CHAPTER 110 HOUSE BILL No. 2090 An Act concerning insurance; relating to small employer health benefit plans; establishing
a procedure for the conversion of a stock or mutual insurance company into an insurance
reciprocal; amending K.S.A. 40-2239, 40-2240, 40-2242 and 40-2246 and K.S.A. 1998
Supp. 40-2241 and repealing the existing sections; also repealing K.S.A. 40-2244 and
40-2245.
Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 40-2239 is hereby amended to read as follows: 40-
2239. As used in this act, unless the context requires otherwise:

      (a) ``Carrier'' means an insurance company, medical or hospital serv-
ice corporation, medical and hospital service corporation or health main-
tenance organization which holds a valid certificate of authority from the
insurance commissioner.

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

      (c) ``Eligible employee'' means an employee who is employed by the
employer for an average of at least 17.5 30 hours per week and who elects
to participate in one of the benefit plans provided under this act, and
includes individuals who are sole proprietors, business partners and lim-
ited partners. The term ``eligible employee'' does not include individuals:

      (1) Engaged as independent contractors;

      (2) whose periods of employment are on an intermittent or irregular
basis; or

      (3) who have been employed by the employer for fewer than 90 days.

      (d) ``Family member'' means an eligible employee's spouse and any
unmarried dependent child or stepchild.

      (e) ``Health benefit plan'' means a contract for group medical, sur-
gical, hospital or any other remedial care recognized by state law and
related services and supplies.

      (f) ``Premium'' means the monthly or other periodic charge for a
health benefit plan.

      (g) ``Small employer health benefit plan'' means an organization of
small employers arrangement providing a health benefit plan for the pur-
pose described in K.S.A. 40-2240, and amendments thereto.

      Sec.  2. K.S.A. 40-2240 is hereby amended to read as follows: 40-
2240. (a) Any two or more employers small employer as defined in sub-
section (4) of K.S.A. 40-2209d, and amendments thereto, may establish a
small employer health benefit plan for the purpose of providing a health
benefit plan as described in K.S.A. 40-2244 and 40-2245 subsection (u)
of K.S.A. 40-2209d, and amendments thereto, covering such employers'
eligible employees and such employees' family members. Small employer
health benefit plan member employers shall adopt a plan of operation
providing for the selection of a board of directors and such additional
provisions necessary or proper for the execution of the plan's purposes.
Such plan of operation may provide for a delegation of powers and duties
to a corporation, association or other organization which performs func-
tions similar to those of the small employer health benefit plan If an
association or trust is used for such purposes, the association or trust may
not condition eligibility or membership on the health status of members
or employees.

      (b) Employers desiring to organize offer a small employer health ben-
efit plan shall notify the commissioner and provide the commissioner with
information on the number of employees and family members to be cov-
ered by the insurance described in K.S.A. 40-2244 and 40-2245 40-2209d,
and amendments thereto. The commissioner shall provide assistance to
employers desiring to organize and maintain any such benefit plan and
may aid in the acquisition of the health care insurance by the small em-
ployer health benefit plan. The commissioner shall issue a certificate to
every employer participating in any such small employer health benefit
plan entitling such employer to claim the tax credit authorized by K.S.A.
40-2246 and amendments thereto subject to the following limitation: No
certificate shall be issued to any employer seeking the same after certif-
icates have already been issued under this act to employers offering health
benefits described in K.S.A. 40-2244 and 40-2245 40-2209d, and amend-
ments thereto, to an aggregate of 10,000 employees and family members
entitling such employers to claim the credits for taxable years which com-
mence after December 31, 1991 1999, and before January 1, 1993 2002.

      Sec.  3. K.S.A. 40-2242 is hereby amended to read as follows: 40-
2242. (a) As a condition to participation as a member of any small em-
ployer health benefit plan as provided in K.S.A. 40-2240 and amendments
thereto, an employer shall:

      (1) Employ no more than 50 employees who do not have health in-
surance as a spouse, dependent or otherwise or who are not eligible for
medicaid or state medical assistance;

      (2) have not contributed within the preceding two years to any health
insurance premium on behalf of an employee who is to be covered by
the employer's contribution other than a contribution by an employer to
a health insurance premium within the preceding two years solely for the
benefit of the employer or the employer's dependents; and

      (3) make a minimum contribution to be set by the board of directors
of the small employer health benefit plan toward the premium incurred
on behalf of a covered employee.

      (b) The small employer health benefit plan may terminate the par-
ticipation of any employer if, for a period of three months, the employer
fails to perform any action required by this act or by the plan of operation.

      (c) No small employer health benefit plan may require membership
in any association, organization or other entity as a prerequisite to mem-
bership and full participation by any employer except as specifically au-
thorized by this act.

      Sec.  4. K.S.A. 40-2246 is hereby amended to read as follows: 40-
2246. (a) A credit against the taxes otherwise due under the Kansas in-
come tax act shall be allowed to an employer for amounts paid during the
taxable year for purposes of this act on behalf of an eligible employee as
defined in K.S.A. 40-2239 and amendments thereto to provide health
insurance or care.

      (b) The amount of the credit allowed by subsection (a) shall be $25
$35 per month per eligible covered employee or 50% of the total amount
paid by the employer during the taxable year, whichever is less, for the
first two years of participation. In the third year, the credit shall be equal
to 75% of the lesser of $25 $35 per month per employee or 50% of the
total amount paid by the employer during the taxable year. In the fourth
year, the credit shall be equal to 50% of the lesser of $25 $35 per month
per employee or 50% of the total amount paid by the employer during
the taxable year. In the fifth year, the credit shall be equal to 25% of the
lesser of $25 $35 per month per employee or 50% of the total amount
paid by the employer during the taxable year. For the sixth and subse-
quent years, no credit shall be allowed.

