Kentucky Department of Insurance: Insurance Legislation Adopted by the 2008 Kentucky General Assembly (Regular Session)

Kentucky Department of Insurance

Insurance Legislation Adopted by the 2008 Kentucky General Assembly (Regular Session)

COMMONWEALTH OF KENTUCKY

DEPARTMENT OF INSURANCE

Frankfort, Kentucky

BULLETIN 2008 - 02

INSURANCE LEGISLATION ADOPTED BY THE

2008 KENTUCKY GENERAL ASSEMBLY (REGULAR SESSION)

June 24, 2008

THIS BULLETIN IS FOR INFORMATION PURPOSES ONLY. IT DOES NOT AMEND OR INTERPRET PROVISIONS OF THE KENTUCKY REVISED STATUTES OR THE KENTUCKY ADMINISTRATIVE REGULATIONS. THE COMPLETE AND ACCURATE TEXT OF THE LAW CAN BE SECURED WHEN THE 2008 ACTS OF THE KENTUCKY GENERAL ASSEMBLY ARE PUBLISHED IN THE SUMMER OF 2008. UNLESS OTHERWISE NOTED, THE EFFECTIVE DATE OF THE LEGISLATION IS JULY 15, 2008.

(Bills as enacted are available on the LRC Web site at www.lrc.ky.gov/record/08rs/record.htm)

Senate Bill 93 – Operation of golf carts on a public roadway

This bill allows a local government to adopt an ordinance to authorize and regulate the operation of a golf cart on a public roadway that lies within five miles of an entrance to a golf course. The ordinance must require that a golf cart operated on a designated public roadway:

Be issued a permit;
Display a sticker or permit that identifies that the golf cart is allowed to be operated on specific roadways;
Be inspected by a certified inspector designated by a county sheriff and certified through the Department of Vehicle Regulation.

A person may operate a golf cart on a designated public roadway if:

The posted speed limit is 35 mph or less;
The operator does not cross a roadway at an intersection where the roadway being crossed has a posted speed limit of more than 35 mph;
The operator has a valid operator’s license in his or her possession;
The golf cart is being operated between sunrise and sunset; and
The golf cart displays a slow-moving vehicle emblem.

The golf cart being operated on a public roadway must be insured in compliance with KRS 304.39-080 and the proof of insurance must be inside the golf cart at all times. However, the golf cart is not considered to be a motor vehicle and is exempt from:

Title requirements;
Vehicle registration requirements; and
Emissions compliance certificates.

Contact: Property and Casualty Division

(502) 564-6046

Senate Bill 96 – Colorectal Cancer Screenings

This bill creates a new statute within KRS 304, Subtitle 17A to require health benefit plans issued or renewed on or after January 1, 2009 to:

Provide coverage for all colorectal cancer examinations and laboratory tests specified in the current American Cancer Society guidelines for colorectal cancer screening of asymptomatic individuals. The covered individual shall be:

o 50 years of age or older; or

o Less than 50 years of age and at high risk for colorectal cancer according to the guidelines of the American Cancer Society.

· Prohibit the application of a separate deductible or separate coinsurance for this coverage.

Contact: Health Insurance Policy and Managed Care Division

(502) 564-6088

Senate Bill 149 – Metabolic Disorders

With regard to insurance, this bill repeals provisions in KRS 304.17A-139 related to coverage for treatment of inherited metabolic diseases and creates a new statute within KRS 304, Subtitle 17A to require health benefit plans that provide prescription drug coverage to:

· Provide coverage for therapeutic food, formulas, supplements and low-protein modified food products for the treatment of inborn errors of metabolism or genetic conditions if the food is obtained under the direction of a physician;

· Allows coverage to be subject to a cap of $25,000 for each plan year for therapeutic food, formulas, and supplements; and a cap of $4,000 for each plan year for low-protein modified foods. The caps are subject to annual inflation adjustments based on the consumer price index.

