To amend the Internal Revenue Code of 1986 to provide tax subsidies to encourage small employers to offer affordable health coverage to their employees through qualified health pooling arrangements, to encourage the establishment and operation of these arrangements, and for other purposes.

Summary: Small Business Health Insurance Promotion Act of 2004 - Amends the Internal Revenue Code to allow certain small employers (not more than 50 employees) a business tax credit equal to 50 percent of amounts paid by such employers for the health care coverage of their employees under a qualified health pooling arrangement. Limits the period during which the tax credit may be taken to four years from the date the employer begins participating in a qualified health pooling arrangement. Defines "qualified health pooling arrangement" as a national or state arrangement that provides health benefits coverage substantially similar to that of the four largest health benefit plans offered to Federal employees.

Directs the Secretaries of Health and Human Services and Labor to provide for the offering and oversight of qualified State and national health pooling arrangements and to conduct a study, through the Institute of Medicine of the National Academy of Sciences, of the operation of such arrangements.

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Small Business 
Health Insurance Promotion Act of 2004''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Temporary tax credit for small employers offering health 
                            coverage through a qualified health pooling 
                            arrangement.
Sec. 3. Qualified State health pooling arrangements.
Sec. 4. Establishment of national health pooling arrangement.
Sec. 5. Funding of pooling arrangements.
Sec. 6. Institute of Medicine study and report.

SEC. 2. TEMPORARY TAX CREDIT FOR SMALL EMPLOYERS OFFERING HEALTH 
              COVERAGE THROUGH A QUALIFIED HEALTH POOLING ARRANGEMENT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business-related 
credits) is amended by adding at the end the following:

