49–006 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 109–378 

HEALTH CARE CHOICE ACT OF 2005 

FEBRUARY 16, 2006.—Ordered to be printed 

Mr. BARTON of Texas, from the Committee on Energy and 

Commerce, submitted the following 

R E P O R T 

together with 

DISSENTING VIEWS 

[To accompany H.R. 2355] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Energy and Commerce, to whom was referred 

the bill (H.R. 2355) to amend the Public Health Service Act to provide for cooperative governing of individual health insurance coverage offered in interstate commerce, having considered the same, 

report favorably thereon with an amendment and recommend that 

the bill as amended do pass. 

CONTENTS 

Page 

Amendment .............................................................................................................. 2 

Purpose and Summary ............................................................................................ 9 

Background and Need for Legislation .................................................................... 9 

Hearings ................................................................................................................... 10 

Committee Consideration ........................................................................................ 10 

Committee Votes ...................................................................................................... 10 

Committee Oversight Findings ............................................................................... 27 

Statement of General Performance Goals and Objectives .................................... 27 

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 27 

Committee Cost Estimate ....................................................................................... 27 

Congressional Budget Office Estimate ................................................................... 27 

Federal Mandates Statement ................................................................................. 33 

Advisory Committee Statement .............................................................................. 33 

Constitutional Authority Statement ...................................................................... 34 

Applicability to Legislative Branch ........................................................................ 34 

Section-by-Section Analysis of the Legislation ...................................................... 34 

Changes in Existing Law Made by the Bill, as Reported ..................................... 38 

Dissenting Views ..................................................................................................... 49 


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AMENDMENT

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as ‘‘Health Care Choice Act of 2005’’. 

SEC. 2. SPECIFICATION OF CONSTITUTIONAL AUTHORITY FOR ENACTMENT OF LAW. 

This Act is enacted pursuant to the power granted Congress under article I, section 8, clause 3, of the United States Constitution. 

SEC. 3. FINDINGS. 

Congress finds the following: 

(1) The application of numerous and significant variations in State law impacts the ability of insurers to offer, and individuals to obtain, affordable individual health insurance coverage, thereby impeding commerce in individual 

health insurance coverage. 

(2) Individual health insurance coverage is increasingly offered through the 

Internet, other electronic means, and by mail, all of which are inherently part 

of interstate commerce. 

(3) In response to these issues, it is appropriate to encourage increased efficiency in the offering of individual health insurance coverage through a collaborative approach by the States in regulating this coverage. 

(4) The establishment of risk-retention groups has provided a successful 

model for the sale of insurance across State lines, as the acts establishing those 

groups allow insurance to be sold in multiple States but regulated by a single 

State. 

SEC. 4. COOPERATIVE GOVERNING OF INDIVIDUAL HEALTH INSURANCE COVERAGE. 

(a) IN GENERAL.—Title XXVII of the Public Health Service Act (42 U.S.C. 300gg 

et seq.) is amended by adding at the end the following new part: 

‘‘PART D—COOPERATIVE GOVERNING OF INDIVIDUAL HEALTH INSURANCE COVERAGE

‘‘SEC. 2795. DEFINITIONS. 

‘‘In this part: ‘‘(1) PRIMARY STATE.—The term ‘primary State’ means, with respect to individual health insurance coverage offered by a health insurance issuer, the State 

designated by the issuer as the State whose covered laws shall govern the 

health insurance issuer in the sale of such coverage under this part. An issuer, 

with respect to a particular policy, may only designate one such State as its primary State with respect to all such coverage it offers. Such an issuer may not 

change the designated primary State with respect to individual health insurance coverage once the policy is issued, except that such a change may be made 

upon renewal of the policy. With respect to such designated State, the issuer 

is deemed to be doing business in that State. ‘‘(2) SECONDARY STATE.—The term ‘secondary State’ means, with respect to individual health insurance coverage offered by a health insurance issuer, any 

State that is not the primary State. In the case of a health insurance issuer 

that is selling a policy in, or to a resident of, a secondary State, the issuer is 

deemed to be doing business in that secondary State. ‘‘(3) HEALTH INSURANCE ISSUER.—The term ‘health insurance issuer’ has the 

meaning given such term in section 2791(b)(2), except that such an issuer must 

be licensed in the primary State and be qualified to sell individual health insurance coverage in that State. ‘‘(4) INDIVIDUAL HEALTH INSURANCE COVERAGE.—The term ‘individual health 

insurance coverage’ means health insurance coverage offered in the individual 

market, as defined in section 2791(e)(1). 

‘‘(5) 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 this title for the State with respect to the issuer. 

‘‘(6) HAZARDOUS FINANCIAL CONDITION.—The term ‘hazardous financial condition’ means that, based on its present or reasonably anticipated financial condition, a health insurance issuer is unlikely to be able—

‘‘(A) to meet obligations to policyholders with respect to known claims and 

reasonably anticipated claims; or 

‘‘(B) to pay other obligations in the normal course of business. 

‘‘(7) COVERED LAWS.—


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‘‘(A) IN GENERAL.—The term ‘covered laws’ means the laws, rules, regulations, agreements, and orders governing the insurance business pertaining 

to— ‘‘(i) individual health insurance coverage issued by a health insurance 

issuer; ‘‘(ii) the offer, sale, rating (including medical underwriting), renewal, 

and issuance of individual health insurance coverage to an individual; ‘‘(iii) the provision to an individual in relation to individual health insurance coverage of health care and insurance related services; ‘‘(iv) the provision to an individual in relation to individual health insurance coverage of management, operations, and investment activities 

of a health insurance issuer; and ‘‘(v) the provision to an individual in relation to individual health insurance coverage of loss control and claims administration for a health 

insurance issuer with respect to liability for which the issuer provides 

insurance. ‘‘(B) EXCEPTION.—Such term does not include any law, rule, regulation, 

agreement, or order governing the use of care or cost management techniques, including any requirement related to provider contracting, network 

access or adequacy, health care data collection, or quality assurance. ‘‘(8) STATE.—The term ‘State’ means only the 50 States and the District of Columbia. 

‘‘(9) UNFAIR CLAIMS SETTLEMENT PRACTICES.—The term ‘unfair claims settlement practices’ means only the following practices: 

‘‘(A) Knowingly misrepresenting to claimants and insured individuals relevant facts or policy provisions relating to coverage at issue. 

‘‘(B) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under policies. 

‘‘(C) Failing to adopt and implement reasonable standards for the prompt 

investigation and settlement of claims arising under policies. 

‘‘(D) Failing to effectuate prompt, fair, and equitable settlement of claims 

submitted in which liability has become reasonably clear. 

‘‘(E) Refusing to pay claims without conducting a reasonable investigation. 

‘‘(F) Failing to affirm or deny coverage of claims within a reasonable period of time after having completed an investigation related to those claims. 

‘‘(G) A pattern or practice of compelling insured individuals or their beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits 

brought by them. 

‘‘(H) A pattern or practice of attempting to settle or settling claims for 

less than the amount that a reasonable person would believe the insured 

individual or his or her beneficiary was entitled by reference to written or 

printed advertising material accompanying or made part of an application. 

‘‘(I) Attempting to settle or settling claims on the basis of an application 

that was materially altered without notice to, or knowledge or consent of, 

the insured. 

‘‘(J) Failing to provide forms necessary to present claims within 15 calendar days of a requests with reasonable explanations regarding their use. 

‘‘(K) Attempting to cancel a policy in less time than that prescribed in the 

policy or by the law of the primary State. 

‘‘(10) FRAUD AND ABUSE.—The term ‘fraud and abuse’ means an act or omission committed by a person who, knowingly and with intent to defraud, commits, or conceals any material information concerning, one or more of the following: 

‘‘(A) Presenting, causing to be presented or preparing with knowledge or 

belief that it will be presented to or by an insurer, a reinsurer, broker or 

its agent, false information as part of, in support of or concerning a fact material to one or more of the following: 

‘‘(i) An application for the issuance or renewal of an insurance policy 

or reinsurance contract. 

‘‘(ii) The rating of an insurance policy or reinsurance contract. 

‘‘(iii) A claim for payment or benefit pursuant to an insurance policy 

or reinsurance contract. 

‘‘(iv) Premiums paid on an insurance policy or reinsurance contract. 

‘‘(v) Payments made in accordance with the terms of an insurance 

policy or reinsurance contract. 

‘‘(vi) A document filed with the commissioner or the chief insurance 

regulatory official of another jurisdiction. 


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‘‘(vii) The financial condition of an insurer or reinsurer. 

‘‘(viii) The formation, acquisition, merger, reconsolidation, dissolution 

or withdrawal from one or more lines of insurance or reinsurance in all 

or part of a State by an insurer or reinsurer. 