Contact: Health Insurance Policy and Managed Care Division

(502) 564-6088

Senate Bill 167 – Debt cancellation agreements

This bill amends KRS 190.100 to:

Define a “debt cancellation agreement” as a written provision in a retail installment contract, or separate addendum thereto, which provides for cancellation of all or part of an obligation of the buyer or obligor upon the occurrence of a specified event; and
Clarify that a debt cancellation agreement is not insurance.

Contact: Property and Casualty Division

(502) 564-6046

House Bill 84 – Group Life Insurance

This bill amends various statutes within KRS 304 Subtitle 16 related to group life insurance primarily to adopt the provisions of the NAIC Model Law. Specifically, the bill makes the following changes:

Section 1 – Employee Groups (KRS 304.16-030)

Removes the exception that premium may be paid entirely by the insureds if the amount of insurance does not exceed $2,000 on the life of any employee;
Removes the 75 percent participation requirement by eligible employees; and

Requires eligible employees to reject coverage in writing if they choose not to be insured.

Section 2 – Debtor Groups (KRS 304.16-040)

Allows the group policy to be issued to an affiliated company of the creditor;
Removes the limitation that a group member shall be one whose indebtedness is repayable either in installments or in one sum within 18 months from the initial date of debt, and allows the group members to be from any class of indebtedness;
Amends the definitions of “debtor” to include borrowers of money or purchaser or lessees of goods, services or property for which payment is arranged through a credit transaction;
Removes the 75 percent participation requirement by eligible debtors and the requirement that the group have at least 100 new entrants yearly; and
Limits the amount of life insurance written to the credit limit for policies written in connection with open-end credit having a limit exceeding $10,000.

Section 3 – Labor Union Groups (KRS 304.16-050)

Removes the 75 percent participation requirement by eligible members; and
Requires eligible members to reject coverage in writing if they choose not to be insured.

Section 4 – Trustee Groups (KRS 304.16-060)

Removes the participation requirements that previously set forth various minimum percentages for eligible members and minimum numbers of covered lives;
Requires eligible persons to reject coverage in writing if they choose not to be insured.

Section 5 – Public Employee Groups (KRS 304.16-070)

Removes the 75 percent participation requirement by eligible members.

Section 6 – Association Groups (KRS 304.16-080)

Clarifies that a group life insurance policy may be issued to a trust maintained for the benefit of members of one or more associations that meet the following requirements:

The association has, at the outset, a minimum of one member
The association has been in active existence for at least two (2) years
The constitution or by-laws provide for an annual meeting, the collection of dues from members, and voting privileges and representation by members on the governing board and committees;

Removes the requirement that at least twenty-five (25) members of the association are insured;
Requires the policy to provide coverage for members of the association or employees of members for the benefit of persons other than the employee’s employer;
Requires the premium to be paid from funds contributed by the association, employer members or covered persons.

Section 7 – Dependent’s Coverage (KRS 304.16-085)

Removes the limitation prohibiting dependent coverage from being in excess of 50 percent of the employees’ or members’ insurance.

Section 8 – Credit Union Groups (KRS 304.16-090)

Allows for a group life insurance policy to be issued to a trust designated by two or more credit unions;
Requires the premium for the policy to be paid by the policyholder from the credit union’s funds;
Removes the 75 percent participation requirement by eligible members;
Removes the requirement that at least twenty-five (25) members of the credit union are insured; and
Removes the limitation that the amount of insurance under the policy cannot exceed the amount of the total shares and deposits of the member.

Section 9 – Beneficiary (KRS 304.16-170)

Increases from $500 to $2,000 the maximum amount that could be reimbursed to any person other than the beneficiary for payment of funeral or other expenses related to the last illness or death of the insured.

Section 10 – Conversion on Termination of Eligibility (KRS 304.16-190)

Allows the conversion privilege to be made available to a:

Surviving dependent upon the termination of coverage under the group policy due to the death of the employee or member; and
Dependent upon the termination of coverage under the group policy because the dependent ceases to be a qualified family member under the group policy.

Section 11 – Conversion on Termination of Policy (KRS 304.16-200)

Allows an insured dependent who has been insured under a group policy for at least five years to be entitled to conversion privileges.