``SEC. 45G. SMALL BUSINESS HEALTH POOL ARRANGEMENTS.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible small employer, the health pool arrangement credit determined 
under this section for the taxable year is an amount equal to 50 
percent of amounts paid or incurred by the employer during the taxable 
year as premiums for self-only or family coverage for health benefits 
under a qualified health pooling arrangement for employees of such 
employer.
    ``(b) Limitations.--
            ``(1) Employer must bear 50 percent of cost.--Expenses may 
        be taken into account under subsection (a) only if at least 50 
        percent of the premiums under the qualified health pooling 
        arrangement are paid by the employer.
            ``(2) Period of coverage.--Expenses may be taken into 
        account under subsection (a) only with respect to coverage for 
        the 4-year period beginning on the date the employer first 
        begins participating in a qualified health pooling arrangement.
            ``(3) Employers offering other health benefits.--In the 
        case of an employer who paid or incurred any expenses for 
        health benefits for the employees of such employer during the 
        first taxable year ending on or after the date of the enactment 
        of this section, subsection (a) shall apply to such employer 
        only if such employer begins participating in a qualified 
        health pooling arrangement during the 2-year period beginning 
        on the later of--
                    ``(A) the date of the enactment of this section, or
                    ``(B) the first date that a qualified health 
                pooling arrangement exists which allows such employer 
                to participate.
            ``(4) No employees excluded.--Subsection (a) shall not 
        apply to an employer for any period unless at all times during 
        such period coverage for health benefits under a qualified 
        health pooling arrangement is available to all employees of 
        such employer under similar terms.
            ``(5) Amounts paid under salary reduction arrangements.--No 
        amount paid or incurred pursuant to a salary reduction 
        arrangement shall be taken into account under subsection (a).
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Eligible small employer.--
                    ``(A) In general.--The term `eligible small 
                employer' means an employer who employed, with respect 
                to the calendar year in which such employer first 
                begins participating in a qualified health pooling 
                arrangement, an average of not more than 50 employees 
                on business days during the preceding calendar year.
                    ``(B) Employers not in existence in preceding 
                year.--In the case of an employer which was not in 
                existence throughout the preceding calendar year, the 
                determination of whether such employer is an eligible 
                small employer shall be based on the average number of 
                employees that it is reasonably expected such employer 
                will employ on business days in the current calendar 
                year.
                    ``(C) Permanent status as eligible small 
                employer.--In the case of an employer who meets the 
                requirements of this subsection with respect to the 
                calendar year in which such employer first begins 
                participating in a qualified health pooling 
                arrangement, such employer shall not fail to be treated 
                as an eligible small employer for any subsequent 
                calendar year.
                    ``(D) Predecessors.--The Secretary may prescribe 
                regulations which provide for references in this 
                paragraph to an employer to be treated as including 
                references to predecessors of such employer.
            ``(2) Self-employed individuals.--
                    ``(A) Treatment as employee.--The term `employee' 
                includes an individual who is an employee within the 
                meaning of section 401(c)(1) (relating to self-employed 
                individuals).
                    ``(B) Treatment as employer.--An individual who 
                owns the entire interest in an unincorporated trade or 
                business shall be treated as his own employer. A 
                partnership shall be treated as the employer of each 
                partner who is an employee within the meaning of 
                subparagraph (A).
            ``(3) Family coverage.--The term `family coverage' means 
        coverage for health benefits of the employee and qualified 
        family members of the employee (as defined in section 35(d), 
        but without regard to the last sentence of paragraph (1) 
        thereof).
            ``(4) Qualified health pooling arrangement.--The term 
        `qualified health pooling arrangement' means a qualified State 
        health pooling arrangement described in section 3 of Small 
        Business Health Insurance Promotion Act of 2004 or the national 
        health pooling arrangement described in section 4 of such Act.
            ``(5) Certain rules made applicable.--Rules similar to the 
        rules of section 52 shall apply for purposes of this 
        section.''.
    (b) Credit to Be Part of General Business Credit.--Section 38(b) of 
such Code (relating to current year business credit) is amended by 
striking ``plus'' at the end of paragraph (13), by striking the period 
at the end of paragraph (14) and inserting ``, plus'', and by adding at 
the end the following:
            ``(15) in the case of an eligible small employer (as 
        defined in section 45G(c)), the health pool arrangement credit 
        determined under section 45G(a).''.
    (c) No Carrybacks.--Subsection (d) of section 39 of such Code 
(relating to carryback and carryforward of unused credits) is amended 
by adding at the end the following:
            ``(11) No carryback of section 45g credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the health pool arrangement 
        credit determined under section 45G may be carried back to a 
        taxable year beginning before January 1, 2004.''.
    (d) Denial of Double Benefit.--Section 280C of such Code is amended 
by adding at the end the following new subsection:
    ``(d) Credit for Small Business Health Pool Arrangements.--
            ``(1) In general.--No deduction shall be allowed for that 
        portion of the expenses (otherwise allowable as a deduction) 
        taken into account in determining the credit under section 45G 
        for the taxable year which is equal to the amount of the credit 
        determined for such taxable year under section 45G(a).
            ``(2) Controlled groups.--Persons treated as a single 
        employer under subsection (a) or (b) of section 52 shall be 
        treated as 1 person for purposes of this section.''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following:

``Sec. 45G. Small business health pool arrangements.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after 
December 31, 2003, for arrangements established after the date of the 
enactment of this Act.

SEC. 3. QUALIFIED STATE HEALTH POOLING ARRANGEMENTS.

