39–006 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 109–41 

SMALL BUSINESS HEALTH FAIRNESS ACT OF 2005 

APRIL 13, 2005.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. BOEHNER, from the Committee on Education and the 

Workforce, submitted the following 

R E P O R T 

together with 

ADDITIONAL AND MINORITY VIEWS 

[To accompany H.R. 525] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Education and the Workforce, to whom was 

referred the bill (H.R. 525) to amend title I of the Employee Retirement Income Security Act of 1974 to improve access and choice for 

entrepreneurs with small businesses with respect to medical care 

for their employees, having considered the same, report favorably 

thereon without amendment and recommend that the bill do pass. 

PURPOSE

The purpose of H.R. 525 is to reduce the ranks of the uninsured 

by improving access to health care for uninsured working families, 

particularly those who are employed in small businesses. The bill 

would authorize the creation of association health plans (‘‘AHPs’’) 

which would allow small businesses to join together through bona 

fide trade associations to purchase health insurance for their workers, thus enjoying the larger economies of scale presently enjoyed 

by many large corporations and unions and enabling them to purchase coverage at a lower cost than they currently must pay. H.R. 

525 would increase small businesses’ bargaining power with health 

care providers, give them freedom from costly state mandated benefit packages, and lower overhead costs, thus better enabling them 

to offer health care coverage for their workers. 

2 

COMMITTEE ACTION

Employer-Employee Relations Subcommittee Chairman Sam 

Johnson, (R–TX) introduced H.R. 525 on February 2, 2005 along 

with 53 bipartisan original cosponsors including Education and the 

Workforce Committee Chairman John Boehner; the number of bipartisan cosponsors rose to 121 by the time the bill was reported 

by the Committee to the full House of Representatives. The bill is 

the culmination of legislative activity started by the Committee in 

the 104th Congress through the present 109th Congress. 

104TH CONGRESS

The Subcommittee on Employer-Employee Relations held an 

oversight hearing entitled ‘‘Health Insurance Reform—The ERISA 

Title I Framework: A 20-Year Success Story’’ on February 14, 1995. 

Testimony was received from: Representative Pat Williams; Former 

Representative John Erlenborn; Frank Cummings, Esq., LeBoeuf, 

Lamb, Greene & MacRae; Randal Johnson, Director of Benefits 

Planning, Motorola, Inc.; Ralph Brennan, President, Mr. B.’s Inc.; 

William Goodrich, President, United Agribusiness League; and 

Brian Atchinson, Vice President, National Association of Insurance 

Commissioners, Superintendent, Bureau of Insurance, State of 

Maine. 

On February 21, 1995, H.R. 995, the ERISA Targeted Health Insurance Reform Act was introduced by then Chairman of the Subcommittee on Employer-Employee Relations, Representative Harris 

Fawell with 15 original cosponsors. The Subcommittee on Employer-Employee Relations held a hearing on this bill on March 10, 

1995. Witnesses at the hearing were: Jack Faris, President, National Federation of Independent Business; Jerry Jasinowski, President, National Association of Manufacturers; Sean Sullivan, President and CEO, National Business Coalition on Health; Timothy 

Flaherty, American Medical Association; Charles Masten, Inspector 

General, Department of Labor; Gerald McGeehan, Graphic Arts 

Benefits Corp; Kala Ladenheim, Intergovernmental Health Policy 

Project, George Washington University; and Judith Waxman, Director of Government Affairs of Families, USA. A second hearing 

was held on H.R. 995 on March 28, 1995. Testimony was presented 

by: Richard Lesher, President, U.S. Chamber of Commerce; Keith 

Richman, President, Medco Associates, Inc.; Jon Reiker, Vice President, Benefits, General Mills Restaurants, Inc.; Frank Cummings, 

Esq., LeBoeuf, Lamb, Greene & MacRae; and Lee Douglas, Insurance Commissioner of Arkansas, President, National Association of 

Insurance Commissioners. 

The Committee on Economic and Educational Opportunities (the 

previous name of the Committee on Education and the Workforce) 

on March 6, 1996 discharged H.R. 995 from the Subcommittee on 

Employer-Employee Relations, approved H.R. 995 as amended by 

voice vote, and, by a rollcall vote of 24 ayes to 18 nays, ordered the 

bill favorably reported to the House of Representatives. However, 

the bill was not considered by the House before the conclusion of 

the 104th Congress. 

3 

105TH CONGRESS

On May 1, 1997, H.R. 1515, the Expansion of Portability and 

Health Insurance Coverage Act of 1997 (‘‘EPHIC’’) was introduced 

by Representative Harris Fawell with 136 bipartisan original cosponsors. 

The Subcommittee on Employer-Employee Relations held a legislative hearing on H.R. 1515 on May 8, 1997. Testimony was received from: Representative James P. Moran (D–VA,); Jack Faris, 

President and CEO, National Federation of Independent Business; 

Mary Castro, Vice President, Employee Benefits, Independent Grocers Alliance, Inc.; Cathy Hurwit, Deputy Director, Citizen Action; 

Kathleen Sebelius, Commissioner of Insurance, State of Kansas; 

Donald Dressler, President of Insurance Services, Western Growers 

Association, on behalf of The Association Healthcare Coalition; and 

Jeffrey H. Joseph, Vice President, Domestic Policy, U.S. Chamber 

of Commerce. 

On June 11, 1997, the Committee on Education and the Workforce discharged H.R. 1515 from the Subcommittee on EmployerEmployee Relations. The full Committee approved the bill as 

amended on a voice vote and by a vote of 24 ayes to 20 nays ordered the bill favorably reported, and: (a) incorporated into subtitle 

D of the reconciliation package transmitted to the Budget Committee; and (b) reported as amended to the House of Representatives. The bill became part of H.R. 2015, the Balanced Budget Act 

of 1997, which passed the House of Representatives on June 25, 

1967 on a vote of 270 yeas to 162 nays; however, association health 

plan provisions were deleted during House/Senate conference on 

the bill. A version of the association health plan provisions of the 

bill was then incorporated into H.R. 4250, the Patient Protection 

Act of 1998, which was introduced by Representative Newt Gingrich, then Speaker of the House of Representatives, on July 16, 

1998. On July 24, 1998, the House of Representatives passed the 

bill, including a version of the provisions of H.R. 1515, by a vote 

of 216 yeas to 210 nays. On October 9, 1998, the Senate tabled consideration of the measure by a vote of 50 yeas to 47 nays. 

106TH CONGRESS

On March 25, 1999, the Subcommittee on Employer-Employee 

Relations held a hearing on ‘‘Expanding Affordable Health Care 

Coverage: Benefits and Consequences of Association Health Plans.’’

Witnesses at the hearing were: Ms. Mary Nell Lehnhard, Senior 

Vice President Policy and Representation, BlueCross BlueShield 

Association, Washington, DC; Ms. Victoria Caldeira, Manager of 

Legislation Affairs, National Federation of Independent Business, 

Washington, DC; Mr. Donald G. Dressler, CAE President for Insurance Services, Western Growers Association, Newport Beach, CA; 

and Mr. Steven B. Larsen, Commissioner of Insurance State of 

Maryland, Baltimore, MD, testifying on behalf of the National Association of Insurance Commissioners. 

On April 20, 1999, Representative Jim Talent (R–MO) introduced 

H.R. 1496, the Small Business Access and Choice for Entrepreneurs Act of 1999 with 13 bipartisan original cosponsors. H.R. 

1496 was incorporated into H.R. 2990, a broader health care reform 

package introduced by Representative Talent on September 30, 

4 

1999. H.R. 1496 passed the House of Representatives on a vote of 

227 yeas to 205 nays on October 6, 1999. After Senate passage of 

a similar bill, S. 1344, a House-Senate conference did not reach 

agreement before the end of the 106th Congress. 

107TH CONGRESS

Representative Ernie Fletcher (R–KY) introduced H.R. 1774, the 

Small Business Health Fairness Act of 2001, on May 9, 2001 with 

46 bipartisan original cosponsors. 

On July 19, 2001, Representative Greg Ganske (R–IA) introduced 

H.R. 2563, a broad health care reform package. During the House 

of Representatives consideration of H.R. 2563, an amendment to include the provisions was adopted on a vote of 236–194. H.R. 2563 

passed the House on August 2, 2001, by a vote of 226 ayes to 203 

nays. The bill was not taken up by the Senate before the conclusion 

of the 107th Congress. 

On June 18, 2002, the Subcommittee on Employer-Employee Relations held a hearing on ‘‘The Rising Cost of Health Care: How are 

Employers and Employees Responding?’’ Witnesses at the hearing 

were: Dr. Paul Ginsburg, President, Center for Studying Health 

System Change, Washington, DC; Ms. S. Catherine Longley, Commissioner, Maine Department of Professional and Financial Regulation, Augusta, ME; Dr. Henry Simmons, President, National Coalition on Health Care, Washington, DC; Mr. Patrick McGinnis, 

CEO, Trover Solutions, Louisville, KY; Ms. Carol Miller, Frontier 

Education Center, Santa Fe, NM; and Ms. Cathy A. Streker, Director of Employee Benefits and Planning, Textron, Inc., Providence, 

RI. 

On July 9, 2002, the Subcommittee on Employer-Employee Relations held a hearing entitled ‘‘Expanding Access to Quality Health 

Care: Solutions for Uninsured Americans.’’ Testimony at the hearing was received from: Representative Ernie Fletcher (R–KY) and 

Representative John Tierney (D–MA); Dr. Mark B. McClellan, 

Member, Council of Economic Advisors, Washington, DC; Mr. 

Harry Kraemer, Jr., Chairman and Chief Executive Officer, Baxter 

International Inc., Deerfield, IL, testifying on behalf of The 

Healthcare Leadership Council; Mr. Joseph Rossman, Vice President of Fringe Benefits, Associated Builders and Contractors, 

Rosslyn, VA, testifying on behalf of the Association Health Plan Coalition; and Mr. Ron Pollack, Executive Director, Families USA, 

Washington, DC. 

108TH CONGRESS

On February 11, 2003, Rep. Ernie Fletcher introduced H.R. 660, 

the ‘‘Small Business Health Fairness Act of 2003’’ with 70 bipartisan original cosponsors. The Subcommittee on Employer-Employee Relations held a hearing on H.R. 660 on March 13, 2003. 

Witnesses at the hearing presenting testimony were: the Honorable 

Ann L. Combs, Assistant Secretary of Labor, Employee Benefits Security Administration, Washington, DC; Ms. Phyllis Burlage, 

Burlage Associates, PA, Millersville, MD, testifying on behalf of the 

National Federation of Independent Business; Alice Weiss, Esq., 

Director of Health Policy, National Partnership for Families, Washington, DC; and Mr. Greg Scandlen, Director, Center for Consumer 

Driven Health Care, The Galen Institute, Alexandria, VA. 

5 

The Subcommittee on Employer-Employee Relations reported 

H.R. 660 by a bipartisan vote of 13 yeas to 8 nays on April 8, 2003. 

On June 12, 2003, the Committee on Education and the Workforce 

ordered H.R. 660, as amended, reported to the House of Representatives by a vote of 26–21. On June 19, 2003 the House of Representatives passed H.R. 660 by a vote of 262–162. On May 15, 

2004, to reiterate its commitment to helping the uninsured, the 

House passed identical legislation, H.R. 4281. Neither bill was enacted into law before the end of the 108th Congress. 

109TH CONGRESS

On February 2, 2005, Employer-Employee Relations Subcommittee Chairman Sam Johnson (R–TX) introduced H.R. 525, 

the Small Business Health Fairness Act, along with 53 bipartisan 

original cosponsors, including Education and the Workforce Committee Chairman John Boehner, and Representatives Nydia Velazquez (D–NY) and Albert Wynn (D–MD). On March 16, 2005, the 

Committee on Education and the Workforce ordered H.R. 525, 

without amendment, favorably reported to the House of Representatives by a vote of 25–22. 

SUMMARY

The Small Business Health Fairness Act addresses both the access and cost issues at the heart of the health care reform debate. 

The bill, introduced by a bipartisan group of legislators led by Employer-Employee Relations Subcommittee Chairman Sam Johnson 

(R–TX), Education and Workforce Committee Chairman John 

Boehner (R–OH), and Representatives Nydia Velazquez (D–NY) 

and Albert Wynn (D–MD), would improve access to quality health 

care for uninsured families. Specifically, it would authorize the creation of association health plans (‘‘AHPs’’) to allow small businesses 

to join together through bona fide trade associations to purchase 

health insurance for their workers at a lower cost. The measure 

would increase small businesses’ bargaining power with health care 

providers, give them freedom from costly state-mandated benefit 

packages, and lower their overhead costs by as much as 30 percent—benefits that many large corporations and unions already 

enjoy because of their larger economies of scale. 

The bill has 129 cosponsors, including House Majority Leader 

Tom DeLay (R–TX), House Majority Whip Roy Blunt (R–MO), 

House Republican Conference Chairwoman Deborah Pryce (R–OH), 

Small Business Committee Chairman Don Manzullo (R–IL), Representatives Ed Case (D–HI) and Jim Cooper (D–TN). A broad and 

diverse coalition of more than 100 groups has endorsed the bill, including the U.S. Chamber of Commerce, the National Federation of 

Independent Business, the American Farm Bureau Federation, the 

Associated Builders and Contractors, the Latino Coalition, the National Black Chamber of Commerce, the National Association of 

Women Business Owners, and the National Restaurant Association. On February 16, 2005, Sen. Olympia Snowe (R–ME) introduced companion legislation in the United States Senate (S. 406). 

The bill establishes that an AHP is a group health plan that offers fully-insured and/or self-insured medical benefits, has been 

certified by the Labor Department, and is operated by a board of 

6 

trustees with complete fiscal control and responsibility for all operations. The association sponsoring the plan must have been in existence for at least three years for substantial purposes other than 

providing health insurance coverage. 

To be certified by the Labor Department, a ‘‘self-insured’’ AHP 

must have at least 1,000 participants and beneficiaries. The selfinsured AHP must have also offered benefits coverage on the date 

of enactment, represent a broad cross-section of industry trades, or 

represent one or more industry trades with average or above health 

insurance risk. 

The bill requires all employers participating in the AHP to be 

members or affiliated members of the sponsor. All individuals 

under the plan must be active or retired employees, owners, officers, directors, partners, or their beneficiaries. 

The measure expressly prohibits discrimination by requiring that 

all employers that are association members are eligible for participation, all geographically available coverage options are made 

available upon request to eligible employers, and eligible individuals cannot be excluded from enrolling because of health status. 

The bill prohibits AHPs from charging higher rates for sicker individuals or groups within the plan, except to the extent already allowed under the relevant state rating law. 

H.R. 525 makes clear that AHPs must comply with the Health 

Insurance Portability and Accountability Act (HIPAA), which prohibits group health plans from excluding high-risk individuals with 

high claims experience. Thus, it will not be possible for AHPs to 

‘‘cherry pick’’ because sick or high risk groups or individuals cannot 

be denied coverage. As an additional protection, state-licensed 

health insurance agents must be used to distribute health insurance coverage provided to small employers under an AHP and 

must also be used to distribute self-insured benefits to small employers through an AHP. 

The bill includes solvency standards that are similar to or stronger than standards enacted by states for association plans. These 

new solvency protections go far beyond what is required of single 

employer and labor union plans under current law. H.R. 525 requires self-insured AHPs to maintain reserves that are sufficient 

for unearned contributions, benefit liabilities, expected administrative costs, and any other obligations. A qualified actuary who is a 

member of the American Academy of Actuaries must recommend 

these reserve levels. 

AHPs must also obtain aggregate and specific stop-loss insurance 

and indemnification insurance for any claims if the plan is terminated; they must also make annual payments to an Association 

Health Plan Fund. In addition, an AHP must maintain surplus reserves of between $500,000 and $2 million. If an AHP is unable to 

provide benefits when due or is otherwise in a financially troubled 

condition, the Secretary of Labor must act as a trustee to administer the plan for the duration of the insolvency. A certified AHP 

may terminate only if the trustees provide 60 days advance written 

notice to participants and beneficiaries and submit a plan for timely payment of all benefit obligations. The measure establishes a 

Solvency Standards Working Group within 90 days after enactment 

to recommend initial regulations. 

7 

1 29 U.S.C. § 1001, et seq. 2 29 U.S.C. § 1001(a). 

The bill gives certified AHPs freedom from costly state-mandated 

benefit packages by exempting them from state benefit mandates, 

except that AHPs must comply with any state laws that require 

coverage of specific diseases. The measure clarifies that states may 

regulate self-insured multiple employer welfare arrangements providing medical care which do not elect to meet the certification requirements for AHPs. 

H.R. 525 requires the Labor Secretary to consult with the states 

about the regulation of AHPs located in their state. It establishes 

criminal penalties for willful misrepresentation as a certified AHP 

or collectively bargained status; authorizes the Department of 

Labor to issue cease activity orders against fraudulent health 

plans; and outlines the responsibility of the board of trustees for 

meeting required claims procedures. The Labor Secretary must report to Congress no later than January 1, 2008, on the impact of 

AHPs on reducing the number of uninsured. 

COMMITTEE STATEMENT AND VIEWS

A. BACKGROUND AND NEED FOR LEGISLATION

Strengths of our nation’s employer-provided health care system 

When the Employee Retirement Income Security Act (ERISA) 1

was enacted in 1974, the Congress found that employee benefit 

plans, including employer provided health benefits, directly impacted the continued well being and security of millions of employees and their dependents.2 The well being of these workers and 

their families was of such national importance that Congress, 

through the enactment of ERISA, preempted the states’ regulatory 

role in order to assure uniform federal standards. It is the belief 

of the Committee on Education and the Workforce (hereinafter the 

‘‘Committee’’), that the ability to utilize uniform standards is the 

cornerstone of our nation’s successful employer-provided health 

care system. 

When Congress enacted ERISA, much of the dialogue about employer-sponsored benefits pertained to pension plans. Today, more 

than 131 million Americans obtain their health insurance coverage 

through an employer-sponsored health plan covered under ERISA. 

This means that more Americans receive health benefits voluntarily provided by their employer than any other form of health 

care insurance, including Medicare and Medicaid. 

The Committee believes our nation’s employer-provided health 

care system to be an enormous success story. Indeed, the Committee views its task with regard to this system to be to protect it 

from federal proscriptions, such as increased federal mandates, 

that cause the provision of health care insurance to become more 

costly, thereby making it more difficult for employers to offer 

health coverage to their employees. It is the view of the Committee 

that ERISA’s preemption of state mandates and regulation has provided a stable framework by which employers have been able to 

offer health plans to workers and their families. 

An April 2002 study by PriceWaterhouseCoopers notes that state 

mandates have increased 25-fold over the time period from 1970–

8 

3PriceWaterhouseCoopers, The Factors Fueling Rising Health Care Costs, April 2002. 

4Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724 (1985). 

5 29 U.S.C. § 1144(b)(2)(A). 6 29 U.S.C. § 1144(b)(2)(B). 7PriceWaterhouseCoopers, The Factors Fueling Rising Health Care Costs, April 2002. 

8 US GAO ‘‘Health Insurance Regulation—Varying State Requirements Affect Cost of Insurance,’’ August 1996. 9 Robert Wood Johnson Foundation, ‘‘Are Health Insurance Premiums Higher for Small 

Firms?’’ September 2002. 

1996.3 Thus, during the three decades since ERISA was enacted, 

self-insured employers offering health plans would have seen their 

regulatory and administrative burden increase accordingly, were it 

not for ERISA’s preemption. 

Under ERISA, employers and unions offering health insurance 

products to their employees must comply with state regulation for 

these health policies. This is the result of the Supreme Court’s ruling in Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 

724 (1985). In that decision, the court held that if an employer’s 

health plan purchases a fully insured product offered by an insurer 

regulated by the states, then such insurance regulation may include imposing requirements that specific benefits be included in 

the products sold to the plan.4 These state laws then fall within the 

jurisdiction of Section 514(b)(2)(A) of ERISA, which saves any law 

of any state that regulates insurance from being preempted by 

ERISA.5

However, when an employer or union self-funds the health benefits it provides to workers (i.e. taking on the risk of insurable 

events), ERISA ensures that the employer or union cannot be 

deemed to be in the business of insurance.6

Thus, those employers and unions who self-fund or self-insure 

their benefits are able to take advantage of ERISA’s preemption of 

state regulation to offer a uniform health benefit package that can 

be offered to individuals across state lines. Approximately 67 million of the 131 million Americans who obtain health insurance from 

their employer receive benefits through a self-funded plan. 

The preemption of state benefit mandates serves employers, 

unions, and employees well. PriceWaterhouseCoopers estimates 

that the 1500 state benefit mandates make up 15 percent of the increased cost of health insurance for 2002.7 These costs may well 

price many employers out of the business of offering insurance 

were it not for the opportunity to self-fund their health care under 

ERISA. 

However, rather than use the preemption of state benefit mandates to offer inferior health care to workers, unions and self-insured large employers offer rich benefit packages to their workers. 

As cited in a 1996 GAO report, a KPMG study found that self-funded plans are more likely to offer benefits and services that are most 

commonly mandated by states than fully insured plans.8 This pattern holds true for other benefits that are not typically mandated. 

Uniformity also provides for lower administrative costs. A 2002 

Robert Wood Johnson Research Synthesis Report cites the fact that 

administrative costs make up only 12 percent of health care costs 

for large employers. This is compared to the administrative costs 

for smaller employers that make up 40 percent of overall health 

costs.9

Employees surveyed about their health benefits conclude in wide 

majorities that they are pleased with their employer-sponsored covVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00008 Fmt 6659 Sfmt 6602 E:\HR\OC\HR041.XXX HR041
9 

10 2002 Health Confidence Survey, September 2002; Kaiser Family Foundation/Harvard School 

of Public Health, ‘‘National Survey on Consumer Experiences With and Attitudes Toward 

Health Plans: Key Findings,’’ August, 2001. 11 Hearing on ‘‘The Rising Costs of Health Care: How are Employers and Employees Responding?’’ before the Subcommittee on Employer-Employee Relations, Committee on Education and 

the Workforce, U.S. House of Representatives, 107th Congress, Second Session, June 18, 2002. 12 Id. 

erage and that they are not willing to risk losing this coverage in 

order to obtain additional mandated benefits.10 While the Committee views the history of employer-sponsored health benefits 

since the enactment of ERISA as a success story, the Committee 

acknowledges that the employer sponsored health care system 

faces challenges. In particular, the Committee is concerned about 

the issue of rising health care costs and the extent to which these 

health care costs result in less coverage. 