Contact: Life Insurance Division

(502) 564-6071

House Bill 179 – Paid-Up Life Insurance Policies

This bill requires insurers to provide notice to the Office of Insurance within thirty (30) days of completion of all policy payments. Utilizing the reported data, the Office of Insurance is required to respond to policyholder inquiries regarding their policy in the event of loss or destruction of the policy or acquisition or merger of the insurer.

Contact: Life Insurance Division

(502) 564-6071

House Bill 204 – Transportation of Persons

This bill amends KRS 281.605 to exempt from the provisions of KRS Chapter 281, Motor Carriers, the transportation of persons who are sixty (60) years old or visually impaired if the motor vehicles are being used by or on behalf of a non-profit organization. However, the bill requires privately owned motor vehicles used on behalf of a non-profit organization to comply with the liability insurance coverage requirements established in KRS 304.39-110, even though the vehicles are otherwise exempt under this statute.

Contact: Property and Casualty Division

(502) 564-6046

House Bill 259 – Long-Term Care Partnership Program

This bill provides the enabling legislation to establish a Long-Term Care Partnership Insurance Program in Kentucky. The program is established as a partnership between the Department for Medicaid Services and the Office of Insurance to:

Provide incentives for an individual to insure against the cost of providing for his or her long-term care needs;
Increase utilization of long-term care insurance policies;
Assist in alleviating the financial burden of Kentucky’s Medicaid program by encouraging the use of private insurance; and
Provide a mechanism for individuals to qualify for Medicaid services for costs of long-term care without exhausting all of their assets and resources.

The bill requires the Department for Medicaid Services to:

Submit an amendment to the State Medicaid Plan to permit the establishment of a Kentucky Long-Term Care Partnership Insurance Program by October 30, 2008.
Establish the Kentucky Long-Term Care Partnership Insurance Program in conjunction with the Office of Insurance.

The bill requires the Office of Insurance to:

Approve long-term care partnership policies pursuant to KRS 304.14-120.
Develop uniform training materials in consultation with the Department for Medicaid Services for agents who sell long-term care insurance policies. (Insurers will be responsible for ensuring that any agent who sells a long-term care partnership policy can demonstrate an understanding of long-term care partnership insurance and how it relates to other public and private coverage of long-term care expenses.)
Promulgate an administrative regulation to implement the Kentucky Long-Term Care Partnership Insurance Program within sixty (60) days of notice of approval of the amendment to the State Medicaid Plan.
In conjunction with the Department for Medicaid Services, report to the Interim Joint Committee on Banking and Insurance and the Interim Joint Committee on Health and Welfare on the status of the program no later than September 30 of each year.
In coordination with the Cabinet for Health and Family Services, promulgate a regulation to establish the content of a disclosure statement required to be provided to a prospective applicant outlining the requirements and benefits of a partnership policy.

Contact: Health Insurance Policy and Managed Care Division

(502) 564-6088

Agent Licensing Division

(502) 564-6004

House Bill 316 – Basic Health Benefit Plan Coverage of Mammograms

This bill amends KRS 304.17A-096 to require a basic health benefit plan to insurance coverage for mammograms, as provided in KRS 304.17A-133.

Contact: Health Insurance Policy and Managed Care Division

(502) 564-6088

House Bill 334 – Insurance Producer Modernization

Section 1 of this bill amends KRS 304.9-350 to:

Clarify that an individual or business entity dually licensed as both a consultant and an agent cannot act as an agent with respect to a specific insurance transaction for which they have a written consulting contract. The prohibition against acting as an agent for that specific risk is in effect during the term of the written consulting contract and for the period of 12 months after the expiration of the contract but no less than 24 months from the inception of the contract. This prohibition also applies to an agent who has a financial or business ownership interest or affiliations with the consultant.
Specify the information that must be included in a consultant’s contract and requires a consulting contract to be retained for a minimum of five (5) years after its expiration.
Allow an agent who also holds a formal financial planning certification or designation to receive a fee for services under that designation and commission for the sale of life insurance or annuities if specific disclosures are provided to the party to be charged.

