South Carolina General Assembly
112th Session, 1997-1998

Bill 288


                    Current Status

Bill Number:                    288
Ratification Number:            7
Act Number:                     5
Type of Legislation:            General Bill GB
Introducing Body:               Senate
Introduced Date:                19970130
Primary Sponsor:                Banking and Insurance Committee SBI 02
All Sponsors:                   Banking and Insurance Committee
Drafted Document Number:        res1263.ees
Companion Bill Number:          3413
Date Bill Passed both Bodies:   19970312
Date of Last Amendment:         19970303
Governor's Action:              S
Date of Governor's Action:      19970331
Subject:                        Accident and health insurance policies, Medical;
                                Federal Health Insurance Portability and Accountability
                                Act of 1996

History


Body    Date      Action Description                       Com     Leg Involved
______  ________  _______________________________________  _______ ____________

------  19970423  Act No. A5
------  19970331  Signed by Governor
------  19970325  Ratified R7
Senate  19970312  Concurred in House amendment,
                  enrolled for ratification
House   19970311  Read third time, returned to Senate
                  with amendment
House   19970303  Amended, read second time
House   19970226  Committee report: Favorable with         26 HLCI
                  amendment
House   19970205  Introduced, read first time,             26 HLCI
                  referred to Committee
Senate  19970205  Read third time, sent to House
Senate  19970204  Read second time
Senate  19970130  Introduced, read first time,
                  placed on Calendar without reference


View additional legislative information at the LPITS web site.


(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

(A5, R7, S288)

AN ACT TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 38-41-45; TO AMEND ARTICLE 3, CHAPTER 71, TITLE 38, RELATING TO INDIVIDUAL ACCIDENT AND HEALTH INSURANCE POLICIES BY ADDING SUBARTICLE 7; TO AMEND ARTICLE 5, CHAPTER 71, TITLE 38, RELATING TO GROUP ACCIDENT AND HEALTH INSURANCE BY ADDING SUBARTICLE 2; TO AMEND SECTION 38-71-135, RELATING TO MINIMUM POSTPARTUM HOSPITALIZATION SERVICES FOR MOTHERS AND NEWBORNS; TO AMEND SECTION 38-71-335, AS AMENDED, RELATING TO CANCELLATION AND RENEWAL POLICIES FOR ACCIDENT AND HEALTH INSURANCE; TO AMEND SECTION 38-71-730, AS AMENDED, RELATING TO REQUIREMENTS FOR GROUP ACCIDENT AND HEALTH POLICIES; TO AMEND SECTION 38-71-737, RELATING TO REQUIREMENTS OF COVERAGE FOR PSYCHIATRIC CONDITIONS IN GROUP HEALTH INSURANCE POLICIES; TO AMEND SECTION 38-71-920, AS AMENDED, RELATING TO DEFINITIONS USED IN CONNECTION WITH SMALL GROUP HEALTH INSURANCE; TO AMEND SECTION 38-71-960, RELATING TO REQUIRED DISCLOSURE IN SOLICITATION AND SALES MATERIAL FOR SMALL GROUP HEALTH INSURANCE; TO AMEND SECTION 38-71-1330, RELATING TO DEFINITIONS USED IN CONNECTION WITH SMALL EMPLOYER HEALTH INSURANCE AVAILABILITY; TO AMEND SECTION 38-71-1360, RELATING TO THE REQUIREMENT THAT INSURERS MARKET TWO PLANS FOR SMALL EMPLOYERS; TO AMEND SECTION 38-71-1370, RELATING TO THE APPLICABILITY OF CERTAIN CODE SECTIONS TO INSURANCE PLANS REQUIRED TO BE OFFERED BY SMALL EMPLOYER INSURERS AND PREEXISTING CONDITION COVERAGE FOR LATE ENROLLEES; TO AMEND SECTION 38-71-1410 RELATING TO THE SOUTH CAROLINA SMALL EMPLOYER INSURER REINSURANCE PROGRAM; TO AMEND SECTION 38-71-1440, RELATING TO REQUIREMENTS FOR SMALL EMPLOYER INSURERS, ALL SO AS TO COMPLY WITH CERTAIN REQUIREMENTS OF THE FEDERAL HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996, INCLUDING GUARANTEED AVAILABILITY IN THE SMALL GROUP MARKET, GUARANTEED RENEWABILITY IN THE LARGE GROUP MARKET, THE SMALL GROUP MARKET, THE INDIVIDUAL MARKET, AND FOR MULTIPLE EMPLOYER WELFARE ARRANGEMENTS, REVISIONS TO REQUIRED HOSPITALIZATION SERVICES FOR MOTHERS AND NEWBORNS, EQUALITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH BENEFITS, ANTIDISCRIMINATION REQUIREMENTS IN THE LARGE AND SMALL GROUP MARKETS, AND LIMITATIONS ON PREEXISTING CONDITION EXCLUSIONS IN THE LARGE AND SMALL GROUP MARKETS; AND TO REPEAL SECTION 38-71-950, RELATING TO RENEWABILITY AND NOTICE OF NONRENEWAL OF SMALL GROUP HEALTH INSURANCE.

Be it enacted by the General Assembly of the State of South Carolina:

Multiple employer self-insured group health plan; continued access

SECTION 1. The 1976 Code is amended by adding:

"Section 38-41-45. (A) For purposes of this section:

(1) 'Group health plan' means an employee welfare benefit plan to the extent that the plan provides medical care, including items and services paid for as medical care to employees or their dependents as defined under the terms of the plan, directly or through insurance, reimbursement, or otherwise.

(2) 'Medical care' means amounts paid for:

(a) the diagnosis, cure, mitigation, treatment, or prevention of disease or amounts paid for the purpose of affecting any structure or function of the body;

(b) amounts paid for transportation primarily for and essential to medical care referred to in subitem (a); and

(c) amounts paid for insurance covering medical care referred to in subitems (a) and (b).

(3) 'Network plan' means health insurance coverage offered by a health insurance issuer under which the financing and delivery of medical care, including items and services paid for as medical care, are provided, in whole or in part, through a defined set of providers under contract with the issuer.

(4) 'Health insurance coverage' means benefits consisting of medical care provided directly, through insurance or reimbursement, or otherwise and including items and services paid for as medical care under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by an issuer, except:

(a) coverage only for accident or disability income insurance or any combination of these;

(b) coverage issued as a supplement to liability insurance;

(c) liability insurance, including general liability insurance and automobile liability insurance;

(d) workers' compensation or similar insurance;

(e) automobile medical payment insurance;

(f) credit-only insurance;

(g) coverage for on-site medical clinics;

(h) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits;

(i) if offered separately:

(i) limited scope dental or vision benefits;

(ii) benefits for long-term care, nursing home care, home health care, community-based care, or any combination of these;

(iii) such other similar, limited benefits as are specified in regulations;

(j) if offered as independent, noncoordinated benefits:

(i) coverage only for specified disease or illness;

(ii) hospital indemnity or other fixed indemnity insurance;

(k) if offered as a separate insurance policy:

(i) Medicare supplement health insurance, as defined under Section 1882(g)(1) of the Social Security Act;

(ii) coverage supplemental to the coverage provided under Chapter 55, Title 10 of the United States Code;

(iii) similar supplemental coverage provided to coverage under a group health plan.

(5) 'Health insurance issuer' or 'issuer' means an entity that provides health insurance coverage in this State. For purposes of this section, issuer includes an insurance company, a health maintenance organization, and any other entity providing health insurance coverage which is licensed to engage in the business of insurance in this State and which is subject to state insurance regulation.

(6) 'Health status-related factor' means any of the following factors: health status; medical condition, including both physical and mental illnesses; claims experience; receipt of health care; medical history; genetic information; evidence of insurability, including conditions arising out of acts of domestic violence; or disability.

(B) A group health plan which is a multiple employer self-insured health plan may not deny an employer whose employees are covered under such a plan continued access to the same or different coverage under the terms of such a plan, other than:

(1) for nonpayment of contributions;

(2) for fraud or other intentional misrepresentation of material fact by the employer;

(3) for noncompliance with material plan provisions;

(4) because the plan is ceasing to offer any coverage in a geographic area;

(5) in the case of a plan that offers benefits through a network plan, there is no longer any individual enrolled through the employer who lives, resides, or works in the service area of the network plan and the plan applies this item uniformly without regard to the claims experience of employers or any health status-related factor in relation to such individuals or their dependents; and

(6) for failure to meet the terms of an applicable collective bargaining agreement, to renew a collective bargaining or other agreement requiring or authorizing contributions to the plan, or to employ employees covered by such an agreement."