‘‘(ix) The issuance of written evidence of insurance. 

‘‘(x) The reinstatement of an insurance policy. 

‘‘(B) Solicitation or acceptance of new or renewal insurance risks on behalf of an insurer reinsurer or other person engaged in the business of insurance by a person who knows or should know that the insurer or other 

person responsible for the risk is insolvent at the time of the transaction. 

‘‘(C) Transaction of the business of insurance in violation of laws requiring a license, certificate of authority or other legal authority for the transaction of the business of insurance. 

‘‘(D) Attempt to commit, aiding or abetting in the commission of, or conspiracy to commit the acts or omissions specified in this paragraph. 

‘‘SEC. 2796. APPLICATION OF LAW. 

‘‘(a) IN GENERAL.—The covered laws of the primary State shall apply to individual 

health insurance coverage offered by a health insurance issuer in the primary State 

and in any secondary State, but only if the coverage and issuer comply with the conditions of this section with respect to the offering of coverage in any secondary 

State. 

‘‘(b) EXEMPTIONS FROM COVERED LAWS IN A SECONDARY STATE.—Except as provided in this section, a health insurance issuer with respect to its offer, sale, rating 

(including medical underwriting), renewal, and issuance of individual health insurance coverage in any secondary State is exempt from any covered laws of the secondary State (and any rules, regulations, agreements, or orders sought or issued by 

such State under or related to such covered laws) to the extent that such laws 

would—

‘‘(1) make unlawful, or regulate, directly or indirectly, the operation of the 

health insurance issuer operating in the secondary State, except that any secondary State may require such an issuer—

‘‘(A) to pay, on a nondiscriminatory basis, applicable premium and other 

taxes (including high risk pool assessments) which are levied on insurers 

and surplus lines insurers, brokers, or policyholders under the laws of the 

State; 

‘‘(B) to register with and designate the State insurance commissioner as 

its agent solely for the purpose of receiving service of legal documents or 

process; 

‘‘(C) to submit to an examination of its financial condition by the State 

insurance commissioner in any State in which the issuer is doing business 

to determine the issuer’s financial condition, if—

‘‘(i) the State insurance commissioner of the primary State has not 

done an examination within the period recommended by the National 

Association of Insurance Commissioners; and 

‘‘(ii) any such examination is conducted in accordance with the examiners’ handbook of the National Association of Insurance Commissioners and is coordinated to avoid unjustified duplication and unjustified repetition; 

‘‘(D) to comply with a lawful order issued—

‘‘(i) in a delinquency proceeding commenced by the State insurance 

commissioner if there has been a finding of financial impairment under 

subparagraph (C); or 

‘‘(ii) in a voluntary dissolution proceeding; 

‘‘(E) to comply with an injunction issued by a court of competent jurisdiction, upon a petition by the State insurance commissioner alleging that the 

issuer is in hazardous financial condition; 

‘‘(F) to participate, on a nondiscriminatory basis, in any insurance insolvency guaranty association or similar association to which a health insurance issuer in the State is required to belong; 

‘‘(G) to comply with any State law regarding fraud and abuse (as defined 

in section 2795(10)), except that if the State seeks an injunction regarding 

the conduct described in this subparagraph, such injunction must be obtained from a court of competent jurisdiction; 

‘‘(H) to comply with any State law regarding unfair claims settlement 

practices (as defined in section 2795(9)); or 

‘‘(I) to comply with the applicable requirements for independent review 

under section 2798 with respect to coverage offered in the State; 


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‘‘(2) require any individual health insurance coverage issued by the issuer to 

be countersigned by an insurance agent or broker residing in that Secondary 

State; or 

‘‘(3) otherwise discriminate against the issuer issuing insurance in both the 

primary State and in any secondary State. 

‘‘(c) CLEAR AND CONSPICUOUS DISCLOSURE.—A health insurance issuer shall provide the following notice, in 12-point bold type, in any insurance coverage offered 

in a secondary State under this part by such a health insurance issuer and at renewal of the policy, with the 5 blank spaces therein being appropriately filled with 

the name of the health insurance issuer, the name of primary State, the name of 

the secondary State, the name of the secondary State, and the name of the secondary State, respectively, for the coverage concerned: 

‘Notice 

‘This policy is issued by lllll and is governed by the laws and regulations of the State of lllll, and it has met all the laws of that State 

as determined by that State’s Department of Insurance. This policy may be 

less expensive than others because it is not subject to all of the insurance 

laws and regulations of the State of lllll, including coverage of some 

services or benefits mandated by the law of the State of lllll. Additionally, this policy is not subject to all of the consumer protection laws or 

restrictions on rate changes of the State of lllll. As with all insurance 

products, before purchasing this policy, you should carefully review the 

policy and determine what health care services the policy covers and what 

benefits it provides, including any exclusions, limitations, or conditions for 

such services or benefits.’. 

‘‘(d) PROHIBITION ON CERTAIN RECLASSIFICATIONS AND PREMIUM INCREASES.—

‘‘(1) IN GENERAL.—For purposes of this section, a health insurance issuer that 

provides individual health insurance coverage to an individual under this part 

in a primary or secondary State may not upon renewal—

‘‘(A) move or reclassify the individual insured under the health insurance 

coverage from the class such individual is in at the time of issue of the contract based on the health-status related factors of the individual; or 

‘‘(B) increase the premiums assessed the individual for such coverage 

based on a health status-related factor or change of a health status-related 

factor or the past or prospective claim experience of the insured individual. 

‘‘(2) CONSTRUCTION.—Nothing in paragraph (1) shall be construed to prohibit 

a health insurance issuer—

‘‘(A) from terminating or discontinuing coverage or a class of coverage in 

accordance with subsections (b) and (c) of section 2742; 

‘‘(B) from raising premium rates for all policy holders within a class based 

on claims experience; 

‘‘(C) from changing premiums or offering discounted premiums to individuals who engage in wellness activities at intervals prescribed by the issuer, 

if such premium changes or incentives—

‘‘(i) are disclosed to the consumer in the insurance contract; 

‘‘(ii) are based on specific wellness activities that are not applicable 

to all individuals; and 

‘‘(iii) are not obtainable by all individuals to whom coverage is offered; 

‘‘(D) from reinstating lapsed coverage; or 

‘‘(E) from retroactively adjusting the rates charged an insured individual 

if the initial rates were set based on material misrepresentation by the individual at the time of issue. 

‘‘(e) PRIOR OFFERING OF POLICY IN PRIMARY STATE.—A health insurance issuer 

may not offer for sale individual health insurance coverage in a secondary State unless that coverage is currently offered for sale in the primary State. 

‘‘(f) LICENSING OF AGENTS OR BROKERS FOR HEALTH INSURANCE ISSUERS.—Any 

State may require that a person acting, or offering to act, as an agent or broker 

for a health insurance issuer with respect to the offering of individual health insurance coverage obtain a license from that State, with commissions or other compensation subject to the provisions of the laws of that State, except that a State may 

not impose any qualification or requirement which discriminates against a nonresident agent or broker. 

‘‘(g) DOCUMENTS FOR SUBMISSION TO STATE INSURANCE COMMISSIONER.—Each 

health insurance issuer issuing individual health insurance coverage in both primary and secondary States shall submit—


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‘‘(1) to the insurance commissioner of each State in which it intends to offer 

such coverage, before it may offer individual health insurance coverage in such 

State—

‘‘(A) a copy of the plan of operation or feasibility study or any similar 

statement of the policy being offered and its coverage (which shall include 

the name of its primary State and its principal place of business); ‘‘(B) written notice of any change in its designation of its primary State; 

and ‘‘(C) written notice from the issuer of the issuer’s compliance with all the 

laws of the primary State; and ‘‘(2) to the insurance commissioner of each secondary State in which it offers 

individual health insurance coverage, a copy of the issuer’s quarterly financial 

statement submitted to the primary State, which statement shall be certified 

by an independent public accountant and contain a statement of opinion on loss 

and loss adjustment expense reserves made by— ‘‘(A) a member of the American Academy of Actuaries; or 

‘‘(B) a qualified loss reserve specialist. ‘‘(h) POWER OF COURTS TO ENJOIN CONDUCT.—Nothing in this section shall be 

construed to affect the authority of any Federal or State court to enjoin— ‘‘(1) the solicitation or sale of individual health insurance coverage by a health 

insurance issuer to any person or group who is not eligible for such insurance; 

or ‘‘(2) the solicitation or sale of individual health insurance coverage that violates the requirements of the law of a secondary State which are described in 

subparagraphs (A) through (H) of section 2796(b)(1). ‘‘(i) POWER OF SECONDARY STATES TO TAKE ADMINISTRATIVE ACTION.—Nothing in 

this section shall be construed to affect the authority of any State to enjoin conduct 

in violation of that State’s laws described in section 2796(b)(1). ‘‘(j) STATE POWERS TO ENFORCE STATE LAWS.— ‘‘(1) IN GENERAL.—Subject to the provisions of subsection (b)(1)(G) (relating to 

injunctions) and paragraph (2), nothing in this section shall be construed to affect the authority of any State to make use of any of its powers to enforce the 

laws of such State with respect to which a health insurance issuer is not exempt under subsection (b). 