A consultant or agent found to be in violation of this section is subject to a fine in the amount of the consultant’s or agent’s fees or commissions associated with the sale of the product which is the subject of the violation in addition to suspension or revocation of the consultant’s or agent’s license.

Section 2 of this bill creates a new statute in KRS Chapter 304, Subtitle 11 to allow an agent to receive compensation from the insurer or the client for the placement of insurance and services rendered to the client. The compensation arrangement must be specified in a written disclosure agreement.

For purposes of this section, the term, “client” is specifically defined to mean the following:

1. For health insurance, group life insurance and ancillary employee benefits, the person meets or exceeds one of the following:

Total assets of the business of at least $25,000,000; or
Total sales or revenue of at least $25,000,000.

The person also meets or exceeds one of the following:

Total number of eligible employees of at least 100; or
Annual health and employee benefits premiums of at least $500,000.

2. A person whose health benefit plan is procured through an employer-organized association as defined in KRS 304.17A-005.

3. For property insurance and casualty insurance, the person meets or exceeds one of the following:

o Total assets of the business of at least $25,000,000; or

o Total sales or revenue of at least $25,000,000.

The person also meets or exceeds one of the following:

o Total number of eligible employees of at least 100; or

o Annual property and casualty policy premiums of at least $400,000.

4. A person purchasing an unbundled insurance program with:

o Fixed costs exceeding $100,000; or

o With a deductible relative to any one line of coverage of at least $100,000.

The provisions of this section do not apply to personal lines of insurance issued for personal or family protection.

Section 3 of this bill amends KRS 304.12-100 to exempt from Kentucky’s unfair discrimination, rebating and illegal inducement laws, the furnishing of information, advice, programs or services that are intended to reduce the future cost of insurance of the policyholder or the probability of loss, assist in the efficient administration and management of a policyholder’s insurance program, or assist the policyholder in complying with any state or federal law. Examples provided with the bill include, but are not limited to, the following:

Software to administer an insured’s employee benefits or risk management programs;
Employee wellness programs;
Risk management services;
Loss control services; or
Workers’ compensation analysis forecasting.

Contact: Agent Licensing Division

(502) 564-6004

House Bill 348 – Life Settlements

HB 348 amends Kentucky’s Viatical Settlements law, KRS 304.15-700 through 304.15-725, the definitions found in KRS 304.15-020, and creates new statutes within the Insurance Code to:

Adopt many provisions of the NCOIL Life Settlements Model Law;
Regulate “stranger-originated life insurance” (STOLI);
Update terminology to reference “life settlements” rather than “viatical settlements”;
Provide additional protection against trust-initiated STOLI and other schemes with regard to insurable interest.

Specifically, HB 348 includes the following amendments:

Section 1 – Definitions (KRS 304.15-020)

Includes new definitions for “advertisement,” “financing transaction,” “life expectancy,” “premium finance loan,” “purchaser,” “settled policy,” and “stranger-originated life insurance (STOLI).

Section 2 – General Rules (KRS 304.15-700)

Prohibits an insurer that is the subject of a life settlement contract from being responsible for any act or omission of a broker, purchaser or provider unless the insurer receives compensation for the placement of the life settlement contract from the broker, purchaser or provider.
Prohibits an insurer from requiring the owner, insured, provider or broker to sign any form as a condition of responding to a request for verification of coverage or in connection with the settlement of a policy that has not been approved by the Office of Insurance for use in connection with life settlement contracts.

Section 3 – Advertisements (new statute)

Requires advertisements used by life settlement brokers or life settlement providers to comply with the Insurance Code.
Further requires advertisements to be accurate, truthful and not misleading.
Prohibits a person or a trust from advertising the purchase of a life insurance policy for the purpose of settling the policy and from using the words “free” or “no cost” in the advertising material.