    (a) Defined.--For purposes of this Act, the term ``qualified State 
health pooling arrangement'' means an arrangement established by a 
State which meets the following requirements:
            (1) Health benefits coverage.--The arrangement provides 
        health benefits coverage that the Secretaries of Health and 
        Human Services and Labor jointly determine is substantially 
        similar to the health benefits coverage in any of the four 
        largest health benefits plans (determined by enrollment) 
        offered under chapter 89 of title 5, United States Code.
            (2) Group health plan requirements.--The health benefits 
        coverage provided under the arrangement meets the requirements 
        applicable to a group health plan under chapter 100 of the 
        Internal Revenue Code of 1986, part 7 of subtitle B of title I 
        of the Employee Retirement Income Security Act of 1974, and 
        State law.
            (3) Guaranteed issue and renewable.--The arrangement does 
        not deny coverage (including renewal of coverage) with respect 
        to employees of any eligible small employer or qualifying 
        family members of such employees on the basis of health status 
        of such employees or family members or any other condition or 
        requirement that the Secretaries of Health and Human Services 
        and Labor jointly determine constitutes health underwriting.
            (4) No preexisting condition exclusion.--The arrangement 
        does not permit a preexisting condition exclusion as defined 
        under section 9801(b)(1) of the Internal Revenue Code of 1986 
        and under section 701(b)(1) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 11(b)(1)).
            (5) No underwriting; community-rated premiums.--(A) Subject 
        to subparagraph (B), the arrangement does not permit 
        underwriting, through a preexisting condition limitation, 
        differential benefits, or different premium levels, or 
        otherwise, with respect to such coverage for employees or their 
        qualifying family members.
            (B) The premiums charged for such coverage are community-
        rated for individuals without regard to health status.
            (6) No riders.--The arrangement does not permit riders to 
        the health benefits coverage.
            (7) Accessibility to eligible small employers.--The 
        arrangement makes such coverage available to an eligible small 
        employer without regard to whether a credit is available under 
        section 45G of the Internal Revenue Code of 1986 with respect 
        to such employer.
            (8) Minimum of two plans offered under the arrangement.--
        The arrangement makes available at least two plans for health 
        benefits coverage.
    (b) Eligible Small Employer; Self-Employed Individual.--For 
purposes of this Act, the terms ``eligible small employer'' and 
``employee'' have the same meanings as when such terms are used in 
section 45G of the Internal Revenue Code of 1986 and rules similar to 
the rules of subsection (c) of such section shall apply for purposes of 
this Act.
    (c) Qualifying Family Member.--For purposes of this Act, the term 
``qualifying family member'' has the meaning given such term in section 
35(d) of the Internal Revenue Code of 1986, applied without regard to 
the last sentence of paragraph (1) thereof.
    (d) State Defined.--For purposes of this Act, the term ``State'' 
includes the District of Columbia, Puerto Rico, the Virgin Islands of 
the United States, Guam, American Samoa, and the Northern Mariana 
Islands.
    (e) Construction.--Nothing in this section shall be construed as 
requiring a State to establish or maintain a qualified State health 
pooling arrangement.
    (f) Creditable Coverage for Purposes of HIPAA.--Health benefits 
coverage provided under a qualified State health pooling arrangement 
under this section (and coverage provided under a National Pooling 
Arrangement under section 4 of this title) shall be treated as 
creditable coverage for purposes of part 7 of subtitle B of title I of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1181 et 
seq.), title XXVII of the Public Health Service Act (42 U.S.C. 300gg et 
seq.), and subtitle K of the Internal Revenue Code of 1986.
    (g) Oversight and Accountability.--
            (1) Oversight.--The Secretaries of Health and Human 
        Services and Labor shall jointly oversee the offering of health 
        benefits coverage under qualified State health pooling 
        arrangements to eligible small employers.
            (2) Annual reports.--
                    (A) In general.--Each State that offers a qualified 
                State health pooling arrangement under this section in 
                a year shall submit, in a form and manner specified 
                jointly by the Secretaries of Health and Human Services 
                and Labor, a report on the operation of the arrangement 
                in that year.
                    (B) Contents of report.--Reports required under 
                subparagraph (A) shall include the following:
                            (i) A description of the health benefits 
                        coverage offered under the arrangement.
                            (ii) The number of employers that 
                        participated in the arrangement.
                            (iii) The number of employees and 
                        qualifying family members of employees who 
                        received health benefits coverage under the 
                        arrangement.
                            (iv) The premiums charged for the health 
                        benefits coverage under the arrangement.
            (3) Certification.--Each State that offers a qualified 
        State health pooling arrangement under this section in a year 
        shall submit, in a form and manner specified jointly by the 
        Secretaries of Health and Human Services and Labor, a 
        certification that the arrangement meets the requirements of 
        this Act.
    (h) Coordination of Complaints With State Insurance 
Commissioners.--The Secretaries of Health and Human Services and Labor 
shall coordinate with the insurance commissioners for the various 
States in establishing a process for handling and resolving any 
complaints relating to health benefits coverage offered under this Act, 
to the extent necessary to augment processes otherwise available under 
State law.
    (i) No Preemption of State Law.--Nothing in this section shall be 
construed as preempting provisions of State law that provide 
protections in excess of the protections required under this section.