‘‘(2) COURTS OF COMPETENT JURISDICTION.—If a State seeks an injunction regarding the conduct described in paragraphs (1) and (2) of subsection (h), such 

injunction must be obtained from a Federal or State court of competent jurisdiction. 

‘‘(k) STATES’ AUTHORITY TO SUE.—Nothing in this section shall affect the authority 

of any State to bring action in any Federal or State court. 

‘‘(l) GENERALLY APPLICABLE LAWS.—Nothing in this section shall be construed to 

affect the applicability of State laws generally applicable to persons or corporations. 

‘‘(m) GUARANTEED AVAILABILITY OF COVERAGE TO HIPAA ELIGIBLE INDIVIDUALS.—

To the extent that a health insurance issuer is offering coverage in a primary State 

that does not accommodate residents of secondary States or does not provide a 

working mechanism for residents of a secondary State, and the issuer is offering 

coverage under this part in such secondary State which has not adopted a qualified 

high risk pool as its acceptable alternative mechanism (as defined in section 

2744(c)(2)), the issuer shall, with respect to any individual health insurance coverage offered in a secondary State under this part, comply with the guaranteed 

availability requirements for eligible individuals in section 2741. 

‘‘SEC. 2797. PRIMARY STATE MUST MEET FEDERAL FLOOR BEFORE ISSUER MAY SELL INTO 

SECONDARY STATES. 

‘‘A health insurance issuer may not offer, sell, or issue individual health insurance 

coverage in a secondary State if the State insurance commissioner does not use a 

risk-based capital formula for the determination of capital and surplus requirements 

for all health insurance issuers. 

‘‘SEC. 2798. INDEPENDENT EXTERNAL APPEALS PROCEDURES. 

‘‘(a) RIGHT TO EXTERNAL APPEAL.—A health insurance issuer may not offer, sell, 

or issue individual health insurance coverage in a secondary State under the provisions of this title unless——

‘‘(1) both the secondary State and the primary State have legislation or regulations in place establishing an independent review process for individuals who 

are covered by individual health insurance coverage, or 

‘‘(2) in any case in which the requirements of subparagraph (A) are not met 

with respect to the either of such States, the issuer provides an independent 

review mechanism substantially identical (as determined by the applicable 

State authority of such State) to that prescribed in the ‘Health Carrier External 


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Review Model Act’ of the National Association of Insurance Commissioners for 

all individuals who purchase insurance coverage under the terms of this part, 

except that, under such mechanism, the review is conducted by an independent 

medical reviewer, or a panel of such reviewers, with respect to whom the requirements of subsection (b) are met. ‘‘(b) QUALIFICATIONS OF INDEPENDENT MEDICAL REVIEWERS.—In the case of any 

independent review mechanism referred to in subsection (a)(2)— ‘‘(1) IN GENERAL.—In referring a denial of a claim to an independent medical 

reviewer, or to any panel of such reviewers, to conduct independent medical review, the issuer shall ensure that— ‘‘(A) each independent medical reviewer meets the qualifications described in paragraphs (2) and (3); ‘‘(B) with respect to each review, each reviewer meets the requirements 

of paragraph (4) and the reviewer, or at least 1 reviewer on the panel, 

meets the requirements described in paragraph (5); and ‘‘(C) compensation provided by the issuer to each reviewer is consistent 

with paragraph (6). ‘‘(2) LICENSURE AND EXPERTISE.—Each independent medical reviewer shall be 

a physician (allopathic or osteopathic) or health care professional who— ‘‘(A) is appropriately credentialed or licensed in 1 or more States to deliver health care services; and 

‘‘(B) typically treats the condition, makes the diagnosis, or provides the 

type of treatment under review. 

‘‘(3) INDEPENDENCE.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B), each independent medical reviewer in a case shall—

‘‘(i) not be a related party (as defined in paragraph (7)); 

‘‘(ii) not have a material familial, financial, or professional relationship with such a party; and 

‘‘(iii) not otherwise have a conflict of interest with such a party (as 

determined under regulations). 

‘‘(B) EXCEPTION.—Nothing in subparagraph (A) shall be construed to—

‘‘(i) prohibit an individual, solely on the basis of affiliation with the 

issuer, from serving as an independent medical reviewer if—

‘‘(I) a non-affiliated individual is not reasonably available; 

‘‘(II) the affiliated individual is not involved in the provision of 

items or services in the case under review; 

‘‘(III) the fact of such an affiliation is disclosed to the issuer and 

the enrollee (or authorized representative) and neither party objects; and 

‘‘(IV) the affiliated individual is not an employee of the issuer 

and does not provide services exclusively or primarily to or on behalf of the issuer; 

‘‘(ii) prohibit an individual who has staff privileges at the institution 

where the treatment involved takes place from serving as an independent medical reviewer merely on the basis of such affiliation if the 

affiliation is disclosed to the issuer and the enrollee (or authorized representative), and neither party objects; or 

‘‘(iii) prohibit receipt of compensation by an independent medical reviewer from an entity if the compensation is provided consistent with 

paragraph (6). 

‘‘(4) PRACTICING HEALTH CARE PROFESSIONAL IN SAME FIELD.—

‘‘(A) IN GENERAL.—In a case involving treatment, or the provision of items 

or services—

‘‘(i) by a physician, a reviewer shall be a practicing physician 

(allopathic or osteopathic) of the same or similar specialty, as a physician who, acting within the appropriate scope of practice within the 

State in which the service is provided or rendered, typically treats the 

condition, makes the diagnosis, or provides the type of treatment under 

review; or 

‘‘(ii) by a non-physician health care professional, the reviewer, or at 

least 1 member of the review panel, shall be a practicing non-physician 

health care professional of the same or similar specialty as the nonphysician health care professional who, acting within the appropriate 

scope of practice within the State in which the service is provided or 

rendered, typically treats the condition, makes the diagnosis, or provides the type of treatment under review. 

‘‘(B) PRACTICING DEFINED.—For purposes of this paragraph, the term 

‘practicing’ means, with respect to an individual who is a physician or other 


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health care professional, that the individual provides health care services 

to individual patients on average at least 2 days per week. ‘‘(5) PEDIATRIC EXPERTISE.—In the case of an external review relating to a 

child, a reviewer shall have expertise under paragraph (2) in pediatrics. ‘‘(6) LIMITATIONS ON REVIEWER COMPENSATION.—Compensation provided by 

the issuer to an independent medical reviewer in connection with a review 

under this section shall— ‘‘(A) not exceed a reasonable level; and 

‘‘(B) not be contingent on the decision rendered by the reviewer. ‘‘(7) RELATED PARTY DEFINED.—For purposes of this section, the term ‘related 

party’ means, with respect to a denial of a claim under a coverage relating to 

an enrollee, any of the following: ‘‘(A) The issuer involved, or any fiduciary, officer, director, or employee 

of the issuer. ‘‘(B) The enrollee (or authorized representative). 

‘‘(C) The health care professional that provides the items or services involved in the denial. ‘‘(D) The institution at which the items or services (or treatment) involved 

in the denial are provided. ‘‘(E) The manufacturer of any drug or other item that is included in the 

items or services involved in the denial. ‘‘(F) Any other party determined under any regulations to have a substantial interest in the denial involved. ‘‘(8) DEFINITIONS.—For purposes of this subsection: ‘‘(A) ENROLLEE.—The term ‘enrollee’ means, with respect to health insurance coverage offered by a health insurance issuer, an individual enrolled 

with the issuer to receive such coverage. ‘‘(B) HEALTH CARE PROFESSIONAL.—The term ‘health care professional’ means an individual who is licensed, accredited, or certified under State 

law to provide specified health care services and who is operating within 

the scope of such licensure, accreditation, or certification. 

‘‘SEC. 2799. ENFORCEMENT. 

‘‘(a) IN GENERAL.—Subject to subsection (b), with respect to specific individual 

health insurance coverage the primary State for such coverage has sole jurisdiction 

to enforce the primary State’s covered laws in the primary State and any secondary 

State. ‘‘(b) SECONDARY STATE’S AUTHORITY.—Nothing in subsection (a) shall be construed 

to affect the authority of a secondary State to enforce its laws as set forth in the 

exception specified in section 2796(b)(1). ‘‘(c) COURT INTERPRETATION.—In reviewing action initiated by the applicable secondary State authority, the court of competent jurisdiction shall apply the covered 

laws of the primary State. 