Challenges to employer-provided health care 

At a hearing before the Subcommittee on Employer-Employee 

Relations in June of 2002, Paul Ginsburg, President of the Center 

for Studying Health System Change, testified about the threat rising health costs pose to the employer-sponsored health care system: 

Rising health costs affect people’s ability to afford health 

insurance. When insurance premiums rise faster than 

workers’ wages, fewer people obtain employment-based 

health insurance. This happens through small employers 

deciding not to provide coverage to their employees and 

employees deciding not to take up employer coverage because the employee contribution is too high. If health care 

costs trends continue to exceed increases in wage rates by 

a large margin, this could result in substantial loss of employer-based health insurance.11

Catherine Longley, then Commissioner of Professional and Financial Regulation for the state of Maine, agreed with Ginsburg’s 

testimony and shared these insights about the situation Maine employers face: 

In the State of Maine, we are facing a health care cost 

crisis. Although health care costs have increased dramatically across the country, they have increased even faster in 

Maine. Nationally, from 1990–1998, the per capital expenditures for personal health care increased an average 

of 53.3 percent; in Maine, the increase was 80.4 percent for 

the same period of time * * * Maine employers are faced 

with difficult choices—do they continue existing policies at 

a significant increase in cost and shift more of the cost of 

the health insurance to employees; do they retain coverage 

but offer higher deductible policies; do they forego increasing employee salaries to maintain coverage; or do they 

drop coverage altogether? 12

Commissioner Longley also testified that the State of Maine and 

Independent Governor Angus King had recognized that state imposed benefit mandates impose significant costs on employers and 

took dramatic steps to address this: 

For example, in 1995, Governor King signed a progressive mental health parity law that required health insurVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\HR041.XXX HR041
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13 Id. 14Kaiser Family Foundation, Employer Health Benefits 2004 Annual Survey, September 

2004. 15Medical Expenditure Panel Survey from Agency for Healthcare Research and Quality, as 

cited by NovaRest Consulting, ‘‘New York State Mandated Health Insurance Benefits,’’ May 

2003. 

ance coverage for 7 specific biologically based mental illnesses in policies held by employer groups of 20 or more. 

Since that time, the King Administration has grown more 

and more concerned about the dramatic increases in 

health care costs and effect of public policy on those increases. As a result, in 2002 the Administration adopted a 

presumption against further mandates, which only the 

most compelling of arguments should overturn. Given the 

circumstances this year, Governor King felt that he could 

no longer support additional mandates and accordingly, vetoed LD 1627, ‘‘An Act to Ensure Equality in Mental 

Health Coverage,’’ the only health insurance mandate vetoed during his nearly eight years as governor * * * it was 

felt that Maine could ill afford any new mandate that 

would further increase costs. As Governor King stated in 

his April 11, 2002 veto message to the Maine Legislature, 

‘‘When you are in a hole, the first rule is not to dig any 

deeper.’’ 13

While some states have taken steps to slow the growth in health 

insurance costs, the Committee recognizes that in order to truly be 

effective Congress must past measures such as Association Health 

Plans. According to the 2004 Annual Employer Health Benefits 

Survey released by the Kaiser Family Foundation and Health Research and Educational Trust (HRET) the cost of providing health 

insurance increased by 11.2 percent for the average employer; the 

fourth straight year of double digit increases.14 Though 2005 premium increases have not yet been released, experts expect the increase to once again be in the double digits. 

Challenges to small employers 

Nowhere is the threat to employer-sponsored health care more 

apparent than in the situation regarding small businesses. For 

those small employers who can afford health insurance for their 

employees, a fully insured plan is often their only available option. 

The net effect of the Metropolitan Life decision has been to subject 

these smaller employers that fully insure to the burdens of costly 

state mandates, thereby making health insurance for their employees even less affordable than it is for larger employers who are not 

subject to state mandates. 

Because of their size and limited resources, self-insuring is not 

a viable option for most small firms, and thus they must purchase 

fully insured health products that are subject to state benefit mandates. In fact, firms with fewer than 100 employees offered self-insured plans at just 11 percent of all work sites in 2000.15 This 

means that small firms bear the entire state regulatory burden—

and the increased costs that accompany it—that their larger employer and union counterparts are able to avoid. 

Small businesses also suffer from greater variability in claims 

costs. In a firm with very few employees, a sick employee will have 

11 

16 Hearing on ‘‘Expanding Access to Quality Health Care: Solutions for Uninsured Americans’’

Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, 

U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002. 17 Id. 18 Hearing on ‘‘H.R. 660, the Small Business Health Fairness Act, Subcommittee on EmployerEmployee Relations,’’ Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, First Session, March 13, 2003. 

a greater impact on health care premiums, and these rising premiums sometimes price these firms out of insurance altogether. By 

contrast, in a firm with a large number of employees, a sick employee will not have a great impact on premiums and will not cause 

premiums to rise significantly. 

In July of 2002, the Subcommittee on Employer-Employee Relations held a hearing on the problem of the uninsured. At the hearing, Joe Rossmann, Vice President of Fringe Benefits, Associated 

Builders and Contractors (ABC), testified as to the increases in 

costs that ABC’s member companies, most of which are smaller employers, were experiencing: 

For example, in Houston, Texas, Acoustical Concepts, 

Inc. was forced to accept a premium increase of 47% this 

year, even though they had no significant claims. Moreover, their insurance company, Blue Cross/Blue Shield, has 

informed them that in 1–2 years, the 87 employees at this 

company will be offered only catastrophic coverage.16

Mr. Rossmann went on to say that, ‘‘Indeed, massive premium 

increases of 40 percent, 50 percent and higher, and/or benefit reductions, are typical of what small businesses throughout the nation are experiencing today.’’ 17

At a later hearing on the Small Business Health Fairness Act, 

Phyllis Burlage, President, Burlage Associates, shared her experience: 

My rate hike this year is 45% with our health maintenance organization (HMO). This is real money since I absorb all the cost increases for my employees. Since 1996, 

my company has experienced a 226% increase in premiums—how can any business survive with these types of 

increases over just a few years? 18

There is ample evidence to indicate that small employers face 

greater challenges than larger employers or unions in providing 

health coverage, thus putting workers in small businesses at a 

greater risk of being uninsured. 

High costs for small employers means workers in small businesses 

are uninsured 

The increase in costs for small employers means that workers in 

small businesses are not offered health care insurance or are at 

risk of losing their health insurance. According to figures released 

by the U.S. Census Bureau in August 2004, the number of Americans who have no health insurance had increased to more than 45 

million by 2003. Declining coverage in the employer based market 

accounts for the increase in the uninsured. Significantly, the reduction in employer-sponsored coverage comes almost totally from a 

12 

19 U.S. Census Bureau, ‘‘Income, Poverty, and Health Insurance Coverage in the United 

States: 2003,’’ August 2004. 20Department of Labor estimates of working families’ health insurance status, based on the 

Census Bureau’s annual March Current Population Survey. 21Testimony of Harry M.J. Kraemer, Jr., Chairman and CEO, Baxter International, Inc., on 

behalf of the Healthcare Leadership Council, at Subcommittee on Employer-Employee Relations 

Hearing on ‘‘Expanding Access to Quality Health Care: Solutions for Uninsured Americans,’’ Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, 

Second Session, July 9, 2002 (Serial No. 107–69). 22 Hearing on ‘‘H.R. 660, the Small Business Health Fairness Act,’’ Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, First Session, March 13, 2003 (Serial No. 108–10). 

decrease in the number of individuals covered by small employers.19

Over 50 percent of the 45 million uninsured Americans either 

work in a small business or are a dependent of a small business 

worker.20 The cost of insurance is the most significant barrier to 

insurance coverage for workers and their families.21

Indeed, the cost of health coverage is the most important factor 

employers cite in their decision whether to offer health care to 

their employees and their families. A 1997 survey by the Henry J. 

Kaiser Family Foundation indicated that small firms are extremely 

price sensitive. This survey found that even a 5 percent decrease 

in price would result in a 10 to 15 percent increase in the likelihood of a small firm purchasing a plan. 

Hearing testimony from Ann L. Combs, Assistant Secretary of 

the Employee Benefits Security Administration, U.S. Department 

of Labor, explained some of the barriers to coverage that small 

firms face: 

Cost is clearly the biggest barrier for small employers 

that want to provide health insurance. For a variety of 

reasons, insurers typically charge small firms more per 

employee than large firms for comparable coverage. Small 

company premiums are 20 percent to 30 percent higher 

than those of large self-insured companies with similar 

claims per covered employee. Cost drivers include small 

businesses administrative overhead, insurance company 

marketing and underwriting expenses, adverse selection, 

and state regulatory burdens. Small firms are likely to 

offer less generous benefits and more of their premiums 

are consumed by administrative costs.22

Though the primary barrier to health coverage for small businesses is cost, other factors also deter small firms from offering 

coverage. Testimony from Harry M.J. Kraemer, Jr., Chairman and 

CEO, Baxter International, Inc., on behalf of the Healthcare Leadership Council, provided additional reasons that small firms are 

less likely to offer health care coverage: 

In an April 2002 survey by the Kaiser Family Foundation, over one third of small businesses not offering coverage said that administrative hassle was a very important reason * * * A 2000 focus group of the California 

Health Care Foundation found that a lack of unbiased, 

easily understood information on health insurance was a 

major barrier in acquiring coverage. Many small business 

owners do not fully understand the health insurance market and are skeptical of information from insurance comVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00012 Fmt 6659 Sfmt 6602 E:\HR\OC\HR041.XXX HR041
13 

23Subcommittee on Employer-Employee Relations Hearing on ‘‘Expanding Access to Quality 

Health Care: Solutions for Uninsured Americans’’ Committee on Education and the Workforce, 

U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002 (Serial No. 107– 69). 24 Id. 

panies, the focus group report stated. This lack of credible 

information could be leading to inaction on the part of employers * * * An EBRI [Employee Benefit Research Institute] 2000 Small Employer Health Benefits Survey found 

that many small employers make decisions about whether 

to offer health benefits to their workers without being fully 

aware of the tax advantages that can make this benefit 

more affordable. This survey found that 57 percent of 

small employers do not know that health insurance premiums are 100 percent tax deductible.23

These factors, administrative costs, necessity of information 

about health insurance, and tax structure, are easily borne by larger employers. Taken together, however, they add to the difficulties 

that small employers face in offering health care coverage to their 

employees. 

Solutions for our Nation’s uninsured—the Small Business Health 

Fairness Act, H.R. 525 

It is the strong belief of the Committee that solutions to the 

growing problem of the uninsured, particularly in small businesses, 

can only be found by utilizing the strengths of the employer-based 

health care system. Harry Kraemer’s testimony puts it this way: 

In all of our research, the single most important point 

that cannot be ignored is that the uninsured issue is a 

workplace issue, with millions of wage-earning households 

representing the lion’s share of the uninsured population. 

It then stands to reason that our most effective solutions 

must be found within the existing private employer-based 

health care system.24

The Committee believes that if smaller employers were able to 

band together to become larger purchasers of health insurance, 

that this would give small businesses greater economies of scale, 

allowing them to bargain for health insurance with the clout of 

much larger businesses. In addition, if small businesses were able 

to self-fund their health plans, they would be relieved from the regulatory burden of state mandated benefit laws. The Committee believes that these two factors would combine to significantly lower 

the costs of health insurance, making it possible for very small 

firms to offer insurance. 

The Small Business Health Fairness Act would allow small businesses to join together under the umbrella of bona fide trade associations to become larger purchasers of health insurance. In addition, AHPs make it possible for small employers to self-insure, 

thereby avoiding costly state benefit mandates. The Committee expects that this will lower costs for small employers by 15–30 percent, making it possible for small firms to offer health insurance 

to workers and their families, many of whom are uninsured. Because of this, the Committee expects that AHPs will reduce the 

number of the uninsured by millions. 

14 

25Debate on H.R. 2, the Welfare and Pension Plans Disclosure Act, U.S. House of Representatives, February 27, 1974. 26 Hearing on ‘‘H.R. 660, the Small Business Health Fairness Act,’’ Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, First Session, March 13, 2003 (Serial No. 107–51). 

It is the strong belief of the Committee that Congress can not afford to wait any longer to provide access to health care to our nation’s uninsured, particularly those employed by small businesses. 

Benefits of association health plans 

The preemption of state mandates is an integral aspect of 

ERISA. Because most small employers do not have the resources 

to take on the risk of self-insurance, they have been foreclosed from 

ERISA’s federal preemption, and are held captive instead to the 

states’ regulation of fully insured health products. Thus, small employers are not on a level playing field with large employers and 

unions. 

Representative Bill Archer (R–TX) predicted this dynamic at 

ERISA’s passage: 

I think it is interesting to note that here we are trying 

to permit small employers to compete with big business, 

and that this * * * will have just the reverse effect; the 

large corporations and the unions have been basically excepted by this bill. But the small employer * * * will no 

longer be able to compete, in many instances, with the big 

corporations.25

AHPs will solve many of these problems for small employers. 

Testimony from Ann L. Combs, Assistant Secretary for the Employee Benefits Security Administration, U.S. Department of Labor, 

at a March 2003 Subcommittee on Employer-Employee Relations 

hearing on H.R. 660, discussed the benefits of AHPs for small businesses: 

In an AHP, the current market and financial barriers 

that face small businesses would be reduced or eliminated. 

Small businesses would enjoy greater bargaining power, 

economies of scale, administrative efficiencies, and the 

benefits of a uniform regulatory structure, giving them 

more access to affordable coverage.26

Joe Rossmann, Vice President of Fringe Benefits, Associated 

Builders and Contractors (ABC), described the experience of the association health plan offered by ABC before it was forced to discontinue its health coverage due to overlapping, inconsistent and 

incompatible state laws: 

We estimate that AHPs * * * can reduce the cost of 

health benefits by 15–30 percent for small business workers. We know this because association plans have already 

proven they can deliver savings compared with the cost of 

small employers purchasing directly from an insurance 

company. For example, the AHP sponsored by ABC for 

more than 40 years, which operated nationally, had total 

administrative expenses of 131⁄2 cents (13.5 percent) for 

every dollar of premium. These costs included all marketing, administration, insurance company risk, claim payVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00014 Fmt 6659 Sfmt 6602 E:\HR\OC\HR041.XXX HR041
15 

27Subcommittee on Employer-Employee Relations Hearing on ‘‘Expanding Access to Quality 

Health Care: Solutions for Uninsured Americans’’ Committee on Education and the Workforce, 

U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002 (Serial No. 107–

69). 28The statute expressly excludes from the MEWA definition plans or other arrangements 

which are established or maintained—(i) under or pursuant to one or more agreements which 

the Secretary (of Labor) finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association. The Department issued a regulation 

establishing standards and procedures for determinations as to whether a plan or other arrangement would be treated as established or maintained under or pursuant to one or more collective 

bargaining agreements for purposes of the above noted exception under ERISA section 

3(40)(A)(i). See 20 CFR 2510.3–40. 

ment expenses and state premium taxes. Alternatively, 

small employers who purchase coverage directly from an 

insurance company can experience total expenses of 25 to 

35 cents (25–35 percent) for every dollar of premium.27

By utilizing the time-tested feature of federal preemption contained in ERISA, AHPs build upon the successes produced by private sector innovation and market competition. Rather than creating a new federal law, H.R. 525 builds on the current successful 

ERISA framework upon which plan sponsors have relied for almost 

thirty years. The enactment of AHP legislation would put the nation well on its way to closing the gap in health insurance coverage 

by offering millions of uninsured workers, their spouses and their 

children, the opportunity to access more affordable health coverage. 

Unfortunately, the smallest employers have not shared in the advantages of ERISA. AHPs build on ERISA to give smaller employers the same economies of scale and freedom to offer affordable coverage that larger employers and unions enjoy. In short, the bill 

clears the way for market forces to bring small employers costs 

down. 

Why current ERISA law needs changes to clarify the status of association health plans under federal and state law 

Allowing small employers to join together to form multiple employer plans is the most efficient means to deliver affordable health 

coverage to employees, particularly for smaller employers and employees who work in industries with high job mobility or above-average insurance risk. However, current law has not achieved the 

twin goals of preserving self-insurance as an option for multiple 

employer plans of legitimate business and industry associations 

while keeping ‘‘bogus unions’’ and fraudulent insurance schemes 

from using ERISA’s federal preemption clause as a shield against 

state regulation of their abusive health insurance practices. 

Under ERISA, a multiple employer welfare arrangement 

(MEWA) is defined as a plan or other ‘‘non-plan’’ arrangement established to offer or provide ERISA welfare benefits (e.g., health 

benefits) to the employees of two or more employers.28 Under current law, the breadth of this definition should be read to sweep in 

the following types of entities: (1) large employer plans that include 

employees of entities outside the ‘‘control group’’ of the employer; 

(2) ‘‘church plans’’ and governmental plans currently exempt from 

ERISA; (3) multiple employer entities, such as those maintained by 

legitimate trade, industry and professional associations, which 

meet the definition under ERISA of an ‘‘employee benefit plan’’; 

16 

29 29 U.S.C. § 1003(40). 30This concept is incorporated in ERISA section 514 as the so-called ‘‘deemer clause’’ prohibiting states from deeming ERISA plans to be an insurance company or engaged in the business 

of insurance for purposes of any state law purporting to regulate insurance. 29 U.S.C. 

§ 1144(b)(2)(B). 

31 29 U.S.C. § 1144. 

and (4) other multiple employer welfare arrangements which do not 

meet the definition under ERISA of an ‘‘employee benefit plan.’’ 29

In general, ERISA’s federal preemption provisions allow states to 

regulate insurance products that employee benefit plans purchase, 

but preclude states from applying state insurance law directly to 

ERISA-covered employee benefit plans.30 As originally enacted, this 

broad preemption included self-insured multiple employer which 

met ERISA’s definition of ‘‘employee benefit plan.’’ Unfortunately, illegitimate schemes (which did not rise to the 

level of ERISA ‘‘employee benefit plans’’) promoted by ‘‘bogus 

unions’’ and others (known as MEWAs) were able to delay and 

thwart legitimate state enforcement efforts by claiming ERISA preemption. To remedy this, ERISA was amended in 1983 in an attempt to clarify the ability of states to regulate the non-ERISAplan entities as well as legitimate self-insured ERISA multiple employer plans (but the regulation by the states of the latter was conditional, i.e., regulation is permitted only ‘‘to the extent not inconsistent with the provisions’’ * * * of ERISA Title I).31 This later 

clause was intended to facilitate state regulation of all self-insured 

benefit arrangements by allowing responsible state regulation of 

self-insured multiple employer ERISA plans. It was not expected 

that states would use this authority to terminate legitimate self-insured plans solely because they were not licensed under state laws 

designed to regulate commercial insurance companies. 

Unfortunately, the 1983 amendment to ERISA did not achieve its 

two primary objectives. While a few states have enacted specific 

statutes regulating legitimate self-insured multiple employer plans, 

others have outlawed all self-insured multiple employer benefit arrangements, even legitimate self-insured ERISA plans. Some state 

actions have been selective in nature and have not followed any 

consistent basis either within a state or among states. Neither did 

the 1983 amendment achieve the objective of stemming the number 

of illegitimate enterprises that continue to bilk the public under arrangements that are not legitimate ERISA ‘‘employee benefit 

plans.’’ H.R. 525 will meet these dual objectives by enabling legitimate 

associations to maintain or establish multiple employer plans by 

voluntarily seeking licensure in the few states permitting them to 

do so or by seeking federal certification as an AHP. Entities that 

do not have either a state or federal certification will be fully subject to state law. Therefore the states, as they choose, may force 

such entities to meet any insurance or multiple employer plan licensing requirements or shut them down. Under the bill, all such 

entities must register with the Department of Labor (DOL) and the 

states and are subject to the criminal penalties under ERISA for 

failure to do so (illegitimate entities will become criminal enterprises). In addition, DOL is given ‘‘cease and desist’’ authority to 

curtail the activities of any such illegitimate entities. These 

changes are necessary to clarify ERISA preemption and the role of 

the states and the federal government in relation to MEWAs. 

17 

The clarification of ERISA preemption relating to MEWAs will 

free substantial federal resources that have been spent to stop 

health insurance fraud and abuse. Moreover, the considerable state 

resources involved in stopping MEWA fraud will be released for 

more productive purposes. Additional resources of the federal government can also be redirected more productively in administering 

the new law and helping expand more affordable health coverage. 

As described in more detail below, the bill requires self-insured 

AHPs to meet solvency, fiduciary, and other necessary standards. 

The fact is that, under the bill, legitimate association self-insured 

arrangements will be subject to greater solvency regulation than 

union-sponsored multiemployer plans and the self-insured singleemployer plans of even the largest employers. 

Conclusion 

H.R. 525 will open up the health insurance market to the millions of American workers and their families who today do not have 

access to or cannot afford private health insurance. It does so by 

removing the structural barriers that prevent some employers from 

voluntarily providing health insurance to their employees, either on 

their own or as part of an association health plan. 

H.R. 525 amends Title I of ERISA to provide a 21st century 

model of freedom for employees and employers to negotiate benefits, letting market forces help reduce health care costs, thus making health insurance coverage more available and affordable for the 

American worker. 

Cost-conscious small employers must be given the same opportunity to achieve the economies of scale and freedom from excessive 

government regulation that large employers and unions already 

enjoy. Removing barriers and allowing small employers to pool together to voluntarily form ERISA multiple employer health plans 

can effectively address the problems of uninsured workers and 

their families. AHPs build on what is already working in the employer-based health care system; and the increased health plan 

competition that results will mean improved access to more affordable coverage for millions of employees, particularly those uninsured individuals and their families who work for small businesses. 

In conclusion, the only way major strides in expanding access to 

health coverage for the uninsured can be achieved in a voluntary 

market is to make reforms that bring down the cost of providing 

health coverage to employers, particularly small employers. Health 

care reform that is effective in expanding access and based on free 

market principles is possible. It is in the grasp of this Congress in 

the form of AHPs. It is the strong belief of the Committee that H.R. 

525 presents this Congress with perhaps its best opportunity since 

the passage of ERISA to expand access to affordable health insurance for the many American families who are currently uninsured. 

B. LEGISLATION

Providing access to affordable health care coverage for American 

workers and their families has been the subject of considerable 

Committee attention during the current and past Congresses. H.R. 

525, the Small Business Health Fairness Act, will do just that. 

18 

H.R. 525’s rules governing establishment of association health plans 

H.R. 525 amends Subtitle B of Title I of ERISA to add a new 

Part 8 that sets forth rules governing the establishment of AHPs. 

