A bill to amend the Internal Revenue Code of 1986 to provide for a tax credit for offering employer-based health insurance coverage and to provide for the establishment of health insurance purchasing pools.

Summary: Small Business Health Care Act of 2005 - Amends the Internal Revenue Code to allow certain small employers (with between two and 100 employees) a business tax credit for a specified percentage of the health insurance costs of their employees.

Directs the Internal Revenue Service, in conjunction with the Small Business Administration, to develop and implement an educational program to inform businesses of the health insurance tax credit provided by this Act.

Directs the Secretary of Health and Human Services to make matching grants to state and local governments for the operation of health insurance purchasing pools.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Health Care Act of 
2005''.

SEC. 2. CREDIT FOR EMPLOYEE HEALTH INSURANCE EXPENSES.

    (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. 45J. EMPLOYEE HEALTH INSURANCE EXPENSES.

    ``(a) General Rule.--For purposes of section 38, in the case of a 
qualified small employer, the employee health insurance expenses credit 
determined under this section is an amount equal to the applicable 
percentage of the amount paid by the taxpayer during the taxable year 
for qualified employee health insurance expenses.
    ``(b) Applicable Percentage.--
            ``(1) In general.--For purposes of subsection (a), the 
        applicable percentage is--
                    ``(A) 50 percent in the case of an employer with 
                less than 26 qualified employees,
                    ``(B) 40 percent in the case of an employer with 
                more than 25 but less than 36 qualified employees,
                    ``(C) 30 percent in the case of an employer with 
                more than 35 but less than 51 qualified employees,
                    ``(D) 20 percent in the case of an employer with 
                more than 50 but less than 76 qualified employees, and
                    ``(E) 10 percent in the case of an employer with 
                more than 75 but less than 101 qualified employees.
            ``(2) High contribution bonus.--With respect to any taxable 
        year during which a qualified small employer pays 100 percent 
        of qualified employee health insurance expenses for the 
        qualified employees of the small employer, the applicable 
        percentage otherwise determined for such taxable year under the 
        preceding paragraph shall be increased by 5 percentage points.
    ``(c) Per Employee Dollar Limitation.--The amount of qualified 
employee health insurance expenses taken into account under subsection 
(a) with respect to any qualified employee for any taxable year shall 
not exceed the maximum employer contribution for self-only coverage or 
family coverage (as applicable) determined under section 8906(a) of 
title 5, United States Code, for the calendar year in which such 
taxable year begins.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified small employer.--
                    ``(A) In general.--The term `qualified small 
                employer' means any small employer which--
                            ``(i) provides eligibility for health 
                        insurance coverage (after any waiting period 
                        (as defined in section 9801(b)(4))) to all 
                        qualified employees of the employer,
                            ``(ii) pays at least 70 percent of the cost 
                        of such coverage (60 percent in the case of 
                        family coverage) for each qualified employee, 
                        and
                            ``(iii) in the case of a small employer 
                        which is located in a State which has 
                        established a health insurance purchasing pool 
                        under section 3 of the Small Business Health 
                        Care Act of 2005, joins such pool.
                    ``(B) Transition rule for new plans.--
                            ``(i) In general.--If a small employer (or 
                        any predecessor) did not provide health 
                        insurance coverage to the qualified employees 
                        of the employer during the employer's 
                        precompliance period, then subparagraph (A) 
                        shall be applied to such employer for the first 
                        5 taxable years following such period by 
                        substituting `50 percent' for `70 percent' in 
                        clause (ii) (or for `60 percent' in such 
                        clause, in the case of family coverage).
                            ``(ii) Precompliance period.--For purposes 
                        of clause (i), the precompliance periods are--
                                    ``(I) the period beginning with the 
                                small employer's taxable year preceding 
                                its first taxable year beginning after 
                                the date of the enactment of this 
                                section, and
                                    ``(II) the period beginning with 
                                the small employer's taxable year 
                                preceding the first taxable year for 
                                which the employer meets the 
                                requirement of subparagraph (A)(i).
                        An employer not in existence for any period 
                        shall be treated in the same manner as an 
                        employer which is in existence and not 
                        providing coverage.
                    ``(C) Small employer.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `small employer' means, 
                        with respect to any calendar year, any employer 
                        if such employer employed an average of not 
                        less than 2 and not more than 100 qualified 
                        employees on business days during either of the 
                        2 preceding calendar years. For purposes of the 
                        preceding sentence, a preceding calendar year 
                        may be taken into account only if the employer 
                        was in existence throughout such year.
                            ``(ii) Employers not in existence in 
                        preceding year.--In the case of an employer 
                        which was not in existence throughout the 1st 
                        preceding calendar year, the determination 
                        under clause (i) shall be based on the average 
                        number of qualified employees that it is 
                        reasonably expected such employer will employ 
                        on business days in the current calendar year.
            ``(2) Qualified employee health insurance expenses.--
                    ``(A) In general.--The term `qualified employee 
                health insurance expenses' means any amount paid by an 
                employer for health insurance coverage to the extent 
                such amount is attributable to coverage provided to any 
                employee while such employee is a qualified employee.
                    ``(B) Exception for amounts paid under salary 
                reduction arrangements.--No amount paid or incurred for 
                health insurance coverage pursuant to a salary 
                reduction arrangement shall be taken into account under 
                subparagraph (A).
                    ``(C) Health insurance coverage.--The term `health 
                insurance coverage' has the meaning given such term by 
                section 9832(b)(1).
            ``(3) Qualified employee.--The term `qualified employee' 
        means an employee of an employer who, with respect to any 
        period, is not provided health insurance coverage under--
                    ``(A) a health plan of the employee's spouse,
                    ``(B) title XVIII, XIX, or XXI of the Social 
                Security Act,
                    ``(C) chapter 17 of title 38, United States Code,
                    ``(D) chapter 55 of title 10, United States Code,
                    ``(E) chapter 89 of title 5, United States Code, or
                    ``(F) any other provision of law.
            ``(4) Employee.--The term `employee'--
                    ``(A) means any individual, with respect to any 
                calendar year, who is reasonably expected to receive at 
                least $5,000 and not more than $100,000 of compensation 
                from the employer during such year,
                    ``(B) does not include an employee within the 
                meaning of section 401(c)(1), and
                    ``(C) includes a leased employee within the meaning 
                of section 414(n).
            ``(5) Compensation.--The term `compensation' means amounts 
        described in section 6051(a)(3).
    ``(e) Certain Rules Made Applicable.--For purposes of this section, 
rules similar to the rules of section 52 shall apply.
    ``(f) Denial of Double Benefit.--No deduction or credit under any 
other provision of this chapter shall be allowed with respect to 
qualified employee health insurance expenses taken into account under 
subsection (a).''.
    (b) Credit to Be Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 (relating to current year business 
credit) is amended by striking ``plus'' at the end of paragraph (18), 
by striking the period at the end of paragraph (19) and inserting ``, 
plus'', and by adding at the end the following:
            ``(20) the employee health insurance expenses credit 
        determined under section 45J.''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following:

