articles, bylaws and
operating rules, adopted by the board pursuant to K.S.A. 40-2119, and
amendments thereto.

      Sec.  2. K.S.A. 1998 Supp. 40-2119 is hereby amended to read as
follows: 40-2119. (a) There is hereby created a nonprofit legal entity to
be known as the Kansas health insurance association. All insurers and
insurance arrangements providing health care benefits in this state shall
be members of the association. The association shall operate under a plan
of operation established and approved under subsection (b) of this section
and shall exercise its powers through a board of directors established
under this section.

      (b)  (1) The board of directors of the association shall be selected by
members of the association subject to the approval of the commissioner.
To select the initial board of directors, and to initially organize the asso-
ciation, the commissioner shall give notice to all members in this state of
the time and place of the organizational meeting. In determining voting
rights at the organizational meeting, each member shall be entitled to
one vote in person or by proxy. If the board of directors is not selected
within 60 days after the organizational meeting, the commissioner shall
appoint the initial board. In approving or selecting members of the board,
the commissioner shall consider, among other things, whether all mem-
bers are fairly represented. Members of the board may be reimbursed
from the moneys of the plan for expenses incurred by them as members
of the board of directors but shall not otherwise be compensated by the
plan for their services.

      (2) The board shall submit to the commissioner a plan of operation
for the association and any amendments thereto necessary or suitable to
assure the fair, reasonable and equitable administration of the plan. The
plan of operation shall become effective upon approval in writing by the
commissioner consistent with the date on which the coverage under this
act must be made available. The commissioner shall, after notice and
hearing, approve the plan of operation if it is determined to be suitable
to assure the fair, reasonable and equitable administration of the plan and
provides for the sharing of association losses on an equitable proportion-
ate basis among the members of the association. If the board fails to
submit a suitable plan of operation within 180 days after its appointment,
or at any time thereafter fails to submit suitable amendments to the plan
of operation, the commissioner shall, after notice and hearing, adopt and
promulgate such reasonable rules and regulations as are necessary or
advisable to effectuate the provisions of this section. Such rules and reg-
ulations shall continue in force until modified by the commissioner or
superseded by a plan of operation submitted by the board and approved
by the commissioner. The plan of operation shall, in addition to require-
ments enumerated elsewhere in this act:

      (A) Establish procedures for the handling and accounting of assets
and moneys of the plan;

      (B) select an administering carrier in accordance with K.S.A. 40-
2120, and amendments thereto;

      (C) establish procedures for the collection of assessments from all
members to provide for claims paid under the plan and for administrative
expenses incurred or estimated to be incurred during the period for which
the assessment is made. The level of payments shall be established by the
board pursuant to K.S.A. 40-2121, and amendments thereto. Assessments
shall be due and payable within 30 days of receipt of the assessment
notice;

      (D) establish appropriate cost control measures, including but not
limited to, preadmission review, case management, utilization review and
exclusions and limitations with respect to treatment and services under
the plan; and

      (E) develop and implement a program to publicize the existence of
the plan, the eligibility requirements and procedures for enrollment and
to maintain public awareness of the plan.

      (F) Establish benefit levels, lifetime maximum benefits, and other
coverage and eligibility parameters, and establish such other require-
ments and procedures as are necessary to assure the availability of a ben-
efit program or programs conforming with the requirements of a qualified
high risk pool as set forth in section 111 of Public Law 104-191 and
amendments thereto.

      (c) The association shall have the general powers and authority enu-
merated by this subsection in accordance with the plan of operation ap-
proved by the commissioner under subsection (b). The association shall
have the general powers and authority granted under the laws of this state
to insurers licensed to transact the kind of health service or insurance
included under K.S.A. 40-2123, and amendments thereto, and in addition
thereto, the specific authority and duty to:

      (1) Enter into contracts as are necessary or proper to carry out the
provisions and purposes of this act, including the authority, with the ap-
proval of the commissioner, to enter into contracts with similar plans of
other states for the joint performance of common administrative func-
tions, or with persons or other organizations for the performance of ad-
ministrative functions;

      (2) sue or be sued, including taking any legal actions necessary or
proper for recovery of any assessments for, on behalf of, or against par-
ticipating members;

      (3) take such legal action as necessary to avoid the payment of im-
proper claims against the association or the coverage provided by or
through the plan;