AHPs are defined as group health plans whose sponsors are bona 

fide trade, industry or professional associations or bona fide chambers of commerce. These organizations must be structured and 

maintained in good faith for a continuous period of not less than 

three years with purposes other than that of obtaining or providing 

medical care. AHPs must be established as permanent entities, receiving the active support of members and requiring for membership payment on a periodic basis of dues or payments necessary to 

maintain eligibility for membership in the sponsor. These bona fide 

organizations must not condition membership, dues or payments, 

or coverage under the association health plan on the basis of 

health-status related factors. In addition to the associations described above, franchise networks would be eligible to seek certification as AHPs. 

Opponents of H.R. 525 have charged that the bill will result in 

a segmented small group market, i.e. that associations will form 

AHPs in order to select or ‘‘cherry pick’’ healthy individuals away 

from state small group markets. Indeed, under current law, sham 

‘‘unions’’ and other fraudulent insurance organizations have 

claimed ERISA preemption in order to evade state regulation. Not 

all states have statutes dealing with MEWAs and many states suffer from insufficient resources and ineffective enforcement of regulations, leaving these fraudulent insurance schemes unchallenged. 

The Committee intends the bill’s requirements that only allow 

bona fide trade and professional associations, such as the National 

Federation of Independent Business and the National Restaurant 

Association, to offer AHPs to protect against ‘‘cherry picking,’’ or selection of lower risk individuals into AHPs. This ensures that AHPs 

will not be formed in order to select healthy individuals; rather, associations must have a larger purpose in order to form or establish 

an AHP. Additional protections against ‘‘cherry picking’’ will be discussed later. 

H.R. 525’s procedures and conditions for certification for AHPs 

H.R. 525 establishes procedures for the certification of AHPs. In 

the case of a self-insured AHP, the Department of Labor shall 

grant certification only if all of the requirements of the newly established Part 8 are met, or will be met upon the date on which 

the plan is to commence operations. Self-insured association health 

plans must have at least 1,000 participants and beneficiaries and 

may only be certified if they are one of the following: 

(1) A plan that offered such coverage on the date of enactment of H.R. 525; 

(2) A plan where the sponsor does not restrict membership 

to one or more trades or businesses or industries and whose eligible participating employers represent a broad cross-section 

of trades or businesses or industries; or 

(3) A plan whose eligible participating employers represent 

one or more trades, businesses, or industries specified in the 

bill; or which have been indicated as having average or aboveaverage health insurance risk or health claims experience by 

reason of state rate filings, denials of coverage, or proposed 

19 

32 29 U.S.C. § 1104. 33See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272n.8 (2d Cir. 1982). 

premium rate levels, or other means demonstrated by such 

plan in accord with regulations prescribed by DOL. 

In addition to the requirement that only bona fide trade and 

industry associations may offer AHPs, the Committee believes that 

these requirements, allowing only multi-industry associations or 

trade associations with average risk to self-insure, offer further 

protection against ‘‘cherry picking.’’

In the case of AHPs that offer fully insured health products, the 

Secretary of Labor shall establish a class certification procedure. 

Because of the states role in regulating insurance, the Committee 

envisions the class certification process to involve the appropriate 

state regulatory authorities. For example, as state insurance commissioners will continue to govern the solvency of fully insured 

health insurance products offered by AHPs, the Committee intends 

the Department of Labor to consult with state insurance commissioners to ensure that issuers offering products to AHPs meet appropriate solvency standards. The Committee expects that this consultation would be maintained on an ongoing basis to ensure that 

certified AHPs offering fully insured health products continue to 

meet appropriate state standards. 

All AHPs must be operated, pursuant to a trust agreement, by 

a board of trustees which has fiscal control and which is responsible for all operations of the plan. The board of trustees must develop rules of operation and financial control based on a three-year 

plan of operation, which is adequate to carry out the terms of the 

plan and to meet all applicable requirements of Title I of ERISA. 

The board of trustees must consist of individuals who are owners, 

officers, directors, or employees of the employers who participate in 

the plan. Instruments governing the AHP must provide that the 

board of trustees serves as the named fiduciary and plan administrator, that the sponsor serves as plan sponsor, and that certain reserve requirements are met. 

AHPs must meet all of ERISA’s fiduciary rules requiring that the 

assets of an employee benefit plan be held in trust for the exclusive 

benefit of plan participants and their beneficiaries, and for defraying reasonable expenses of administering the plan. Part 4 of Title 

I of ERISA explains the fundamental duties of fiduciaries to employee benefit plans. In short, fiduciaries are to act solely in the interest of participants and beneficiaries with care, skill, prudence 

and diligence.32 The Committee believes that the fiduciary duty of 

loyalty—the highest duty of loyalty that exists in the law—is the 

ultimate protection to participants and beneficiaries in ERISA 

plans.33 Accordingly, the Committee believes that the employers 

and employees who participate in AHPs will be well-protected. 

Additional certification criteria include the filing of a complete 

application; a filing fee of $5,000; financial, actuarial, reporting, 

and participation requirements; and such other requirements as 

may be specified by the Secretary of Labor as a condition of the 

certification. In addition, the application must include the following: (1) identifying information about the arrangement and the 

states in which it will operate; (2) evidence that ERISA’s bonding 

requirements will be met; (3) copies of all plan documents and 

20 

34 29 U.S.C. §§ 1171, 1172, 1173. 

agreements with service providers; (4) a funding report indicating 

that the reserve requirements will be met, that contribution rates 

will be adequate to cover obligations, and that a qualified actuary 

who is a member in good standing of the American Academy of Actuaries has issued an opinion with respect to the arrangement’s assets, liabilities, and projected costs; and (5) any other information 

prescribed by the Secretary. Certified AHPs must notify the applicable authority of any material changes in this information at any 

time, must file annual reports with the Secretary, and must engage 

a qualified actuary. AHPs are also required to file their certification with the applicable state authority of each state in which at 

least 25 percent of the participants and beneficiaries under the 

plan are located. 

Protection against discrimination 

H.R. 525 prohibits discrimination against eligible employers and 

employees by requiring that all employers who are association 

members must be eligible to participate under the terms of the 

plan and must be informed of all benefit options available. In addition, H.R. 525 requires that eligible individuals may not be excluded from enrolling in the plan because of health status. 

Despite these protections, opponents of H.R. 525 have criticized 

it as allowing anti-selection with respect to the small group market. The Committee notes that requiring all employers who are 

members of the bona fide association to be eligible for the AHP is 

equal to or greater than any state law governing insurers. 

In addition, employers participating in the AHP are forbidden 

from selectively providing sick individuals with coverage in the individual health insurance market. The Committee intends this prohibition to be an additional protection against ‘‘cherry picking’’ by 

ensuring that AHPs may not in effect select against sick individuals by allowing their employers to provide coverage to these workers outside of the AHP. H.R. 525 allows AHPs to include minimum 

participation, contribution, and size requirements to the extent 

that they meet the nondiscrimination and other rules under sections 701, 702, and 703 of ERISA.34

AHPs are specifically prohibited from denying or conditioning 

health insurance for individuals on the basis of health status. Specifically, the bill requires AHPs to follow the same rules on portability, pre-existing conditions, nondiscrimination and renewability 

that large employers and insurance companies must follow under 

the 1996 Health Insurance Portability, Accessibility and Accountability Act (HIPAA). 

In addition to H.R. 525’s protections for individuals, the bill also 

requires that the contribution rates for any particular employer 

must be nondiscriminatory. This means that contribution rates for 

employers cannot vary on the basis of any health status-related 

factor with respect to employees of particular employers or the type 

of business or industry in which the employer is engaged, unless 

the state where that small employer is located would specifically 

allow such a variation, and then, only to the extent that the state 

would allow. 

21 

During consideration of the bill, the Committee rejected an 

amendment that would have prohibited AHPs from varying rates 

for small employers even if the state law allowed such a variance. 

The Committee has included many protections in the bill in order 

to prevent the practice of ‘‘cherry picking’’ by AHPs. The Committee believes that it is important to note that if H.R. 525 did not 

allow AHPs to vary contribution rates for small employers in a 

state to the extent that the state law would allow, it would be likely that health insurance issuers would ‘‘cherry pick’’ the healthier 

small employer groups out of the AHP. 

Some opponents of the bill believe that AHPs should be required 

to ‘‘community rate’’ or average the claims of all participating employers in the AHP and charge each an equivalent contribution 

rate. They assert that group pooling is all that is needed to lower 

health insurance costs and thus avoid the ‘‘cherry picking’’ of 

healthier groups by health insurance issuers. 

Though the Committee believes that pooling of risk will indeed 

lower costs in some cases, it would not be enough to prevent the 

‘‘cherry picking’’ of healthy groups by health insurance issuers. For 

example, the state of Illinois allows issuers to vary rates for small 

employers on the basis of medical information. Thus, an issuer 

might attempt to draw healthier groups away from the AHP by offering a rate that could be 67 percent lower than a sick group. 

While economies of scale will lower the health insurance costs of 

the employers participating in an AHP, it is unlikely that they will 

be lowered by 67 percent. Thus in the Illinois case, it is obvious 

that the AHP would need to have the same flexibility as other state 

regulated products to attract the participation of a broad cross section of its membership versus only the unhealthy groups. 

The Committee notes that almost every state allows rates for 

small employers to vary by some factors, such as age, gender or geography. Only two states, New York and Vermont, have gone so far 

as to require strict ‘‘community rating’’ in the small group market. 

Allowing issuers to vary rates while requiring community rating for 

AHPs would virtually ensure that issuers have an advantage over 

AHPs in the marketplace, thereby resulting in adverse selection 

against AHPs. 

Another argument that has been used to support the contention 

that H.R. 525 will allow ‘‘cherry-picking’’ is the assertion that state 

insurance rating rules will not apply to fully insured health products offered by AHPs. It is the view of the Committee that in the 

case of AHPs that offer fully insured health coverage, H.R. 525 

would not generally preempt state laws that govern the rating of 

insurance products offered by associations except in the cases discussed below. 

The Committee intends H.R. 525 to preempt state insurance rating laws for fully insured plans to the extent that they would prohibit AHPs from setting premiums on the basis of the claims of the 

AHP plan. For example, some state laws require that claims for all 

small employers in the state (those in and out of the AHP) be averaged to determine a general average for premium setting purposes. 

In those states, these laws would be preempted. Importantly, 

should a state attempt to regulate federally certified AHPs more 

strictly with regard to allowable rating practices than other nonVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00021 Fmt 6659 Sfmt 6602 E:\HR\OC\HR041.XXX HR041
22 

AHP associations offering coverage in a state, H.R. 525 would preempt these laws as well. 

In contrast to the situation for AHPs that offer fully insured 

health products, self-insured AHPs, like self-insured union and employer plans, will not be subject to state rating laws because they 

are not in the business of insurance. ERISA sets no federal requirements for self-insured plans—it does not require that large employers or unions ‘‘community rate’’ their plans. These plans can and 

do vary their rates for employees, particularly on geography. Nothing in federal law prohibits a union or large employer from varying 

rates for a group of their similarly situated individuals. For example, a different collective bargaining unit, a different employer in 

a multi-employer plan, or a set of employees located in a different 

geographic location could have different rates. It is the intention of 

the Committee that self-insured AHPs be allowed to vary rates on 

geography, age, family composition, gender or other criteria, as is 

the case for other self-insured plans. 

Finally, the Committee intends that since the AHP bill is an 

amendment to ERISA, it does not change the relationship between 

ERISA and Title VII of the Civil Rights Act. Because of this, protections for individuals under the Title VII of the Civil Rights Act 

will be the same for workers participating in AHPs as for those 

workers who receive health coverage under ERISA plans today. 

Preemption of state mandates 

H.R. 525 allows AHPs to exercise sole discretion in selecting specific items and services to be covered under the plan. This is true 

for AHPs that offer fully insured health products as well as AHPs 

that self-insure. As such, the bill preempts any state law that 

would specify items or services to be covered under the plan. 

Clearly, AHPs that self-insure would be exempt from state laws 

that require specific items or services as they are not in the business of insurance. However, preemption is also granted in the case 

of fully insured health products. As the bill specifically requires 

that a self-insured AHP have at least 1000 participants, in order 

for smaller associations to take advantage of the preemption from 

benefit mandates, they must also be preempted on the fully insured 

side. However, the bill does not preempt state laws that require 

health plans to cover individuals with specific diseases, such as diabetes or AIDS, in the state where the AHP is domiciled. 

During consideration of the bill, the Committee rejected numerous amendments that would have allowed general preemption of 

state benefit mandates with specific exceptions. The Committee 

feels strongly that many individuals who receive coverage through 

AHPs would otherwise have had no health care coverage, and that 

coverage offered by AHPs will be high quality, covering most if not 

all of the benefits that are typically mandated by the states. 

Because of this, the Committee confidently rejected the need to 

micromanage the provision of health care by AHPs, instead giving 

AHPs the freedom that large employers and unions already enjoy, 

to select the benefit packages that best serve their employees. The 

Committee also notes that for many workers, passage of AHPs will 

mean the difference between access to coverage and no health care 

coverage at all. Though state laws may guarantee particular benefits when coverage is offered, in general, state laws do not require 

23 

35Subcommittee on Employer-Employee Relations hearing on H.R. 660, ‘‘Small Business 

Health Fairness Act’’ Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, First Session, March 13, 2003 (Serial No. 108–10). 

that health coverage be offered. Therefore for those many individuals who are not offered health insurance by their employer, the 

coverage their employer is able to access through the AHP, with or 

without particular state mandates, will provide health benefits the 

individual would not otherwise have. 

Opponents of the bill have suggested that the bill’s preemption 

from state benefit mandates also preempts laws such as those that 

regulate solvency, external review and prompt payment of claims. 

This is not the case. The Committee intends that, under the bill, 

state laws such as those that govern external review and prompt 

payment of claims will apply to AHPs that offer fully insured 

health coverage and Assistant Secretary Ann Combs clarified this 

issue during a Subcommittee hearing on the bill in the 108th Congress.35 Since these laws do not impact the selection of specific 

items or services consisting of medical care, these laws are not preempted. Though the Committee believes that the bill does not preempt these laws, it has seen fit to include two provisions to clarify 

the application of these laws. First, H.R. 525 includes language 

that amends section 514 of ERISA to clarify that the preceding 

amendments should not be construed to supersede or impair the 

law of any state with respect to issuers or health insurance coverage that provides solvency standards. H.R. 525 also includes language clarifying that laws relating to prompt payment of claims 

were also not superseded. 

During consideration of the bill, the Committee also rejected 

amendments that would have subjected AHPs to federal mandates. 

The Committee believes that adding federal benefit mandates to 

ERISA is an issue separate and apart from legislation to create 

AHPs. Should Congress decide to establish additional federal patient protections, the Committee believes that they should be applied to all plans equally. 

Solvency requirements 

Health insurance issuers that offer fully insured coverage to 

AHPs will continue to be subject to state laws regarding solvency 

as discussed above. In addition, the Committee expects that the 

Department of Labor would condition its class certification of fully 

insured AHPs on the issuer’s satisfaction of state solvency and 

other insurance regulations. 

With respect to self-insured AHPs, H.R. 525 sets forth strict solvency requirements. Solvency provisions are as follows: 

AHPs are required to maintain: (1) reserves adequate for unearned contributions from employers, (2) reserves for liabilities 

incurred, (3) reserves for any other obligations, and (4) reserves for a margin of error. The amount of each of these reserve components must be recommended by a qualified actuary, certified by the American Academy of Actuaries; 

AHPs are required to maintain aggregate stop loss insurance 

in the event that claims exceed the plan’s expectation by 25 

percent, and specific stop loss insurance as recommended by a 

qualified actuary. Both of these insurance products will be 

24 

fully regulated by the state, and the Secretary of Labor is able 

to modify or increase these requirements by regulation; 

AHPs are required to maintain indemnification insurance in 

order to prevent unpaid claims in the event of plan termination; 

The board of trustees of an AHP is required to certify on a 

quarterly basis that the AHP is financially sound. If the board 

determines that the solvency requirements of the bill are not 

being met, they must, in consultation with the qualified actuary, develop a plan to ensure compliance and report such information to the Secretary; 

AHPs are required to maintain a minimum surplus reserve of $500,000. This amount may be increased to up to $2 million 

by the Secretary of Labor; AHPs are also required to contribute $5000 per year to a 

new Association Health Plan Fund, established to assist in 

paying claims in the event of an AHP termination. The Secretary may increase the required contribution if this amount is 

inadequate; and 

The bill establishes a new Solvency Standards Working 

Group. Members from the National Association of Insurance 

Commissioners, the American Academy of Actuaries, the state 

governments, and others will make recommendations to the 

Secretary to assist in the formation of solvency regulations. 

The Committee notes that these requirements are much stronger 

than current law for employers or unions who self-insure, as 

ERISA contains no solvency standards for these entities. Further, 

the Committee notes that these standards are generally analogous 

to state solvency standards for health insurance issuers. 

H.R. 525 grants authority to the Secretary of Labor to make payments to stop loss or indemnification insurers in any case in which 

the Secretary determines that an AHP is failing or will fail to meet 

the federal solvency requirements or will terminate. H.R. 525 also 

requires that the issuers of stop loss and indemnification insurance 

for self-insured AHPs notify the Secretary of Labor if the AHP fails 

to make a payment that would result in the cancellation of the insurance policy. This provision is intended to ensure that the Secretary of Labor maintains insurance products if necessary, so that 

in the event of an AHP failure, the insured products meet plan 

losses and satisfy workers claims. 

The Committee also grants authority to the Secretary to permit 

an AHP to substitute, for all or part of the reserves required, such 

security, guarantee, hold-harmless arrangements, insurance, or 

other financial arrangement as the Secretary determines to be adequate to enable the plan to fully satisfy all benefit liabilities on a 

timely basis. Such an alternative must not be less protective than 

the basic provisions for which it is substituted. H.R. 525 requires 

a self-insured AHP to meet the reserve requirements even if its 

certification is no longer in effect. 

In any case where an AHP notifies the Secretary that it has 

failed to meet the reserve requirements and corrective action has 

not restored compliance, and the Secretary determines that there 

is a reasonable expectation that the plan will continue to fail to 

meet the applicable requirements, the Secretary may direct the 

board to terminate the arrangement. 

25 

H.R 525 provides that an AHP may also voluntarily terminate 

only if the board of trustees provides 60 days advance written notice to participants and beneficiaries and submits to the Secretary 

a plan providing for timely payment of all benefit obligations. 

Whenever the Secretary determines an AHP will not be able to 

provide benefits, or is otherwise in financial distress, the Secretary 

shall apply to the appropriate United States District Court for appointment as trustee to administer the termination of the plan. 

State assessment authority 

H.R. 525 specifically allows a state to assess a self-insured AHP 

with a contribution tax to the same extent the state taxes health 

insurance plans that offer coverage to fully insured AHPs. Such tax 

must be computed by subtracting the amount of any tax or assessment otherwise imposed by the state on other insured products 

maintained by the self-insured AHP. 

Amendments to ERISA’s preemption rules 

H.R. 525 adds a new subsection 514(d) of ERISA (current subsection (d) is redesignated as (e)) to clarify the ability of health insurance issuers to offer health insurance coverage under AHPs. 

Should states attempt to preclude AHPs from operating by passing 

laws that preclude them from doing so or have this effect, these 

laws will be preempted under ERISA. For example, should a state 

law refuse to license health insurance issuers that intend to provide health coverage to an AHP, the Committee intends this law 

to be preempted by the bill. The Committee intends this language 

to serve as a warning to state regulators that their ability to regulate fully insured health products provided by AHPs stops at the 

point where they attempt to prevent AHPs from operating. 

H.R. 525 also makes two changes to ERISA’s preemption laws regarding MEWAs. First, paragraph (6) of section 514(b) is made inapplicable with respect to any state law in the case of a certified 

AHP. This change ensures that AHPs will not be forced to comply 

with the same level of confusing and duplicative dual regulation 

that MEWAs have been subject to. Second, the bill removes the 

current restriction on state regulation of self-insured multiple employer welfare arrangements providing medical care (which do not 

elect to meet the certification requirements for AHPs) under section 514(b)(6)(A)(ii) by eliminating the requirement that such state 

laws otherwise ‘‘be consistent with the provisions of ERISA Title I.’’

As discussed above, H.R. 525 provides that legitimate associations 

may choose to either remain subject to the few state multiple plan 

laws or to apply for a federal certification as an AHP. The legislation draws bright lines regarding state and federal authority regarding self-insured multiple employer plans. Current law is confusing regarding the responsibility of the states and the Department of Labor under ERISA. Under the bill, MEWAs have two 

choices, apply for and become a certified AHP, or be regulated entirely by the states. 

H.R. 525 includes two other important provisions: (1) It allows 

any health insurance issuer to offer the same type of health insurance coverage provided to an AHP to other eligible employers that 

may not be a member of the AHP; and (2) It clarifies that health 

insurance coverage policy forms filed and approved in a particular 

26 

state in connection with an insurer’s offering under an association 

health plan are deemed to be approved in any other state in which 

such coverage is offered when the insurer provides a complete filing 

in the same form and manner to the authority in the other state. 

The Committee intends the preemption amendment with regard to 

the filing of policy forms in other states to remedy the administrative burden of filing differing policy forms in different states, and 

to speed the process of approval, as once the policy form is approved in one state, it is deemed to be approved in every other 

state. 

Section 514 of ERISA is also amended to include a necessary 

cross-reference to the newly created section 805(b) (relating to the 

ability of AHPs and health insurance issuers to design association 

health insurance options) and to section 805(a)(2)(B) (relating to 

the ability of AHPs and health insurance issuers to base contribution rates on the experience of such plans). The cross-references are 

necessary in order ensure the proper rules are established for 

AHPs. As discussed above, the bill also includes language regarding the solvency of fully insured health products or health insurance issuers and the prompt payment of claims by health insurers 

providing to an AHP. 

Enforcement provisions relating to AHPs and MEWAs 

H.R. 525 amends ERISA to establish enforcement provisions relating to AHPs and MEWAs. Specifically, the bill would: (1) establish that willful misrepresentation that an entity is a certified AHP 

or collectively-bargained arrangement may result in criminal penalties; (2) allow for cease activity orders for arrangements found to 

be neither licensed, registered, or otherwise approved under state 

insurance law, or operating in accordance with the terms of the 

certification granted by the Secretary under Part 8; and (3) require 

the named fiduciary or board of trustees of an AHP to comply with 

the required claims procedure under ERISA. 