‘‘(d) NOTICE OF COMPLIANCE FAILURE.—In the case of individual health insurance 

coverage offered in a secondary State that fails to comply with the covered laws of 

the primary State, the applicable State authority of the secondary State may notify 

the applicable State authority of the primary State.’’. 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to individual health insurance coverage offered, issued, or sold after the date that is one 

year after the date of the enactment of this Act. 

(c) GAO ONGOING STUDY AND REPORTS.—

(1) STUDY.—The Comptroller General of the United States shall conduct an 

ongoing study concerning the effect of the amendment made by subsection (a) 

on—

(A) the number of uninsured and under-insured; 

(B) the availability and cost of health insurance policies for individuals 

with pre-existing medical conditions; 

(C) the availability and cost of health insurance policies generally; 

(D) the elimination or reduction of different types of benefits under health 

insurance policies offered in different States; and 

(E) cases of fraud or abuse relating to health insurance coverage offered 

under such amendment and the resolution of such cases. 

(2) ANNUAL REPORTS.—The Comptroller General shall submit to Congress an 

annual report, after the end of each of the 5 years following the effective date 

of the amendment made by subsection (a), on the ongoing study conducted 

under paragraph (1). 

SEC. 5. SEVERABILITY. 

If any provision of the Act or the application of such provision to any person or 

circumstance is held to be unconstitutional, the remainder of this Act and the appliVerDate Aug 31 2005 13:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00008 Fmt 6659 Sfmt 6621 E:\HR\OC\HR378.XXX HR378

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cation of the provisions of such to any other person or circumstance shall not be affected. 

PURPOSE AND SUMMARY

The purpose of H.R. 2355, The Health Care Choice Act of 2005, 

is to allow for cooperative governing of individual health insurance 

coverage offered in interstate commerce. 

BACKGROUND AND NEED FOR LEGISLATION

States currently impose a variety of different health insurance 

regulations and benefit mandates that result in premiums that 

vary widely among states. State policies, such as guaranteed issue, 

which requires insurers to accept anyone who applies regardless of 

health status; community rating, which forces insurers to charge 

every insured person the same premium regardless of age, gender, 

geographic location, or health status; and benefit mandates, largely 

dictate the cost of health insurance policy premiums. This can 

cause large discrepancies between states. Premiums for a health 

insurance policy for an individual in one state could in many cases 

be reduced annually by thousands of dollars if that individual were 

allowed to purchase health insurance in a different state. 

A January 2005 study by the Council for Affordable Health Insurance (CAHI) concluded that there are currently 1,824 cumulative mandates on state health insurers. A 2004 study by 

eHealthInsurance found monthly premiums varied widely across 

different states. The eHealthInsurance study found that an insurance product for a family with a $2,000 family deductible and 20 

percent coinsurance could be obtained in Kansas City, MO, for a 

monthly premium of $171.86, while that same coverage in Boston, 

MA, would cost $767.30 a month. Another study conducted by the 

Maine Heritage Policy Center found that even in neighboring 

states the costs of health insurance could vary widely. In their 

analysis of similar health insurance products offered by Anthem 

Blue Cross Blue Shield in both Maine and New Hampshire, it was 

found that individual health insurance plans for a 25-year-old male 

that included a $1,500 deductible with 20 percent co-insurance cost 

the Maine resident $495.89 a month, while a similar policy cost a 

25-year-old New Hampshire resident just $127.65. That is a difference of $368.22 per month or $4,418.64 annually. 

H.R. 2355 would allow an insurer to designate a primary state 

whose covered laws would apply to that individual health insurance coverage offered by the insurer. It would then allow the insurer to offer that coverage in any secondary state. H.R. 2355 

would exempt a health insurer from the covered laws of the secondary state with respect to the regulation of its insurance products. It would also allow secondary states to require an insurer to 

(1) pay applicable premium and other taxes (including high risk 

pool assessments) that are levied on insurers under the laws of the 

state; (2) register with and designate the state insurance commissioner as its agent for the purposes of receiving service of legal documents or process; (3) submit to an examination of its financial 

condition by the state insurance commissioner if the insurance 

commissioner of the primary state has not done an examination 

within a period of time recommended by the National Association 

of Insurance Commissioners (NAIC) and in accordance with its exVerDate Aug 31 2005 13:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\HR378.XXX HR378

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aminer’s handbook; (4) comply with a lawful order issued in a voluntary dissolution proceeding, or in a delinquency proceeding commenced by the State insurance commissioner where there has been 

a finding of financial impairment; (5) comply with an injunction 

issued by a court of competent jurisdiction, upon petition by the 

state insurance commissioner alleging that the issuer is in hazardous financial condition; (6) participate, on a nondiscriminatory 

basis, in any insurance insolvency guaranty association or similar 

association to which a health insurance issuer in the state is required to belong; (7) comply with any state law regarding fraud 

and abuse (as defined in the bill), except that if the state seeks an 

injunction regarding fraudulent conduct, such an injunction must 

be obtained from a court of competent jurisdiction; and, (8) comply 

with any state law regarding unfair claims settlement practices (as 

defined in the bill). 

In order to ensure that individuals buying coverage in a secondary state are aware that their policies are subject to the regulations of another state, H.R. 2355 requires a health insurer to inform purchasers in a secondary state that the policy is governed by 

the laws and regulations of the primary state. The bill would also 

prohibit insurers from offering health insurance in a secondary 

state unless that coverage is currently offered for sale in the primary state. 

HEARINGS

The Subcommittee on Health held a hearing on H.R. 2355 on 

June 28, 2005. The Subcommittee received testimony from: Merrill 

Matthews, Ph.D., Director, Council for Affordable Health Insurance 

(CAHI); Robert Garcia de Posada, Chairman/President, The Latino 

Coalition; Dr. David Gratzer, Senior Fellow, the Manhattan Institute; Mike Kreidler, Washington State Insurance Commissioner, 

and, Hunter Limbaugh, Chair, Advocacy Committee, American Diabetes Association. 

COMMITTEE CONSIDERATION

On Wednesday, July 20, 2005, the Full Committee met in open 

markup session and favorably ordered H.R. 2355, reported to the 

House, as amended, by a recorded vote of 24 yeas and 23 nays, a 

quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The following are 

the recorded votes taken on amendments offered to the measure, 

including the names of those Members voting for and against. A 

motion by Mr. Barton to order H.R. 2355 reported to the House, as 

amended, was agreed to by a record vote of 24 yeas and 23 nays. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee held a legislative hearing and 

made findings that are reflected in this report. 

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

The goal of H.R. 2355 is to lower health insurance premium costs 

and allow more people in the individual market to afford health insurance. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee finds that H.R. 2355, The 

Health Care Choice Act of 2005, would result in no new or increased budget authority, entitlement authority, or tax expenditures or revenues. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, September 12, 2005. 

Hon. JOE BARTON, 

Chairman, Committee on Energy and Commerce, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2355, the Health Care 

Choice Act of 2005. 

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

to provide them. The CBO staff contact is Tom Bradley. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, Director. 

Enclosure. 

H.R. 2355—Health Care Choice Act of 2005 

Summary: H.R. 2355 would amend the Public Health Service Act 

to permit an entity licensed by one state (the ‘‘primary’’ state) to 

offer health insurance coverage to individuals residing in that 

state, to also offer that health insurance coverage to individuals residing in a ‘‘secondary’’ state. Enacting H.R. 2355 would affect the 

federal budget in two ways: it would increase federal revenues from 

payroll and income taxes, and it would increase direct spending for 


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Medicaid. Those changes would begin in 2007, because the bill’s 

provisions would take effect one year after enactment. 

The increase in revenues would result largely from a reduction 

in the number of people who receive health insurance through employer-sponsored plans. That would reduce the share of compensation that is tax-advantaged (health insurance premiums) and increase the share that is taxable (wages and salaries). CBO estimates that enacting H.R. 2355 would increase federal revenues by 

$1.9 billion over the 2007–2010 period and $12.6 billion over the 

2007–2015 period. Social Security payroll taxes, which are off-budget, account for about 30 percent of that amount. 

The increase in direct spending would result from the enrollment 

in Medicaid of people who, under current law, would either be covered through an employer-sponsored plan or purchase an individual insurance policy. CBO estimates that enacting H.R. 2355 

would increase federal direct spending for Medicaid by $160 million 

over the 2007–2010 period and $1.0 billion over the 2007–2015 period. 

Pursuant to section 407 of H. Con. Res. 95 (the Concurrent Resolution on the Budget, Fiscal Year 2006), CBO estimates that enacting H.R. 2355 would cause an increase in direct spending of greater 

than $5 billion in at least one of the 10-year periods between 2016 

and 2055. 