SEC. 4. ESTABLISHMENT OF NATIONAL HEALTH POOLING ARRANGEMENT.

    (a) In General.--The Secretaries of Health and Human Services and 
Labor, jointly in consultation with the Director of the Office of 
Personnel Management, shall provide for the offering and oversight of a 
national health pooling arrangement to eligible small employers.
    (b) National Health Pooling Arrangement Defined.-- For purposes of 
this section, the term ``national health pooling arrangement'' means an 
arrangement under which health plans are offered under terms and 
conditions that meet the requirements of section 3(a).
    (c) Use of FEHBP Model.--The Secretaries of Health and Human 
Services and Labor shall jointly provide for the national health 
pooling arrangement using the model of the Federal employees health 
benefits program under chapter 89 of title 5, United States Code, to 
the extent practicable and consistent with the provisions of this Act. 
In carrying out such model, the Secretaries shall, to the maximum 
extent practicable, negotiate the most affordable and substantial 
coverage possible for small employers.

SEC. 5. FUNDING OF POOLING ARRANGEMENTS.

    (a) Funding of States to Establish and Operate Qualified State 
Health Pooling Arrangements.--There are authorized to be appropriated 
to the Secretaries of Health and Human Services and Labor such sums as 
may be necessary to provide grants to States to establish and operate 
qualified State health pooling arrangements described in section 3.
    (b) Funding of National Health Pooling Arrangement.--There are 
authorized to be appropriated to the Secretaries of Health and Human 
Services and Labor such sums as may be necessary to provide for the 
offering and operation of the national health pooling arrangement under 
section 4.

SEC. 6. INSTITUTE OF MEDICINE STUDY AND REPORT.

    (a) Study.--The Secretaries of Health and Human Services and Labor 
shall jointly enter into an arrangement under which the Institute of 
Medicine of the National Academy of Sciences shall conduct a study on 
the operation of qualified State health pooling arrangements under 
section 3 and the national health pooling arrangement under section 4.
    (b) Matters Studied.--The study conducted under subsection (a) 
shall include the following:
            (1) An assessment of the success of the arrangements.
            (2) A determination of the affordability of health benefits 
        coverage under the arrangements for employers and employees.
            (3) A determination of the access of small employers to 
        health benefits coverage.
            (4) A determination of the extent to which the tax credit 
        under section 45G of the Internal Revenue Code of 1986 provides 
        a subsidy for eligible small employers that provided (or would 
        have provided) health benefits coverage in the absence of such 
        credit.
            (5) Recommendations with respect to--
                    (A) extension of the period for which the tax 
                credit under section 45G of the Internal Revenue Code 
                of 1986 is available to employers or an appropriate 
                phase-out of such credit over time;
                    (B) expansion of categories of persons eligible for 
                such tax credit;
                    (C) expansion of persons eligible for health 
                benefits coverage under the arrangements; and
                    (D) such other matters as the Institute determines 
                appropriate.
    (c) Report.--Not later than January 1, 2009, the Comptroller 
General shall submit to Congress a report on the study conducted under 
subsection (a).