Cooperation between federal and state authorities 

H.R. 525 amends section 506 of ERISA (relating to coordination 

and responsibility of agencies enforcing ERISA and related laws) to 

require the Secretary of Labor to consult with state insurance departments with regard to the Secretary’s authority under section 

502 and 504 to enforce provisions applicable to certified AHPs. In 

the case of AHPs offering fully insured health coverage, the Secretary shall consult with the state in which filing and approval of 

a policy type offered by the plan was initially obtained. In all other 

cases, the Secretary shall take into account the places of residence 

of the participants and beneficiaries under the plan and the state 

in which the trust is maintained in determining which state is the 

state with which consultation is required. 

Effective date 

In general, the amendments made by H.R. 525 are effective one 

year after enactment of the Act. In addition, the Secretary is required to issue all regulations needed to carry out the amendments 

within one year after enactment of the Act and report to Congress 

within five years the effect of AHPs on reducing the number of uninsured workers. 

27 

SECTION-BY-SECTION

Section 1—Short title and table of contents. 

Section 2(a) creates a new Part 8 under ERISA (as described 

below). 

Section 801 outlines that a sponsor of an AHP must be a bona 

fide association established for substantial purposes other than 

that of obtaining or providing medical care. The association must 

charge dues to its small business members and must not condition 

membership, dues or coverage under the health plan on the basis 

of health status. 

Section 802 establishes a procedure for the certification of Association Health Plans as prescribed by the Secretary of Labor. For 

AHPs that purchase health insurance from an insurance company, 

the Secretary will establish a class certification. For those that will 

offer a self-insured health benefit, the bill establishes several criteria in order to insure that the businesses covered will be of average health risk, to avoid pulling only healthy individuals from the 

small employer market (‘‘cherry-picking’’). 

Section 803 establishes additional eligibility requirements for 

AHPs. Applicants must demonstrate that the arrangement’s sponsor has been in existence for a continuous period of at least three 

years for substantial purposes other than providing coverage under 

a group health plan. AHPs must be operated, pursuant to a trust 

agreement, by a ‘‘board of trustees’’ which has complete fiscal control and which is responsible for all operations of the plan. The 

board of trustees must consist of individuals who are owners, officers, directors or employees of the employers who participate in the 

plan. 

Section 804 prohibits discrimination against eligible employers 

and employees by requiring that, (1) all employers who are association members be eligible for participation under the terms of the 

plan, (2) that eligible employers be informed of all benefit options 

available, and (3) that eligible individuals of such participating employers not be excluded from enrolling in the plan because of 

health status. The bill also stipulates that no participating employer may exclude an employee from enrollment under an AHP by 

purchasing an individual policy of health insurance coverage for 

such person based on his or her health status. 

Section 805 requires that contribution rates for any particular 

employer must be nondiscriminatory—they cannot vary on the 

health status of the particular employer or on the type of business 

or industry in which the employer is engaged, unless the state in 

which the employer is located would specifically allow such a variance, and then, only to the degree allowed in the state. In the case 

of AHPs offering fully insured health coverage, state rating laws 

that prevent an AHP from setting contribution rates based on the 

claims experience of the plan or that regulate a federally certified 

AHP more strictly than other associations offering fully insured 

coverage shall also be preempted. In addition, this section outlines 

that association health plans must be allowed to design benefit options. Specifically, the bill mandates that no provision of state law 

shall preclude an AHP or health insurance issuer from exercising 

its sole discretion in designing the items and services of medical 

care to be included as health insurance coverage under the plan. 

28 

Section 806 establishes capital reserve requirements for self-insured AHPs and requires them to obtain stop loss and indemnification insurance. In addition, the AHP must maintain minimum surplus reserves of $500,000 or such greater amount (up to 

$2,000,000) as the Secretary of Labor may prescribe. Any person 

issuing stop loss or indemnification insurance to a plan is required 

to notify the Secretary of Labor of any failure of premium payment 

meriting cancellation of the policy. The bill also establishes an ‘‘Association Health Plan Fund’’ which is to be managed by the Department of Labor for the purpose of making payments to cover 

any outstanding benefit claims which are not fulfilled in accord 

with the solvency standards described above. All certified AHPs 

would be required to pay $5,000 into the fund annually. The bill 

also establishes a ‘‘Solvency Standards Working Group’’ for the purpose of providing input to the Secretary with respect to solvency requirements for AHPs certified under the Act. The bill grants authority to the Secretary to permit an association health plan to 

substitute, for all or part of the reserves required, such security, 

guarantee, hold-harmless arrangements, insurance, or other financial arrangement as the Secretary determines to be adequate to enable the plan to fully satisfy all benefit liabilities on a timely basis. 

Such an alternative must not be less protective than the basic provisions for which it is substituted. If the Secretary determines that 

there will be a failure or termination of an AHP, the bill grants the 

Secretary authority to make payments to insurers in order to maintain the stop loss or indemnification insurance. 

Section 807 sets forth additional criteria which association health 

plans must meet to qualify for certification. The Secretary shall 

grant certification to a plan only if: (1) a complete application has 

been filed, accompanied by the filing fee of $5,000; and (2) all other 

terms of the certification are met (including financial, actuarial, reporting, participation, and such other requirements as may be specified as a condition of the certification). AHPs are also required to 

file their certification with the applicable state authority of each 

state in which at least 25% of the participants and beneficiaries 

under the plan are located. 

Section 808 requires that, except as provided in section 809, an 

AHP may voluntarily terminate only if the board of trustees provides 60 days advance written notice to participants and beneficiaries and submits to the applicable authority a plan providing 

for timely payment of all benefit obligations. 

Section 809 requires that the board of trustees of a self-insured 

AHP must determine quarterly whether the reserve requirements 

of section 806 are being met and, if they are not, must, in consultation with the qualified actuary, develop a plan to ensure compliance and report such information to the Secretary. In any case 

where an AHP notifies the Secretary that it has failed to meet the 

reserve requirements and corrective action has not restored compliance, and the Secretary determines that there is a reasonable expectation that the plan will continue to fail to meet the requirements applicable to the AHPs; the Secretary may direct the board 

to terminate the arrangement. 

Section 810 sets forth procedures whereby the Secretary may become the trustee of insolvent AHPs. Whenever the Secretary determines an AHP won’t be able to provide benefits, or is otherwise in 

29 

financial distress, the Secretary shall apply for appointment as 

trustee to administer the termination of the plan. 

Section 811 allows a state to assess newly certified AHPs with 

a contribution tax to the same extent they tax health insurance 

plans. Such tax must be computed by subtracting the amount of 

any tax or assessment otherwise imposed by the state on other insured products maintained by the self-insured AHP. 

Section 812 defines the following terms: group health plan, medical care, health insurance coverage, health insurance issuer, applicable authority, health status-related factor, individual market, 

treatment of very small groups, participating employer, applicable 

state authority, qualified actuary, affiliated member, large employer, and small employer. 

Section 2(b) includes other conforming amendments to ERISA 

with regard to state preemption—The bill makes conforming 

amendments to ERISA to clarify the treatment of ERISA’s preemption rules with regard to AHPs. For certified AHPs, state law is 

preempted to the extent that it would preclude an AHP from existing in a state. In addition, state law is also preempted in order to 

allow health insurance issuers to offer health insurance coverage of 

the same policy type as offered in connection with a particular AHP 

to eligible employers, regardless of whether such employers are 

members of the particular association. Health insurance coverage 

policy forms filed and approved in a particular state in connection 

with an insurer’s offering under an AHP are deemed to be approved in any other state in which such coverage is offered when 

the insurer provides a complete filing in the same form and manner to the authority in the other state. The bill also makes two 

changes to ERISA’s preemption laws regarding MEWAs. First, 

paragraph (6) of section 514(b) is made inapplicable with respect to 

any state law in the case of a certified AHP. Second, the bill removes the current restriction on state regulation of self-insured 

multiple employer welfare arrangements providing medical care 

(which do not elect to meet the certification requirements for 

AHPs) under section 514(b)(6)(A)(ii) by eliminating the requirement 

that such state laws otherwise ‘‘be consistent with the provisions 

of ERISA Title I.’’ The bill also amends Section 514 to clarify that 

the preceding amendments to 514 should not be construed to supersede or impair the law of any State with respect to issuers or 

health insurance coverage, that provides solvency standards or 

prompt payment of claims. 

Section 3 clarifies the treatment of single employer arrangements. 

Section 4 establishes enforcement provisions relating to AHPs 

and multiple employer welfare arrangements (MEWAs): (1) willful 

misrepresentation that an entity is an exempted AHP or collectively-bargained arrangement may result in criminal penalties; (2) 

the section provides for cease activity orders for arrangements 

found to be neither licensed, registered, or otherwise approved 

under State insurance law, or operating in accordance with the 

terms of the certification granted by the Secretary under Part 8; 

and (3) the section provides for the responsibility of the named fiduciary or board of trustees of an AHP to comply with the required 

claims procedure under ERISA. 

30 

Section 5 amends section 506 of ERISA (relating to coordination 

and responsibility of agencies enforcing ERISA and related laws) to 

require the Secretary of Labor to consult with state insurance departments with regard to the Secretary’s authority under section 

502 and 504 to enforce provisions applicable to certified AHPs. 

Section 6. In general, the amendments made by the act will be 

effective one year after enactment of the Act. In addition, the Secretary will be required to issue all regulations needed to carry out 

the amendments within one year after enactment of the Act. 

EXPLANATION OF AMENDMENTS

No amendments were accepted by the Committee. 

31 


Insert offset folio 32 here HR41.001
32 


Insert offset folio 33 here HR41.002
33 


Insert offset folio 34 here HR41.003
34 


Insert offset folio 35 here HR41.004
35 


Insert offset folio 36 here HR41.005
36 


Insert offset folio 37 here HR41.006
37 


Insert offset folio 38 here HR41.007
38 


Insert offset folio 39 here HR41.008
39 


Insert offset folio 40 here HR41.009
40 


Insert offset folio 41 here HR41.010
41 


Insert offset folio 42 here HR41.011
42 


Insert offset folio 43 here HR41.012
43 

CORRESPONDENCE

CONGRESS OF THE UNITED STATES, 

HOUSE OF REPRESENTATIVES, 

Washington, DC, April 6, 2005. 

Hon. JOHN BOEHNER, 

Chairman, Committee on Education and the Workforce, 

Washington, DC. 

DEAR MR. CHAIRMAN: Due to other legislative duties, I was unavoidably detained during Committee consideration of H.R. 525, 

‘‘Small Business Health Fairness Act of 2005.’’ Consequently, I 

missed roll call number three on amendment number three offered 

by Representative McCollum. Had I been present, I would have 

voted against the amendment. 

I would appreciate your including this letter in the Committee 

Report to accompany H.R. 525. Thank you for your attention to this 

matter. 

Sincerely, 

JOE WILSON, 

Member of Congress. 

CONGRESS OF THE UNITED STATES, 

HOUSE OF REPRESENTATIVES, 

Washington, DC, April 6, 2005. 

Hon. JOHN BOEHNER, 

Chairman, Committee on Education and the Workforce, 

Washington, DC. 

DEAR MR. CHAIRMAN: Due to other legislative duties, I was unavoidably detained during Committee consideration of H.R. 525, 

‘‘Small Business Health Fairness Act of 2005’’. Consequently, I 

missed Roll Call Vote Number 1, Amendment Number 1 offered by 

Representative Kind, Roll Call Vote Number 5, Amendment Number 7, offered by Representative Holt, and Roll Call Vote Number 

6, Amendment Number 10 offered by Representative Kucinich. Had 

I been present, I would have voted against each of the amendments. 

I would appreciate your including this letter in the Committee 

Report to accompany H.R. 525. Thank you for your attention to this 

matter. 

Sincerely, 

Hon. KENNY MARCHANT. 

CONGRESS OF THE UNITED STATES, 

HOUSE OF REPRESENTATIVES, Washington, DC, April 6, 2005. 

Hon. JOHN BOEHNER, 

Chairman, Committee on Education and the Workforce, 

Washington, DC. 

DEAR MR. CHAIRMAN: Due to other legislative duties, I was unavoidably detained during Committee consideration of H.R. 525, 

‘‘Small Business Health Fairness Act of 2005’’. Consequently, I 

missed roll call number ONE on amendment nunmber ONE offered 

44 

by Representative Kind. Had I been present, I would have voted 

against the amendment. 

I would appreciate your including this letter in the Committee 

Report to accompany H.R. 525. 

Thank you for your attention to this matter. 

Sincerely, 

LUIS FORTUN ̃ O. 

APPLICATION OF LAW TO THE LEGISLATIVE BRANCH

Section 102(b)(3) of Public Law 104–1 requires a description of 

the application of this bill to the legislative branch. This bill reduces the ranks of the uninsured by improving access to health 

care for uninsured working families, particularly those who are employed in small businesses. The bill would create association health 

plans (‘‘AHPs’’) that would allow small businesses to join together 

through bona-fide trade associations, thus enjoying larger economies of scale presently enjoyed by many large corporations and 

unions, to purchase health insurance for their workers at a lower 

cost than they are presently experiencing. H.R. 525 would increase 

small businesses’ bargaining power with health care providers, give 

them freedom from costly state mandated benefit packages, and 

lower overhead costs that would better enable them to offer health 

care coverage for their workers. Since ERISA excludes governmental plans, the bill does not apply to legislative branch employees. As public employees, legislative branch employees are eligible 

to participate in the healthcare offered through federal arrangements with private insurers. 

STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF

THE COMMITTEE

In compliance with clause 3(c)(1) of rule XIII and clause 2(b)(1) 

of rule X of the Rules of the House of Representatives, the Committee’s oversight findings and recommendations are reflected in the 

body of this report. 

UNFUNDED MANDATE STATEMENT

Section 423 of the Congressional Budget and Impoundment Control Act (as amended by Section 101(a)(2) of the Unfunded Mandates Reform Act, P.L. 104–4) requires a statement of whether the 

provisions of the reported bill include unfunded mandates. This bill 

reduces the ranks of the uninsured by improving access to health 

care for uninsured working families, particularly those who are employed in small businesses. The bill would create association health 

plans (‘‘AHPs’’) that would allow small businesses to join together 

through bona fide trade associations, thus enjoying larger economies of scale presently enjoyed by many large corporations and 

unions, to purchase health insurance for their workers at a lower 

cost than they are presently experiencing. H.R. 525 would increase 

small businesses’ bargaining power with health care providers, give 

them freedom from costly state mandated benefit packages, and 

lower overhead costs that would better enable them to offer health 

care coverage for their workers. In compliance with this requirement, the Committee has received a letter from the Congressional 

Budget Office included herein. 

45 

BUDGET AUTHORITY AND CONGRESSIONAL BUDGET OFFICE COST

ESTIMATE

With respect to the requirements of clause 3(c)(2) of rule XIII of 

the House of Representatives and section 308(a) of the Congressional Budget Act of 1974 and with respect to requirements of 

3(c)(3) of rule XIII of the House of Representatives and section 402 

of the Congressional Budget Act of 1974, the Committee has received the following cost estimate for H.R. 525 from the Director 

of the Congressional Budget Office: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, April 8, 2005. 

Hon. JOHN A. BOEHNER, 

Chairman, Committee on Education and the Workforce, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 525, the Small Business 

Health Fairness Act of 2005. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Shinobu Suzuki. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Enclosure. 

H.R. 525—Small Business Health Fairness Act of 2005 

Summary: H.R. 525 would establish a regulatory framework and 

certification process for association health plans (AHPs). AHPs 

could be established by trade, industry, and professional associations as a vehicle for providing health care benefits to employees 

of businesses that are association members. AHPs would not, in 

general, have to offer coverage of state-mandated benefits and 

would be subject in a limited way to state rules that compress 

health insurance premiums across a state’s group market. Many 

firms would be able to pay lower health insurance premiums by 

purchasing such coverage through AHPs rather than through the 

traditional small employer health insurance market, where premiums would reflect the full extent of state insurance regulations. 

(Self-employed individuals also would be able to purchase coverage 

through AHPs; this analysis of H.R. 525 includes the impact of 

AHPs on the health insurance market for the self-employed.) 

Because AHPs would be a vehicle for providing health care benefits to workers and such benefits are excluded from taxable income, 

enacting H.R. 525 could affect federal tax revenues by changing the 

share of employee compensation furnished as tax-excluded health 

benefits as opposed to taxable wages and salaries. CBO estimates 

that H.R. 525 would increase total spending on employer-sponsored 

health insurance, and, as a result, reduce federal tax revenues. As 

a result, CBO estimates that enacting H.R. 525 would decrease federal revenues by $3 million in 2006, by $71 million over the 2006–

2010 period, and by $261 million over the 2006–2015 period. About 

$76 million of the 10-year revenue loss would be in off-budget Social Security payroll taxes. 

46 

By expanding private health insurance coverage to small business employees and their dependents, H.R. 525 would decrease enrollment in the Medicaid program. The bill also would cause some 

individuals to lose employer coverage and to enroll in Medicaid. 

CBO estimates that the bill would reduce net federal spending for 

Medicaid by $1 million in 2006, by $24 million over the 2006–2010 

period, and by $80 million over the 2006–2015 period. 

H.R. 525 also would require additional spending for administration and regulatory activities by the Department of Labor (DoL). 

CBO estimates that DoL would hire 150 workers over the next 

three years to regulate the AHP market and certify AHPs, beginning in 2006. We estimate that implementing this provision would 

cost $4 million in 2006, $55 million over the 2006–2010 period, and 

$136 million over the 2006–2015 period, assuming the appropriation of the necessary amounts. 

H.R. 525 would preempt a number of state laws that regulate 

health coverage, including the ability of states to tax existing entities that become certified as association health plans; those preemptions would be intergovernmental mandates as defined in the 

Unfunded Mandates Reform Act (UMRA). The preemptions of state 

regulatory laws would limit the exercise of state authority and preclude the application of state laws, but would not result in additional costs to state, local, or tribal governments. Limitations on 

state taxing authority, however, would result in a net decrease in 

state revenues of over $25 million in 2006. As a greater number of 

the uninsured became insured through association plans, states 

would, over time, realize a net increase in revenues due to the new 

taxing authority. By 2010, that increase would total about $10 million. The losses that states would face in the early years would not 

exceed the statutory threshold established in UMRA ($62 million 

in 2005, adjusted annually for inflation). The effects of the bill on 

Medicaid would result in savings to states of $18 million over the 

2006–2010 period and $60 million over the 2006–2015 period. 

H.R. 525 contains no private-sector mandates as defined in 

UMRA. 

Estimated cost to the Federal government: The estimated budgetary impact of H.R. 525 is shown in the following table. The effects of this legislation fall within budget functions 550 (health) 

and 600 (income security). This estimate assumes that H.R. 525 

would be enacted by October 1, 2005. 

By fiscal year, in millions of dollars— 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

CHANGES IN REVENUES 

Income and HI Payroll Taxes (onbudget) ..................................... ¥2 ¥5 ¥9 ¥14 ¥19 ¥23 ¥25 ¥27 ¥29 ¥32 

Social Security Payroll Taxes (offbudget) ..................................... ¥1 ¥2 ¥4 ¥6 ¥8 ¥9 ¥10 ¥11 ¥12 ¥13 

Total Changes in Revenues ¥3 ¥8 ¥13 ¥20 ¥27 ¥32 ¥35 ¥38 ¥41 ¥44 

CHANGES IN DIRECT SPENDING 

Estimated Budget Authority .......... ¥1 ¥3 ¥5 ¥7 ¥9 ¥9 ¥10 ¥11 ¥12 ¥13 

Estimated Outlays ......................... ¥1 ¥3 ¥5 ¥7 ¥9 ¥9 ¥10 ¥11 ¥12 ¥13 

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

Estimated Authorization Level ...... 4 9 14 14 15 15 16 16 17 17 

47 

By fiscal year, in millions of dollars—

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

Estimated Outlays ......................... 4 9 14 14 15 15 16 16 17 17 

Note: HI = Hospital Insurance (Part A of Medicare). 

Basis of estimate: H.R. 525 would allow organizations such as 

trade, industry, and professional associations and chambers of commerce to sponsor association health plans for their members and 

affiliated members. These entities, which would be certified and 

regulated to DoL, could provide a range of health insurance options 

to employers under different sets of rules than apply to insurers or 

other health plan arrangements that fall under state insurance 

regulation. In general, an AHP would not have to comply with 

state benefit requirements and would not be subject to statewide 

availability rules, although it would have to make its plans available to all members of its sponsoring association. 

AHPs could offer both fully-insured health insurance plans (products issued by a state-licensed insurance carrier) and, subject to 

certain limitations, self-insured plans. An AHP could offer the 

same fully-insured plans to member firms of its sponsoring association in any state; it would only have to obtain plan approval in the 

original state in which it filed. (It also would have to comply with 

the original state’s laws mandating coverage of certain diseases.) 

All other states would be obligated to accept that approved plan. 

The bill would not exempt health insurance carriers offering AHP 

coverage from state licensing requirements and other state laws 

regulating health insurance except to the extent that the laws and 

regulations would effectively preclude the AHP from offering coverage in that state. 

State laws regulating premiums would affect AHPs differently 

than they would carriers in the traditional small group health insurance market. In general, fully-insured AHP plans would have to 

abide by the premium-setting regulations of each state for their 

member firms that reside in that state. Some states require insurers that offer small-group policies to community-rate their premiums (a practice in which the price for a given health policy must 

be the same for all firms despite variations in those firms’ expected 

costs per enrollee). Other states limit the degree to which premiums for a particular policy can vary among firms. Fully-insured 

AHP plans would have to follow the state’s rating rules, but the 

premiums they offered would be based on the average expected 

costs per enrollee of the association’s Member firms—not on the 

costs of the broader (and potentially more expensive) groups that 

insurers offering traditional coverage must serve under availability 

rules that apply to the traditional small group market. 

Self-insured plans offered by AHPs would not be subject to state 

insurance regulations. To offer such coverage, AHPs would follow 

a certification process with the Department of Labor. The requirements for certification include meeting certain solvency standards 

and paying $5,000 annually into a fund, which would be used by 

the Secretary of Labor to maintain in force excess stop-loss insurance coverage or indemnification insurance coverage to ensure payment of the health care claims of self-insured AHPs that became 

insolvent. AHPs would be restricted from varying premiums on the 

basis of health status (or industry) except to the extent allowed by 

48 

1See Congressional Budget Office, Increasing Small-Firm Health Insurance Coverage Through 

Association Health Plans and Healthmarts, CBO Paper, January 2000. 

each state’s premium-setting rules for coverage offered through associations. In any case, such AHPs could charge different premiums 

to different employers on the basis of factors other than health status and industry. 