Health Insurance Portability and Accountability Act of 1996; requirements for individual health insurance

SECTION 2. Article 3, Chapter 71, Title 38 of the 1976 Code is amended by adding:

"Subarticle 7

Requirements for Issuers and Individual Health Insurance Coverage under the Health Insurance Portability and Accountability Act of 1996

Section 38-71-670. As used in this subarticle:

(1) 'Bona fide association' means, with respect to health insurance coverage offered in the State, an association which:

(a) has been actively in existence for at least five years;

(b) has been formed and maintained in good faith for purposes other than obtaining insurance;

(c) does not condition membership in the association on any health status-related factor relating to an individual, including an employee of an employer or a dependent of an employee;

(d) makes health insurance coverage offered through the association available to all members regardless of any health status-related factor relating to the members, or individuals eligible for coverage through a member;

(e) does not make health insurance coverage offered through the association available other than in connection with a member of the association; and

(f) meets such additional requirements as may be imposed under state law.

(2) 'Director of Insurance' or 'director' means the person who is appointed by the Governor upon the advice and consent of the Senate and who is responsible for the operation and management of the Department of Insurance, including all of its divisions. The director may appoint or designate the person or persons who shall serve at the pleasure of the director to carry out the objectives or duties of the department as provided by law. 'Director' also includes a designee or deputy director upon whom the director has bestowed any duty or function required of the director by the director in managing or supervising the Department of Insurance.

(3) 'Employee' has the meaning given the term under Section 3(6) of the Employee Retirement Income Security Act of 1974.

(4) 'Employer' has the meaning given the term under Section 3(5) of the Employee Retirement Income Security Act of 1974, except that the term shall include only employers of two or more employees.

(5) 'Group health plan' means an employee welfare benefit plan, as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, to the extent that the plan provides medical care, including items and services paid for as medical care, to employees or their dependents, as defined under the terms of the plan, directly or through insurance, reimbursement, or otherwise.

(6) 'Health insurance coverage' means benefits consisting of medical care provided directly, through insurance or reimbursement, or otherwise and including items and services paid for as medical care under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer, except:

(a) coverage only for accident or disability income insurance or any combination of these;

(b) coverage issued as a supplement to liability insurance;

(c) liability insurance, including general liability insurance and automobile liability insurance;

(d) workers' compensation or similar insurance;

(e) automobile medical payment insurance;

(f) credit-only insurance;

(g) coverage for on-site medical clinics;

(h) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits;

(i) if offered separately:

(i) limited scope dental or vision benefits;

(ii) benefits for long-term care, nursing home care, home health care, community-based care, or any combination of these;

(iii) other similar, limited benefits as are specified in regulations;

(j) if offered as independent, noncoordinated benefits:

(i) coverage only for a specified disease or illness;

(ii) hospital indemnity or other fixed indemnity insurance;

(k) if offered as a separate insurance policy:

(i) Medicare supplemental health insurance, as defined under Section 1882(g)(1) of the Social Security Act;

(ii) coverage supplemental to the coverage provided under Chapter 55 of Title 10 of the United States Code; and

(iii) similar supplemental coverage under a group health plan.

(7) 'Health insurance issuer' or 'issuer' means any entity that provides health insurance coverage in this State. For purposes of this subarticle, 'issuer' includes an insurance company, a health maintenance organization, and any other entity providing health insurance coverage which is licensed to engage in the business of insurance in this State and which is subject to state insurance regulation.

(8) 'Health maintenance organization' means an organization as defined in Section 38-33-20(7).

(9) 'Health status-related factor' means any of the following factors in relation to the individual or a dependent of the individual: health status; medical condition, including both physical and mental illnesses; claims experience; receipt of health care; medical history; genetic information; evidence of insurability, including conditions arising out of acts of domestic violence; or disability.

(10) 'Individual health insurance coverage' means health insurance coverage offered to individuals in the individual market, but does not include short-term limited duration insurance.

(11) 'Individual market' means the market for health insurance coverage offered to individuals other than in connection with a group health plan. The term includes coverage offered in connection with a group health plan that has fewer than two participants as current employees on the first day of the plan year unless the State elects to regulate the coverage as coverage issued to small employers, as defined in Section 38-71-1330.

(12) 'Large group market' means the health insurance market under which individuals obtain health insurance coverage, directly or through any arrangement, on behalf of themselves and their dependents through a group health plan maintained by an employer that is not a small employer, as defined in Section 38-71-1330.

(13) 'Medical care' means amounts paid for:

(a) the diagnosis, cure, mitigation, treatment, or prevention of disease or amounts paid for the purpose of affecting any structure or function of the body;

(b) amounts paid for transportation primarily for and essential to medical care referred to in subitem (a); and

(c) amounts paid for insurance covering medical care referred to in subitems (a) and (b).

(14) 'Network plan' means health insurance coverage of a health insurance issuer under which the financing and delivery of medical care, including items and services paid for as medical care, are provided, in whole or in part, through a defined set of providers under contract with the issuer.

(15) 'Participant' has the meaning given the term under Section 3(7) of the Employee Retirement Income Security Act of 1974.

(16) 'Small group market' means the health insurance market under which individuals obtain health insurance coverage, directly or through any arrangement, on behalf of themselves and their dependents through a group health plan maintained by a small employer, as defined in Section 38-71-1330.

Section 38-71-675. (A) Except as provided in this section, a health insurance issuer that provides individual health insurance coverage to an individual shall renew or continue in force such coverage at the option of the individual.

(B) A health insurance issuer may nonrenew or discontinue health insurance coverage of an individual in the individual market based only on one or more of the following:

(1) the individual has failed to pay premiums or contributions in accordance with the terms of the health insurance coverage or the issuer has not received timely premium payments;

(2) the individual has performed an act or practice that constitutes fraud or made an intentional misrepresentation of material fact under the terms of the coverage;

(3) the issuer is ceasing to offer coverage in the individual market in accordance with subsection (C) and applicable state law;

(4) with the approval of the director or his designee, in the case of a health insurance issuer that offers health insurance coverage in the market through a network plan, the individual no longer resides, lives, or works in the service area or in an area for which the issuer is authorized to do business but only if the coverage is terminated under this item uniformly without regard to any health status-related factor of covered individuals;

(5) with the approval of the director or his designee, in the case of health insurance coverage that is made available in the individual market only through one or more bona fide associations, the membership of the individual in the association, on the basis of which the coverage is provided, ceases but only if the coverage is terminated under this item uniformly without regard to any health status-related factor of covered individuals.

(C)(1) In any case in which an issuer decides to discontinue offering a particular type of health insurance coverage offered in the individual market, coverage of such type may be discontinued by the issuer only if the issuer:

(a) provides notice to each covered individual provided coverage of this type in the market of the discontinuation at least ninety days before the date of the discontinuation of the coverage;

(b) offers to each individual in the individual market provided coverage of this type, the option to purchase any other individual health insurance coverage currently being offered by the issuer for individuals in such market; and

(c) in exercising the option to discontinue coverage of this type and in offering the option of coverage under subitem (b), the issuer acts uniformly without regard to any health status-related factor of enrolled individuals or individuals who may become eligible for the coverage.

(2)(a) Subject to subitem (c), in any case in which a health insurance issuer elects to discontinue offering all health insurance coverage in the individual market in this State, health insurance coverage may be discontinued by the issuer only if:

(i) the issuer provides notice to the director and to each individual of the discontinuation at least one hundred eighty days before the date of the expiration of the coverage; and

(ii) all health insurance issued or delivered for issuance in the State in the market is discontinued and coverage under the health insurance coverage in the market is not renewed.

(b) In the case of a discontinuation under subitem (a) in the individual market, the issuer may not provide for the issuance of any health insurance coverage in the market and this State during the five-year period beginning on the date of the discontinuation of the last health insurance coverage not so renewed.

(D) At the time of coverage renewal, a health insurance issuer may modify the health insurance coverage for a policy form offered to individuals in the individual market so long as the modification is consistent with state law and effective on a uniform basis among all individuals with that policy form.

(E) In applying this section in the case of health insurance coverage that is made available by a health insurance issuer in the individual market to individuals only through one or more associations, a reference to an 'individual' is deemed to include a reference to such an association of which the individual is a member.

Section 38-71-680. Section 38-71-850(D) applies to health insurance coverage offered by a health insurance issuer in the individual market in the same manner as it applies to health insurance coverage offered by a health insurance issuer in connection with a group health plan in the small or large group market."

Health Insurance Portability and Accountability Act of 1996; requirements for group health insurance

SECTION 3. Article 5, Chapter 71, Title 38 of the 1976 Code is amended by adding:

"Subarticle 2

Requirements for Issuers and Group

Health Insurance Coverage Under the Health Insurance

Portability and Accountability Act of 1996

Section 38-71-840. (A) As used in this subarticle:

(1) 'Affiliation period' means a period which, under the terms of the health insurance coverage offered by a health maintenance organization, must expire before the health insurance coverage becomes effective. The organization is not required to provide health care services or benefits during the period, and no premium may be charged to the participant or beneficiary for any coverage during the period. The period begins on the enrollment date and runs concurrently with any waiting period under the plan.

