(ii) procedures for secondary conditions and followup treatment.

(B) EXCEPTION.-Such term does not include cosmetic surgery performed to reshape normal structures of the body to improve appearance or self-esteem.

(b) NOTICE-A group health plan under this part shall comply with the notice requirement under section 714(b) of the Employee Retirement Income Security Act of 1974 with respect to the requirements of this section as if such section applied to such plan.

Subpart 3-Provisions Applicable Only to Health Insurance Issuers

(a) IN GENERAL.-Each health insurance issuer that offers health insurance coverage in the small or large group market shall provide that for any plan year in which the coverage has a medical loss ratio below a level specified by the Secretary, the issuer shall provide in a manner specified by the Secretary for rebates to enrollees of payment sufficient to meet such loss ratio. Such methodology shall be set at the highest level medical loss ratio possible that is designed to ensure adequate participation by issuers, competition in the health insurance market, and value for consumers so that their premiums are used for services.

(b) UNIFORM DEFINITIONS.-The Secretary shall establish a uniform definition of medical loss ratio and methodology for determining how to calculate the medical loss ratio. Such methodology shall be designed to take into account the special circumstances of smaller plans, different types of plans, and newer plans.

Subpart 4-Exclusion of Plans; Enforcement; Preemption

SEC. 2723. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION. (a) ***

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(c) RULES OF CONSTRUCTION.-Nothing in this part (other than [section 2704] sections 2704 and 2708) shall be construed as requiring a group health plan or health insurance coverage to provide specific benefits under the terms of such plan or coverage.

Subpart 1-Portability, Access, and Renewability Requirements

SEC. 2741. GUARANTEED AVAILABILITY OF INDIVIDUAL HEALTH INSURANCE COVERAGE TO CERTAIN INDIVIDUALS WITH PRIOR GROUP COVERAGE.

(a) ***

(b) ELIGIBLE INDIVIDUAL DEFINED.-In this part, the term "eligible individual" means an individual

(1) ***

(2) who is not eligible for coverage under (A) a group health plan, (B) part A or part B of title XVIII of the Social Security Act, or (C) a State plan under title XIX of such Act (or any suc

cessor program), and does not have other health insurance coverage; and

(3) with respect to whom the most recent coverage within the coverage period described in paragraph (1)(A) was not terminated based on a factor described in paragraph (1) or (2) of section 2712(b) (relating to nonpayment of premiums or fraud)[;]. [(4) if the individual had been offered the option of continuation coverage under a COBRA continuation provision or under a similar State program, who elected such coverage; and

[(5) who, if the individual elected such continuation coverage, has exhausted such continuation coverage under such provision or program.]

[(f)] (g) CONSTRUCTION.-Nothing in this section shall be construed(1) ***

(h) APPLICATION OF GROUP HEALTH INSURANCE LIMITATIONS ON IMPOSITION OF PREEXISTING CONDITION EXCLUSIONS.—

(1) IN GENERAL.-Subject to paragraph (2), a health insurance issuer that provides individual health insurance coverage may not impose a preexisting condition exclusion (as defined in subsection (b)(1)(A) of section 2701) with respect to such coverage except to the extent that such exclusion could be imposed consistent with such section if such coverage were group health insurance coverage.

(2) LIMITATION.-In the case of an individual who

(A) is enrolled in individual health insurance coverage; (B) during the period of such enrollment has a condition for which no medical advice, diagnosis, care, or treatment had been recommended or received as of the enrollment date; and

(C) seeks to enroll under other individual health insurance coverage which provides benefits different from those provided under the coverage referred to in subparagraph (A) with respect to such condition,

the issuer of the individual health insurance coverage described in subparagraph (C) may impose a preexisting condition exclusion with respect to such condition and any benefits in addition to those provided under the coverage referred to in subparagraph (A), but such exclusion may not extend for a period of more than 3 months.

SEC. 2742. GUARANTEED RENEWABILITY AND CONTINUATION IN FORCE, INCLUDING PROHIBITION OF RESCISSION, OF INDIVIDUAL HEALTH INSURANCE COVERAGE.

(a) IN GENERAL.-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, including without rescission, such coverage at the option of the individual.

(f) RESCISSION.-A health insurance issuer may rescind health insurance coverage only upon clear and convincing evidence of fraud described in subsection (b)(2). The Secretary, no later than July 1, 2010, shall issue guidance implementing this requirement, including procedures for independent, external third party review.

SEC. 2744. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS. (a) WAIVER OF REQUIREMENTS WHERE IMPLEMENTATION OF ACCEPTABLE ALTERNATIVE MECHANISM.

(1) IN GENERAL.-The requirements of section 2741 (other than subsection (h)) shall not apply with respect to health insurance coverage offered in the individual market in the State so long as a State is found to be implementing, in accordance with this section and consistent with section 2762(b), an alternative mechanism (in this section referred to as an "acceptable alternative mechanism")—

(A) ***

SEC. 2746. OPPORTUNITY FOR INDEPENDENT, EXTERNAL THIRD PARTY REVIEW IN CASES OF RESCISSION.

(a) NOTICE AND REVIEW RIGHT.-If a health insurance issuer determines to rescind health insurance coverage for an individual in the individual market, before such rescission may take effect the issuer shall provide the individual with notice of such proposed rescission and an opportunity for a review of such determination by an independent, external third party under procedures specified by the Secretary under section 2742(f).