      (c) If the credit allowed by this section is claimed, the amount of any
deduction allowable under the Kansas income tax act for expenses de-
scribed in this section shall be reduced by the dollar amount of the credit.
The election to claim the credit shall be made at the time of filing the
tax return in accordance with law. If the credit allowed by this section
exceeds the taxes imposed under the Kansas income tax act for the taxable
year, that portion of the credit which exceeds those taxes may be carried
over to the tax in succeeding tax years until the credit is used. The credit
shall be applied first to the earliest income years possible shall be refunded
to the taxpayer.

      (d) Any amount of expenses paid by an employer under this act shall
not be included as income to the employee for purposes of the Kansas
income tax act. If such expenses have been included in federal taxable
income of the employee, the amount included shall be subtracted in ar-
riving at state taxable income under the Kansas income tax act.

      (e) This section shall apply to all taxable years commencing after De-
cember 31, 1991 1999.

      Sec.  5. K.S.A. 1998 Supp. 40-2241 is hereby amended to read as
follows: 40-2241. (a) Any small employer health benefit plan organized
for the purposes described in K.S.A. 40-2240 and amendments thereto
shall be authorized to enter into contracts with carriers for the health care
insurance described in K.S.A. 40-2244 and 40-2245 40-2209d, and
amendments thereto, or health care providers for services on behalf of
its member employees. A small employer health benefit plan may contract
with more than one carrier to provide insurance.

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

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

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

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

      New Sec.  6. (a) Any insurance company may convert to a Kansas
insurance reciprocal in accordance with a plan for the conversion of the
insurance company into an insurance reciprocal filed with and approved
by the commissioner.

      (b) The commissioner may establish reasonable requirements and
procedures for the submission and approval of a conversion plan author-
ized by subsection (a).

      (c) No conversion plan shall be approved under this section unless
such conversion plan includes:

      (1) A provision for the conversion of existing stockholder or policy-
holder interests in the insurance company into reciprocal or exchange
subscriber interests in the insurance reciprocal so that each subscriber's
interest in the resulting Kansas insurance reciprocal shall be fairly pro-
portionate to such subscriber's interest in the insurance company;

      (2) a provision for the amendment of the insurance company's exist-
ing articles of incorporation or other chartering document to a sub-
scriber's agreement which complies with the provisions of K.S.A. 40-1602
and 40-1603 and amendments thereto;

      (3) a copy of the proposed subscriber's agreement;

      (4) proof of the approval or adoption of the conversion plan by not
less than 75% of the shares or policyholders entitled to vote, represented
either in person or by proxy, at a duly called regular or special meeting
of the stockholders or policyholders of the insurance company at which
a quorum, as determined by the bylaws or other chartering documents
of the insurance company, is present:

      (5) a transition plan for the change of governance of the insurance
company from the board of directors and officer structure of the insur-
ance company to the insurance reciprocal which shall be governed by
article 16 of chapter 40 of the Kansas Statutes Annotated and amend-
ments thereto; and

      (6) any other information required by the commissioner.

      (d) The commissioner shall approve the conversion plan if the com-
missioner finds that the proposed conversion will:

      (1) Not be detrimental to the interests of the stockholders or poli-
cyholders of the insurance company;

      (2) not be detrimental to the interests of the state of Kansas; and

      (3) not render the insurer incapable of fulfilling the insurer's con-
tractual obligations.

      (e) Upon approval of a conversion plan under this section, the com-
missioner shall issue a new or amended certificate of authority, which
shall be deemed to be the final act of conversion at which time the in-
surance company shall concurrently become an insurance reciprocal. The
insurance reciprocal shall be deemed to be a continuation of the insurance
company and deemed to have been organized at the time the converted
insurance company was organized.

      (f) Each insurance reciprocal created pursuant to this section shall
comply with all provisions of K.S.A. 40-1612, and amendments thereto.

      (g) Any conversion of an insurance company to a reciprocal shall not
be subject to the provisions of K.S.A. 40-3304, and amendments thereto.

      (h) For the purposes of this section:

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

      (2) ``Insurance company'' means a stock or mutual insurance com-
pany.

      (3) ``Insurance reciprocal'' means a reciprocal or interinsurance
exchange established to exchange reciprocal or interinsurance contracts
with subscribers to provide indemnity among themselves.

      New Sec.  7. Within 15 days of the date of the commissioner's ap-
proval or denial of the conversion plan submitted in accordance with
section 5, and amendments thereto, the insurance company shall have
the right to request a hearing by filing a written request with the com-
missioner. The commissioner shall conduct the hearing in accordance
with the provisions of the Kansas administrative procedure act within 30
days after such request is filed. Any action of the commissioner pursuant
to this section is subject to review in accordance with the provisions of
the act for judicial review and civil enforcement of agency actions.

      New Sec.  8. The provisions of sections 6 and 7, and amendments
thereto, shall be supplemental to article 16 of chapter 40 of the Kansas
Statutes Annotated and amendments thereto.

 Sec.  9. K.S.A. 40-2239, 40-2240, 40-2242, 40-2244, 40-2245 and 40-
2246 and K.S.A. 1998 Supp. 40-2241 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 14, 1999.
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