(2) 'Beneficiary' has the meaning given the term under Section 3(8) of the Employee Retirement Income Security Act of 1974.

(3) 'Bona fide association' means, with respect to health insurance coverage offered in the State, an association which:

(a) has been actively in existence for at least five years;

(b) has been formed and maintained in good faith for purposes other than obtaining insurance;

(c) does not condition membership in the association on any health status-related factor relating to an individual, including an employee of an employer or a dependent of an employee;

(d) makes health insurance coverage offered through the association available to all members regardless of any health status-related factor relating to the members or individuals eligible for coverage through a member;

(e) does not make health insurance coverage offered through the association available other than in connection with a member of the association; and

(f) meets additional requirements as may be imposed under state law.

(4) 'COBRA continuation provision' means any of the following:

(a) Part 6, Subtitle B, Title I of the Employee Retirement Income Security Act of 1974 other than Section 609 of the act;

(b) Section 4908B of the Internal Revenue Code of 1986, other than subsection (f)(1) of the section insofar as it relates to pediatric vaccines; or

(c) Title XXII of the Public Health Service Act.

(5) 'Church plan' has the meaning given the term under Section 3(33) of the Employee Retirement Income Security Act of 1974.

(6) 'Director of Insurance' or 'director' means the person who is appointed by the Governor upon the advice and consent of the Senate and who is responsible for the operation and management of the Department of Insurance, including all of its divisions. The director may appoint or designate the person or persons who shall serve at the pleasure of the director to carry out the objectives or duties of the department as provided by law. 'Director' also includes a designee or deputy director upon whom the director has bestowed any duty or function required of the director by law in managing or supervising the Department of Insurance.

(7) 'Employee' has the meaning given the term under Section 3(6) of the Employee Retirement Income Security Act of 1974.

(8) 'Employer' has the meaning given the term under Section 3(5) of the Employee Retirement Income Security Act of 1974, except that the term includes only employers of two or more employees.

(9) 'Employer contribution rule' means a requirement relating to the minimum level or amount of employer contribution toward the premium for enrollment of participants and beneficiaries.

(10) 'Enrollment date' means, with respect to an individual covered under a group health plan or health insurance coverage, the date of enrollment of the individual in the plan or coverage or, if earlier, the first day of the waiting period for the enrollment.

(11) 'Governmental plan' has the meaning given the term under Section 3(32) of the Employee Retirement Income Security Act of 1974 and any governmental plan established or maintained for its employees by the government of the United States or by any agency or instrumentality of the government.

(12) 'Group health insurance coverage' means, in connection with a group health plan, health insurance coverage offered by a health insurance issuer in connection with the plan.

(13) 'Group health plan' means an employee welfare benefit plan, as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, to the extent that the plan provides medical care, including items and services paid for as medical care, to employees or their dependents, as defined under the terms of the plan, directly or through insurance, reimbursement, or otherwise.

(14) 'Health insurance coverage' means benefits consisting of medical care provided directly, through insurance or reimbursement, or otherwise and including items and services paid for as medical care under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer, except:

(a) coverage only for accident, or disability income insurance, or any combination of accident and disability income insurance;

(b) coverage issued as a supplement to liability insurance;

(c) liability insurance, including general liability insurance and automobile liability insurance;

(d) workers' compensation or similar insurance;

(e) automobile medical payment insurance;

(f) credit-only insurance;

(g) coverage for on-site medical clinics;

(h) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits;

(i) if offered separately:

(i) limited scope dental or vision benefits;

(ii) benefits for long-term care, nursing home care, home health care, community-based care, or any combination of these;

(iii) other similar, limited benefits as are specified in regulations;

(j) if offered as independent, noncoordinated benefits:

(i) coverage only for a specified disease or illness;

(ii) hospital indemnity or other fixed indemnity insurance;

(k) if offered as a separate insurance policy:

(i) Medicare supplemental health insurance as defined under Section 1882(g)(1) of the Social Security Act;

(ii) coverage supplemental to the coverage provided under Chapter 55, Title 10 of the United States Code; and

(iii) similar supplemental coverage under a group health plan.

(15) 'Group participation rule' means a requirement relating to the minimum number of participants or beneficiaries that must be enrolled in relation to a specified percentage of number of eligible individuals or employees of an employer.

(16) 'Health insurance issuer' or 'issuer' means any entity that provides health insurance coverage in this State. For purposes of this section, 'issuer' includes an insurance company, a health maintenance organization, and any other entity providing health insurance coverage which is licensed to engage in the business of insurance in this State and which is subject to state insurance regulation.

(17) 'Health maintenance organization' means an organization as defined in Section 38-33-20(7).

(18) 'Health status-related factor' means any of the following factors in relation to the individual or a dependent of the individual: health status; medical condition, including both physical and mental illnesses; claims experience; receipt of health care; medical history; genetic information; evidence of insurability, including conditions arising out of acts of domestic violence; or disability.

(19) 'Individual health insurance coverage' means health insurance coverage offered to individuals in the individual market but does not include short-term limited duration insurance.

(20) 'Individual market' means the market for health insurance coverage offered to individuals other than in connection with a group health plan. The term includes coverage offered in connection with a group health plan that has fewer than two participants as current employees on the first day of the plan year unless the State elects to regulate coverage as coverage issued to small employers as defined in Section 38-71-1330.

(21) 'Large group market' means the health insurance market under which individuals obtain health insurance coverage, directly or through any arrangement, on behalf of themselves and their dependents through a group health plan maintained by an employer that is not a small employer, as defined in Section 38-71-1330.

(22) 'Late enrollee' means, with respect to coverage under a group health plan, a participant or beneficiary who enrolls under the plan other than during:

(a) the first period in which the individual is eligible to enroll under the plan if the initial enrollment period is a period of at least thirty days; or

(b) a special enrollment period under Section 38-71-850(E).

(23) 'Medical care' means amounts paid for:

(a) the diagnosis, cure, mitigation, treatment, or prevention of disease or amounts paid for the purpose of affecting any structure or function of the body;

(b) amounts paid for transportation primarily for and essential to medical care referred to in subitem (a); and

(c) amounts paid for insurance covering medical care referred to in subitems (a) and (b).

(24) 'Network plan' means health insurance coverage of a health insurance issuer under which the financing and delivery of medical care, including items and services paid for as medical care, are provided, in whole or in part, through a defined set of providers under contract with the issuer.

(25) 'Participant' has the meaning given the term under Section 3(7) of the Employee Retirement Income Security Act of 1974.

(26) 'Placement' or being 'placed' for adoption, in connection with any placement for adoption of a child with any person, means the assumption and retention by the person of a legal obligation for total or partial support of the child in anticipation of adoption of the child. The child's placement with the person terminates upon the termination of such legal obligation.

(27) 'Plan sponsor' has the meaning given the term under Section 3(16)(B) of the Employee Retirement Income Security Act of 1974.

(28) 'Preexisting condition exclusion' means, with respect to coverage, a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for the coverage, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before the date. Genetic information may not be treated as a preexisting condition in the absence of a diagnosis of the condition related to the information.

(29) 'Small group market' means the health insurance market under which individuals obtain health insurance coverage, directly or through any arrangement, on behalf of themselves and their dependents through a group health plan maintained by a small employer, as defined in Section 38-71-1330.

(30) 'Waiting period' means, with respect to a group health plan and an individual who is a potential participant or beneficiary in the plan, the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan.

Section 38-71-850. (A) Subject to subsection (C), a health insurance issuer offering group health insurance coverage, may, with respect to a participant or beneficiary, impose a preexisting condition exclusion only if the:

(1) exclusion relates to a condition, whether physical or mental, regardless of the cause of the condition, for which medical advice, diagnosis, care, or treatment was recommended or received within the six-month period ending on the enrollment date;

(2) exclusion extends for not more than twelve months without medical care, treatment, or supplies ending after the effective date of coverage or twelve months after the enrollment date, whichever occurs first, or eighteen months after the enrollment date in the case of a late enrollee; and

(3) period of any preexisting condition exclusion is reduced by the aggregate of the periods of creditable coverage if any, as defined in item (B)(1), applicable to the participant or beneficiary as of the enrollment date.

(B)(1) For purposes of this subarticle, 'creditable coverage' means, with respect to an individual, coverage of the individual under any of the following:

(a) a group health plan;

(b) health insurance coverage;

(c) Part A or Part B, Title XVIII of the Social Security Act;

(d) Title XIX of the Social Security Act, other than coverage consisting solely of benefits under Section 1928;

(e) Chapter 55, Title 10 of the United States Code;

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

(g) a state health benefits risk pool, including the South Carolina Health Insurance Pool;

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

(i) a public health plan as defined in regulations;

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

The term does not include coverage consisting solely of those benefits excepted from the definition of health insurance coverage.