CBO’s estimate of H.R. 525 used an analytical model designed to 

simulate how small firms and their employees would respond to 

the introduction of AHPs.1 The model incorporates assumptions 

that characterize economic behavior in the small group health insurance market. Those assumptions include the responsiveness of 

firms and their employees to changes in the price and quality of 

health insurance, the variation of health insurance premiums likely to occur in the AHP market compared with premium variation 

as it exists today in the regulated market for small-group health 

insurance, savings arising from the exemption from state-mandated 

benefits, and administrative cost savings that could be achieved by 

spreading fixed costs over more enrollees. 

CBO estimates that, by 2010, when the legislation is assumed to 

have its full impact, about 620,000 more people (including employees and their dependents) would be insured through small employers than would be insured under current law. In total, about 8.5 

million people would obtain health insurance through association 

health plans. However, under current law, most of those AHP enrollees would have been insured in the state-regulated market 

rather than being uninsured. CBO also estimates that about 10,000 

people would lose coverage in response to rising premiums in the 

small-group market. 

Effects on Federal revenues 

The bill would reduce federal tax revenues because the share of 

employee compensation paid in the form of taxable wages and salaries would decrease as employers and employees spent more on 

tax-excluded health benefits. That increase in net spending on 

health benefits is the result of several factors that move in different directions. In general, spending on health benefits would decline for firms that switched from coverage purchased in the traditional, state-regulated market to AHP coverage due to savings from 

the exemption from requiring certain benefits, and from administrative savings. Eligible firms could attain additional premium savings by joining an AHP whose members had lower average costs 

than those of the insurance pools existing in the state-regulated 

market. 

As relatively low-cost firms are attracted to the new AHP market, the average costs and thus the premiums facing firms in the 

state-regulated market would increase. In general, firms that remained in the state-regulated market would spend more on health 

benefits under the proposal while firms that dropped coverage in 

response to those premium increases would spend less on health 

coverage. Since AHPs would offer lower premiums, on average, 

than did state-regulated insurers, some otherwise-uninsured firms 

would become covered through AHPs. For those firms, spending on 

tax-excluded health benefits would increase (since they would have 

spent nothing on health insurance in the absence of AHPs). 

49 

CBO estimates that the net effect of those various changes would 

be a small increase in total spending by employers on employersponsored health insurance. Since the composition of the total compensation packages of employees would shift toward nontaxable 

health benefits and away from taxable wages and salaries, CBO estimates that total federal revenues would decrease by $3 million in 

2006, by $71 million over the 2006–2010 period, and by $261 million over the 2006–2015 period. Social Security receipts, which are 

off-budget, would account for about 30 percent of the total. 

The size and direction of the predicted change in employer 

spending on health insurance are sensitive to assumptions about 

the health insurance purchasing behavior of small firms. If fewer 

uninsured firms picked up coverage for their employees through 

the existence of AHPs than CBO has estimated, federal revenues 

could actually increase because aggregate spending by employers 

on health insurance could fall as otherwise-insured employees 

switched to lower-cost AHPs. Alternatively, if more otherwise-uninsured firms become covered by AHPs than CBO has estimated, the 

decline in federal revenues would be larger than projected because 

even more employer compensation would take the form of tax-excluded health care benefits. 

Effects on Medicaid spending 

Because H.R. 525 would increase (on net) the number of people 

with employer-sponsored insurance, it would affect the number of 

people who enroll in Medicaid. Some people who would lose employer-sponsored health insurance would enroll in Medicaid, whereas others who, under current law, would be covered by Medicaid 

would instead enroll in health insurance offered by AHPs. On net, 

CBO estimates that enacting H.R. 525 would reduce spending in 

the Medicaid program by $1 million in 2006, by $24 million over 

the 2006–2010 period, and by $80 million over the 2006–2015 period. 

Medicaid spending for people who lose private coverage. About 

one-third of employees in small firms are in families with incomes 

under 200 percent of the Federal Poverty Line (FPL). Many children and some adults in families with incomes below 200 percent 

of the FPL are eligible for Medicaid. CBO estimates that about 40 

percent of people losing employer-sponsored coverage would be 

under 200 percent of the FPL, and about one-eighth of them would 

enroll in Medicaid. CBO assumes that those people would be somewhat more costly than the average Medicaid-eligible individual, 

and that federal spending for Medicaid would increase by about 

$38 million over the 2006–2015 period. 

Medicaid savings for people who gain private coverage. Of the 

people gaining employer-sponsored insurance via AHPs under H.R. 

525, CBO estimates that approximately 10 percent would be under 

200 percent of the FPL. Of these, about 40 percent are children and 

60 percent are adults. About one-third of those children would otherwise be enrolled in Medicaid, and about 8 percent of adults would 

otherwise be enrolled in Medicaid, CBO estimates. Assuming that 

those children and adults would be less costly than average, implementing H.R. 525 would decrease federal Medicaid spending by 

$118 million over the 2006–2015 period as a result of this shift to 

private health insurance coverage. 

50 

Spending subject to appropriation 

The bill also would require additional spending for administration and regulatory activities, subject to appropriation of the necessary amounts. CBO assumes that DoL would hire an additional 

150 workers over the next three years to certify AHPs and to regulate the AHP market, beginning in 2006. CBO estimates that DoL 

would need about 125 employees at the GS–12 level (on average) 

to implement and regulate the program and about 25 support staff. 

We estimate that implementing this provision would cost $4 million in 2006, $55 million over the 2006–2010 period, and $136 million over the 2006–2015 period, assuming the appropriation of the 

necessary amounts. 

Estimated impact on state, local, and tribal governments: H.R. 

525 would preempt state laws that would limit an AHP’s ability to 

determine which services or items are part of their package of 

health benefits. (A law in the state in which an AHP initially filed 

its policy for approval that prohibits the exclusion of specific diseases would still apply, as would requirements in the Employee Retirement Income Security Act governing minimum maternity stays, 

mental health benefits, and reconstructive surgery following 

mastectomies.) The bill also would preclude states from regulating 

reserve levels, contribution amounts, and trusts of AHPs. Those 

preemptions would not result in additional costs to state, local, or 

tribal governments, but because they would limit the exercise of 

state authority and preclude the application of state laws, they 

would be intergovernmental mandates as defined in UMRA. 

H.R. 525 also would limit the ability of states to tax association 

health plans that operated before the enactment of the bill, while 

allowing states to levy a contribution tax, similar to a premium 

tax, on new AHPs. On the one hand, state contribution taxes on 

new AHPs that become certified under the bill would increase state 

tax collections to the extent that those AHPs provide coverage to 

individuals who were previously uninsured. On the other hand, 

some existing multiple employer welfare arrangements (MEWAs) 

could become certified to operate as AHPs, and it is not clear that 

states would be able to collect contribution taxes from them. Some 

states currently levy taxes on MEWAs, so if they were unable to 

collect the contribution tax from MEWAs that became certified 

AHPs, their tax revenues would decrease. 

The combination of these changes would have mixed effects on 

state tax collections, and CBO estimates that the effect would be 

a new decrease in state revenues in the early years after enactment, and a net increase in state revenues in later years. CBO estimates that state revenues would decrease by over $25 million in 

2006, but as a greater number of the uninsured became insured 

through association plans, states would realize a net increase in 

revenues due to the contribution tax totaling about $10 million in 

2010. The losses that states would face in the early years would 

not exceed the statutory threshold established in UMRA ($62 million in 2005, adjusted annually for inflation). 

The effects of the bill on Medicaid would result in estimated savings to states of $18 million over the 2006–2010 period and $60 

million over the 2006–2015 period. 

Estimated impact on the private sector: This bill contains no private-sector mandates as defined in UMRA. 

51 

Estimates prepared by: Federal costs: Shinobu Suzuki for revenue effects and discretionary spending; Jeanne De Sa and Eric 

Rollins for the Medicaid effects; impact on state, local, and tribal 

governments: Leo Lex; impact on the private sector: Stuart Hagen. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

In accordance with Clause 3(c) of House Rule XIII, the goals of 

H.R. 525 are to reduce the ranks of the uninsured by improving access to health care for uninsured working families, particularly 

those who are employed in small businesses. The bill would create 

association health plans (‘‘AHPs’’) that would allow small businesses to join together through bona-fide trade associations, thus 

enjoying larger economies of scale presently enjoyed by many large 

corporations and unions, to purchase health insurance for their 

workers at a lower cost than they are presently experiencing. H.R. 

525 would increase small businesses’ bargaining power with health 

care providers, give them freedom from costly state mandated benefit packages, and lower overhead costs that would better enable 

them to offer health care coverage for their workers. The Committee expects the Department of Labor to implement the changes 

to the law in accordance with these stated goals. 

CONSTITUTIONAL AUTHORITY STATEMENT

Under clause 3(d)(1) of rule XIII of the Rules of the House of 

Representatives, the Committee must include a statement citing 

the specific powers granted to Congress in the Constitution to 

enact the law proposed by H.R. 525. The Employee Retirement Income Security Act (ERISA) has been determined by the federal 

courts to be within Congress’ Constitutional authority. In Commercial Mortgage Insurance, Inc. v. Citizens National Bank of Dallas, 

526 F.Supp. 510 (N.D. Tex. 1981), the court held that Congress legitimately concluded that employee benefit plans so affected interstate commerce as to be within the scope of Congressional powers 

under Article 1, Section 8, Clause 3 of the Constitution of the 

United States. In Murphy v. Wal-Mart Associates’ Group Health 

Plan, 928 F.Supp. 700 (E.D. Tex 1996), the court upheld the preemption provisions of ERISA. Because H.R. 525 modifies but does 

not extend the federal regulation of pensions, the Committee believes that the Act falls within the same scope of Congressional authority as ERISA. 

COMMITTEE ESTIMATE

Clause 3(d)(2) of rule XIII of the Rules of the House of Representatives requires an estimate and a comparison by the Committee of the costs that would be incurred in carrying out H.R. 525. 

However, clause 3(d)(3)(B) of that rule provides that this requirement does not apply when the Committee has included in its report 

a timely submitted cost estimate of the bill prepared by the Director of the Congressional Budget Office under section 402 of the 

Congressional Budget Act. 

(52) 

ADDITIONAL VIEWS 

The stated goal of H.R. 525 is to provide affordable health insurance to small businesses that cannot get it today. It is a laudable 

goal that I support. However, as currently written, I strongly believe that the Small Business Health Fairness Act will not accomplish this goal because of a significant loophole that allows an AHP 

to discriminate against small businesses with sick employees based 

on their ability to ignore state rating limitations. 

Despite the title in paragraph (2) of section 805(a) that states 

‘‘contribution rates must be nondiscriminatory,’’ I believe the language in subparagraph b(ii) clearly allows an AHP to discriminate 

against a small business based on health status inasmuch as state 

law allows (a practice prohibited under ERISA). In my opinion, 

that is the very definition of a loophole. 

During the Committee Markup I offered an amendment to close 

this loophole that will prevent small businesses with a sick employee from getting a better price for insurance under an AHP, 

though it ultimately was not agreed to. In the same way federal 

ERISA plans are prohibited from using health status to vary rates 

among its plan participants, my amendment sought to prohibit an 

association health plan from varying rates among its participants 

based on health status. It sought to do so by striking the language 

in subparagraph b(ii) that would allow an AHP to discriminate 

against businesses with sick employees by using health status. 

I offered this amendment in a good faith effort to improve the 

legislation, because if this loophole is not closed and H.R. 525 eventually becomes law, the cost of healthcare insurance will undoubtedly be even higher due to other state-enacted rating limitations 

AHPs are free to ignore. This will only exacerbate the already unacceptable number of uninsured Americans. 

After working in the healthcare industry for over thirty years 

and running several small businesses of my own, I know for firsthand that many small employers are struggling to afford and maintain coverage for their workers. Small business owners want to do 

the right thing and provide health insurance to their workers, but 

double-digit premium increases are making it increasingly difficult 

to do so. 

In fact, in my home state of Georgia alone, nearly 1.4 million individuals and families lack health insurance coverage. Many of 

these people work for small-firms, but are not offered coverage or 

cannot afford the premiums. We need to do more to assure that 

health insurance coverage is more available and affordable to these 

small businesses workers. 

One of the proposed ways to help small businesses and their employees, though certainly not the only way, is through enhanced 

pooling—one of the key goals of H.R. 525. Broad pooling of risk is 

the very foundation for viable and well-functioning health insurVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00052 Fmt 6604 Sfmt 6604 E:\HR\OC\HR041.XXX HR041
53 

ance markets. Pooling helps assure that the premiums of younger, 

healthier workers subsidize the premiums of older, sicker workers. 

This cross-subsidization of premiums is the very essence of pooling. 

Yet while I strongly support the concept of pooling, I am very 

concerned that H.R. 525 will lead to less pooling, not more. That 

is because under H.R. 525, each AHP would be rated separately 

from the state small employer pools and would see their premiums 

directly tied to the health-risk of the group. Under AHPs, employers with high-risk workers could bear the full-cost of coverage—

without any cross subsidies. 

In the 1990s states recognized the need for more pooling and protection for high-cost workers by enacting small-employer market 

reforms, including limits on how much insurers can charge employers with sick workers. In fact, my own home state of Georgia demands insurers to pool all their small businesses together for rating purposes while limiting how much employers’ premiums can 

vary based on health-status or claims experience. Moreover, Georgia law also strictly limits the amount insurers can charge at renewal and limits premium increases to only once a year. 

Yet the language I attempted to amend, as currently written, allows AHPs to preempt state laws that limit how much and how 

often employers’ premiums can increase when an employee gets 

sick. This exemption from state rating protections would make it 

difficult, if not impossible, for small business with sick employees 

(or employees with a history of health problems) to have access to 

affordable coverage in an AHP; a loophole I find unacceptable. 

Ultimately, my amendment was straightforward, simple and 

completely consistent with the principal goal of the legislation—

which is to expand access to affordable health insurance for small 

businesses via small employer pooling. While it was ultimately not 

adopted (failing by a 24 to 24 vote), it underscores the clear division within the Committee about allowing AHPs to be exempt from 

small employer pooling laws. AHPs’ exemption from these pooling 

laws will allow them the ability to exclude firms with sicker workers by charging unaffordable premiums. This will cause premiums 

to rise for most small-firms and leave vulnerable workers at serious 

risk of becoming uninsured. 

While I supported H.R. 525 in Committee and share its proponent’s goal to provide small businesses with access to affordable 

and high quality healthcare, I am very concerned that this bill, as 

currently written, will hurt the very small businesses and employees that its proponents claim to help. 

I am committed to helping small businesses and their workers 

have access to more affordable coverage, but firmly believe that the 

language as currently written actually moves us in the wrong direction. It is my hope that in moving this bill forward through the 

legislative process, Congress can continue to improve the language 

I called into question during the Committee Markup and find a 

real solution to make healthcare coverage more affordable to hardpressed small businesses, their workers, and their families instead 

of allowing AHPs to discriminate against older, sicker employees. 

CHARLIE NORWOOD. 

(54) 

1 ‘‘The Uninsured and Their Access to Care.’’ Publication No.: 1420–06, The Kaiser Commission on Medicare and the Uninsured, The Henry J. Kaiser Family Foundation, December 2004. 2 ‘‘One in Three: Non-Elderly Americans Without Health Insurance, 2002–2003’’ Families 

USA, June 2004. 3 Congressional Budget Office Cost Estimate, H.R. 660 Small Business Health Fairness Act 

of 2003, July 11, 2003. 

MINORITY VIEWS 

Once again, the majority proposed legislation it claims is in the 

interest of the 45 million employees and small employers without 

health insurance, but in fact is likely to reduce their health care 

benefits and coverage.1 Rather than proposing real solutions for delivering meaningful health coverage for uninsured Americans, this 

legislation will cut health benefits for 7 million workers who currently have coverage and make coverage more expensive for four 

out of five small businesses. The proposed Association Health Plans 

(AHPs) would be almost entirely exempt from oversight by state 

regulators, undermining coverage for serious diseases and increasing consumers’ vulnerability to fraud and insolvencies. 

Over 80 million Americans lack health coverage for some part of 

a year and are looking to Congress for help.2 Approximately half 

of those Americans work for or are family members of someone who 

works for a small employer. Many small employers lack the financial resources to afford health insurance coverage. These employers, and the workers and family members who depend upon them, 

need solutions that will provide an expanded pool for affordable 

coverage and subsidize the costs of low wage workers. HR 525 not 

only fails to deliver help, it actually will reduce health care coverage and raise health insurance costs for millions of Americans. 

The independent Congressional Budget Office analyzed the impact of AHP legislation in 2002 and 2003 and concluded: 

‘‘ * * * about 600,000 more people (including employees 

and their dependents) would be insured through small employers than would be insured under current law. By 2008, 

about 7.5 million people would obtain health insurance 

through association health plans. However, under current 

law, most of those AHP enrollees would have been insured 

in the state-regulated market rather than being uninsured. CBO also estimates that about 10,000 people would 

lose coverage in response to rising premiums in the smallgroup market.’’ 3

CBO also warns us that far from reducing health expenses, this 

bill will increase health care costs, because it will encourage cherry 

picking of the most desirable employees, leaving the more expensive employers in the current system. CBO concluded that AHPs 

primarily will compete by offering less generous benefit packages 

and thus, reducing coverage for 7 million workers and families. 

And those who remain covered by non-AHP insurance will pay inVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00054 Fmt 6604 Sfmt 6604 E:\HR\OC\HR041.XXX HR041
55 

4 ‘‘Impact of Association Health Plan Legislation on Premiums and Coverage for Small Employers,’’ Beth Fritchen and Karen Bender, Mercer Risk, Finance & Insurance Consulting, prepared for National Small Business Association, 2003. 

creased costs to compensate for those who are siphoned off into 

AHPs. 

A 2003 study by Mercer Consultants, commissioned by National 

Small Business United, made even more dire predictions. Mercer 

found that AHP legislation would increase the number of the uninsured by 1 million as employers in the non-AHP market dropped 

coverage due to premium increases. Health insurance premiums in 

the non-AHP market were estimated to rise 23% due to the exodus 

of healthier firms to non-regulated AHPs.4

Rather than expanding health coverage and health services; it is 

going to lead to the reduction of health coverage for 7 million 

Americans who will lose the right to vital medical coverage such 

as OB/GYN and pediatrician services, cervical, colon, mammography and prostate cancer screening and treatment, maternity benefits and well-care child services, and diabetes treatment. 

That is why over 1300 local and national organizations oppose 

this bill, including the National Governors Association, the Republican Governors Association, Democratic Governors Association, 41 

state Attorney General, the National Association of Insurance Commissioners, National Small Business United, Blue Cross Blue 

Shield, the Association of Health Insurance Plans, and well as hundreds of labor, consumer, and business groups (see attached list). 

H.R. 525 CUTS BENEFITS FOR MILLIONS OF WORKERS BY OVERRIDING

VITAL STATE CONSUMER PROTECTION LAWS

Under H.R. 525, AHP generally would have sole discretion to select the specific items and services to be covered, notwithstanding 

state laws. AHPs would be exempt from key consumer protection 

laws, including state laws requiring access to mammography 

screening, emergency services, maternity care for expectant mother, well-baby care for infants, and other protections that ensure appropriate access to health care. 

This bill would result in a two-tiered small group health insurance marketplace, one tier consisting primarily of healthy individuals and groups who benefit from preemption of state health mandates, and another tier comprised significantly of sicker individuals 

and groups who remain subject to state consumer protections. As 

Members of Congress, we should be seeking ways to eliminate the 

health care disparities in current markets, not creating new ones. 

The Republican Majority contend that given the choice, AHPs 

will freely choose to provide ample health care coverage. However, 

history demonstrates that for years businesses provided health coverage without providing adequate health care coverage. Access to 

mammograms, maternity payments for expectant mothers, cancerscreening procedures, well-baby care, and other preventive health 

treatment were routinely omitted in health care coverage until 

states required it. 

States were forced to enact consumer protections because businesses did not insist on providing comprehensive coverage for their 

employees. Today, nearly all states and the District of Columbia 

have laws that protect access to mammography screening, emerVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00055 Fmt 6604 Sfmt 6604 E:\HR\OC\HR041.XXX HR041
56 

5 Blue Cross and Blue Shield Association, December 2002. 

6 Blue Cross and Blue Shield Association, December 2002. 

gency services, allow direct access to OB/GYNs, diabetic supplies 

and education, and prompt payment rules.5

More than 25 states and the District of Columbia have laws that 

protect access to prostate cancer screening, cervical cancer screening, and well-baby care. Over 30 states have mental health parity 

laws and more than 33 state require insurance plans to cover a 

minimum amount of mental health benefits.6

We believe, as do hundreds of organizations, public officials, and 

health care providers, that state consumer protection laws represent significant steps towards Congress’ goal of improving access 

to comprehensive health care for all. Our Republican colleagues do 

not. They would prefer to roll back the protections we have today. 

Therefore, the Republican Majority rejected each of the 10 amendments offered by Democrats to restore consumer protections lost 

under this legislation. Several members of the Majority argued that 

‘‘bare bones’’ coverage was better than no coverage. But, those who 

understand illnesses and health insurance know this often is not 

true. To offer health insurance that does not cover many diseases 

or requires a $1000 or even a $5000 deductible, in many cases will 

be worse than no insurance at all. Individuals and employers will 

pay scarce resources each month for policies that will not help 

them when they need it. 

H.R. 525 ENCOURAGES ‘‘CHERRY-PICKING’’ OR ‘‘SKIMMING’’ OF

YOUNGER, HEALTHIER POPULATIONS

In addition to eliminating critical consumer protections, the bill 

permits AHPs to engage in cherry picking, skimming off the 

healthiest consumers and leaving the sickest patients uninsured. 

H.R. 525 allows AHPs to offer coverage to specific types of employers, allowing plans to seek memberships with better risks and 

less costly populations. In addition, AHPs may offer different premiums to each of their member employers. Thus, AHPs may charge 

lower rates for lower risk persons and charge far more for higher 

risk persons, forcing them out of the pool. The bill’s only restriction 

is that the difference in premiums cannot be health-status based. 

But the provision is meaningless because it permits AHPs to accomplish the same goal by ‘‘cherry-picking’’ and varying premiums 

based on age, sex, race, national origin, or any other key factor of 

an employer’s workforce, including claims experience, geography 

and membership. 

Unlike the Republican Majority, we are convinced by the Congressional Budget Office (CBO) finding that AHP legislation would 

result in higher premiums for 80 percent of small employers, while 

as many as 7 million of the sickest individuals would have reduced 

coverage. 

Similarly, the Mercer Consulting study found that health insurance premiums would increase 23% for small employers that continued to purchase state regulated coverage, and the number of uninsured would increase by over 1 million as a result of coverage 

losses among workers and their dependents. 