H.R. 2355 would preempt a broad range of state insurance laws 

that otherwise would apply to health insurance issuers that are licensed in one state and sell policies in another. The preemptions 

would limit the application of state laws, and thus would be intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA). These preemptions of state regulatory authority 

would not result in additional spending by states. States may, however, lose some revenues as a result of lower collections for licensing fees, but those losses would be minimal. Consequently, CBO estimates that the cost of the mandates would be far below the 

threshold established in UMRA ($62 million in 2005, adjusted annually for inflation). 

The bill would have other effects on state budgets—increasing 

spending for Medicaid, but also increasing revenues from some tax 

sources. CBO estimates that increased enrollment in Medicaid 

would result in additional spending by states of $760 million over 

the 2007–2015 period. 

H.R. 2355 contains no private-sector mandates as defined in 

UMRA. 

Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 2355 is shown in the following table. The costs 

of this legislation fall within budget function 550 (health). 

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) ..................................... 0 70 170 370 640 980 1,340 1,520 1,620 1,710 

Social Security Payroll Taxes (offbudget) ..................................... 0 40 90 200 330 490 660 740 780 820 

Total Changes in Revenues 0 110 260 570 970 1,470 2,000 2,260 2,400 2,530 


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1 Individual health insurance coverage is offered to individuals, rather than through a group 

(such as an employer.) Such individual coverage may provide health insurance benefits to a single individual, or to several people (such as the members of a family). 

By fiscal year, in millions of dollars—

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

CHANGES IN DIRECT SPENDING 

Estimated Budget Authority .......... 0 10 20 50 80 120 160 170 190 200 

Estimated Outlays ......................... 0 10 20 50 80 120 160 170 190 200 

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

Basis of estimate: The provisions of H.R. 2355 would take effect 

one year after enactment. For this estimate, CBO assumes that 

H.R. 2355 will be enacted in the fall of 2005. Therefore, the bill 

would affect spending and revenues beginning in fiscal year 2007. 

For simplicity, the following discussion of distributional effects 

(such as changes in premiums and in the number of people with 

health insurance coverage) assumes that the ultimate effects would 

be realized in the first year. The estimated budgetary effects, however, reflect CBO’s expectation that it would take 5 to 10 years before the ultimate effects on health insurance markets of enacting 

the bill would be realized. 

H.R. 2355 would amend the Public Health Service Act to permit 

an entity licensed by one state to offer health insurance coverage 

to individuals residing in that state, to also offer that health insurance coverage to individuals residing in a secondary state. The bill 

would permit such individual health insurance coverage 1 to be offered in a secondary state only if the primary state uses a riskbased capital formula for the determination of capital and surplus 

requirements for all health insurance issuers. 

The individual health insurance policies offered in a secondary 

state would be exempt from the laws and regulations of that state 

with respect to consumer protections, mandated coverage of services or benefits, and other rules affecting the offer, sale, rating (including medical underwriting), renewal, and issuance of individual 

health insurance coverage. Those policies would be required to comply with the laws and regulations of the primary state, and the insurance issuer would be required to provide for a process for covered individuals to appeal coverage decisions to an independent 

medical reviewer. 

Under current law, issuers of individual health insurance must 

be licensed in the state in which they offer such coverage, and the 

coverage must comply with the laws and regulations of that state. 

There is considerable variation across states in two areas that have 

a substantial effect on the price of individual health insurance: 

• Mandates that require coverage of certain services or benefits, and 

• Rules affecting the extent to which insurers may charge 

different prices for coverage offered to individuals expected to 

incur costs above or below the average. 

In general, health insurance that includes coverage of mandated 

benefits will cost more than it would if those benefits were not required. In aggregate, this estimate assumes that if only those benefit mandates imposed by the states with the lowest-cost mandates 

were in effect in all states, the price of individual health insurance 

would be reduced by about 5 percent, on average. 


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Limiting the extent of variation in the prices charged to individuals expected to incur costs above or below the average tends to increase the price charged to individuals expected to have lowerthan-average costs, while lowering the price for people expected to 

have higher-than-average costs. Such price compression also tends 

to increase the average price compared to an alternative in which 

variation in the prices charged more closely reflects the costs that 

individuals are expected to incur. That is because price compression makes coverage more affordable to people who expect to incur 

relatively high costs (so more of them purchase the coverage), 

whereas price compression increases the cost of coverage for people 

who would be expected to incur relatively low costs (so fewer of 

them purchase the coverage than if those individuals were charged 

prices that more closely reflect their expected cost). 

Under H.R. 2355, CBO expects that individual health insurance 

would be offered across state lines to individuals in states with relatively expensive coverage mandates and rate-setting rules that 

permit relatively little variation in the prices an insurer may 

charge. The insurers offering those policies would be licensed in, 

and regulated by, states that do not have those characteristics. 

For most people in a secondary state, the price of individual 

health insurance coverage offered by an insurer licensed in a primary state would be lower than the price under current law of individual coverage offered by an insurer licensed by their state. Conversely, individual health insurance coverage from out-of-state insurers either would not be offered to people expected to have relatively high health care costs, or it would be offered at a price that 

is higher than the price under current law of individual coverage 

offered by an insurer licensed by their state. The shift of individuals expected to have relatively low health care costs to out-of-state 

insurance coverage would increase the price of coverage offered by 

insurers licensed in-state, and could lend to erosion of the availability of such coverage by insurers located in secondary states. 

Federal revenues 

CBO estimates that enacting H.R. 2355 would increase federal 

tax revenues by $1.9 billion over the 2007–2010 period and $12.6 

billion over the 2007–2015 period. (The bill would have no effect on 

revenues in 2006.) Social Security payroll taxes, which are offbudget, account for about 30 percent of those amounts. Those 

amounts are the net effect of increases in revenue resulting from 

a reduction in the number of people covered by employer-sponsored 

health insurance, increases in revenue from self-employed individuals who will purchase individual coverage under current law, and 

decreases in revenue from a rise in the number of self-employed individuals who purchase individual health insurance. The reduction 

in the number of people covered by employer-sponsored health insurance accounts for over 90 percent of the estimated change in 

federal tax revenues. 

Some employers (especially smaller ones) would find it desirable 

to stop offering coverage to their employees because the insurance 

available in the individual market had become cheaper. In addition, some people with relatively low health care costs who, under 

current law, will obtain health insurance coverage through an employer, would choose instead to purchase individual health insurVerDate Aug 31 2005 13:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00030 Fmt 6659 Sfmt 6602 E:\HR\OC\HR378.XXX HR378

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ance coverage from an out-of-state insurer. That would increase the 

per-person cost of the employer’s group health insurance, and 

would result in additional employers deciding to drop the group 

coverage. Based on CBO’s analysis of research on the responses of 

individuals and firms to changes in the price of health insurance, 

CBO estimates that, if the full effect of H.R. 2355 were realized immediately, about 1 million people—including both employees and 

covered dependents—would lose employer-sponsored health insurance coverage. 

Under current law, the employer’s share of premiums for employer-sponsored health insurance and most of the employee’s 

share of those premiums are exempt from taxation. By reducing 

the number of people covered by employer-sponsored health insurance, H.R. 2355 would reduce the share of employees’ compensation 

that is tax-advantaged (health insurance premiums) and would increase the share that is taxable (wages and salaries). CBO estimates that H.R. 2355 ultimately would reduce annual spending on 

employer-sponsored health insurance by $5 billion in 2006 dollars. 

(That change is less than 1 percent of total tax-advantaged spending on employer-sponsored health insurance in the United States.) 

Some of the resulting increase in taxable income from wages and 

salaries would be offset by higher itemized deductions for taxpayers who lose employer-sponsored health insurance, itemize their 

deductions, and spend more than 7.5 percent of their adjusted 

gross income on health care and health insurance. 

The tax treatment of spending on individual health insurance 

coverage generally is less generous than for employer-sponsored 

coverage. However, spending on individual coverage by self-employed individuals is deductible. For the self-employed who will buy 

individual health insurance under current law, CBO estimates that 

H.R. 2355 ultimately would reduce spending on premiums by $600 

million in 2006 dollars. Almost all of that reduction would result 

from a net reduction in premiums for self-employed people who 

continue to purchase individual insurance. (Some of those self-employed people who retain individual coverage would pay higher premiums.) Self-employed individuals who would drop coverage in response to higher premiums account for less than $50 million of that 

estimated change in spending on premiums. 

H.R. 2355 would reduce the price of individual insurance for 

some self-employed people who are expected to incur relatively low 

health care costs, live in secondary states, and will be uninsured 

under current law. Ultimately, CBO estimates that some of those 

self-employed people would spend about $300 million (in 2006 dollars) to buy individual coverage under H.R. 2355. 