(2)(a) A period of creditable coverage shall not be counted, with respect to enrollment of an individual under a group health plan, if, after the period and before the enrollment date, there was a sixty-three-day period during all of which the individual was not covered under any creditable coverage.

(b) For purposes of item (2)(a) and item (C)(4), any period that an individual is in a waiting period for any coverage under a group health plan or for group health insurance coverage or is in an affiliation period, as defined in Section 38-71-840, shall not be taken into account in determining the continuous period under subitem (a).

(3)(a) Except as otherwise provided under subitem (b), for purposes of applying subitem (A)(3), a health insurance issuer offering group health insurance coverage, shall count a period of creditable coverage without regard to the specific benefits covered during the period.

(b) A health insurance issuer offering group health insurance, may elect to apply item (A)(3) based on coverage of benefits within each of several classes or categories of benefits specified in regulations rather than as provided under subitem (a). The election must be made on a uniform basis for all participants and beneficiaries. Under the election an issuer shall count a period of creditable coverage with respect to any class or category of benefits if any level of benefits is covered within the class or category.

(c) In the case of an election under subitem (b) with respect to health insurance coverage offered by an issuer in the small or large group market, the issuer:

(i) shall prominently state in any disclosure statements concerning the coverage, and to each employer at the time of the offer or sale of the coverage, that the issuer has made such election; and

(ii) shall include in the statements a description of the effect of the election.

(4) Periods of creditable coverage with respect to an individual shall be established through presentation of certifications described in subsection (D) or in such other manner as may be specified in regulations.

(C)(1) Subject to item (4), a health insurance issuer offering group health insurance coverage, may not impose any preexisting condition exclusion in the case of an individual who, as of the last day of the thirty-one-day period beginning with the date of birth, is covered under creditable coverage.

(2) Subject to item (4), a health insurance issuer offering group health insurance coverage, may not impose any preexisting condition exclusion in the case of a child who is adopted or placed for adoption before attaining eighteen years of age and who, as of the last day of the thirty-one-day period beginning on the date of the adoption or placement for adoption, is covered under creditable coverage. This item does not apply to coverage before the date of such adoption or placement for adoption.

(3) A health insurance issuer offering group health insurance coverage, may not impose any preexisting condition exclusion relating to pregnancy as a preexisting condition.

(4) Items (1) and (2) no longer apply to an individual after the end of the first sixty-three-day period during all of which the individual was not covered under any creditable coverage.

(D)(1)(a) A health insurance issuer offering group health insurance coverage, shall provide the certification described in subitem (b):

(i) at the time an individual ceases to be covered under the plan or otherwise becomes covered under a COBRA continuation provision;

(ii) in the case of an individual becoming covered under such a provision, at the time the individual ceases to be covered under such provision; and

(iii) on the request on behalf of an individual made not later than twenty-four months after the date of cessation of the coverage described in subitem (a)(i) or (ii), whichever is later.

The certification under sub-subitem (i) may be provided, to the extent practicable, at a time consistent with notices required under any applicable COBRA continuation provision.

(b) The certification described in this subitem is a written certification of:

(i) the period of creditable coverage of the individual under the plan and the coverage, if any, under the COBRA continuation provision; and

(ii) the waiting period, if any, and affiliation period, if applicable, imposed with respect to the individual for any coverage under the plan.

(2) In the case of an election described in subitem (B)(3)(b) by a group health plan or health insurance issuer, if the plan or issuer enrolls an individual for coverage under the plan and the individual provides a certification of coverage of the individual under item (1):

(a) upon request of the plan or issuer, the issuer which issued the certification provided by the individual shall promptly disclose to the requesting plan or issuer information on coverage of classes and categories of health benefits available under the entity's plan or coverage; and

(b) the issuer may charge the requesting plan or issuer for the reasonable cost of disclosing the information.

(3) The Director of Insurance shall establish rules to prevent an issuer's failure to provide information under item (1) or (2) with respect to previous coverage of an individual from adversely affecting any subsequent coverage of the individual under another group health plan or health insurance coverage.

(E)(1) A health insurance issuer offering group health insurance coverage in connection with a group health plan, shall permit an employee who is eligible, but not enrolled, for coverage under the terms of the plan, or a dependent of the employee if the dependent is eligible, but not enrolled, for coverage under such terms, to enroll for coverage under the terms of the plan if each of the following conditions is met:

(a) The employee or dependent was covered under a group health plan or had health insurance coverage at the time coverage was previously offered to the employee or dependent.

(b) The employee stated in writing at the time that coverage under a group health plan or health insurance coverage was the reason for declining enrollment, but only if the plan sponsor or issuer, if applicable, required such a statement at the time and provided the employee with notice of the requirement and the consequences of the requirement at the time.

(c) The employee's or dependent's coverage described in subitem (a):

(i) was under a COBRA continuation provision and the coverage under the provision was exhausted; or

(ii) was not under such a provision and either the coverage was terminated as a result of loss of eligibility for the coverage, including as a result of legal separation, divorce, death, termination of employment, or reduction in the number of hours of employment, or employer contributions toward the coverage were terminated;

(iii) was one of multiple health insurance plans offered by an employer and the employee elects a different plan during an open enrollment period.

(d) Under the terms of the plan, the employee requests the enrollment not later than thirty days after the date of exhaustion of coverage described in subitem (c)(i) or termination of coverage or employer contribution described in subitem (c)(ii).

(2)(a) If:

(i) a group health plan makes coverage available with respect to a dependent of an individual;

(ii) the individual is a participant under the plan, or has met any waiting period applicable to becoming a participant under the plan and is eligible to be enrolled under the plan but for a failure to enroll during a previous enrollment period; and

(iii) a person becomes a dependent of the individual through marriage, birth, or adoption or placement for adoption, the health insurance issuer offering health insurance coverage in connection with the group health plan shall provide for a dependent special enrollment period described in subitem (b) during which the person or, if not otherwise enrolled, the individual may be enrolled under the plan as a dependent of the individual, and in the case of the birth or adoption of a child, the spouse of the individual may be enrolled as a dependent of the individual if such spouse is otherwise eligible for coverage.

(b) A dependent special enrollment period under this subitem must be not less than thirty-one days and begins on the later of:

(i) the date dependent coverage is made available; or

(ii) the date of the marriage, birth, or adoption or placement for adoption as the case may be described in subitem (a)(iii).

(c) If an individual seeks to enroll a dependent during the first thirty-one days of a dependent special enrollment period, the coverage of the dependent shall become effective:

(i) in the case of marriage, not later than the first day of the first month beginning after the date the completed request for enrollment is received;

(ii) in the case of a dependent's birth or a dependent's adoption or placement for adoption within thirty-one days of birth, as of the date of the birth; or

(iii) in the case of a dependent's adoption or placement for adoption beyond thirty-one days from the date of birth, the date of the adoption or placement for adoption.

(3) A health insurance issuer offering group health insurance coverage in connection with a group health plan shall permit a dependent, spouse, or minor or dependent child, of an employee, if the dependent is eligible, but not enrolled for coverage, to enroll for coverage under the terms of the plan if a court has ordered that coverage be provided for the dependent under a covered employee's health insurance plan and a request for enrollment is made within thirty days after the issuance of the court order.

(F)(1) A health maintenance organization which offers health insurance coverage in connection with a group health plan and which does not impose any preexisting condition exclusion allowed under subsection (A) with respect to any particular coverage option may impose an affiliation period for such coverage option, but only if:

(a) the period is applied uniformly without regard to any health status-related factors; and

(b) the period does not exceed two months, or three months in the case of a late enrollee.

(2) A health maintenance organization described in subitem (1) may use alternative methods from those described in item (1) to address adverse selection as approved by the Director of Insurance or his designee.

(G)(1)(a)(i) Subject to subitem (a)(ii), no period before July 1, 1996, shall be taken into account in determining creditable coverage.

(ii) The Director of Insurance shall provide for a process either by bulletin or by order whereby individuals who need to establish creditable coverage for periods before July 1, 1996, and who would have the coverage credited but for subitem (a)(i) may be given credit for creditable coverage for the periods through the presentation of documents or other means.

(b)(i) Subject to subitems (b)(ii) and (iii), subsection (D) applies to events occurring after June 30, 1996.

(ii) In no case is a certification required to be provided under subsection (D) before June 1, 1997.

(iii) In the case of an event occurring after June 30, 1996, and before October 1, 1996, a certification is not required to be provided under subsection (D) unless an individual, with respect to whom the certification is otherwise required to be made, requests the certification in writing.

(c) In the case of an individual who seeks to establish creditable coverage for any period for which certification is not required because it relates to an event occurring before June 30, 1996:

(i) the individual may present other credible evidence of the coverage in order to establish the period of creditable coverage; and

(ii) a health insurance issuer shall not be subject to any penalty or enforcement action with respect to the issuer's crediting or not crediting the coverage if the issuer has sought to comply in good faith with the applicable requirements under this section.

