but not limited to, such reasonable requirements, provisions, or limitations as he may from time to time by regulation prescribe for all carriers or particular classes of such carriers, or for all or particular classes of health service prepayment plans or policies or subscriber contracts issued pursuant thereto, or both, with respect to

(1) the kinds and types of health service prepayment plans which will be eligible for reinsurance, taking in consideration the purposes declared in section 1, with special demphasis upon the objective of encouraging experimentation designed to extend or adapt the prepayment method to substantive problem areas or geographic areas for which that method is in any significant respect new, untried, or not yet fully effective or widely available on reasonable terms, such as (A) coverage of classes of individuals for which protection through such health service prepayment plans appears to be feasible but is not adequate, or (B) the offering of protection in communities or areas in which such protection (in the respects in which it is offered) is not adequately available on a prepayment basis, or (C) a coverage of benefits or services which, either as to type, range, amount, or duration of such benefits or services, is not otherwise (generally or in a given area) widely available through such plans on an adequate basis;

(2) minimum ranges of health conditions to be covered by the plan, minimum provisions as to the kind, quantity, and duration of health services to be covered or provided under the plan, and safeguards against undue exclusions of health services or health conditions from coverage or against any other undue exclusions or limitations;

(3) deductible amounts and maximum liability amounts, if any, provided or to be provided for in the plan;

(4) waiting periods as a condition of entitlement to health service benefits;

(5) plan provisions which require that a given portion of the cost of personal health services or of expenditures therefor, covered by the plan, be borne by the policy holder, subscriber, or beneficiary;

(6) plan provisions, in the case of plans within the scope of the proviso to section 101 (e) (2), as to costs or charges of providers of personal health services payable by the carrier, to the extent that, in the judgment of the Secretary, such regulations are necessary to protect the Fund against abuses or arbitrary cost increases during a reinsurance term;

(7) The duration, cancellability, and renewability of policies or subscriber contracts issued pursuant to the plan; and

(8) other policy provisions bearing on the need for limiting reinsurance under this title to plans which will promote the purposes of this Act. (b) Notwithstanding the provisions of subsection (a) or any other provision of this Act, the Secretary shall not exercise any control whatsoever over the carrier's premium or subscription charges under a health service prepayment plan, except that he shall not approve for reinsurance any such plan if in the Secretary's judgment (1) the carrier's premium or subscription charges thereunder are such as to cause the plan to be financially unsound or are otherwise arbitrary or unreasonable, or (2) the allocation of such premium charges by the carrier pursuant to section 305 (c) as between risks to be reinsured and risks not to be reinsured is arbitrary or unreasonable.

(c) No term, condition, requirement, provisions, or limitation, or amendment thereto, prescribed pursuant to subsection (a), shall, if initially effective less than ninety days prior to the date of approval of an application for initial reinsurance with respect to a plan, or less than ninety days prior to the date of approval of an application for renewal of such reinsurance, be applicable to such plan, without the carrier's consent, during the term of such initial reinsurance or of such renewal, as the case may be, but the same shall be applicable to any subsequent renewal of such reinsurance.

(d) The Secretary shall not approve for reinsurance any health service prepayment plan which contemplates that medical or dental care or treatment be furnished by the applicant for reinsurance through salaried physicians or dentists in the employ of such applicant unless the Secretary is satisfied that such applicant has an organizational structure which vests control over the manner in which medicine and dentistry are practiced, in connection with the health services concerned, solely in duly licensed members of the professions involved.

REINSURANCE CERTIFICATE

SEC. 304. If the Secretary finds (a) that the applicant carrier is operating and proposes to operate according to law; (b) that the carrier is financially sound and that financial policies and manner of operation or proposed operation entitle it to public confidence; (c) that the application, the health service prepayment plan submitted for reinsurance (or for renewal of reinsurance), the policies and contracts the carrier proposes to issue or has already issued under the plan, and the carrier's proposed method of operations comply with the requirements of this title and with the terms, conditions, requirements, provisions, or limitations prescribed pursuant to this title; (d) that the plan is sound; (e) that the carrier has agreed to the premium rates for reinsurance fixed with respect to such plan pursuant to section 306 for the term of reinsurance covered by the application; and (f) that reinsurance of such plan pursuant to this title will promote the purposes of this title, the Secretary is authorized to approve the application for reinsurance (or for renewal of reinsurance) and, in the event of such approval, to issue to the carrier a certificate stating that, with respect to the health service prepayment plan described in the application, the carrier is reinsured to the extent provided in this title and in accordance with the tenor of, and for the period specified in, the certificate: Provided, That, if the carrier has outstanding health service policies or contracts under the plan at the time of such approval, the certificate of reinsurance shall not be issued unless and until the initial premium for reinsurance as specified in section 306 has been paid.