Direct spending 

H.R. 2355 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. On net, CBO estimates that enacting H.R. 2355 

would increase federal spending for Medicaid by $160 million over 

the 2007–2010 period and $1.0 billion over the 2007–2015 period. 

Medicaid Spending for People Who Lose Private Coverage. About 

25 percent of employees are in families with incomes under 200 


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percent of the Federal Poverty Line (FPL). Some of those people 

would potentially be eligible for Medicaid. CBO estimates that 

about 40 percent of people losing employer-sponsored coverage 

would have incomes under 200 percent of the FPL, about 25 percent of them would be eligible for Medicaid, and about 50 percent 

of them would enroll. CBO assumes that those people would be 

somewhat more costly than that average Medicaid-eligible individual, and that federal spending for Medicaid would increase by 

about $1.1 billion over the 2007–2015 period. 

Medicaid Savings for People Who Gain Private Coverage. Of the 

people gaining employer-sponsored insurance under H.R. 2355, 

CBO estimates that approximately 10 percent would have incomes 

under 200 percent of the FPL. Of these, about one-half are children 

and one-half 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. 2355 would decrease federal Medicaid spending 

by about $100 million over the 2007–2015 period as a result of this 

shift to private health insurance coverage. 

Effect of H.R. 2355 on the number of people with and without 

health insurance 

CBO estimates that enacting H.R. 2355 would not have a substantial effect on the number of people who have health insurance 

coverage: compared to current law, there could be a small increase 

or decrease in the number of uninsured individuals. We estimate 

that about 1 million people would lose or drop employer-sponsored 

coverage. Many of those people would obtain individual health insurance coverage, as would many people who are uninsured under 

current law—resulting in a small net impact on the number of people with health insurance. 

H.R. 2355 would reduce the price of individual health insurance 

coverage for people expected to have relatively low health care 

costs, while increasing the price of coverage for those expected to 

have relatively high health care costs. Therefore, CBO expects that 

there would be an increase in the number of relatively healthy individuals, and a decrease in the number of individuals expected to 

have relatively high cost, who buy individual coverage. Relatively 

healthy individuals are likely to be more price-sensitive than 

unhealthy individuals (and there are more relatively healthy people). As a result, CBO assumes that there would be a net increase 

in the total number of people with individual coverage. We expect 

that the magnitude of that increase would be roughly similar to the 

number of people who lost employer-sponsored coverage. 

Estimated long-term effects on direct spending: Pursuant to section 407 of H. Con. Res. 95 (the Concurrent Resolution on the 

Budget, Fiscal Year 2006), CBO estimates that enacting H.R. 2355 

would cause an increase in direct spending of greater than $5 billion in at least one of the 10-year periods between 2016 and 2055. 

Those costs would come from increased spending on Medicaid. We 

estimate that the increase in Medicaid spending would reach $200 

million in 2015, and would continue to grow. 

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

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wise would apply to health insurance issuers that are licensed in 

one state (the primary state) and provide insurance coverage in another state (a secondary state). The preemption would limit the application of state laws, and thus would be intergovernmental mandates as defined in UMRA. Health insurance issuers would be exempt from laws in secondary states that establish coverage requirements or regulate insurance with the exception of requirements to 

register with the secondary state, submit to financial reviews under 

limited circumstances, participate in solvency associations, or comply with state laws governing fraud, abuse, or unfair claims settlements. The bill specifically would allow secondary states to collect 

premium taxes on policies sold within the state. 

The preemption of state regulatory authority would impose no 

duty on states that would result in additional spending. States 

may, however, lose some revenues as a result of lower collections 

for licensing fees, but those loses would be minimal. 

The bill would have other effects on state budgets—increasing 

spending for Medicaid, but also increasing revenues from state income taxes. CBO estimates that increased enrollment in Medicaid 

would result in additional spending by states of $760 million over 

the 2007–2015 period. 

CBO estimates that the bill would have a positive impact on income tax collections by state governments, but the magnitude of 

that change is unclear. A decrease in the proportion of employersponsored insurance, which many states exempt from income for 

tax purposes, as part of total compensation packages would result 

in more compensation that is subject to state income tax collections. Because of uncertainty about the expected changes in coverage among individual states and different tax rates in each state, 

CBO cannot estimate the magnitude of the increase. State collections of premium taxes would also change, but because of uncertainty about shifts between types of insurance that are taxable and 

those that are exempt from taxes and because of different tax rates 

among the states, CBO cannot estimate either the direction or the 

magnitude of any net change in those collections. 

Estimated impact on the private sector: H.R. 2355 contains no 

private-sector mandates as defined in UMRA. 

Estimate prepared by: Federal Costs: Tom Bradley, Shinobu Suzuki, and Jeanne De Sa. Impact on State, Local, and Tribal Governments: Leo Lex. Impact on the Private Sector: Stuart Hagen 

and David Auerbach. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 


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CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds that the Constitutional authority for this legislation is provided in Article I, section 8, clause 

3, which grants Congress the power to regulate commerce with foreign nations, among the several States, and with the Indian tribes. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

Section 1 designates the title of the bill as the ‘‘Health Care 

Choice Act of 2005.’’

Section 2. Specification of constitutional authority for enactment of 

law 

Section 2 specifies that this Act is enacted pursuant to the power 

granted Congress under article I, section 8, clause 3, of the United 

States Constitution. 

Section 3. Findings 

Section 3 establishes the findings for the legislation. 

Section 4. Cooperative governing of individual health insurance coverage 

Section 4(a) amends Title XXVII of the Public Health Service Act 

by adding at the end a new Part D entitled ‘‘Cooperative Governing 

of Individual Health Insurance Coverage’’ as set out below. 

Section 2795. Definitions 

The bill would add a new section 2795 to define the terms relating to the Cooperative Governing of Individual Health Insurance 

Coverage. 

Section 2796. Application of law 

New section 2796(a) states that the applicable laws of a primary 

state shall apply to individual health insurance coverage offered by 

a health insurer in the primary state, and in any secondary state. 

This provision would only apply if the coverage and the issuer comply with the conditions of this section with respect to the offering 

of coverage in any secondary state. 

While H.R. 2355 would exempt a health insurer from the covered 

laws of the secondary state with respect to the regulation of its insurance products, new section 2796(b) would allow secondary states 

to require that primary state insurers do several things: This 

would include requiring the insurer to (1) pay applicable premium 

and other taxes (including high risk pool assessments) that are levied on insurers under the laws of the state; (2) register with and 

designate the state insurance commissioner as its agent for the 


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purposes of receiving service of legal documents or process; (3) submit to an examination of its financial condition by the state insurance commissioner if the insurance commissioner of the primary 

state has not done an examination within a period of time recommended by the National Association of Insurance Commissioners (NAIC) and in accordance with its examiners’ handbook; (4) 

comply with a lawful order issued in a voluntary dissolution proceeding, or in a delinquency proceeding commenced by the state insurance commissioner where there has been a finding of financial 

impairment; (5) comply with an injunction issued by a court of competent jurisdiction, upon petition by the state insurance commissioner alleging that the issuer is in hazardous financial condition; 

(6) participate, on a nondiscriminatory basis, in any insurance insolvency guaranty association or similar association to which a 

health insurer in the state is required to belong; (7) comply with 

any state law regarding fraud and abuse (as defined in the bill), 

except that if the state seeks an injunction regarding fraudulent 

conduct, such an injunction must be obtained from a court of competent jurisdiction; and, (8) comply with any state law regarding 

unfair claims settlement practices. 

New section 2796(c) requires that a health insurer offering coverage from a primary state into any secondary state must provide 

a notice to beneficiaries that the coverage they are offering is governed by the laws and regulations of another state. The notice 

must also contain information that the policy may be less expensive than others offered because it is not subject to all of the insurance laws and regulations of the secondary state, including coverage of some services or benefits mandated by the laws of the secondary state. 

New section 2796(d) prohibits the practice of re-underwriting an 

individual based on a health status-related factor. However, this 

section does not prohibit a health insurer from terminating or discontinuing coverage or a class of coverage in accordance with subsections (b) and (c) of section 2742 of the Public Health Service Act. 

Further, it does not prohibit an insurer from (1) raising premium 

rates for all policy holders within a class based on claims experience; (2) changing premiums or offering discounted premiums to individuals who engage in wellness activities at intervals prescribed 

by the issuer; (3) reinstating lapsed coverage; or, (4) retroactively 

adjusting the rates charged an insured individual if the initial 

rates were set based on material misrepresentation by the individual at the time of issue. 

New section 2796(e) prohibits a health insurance issuer from offering individual health insurance coverage in a secondary state 

unless that coverage is currently offered for sale in the primary 

state. 