      (4) establish appropriate rates, rate schedules, rate adjustments, ex-
pense allowances, agents' referral fees, claim reserve formulas and any
other actuarial function appropriate to the operation of the plan. During
the first two years of operation of the plan, rates shall be established in
an amount that is estimated by the board to cover all claims that may be
made against the plan and the expenses of operating the plan. In following
years, rates for coverage shall be reasonable in terms of the benefits pro-
vided, the risk experience and expenses of providing the coverage, except
that such rates shall not exceed 150% of the average premium rate
charged for similar coverage in the private market. Rates and rate sched-
ules may be adjusted for appropriate risk factors such as age, sex and
geographic location in claims costs and shall take into consideration ap-
propriate risk factors in accordance with established actuarial and under-
writing practices, however particular health conditions or illnesses shall
not constitute appropriate risk factors;

      (5) assess members of the association in accordance with the provi-
sions of K.S.A. 40-2121, and amendments thereto;

      (6) design the policies of insurance to be offered by the plan which
shall cover at least the expenses enumerated in subsection (b) of K.S.A.
40-2123, and amendments thereto, but with such limitations and optional
benefit levels as the plan prescribes;

      (7) issue policies of insurance in accordance with the requirements
of this act; and

      (8) appoint from among members appropriate legal, actuarial and
other committees as necessary to provide technical assistance in the op-
eration of the plan, policy and other contract design, and any other func-
tion within the authority of the association.

      (d) The association shall administer a reinsurance program for med-
icare supplement policies issued to Kansas residents who are eligible for
medicare by reason of disability. All medicare supplement insurers issuing
or renewing medicare supplement policies in this state shall be partici-
pants in such reinsurance program. (1) On or before May 1, 2000, and
each year thereafter, each issuer of a medicare supplement policy in the
state shall provide to the association a calendar year accounting of the
medicare supplement policies delivered or issued for delivery in the state
and covering persons eligible for medicare by reason of disability who are
under age 65. (2) The accounting for medicare supplement policies cov-
ering persons eligible by reason of disability and under age 65 shall in-
clude the total number of such persons covered, the total premium earned
on such persons, and the total claims expense incurred with respect to
such persons during such year as paid through March 31, without esti-
mates for incurred but not reported claims. (3) The association shall use
such reports to develop the assessment required under subsection (d) of
K.S.A. 1998 Supp. 40-2121, and amendments thereto.

      Sec.  3. K.S.A. 1998 Supp. 40-2121 is hereby amended to read as
follows: 40-2121. (a) Following the close of each fiscal year, the admin-
istering carrier shall determine the net premiums, the plan expenses of
administration and the incurred losses for the year. Any net loss of the
plan determined after taking into account amounts transferred pursuant
to subsection (h) of K.S.A. 79-4804, and amendments thereto, investment
income and other appropriate gains and losses shall be assessed by the
board to all members of the association in proportion to their respective
shares of total health insurance premiums received in this state during
the calendar year coinciding with or ending during the fiscal year of the
association or any other equitable basis as may be provided in the plan
of operation. For health maintenance organization members and insur-
ance arrangements, the proportionate share of losses shall be determined
through application of an equitable formula based upon claims paid on
the value of services provided. In sharing losses, the board may abate or
defer in whole or in part the assessment of a member if, in the opinion
of the board, payment of the assessment would endanger the ability of
the member to fulfill its contractual obligations. Health insurance benefits
paid by an insurance arrangement that are less than an amount deter-
mined by the board to justify the cost of collection shall not be considered
for purposes of determining assessments. Net gains, if any, shall be held
at interest to offset future losses or allocated to reduce future premiums.
In addition to any annual assessment at the close of the fiscal year of the
plan authorized by this subsection, the board may provide for interim
assessments of the members of the association, subject to the approval of
the commissioner, as may be necessary to assure the financial capability
of the association in meeting the incurred or estimated claims expenses
of the plan and the operating and administrative expenses of the plan.

      (b) In addition to any assessment authorized by subsection (a), the
board may assess the members of the association for any initial costs
associated with developing and implementing the plan to the extent such
costs exceed the funds transferred to the uninsurable health insurance
plan fund pursuant to K.S.A. 40-2125 and amendments thereto. Such
assessment shall be allocated among the members of the association in
the manner prescribed by subsection (a) of this section or any other eq-
uitable formula established by the board. Assessments under this subsec-
tion shall not be subject to the credit against premium tax under subsec-
tion (c).