(b) INDEPENDENT DETERMINATION.-If the individual requests such review by an independent, external third party of a rescission of health insurance coverage, the coverage shall remain in effect until such third party determines that the coverage may be rescinded under the guidance issued by the Secretary under section 2742(f).

SEC. 2754. ENSURING VALUE AND LOWER PREMIUMS.

The provisions of section 2714 shall apply to health insurance coverage offered in the individual market in the same manner as such provisions apply to health insurance coverage offered in the small or large group market.

SEC. 2755. STANDARDS RELATING TO BENEFITS FOR MINOR CHILD'S CONGENITAL OR DEVELOPMENTAL DEFORMITY OR DISORDER.

(a) REQUIREMENTS FOR RECONSTRUCTIVE SURGERY.

(1) IN GENERAL.-A health insurance issuer offering health insurance coverage in the individual market that provides coverage for surgical benefits shall provide coverage for outpatient and inpatient diagnosis and treatment of a minor child's congenital or developmental deformity, disease, or injury. A minor child shall include any individual through 21 years of age.

(2) REQUIREMENTS. Any coverage provided under paragraph (1) shall be subject to pre-authorization or pre-certification as

required by the insurance issuer offering such coverage, and such coverage shall include any surgical treatment which, in the opinion of the treating physician, is medically necessary to approximate a normal appearance.

(3) TREATMENT DEFINED.

(A) IN GENERAL.-In this section, the term "treatment" includes reconstructive surgical procedures (procedures that are generally performed to improve function, but may also be performed to approximate a normal appearance) that are performed on abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors, or disease, including—

(i) procedures that do not materially affect the function of the body part being treated; and

(ii) procedures for secondary conditions and followup treatment.

(B) EXCEPTION.-Such term does not include cosmetic surgery performed to reshape normal structures of the body to improve appearance or self-esteem.

(b) NOTICE.-A health insurance issuer under this part shall comply with the notice requirement under section 714(b) of the Employee Retirement Income Security Act of 1974 with respect to the requirements referred to in subsection (a) as if such section applied to such issuer and such issuer were a group health plan.

(a) ***

(b) RULES OF CONSTRUCTION.-(1) ***

(2) Nothing in this part (other than [section 2751] sections 2751 and 2754) shall be construed as requiring health insurance coverage offered in the individual market to provide specific benefits under the terms of such coverage.

(a) ELECTION OF EMPLOYER TO BE SUBJECT TO NATIONAL HEALTH COVERAGE PARTICIPATION REQUIREMENTS.

(1) IN GENERAL.-An employer may make an election with the Secretary to be subject to the health coverage participation requirements.

(2) TIME AND MANNER.-An election under paragraph (1) may be made at such time and in such form and manner as the Secretary may prescribe.

(b) TREATMENT OF COVERAGE RESULTING FROM ELECTION.(1) IN GENERAL.-If an employer makes an election to the Secretary under subsection (a)—

(A) such election shall be treated as the establishment and maintenance of a group health plan for purposes of

this title, subject to section 151 of the America's Affordable Health Choices Act of 2009, and

(B) the health coverage participation requirements shall be deemed to be included as terms and conditions of such plan.

(2) PERIODIC INVESTIGATIONS TO DETERMINE COMPLIANCE WITH HEALTH COVERAGE PARTICIPATION REQUIREMENTS.-The Secretary shall regularly audit a representative sampling of employers and conduct investigations and other activities with respect to such sampling of employers so as to discover noncompliance with the health coverage participation requirements in connection with such employers (during any period with respect to which an election under subsection (a) is in effect). The Secretary shall communicate findings of noncompliance made by the Secretary under this subsection to the Secretary of the Treasury and the Health Choices Commissioner. The Secretary shall take such timely enforcement action as appropriate to achieve compliance.

(c) HEALTH COVERAGE PARTICIPATION REQUIREMENTS.—For purposes of this section, the term "health coverage participation requirements" means the requirements of part 1 of subtitle B of title III of division A of the America's Affordable Health Choices Act of 2009 (as in effect on the date of the enactment of this section).

(d) SEPARATE ELECTIONS.-Under regulations prescribed by the Secretary, separate elections may be made under subsection (a) with respect to full-time employees and employees who are not full-time employees.

(e) TERMINATION OF ELECTION IN CASES OF SUBSTANTIAL NONCOMPLIANCE.-The Secretary may terminate the election of any employer under subsection (a) if the Secretary (in coordination with the Health Choices Commissioner) determines that such employer is in substantial noncompliance with the health coverage participation requirements and shall refer any such determination to the Secretary of the Treasury as appropriate.

(f) ENFORCEMENT OF HEALTH COVERAGE PARTICIPATION REQUIRE

MENTS.

(1) CIVIL PENALTIES.-In the case of any employer who fails (during any period with respect to which the election under subsection (a) is in effect) to satisfy the health coverage participation requirements with respect to any employee, the Secretary may assess a civil penalty against the employer of $100 for each day in the period beginning on the date such failure first occurs and ending on the date such failure is corrected.

(2) LIMITATIONS ON AMOUNT OF PENALTY.

(A) PENALTY NOT TO APPLY WHERE FAILURE NOT DISCOVERED EXERCISING REASONABLE DILIGENCE.-No penalty shall be assessed under paragraph (1) with respect to any failure during any period for which it is established to the satisfaction of the Secretary that the employer did not know, or exercising reasonable diligence would not have known, that such failure existed.

(B) PENALTY NOT TO APPLY TO FAILURES CORRECTED WITHIN 30 DAYS.-No penalty shall be assessed under paragraph (1) with respect to any failure if—