57 

During the committee markup, we supported the amendment offered by our Republican colleague Representative Charlie Norwood 

requiring AHPs to charge the same premium to all employer 

groups. However, the Republican Majority rejected this amendment, arguing that AHPs have no competitive advantage if they 

cannot limit and control their risks. 

H.R. 525 GIVES AHPS UNPRECEDENTED POWERS THAT LARGE

EMPLOYERS DO NOT ENJOY

One of the key arguments made by the supporters of AHPs is 

that some large employers are exempt from state laws and therefore, so should be small employers. The supporters fail to note that 

H.R. 525 would provide small employers exemptions from state and 

federal law that far exceed the limited exemption large employers 

enjoy. 

Health insurance generally is regulated by the states, not the 

federal government. When Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA), it primarily intended 

to establish federal standards for pension plans. At that time, Congress did have some expectation that federal regulation of health 

care was imminent and ERISA broadly preempted state laws that 

regulated all employee benefit plans. In 1985, the Supreme Court, 

in Metropolitan Life Insurance Co. v. Massachusetts, 471 US 724, 

held that employer health plans that were provided through insurance were subject to state law, but when employers provided health 

care directly, through self-insurance, they were exempt from state 

laws. 

H.R. 525 would give small employers far broader protection than 

larger employers currently enjoy under ERISA. First, H.R. 525 exempts all AHP plans, self-insured and insured, from state regulation. Second, large employers currently cannot cherry-pick among 

their employees the same way AHPs are allowed to under H.R. 

525. Under ERISA, employers that self-insure are prohibited from 

varying premiums charged based on health status. Further, employers are subject to civil rights law prohibitions on discrimination 

on the basis of race, sex, age, national origin, etc. As a result, large 

employers charge all employees the same premium varying only by 

family size and geography (due to varying local costs). In contrast, 

H.R. 525 specifically authorized AHPs to discriminate in premiums. 

AHPs may vary premiums among employers on any basis except 

health status and AHPs may increase premiums of individual employers based upon their claims experience. Finally, H.R. 525 is not 

limited to small employers. Large employers may join AHPs and 

may well do so based on H.R. 525’s almost complete exemption 

from state insurance regulation and consumer protection laws. 

AHPS WOULD OPERATE LARGELY UNREGULATED

Regulation of insurance and public health has traditionally been 

the province of the states. H.R. 525 eliminates centuries of state 

law that establish minimum standards for the conduct of the business of insurance, and raises important questions about the future 

ability of states to regulate health insurance at all. 

By allowing insurers who sell to AHPs to set up shop in a state 

with very lenient rules and oversight and market to small employVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00057 Fmt 6604 Sfmt 6604 E:\HR\OC\HR041.XXX HR041
58 

7 ‘‘The Department of Labor lacks the staffing, experience, and regulatory authority to effectively regulate Association Health Plans’’, Roderick A. DeArment, Business Law Brief, Spring 

2004. 8 ‘‘MEWAs: The threat of Plan Insolvency and Other Challenges’’, Mila Kofman, Eliza Bangit 

and Kevin Lucia, Health Policy Institute, Georgetown University, commissioned by the Commonwealth Fund, March 2004. 

ers without meeting any state’s rules, states would be rendered 

powerless to take action even where there is obvious risk to consumers. 

We strongly disagree with the provisions of H.R. 525 that would 

federalize oversight of AHPs, but that provide the Department of 

Labor (DOL) with minimal specific and general regulatory authority over AHPs. States are in the business of regulating insurance 

for good reason. States can shut down fraudulent health plans faster than DOL. States can shut down crooked health plans by issuing 

emergency cease-and-desist orders within days, while DOL can 

take several years. Additionally, DOL lacks sufficient staff and 

budget. A 2004 report by the former Deputy Secretary of Labor 

under the first Bush Administration, Roderick A. DeArment, has 

concluded that DOL is not able to adequately regulate AHPs.7

Most state attorneys general, plus state governors, insurance regulators and state insurance legislators also publicly agree sole federal oversight of AHPs would expose small businesses to potentially widespread scams. In a June 11, 2003 press release, the Coalition Against Insurance Fraud stated, ‘‘State oversight is a vital 

part of the safety net our businesses need to help ensure health 

coverage provides reliable protection, not empty promises.’’

Experience with another form of health insurance pooling without adequate accountability already exist; Multiple Employer Welfare Arrangements (MEWAs). We know from past experience that 

these plans can harm consumers. MEWA fraud and abuse problems have resulted in 400,000 uninsured consumers with over $123 

million in unpaid medical bills.8

H.R. 525 FAILS TO ADDRESS REAL PROBLEMS OF SMALL BUSINESSES

H.R. 525 does not address the major reasons that small businesses do not offer health insurance coverage—lack of stability, 

lack of profitability, and generally low wage workforces. A majority 

of small businesses do not survive their first year of operations and 

a small minority exist after 3 years of operation. And the majority 

of small business workforces employ low wage employees. Over half 

the uninsured earn less than two times the poverty rate. A minimum wage worker earns $1000 a month. An individual health insurance policy costs over $300 a month and a family policy costs 

over $800 a month. In order for a small business to offer health 

coverage to a low wage employee, at a 50% employer contribution 

rate, it would mean that a 10–30% salary increase for these workers would be necessary. These employers are unlikely to be able to 

afford such an increase and many of these employees would choose 

cash over health insurance. 

CBO analyzed AHP legislation in 2003 and concluded much the 

same. Of the 45 million uninsured, CBO concluded that only 

600,000 would receive coverage under AHPs. CBO concluded that 

59 

AHPs primarily would cover employers who already have coverage 

and shift to cheaper AHP plans, potentially 7 million individuals. 

THE DEMOCRATIC ALTERNATIVE

During markup, Representatives Kind and Andrews offered an 

amendment in the nature of a substitute that would authorize the 

Secretary of Labor and states to create small employer health 

plans similar to the Federal Employees Health Benefit Plan, without cutting vital health benefits. The substitute provides small 

businesses the same access and health care coverage that federal 

employees have. It also would authorize funds to provide subsidies 

to employers with low wage workforces recognizing the reality that 

most small employers cannot significantly increase spending for 

these workers. 

The Democratic alternative allows all employers with fewer than 

100 employees during the previous calendar to be eligible to apply 

for coverage under the federal or state plans. Employers must offer 

coverage to all employees who have completed 3 months of service. 

Employees working fewer than 30 hours a week are eligible for pro 

rata coverage. It authorizes the Secretary and the states to establish an initial open enrollment period and thereafter an annual enrollment period. Small employers currently providing coverage are 

provided a one-time election to join the federal or state plan during 

the initial open enrollment period. The substitute would require 

the Department of Labor to annually contract with state licensed 

health insurers to offer health insurance coverage in a state. Participating insurers remain subject to state laws applicable to the 

states in which they cover residents. 

During Committee mark-up a number of other amendments were 

offered that would have addressed many of the bill’s substantial deficiencies and maintained needed state law consumer protections. 

Representative McCollum offered an amendment to require AHPs 

to abide by state laws ensuring maternal and child care coverage; 

Representative McCarthy and Woolsey offered an amendment to 

protect state laws on mammography and cervical cancer screening 

coverage; Representative Holt offered amendments to protect state 

laws on mental health benefits and access to contraceptive coverage; Representatives Kildee and Hinojosa offered an amendment 

to retain state laws covering diabetes treatment; Representative 

Kind offered an amendment to protect state laws for treatment of 

autism; Representatives Tierney an Van Hollen offered an amendment to require Association Health Plans to comply with state patients’ bill of rights protections, such as direct access to OB/GYNs, 

prudent layperson decision making standards, coverage of non-formulary prescription drugs in certain situations, access to hospital 

emergency room treatment; and independent external review of 

coverage decisions; Representative Scott offered an amendment to 

assure that AHPs have adequate capital as under NAIC model capital standards; and Representative Kucinich offered an amendment 

to ensure disclosure of pharmaceutical costs. The Majority rejected 

all of these amendments that would have protected consumers. 

For these reasons the minority believes that HR 525 is fatally 

flawed and will reduce rather than improve health care coverage 

and benefits for American workers and their families. 

60 


Insert offset folio 67 here HR41.013
61 


Insert offset folio 68 here HR41.014
62 

GEORGE MILLER. RAU ́ L M. GRIJALVA. ROBERT C. ‘‘BOBBY’’ SCOTT. DALE E. KILDEE. JOHN F. TIERNEY. RUBE ́ N HINOJOSA. MAJOR R. OWENS. DENNIS J. KUCINICH. BETTY MCCOLLUM. CAROLYN MCCARTHY. LYNN WOOLSEY. RON KIND. 

CHRIS VAN HOLLEN. 

TIMOTHY BISHOP. 

DAVID WU. 

TIM RYAN. 

ROBERT ANDREWS. 

DONALD M. PAYNE. DANNY K. DAVIS. 

SUSAN DAVIS. 

RUSH HOLT. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 

1974 

SHORT TITLE AND TABLE OF CONTENTS

SECTION 1. This Act may be cited as the ‘‘Employee Retirement 

Income Security Act of 1974’’. 

TABLE OF CONTENTS 

Sec. 1. Short title and table of contents. 

TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS 

* * * * * * * 

SUBPART B—OTHER REQUIREMENTS

Sec. 711. Standards relating to benefits for mothers and newborns. 

* * * * * * * 

PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS

801. Association health plans. 

802. Certification of association health plans. 

803. Requirements relating to sponsors and boards of trustees. 

804. Participation and coverage requirements. 

805. Other requirements relating to plan documents, contribution rates, and benefit 

options. 

806. Maintenance of reserves and provisions for solvency for plans providing health 

benefits in addition to health insurance coverage. 

807. Requirements for application and related requirements. 

808. Notice requirements for voluntary termination. 

63 

809. Corrective actions and mandatory termination. 

810. Trusteeship by the Secretary of insolvent association health plans providing 

health benefits in addition to health insurance coverage. 

811. State assessment authority. 

812. Definitions and rules of construction. 

* * * * * * * 

TITLE I—PROTECTION OF EMPLOYEE BENEFIT RIGHTS 

SUBTITLE A—GENERAL PROVISIONS

* * * * * * * 

DEFINITIONS

SEC. 3. For purposes of this title: 

(1) * * * 

* * * * * * * 

(16)(A) * * * 

(B) The term ‘‘plan sponsor’’ means (i) the employer in the case 

of an employee benefit plan established or maintained by a single 

employer, (ii) the employee organization in the case of a plan established or maintained by an employee organization, or (iii) in the 

case of a plan established or maintained by two or more employers 

or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or 

other similar group of representatives of the parties who establish 

or maintain the plan. Such term also includes a person serving as 

the sponsor of an association health plan under part 8. 

* * * * * * * 

(40)(A) * * * 

(B) For purposes of this paragraph— (i) two or more trades or businesses, whether or not incorporated, shall be deemed a single employer if such trades or 

businesses are within the same control group, except that, in 

any case in which the benefit referred to in subparagraph (A) 

consists of medical care (as defined in section 812(a)(2)), two or 

more trades or businesses, whether or not incorporated, shall be 

deemed a single employer for any plan year of such plan, or any 

fiscal year of such other arrangement, if such trades or businesses are within the same control group during such year or 

at any time during the preceding 1-year period, 

* * * * * * * 

ø(iii) the determination¿ (iii)(I) in any case in which the benefit referred to in subparagraph (A) consists of medical care (as 

defined in section 812(a)(2)), the determination of whether a 

trade or business is under ‘‘common control’’ with another trade 

or business shall be determined under regulations of the Secretary applying principles consistent and coextensive with the 

principles applied in determining whether employees of two or 

more trades or businesses are treated as employed by a single 

employer under section 4001(b), except that, for purposes of this 

paragraph, an interest of greater than 25 percent may not be required as the minimum interest necessary for common control, 

or 

64 

(II) in any other case, the determination of whether a trade 

or business is under ‘‘common control’’ with another trade or 

business shall be determined under regulations of the Secretary applying principles similar to the principles applied in 

determining whether employees of two or more trades or businesses are treated as employed by a single employer under section 4001(b), except that, for purposes of this paragraph, common control shall not be based on an interest of less than 25 

percent, 

(iv) in any case in which the benefit referred to in subparagraph (A) consists of medical care (as defined in section 

812(a)(2)), in determining, after the application of clause (i), 

whether benefits are provided to employees of two or more employers, the arrangement shall be treated as having only one 

participating employer if, after the application of clause (i), the 

number of individuals who are employees and former employees 

of any one participating employer and who are covered under 

the arrangement is greater than 75 percent of the aggregate 

number of all individuals who are employees or former employees of participating employers and who are covered under the 

arrangement, 

ø(iv)¿ (v) the term ‘‘rural electric cooperative’’ means— (I) * * * 

* * * * * * * 

ø(v)¿ (vi) the term ‘‘rural telephone cooperative association’’ means an organization described in paragraph (4) or (6) of section 501(c) of the Internal Revenue Code of 1986 which is exempt from tax under section 501(a) of such Code and at least 

80 percent of the members of which are organizations engaged 

primarily in providing telephone service to rural areas of the 

United States on a mutual, cooperative, or other basis. 

* * * * * * * 

SUBTITLE B—REGULATORY PROVISIONS

PART 1—REPORTING AND DISCLOSURE

* * * * * * * 

SUMMARY PLAN DESCRIPTION

SEC. 102. (a) * * * 

(b) The summary plan description shall contain the following information: The name and type of administration of the plan; in the 

case of a group health plan (as defined in section 733(a)(1)), whether a health insurance issuer (as defined in section 733(b)(2)) is responsible for the financing or administration (including payment of 

claims) of the plan and (if so) the name and address of such issuer; 

the name and address of the person designated as agent for the 

service of legal process, if such person is not the administrator; the 

name and address of the administrator; names, titles, and addresses of any trustee or trustees (if they are persons different from the 

administrator); a description of the relevant provisions of any applicable collective bargaining agreement; the plan’s requirements 

respecting eligibility for participation and benefits; a description of 

65 

the provisions providing for nonforfeitable pension benefits; circumstances which may result in disqualification, ineligibility, or 

denial or loss of benefits; the source of financing of the plan and 

the identity of any organization through which benefits are provided; the date of the end of the plan year and whether the records 

of the plan are kept on a calendar, policy, or fiscal year basis; the 

procedures to be followed in presenting claims for benefits under 

the plan including the office at the Department of Labor through 

which participants and beneficiaries may seek assistance or information regarding their rights under this Act and the Health Insurance Portability and Accountability Act of 1996 with respect to 

health benefits that are offered through a group health plan (as defined in section 733(a)(1)) and the remedies available under the 

plan for the redress of claims which are denied in whole or in part 

(including procedures required under section 503 of this Act). An 

association health plan shall include in its summary plan description, in connection with each benefit option, a description of the 

form of solvency or guarantee fund protection secured pursuant to 

this Act or applicable State law, if any. 

* * * * * * * 

PART 5—ADMINISTRATION AND ENFORCEMENT

CRIMINAL PENALTIES

SEC. 501. (a) Any person who willfully violates any provision of 

part 1 of this subtitle, or any regulation or order issued under any 

such provision, shall upon conviction be fined not more than 

$100,000 or imprisoned not more than 10 years, or both; except 

that in the case of such violation by a person not an individual, the 

fine imposed upon such person shall be a fine not exceeding 

$500,000. 

(b) Any person who willfully falsely represents, to any employee, 

any employee’s beneficiary, any employer, the Secretary, or any 

State, a plan or other arrangement established or maintained for 

the purpose of offering or providing any benefit described in section 

3(1) to employees or their beneficiaries as—

(1) being an association health plan which has been certified 

under part 8; 

(2) having been established or maintained under or pursuant 

to one or more collective bargaining agreements which are 

reached pursuant to collective bargaining described in section 

8(d) of the National Labor Relations Act (29 U.S.C. 158(d)) or 

paragraph Fourth of section 2 of the Railway Labor Act (45 

U.S.C. 152, paragraph Fourth) or which are reached pursuant 

to labor-management negotiations under similar provisions of 

State public employee relations laws; or 

(3) being a plan or arrangement described in section 

3(40)(A)(i), 

shall, upon conviction, be imprisoned not more than 5 years, be 

fined under title 18, United States Code, or both. 

66 

CIVIL ENFORCEMENT

SEC. 502. (a) * * * 

* * * * * * * 

(n) ASSOCIATION HEALTH PLAN CEASE AND DESIST ORDERS.— (1) IN GENERAL.—Subject to paragraph (2), upon application 

by the Secretary showing the operation, promotion, or marketing of an association health plan (or similar arrangement 

providing benefits consisting of medical care (as defined in section 733(a)(2))) that— (A) is not certified under part 8, is subject under section 

514(b)(6) to the insurance laws of any State in which the 

plan or arrangement offers or provides benefits, and is not 

licensed, registered, or otherwise approved under the insurance laws of such State; or 

(B) is an association health plan certified under part 8 

and is not operating in accordance with the requirements 

under part 8 for such certification, 

a district court of the United States shall enter an order requiring that the plan or arrangement cease activities. 

(2) EXCEPTION.—Paragraph (1) shall not apply in the case of 

an association health plan or other arrangement if the plan or 

arrangement shows that—

(A) all benefits under it referred to in paragraph (1) consist of health insurance coverage; and 

(B) with respect to each State in which the plan or arrangement offers or provides benefits, the plan or arrangement is operating in accordance with applicable State laws 

that are not superseded under section 514. 

(3) ADDITIONAL EQUITABLE RELIEF.—The court may grant 

such additional equitable relief, including any relief available 

under this title, as it deems necessary to protect the interests of 

the public and of persons having claims for benefits against the 

plan. 

CLAIMS PROCEDURE

SEC. 503. (a) IN GENERAL.—In accordance with regulations of the 

Secretary, every employee benefit plan shall—

(1) * * * 

* * * * * * * 

(b) ASSOCIATION HEALTH PLANS.—The terms of each association 

health plan which is or has been certified under part 8 shall require 

the board of trustees or the named fiduciary (as applicable) to ensure that the requirements of this section are met in connection with 

claims filed under the plan. 

* * * * * * * 

COORDINATION AND RESPONSIBILITY OF AGENCIES ENFORCING EM- PLOYEE RETIREMENT INCOME SECURITY ACT AND RELATED FEDERAL

LAWS

SEC. 506. (a) * * * 

* * * * * * * 

67 

(d) CONSULTATION WITH STATES WITH RESPECT TO ASSOCIATION

HEALTH PLANS.— (1) AGREEMENTS WITH STATES.—The Secretary shall consult 

with the State recognized under paragraph (2) with respect to 

an association health plan regarding the exercise of— (A) the Secretary’s authority under sections 502 and 504 

to enforce the requirements for certification under part 8; 

and 

(B) the Secretary’s authority to certify association health 

plans under part 8 in accordance with regulations of the 

Secretary applicable to certification under part 8. 

(2) RECOGNITION OF PRIMARY DOMICILE STATE.—In carrying 

out paragraph (1), the Secretary shall ensure that only one 

State will be recognized, with respect to any particular association health plan, as the State with which consultation is required. In carrying out this paragraph—

(A) in the case of a plan which provides health insurance 

coverage (as defined in section 812(a)(3)), such State shall 

be the State with which filing and approval of a policy type 

offered by the plan was initially obtained, and 

(B) in any other case, the Secretary shall take into account the places of residence of the participants and beneficiaries under the plan and the State in which the trust is 

maintained. 

* * * * * * * 

EFFECT ON OTHER LAWS

SEC. 514. (a) * * * 

(b)(1) * * * 

* * * * * * * 

(4) øSubsection (a)¿ Subsections (a) and (d) shall not apply to 

any generally applicable criminal law of a State. 

(5)(A) Except as provided in subparagraph (B), øsubsection (a)¿ 

subsection (a) of this section and subsections (a)(2)(B) and (b) of section 805 shall not apply to the Hawaii Prepaid Health Care Act 

(Haw. Rev. Stat. §§393–1 through 393–51). 

(B) Nothing in subparagraph (A) shall be construed to exempt 

from øsubsection (a)¿ subsection (a) of this section or subsection 

(a)(2)(B) or (b) of section 805—

(i) * * * 

* * * * * * * 

(6)(A) Notwithstanding any other provision of this section—

(i) in the case of an employee welfare benefit plan which is 

a multiple employer welfare arrangement and is fully insured 

(or which is a multiple employer welfare arrangement subject 

to an exemption under subparagraph (B)), any law of any State 

which regulates insurance may apply to such arrangement to 

the extent that such law provides—

(I) * * * 

(II) provisions to enforce such standards, øand¿ 

(ii) in the case of any other employee welfare benefit plan 

which is a multiple employer welfare arrangement, and which 

68 

does not provide medical care (within the meaning of section 

733(a)(2)), in addition to this title, any law of any State which 

regulates insurance may apply to the extent not inconsistent 

with the preceding sections of this øtitle.¿ title, and 

(iii) subject to subparagraph (E), in the case of any other employee welfare benefit plan which is a multiple employer welfare 

arrangement and which provides medical care (within the 

meaning of section 733(a)(2)), any law of any State which regulates insurance may apply. 

* * * * * * * 

(E) The preceding subparagraphs of this paragraph do not apply 

with respect to any State law in the case of an association health 

plan which is certified under part 8. 

* * * * * * * 

(d)(1) Except as provided in subsection (b)(4), the provisions of 

this title shall supersede any and all State laws insofar as they may 

now or hereafter preclude, or have the effect of precluding, a health 

insurance issuer from offering health insurance coverage in connection with an association health plan which is certified under part 

8. 

(2) Except as provided in paragraphs (4) and (5) of subsection (b) 

of this section— (A) In any case in which health insurance coverage of any 

policy type is offered under an association health plan certified 

under part 8 to a participating employer operating in such 

State, the provisions of this title shall supersede any and all 

laws of such State insofar as they may preclude a health insurance issuer from offering health insurance coverage of the same 

policy type to other employers operating in the State which are 

eligible for coverage under such association health plan, whether or not such other employers are participating employers in 

such plan. 

(B) In any case in which health insurance coverage of any 

policy type is offered in a State under an association health 

plan certified under part 8 and the filing, with the applicable 

State authority (as defined in section 812(a)(9)), of the policy 

form in connection with such policy type is approved by such 

State authority, the provisions of this title shall supersede any 

and all laws of any other State in which health insurance coverage of such type is offered, insofar as they may preclude, upon 

the filing in the same form and manner of such policy form 

with the applicable State authority in such other State, the approval of the filing in such other State. 

(3) Nothing in subsection (b)(6)(E) or the preceding provisions of 

this subsection shall be construed, with respect to health insurance 

issuers or health insurance coverage, to supersede or impair the law 

of any State—

(A) providing solvency standards or similar standards regarding the adequacy of insurer capital, surplus, reserves, or 

contributions, or 

(B) relating to prompt payment of claims. 