Section 38-71-860. (A)(1) Subject to item (2), a health insurance issuer offering group health insurance coverage in connection with a group health plan, may not establish rules for eligibility, including continued eligibility, of any individual to enroll under the terms of the plan based on any of the following health status-related factors in relation to the individual or a dependent of the individual:

(a) health status;

(b) medical condition, including both physical and mental illnesses;

(c) claims experience;

(d) receipt of health care;

(e) medical history;

(f) genetic information;

(g) evidence of insurability, including conditions arising out of acts of domestic violence;

(h) disability.

(2) To the extent consistent with Sections 38-71-850 and 38-71-1360 and any other applicable state law, item (1) shall not be construed:

(a) to require group health insurance coverage to provide particular benefits other than those provided under the terms of such coverage; or

(b) to prevent such a plan or coverage from establishing limitations or restrictions on the amount, level, extent, or nature of the benefits or coverage for similarly situated individuals enrolled in the plan or coverage.

(3) For purposes of item (1), rules for eligibility to enroll under a plan include rules defining any applicable waiting periods for the enrollment.

(B)(1) A health insurance issuer offering health insurance coverage in connection with a group health plan, may not require any individual, as a condition of enrollment or continued enrollment under the plan, to pay a premium or contribution which is greater than the premium or contribution for a similarly situated individual enrolled in the plan on the basis of any health status-related factor in relation to the individual or to an individual enrolled under the plan as a dependent of the individual.

(2) To the extent consistent with Sections 38-71-940, 38-71-200, and 38-55-50 and any other applicable state law, nothing in item (1) shall be construed to:

(a) restrict the amount that an employer may be charged for coverage under a group health plan under applicable state law; or

(b) prevent a group health plan, and a health insurance issuer offering group health insurance coverage, from establishing premium discounts or rebates or modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention, in accordance with applicable state law.

Section 38-71-870. (A) Except as provided in this section, if a health insurance issuer offers health insurance coverage in the small or large group market in connection with a group health plan, the issuer must renew or continue in force such coverage for all eligible employees and dependents at the option of the plan sponsor of the plan.

(B) A health insurance issuer may nonrenew or discontinue health insurance coverage offered in connection with a group health plan in the small or large group market based only on one or more of the following:

(1) The plan sponsor has failed to pay premiums or contributions in accordance with the terms of the health insurance coverage or the issuer has not received timely premium payments.

(2) The plan sponsor has performed an act or practice that constitutes fraud or made an intentional misrepresentation of material fact under the terms of the coverage or, with respect to coverage of an insured individual, fraud, or intentional misrepresentation by the insured individual or the individual's representative. If the fraud or intentional misrepresentation is made by a person with respect to any person's prior health condition, the insurer has the right also to deny coverage to that person or to impose as a condition of continued coverage the exclusion of the condition misrepresented.

(3) The plan sponsor has failed to comply with a material plan provision relating to employer contribution or group participation rules as permitted under Section 38-71-1360(A)(4) in the case of the small group market or pursuant to applicable state law in the large group market.

(4) The issuer is ceasing to offer coverage in such market in accordance with subsection (C) and applicable state law.

(5) In the case of a health insurance issuer that offers health insurance coverage in the market through a network plan, there is no longer any enrollee in connection with such plan who lives, resides, or works in the service area of the issuer or in the area for which the issuer is authorized to do business and, in the case of the small group market, the issuer would deny enrollment with respect to such plan under Section 38-71-1360(C)(1).

(6) In the case of health insurance coverage that is made available in the small or large group market only through one or more bona fide associations, the membership of an employer in the association, on the basis of which the coverage is provided, ceases but only if such coverage is terminated under this item uniformly without regard to any health status-related factor relating to any covered individual.

(C)(1) In any case in which an issuer decides to discontinue offering a particular type of group health insurance coverage offered in the small or large group market, coverage of such type may be discontinued by the issuer in accordance with applicable state law in such market only if the issuer:

(a) provides notice to each plan sponsor provided coverage of this type in such market, and participants and beneficiaries covered under the coverage, of the discontinuation at least ninety days before to the date of the discontinuation of the coverage;

(b) offers to each plan sponsor provided coverage of this type in the market, the option to purchase all or, in the case of the large group market, any other health insurance coverage currently being offered by the issuer to a group health plan in such market; and

(c) in exercising the option to discontinue coverage of this type and in offering the option of coverage under subitem (b), the issuer acts uniformly without regard to the claims experience of those sponsors or any health status-related factor relating to any participants or beneficiaries covered or new participants or beneficiaries who may become eligible for the coverage.

(2)(a) In any case in which a health insurance issuer elects to discontinue offering all health insurance coverage in the small group market or the large group market, or both markets, in this State, health insurance coverage may be discontinued by the issuer only in accordance with applicable state law and if:

(i) the issuer provides notice to the Director of Insurance and to each plan sponsor, and participants and beneficiaries covered under the coverage, of the discontinuation at least one hundred eighty days before the date of the discontinuation of the coverage; and

(ii) all health insurance coverage issued or delivered for issuance in the State in such market is discontinued and coverage under the health insurance coverage in the market is not renewed.

(b) In the case of a discontinuation under subitem (a) in a market, the issuer may not provide for the issuance of any health insurance coverage in the market in this State during the five-year period beginning on the date of the discontinuation of the last health insurance coverage not so renewed.

(D) At the time of coverage renewal, a health insurance issuer may modify the health insurance coverage for a product offered to a group health plan in the:

(1) large group market; or

(2) small group market if, for coverage that is available in the market other than only through one or more bona fide associations, the modification is consistent with state law and effective on a uniform basis among group health plans with that product.

(E) In applying this section in the case of health insurance coverage that is made available by a health insurance issuer in the small or large group market to employers only through one or more associations, a reference to 'plan sponsor' is deemed, with respect to coverage provided to an employer member of the association, to include a reference to such employer.

Section 38-71-880. (A)(1) In the case of health insurance coverage offered in connection with a group health plan that provides both medical and surgical benefits and mental health benefits:

(a) if the coverage does not include an aggregate lifetime limit on substantially all medical and surgical benefits, the coverage may not impose any aggregate lifetime limit on mental health benefits;

(b) if the coverage includes an aggregate lifetime limit, also referred to in this item as the 'applicable lifetime limit', on substantially all medical and surgical benefits, the coverage shall either:

(i) apply the applicable lifetime limit both to the medical and surgical benefits to which it otherwise would apply and to mental health benefits and not distinguish in the application of the limit between the medical and surgical benefits and mental health benefits; or

(ii) not include any aggregate lifetime limit on mental health benefits that is less than the applicable lifetime limit.

(c) In the case of coverage that is not described in subitem (a) or (b) and that includes no or different aggregate lifetime limits on different categories of medical and surgical benefits, the Director of Insurance shall promulgate regulations under which subitem (b) is applied to the coverage with respect to mental health benefits by substituting for the applicable lifetime limit an average aggregate limit that is computed taking into account the weighted average of the aggregate lifetime limits applicable to the categories.

(2) In the case of health insurance coverage offered in connection with a group health plan that provides both medical and surgical benefits and mental health benefits:

(a) if the coverage does not include an annual limit on substantially all medical and surgical benefits, the coverage may not impose any annual limit on mental health benefits;

(b) if the coverage includes an annual limit on substantially all medical and surgical benefits, referred to as the 'applicable annual limit', the coverage shall either:

(i) apply the applicable annual limit both to medical and surgical benefits to which it otherwise would apply and to mental health benefits and not distinguish in the application of such limit between such medical and surgical benefits and mental health benefits; or

(ii) not include any annual limit on mental health benefits that is less than the applicable annual limit.

(c) In the case of coverage that is not described in subitem (a) or (b) and that includes no or different annual limits on different categories of medical and surgical benefits, the Director of Insurance shall promulgate regulations under which subitem (b) is applied to the coverage with respect to mental health benefits by substituting for the applicable annual limit an average annual limit that is computed taking into account the weighted average of the annual limits applicable to the categories.

(B) To the extent consistent with Section 38-71-737 and any other applicable state law, nothing in this section shall be construed:

(1) as requiring health insurance coverage offered in connection with a group health plan to provide any mental health benefits; or

(2) in the case of such coverage that provides such mental health benefits, as affecting the terms and conditions, including cost sharing, limits on number of visits or days of coverage, and requirements relating to medical necessity, relating to the amount, duration, or scope of mental health benefits under the coverage, except as specifically provided in subsection (A) in regard to parity in the imposition of aggregate lifetime limits and annual limits for mental health benefits.

(C)(1)(a) This section shall not apply to any group health insurance coverage offered in connection with a group health plan for any plan year of a small employer.

(b) For purposes of subitem (a), 'small employer' means, in connection with a group health plan with respect to a calendar year and a plan year, an employer who employed an average of at least two but not more than fifty employees on business days during the preceding calendar year and who employs at least two employees on the first day of the plan year.