Section 4 – Disclosures (KRS 304.15-710)

Requires a provider to provide specific disclosures in a separate written document that is signed by the owner and the provider.
Requires those disclosures to be conspicuously displayed in a life settlement contract or a separate document furnished to the owner.
Adds the following information to the listing of required disclosures:

The date by which the funds will be available to the owner and the transmitter of the funds;
That a consumer guide shall be delivered to owners with each application;
That applications and life settlement contracts contain a fraud statement;
That a broker represents exclusively the owner, and not the insurer or the provider, and owes a fiduciary duty to the owner including a duty to act according to the owner’s instructions and in the best interests of the owner; and
The fact that a change in ownership could, in the future, limit the insured’s ability to purchase future insurance on the insured’s life because there is a limit to how much coverage insurers will issue on one life.

Requires the broker to provide to the owner and the provider the following information no later than the date the life settlement contract is signed by all parties:

The name, business address and telephone number of the broker;
A full, complete and accurate description of all the offers, counter-offers, acceptances and rejections relating to the proposed life settlement contract;
The name of each broker who receives compensation and the amount of compensation received by the broker;
A complete reconciliation of the gross offer or bid by the provider to the net proceeds or value to be received by the owner.

Section 5 – Inquiries and Disclosures by Insurers About Premium Financing (new statute)

Permits an insurer to:

Inquire in the insurance application whether the proposed owner intends to pay premiums with the assistance of financing from a lender that will use the policy as collateral to support the financing;
Make disclosures to the applicant and insured that if the person entered into a loan agreement with the policy as collateral and if the policy does change ownership in satisfaction of the loan, that change in ownership could lead to a stranger owning an interest in the insured’s life and could limit the insured’s ability to purchase future insurance on the insured’s life;
Require certification from the applicant or insured that he or she has not entered into an agreement for the future sale of the policy, that the loan arrangement is sufficient to pay premiums and costs, and that the borrower has an insurable interest in the insured.

Section 6 – Life Settlement Contracts (KRS 304.15-715)

Prohibits an insurer from unreasonably delaying the change of ownership or beneficiary with any lawful life settlement contract;
Requires the provider to notify the insurer within twenty (20) days after an owner executes a life settlement contract;
Requires a fee paid to a broker for services provided to an owner pertaining to a life settlement contract to be computed as a percentage of the offer obtained rather than the face value of the policy;
Requires the broker to disclose to the owner anything of value paid or given to a broker which relates to a life settlement contract.

Section 7 – Exceptions to Prohibition of Settling a Life Insurance Contract Within 2 Years After Issuance (KRS 304.15-716)

Adds the following exceptions to the prohibition of entering into a life settlement within two (2) years of issuance of a life insurance policy:

Death of the owner’s spouse;
Divorce;
Retirement;
Physical or mental disability of owner;
Bankruptcy of the owner.

Section 8 – Unlawful Acts (KRS 304.15-717)

This section adds the following acts to those declared to be unlawful with respect to a life settlement transaction:

Engaging in any transaction, practice or course of business if the person knows or reasonably should have known that the intent was to avoid the notice requirements in the life settlement statutes;
Issuing, soliciting, marketing or otherwise promoting the purchase of a life insurance policy for the purpose of or with a primary emphasis on settling the policy;
Entering into a life settlement contract on a policy that was the subject of a premium finance agreement;
For an insurer, broker or provider, making any statement or representation in connection with the sale or financing of a life insurance policy to the effect that the insurance is free or without cost to the policyholder for any period of time unless provided in the policy;
Knowingly entering into a life settlement contract with an owner if, in connection with the life settlement contract, anything of value will be paid to a broker or provider under common control or controlled by the provider, broker, or financing entity or related provider trust;
If an insurer,

engages in or permits any discrimination between individuals of the same class, policy amount and equal expectation of life in the rates charged for any life insurance policy or annuity contract based upon an individual’s having entered into a life settlement contract or being insured under a settled policy;
makes false or misleading statements as to the business of life settlements or financing premiums due for a policy or to any owner or insured for the purpose of inducing or tending to induce the owner or insured not to enter into a life settlement contract;
engages in any transaction, act, practice or course of business or deals which restricts, limits or impairs in any way the lawful transfer of ownership, change of beneficiary or assignment of a policy.

