Section 23. (a) For purposes of this section, the following words shall, unless the context clearly requires otherwise, have the following meanings:-

''Carrier'', a health maintenance organization authorized under this chapter, an insurance company authorized to provide accident and health insurance under chapter 175, a nonprofit hospital service corporation authorized under chapter 176A, a nonprofit medical service corporation authorized under chapter 176B, or any other entity responsible for the payment of benefits or provision of services under a group contract.

''Replacement'', the benefits provided by a succeeding carrier.

''Discontinuance'', the termination of the contract between the group contract holder and a health maintenance organization due to the insolvency of the health maintenance organization. The word ''discontinuance'' does not refer to the termination of any agreement between any individual enrollee and the health maintenance organization.

(b) (1) In the event of an insolvency of a health maintenance organization, upon order of the commissioner, all other carriers that participated in the enrollment process with the insolvent health maintenance organization at a group's last regular enrollment period shall offer such group's enrollees of the insolvent health maintenance organization a 30 day enrollment period commencing upon the date of insolvency. Each carrier shall offer such enrollees of the insolvent health maintenance organization the same coverages and rates that it had offered to the enrollees of the group at its last regular enrollment period. Nothing in this section shall prevent an employer from making alternative arrangements with any carrier to provide coverage to its employees who were members of the insolvent health maintenance organization.

(2) If no other carrier had been offered to some groups whose members were enrolled in the insolvent health maintenance organization, or if the employer does not arrange for alternative coverage, or if the commissioner determines that the other carriers lack sufficient health care delivery resources to assure that health care services will be available and accessible to all of the group's enrollees of the insolvent health maintenance organization, then the commissioner shall allocate equitably the insolvent health maintenance organization's group contracts for such groups among all health maintenance organizations that operate within a portion of the insolvent health maintenance organization's service area, taking into consideration the health care delivery resources of each health maintenance organization. Each health maintenance organization to which a group or groups are so allocated shall offer such group or groups the health maintenance organization's existing coverage which is most similar to each group's coverage with the insolvent health maintenance organization at rates determined in accordance with the succeeding health maintenance organization's existing rating methodology.

(3) The commissioner shall also allocate equitably the insolvent health maintenance organization's nongroup enrollees who are unable to obtain other comparable coverage among all health maintenance organizations that operate within a portion of the insolvent health maintenance organization's service area, taking into consideration the health care delivery resources of each such health maintenance organization. Each health maintenance organization to which nongroup enrollees are allocated shall offer such nongroup enrollees the health maintenance organization's existing coverage for individual or conversion coverage as determined by his type of coverage in the insolvent health maintenance organization at rates determined in accordance with the succeeding health maintenance organization's existing rating methodology. Succeeding health maintenance organizations that do not offer direct nongroup enrollment may aggregate all of the allocated nongroup enrollees into one group for rating and coverage purposes.

(c) (1) Any carrier providing replacement coverage with respect to group hospital, medical or surgical expense or service benefits within 60 days from the date of discontinuance of a prior health maintenance organization contract or policy providing such hospital, medical or surgical expense or service benefits shall immediately cover all enrollees who were validly covered under the previous health maintenance organization contract or policy at the date of discontinuance and who would otherwise be eligible for coverage under the succeeding carrier's contract, regardless of any provisions of the contract relating to active employment or hospital confinement or pregnancy.

(2) Except to the extent benefits for the condition would have been reduced or excluded under the prior carrier's contract or policy, no provision in a succeeding carrier's contract of replacement coverage that would operate to reduce or exclude benefits on the basis that the condition giving rise to benefits preexisted the effective date of the succeeding carrier's contract shall be applied with respect to those enrollees validly covered under the prior carrier's contract or policy on the date of discontinuance.