``Sec. 45J. Employee health insurance expenses.''.
    (d) Employer Outreach.--The Internal Revenue Service shall, in 
conjunction with the Small Business Administration, develop materials 
and implement an educational program to ensure that business personnel 
are aware of--
            (1) the eligibility criteria for the tax credit provided 
        under section 45J of the Internal Revenue Code of 1986 (as 
        added by this section),
            (2) the methods to be used in calculating such credit, and
            (3) the documentation needed in order to claim such credit, 
        so that the maximum number of eligible businesses may claim the 
        tax credit.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after the 
date of the enactment of this Act.

SEC. 3. HEALTH INSURANCE PURCHASING POOLS.

    (a) Matching Funds for Operation of Pools.--
            (1) In general.--In the case of a State or a unit of local 
        government that establishes a health insurance purchasing pool, 
        the Secretary of Health and Human Services shall provide, from 
        the funds allocated under subsection (b), a grant equal to the 
        applicable percentage of the administrative costs associated 
        with such pool.
            (2) Applicable percentage.--For purposes of paragraph (1), 
        the applicable percentage is--
                    (A) 75 percent for the initial year of the grant;
                    (B) 50 percent for year succeeding the year to 
                which subparagraph (A) is applicable;
                    (C) 25 percent for the year succeeding the year to 
                which subparagraph (B) is applicable; and
                    (D) zero thereafter.
            (3) Special rule for local government purchasing pools.--
        The Secretary of Health and Human Services shall not provide a 
        grant under this section to any unit of a local government 
        unless such unit of local government submits to the Secretary a 
        certificate from the State in which such unit of local 
        government is located authorizing such grant.
            (4) Health insurance purchasing pool.--For purposes of this 
        section, the term ``health insurance purchasing pool'' means a 
        purchasing pool for small employers (as defined under section 
        45J of the Internal Revenue Code of 1986) for the purpose of 
        providing health insurance coverage (as defined in such 
        section) to qualified employees (as defined in such section).
    (b) Funding.--Out of the money in the Treasury of the United States 
not otherwise appropriated, there are authorized and appropriated such 
sums as are necessary to carry out this section.