(4) For additional provisions relating to association health plans, 

see subsections (a)(2)(B) and (b) of section 805. 

69 

(5) For purposes of this subsection, the term ‘‘association health 

plan’’ has the meaning provided in section 801(a), and the terms ‘‘health insurance coverage’’, ‘‘participating employer’’, and ‘‘health 

insurance issuer’’ have the meanings provided such terms in section 

812, respectively. 

ø(d) Nothing¿ (e)(1) Except as provided in paragraph (2), nothing 

in this title shall be construed to alter, amend, modify, invalidate, 

impair, or supersede any law of the United States (except as provided in sections 111 and 507(b)) or any rule or regulation issued 

under any such law. 

(2) Nothing in any other provision of law enacted on or after the 

date of the enactment of the Small Business Health Fairness Act of 

2005 shall be construed to alter, amend, modify, invalidate, impair, 

or supersede any provision of this title, except by specific cross-reference to the affected section. 

* * * * * * * 

PART 7—GROUP HEALTH PLAN REQUIREMENTS

* * * * * * * 

SUBPART C—GENERAL PROVISIONS

SEC. 731. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION. 

(a) * * * 

* * * * * * * 

(c) RULES OF CONSTRUCTION.—Except as provided in section 711, 

nothing in this part or part 8 shall be construed as requiring a 

group health plan or health insurance coverage to provide specific 

benefits under the terms of such plan or coverage. 

* * * * * * * 

PART 8—RULES GOVERNING ASSOCIATION 

HEALTH PLANS 

SEC. 801. ASSOCIATION HEALTH PLANS. 

(a) IN GENERAL.—For purposes of this part, the term ‘‘association 

health plan’’ means a group health plan whose sponsor is (or is 

deemed under this part to be) described in subsection (b). 

(b) SPONSORSHIP.—The sponsor of a group health plan is described in this subsection if such sponsor—

(1) is organized and maintained in good faith, with a constitution and bylaws specifically stating its purpose and providing for periodic meetings on at least an annual basis, as a 

bona fide trade association, a bona fide industry association 

(including a rural electric cooperative association or a rural 

telephone cooperative association), a bona fide professional association, or a bona fide chamber of commerce (or similar bona 

fide business association, including a corporation or similar organization that operates on a cooperative basis (within the 

meaning of section 1381 of the Internal Revenue Code of 1986)), 

for substantial purposes other than that of obtaining or providing medical care; 

70 

(2) is established as a permanent entity which receives the active support of its members and requires for membership payment on a periodic basis of dues or payments necessary to 

maintain eligibility for membership in the sponsor; and 

(3) does not condition membership, such dues or payments, or 

coverage under the plan on the basis of health status-related 

factors with respect to the employees of its members (or affiliated members), or the dependents of such employees, and does 

not condition such dues or payments on the basis of group 

health plan participation. 

Any sponsor consisting of an association of entities which meet the 

requirements of paragraphs (1), (2), and (3) shall be deemed to be 

a sponsor described in this subsection. 

SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH PLANS. 

(a) IN GENERAL.—The applicable authority shall prescribe by regulation a procedure under which, subject to subsection (b), the applicable authority shall certify association health plans which apply 

for certification as meeting the requirements of this part. 

(b) STANDARDS.—Under the procedure prescribed pursuant to subsection (a), in the case of an association health plan that provides 

at least one benefit option which does not consist of health insurance coverage, the applicable authority shall certify such plan as 

meeting the requirements of this part only if the applicable authority is satisfied that the applicable requirements of this part are met 

(or, upon the date on which the plan is to commence operations, will 

be met) with respect to the plan. 

(c) REQUIREMENTS APPLICABLE TO CERTIFIED PLANS.—An association health plan with respect to which certification under this 

part is in effect shall meet the applicable requirements of this part, 

effective on the date of certification (or, if later, on the date on which 

the plan is to commence operations). 

(d) REQUIREMENTS FOR CONTINUED CERTIFICATION.—The applicable authority may provide by regulation for continued certification 

of association health plans under this part. 

(e) CLASS CERTIFICATION FOR FULLY INSURED PLANS.—The applicable authority shall establish a class certification procedure for association health plans under which all benefits consist of health insurance coverage. Under such procedure, the applicable authority 

shall provide for the granting of certification under this part to the 

plans in each class of such association health plans upon appropriate filing under such procedure in connection with plans in such 

class and payment of the prescribed fee under section 807(a). 

(f) CERTIFICATION OF SELF-INSURED ASSOCIATION HEALTH

PLANS.—An association health plan which offers one or more benefit 

options which do not consist of health insurance coverage may be 

certified under this part only if such plan consists of any of the following: 

(1) a plan which offered such coverage on the date of the enactment of the Small Business Health Fairness Act of 2005, 

(2) a plan under which the sponsor does not restrict membership to one or more trades and businesses or industries and 

whose eligible participating employers represent a broad crosssection of trades and businesses or industries, or 

71 

(3) a plan whose eligible participating employers represent 

one or more trades or businesses, or one or more industries, consisting of any of the following: agriculture; equipment and automobile dealerships; barbering and cosmetology; certified public 

accounting practices; child care; construction; dance, theatrical 

and orchestra productions; disinfecting and pest control; financial services; fishing; foodservice establishments; hospitals; 

labor organizations; logging; manufacturing (metals); mining; 

medical and dental practices; medical laboratories; professional 

consulting services; sanitary services; transportation (local and 

freight); warehousing; wholesaling/distributing; or any other 

trade or business or industry which has been indicated as having average or above-average risk or health claims experience by 

reason of State rate filings, denials of coverage, proposed premium rate levels, or other means demonstrated by such plan in 

accordance with regulations. 

SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND BOARDS OF 

TRUSTEES. 

(a) SPONSOR.—The requirements of this subsection are met with 

respect to an association health plan if the sponsor has met (or is 

deemed under this part to have met) the requirements of section 

801(b) for a continuous period of not less than 3 years ending with 

the date of the application for certification under this part. 

(b) BOARD OF TRUSTEES.—The requirements of this subsection are 

met with respect to an association health plan if the following requirements are met: 

(1) FISCAL CONTROL.—The plan is operated, pursuant to a 

trust agreement, by a board of trustees which has complete fiscal control over the plan and which is responsible for all operations of the plan. 

(2) RULES OF OPERATION AND FINANCIAL CONTROLS.—The 

board of trustees has in effect rules of operation and financial 

controls, based on a 3-year plan of operation, adequate to carry 

out the terms of the plan and to meet all requirements of this 

title applicable to the plan. 

(3) RULES GOVERNING RELATIONSHIP TO PARTICIPATING EMPLOYERS AND TO CONTRACTORS.—

(A) BOARD MEMBERSHIP.—

(i) IN GENERAL.—Except as provided in clauses (ii) 

and (iii), the members of the board of trustees are individuals selected from individuals who are the owners, 

officers, directors, or employees of the participating employers or who are partners in the participating employers and actively participate in the business. 

(ii) LIMITATION.—

(I) GENERAL RULE.—Except as provided in subclauses (II) and (III), no such member is an owner, 

officer, director, or employee of, or partner in, a 

contract administrator or other service provider to 

the plan. 

(II) LIMITED EXCEPTION FOR PROVIDERS OF SERVICES SOLELY ON BEHALF OF THE SPONSOR.—Officers or employees of a sponsor which is a service 

provider (other than a contract administrator) to 

72 

the plan may be members of the board if they constitute not more than 25 percent of the membership 

of the board and they do not provide services to the 

plan other than on behalf of the sponsor. 

(III) TREATMENT OF PROVIDERS OF MEDICAL

CARE.—In the case of a sponsor which is an association whose membership consists primarily of 

providers of medical care, subclause (I) shall not 

apply in the case of any service provider described 

in subclause (I) who is a provider of medical care 

under the plan. 

(iii) CERTAIN PLANS EXCLUDED.—Clause (i) shall not 

apply to an association health plan which is in existence on the date of the enactment of the Small Business 

Health Fairness Act of 2005. 

(B) SOLE AUTHORITY.—The board has sole authority 

under the plan to approve applications for participation in 

the plan and to contract with a service provider to administer the day-to-day affairs of the plan. 

(c) TREATMENT OF FRANCHISE NETWORKS.—In the case of a group 

health plan which is established and maintained by a franchiser for 

a franchise network consisting of its franchisees—

(1) the requirements of subsection (a) and section 801(a) shall 

be deemed met if such requirements would otherwise be met if 

the franchiser were deemed to be the sponsor referred to in section 801(b), such network were deemed to be an association described in section 801(b), and each franchisee were deemed to 

be a member (of the association and the sponsor) referred to in 

section 801(b); and 

(2) the requirements of section 804(a)(1) shall be deemed met. 

The Secretary may by regulation define for purposes of this subsection the terms ‘‘franchiser’’, ‘‘franchise network’’, and ‘‘franchisee’’. 

SEC. 804. PARTICIPATION AND COVERAGE REQUIREMENTS. 

(a) COVERED EMPLOYERS AND INDIVIDUALS.—The requirements of 

this subsection are met with respect to an association health plan 

if, under the terms of the plan—

(1) each participating employer must be—

(A) a member of the sponsor, 

(B) the sponsor, or 

(C) an affiliated member of the sponsor with respect to 

which the requirements of subsection (b) are met, 

except that, in the case of a sponsor which is a professional association or other individual-based association, if at least one 

of the officers, directors, or employees of an employer, or at least 

one of the individuals who are partners in an employer and 

who actively participates in the business, is a member or such 

an affiliated member of the sponsor, participating employers 

may also include such employer; and 

(2) all individuals commencing coverage under the plan after 

certification under this part must be—

(A) active or retired owners (including self-employed individuals), officers, directors, or employees of, or partners in, 

participating employers; or 

73 

(B) the beneficiaries of individuals described in subparagraph (A). 

(b) COVERAGE OF PREVIOUSLY UNINSURED EMPLOYEES.—In the 

case of an association health plan in existence on the date of the enactment of the Small Business Health Fairness Act of 2005, an affiliated member of the sponsor of the plan may be offered coverage 

under the plan as a participating employer only if— (1) the affiliated member was an affiliated member on the 

date of certification under this part; or 

(2) during the 12-month period preceding the date of the offering of such coverage, the affiliated member has not maintained or contributed to a group health plan with respect to any 

of its employees who would otherwise be eligible to participate 

in such association health plan. 

(c) INDIVIDUAL MARKET UNAFFECTED.—The requirements of this 

subsection are met with respect to an association health plan if, 

under the terms of the plan, no participating employer may provide 

health insurance coverage in the individual market for any employee not covered under the plan which is similar to the coverage 

contemporaneously provided to employees of the employer under the 

plan, if such exclusion of the employee from coverage under the plan 

is based on a health status-related factor with respect to the employee and such employee would, but for such exclusion on such 

basis, be eligible for coverage under the plan. 

(d) PROHIBITION OF DISCRIMINATION AGAINST EMPLOYERS AND

EMPLOYEES ELIGIBLE TO PARTICIPATE.—The requirements of this 

subsection are met with respect to an association health plan if—

(1) under the terms of the plan, all employers meeting the preceding requirements of this section are eligible to qualify as 

participating employers for all geographically available coverage options, unless, in the case of any such employer, participation or contribution requirements of the type referred to in 

section 2711 of the Public Health Service Act are not met; 

(2) upon request, any employer eligible to participate is furnished information regarding all coverage options available 

under the plan; and 

(3) the applicable requirements of sections 701, 702, and 703 

are met with respect to the plan. 

SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOCUMENTS, 

CONTRIBUTION RATES, AND BENEFIT OPTIONS. 

(a) IN GENERAL.—The requirements of this section are met with 

respect to an association health plan if the following requirements 

are met: 

(1) CONTENTS OF GOVERNING INSTRUMENTS.—The instruments governing the plan include a written instrument, meeting 

the requirements of an instrument required under section 

402(a)(1), which—

(A) provides that the board of trustees serves as the 

named fiduciary required for plans under section 402(a)(1) 

and serves in the capacity of a plan administrator (referred 

to in section 3(16)(A)); 

(B) provides that the sponsor of the plan is to serve as 

plan sponsor (referred to in section 3(16)(B)); and 

(C) incorporates the requirements of section 806. 

74 

(2) CONTRIBUTION RATES MUST BE NONDISCRIMINATORY.— (A) The contribution rates for any participating small 

employer do not vary on the basis of any health status-related factor in relation to employees of such employer or 

their beneficiaries and do not vary on the basis of the type 

of business or industry in which such employer is engaged. 

(B) Nothing in this title or any other provision of law 

shall be construed to preclude an association health plan, 

or a health insurance issuer offering health insurance coverage in connection with an association health plan, from— (i) setting contribution rates based on the claims experience of the plan; or 

(ii) varying contribution rates for small employers in 

a State to the extent that such rates could vary using 

the same methodology employed in such State for regulating premium rates in the small group market with 

respect to health insurance coverage offered in connection with bona fide associations (within the meaning of 

section 2791(d)(3) of the Public Health Service Act), 

subject to the requirements of section 702(b) relating to contribution rates. 

(3) FLOOR FOR NUMBER OF COVERED INDIVIDUALS WITH RE- SPECT TO CERTAIN PLANS.—If any benefit option under the plan 

does not consist of health insurance coverage, the plan has as 

of the beginning of the plan year not fewer than 1,000 participants and beneficiaries. 

(4) MARKETING REQUIREMENTS.— (A) IN GENERAL.—If a benefit option which consists of 

health insurance coverage is offered under the plan, Statelicensed insurance agents shall be used to distribute to 

small employers coverage which does not consist of health 

insurance coverage in a manner comparable to the manner 

in which such agents are used to distribute health insurance coverage. 

(B) STATE-LICENSED INSURANCE AGENTS.—For purposes 

of subparagraph (A), the term ‘‘State-licensed insurance 

agents’’ means one or more agents who are licensed in a 

State and are subject to the laws of such State relating to 

licensure, qualification, testing, examination, and continuing education of persons authorized to offer, sell, or solicit health insurance coverage in such State. 

(5) REGULATORY REQUIREMENTS.—Such other requirements 

as the applicable authority determines are necessary to carry 

out the purposes of this part, which shall be prescribed by the 

applicable authority by regulation. 

(b) ABILITY OF ASSOCIATION HEALTH PLANS TO DESIGN BENEFIT

OPTIONS.—Subject to section 514(d), nothing in this part or any 

provision of State law (as defined in section 514(c)(1)) shall be construed to preclude an association health plan, or a health insurance 

issuer offering health insurance coverage in connection with an association health plan, from exercising its sole discretion in selecting 

the specific items and services consisting of medical care to be included as benefits under such plan or coverage, except (subject to 

section 514) in the case of (1) any law to the extent that it is not 

75 

preempted under section 731(a)(1) with respect to matters governed 

by section 711, 712, or 713, or (2) any law of the State with which 

filing and approval of a policy type offered by the plan was initially 

obtained to the extent that such law prohibits an exclusion of a specific disease from such coverage. 

SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS FOR SOLVENCY FOR PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH INSURANCE COVERAGE. 

(a) IN GENERAL.—The requirements of this section are met with 

respect to an association health plan if—

(1) the benefits under the plan consist solely of health insurance coverage; or 

(2) if the plan provides any additional benefit options which 

do not consist of health insurance coverage, the plan—

(A) establishes and maintains reserves with respect to 

such additional benefit options, in amounts recommended 

by the qualified actuary, consisting of—

(i) a reserve sufficient for unearned contributions; 

(ii) a reserve sufficient for benefit liabilities which 

have been incurred, which have not been satisfied, and 

for which risk of loss has not yet been transferred, and 

for expected administrative costs with respect to such 

benefit liabilities; 

(iii) a reserve sufficient for any other obligations of 

the plan; and 

(iv) a reserve sufficient for a margin of error and 

other fluctuations, taking into account the specific circumstances of the plan; and 

(B) establishes and maintains aggregate and specific excess /stop loss insurance and solvency indemnification, 

with respect to such additional benefit options for which 

risk of loss has not yet been transferred, as follows: 

(i) The plan shall secure aggregate excess /stop loss 

insurance for the plan with an attachment point which 

is not greater than 125 percent of expected gross annual claims. The applicable authority may by regulation provide for upward adjustments in the amount of 

such percentage in specified circumstances in which the 

plan specifically provides for and maintains reserves in 

excess of the amounts required under subparagraph 

(A). 

(ii) The plan shall secure specific excess /stop loss insurance for the plan with an attachment point which 

is at least equal to an amount recommended by the 

plan’s qualified actuary. The applicable authority may 

by regulation provide for adjustments in the amount of 

such insurance in specified circumstances in which the 

plan specifically provides for and maintains reserves in 

excess of the amounts required under subparagraph 

(A). 

(iii) The plan shall secure indemnification insurance 

for any claims which the plan is unable to satisfy by 

reason of a plan termination. 

76 

Any person issuing to a plan insurance described in clause (i), (ii), 

or (iii) of subparagraph (B) shall notify the Secretary of any failure 

of premium payment meriting cancellation of the policy prior to undertaking such a cancellation. Any regulations prescribed by the applicable authority pursuant to clause (i) or (ii) of subparagraph (B) 

may allow for such adjustments in the required levels of excess 

/stop loss insurance as the qualified actuary may recommend, taking into account the specific circumstances of the plan. 

(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS RESERVES.—In 

the case of any association health plan described in subsection 

(a)(2), the requirements of this subsection are met if the plan establishes and maintains surplus in an amount at least equal to—

(1) $500,000, or 

(2) such greater amount (but not greater than $2,000,000) as 

may be set forth in regulations prescribed by the applicable authority, considering the level of aggregate and specific excess 

/stop loss insurance provided with respect to such plan and 

other factors related to solvency risk, such as the plan’s projected levels of participation or claims, the nature of the plan’s 

liabilities, and the types of assets available to assure that such 

liabilities are met. 

(c) ADDITIONAL REQUIREMENTS.—In the case of any association 

health plan described in subsection (a)(2), the applicable authority 

may provide such additional requirements relating to reserves, excess /stop loss insurance, and indemnification insurance as the applicable authority considers appropriate. Such requirements may be 

provided by regulation with respect to any such plan or any class 

of such plans. 

(d) ADJUSTMENTS FOR EXCESS /STOP LOSS INSURANCE.—The applicable authority may provide for adjustments to the levels of reserves otherwise required under subsections (a) and (b) with respect 

to any plan or class of plans to take into account excess /stop loss 

insurance provided with respect to such plan or plans. 

(e) ALTERNATIVE MEANS OF COMPLIANCE.—The applicable authority may permit an association health plan described in subsection 

(a)(2) to substitute, for all or part of the requirements of this section 

(except subsection (a)(2)(B)(iii)), such security, guarantee, holdharmless arrangement, or other financial arrangement as the applicable authority determines to be adequate to enable the plan to fully 

meet all its financial obligations on a timely basis and is otherwise 

no less protective of the interests of participants and beneficiaries 

than the requirements for which it is substituted. The applicable authority may take into account, for purposes of this subsection, evidence provided by the plan or sponsor which demonstrates an assumption of liability with respect to the plan. Such evidence may be 

in the form of a contract of indemnification, lien, bonding, insurance, letter of credit, recourse under applicable terms of the plan in 

the form of assessments of participating employers, security, or other 

financial arrangement. 

(f) MEASURES TO ENSURE CONTINUED PAYMENT OF BENEFITS BY

CERTAIN PLANS IN DISTRESS.—

(1) PAYMENTS BY CERTAIN PLANS TO ASSOCIATION HEALTH

PLAN FUND.—

77 

(A) IN GENERAL.—In the case of an association health 

plan described in subsection (a)(2), the requirements of this 

subsection are met if the plan makes payments into the Association Health Plan Fund under this subparagraph when 

they are due. Such payments shall consist of annual payments in the amount of $5,000, and, in addition to such 

annual payments, such supplemental payments as the Secretary may determine to be necessary under paragraph (2). 

Payments under this paragraph are payable to the Fund at 

the time determined by the Secretary. Initial payments are 

due in advance of certification under this part. Payments 

shall continue to accrue until a plan’s assets are distributed 

pursuant to a termination procedure. 

(B) PENALTIES FOR FAILURE TO MAKE PAYMENTS.—If any 

payment is not made by a plan when it is due, a late payment charge of not more than 100 percent of the payment 

which was not timely paid shall be payable by the plan to 

the Fund. 

(C) CONTINUED DUTY OF THE SECRETARY.—The Secretary 

shall not cease to carry out the provisions of paragraph (2) 

on account of the failure of a plan to pay any payment 

when due. 

(2) PAYMENTS BY SECRETARY TO CONTINUE EXCESS /STOP

LOSS INSURANCE COVERAGE AND INDEMNIFICATION INSURANCE

COVERAGE FOR CERTAIN PLANS.—In any case in which the applicable authority determines that there is, or that there is reason 

to believe that there will be: (A) a failure to take necessary corrective actions under section 809(a) with respect to an association health plan described in subsection (a)(2); or (B) a termination of such a plan under section 809(b) or 810(b)(8) (and, if 

the applicable authority is not the Secretary, certifies such determination to the Secretary), the Secretary shall determine the 

amounts necessary to make payments to an insurer (designated 

by the Secretary) to maintain in force excess /stop loss insurance coverage or indemnification insurance coverage for such 

plan, if the Secretary determines that there is a reasonable expectation that, without such payments, claims would not be satisfied by reason of termination of such coverage. The Secretary 

shall, to the extent provided in advance in appropriation Acts, 

pay such amounts so determined to the insurer designated by 

the Secretary. 

(3) ASSOCIATION HEALTH PLAN FUND.—

(A) IN GENERAL.—There is established on the books of the 

Treasury a fund to be known as the ‘‘Association Health 

Plan Fund’’. The Fund shall be available for making payments pursuant to paragraph (2). The Fund shall be credited with payments received pursuant to paragraph (1)(A), 

penalties received pursuant to paragraph (1)(B); and earnings on investments of amounts of the Fund under subparagraph (B). 

(B) INVESTMENT.—Whenever the Secretary determines 

that the moneys of the fund are in excess of current needs, 

the Secretary may request the investment of such amounts 

as the Secretary determines advisable by the Secretary of 

78 

the Treasury in obligations issued or guaranteed by the 

United States. 