New section 2796(f) provides that any state may require a person 

acting, or offering to act, as an agent or broker for a health insurer 

with respect to the offering of individual health insurance coverage 

obtain a license from that state, with commissions or other compensation subject to the provisions of the laws of that state, except 

that a state may not impose any qualification or requirement which 

discriminates against a nonresident agent or broker. 

New section 2796(g) requires health insurance issuers that issue 

coverage in both primary and secondary states to submit to the inVerDate Aug 31 2005 13:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00035 Fmt 6659 Sfmt 6602 E:\HR\OC\HR378.XXX HR378

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surance commissioner of each state (1) a copy of the plan of operation or feasibility study or any similar statement of the policy 

being offered and its coverage (which shall include the name of its 

primary State and its principal place of business); (2) written notice 

of any change in its designation of its primary state; and, (3) written notice from the issuer of the issuer’s compliance with all the 

laws of the primary state. The issuer must also submit to any secondary state insurance commissioner a copy of the issuer’s quarterly financial statement submitted to the primary state. This 

statement shall be certified by an independent public accountant 

and contain a statement of opinion on loss and loss adjustment expense reserves made by a member of the American Academy of Actuaries, or a qualified loss reserve specialist. 

New section 2796(h) states that nothing in this section shall be 

construed to affect the authority of Federal or state court from enjoining the solicitation or sale of individual health insurance coverage by a health insurance issuer to any person or group who is 

not eligible for such insurance, or the solicitation or sale of individual health insurance coverage that violates the requirements of 

section 2796(b)(1). 

New section 2796(i) clarifies that states have the ability to enjoin 

conduct that violate that state’s laws to which the health insurer 

is subject. 

New section 2796(j) further clarifies that nothing in this legislation shall affect the authority of any state to make use of its powers to enforce the laws of the state to which the insurer is subject. 

However, any injunction regarding the conduct described in section 

2796 (h) must be obtained from a Federal or state court of competent jurisdiction. 

New section 2796(k) clarifies the states’ authority to sue, and 

states that nothing shall affect the authority of any state to bring 

action in any Federal or State court. 

New section 2796(l) clarifies that nothing in this section affects 

the applicability of state laws generally applicable to persons or 

corporations. 

New section 2796(m) clarifies the guaranteed availability of coverage to Health Insurance Portability and Accountability Act of 

1996 HIPAA eligible individuals. If a health insurer is offering coverage in a primary state that does not accommodate residents of 

secondary states or does not provide a working mechanism for residents of a secondary state, and the secondary state has not adopted 

a qualified high risk pool, the issuer shall comply with the guaranteed availability requirements for eligible individuals in section 

2741 of the Public Health Service Act. 

Section 2797. Primary state must meet Federal floor before issuer 

may sell into secondary states 

New section 2797 clarifies that a health insurer may not offer, 

sell, or issue individual insurance coverage in a secondary state if 

the state insurance commissioner does not use a risk-based capital 

formula for the determination of capital and surplus requirements 

for all health insurers. 


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Section 2798. Independent external appeals process. 

New section 2798 prohibits a health insurance issuer from offering, selling, or issuing individual health insurance coverage in a 

secondary state unless both the secondary and primary state do not 

have legislation or regulations in place establishing an independent 

review process for individuals covered by individual health insurance, or in the lack of legislation or regulations, the issuer provides 

an independent review mechanism substantially identical to that 

prescribed in the ‘‘Health Carrier External Review Model Act’’ of 

the National Association of Insurance Commissioners. Under this 

mechanism, the review must be conducted by an independent medical reviewer, or panel of such reviewers, which meet several qualification requirements. In referring a denial of a claim for an independent medical review, the panel must include a physician 

(allopathic or osteopathic) or other health care professional, defined 

as someone that provides health care services to individual patients 

on average at least two days per week. They must also be appropriately credentialed or licensed in one or more states to deliver 

health care services; and typically treat the condition, make the diagnosis, or provide the type of treatment under review. In the case 

of an external review relating to a child, a reviewer must have expertise in pediatrics. Compensation provided by the issuer to an 

independent medical reviewer in connection with a review under 

this section must be reasonable and not contingent on the decision. 

The reviewer must also not be directly involved in the case nor related to the parties involved. 

Section 2799. Enforcement 

New section 2799 establishes the enforcement mechanism of the 

legislation. With respect to specific individual health insurance coverage, the primary state for such coverage has sole jurisdiction to 

enforce the primary state’s covered laws in the primary state and 

any secondary state. However, any secondary state has the authority to enforce its laws as set forth in the exceptions specified in the 

bill. In reviewing action initiated by the applicable secondary state 

authority, the court of competent jurisdiction shall apply the covered laws of the primary state. In the case of individual health insurance coverage offered in a secondary state that fails to comply 

with the covered laws of the primary state, the applicable state authority of the secondary state may notify the applicable state authority of the primary state. 

Section 4(b) establishes the effective date of this Act to be one 

year after the date of enactment. 

Section 4(c) requires the Comptroller General of the United 

States to study and report to the Congress annually at the end of 

each of the five years following the effective date of this Act. This 

report shall include the number of uninsured and under-insured individuals, the availability and cost of health insurance policies for 

individuals with pre-existing medical conditions, the availability 

and cost of health insurance policies, the elimination or reduction 

of different types of benefits under health insurance policies offered 

in different states, and cases of fraud or abuse relating to health 

insurance coverage offered under such amendment and the resolution of such cases. 


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Section 5. Severability 

Section 5 provides that if any provision of the Act or the application of such provision to any person or circumstance is held to be 

unconstitutional, the remainder of this Act and the application of 

the provisions of such to any other person or circumstance shall not 

be affected. 

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 (new matter is printed in italic 

and existing law in which no change is proposed is shown in 

roman): 

PUBLIC HEALTH SERVICE ACT 

* * * * * * * 

TITLE XXVII—REQUIREMENTS RELATING TO HEALTH 

INSURANCE COVERAGE 

* * * * * * * 

PART D—COOPERATIVE GOVERNING OF INDIVIDUAL HEALTH

INSURANCE COVERAGE

SEC. 2795. DEFINITIONS. 

In this part: 

(1) PRIMARY STATE.—The term ‘‘primary State’’ means, with 

respect to individual health insurance coverage offered by a 

health insurance issuer, the State designated by the issuer as 

the State whose covered laws shall govern the health insurance 

issuer in the sale of such coverage under this part. An issuer, 

with respect to a particular policy, may only designate one such 

State as its primary State with respect to all such coverage it 

offers. Such an issuer may not change the designated primary 

State with respect to individual health insurance coverage once 

the policy is issued, except that such a change may be made 

upon renewal of the policy. With respect to such designated 

State, the issuer is deemed to be doing business in that State. 

(2) SECONDARY STATE.—The term ‘‘secondary State’’ means, 

with respect to individual health insurance coverage offered by 

a health insurance issuer, any State that is not the primary 

State. In the case of a health insurance issuer that is selling a 

policy in, or to a resident of, a secondary State, the issuer is 

deemed to be doing business in that secondary State. 

(3) HEALTH INSURANCE ISSUER.—The term ‘‘health insurance 

issuer’’ has the meaning given such term in section 2791(b)(2), 

except that such an issuer must be licensed in the primary State 

and be qualified to sell individual health insurance coverage in 

that State. 

(4) INDIVIDUAL HEALTH INSURANCE COVERAGE.—The term ‘‘individual health insurance coverage’’ means health insurance 

coverage offered in the individual market, as defined in section 

2791(e)(1). 


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(5) 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 this title for the State with respect to the issuer. 

(6) HAZARDOUS FINANCIAL CONDITION.—The term ‘‘hazardous 

financial condition’’ means that, based on its present or reasonably anticipated financial condition, a health insurance issuer 

is unlikely to be able—

(A) to meet obligations to policyholders with respect to 

known claims and reasonably anticipated claims; or 

(B) to pay other obligations in the normal course of business. 

(7) COVERED LAWS.—

(A) IN GENERAL.—The term ‘‘covered laws’’ means the 

laws, rules, regulations, agreements, and orders governing 

the insurance business pertaining to—

(i) individual health insurance coverage issued by a 

health insurance issuer; 

(ii) the offer, sale, rating (including medical underwriting), renewal, and issuance of individual health 

insurance coverage to an individual; 

(iii) the provision to an individual in relation to individual health insurance coverage of health care and 

insurance related services; 

(iv) the provision to an individual in relation to individual health insurance coverage of management, operations, and investment activities of a health insurance 

issuer; and 

(v) the provision to an individual in relation to individual health insurance coverage of loss control and 

claims administration for a health insurance issuer 

with respect to liability for which the issuer provides 

insurance. 

