Sec. 3. (a) Except as provided in subsection (b), a 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 the benefits preexisted the effective date of the succeeding carrier's contract may not be applied with respect to those enrollees who were covered under the prior carrier's contract or policy on the date of discontinuance.
(b) A provision in a succeeding carrier's contract of replacement coverage may operate to reduce or exclude benefits on the basis of a preexisting condition to the extent that the prior carrier's contract or policy would have required that benefits for the condition be reduced or excluded.