SCOPE AND EXTENT OF REINSURANCE OBLIGATION

SEC. 305. (a) (1) The issuance of a certificate of reinsurance pursuant to this title shall give rise to a contract between the applicant carrier and the United States, whereby the United States is obligated, upon payment of all reinsurance premium charges required pursuant to this title and upon compliance by the carrier with the other applicable terms, conditions, and requirements specified in or pursuant to this title, to pay to such carrier, for each year during the term of such reinsurance, from the fund (or from the appropriate account established under section 307), 75 per centum of the carrier's reinsured costs incurred in such year under the plan covered by the certificate of reinsurance.

(2) Except as otherwise provided in and pursuant to subsection (b) for certain plans and carriers, the carrier's reinsured costs incurred under a reinsured plan in a given year shall be that amount, if any, by which—

(A) the carrier's aggregate benefit costs, incurred during such year under its health service prepayment policies or subscriber contracts issued under and in conformity with the reinsured plan, exceed

(B) (i) the carrier's aggregate premium income earned under the reinsured plan in such year, as reduced by (ii) the amount of the applicable administrative-expense allowance.

The administrative-expense allowance applicable to a given year with respect to a reinsured plan shall be dtermined by multiplying the carrier's aggregate premium income earned during such year under the reinsured plan by the applicable administrative-expense-allowance factor predetermined for such plan under paragraph (3) of this subsection.

(3) (A) The "administrative-expense-allowance factor" applicable to a given carrier and health service prepayment plan with respect to a given initial or renewal term of reinsurance shall be seven-eighths of that ratio, approved by the Secretary, which the carrier, as a part of its application for initial reinsurance or renewal of reinsurance of such plan, as the case may be, estimates to be the ratio which its annual administrative expenses, to be incurred in connection with the plan, will bear to its annual premium income to be earned under the plan : Provided, That, when so required by the Secretary in order to prevent distortion, such ratio shall be an average ratio estimated with respect to such period of years, not in excess of three, as may be specified in regulations.

(B) The Secretary shall approve the carrier's estimate of the ratio of its annual incurred administrative expenses to its annual earned premium income, submitted under subparagraph (A) of this paragraph, unless in the Secretary's judgment the carrier's estimate or the method by which such estimate was made is not a reasonable or bona fide one, in which event the Secretary shall not give such approval and shall not issue or renew such reinsurance, but such ap

proval may be given if the carrier furnishes an amended estimate which in the judgment of the Secretary is not subject to such objection.

(b) In the case of any health service prepayment plan which is operated, exclusively or to a substantial extent, either (1) on the basis of personal health services to be furnished by the carrier directly through its own staff or indirectly through the staff of an affiliate of the carrier, or (2) on the basis of payments to be made by the carrier to a provider of personal health services which is an affiliate of the carrier, the provisions of paragraphs (2) and (3) of subsection (a) shall not apply, but the Secretary shall by regulation prescribe for such plans (which otherwise meet the requirements of this title) the scope and extent of the reinsurance obligation which shall apply to them, with a view to making available for such plans reinsurance which, with due regard to the inherent differences between them and other types, will in the Secretary's judgment achieve for such plans reinsurance protection reasonably comparable in scope and extent to that provided for plans fully subject to subsection (a).

(c) If a plan covered by an application for reinsurance includes, in policies or subscriber contracts issued or to be issued under the plan, benefits of a type not specified in section 101 (e), reinsurance granted under this title and the provisions of this section for determining the scope and extent of the reinsurance obligation shall not be deemed to extend to so much of such plan (or of the benefit or other costs or expenses incurred or premium income earned in connection with such plan) as relates to such benefits and the plan shall specify how much of the subscription charge or premium charged or chargeable by the carrier under such policy or subscriber contract shall be attributable to such extraneuos benefits and how much to benefits within the purview of this title, and only the latter shall be regarded as premiums or subscription charges for the purposes of this title.

(d) In the event that a reinsured carrier's liability with respect to risks insured or underwritten by it under a reinsured health service prepayment plan is reduced or extinguished by reason of the operation of, or proceedings under, a Federal or State bankruptcy or insolvency law, payments of reinsurance pursuant to this title shall nevertheless be applied by the carrier or by the officer acting for it to the satisfaction of the obligations otherwise arising under the plan, to the exclusion of other creditors.