(g) EXCESS /STOP LOSS INSURANCE.—For purposes of this section—

(1) AGGREGATE EXCESS /STOP LOSS INSURANCE.—The term 

‘‘aggregate excess /stop loss insurance’’ means, in connection 

with an association health plan, a contract—

(A) under which an insurer (meeting such minimum 

standards as the applicable authority may prescribe by regulation) provides for payment to the plan with respect to 

aggregate claims under the plan in excess of an amount or 

amounts specified in such contract; 

(B) which is guaranteed renewable; and 

(C) which allows for payment of premiums by any third 

party on behalf of the insured plan. 

(2) SPECIFIC EXCESS /STOP LOSS INSURANCE.—The term ‘‘specific excess /stop loss insurance’’ means, in connection with an 

association health plan, a contract—

(A) under which an insurer (meeting such minimum 

standards as the applicable authority may prescribe by regulation) provides for payment to the plan with respect to 

claims under the plan in connection with a covered individual in excess of an amount or amounts specified in such 

contract in connection with such covered individual; 

(B) which is guaranteed renewable; and 

(C) which allows for payment of premiums by any third 

party on behalf of the insured plan. 

(h) INDEMNIFICATION INSURANCE.—For purposes of this section, 

the term ‘‘indemnification insurance’’ means, in connection with an 

association health plan, a contract—

(1) under which an insurer (meeting such minimum standards as the applicable authority may prescribe by regulation) 

provides for payment to the plan with respect to claims under 

the plan which the plan is unable to satisfy by reason of a termination pursuant to section 809(b) (relating to mandatory termination); 

(2) which is guaranteed renewable and noncancellable for 

any reason (except as the applicable authority may prescribe by 

regulation); and 

(3) which allows for payment of premiums by any third party 

on behalf of the insured plan. 

(i) RESERVES.—For purposes of this section, the term ‘‘reserves’’

means, in connection with an association health plan, plan assets 

which meet the fiduciary standards under part 4 and such additional requirements regarding liquidity as the applicable authority 

may prescribe by regulation. 

(j) SOLVENCY STANDARDS WORKING GROUP.—

(1) IN GENERAL.—Within 90 days after the date of the enactment of the Small Business Health Fairness Act of 2005, the 

applicable authority shall establish a Solvency Standards 

Working Group. In prescribing the initial regulations under 

this section, the applicable authority shall take into account the 

recommendations of such Working Group. 

79 

(2) MEMBERSHIP.—The Working Group shall consist of not 

more than 15 members appointed by the applicable authority. 

The applicable authority shall include among persons invited to 

membership on the Working Group at least one of each of the 

following: 

(A) a representative of the National Association of Insurance Commissioners; 

(B) a representative of the American Academy of Actuaries; 

(C) a representative of the State governments, or their interests; 

(D) a representative of existing self-insured arrangements, or their interests; 

(E) a representative of associations of the type referred to 

in section 801(b)(1), or their interests; and 

(F) a representative of multiemployer plans that are 

group health plans, or their interests. 

SEC. 807. REQUIREMENTS FOR APPLICATION AND RELATED REQUIREMENTS. 

(a) FILING FEE.—Under the procedure prescribed pursuant to section 802(a), an association health plan shall pay to the applicable 

authority at the time of filing an application for certification under 

this part a filing fee in the amount of $5,000, which shall be available in the case of the Secretary, to the extent provided in appropriation Acts, for the sole purpose of administering the certification 

procedures applicable with respect to association health plans. 

(b) INFORMATION TO BE INCLUDED IN APPLICATION FOR CERTIFI- CATION.—An application for certification under this part meets the 

requirements of this section only if it includes, in a manner and 

form which shall be prescribed by the applicable authority by regulation, at least the following information: 

(1) IDENTIFYING INFORMATION.—The names and addresses 

of— (A) the sponsor; and 

(B) the members of the board of trustees of the plan. 

(2) STATES IN WHICH PLAN INTENDS TO DO BUSINESS.—The 

States in which participants and beneficiaries under the plan 

are to be located and the number of them expected to be located 

in each such State. 

(3) BONDING REQUIREMENTS.—Evidence provided by the 

board of trustees that the bonding requirements of section 412 

will be met as of the date of the application or (if later) commencement of operations. 

(4) PLAN DOCUMENTS.—A copy of the documents governing 

the plan (including any bylaws and trust agreements), the summary plan description, and other material describing the benefits that will be provided to participants and beneficiaries 

under the plan. 

(5) AGREEMENTS WITH SERVICE PROVIDERS.—A copy of any 

agreements between the plan and contract administrators and 

other service providers. 

(6) FUNDING REPORT.—In the case of association health plans 

providing benefits options in addition to health insurance coverage, a report setting forth information with respect to such 

80 

additional benefit options determined as of a date within the 

120-day period ending with the date of the application, including the following: 

(A) RESERVES.—A statement, certified by the board of 

trustees of the plan, and a statement of actuarial opinion, 

signed by a qualified actuary, that all applicable requirements of section 806 are or will be met in accordance with 

regulations which the applicable authority shall prescribe. 

(B) ADEQUACY OF CONTRIBUTION RATES.—A statement of 

actuarial opinion, signed by a qualified actuary, which sets 

forth a description of the extent to which contribution rates 

are adequate to provide for the payment of all obligations 

and the maintenance of required reserves under the plan 

for the 12-month period beginning with such date within 

such 120-day period, taking into account the expected coverage and experience of the plan. If the contribution rates 

are not fully adequate, the statement of actuarial opinion 

shall indicate the extent to which the rates are inadequate 

and the changes needed to ensure adequacy. 

(C) CURRENT AND PROJECTED VALUE OF ASSETS AND LI- ABILITIES.—A statement of actuarial opinion signed by a 

qualified actuary, which sets forth the current value of the 

assets and liabilities accumulated under the plan and a 

projection of the assets, liabilities, income, and expenses of 

the plan for the 12-month period referred to in subparagraph (B). The income statement shall identify separately 

the plan’s administrative expenses and claims. 

(D) COSTS OF COVERAGE TO BE CHARGED AND OTHER EXPENSES.—A statement of the costs of coverage to be charged, 

including an itemization of amounts for administration, reserves, and other expenses associated with the operation of 

the plan. 

(E) OTHER INFORMATION.—Any other information as may 

be determined by the applicable authority, by regulation, as 

necessary to carry out the purposes of this part. 

(c) FILING NOTICE OF CERTIFICATION WITH STATES.—A certification granted under this part to an association health plan shall 

not be effective unless written notice of such certification is filed 

with the applicable State authority of each State in which at least 

25 percent of the participants and beneficiaries under the plan are 

located. For purposes of this subsection, an individual shall be considered to be located in the State in which a known address of such 

individual is located or in which such individual is employed. 

(d) NOTICE OF MATERIAL CHANGES.—In the case of any association health plan certified under this part, descriptions of material 

changes in any information which was required to be submitted 

with the application for the certification under this part shall be 

filed in such form and manner as shall be prescribed by the applicable authority by regulation. The applicable authority may require 

by regulation prior notice of material changes with respect to specified matters which might serve as the basis for suspension or revocation of the certification. 

(e) REPORTING REQUIREMENTS FOR CERTAIN ASSOCIATION

HEALTH PLANS.—An association health plan certified under this 

81 

part which provides benefit options in addition to health insurance 

coverage for such plan year shall meet the requirements of section 

103 by filing an annual report under such section which shall include information described in subsection (b)(6) with respect to the 

plan year and, notwithstanding section 104(a)(1)(A), shall be filed 

with the applicable authority not later than 90 days after the close 

of the plan year (or on such later date as may be prescribed by the 

applicable authority). The applicable authority may require by regulation such interim reports as it considers appropriate. 

(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The board of trustees 

of each association health plan which provides benefits options in 

addition to health insurance coverage and which is applying for certification under this part or is certified under this part shall engage, 

on behalf of all participants and beneficiaries, a qualified actuary 

who shall be responsible for the preparation of the materials comprising information necessary to be submitted by a qualified actuary 

under this part. The qualified actuary shall utilize such assumptions and techniques as are necessary to enable such actuary to form 

an opinion as to whether the contents of the matters reported under 

this part—

(1) are in the aggregate reasonably related to the experience 

of the plan and to reasonable expectations; and 

(2) represent such actuary’s best estimate of anticipated experience under the plan. 

The opinion by the qualified actuary shall be made with respect to, 

and shall be made a part of, the annual report. 

SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION. 

Except as provided in section 809(b), an association health plan 

which is or has been certified under this part may terminate (upon 

or at any time after cessation of accruals in benefit liabilities) only 

if the board of trustees, not less than 60 days before the proposed 

termination date—

(1) provides to the participants and beneficiaries a written notice of intent to terminate stating that such termination is intended and the proposed termination date; 

(2) develops a plan for winding up the affairs of the plan in 

connection with such termination in a manner which will result 

in timely payment of all benefits for which the plan is obligated; 

and 

(3) submits such plan in writing to the applicable authority. 

Actions required under this section shall be taken in such form and 

manner as may be prescribed by the applicable authority by regulation. 

SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMINATION. 

(a) ACTIONS TO AVOID DEPLETION OF RESERVES.—An association 

health plan which is certified under this part and which provides 

benefits other than health insurance coverage shall continue to meet 

the requirements of section 806, irrespective of whether such certification continues in effect. The board of trustees of such plan shall 

determine quarterly whether the requirements of section 806 are 

met. In any case in which the board determines that there is reason 

to believe that there is or will be a failure to meet such requirements, or the applicable authority makes such a determination and 

82 

so notifies the board, the board shall immediately notify the qualified actuary engaged by the plan, and such actuary shall, not later 

than the end of the next following month, make such recommendations to the board for corrective action as the actuary determines 

necessary to ensure compliance with section 806. Not later than 30 

days after receiving from the actuary recommendations for corrective actions, the board shall notify the applicable authority (in such 

form and manner as the applicable authority may prescribe by regulation) of such recommendations of the actuary for corrective action, 

together with a description of the actions (if any) that the board has 

taken or plans to take in response to such recommendations. The 

board shall thereafter report to the applicable authority, in such 

form and frequency as the applicable authority may specify to the 

board, regarding corrective action taken by the board until the requirements of section 806 are met. 

(b) MANDATORY TERMINATION.—In any case in which—

(1) the applicable authority has been notified under subsection (a) (or by an issuer of excess /stop loss insurance or indemnity insurance pursuant to section 806(a)) of a failure of an 

association health plan which is or has been certified under this 

part and is described in section 806(a)(2) to meet the requirements of section 806 and has not been notified by the board of 

trustees of the plan that corrective action has restored compliance with such requirements; and 

(2) the applicable authority determines that there is a reasonable expectation that the plan will continue to fail to meet the 

requirements of section 806, 

the board of trustees of the plan shall, at the direction of the applicable authority, terminate the plan and, in the course of the termination, take such actions as the applicable authority may require, 

including satisfying any claims referred to in section 

806(a)(2)(B)(iii) and recovering for the plan any liability under subsection (a)(2)(B)(iii) or (e) of section 806, as necessary to ensure that 

the affairs of the plan will be, to the maximum extent possible, 

wound up in a manner which will result in timely provision of all 

benefits for which the plan is obligated. 

SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOLVENT ASSOCIATION HEALTH PLANS PROVIDING HEALTH BENEFITS IN 

ADDITION TO HEALTH INSURANCE COVERAGE. 

(a) APPOINTMENT OF SECRETARY AS TRUSTEE FOR INSOLVENT

PLANS.—Whenever the Secretary determines that an association 

health plan which is or has been certified under this part and 

which is described in section 806(a)(2) will be unable to provide 

benefits when due or is otherwise in a financially hazardous condition, as shall be defined by the Secretary by regulation, the Secretary shall, upon notice to the plan, apply to the appropriate 

United States district court for appointment of the Secretary as 

trustee to administer the plan for the duration of the insolvency. 

The plan may appear as a party and other interested persons may 

intervene in the proceedings at the discretion of the court. The court 

shall appoint such Secretary trustee if the court determines that the 

trusteeship is necessary to protect the interests of the participants 

and beneficiaries or providers of medical care or to avoid any unreasonable deterioration of the financial condition of the plan. The 

83 

trusteeship of such Secretary shall continue until the conditions described in the first sentence of this subsection are remedied or the 

plan is terminated. 

(b) POWERS AS TRUSTEE.—The Secretary, upon appointment as 

trustee under subsection (a), shall have the power—

(1) to do any act authorized by the plan, this title, or other 

applicable provisions of law to be done by the plan administrator or any trustee of the plan; 

(2) to require the transfer of all (or any part) of the assets and 

records of the plan to the Secretary as trustee; 

(3) to invest any assets of the plan which the Secretary holds 

in accordance with the provisions of the plan, regulations prescribed by the Secretary, and applicable provisions of law; 

(4) to require the sponsor, the plan administrator, any participating employer, and any employee organization representing plan participants to furnish any information with respect to the plan which the Secretary as trustee may reasonably 

need in order to administer the plan; 

(5) to collect for the plan any amounts due the plan and to 

recover reasonable expenses of the trusteeship; 

(6) to commence, prosecute, or defend on behalf of the plan 

any suit or proceeding involving the plan; 

(7) to issue, publish, or file such notices, statements, and reports as may be required by the Secretary by regulation or required by any order of the court; 

(8) to terminate the plan (or provide for its termination in accordance with section 809(b)) and liquidate the plan assets, to 

restore the plan to the responsibility of the sponsor, or to continue the trusteeship; 

(9) to provide for the enrollment of plan participants and 

beneficiaries under appropriate coverage options; and 

(10) to do such other acts as may be necessary to comply with 

this title or any order of the court and to protect the interests 

of plan participants and beneficiaries and providers of medical 

care. 

(c) NOTICE OF APPOINTMENT.—As soon as practicable after the 

Secretary’s appointment as trustee, the Secretary shall give notice of 

such appointment to—

(1) the sponsor and plan administrator; 

(2) each participant; 

(3) each participating employer; and 

(4) if applicable, each employee organization which, for purposes of collective bargaining, represents plan participants. 

(d) ADDITIONAL DUTIES.—Except to the extent inconsistent with 

the provisions of this title, or as may be otherwise ordered by the 

court, the Secretary, upon appointment as trustee under this section, 

shall be subject to the same duties as those of a trustee under section 704 of title 11, United States Code, and shall have the duties 

of a fiduciary for purposes of this title. 

(e) OTHER PROCEEDINGS.—An application by the Secretary under 

this subsection may be filed notwithstanding the pendency in the 

same or any other court of any bankruptcy, mortgage foreclosure, or 

equity receivership proceeding, or any proceeding to reorganize, conVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00083 Fmt 6604 Sfmt 6603 E:\HR\OC\HR041.XXX HR041
84 

serve, or liquidate such plan or its property, or any proceeding to 

enforce a lien against property of the plan. 

(f) JURISDICTION OF COURT.— (1) IN GENERAL.—Upon the filing of an application for the appointment as trustee or the issuance of a decree under this section, the court to which the application is made shall have exclusive jurisdiction of the plan involved and its property wherever located with the powers, to the extent consistent with the 

purposes of this section, of a court of the United States having 

jurisdiction over cases under chapter 11 of title 11, United 

States Code. Pending an adjudication under this section such 

court shall stay, and upon appointment by it of the Secretary 

as trustee, such court shall continue the stay of, any pending 

mortgage foreclosure, equity receivership, or other proceeding to 

reorganize, conserve, or liquidate the plan, the sponsor, or property of such plan or sponsor, and any other suit against any receiver, conservator, or trustee of the plan, the sponsor, or property of the plan or sponsor. Pending such adjudication and 

upon the appointment by it of the Secretary as trustee, the court 

may stay any proceeding to enforce a lien against property of 

the plan or the sponsor or any other suit against the plan or 

the sponsor. 

(2) VENUE.—An action under this section may be brought in 

the judicial district where the sponsor or the plan administrator 

resides or does business or where any asset of the plan is situated. A district court in which such action is brought may issue 

process with respect to such action in any other judicial district. 

(g) PERSONNEL.—In accordance with regulations which shall be 

prescribed by the Secretary, the Secretary shall appoint, retain, and 

compensate accountants, actuaries, and other professional service 

personnel as may be necessary in connection with the Secretary’s 

service as trustee under this section. 

SEC. 811. STATE ASSESSMENT AUTHORITY. 

(a) IN GENERAL.—Notwithstanding section 514, a State may impose by law a contribution tax on an association health plan described in section 806(a)(2), if the plan commenced operations in 

such State after the date of the enactment of the Small Business 

Health Fairness Act of 2005. 

(b) CONTRIBUTION TAX.—For purposes of this section, the term ‘‘contribution tax’’ imposed by a State on an association health plan 

means any tax imposed by such State if—

(1) such tax is computed by applying a rate to the amount of 

premiums or contributions, with respect to individuals covered 

under the plan who are residents of such State, which are received by the plan from participating employers located in such 

State or from such individuals; 

(2) the rate of such tax does not exceed the rate of any tax imposed by such State on premiums or contributions received by 

insurers or health maintenance organizations for health insurance coverage offered in such State in connection with a group 

health plan; 

(3) such tax is otherwise nondiscriminatory; and 

(4) the amount of any such tax assessed on the plan is reduced by the amount of any tax or assessment otherwise imVerDate Aug 04 2004 05:20 Apr 16, 2005 Jkt 039010 PO 00000 Frm 00084 Fmt 6604 Sfmt 6603 E:\HR\OC\HR041.XXX HR041
85 

posed by the State on premiums, contributions, or both received 

by insurers or health maintenance organizations for health insurance coverage, aggregate excess /stop loss insurance (as defined in section 806(g)(1)), specific excess /stop loss insurance 

(as defined in section 806(g)(2)), other insurance related to the 

provision of medical care under the plan, or any combination 

thereof provided by such insurers or health maintenance organizations in such State in connection with such plan. 

SEC. 812. DEFINITIONS AND RULES OF CONSTRUCTION. 

(a) DEFINITIONS.—For purposes of this part—

(1) GROUP HEALTH PLAN.—The term ‘‘group health plan’’ has 

the meaning provided in section 733(a)(1) (after applying subsection (b) of this section). 

(2) MEDICAL CARE.—The term ‘‘medical care’’ has the meaning provided in section 733(a)(2). 

(3) HEALTH INSURANCE COVERAGE.—The term ‘‘health insurance coverage’’ has the meaning provided in section 733(b)(1). 

(4) HEALTH INSURANCE ISSUER.—The term ‘‘health insurance 

issuer’’ has the meaning provided in section 733(b)(2). 

(5) APPLICABLE AUTHORITY.—The term ‘‘applicable authority’’

means the Secretary, except that, in connection with any exercise of the Secretary’s authority regarding which the Secretary 

is required under section 506(d) to consult with a State, such 

term means the Secretary, in consultation with such State. 

(6) HEALTH STATUS-RELATED FACTOR.—The term ‘‘health status-related factor’’ has the meaning provided in section 

733(d)(2). 

(7) INDIVIDUAL MARKET.—

(A) IN GENERAL.—The term ‘‘individual market’’ means 

the market for health insurance coverage offered to individuals other than in connection with a group health plan. 

(B) TREATMENT OF VERY SMALL GROUPS.—

(i) IN GENERAL.—Subject to clause (ii), such term includes coverage offered in connection with a group 

health plan that has fewer than 2 participants as current employees or participants described in section 

732(d)(3) on the first day of the plan year. 

(ii) STATE EXCEPTION.—Clause (i) shall not apply in 

the case of health insurance coverage offered in a State 

if such State regulates the coverage described in such 

clause in the same manner and to the same extent as 

coverage in the small group market (as defined in section 2791(e)(5) of the Public Health Service Act) is regulated by such State. 

(8) PARTICIPATING EMPLOYER.—The term ‘‘participating employer’’ means, in connection with an association health plan, 

any employer, if any individual who is an employee of such employer, a partner in such employer, or a self-employed individual who is such employer (or any dependent, as defined 

under the terms of the plan, of such individual) is or was covered under such plan in connection with the status of such individual as such an employee, partner, or self-employed individual in relation to the plan. 

86 

(9) APPLICABLE STATE AUTHORITY.—The term ‘‘applicable 

State authority’’ means, with respect to a health insurance 

issuer in a State, the State insurance commissioner or official 

or officials designated by the State to enforce the requirements 

of title XXVII of the Public Health Service Act for the State involved with respect to such issuer. 

(10) QUALIFIED ACTUARY.—The term ‘‘qualified actuary’’ means an individual who is a member of the American Academy of Actuaries. 

(11) AFFILIATED MEMBER.—The term ‘‘affiliated member’’ means, in connection with a sponsor— (A) a person who is otherwise eligible to be a member of 

the sponsor but who elects an affiliated status with the 

sponsor, 

(B) in the case of a sponsor with members which consist 

of associations, a person who is a member of any such association and elects an affiliated status with the sponsor, or 

(C) in the case of an association health plan in existence 

on the date of the enactment of the Small Business Health 

Fairness Act of 2005, a person eligible to be a member of 

the sponsor or one of its member associations. 

(12) LARGE EMPLOYER.—The term ‘‘large employer’’ means, in 

connection with a group health plan with respect to a plan year, 

an employer who employed an average of at least 51 employees 

on business days during the preceding calendar year and who 

employs at least 2 employees on the first day of the plan year. 

(13) SMALL EMPLOYER.—The term ‘‘small employer’’ means, in 

connection with a group health plan with respect to a plan year, 

an employer who is not a large employer. 

(b) RULES OF CONSTRUCTION.—

(1) EMPLOYERS AND EMPLOYEES.—For purposes of determining whether a plan, fund, or program is an employee welfare benefit plan which is an association health plan, and for 

purposes of applying this title in connection with such plan, 

fund, or program so determined to be such an employee welfare 

benefit plan—

(A) in the case of a partnership, the term ‘‘employer’’ (as 

defined in section 3(5)) includes the partnership in relation 

to the partners, and the term ‘‘employee’’ (as defined in section 3(6)) includes any partner in relation to the partnership; and 

(B) in the case of a self-employed individual, the term 

‘‘employer’’ (as defined in section 3(5)) and the term ‘‘employee’’ (as defined in section 3(6)) shall include such individual. 

(2) PLANS, FUNDS, AND PROGRAMS TREATED AS EMPLOYEE

WELFARE BENEFIT PLANS.—In the case of any plan, fund, or program which was established or is maintained for the purpose 

of providing medical care (through the purchase of insurance or 

otherwise) for employees (or their dependents) covered thereunder and which demonstrates to the Secretary that all requirements for certification under this part would be met with respect to such plan, fund, or program if such plan, fund, or program were a group health plan, such plan, fund, or program 

87 

shall be treated for purposes of this title as an employee welfare 

benefit plan on and after the date of such demonstration. 

* * * * * * * 

Æ