      (c) For taxable years commencing after December 31, 1995, and
prior to January 1, 1998, 80% of any assessment made against a member
of the association pursuant to subsection (a) of this section may be claimed
by such member as a credit against such member's premium or privilege
tax liability imposed by K.S.A. 12-2624, 40-252 or 40-3213 and amend-
ments thereto, for the taxable year in which such assessment is paid. For
the tax year commencing after December 31, 1997, 70% of any assess-
ment made against a member of the association pursuant to subsection
(a) of this section may be claimed by such member as a credit against
such member's premium tax liability imposed by K.S.A. 12-2624, 40-252
or 40-3213 and amendments thereto, for the taxable year in which such
assessment is paid.

      For the tax year commencing after December 31, 1998, 65% of any
assessment made against a member of the association pursuant to sub-
section (a) of this section may be claimed by such member as a credit
against such member's premium tax liability imposed by K.S.A. 12-2624,
40-252 or 40-3213 and amendments thereto, for the taxable year in which
such assessment is paid.

      For the tax year commencing after December 31, 1999, 60% of any
assessment made against a member of the association pursuant to sub-
section (a) of this section may be claimed by such member as a credit
against such member's premium tax liability imposed by K.S.A. 12-2624,
40-252 or 40-3213 and amendments thereto, for the taxable year in which
such assessment is paid.

      The amendments made to the Kansas uninsurable health insurance
plan act by chapter 190 of the 1997 Session Laws of Kansas shall expire
on January 1, 2001.

      (d) In addition to the assessments otherwise authorized herein, the
board shall assess all issuers of medicare supplement policies covering
persons within this state to the extent necessary to assure that the excess
losses, if any, are distributed among such issuers of medicare supplement
policies in a ratio equal to the percentage market share in Kansas of each
such issuer for medicare supplement policies covering persons eligible for
medicare by reason of age. The association shall also assess to such issuers
of medicare supplement policies the costs the association incurs in oper-
ating the reinsurance program, making assessments, and collecting and
distributing moneys, which shall be assessed pro rata to such issuers based
on the market share of such issuers of medicare supplement policies cov-
ering persons eligible for medicare by reason of age. Such assessment shall
occur not later than July 1 of each year, based on such excess losses and
such market shares for the immediately preceding calendar year. Issuers
of medicare supplement policies shall remit the amount so assessed to the
association within the time frames established by the board for payment
of assessment otherwise authorized herein. The association shall pay to
any issuer of medicare supplement policies entitled thereto such amount
as is necessary to result in the equalization among all issuers of medicare
supplement policies in Kansas of excess losses in a proportion equivalent
to the percentage market share in Kansas of each issuer of medicare sup-
plement policies covering persons eligible for medicare by reason of age.
The amount of such assessments received by an insurer shall not be ac-
counted for as premium income nor shall such amounts be subject to
premium tax. The amount of such assessments shall not be available for
use in premium tax credits provided for under subsection (c) of K.S.A.
1998 Supp. 40-2122, and amendments thereto. The association shall have
the ability to enforce assessments through its board.

      Sec.  4. K.S.A. 1998 Supp. 40-2221 is hereby amended to read as
follows: 40-2221. In addition to any other statutory authority not incon-
sistent herewith, the commissioner shall adopt rules and regulations es-
tablishing specific standards for medicare supplement policies delivered
or issued for delivery in this state. The standards so established shall
equal, or may exceed, the minimum standards and requirements permit-
ted by section 1395SS(b)(B) of the federal social security act (42 U.S.C.
§ 1395 et seq.). In addition, an issuer of a medicare supplement policy:
(a) Shall not deny coverage to an applicant under 65 years of age who
becomes eligible for a medicare by reason of disability if such person
makes application for medicare supplement policy within six months of
the first day on which such person enrolls for benefits under medicare
part B;

      (b) may not condition the issuance or effectiveness of a medicare
supplement policy issued to a person eligible for medicare by reason of
disability because of the health status, claims experience, receipt of health
care, or medical condition of such applicant if such applicant makes ap-
plication for a medicare supplement policy during the six month period
beginning with the first day of the month in which such applicant enrolls
for benefits under medicare part B;

      (c) shall make available to persons eligible for medicare by reason of
disability each type of medicare supplement policy such issuer makes
available to person eligible for medicare by reason of age; and

      (d) shall not charge individuals who become eligible for medicare by
reason of disability and who are under the age of 65 premium rates for
any medical supplemental insurance benefit plan offered by the issuer
that exceeds the issuer's premium rates charged for such plan to individ-
uals who are age 65.

Sec.  5. K.S.A. 1998 Supp. 40-2118, 40-2119, 40-2121 and 40-2221 are
hereby repealed.

Sec.  6. This act shall take effect and be in force from and after its
publication in the statute book.

Approved April 14, 1999.
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