(e) (1) If so specified by regulation with respect to all or a class of carriers or plans, when a single carrier has more than one health service prepayment plan reinsured under this title for the same reinsurance term, the experience under any two or more such plans of such carrier with respect to the same year shall be combined for the purposes of this section and a determination made as to the amount, if any, of a combined net reinsurance payment owing under this title.

(2) (A) The duration of an initial or renewal term of reinsurance of a plan pursuant to this title shall be for such period (hereinafter referred to as the "regular reinsurance period") as may be specied in the certificate of reinsurance pursuant to regulations, but, if so specified by or pursuant to regulation, such initial or renewal term of reinsurance shall, with respect to each policy or subscriber contract issued or renewed under the plan during the regular reinsurance period and running beyond such regular reinsurance period, be deemed to continue for such further period (hereinafter referred to as the "extended reinsurance period" for such policy or subscriber contract) as may be specified by or pursuant to such regulations.

(B) If an extended reinsurance period or periods are specified as authorized by subparagraph (A) of this paragraph, the Secretary may further, by or pursuant to regulation, incorporate in the reinsurance contract a provision for combining the carrier's experience under the reinsured plan during the regular reinsurance period with its experience under such plan during the extended reinsurance period or periods, and for determining upon expiration of the last of such extended periods, on the basis of such combined experience in lieu of the annual basis specified in subsection (a), the amount of the reinsurance obligation, if any, owing to the carrier.

(C) In the event of a renewal of reinsurance of a plan after an initial term of reinsurance or after a prior renewal term of reinsurance, the Secretary is authorized to specify as a part of the reinsurance contract, by or pursuant to regulation, that policies or subscriber contracts issued or renewed under the plan during, but running beyond, the regular reinsurance period of any such prior reinsurance term shall, to the extent provided in or pursuant to such regulation, be treated for reinsurance purposes as if issued or renewed during such subsequent renewal

term of reinsurance, in lieu of the application of an extended reinsurance period or periods to such prior reinsurance term with respect to such policies or subscriber contracts.

(f) No substantive regulation, or amendment thereto, prescribed under this section shall, if initially effective less than ninety days prior to the date of approval of an application for initial reinsurance with respect to a plan, or less than ninety days prior to the date of approval of an application for renewal of such reinsurance, be applicable to such plan during the term (including any extended period of such term pursuant to subsection (e) (2) of this section) of such initial reinsurance or of such renewal, as the case may be, if less favorable to the carrier than the regulations theretofore in effect, but such regulation or amendment shall be applicable to any subsequent renewal of such reinsurance. (g) A contract of reinsurance under this title shall not give rise to any liability of the United States beyond the funds which from time to time shall stand to the credit of the fund, except that, if the authority to establish accounts within the fund is exercised pursuant to section 307, such liability shall be limited to the appropriate reinsurance account within the fund in accordance with the provisions of that section.

(h) For the purposes of this section

(1) The term "administrative expenses" includes all expenditures and charges incurred by a carrier in connection with a health service prepayment plan, except (A) benefit costs, (B) amounts set aside for reserves or contingencies, and (C) dividends, refunds, or distribution of profits, and such administrative expenses may be more particularly defined by the Secretary;

(2) The term "affiliate", in reference to a carrier, means any person, partnership, or juristic or business entity which directly or indirectly, by legally enforceable means or otherwise, owns or controls, or is owned or controlled by, the carrier, or which, together with the carrier, is directly or indirectly, by legally enforceable means or otherwise, owned or controlled by the same interests as the carrier;

(3) The terms "annual" and "year" refer to a calendar year or, alternatively, such continuous period of 12 months as may be provided by regulation;

(4) The term "benefit costs" means, with respect to a health service prepayment plan, payments incurred by the sponsoring carrier, either directly to providers as payment for personal health services furnished by them to beneficiaries under the plan or to others as indemnification or reimbursement with respect to expenditures incurred by them for such services and indemnifiable or reimbursable under the plan;

(5) The term "premium income" means the sum of (i) gross premiums or subscription charges earned and (ii) policy fees earned under or with respect to policies or subscriber contracts issued under a health service prepayment plan, without regard to dividends declared and without regard to experience rating refunds; and

(6) The terms "incurred" and "earned”, in reference to expenditures or income related to an accounting period, mean "allocable to" such period in accordance with generally recognized insurance accounting principles, whether or not paid or received during such period, and without regard to reduction or extinguishment of liability by reason of the operation of, or proceedings under, Federal or State laws pertaining to bankruptcy or insolvency.