(c) For purposes of this item:

(i) All persons treated as a single employer under subsection (b), (c), (m), or (o) of Section 414 of the Internal Revenue Code of 1986 shall be treated as one employer.

(ii) In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether such employer is a small employer shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current calendar year.

(iii) Any reference in this item to an employer shall include a reference to any predecessor of the employer.

(2) This section shall not apply with respect to health insurance coverage offered in connection with a group health plan if the application of this section to such coverage results in an increase in the cost for such coverage of at least one percent.

(D) In the case of health insurance coverage offered in connection with a group health plan that offers a participant or beneficiary two or more benefit package options under the plan, subsections (A) and (C)(2), shall be applied separately with respect to each such option.

(E) For purposes of this section:

(1) 'Aggregate lifetime limit' means, with respect to benefits under health insurance coverage, a dollar limitation on the total amount that may be paid with respect to the benefits under the health insurance coverage with respect to an individual or other coverage unit.

(2) 'Annual limit' means, with respect to benefits under health insurance coverage, a dollar limitation on the total amount of benefits that may be paid with respect to the benefits in a twelve-month period under the health insurance coverage with respect to an individual or other coverage unit.

(3) 'Medical or surgical benefits' means benefits with respect to medical or surgical services, as defined under the terms of the plan, but does not include mental health benefits.

(4) 'Mental health benefits' means benefits with respect to mental health services, as defined under the terms of the plan, but does not include benefits with respect to treatment of substance abuse or chemical dependency.

(F) This section shall not apply to benefits for services furnished on or after September 30, 2001."

Minimum postpartum hospitalization

SECTION 4. Section 38-71-135 of the 1976 Code, as added by Act 335 of 1996, is amended to read:

"Section 38-71-135. All individual and group health insurance and health maintenance organization policies providing coverage for the hospitalization and attendant professional services of a mother and her newborn child or children must provide for the mother and her newborn child or children to remain in the hospital for at least forty-eight hours after a vaginal delivery, not including the day of delivery, and at least ninety-six hours following a Cesarean Section, not including the day of surgery. Nothing in this section shall be construed to prohibit the attending physician, in consultation with the mother, from requesting additional time for hospitalization or from releasing the mother or her newborn child or children prior to the expiration of time provided herein."

Optional renewal by insurer prohibited; nonrenewal notification requirements

SECTION 5. Section 38-71-335(B) and (C) of the 1976 Code, as last amended by Section 758 of Act 181 of 1993, is further amended to read:

"(B) For individual or family accident, health, or accident and health insurance policies, excluding individual health insurance coverage as defined in Section 38-71-670, individual or family accident, health, or accident and health insurance policies may not be written on an optionally renewable basis. 'Optionally renewable' means a contract of insurance in which the insurer reserves the right to terminate the coverage at the policy anniversary date. Optionally renewable does not include the following categories of policies as defined by the department by regulation: (1) 'nonrenewable for stated reasons only' and (2) 'conditionally renewable'. Term insurance is not considered insurance written on an optionally renewable basis. For individual health insurance coverage as defined in Section 38-71-670, Section 38-71-675 relating to guaranteed renewability of individual health insurance coverage shall apply.

(C) An individual or family accident, health, or accident and health insurance policy which may be nonrenewed, may be nonrenewed at the policy anniversary date or premium due date. The insurer shall give the insured at least thirty-one days' written notice of nonrenewal. Nonrenewal by the insurer is without prejudice to any claims originating before the effective date of nonrenewal. No written notice shall be required for failure to pay premiums except as provided in Section 38-71-110. For individual health insurance coverage as defined in Section 38-71-670, the notification requirements of Section 38-71-675(C) shall apply."

Small employer group requirements

SECTION 6. Section 38-71-730(1)(b)(ii) of the 1976 Code, as last amended by Act 339 of 1994, is further amended to read:

"(ii) It establishes requirements for membership. However, the common group cannot exclude any small employer, which otherwise meets the requirements for membership, on the basis of claim experience or any health status-related factors, as defined in Section 38-71-840, in relation to the employee or a dependent of the employee."

Health status discrimination against individuals prohibited

SECTION 7. Section 38-71-730(3) of the 1976 Code, as last amended by Act 339 of 1994, is further amended to read:

"(3) For all groups, no evidence of individual insurability may be required at the time the person first becomes eligible for insurance or within thirty-one days thereafter. Nothing in this section precludes the obtaining of medical information with respect to the members of the group for use in determining the insurability of the group, but the information may not be used to exclude an individual from coverage. In addition, group health insurance coverage, as defined in Section 38-71-840 must adhere to the requirements of Section 38-71-860 prohibiting discrimination against individual participants and beneficiaries based on health status-related factors."

Preexisting conditions

SECTION 8. Section 38-71-730(4) of the 1976 Code, as last amended by Section 17, Act 435 of 1996, is further amended to read:

"(4) Except for group health insurance coverage as defined in Section 38-71-840, the policies may contain a provision limiting coverage for preexisting conditions. The preexisting conditions must be covered no later than twelve months without medical care, treatment, or supplies ending after the effective date of the coverage or twelve months after the effective date of the coverage, whichever occurs first. Policies of disability income insurance may exclude coverage for disabilities beginning during the first twelve months after the effective date of coverage which result from a preexisting condition. Preexisting conditions are defined as those conditions for which medical advice or treatment was received or recommended no more than twelve months before the effective date of a person's coverage. However, whenever a covered person moves from one insured group to another, the insurer of the group to which the covered person moves shall give credit for the satisfaction of the preexisting condition period or portion thereof already served under the prior plan if the coverage is selected when the person first becomes eligible and the coverage is continuous to a date not more than thirty days prior to the effective date of the new coverage. Service under a probationary waiting period required by the employer is not considered to interrupt continuous service. The requirements with respect to limitations on preexisting condition exclusions for group health insurance coverage are described in Section 38-71-850."

Mental health benefits

SECTION 9. Section 38-71-737(B) of the 1976 Code, as added by Act 377 of 1994, is amended to read:

"(B) The offer of an optional rider or endorsement for a group health insurance policy must provide minimum benefits for psychiatric conditions not less than two thousand dollars for each member for each benefit year with a lifetime maximum benefit of ten thousand dollars. In the case of group health insurance coverage, as defined in Section 38-71-840, the requirements of Section 38-71-880 regarding parity in the application of certain limits to mental health benefits shall apply to those benefits defined as mental health benefits in Section 38-71-880(E). However, if group health insurance coverage is exempted from the requirements of Section 38-71-880, then the requirements of this provision shall apply. In addition, for group health insurance coverage, the requirements of this provision shall apply to benefits for psychiatric conditions which are not considered mental health benefits."

Definitions revised

SECTION 10. Section 38-71-920 of the 1976 Code, as last amended by Act 339 of 1994, is further amended to read:

"Section 38-71-920. As used in this subarticle:

(1) 'Small employer' means, in connection with a health insurance plan with respect to a calendar year and a plan year, any person, firm, corporation, partnership, association, or employer, as defined in Section 3(5) of the Employee Retirement Income Security Act of 1974 that is actively engaged in business that, on at least fifty percent of its working days during the preceding calendar year, employed no more than fifty eligible employees or employed an average of not more than fifty employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.

(a) 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, or that are treated as a single employer under subsections (b), (c), (m), or (o) of Section 414 of the Internal Revenue Code of 1986 must be considered one employer; and

(b) In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether the employer is a small or large employer shall be based on the average number of employees that it is reasonably expected to employ on business days in the current calendar year; and

(c) Any reference in the subarticle to an employer includes a reference to any predecessor of the employer.

(2) 'Insurer' means any person who provides health insurance in this State. For the purposes of this subarticle, insurer includes a licensed insurance company, a health maintenance organization, a multiple employer welfare arrangement, or any other person providing a plan of health insurance subject to state insurance regulation.

(3) 'Health insurance plan' or 'plan' means any hospital or medical policy or certificate, major medical expense insurance, hospital or medical service plan contract, or health maintenance organization subscriber contract which provides benefits consisting of medical care, provided directly, through insurance or reimbursement, or otherwise and including items and services paid for medical care. It includes the entire contract between the insurer and the insured, including the policy, riders, endorsements, and the application, if attached. 'Health insurance plan' does not include: accident-only; blanket accident and sickness; specified disease or hospital indemnity or other fixed indemnity insurance if offered as independent noncoordinated benefits; credit; limited scope dental or vision if offered separately; Medicare supplement if offered as a separate policy; long-term care if offered separately; disability-income insurance; coverage issued as a supplement to liability or other liability insurance, including general liability insurance and automobile liability insurance; coverage designed solely to provide payments on a per diem, fixed indemnity, or nonexpense incurred basis; coverage for Medicare or Medicaid services pursuant to a contract with state or federal government; workers' compensation or similar insurance; automobile medical payment insurance; coverage for on-site medical clinics; or other similar coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.

