Kelly allowed an insurance bill to become law without her signature, and it includes provisions that will exempt the bureau from state insurance regulations in the health care coverage it offers to its members.
Kelly, in a statement, said that while she has "serious reservations" about the measure, she will allow it to become law "as a demonstration of my genuine commitment to compromise."
Kansas Senate President Susan Wagle, a Wichita Republican, said in a statement that the measure helps "Kansans struggling to afford coverage find new, affordable options."
Kelly's fellow Democrats strongly opposed the measure, suggesting it would allow the nonprofit to sell skimpy health care coverage while offering false hope to consumers.
The proposal had overwhelming Republican support in the GOP-controlled Legislature. Kelly had not taken a position publicly before allowing the bill to become law.
The new law takes effect in July. It is patterned after one in place in Tennessee for decades and one enacted last year in Iowa.
Its enactment demonstrated the Farm Bureau's political clout in Kansas, particularly in rural areas, where Republicans dominate politics. The bill also had the support of most urban and suburban GOP lawmakers who continue to oppose the 2010 federal health care overhaul.
Some Democrats argued that rural communities would be better served by expanding the state's Medicaid health coverage for poor residents as outlined in the Affordable Care Act, as Kelly has proposed. The House passed a Medicaid expansion plan last month, but the Senate has yet to take it up.
"Unfortunately, leaders in the Kansas Senate continue to prioritize their own political ambitions over the health and security of Kansas families and hospitals," Kelly said. "Despite the will of both their chamber and their state, these three Senate leaders remain devoutly committed to partisan obstructionism."
Farm Bureau President Rich Felts said in a statement that Kelly's action "paved the way for lawmakers to advance a comprehensive healthcare solution that will benefit our entire state." He said the governor's Medicaid expansion plan "to help rural hospitals, create new jobs, and expand affordable healthcare to non-KFB members remains a critical piece of that puzzle."
Farm Bureau officials estimated that about 42,000 people would eventually take its coverage and promised lower rates than plans complying with federal mandates. They believed the takers would be individuals without coverage or struggling to pay for individual coverage.
Bureau officials said they pushed for permission to offer the coverage because the group's members were asking for more choices. The Farm Bureau's new coverage will avoid state regulation because the law simply declares that it's not insurance.
Kansas has seen the number of individual coverage plans offered through the federal ACA marketplace decline to 23 for 2019 from 42 in 2016, according to the Kansas Insurance Department. While average rate increases for 2019 were smaller than in past years, they've sometimes previously topped 25 percent, according to annual reports from the department.
Republicans repeatedly have cited premium increases as a reason to repeal the ACA since President Donald Trump's election in 2016, but a drive in Congress to do it stalled when they couldn't agree on a replacement. Trump has deferred another push until after the 2020 election.
Critics of the Farm Bureau's proposal said companies offering traditional health insurance coverage would face unfair competition.
They also focused on how the Farm Bureau would be able to set higher rates or reject coverage for people who have pre-existing medical conditions. They also suggested that coverage could be limited for large expenses, such as a pregnancy or cancer treatment.
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