PREMIUM CHARGES FOR REINSURANCE

SEC. 306. (a) The Secretray shall, pursuant to regulations, require the payment of premium charges for reinsurance under this title. Such charges shall, by or pursuant to regulation, be fixed, in accordance with actuarial principles, as a percentage of the carrier's premium income (as defined in section 305) under the reinsured plan or on such other equitable basis as may be specified by regulation, and may be so fixed at different rates for the different carriers and for the different health service prepayment plans to be reinsured as to reflect the respective hazards. In the fixing of premium rates, regard shall be had to the objective of, on the one hand, making the reinsurance program self-sustaining over a reasonable terin and, on the other hand, stimulating and encouraging plans which will promote the purposes and objectives declared in section 1 and section 303 (a) (1). (b) The applicable premium rate in effect on the initial effective date of a certificate of reinsurance issued to a carrier, or on the effective date of renewal of the reinsurance term specified therein, shall remain applicable to the reinsured plan during such initial term or renewal term, respectively, including any

extended period of such term pursuant to section 305 (e) (2), except that (1) the Secretary may, if premium rates have been reduced for future reinsurance of comparable risks, and if the condition of the fund or of the account subject to the risk permits, reduce accordingly the reinsurance premiums payable with respect to the plan by such carrier for subsequent installments, and (2) if the carrier desires to amend its reinsured plan during the current reinsurance term, the Secretary may, if in his judgment such amendment would affect the reinsurance hazard, condition his consent to such amendment on the carrier's agreement to a change in the reinsurance premium rate.

(c) Premiums for reinsurance shall be payable at such times, for such periods, and in such manner as the Secretary shall by regulation prescribe.

(d) All premiums received for reinsurance under this title shall be covered into the fund and, if reinsurance accounts are established in the fund pursuant to section 307, shall be credited to the appropriate account.

REINSURANCE FUND

SEC. 307. (a) There is hereby created in the Treasury of the United States a Health Service Prepayment Plan Reinsurance Fund which shall be used by the Secretary to carry out the provisions of this title.

(b) There shall be paid into the fund, and the fund shall consist of, all reinsurance premiums received under this title, capital advances made to the fund pursuant to section 308, investments of moneys in the fund and the return from such investments, and any other moneys or assets derived by the Secretary from operations arising out of the reinsurance provisions of this title. Subject to the provisions of subsection (c), all moneys in the fund shall, upon requisition by the Secretary, be available, without fiscal-year limitation, (1) for making reinsurance payments pursuant to this title, (2) for repayment of advances made to the fund pursuant to section 308, (3) for payments of interest pursuant to section 308, and (4) for any fiscal year beginning after June 30, 1959, for defraying the expenses of administration incurred by the Secretary in connection with the reinsurance provisions of this Act.

(c) The Secretary is authorized in his discretion, if he finds that the purposes of this title will thereby be promoted, to establish within the fund, by or pursuant to regulation, one or more special reinsurance accounts and, in that event, to allocate to such accounts plans thereafter reinsured or for which reinsurance is thereafter renewed, and, with the consent of the sponsoring carrier with respect to a reinsurance term then current, plans theretofore reinsured. If such a special account or accounts are established, any plan not so allocated to a special account shall be allocated to a general reinsurance account to be established by the Secretary within the fund, and any liability of the United States arising with respect to a reinsured plan shall be limited to the general or special account to which such plan has been allocated. Each such special account and the general account shall be credited with the reinsurance premiums paid with respect to plans allocated to such account, its share of the earnings of the fund, advances of capital made to such account pursuant to section 308, and any other income of the fund attributable to such account, and shall be charged with all payments of reinsurance under this title with respect to plans allocated to such account, repayments of advances requisitioned for the use of such account pursuant to section 308, interest payable pursuant to section 308, and its share of administrative expenses for any fiscal year beginning after June 30, 1959, as provided in subsection (e).

(d) (1) The Secretary may authorize the Secretary of the Treasury to invest and reinvest such portions of the fund as the Secretary may determine to be in excess of current needs in any interest-bearing securities of the United States or in any securities guaranteed as to principal and interest by the United States, and the income therefrom shall constitute a part of the fund.

(2) Notwithstanding the establishment of accounts pursuant to subsection (c), the fund shall be invested as a single fund but each reinsurance account shall be credited quarterly on March 31, June 30, September 30, and December 31 of each year, on the basis of the average daily balance of such account, with a proportionate part of the earnings of the fund for the quarter ending on such date.

(e) If accounts are established pursuant to subsection (c), there shall likewise be established within the fund, on July 1, 1959, an administrative expense account, and moneys required for the expenses of administration of this title shall for each fiscal year, from time to time, be transferred by the Secretary