(4) 'Small employer insurer' means an insurer which offers health insurance plans covering the employees of a small employer.

(5) 'Case characteristics' means the following characteristics of a small employer, as determined by a small employer insurer, which are considered by the insurer in the determination of premium rates for the small employer: age, gender, geographic area, industry, and family composition. Geographic areas smaller than a county may not be used without prior approval of the director or his designee. Claim experience, health status, and duration of coverage since issue are not case characteristics for the purposes of this subarticle.

(6) 'Director' means the person who is appointed by the Governor upon the advice and consent of the Senate and who is responsible for the operation and management of the Department of Insurance, including all of its divisions. The director may appoint or designate the person or persons who shall serve at the pleasure of the director to carry out the objectives or duties of the department as provided by law. 'Director' also includes a designee or deputy director upon whom the director has bestowed any duty or function required of the director by law in managing or supervising the Department of Insurance.

(7) 'Department' means the Department of Insurance.

(8) 'Actuarial base rate' means the current estimated premium rate for a health insurance plan, based solely on the claim experience for all small employers insured by the insurer, on plan design, and without regard to the nature of the groups assumed to select particular health insurance plans. The insurer must be able to demonstrate a reasonable actuarial relationship between the estimated premium rate and the plan design.

(9) 'Class of business' means all or a distinct grouping of small employers as shown on the records of the small employer insurer.

(a) A distinct grouping may be established only by the small employer insurer on the basis that the applicable health insurance plans:

(i) are marketed and sold through individuals and organizations which are not participating in the marketing or sale of other distinct groupings of small employers for such small employer;

(ii) have been acquired from another small employer insurer as a distinct grouping of plans;

(iii) are provided through an association with membership of not less than fifty small employers which have been formed for purposes other than obtaining insurance; or

(iv) are provided through a common group formed solely for the purpose of obtaining insurance as permitted by Section 38-71-730(1)(b).

(b) A small employer insurer may establish no more than two additional groupings on the basis of criteria, such as group size, which are expected to produce substantial variation in administrative and marketing costs.

(c) The director or his designee may approve the establishment of additional distinct groupings upon application to the director or his designee and a finding by the director or his designee that action would enhance the efficiency and fairness of the small employer insurance marketplace.

(10) 'Actuarial certification' means a written statement by a member of the American Academy of Actuaries or other individual acceptable to the director or his designee that a small employer insurer is in compliance with the provisions of Section 38-71-940, based upon the person's examination, including a review of the appropriate records and of the actuarial assumptions and methods utilized by the insurer in establishing premium rates for applicable health insurance plans.

(11) 'Rating period' means the calendar period for which premium rates established by a small employer insurer are assumed to be in effect as determined by the small employer insurer."

Small employer insurer disclosure

SECTION 11. Section 38-71-960 of the 1976 Code, as last amended by Act 339 of 1994, is further amended by adding at the end:

"(5) The provisions relating to any preexisting condition exclusion; and

(6) The benefits and premiums available under all health insurance plans for which the employer is qualified.

Information under this section must be provided to small employers in a manner determined to be understandable by the average small employer and must be sufficient to reasonably inform small employers of their rights and obligations under the health insurance coverage.

An insurer is not required under this section to disclose any information that is proprietary or trade secret information under applicable law."

Definitions revised

SECTION 12. Section 38-71-1330 of the 1976 Code, as added by Act 339 of 1994, is amended to read:

"Section 38-71-1330. As used in this article:

(1) 'Basic health insurance plan' means a lower cost health insurance plan developed pursuant to Section 38-71-1420.

(2) 'Board' means the board of directors of the program established pursuant to Section 38-71-1410.

(3) 'Commissioner' means the Chief Insurance Commissioner of this State.

(4) 'Committee' means the advisory committee to the commissioner referred to in Section 38-71-1420.

(5) 'Dependent' means a spouse, an unmarried child under the age of nineteen years, an unmarried child who is a full-time student between the ages of nineteen and twenty-two and who is financially dependent upon the parent, and an unmarried child of any age who is medically certified as disabled and dependent upon the parent.

(6) 'Eligible employee' means an employee as defined in Section 38-71-710(1) or Section 38-71-840 who works on a full-time basis and has a normal work week of thirty or more hours.

(7) 'Employer contribution rule' means a requirement relating to the minimum level or amount of employer contribution toward the premium for enrollment of participants and beneficiaries.

(8) 'Group participation rule' means a requirement relating to the minimum number of participants or beneficiaries that must be enrolled in relation to a specified percentage or number of eligible individuals or employees of an employer.

(9) 'Health insurance plan' or 'plan' means any hospital or medical policy or certificate, major medical expense insurance, hospital or medical service plan contract, or health maintenance organization subscriber contract which provides benefits consisting of medical care provided directly through insurance or reimbursement, or otherwise and including items and services paid for medical care. It includes the entire contract between the insurer and the insured, including the policy, riders, endorsements, and the application, if attached. 'Health insurance plan' does not include: accident-only; blanket accident and sickness; specified disease or hospital indemnity or other fixed indemnity insurance if offered as independent noncoordinated benefits; credit; limited scope dental or vision if offered separately; Medicare supplement if offered as a separate policy; long-term care if offered separately; disability income insurance; coverage issued as a supplement to liability or other liability insurance, including general liability insurance and automobile liability insurance; coverage designed solely to provide payments on a per diem, fixed indemnity, or nonexpense incurred basis; coverage for Medicare or Medicaid services pursuant to a contract with state or federal government; workers' compensation or similar insurance; automobile medical payment insurance; coverage for on-site medical clinics; or other similar coverage specified in regulations under which benefits for medical care are secondary or incidental to other insurance benefits.

(10) 'Insurer' means any entity that provides health insurance in this State. For the purposes of this article, insurer includes an insurance company, a health maintenance organization, and any other entity providing a plan of health insurance or health benefits subject to state insurance regulation, including multiple employer self-insured health plans licensed pursuant to Section 38-41-10, et seq.

(11) 'Medical care' means amounts paid for:

(a) the diagnosis, cure, mitigation, treatment, or prevention of disease or amounts paid for the purpose of affecting any structure or function of the body;

(b) amounts paid for transportation primarily for and essential to medical care referred to in subitem (a); and

(c) amounts paid for insurance covering medical care referred to in subitems (a) and (b).

(12) 'Network plan' means a health insurance plan issued by an insurer under which the financing and delivery of medical care, including items and services paid for as medical care, are provided, in whole or in part, through a defined set of providers under contract with the insurer.

(13) 'Plan of operation' means the plan of operation of the program established pursuant to Section 38-71-1410.

(14) 'Program' means the South Carolina Small Employer Insurer Reinsurance Program created by Section 38-71-1410.

(15) 'Reinsuring insurer' means a small employer insurer participating in the reinsurance program pursuant to Section 38-71-1410.

(16) 'Risk-assuming insurer' means a small employer insurer whose application is approved by the commissioner pursuant to Section 38-71-1390.

(17) 'Small employer' means, in connection with a health insurance plan with respect to a calendar year and a plan year, any person, firm, corporation, partnership, association, or employer, as defined in Section 3(5) of the Employee Retirement Income Security Act of 1974, that is actively engaged in business that, on at least fifty percent of its working days during the preceding calendar year, employed no more than fifty eligible employees or employed an average of not more than 50 employees on business days during the preceding calendar year and who employs at least one employee on the first day of the plan year.

(1) In determining the number of eligible employees, companies that are affiliated companies, or that are eligible to file a combined tax return for purposes of state taxation, or that are treated as a single employer under subsections (b), (c), (m), or (o) of Section 414 of the Internal Revenue Code of 1986 shall be considered one employer; and

(2) In the case of an employer which was not in existence throughout the preceding calendar year, the determination of whether such employer is a small or large employer shall be based on the average number of employees that it is reasonably expected to employ on business days in the current calendar year; and

(3) Any reference in this article to an employer includes a reference to any predecessor of the employer.

(18) 'Small employer insurer' means an insurer that offers health insurance plans covering eligible employees of one or more small employers in this State.

(19) 'Standard health insurance plan' means a health insurance plan developed pursuant to Section 38-71-1420."

Requirements for plans offered to small employers

SECTION 13. Section 38-71-1360 of the 1976 Code, as added by Act 339 of 1994, is amended to read:

"Section 38-71-1360. (A)(1) Every small employer insurer shall, as a condition of transacting business in this State with small employers, actively offer to small employers all health insurance plans actively marketed to small employers in this State, including at least two health insurance plans. One health insurance plan offered by each small employer insurer must be a basic health insurance plan and one plan must be a standard health insurance plan.