Section 9 – Reporting Requirements (new statute)

This section requires each provider to file with the Executive Director on or before March 1 of each year an annual statement. The format and content of the statement will be prescribed by the Executive Director in an administrative regulation and must include the names of the insurance companies whose policies have been settled.

Section 10 – Insurable Interest (new statute)

Provides that it is a violation of insurable interest for any person or entity without insurable interest to

Provide or arrange for the funding ultimately used to pay premiums on a life insurance policy;
At policy inception, have an arrangement for a person or entity to have an ownership interest in the majority of the death benefit of that life insurance policy.

Sections 11 – 27 – Conforming Amendments

Numerous statutes throughout the Insurance Code are amended to conform to the provisions of this bill. The primary amendments address the use of the term “life settlement” rather than “viatical settlement.”

Contact: Life Insurance Division

(502) 564-6071

House Bill 406 Part XII – ICARE

Part XII of HB 406 continues the Insurance Coverage Affordability and Relief to Small Employers (ICARE) Program, a four-year pilot program for small employer groups of two to 25 employees, including those who are members of an employer-organized association. All insurers that issue health benefit plans to small groups are deemed to be ICARE participating insurers.

The legislation creates two (2) categories of eligibility:

1. Employers that have not provided health insurance in the last twelve (12) months; and

2. Employers with at least one (1) member of the group identified as having a defined high cost condition.

In both eligibility categories, the average salary of the group, excluding the owner, can not exceed 300 percent of the Federal Poverty Level. Further, the employer must pay 50 percent of the premium cost and meet the insurer’s participation requirements.

The ICARE program provides the following premium subsidy to eligible employers for qualified health benefit plans:

For employers who were previously uninsured

Premium subsidy of $40 per employee per month (subsidy decreases by $10 per year over the four years of the pilot program)
Qualified health benefit plans include a consumer-driven health benefit plan (HRA or HSA) or a basic health benefit plan.

For employer groups with a high cost individual

Premium subsidy of $60 per employee per month (subsidy decreases by $15 per year over the four years of the pilot program)
Qualified health plans include a consumer-driven health benefit plan (HRA or HSA), a basic health benefit plan or a traditional health benefit plan.

A Health Risk Assessment is required to be completed for each employee participating in ICARE to encourage prevention, early treatment and promotion of healthy behaviors. Participating insurers are required to offer a premium rate that includes a healthy lifestyle discount.

In addition to the ICARE Program, Part XII of HB 406 includes the following provisions:

· Medicaid related

o Health Insurance Premium Payment (HIPP) program disclosure

§ Requires insurers to disclose to employers the availability of the HIPP program. The HIPP program allows the State to purchase employer sponsored commercial coverage on behalf of Medicaid eligible employees when it is financially advantageous for the state.

o Medicaid coordination of benefits

§ Requires insurers to provide eligibility information to Medicaid;

§ Ensures that Medicaid is the payor of last resort; and

§ Assesses a penalty for failing to provide information.

· Interstate Reciprocal Health Benefit Plan Compact

o Provides enabling language to explore the creation of an interstate compact with neighboring states for health benefit plan product and rate approval.

· Transparency

o Amends existing statute in order to promote timely, electronically accessible information available to consumers related to health care cost, quality and outcomes;

o Provides better direction and better defined access as to what information is made available to consumers via the Cabinet for Health and Family Services, regarding:

§ Cost;

§ Quality; and

§ Outcomes for hospitals and ambulatory surgery centers;

o Requires use of nationally endorsed quality indicators for purposes of making comparative information available between hospitals in both urban and rural areas;

o Enhances the data reporting requirements of hospitals and ambulatory care centers; and

o Sets forth requirements for standards for protection of information (HIPAA).

· Prompt pay

o Amends the interest rate for payment of late claims to 12 percent annually for claims paid between one (1) and 30 days late and 14 percent annually for claims over 31 days late; and

o Updates requirement for acknowledgement to allow reasonableness for determination of claims status.

Contact: ICARE Program

(502) 573-1029

House Bill 440 – Provider Credentialing; Dependent Coverage

Section 1 – Definitions (new statute in KRS 304, Subtitle 17A)