(2) Coverage under such health insurance plan must be offered to every eligible employee of a small employer and his or her dependents who apply for enrollment during the period in which the employee first becomes eligible to enroll under the terms of the health insurance plan and may not place any restriction which is inconsistent with Section 38-71-860 on an eligible employee being a participant or beneficiary. A small employer insurer may not offer coverage only to certain individuals in a small employer group, or to only part of the group, except as provided in Section 38-71-850 for late enrollees.

(3) Except with respect to applicable preexisting condition limitation periods or late enrollees as provided in Section 38-71-850, a small employer insurer shall not modify a health insurance plan with respect to a small employer or any eligible employee or dependent through rider, endorsement, or otherwise, to restrict or exclude coverage or benefits for specific diseases, medical conditions or services otherwise covered under the plan.

(4)(a) Except as provided in Sections 38-71-1360(C) and (D), a small employer insurer shall issue these health insurance plans to any eligible small employer that applies for any such plan and agrees to make the required premium payments and to satisfy the other reasonable provisions of the health insurance plan relating to employer contribution rules and group participation rules and not inconsistent with this article.

(b) In the case of a small employer insurer that establishes more than one class of business pursuant to Section 38-71-920, the small employer insurer shall maintain and issue to eligible small employers these health insurance plans in addition to at least one basic health insurance plan and at least one standard health insurance plan in each class of business so established. A small employer insurer may apply reasonable criteria in determining whether to accept a small employer into a class of business, provided that:

(i) the criteria are not intended to discourage or prevent acceptance of small employers applying for a basic or standard health insurance plan;

(ii) the criteria are not related to the health status or claim experience of the small employer;

(iii) the criteria are applied consistently to all small employers applying for coverage in the class of business; and

(iv) the small employer insurer provides for the acceptance of all eligible small employers into one or more classes of business.

The requirement to offer these health insurance plans to small employers shall not apply to a class of business into which the small employer insurer is no longer enrolling new small businesses.

(5) The provisions of this subsection (A) of this section shall be effective one hundred eighty days after the commissioner's approval of the basic health insurance plan and the standard health insurance plan developed pursuant to Section 38-71-1420; provided that if the Small Employer Insurer Reinsurance Program created pursuant to Section 38-71-1410 is not yet operative on that date, the provisions of this paragraph shall be effective on the date that the program begins operation.

(B)(1) After the commissioner's approval of the basic health insurance plan and the standard health insurance plan developed pursuant to Section 38-71-1420, a small employer insurer shall file with the commissioner, in the form and manner prescribed by the commissioner, the basic and standard health insurance plans to be used by the insurer. The insurer shall certify to the commissioner that the plans as filed are in substantial compliance with the provisions as approved by the commissioner. Upon the commissioner's receipt of the certification, the insurer may use the certified plans unless their use is disapproved by the commissioner.

(2) The commissioner may, at any time, after providing notice and an opportunity for hearing, disapprove the continued use by a small employer insurer of a basic or standard health insurance plan on the grounds that the plan does not meet the requirements of this article.

(C)(1) In the case of a small employer insurer that offers health insurance coverage through a network plan, the small employer insurer may:

(a) limit the employers that may apply for such coverage to those with eligible employees who live, work, or reside in the service area for such network plan; and

(b) within the service area of any such plan, deny such coverage to such employers if such insurer has demonstrated to the satisfaction of the commissioner that:

(i) it will not have the capacity to deliver services adequately to members of any additional groups because of its obligations to existing group contract holders and enrollees, and

(ii) it is applying this item uniformly to all employers without regard to claims experience of those employers and their employees and their dependents or any health status-related factors relating to such employees and dependents.

(2) A small employer insurer that offers health insurance coverage through a network plan that cannot offer coverage pursuant to item (1)(b) may not offer coverage in the applicable area to new cases of employer groups with more than fifty eligible employees or to any small employer groups until the later of one hundred eighty days following each such refusal or the date on which the insurer notifies the commissioner that it has regained capacity to deliver services to small employer groups.

(D)(1) A small employer insurer may deny health insurance coverage to small employers for any period of time for which the commissioner determines that requiring the acceptance of small employers in accordance with the provisions of subsection (A) would place the small employer insurer in a financially impaired condition or if the small employer insurer has demonstrated to the commissioner that it:

(a) does not have the financial reserves necessary to underwrite additional coverage; and

(b) is applying this item uniformly to all small employers in the State without regard to claims experience of those employers and their employees and their dependents or any health status-related factor relating to such employees and dependents.

(2) A small employer insurer that denies coverage to a small employer pursuant to item (1) may not offer coverage in the State to new cases of employer groups with more than fifty eligible employees or to any small employer groups until the later of one hundred eighty days following each such refusal or the date on which the small employer insurer demonstrates to the commissioner that it has sufficient financial reserves to underwrite additional coverage. The commissioner may provide for the application of this subsection on a service-area-specific basis."

Code sections applicable

SECTION 14. Section 38-71-1370 of the 1976 Code, as added by Act 339 of 1994, is amended to read:

"Section 38-71-1370. Except to the extent inconsistent with specific provisions of this article, all provisions of Article 5 are applicable to any insurance plans required to be offered by small employer insurers."

Requirements for reinsuring

SECTION 15. Section 38-71-1410(H) of the 1976 Code, as added by Act 339 of 1994, is amended to read:

"(H) A reinsuring insurer may reinsure with the program as provided for in this subsection:

(1) with respect to any health insurance plan offered by the small employer insurer to small employers, the program shall reinsure the level of coverage as defined in the plan of operation;

(2) a small employer insurer may reinsure an entire employer group within sixty days of the commencement of the group's coverage under a health insurance plan;

(3) a reinsuring insurer may reinsure an eligible employee or dependent within a period of sixty days following the commencement of the coverage with the small employer. A newly-eligible employee or dependent of the reinsured small employer may be reinsured within sixty days of the commencement of his coverage;

(4)(a) the program shall not reimburse a reinsuring insurer with respect to the claims of a reinsured employee or dependent until the insurer has incurred an initial level of claims for such employee or dependent of five thousand dollars in a calendar year for benefits covered by the program. In addition, the reinsuring insurer shall be responsible for ten percent of the next fifty thousand dollars of benefit payments during a calendar year and the program shall reinsure the remainder. A reinsuring insurers' liability under this subparagraph shall not exceed a maximum limit of ten thousand dollars in any one calendar year with respect to any reinsured individual;

(b) the board annually may adjust the initial level of claims, the coinsurance percentage, and the maximum limit to be retained by the insurer with the approval of the commissioner.

(5) a small employer insurer may terminate reinsurance with the program for one or more of the reinsured employees or dependents of a small employer on any anniversary of the health insurance plan;

(6) a reinsuring insurer shall apply all managed care and claims handling techniques, including utilization review, individual case management, preferred provider provisions, and other managed care provisions or methods of operation consistently with respect to reinsured and nonreinsured business."

Requirements for insuring small employers

SECTION 16. Section 38-71-1440(A) of the 1976 Code, as added by Act 339 of 1994, is amended to read:

"(A) Each small employer insurer shall fairly market health insurance plan coverage, including the basic and standard health insurance plans, to eligible small employers in the State. A small employer insurer shall not deny coverage to a small employer based solely on the employer's occupation."

Good faith compliance

SECTION 17. No enforcement action shall be taken, pursuant to the amendments made by this act, against a health insurance issuer with respect to a violation of a requirement imposed by such amendments before January 1, 1998, if the issuer has sought to comply in good faith with the requirements.

Promulgation of regulations

SECTION 18. The Director of Insurance may promulgate regulations as may be necessary or appropriate to carry out the provisions of this act.

Severability

SECTION 19. If any provision of this act or the application of the provision to any person or circumstance is held to be unconstitutional, the remainder of this act and the application of the provisions of such to any person or circumstance shall not be affected thereby.

Repeal

SECTION 20. Section 38-71-950 of the 1976 Code is repealed.

Time effective

SECTION 21. This act applies with respect to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market in this State and takes effect upon approval by the Governor or on July 1, 1997, if later, regardless of when a period of creditable coverage, as defined in Section 3 of this act, occurs. This act applies with respect to health insurance coverage offered in connection with group health plans for plan years beginning on or after July 1, 1997, or upon approval by the Governor, whichever is later. Section 38-71-880 of the 1976 Code, as added by Section 3 of this act, applies with respect to health insurance coverage offered in connection with group health plans for plan years beginning on or after January 1, 1998, or upon approval by the Governor, whichever is later. The amendments to Section 38-71-135 of the 1976 Code, as contained in Section 4 of this act, apply with respect to health insurance coverage offered in connection with group health plans for plan years beginning on or after January 1, 1998, or upon the signature of the Governor, whichever is later. The amendments to Section 38-71-135 of the 1976 Code, as contained in Section 4 of this act, apply with respect to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market in this State and take effect upon approval by the Governor or January 1, 1998, if later.

Approved the 31st day of March, 1997.