(B) EXCEPTION.—Such term does not include any law, 

rule, regulation, agreement, or order governing the use of 

care or cost management techniques, including any requirement related to provider contracting, network access or adequacy, health care data collection, or quality assurance. 

(8) STATE.—The term ‘‘State’’ means only the 50 States and 

the District of Columbia. 

(9) UNFAIR CLAIMS SETTLEMENT PRACTICES.—The term ‘‘unfair claims settlement practices’’ means only the following practices: 

(A) Knowingly misrepresenting to claimants and insured 

individuals relevant facts or policy provisions relating to 

coverage at issue. 

(B) Failing to acknowledge with reasonable promptness 

pertinent communications with respect to claims arising 

under policies. 

(C) Failing to adopt and implement reasonable standards 

for the prompt investigation and settlement of claims arising under policies. 


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(D) Failing to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become 

reasonably clear. 

(E) Refusing to pay claims without conducting a reasonable investigation. 

(F) Failing to affirm or deny coverage of claims within 

a reasonable period of time after having completed an investigation related to those claims. 

(G) A pattern or practice of compelling insured individuals or their beneficiaries to institute suits to recover 

amounts due under its policies by offering substantially 

less than the amounts ultimately recovered in suits brought 

by them. 

(H) A pattern or practice of attempting to settle or settling claims for less than the amount that a reasonable person would believe the insured individual or his or her beneficiary was entitled by reference to written or printed advertising material accompanying or made part of an application. 

(I) Attempting to settle or settling claims on the basis of 

an application that was materially altered without notice 

to, or knowledge or consent of, the insured. 

(J) Failing to provide forms necessary to present claims 

within 15 calendar days of a requests with reasonable explanations regarding their use. 

(K) Attempting to cancel a policy in less time than that 

prescribed in the policy or by the law of the primary State. 

(10) FRAUD AND ABUSE.—The term ‘‘fraud and abuse’’ means 

an act or omission committed by a person who, knowingly and 

with intent to defraud, commits, or conceals any material information concerning, one or more of the following: 

(A) Presenting, causing to be presented or preparing with 

knowledge or belief that it will be presented to or by an insurer, a reinsurer, broker or its agent, false information as 

part of, in support of or concerning a fact material to one 

or more of the following: 

(i) An application for the issuance or renewal of an 

insurance policy or reinsurance contract. 

(ii) The rating of an insurance policy or reinsurance 

contract. 

(iii) A claim for payment or benefit pursuant to an 

insurance policy or reinsurance contract. 

(iv) Premiums paid on an insurance policy or reinsurance contract. 

(v) Payments made in accordance with the terms of 

an insurance policy or reinsurance contract. 

(vi) A document filed with the commissioner or the 

chief insurance regulatory official of another jurisdiction. 

(vii) The financial condition of an insurer or reinsurer. 

(viii) The formation, acquisition, merger, reconsolidation, dissolution or withdrawal from one or more 

lines of insurance or reinsurance in all or part of a 

State by an insurer or reinsurer. 


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(ix) The issuance of written evidence of insurance. 

(x) The reinstatement of an insurance policy. 

(B) Solicitation or acceptance of new or renewal insurance risks on behalf of an insurer reinsurer or other person 

engaged in the business of insurance by a person who 

knows or should know that the insurer or other person responsible for the risk is insolvent at the time of the transaction. 

(C) Transaction of the business of insurance in violation 

of laws requiring a license, certificate of authority or other 

legal authority for the transaction of the business of insurance. 

(D) Attempt to commit, aiding or abetting in the commission of, or conspiracy to commit the acts or omissions specified in this paragraph. 

SEC. 2796. APPLICATION OF LAW. 

(a) IN GENERAL.—The covered laws of the primary State shall 

apply to individual health insurance coverage offered by a health 

insurance issuer in the primary State and in any secondary State, 

but only if the coverage and issuer comply with the conditions of 

this section with respect to the offering of coverage in any secondary 

State. 

(b) EXEMPTIONS FROM COVERED LAWS IN A SECONDARY STATE.— Except as provided in this section, a health insurance issuer with 

respect to its offer, sale, rating (including medical underwriting), renewal, and issuance of individual health insurance coverage in any 

secondary State is exempt from any covered laws of the secondary 

State (and any rules, regulations, agreements, or orders sought or 

issued by such State under or related to such covered laws) to the 

extent that such laws would— (1) make unlawful, or regulate, directly or indirectly, the operation of the health insurance issuer operating in the secondary State, except that any secondary State may require such 

an issuer— (A) to pay, on a nondiscriminatory basis, applicable premium and other taxes (including high risk pool assessments) which are levied on insurers and surplus lines insurers, brokers, or policyholders under the laws of the 

State; 

(B) to register with and designate the State insurance 

commissioner as its agent solely for the purpose of receiving 

service of legal documents or process; 

(C) to submit to an examination of its financial condition 

by the State insurance commissioner in any State in which 

the issuer is doing business to determine the issuer’s financial condition, if— (i) the State insurance commissioner of the primary 

State has not done an examination within the period 

recommended by the National Association of Insurance 

Commissioners; and 

(ii) any such examination is conducted in accordance 

with the examiners’ handbook of the National Association of Insurance Commissioners and is coordinated to 

avoid unjustified duplication and unjustified repetition; 


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(D) to comply with a lawful order issued—

(i) in a delinquency proceeding commenced by the 

State insurance commissioner if there has been a finding of financial impairment under subparagraph (C); 

or 

(ii) in a voluntary dissolution proceeding; 

(E) to comply with an injunction issued by a court of 

competent jurisdiction, upon a petition by the State insurance commissioner alleging that the issuer is in hazardous 

financial condition; 

(F) to participate, on a nondiscriminatory basis, in any 

insurance insolvency guaranty association or similar association to which a health insurance issuer in the State is 

required to belong; 

(G) to comply with any State law regarding fraud and 

abuse (as defined in section 2795(10)), except that if the 

State seeks an injunction regarding the conduct described 

in this subparagraph, such injunction must be obtained 

from a court of competent jurisdiction; 

(H) to comply with any State law regarding unfair 

claims settlement practices (as defined in section 2795(9)); 

or 

(I) to comply with the applicable requirements for independent review under section 2798 with respect to coverage 

offered in the State; 

(2) require any individual health insurance coverage issued 

by the issuer to be countersigned by an insurance agent or 

broker residing in that Secondary State; or 

(3) otherwise discriminate against the issuer issuing insurance in both the primary State and in any secondary State. 

(c) CLEAR AND CONSPICUOUS DISCLOSURE.—A health insurance 

issuer shall provide the following notice, in 12-point bold type, in 

any insurance coverage offered in a secondary State under this part 

by such a health insurance issuer and at renewal of the policy, with 

the 5 blank spaces therein being appropriately filled with the name 

of the health insurance issuer, the name of primary State, the name 

of the secondary State, the name of the secondary State, and the 

name of the secondary State, respectively, for the coverage concerned: 

‘‘Notice 

‘‘This policy is issued by lllll and is governed by the 

laws and regulations of the State of lllll, and it has 

met all the laws of that State as determined by that State’s 

Department of Insurance. This policy may be less expensive 

than others because it is not subject to all of the insurance 

laws and regulations of the State of lllll, including 

coverage of some services or benefits mandated by the law of 

the State of lllll. Additionally, this policy is not subject 

to all of the consumer protection laws or restrictions on rate 

changes of the State of lllll. As with all insurance 

products, before purchasing this policy, you should carefully 

review the policy and determine what health care services 

the policy covers and what benefits it provides, including any 


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exclusions, limitations, or conditions for such services or 

benefits.’’. 

(d) PROHIBITION ON CERTAIN RECLASSIFICATIONS AND PREMIUM

INCREASES.—

(1) IN GENERAL.—For purposes of this section, a health insurance issuer that provides individual health insurance coverage 

to an individual under this part in a primary or secondary 

State may not upon renewal—

(A) move or reclassify the individual insured under the 

health insurance coverage from the class such individual is 

in at the time of issue of the contract based on the healthstatus related factors of the individual; or 

(B) increase the premiums assessed the individual for 

such coverage based on a health status-related factor or 

change of a health status-related factor or the past or prospective claim experience of the insured individual. 

(2) CONSTRUCTION.—Nothing in paragraph (1) shall be construed to prohibit a health insurance issuer—

(A) from terminating or discontinuing coverage or a class 

of coverage in accordance with subsections (b) and (c) of 

section 2742; 

(B) from raising premium rates for all policy holders 

within a class based on claims experience; 

(C) from changing premiums or offering discounted premiums to individuals who engage in wellness activities at 

intervals prescribed by the issuer, if such premium changes 

or incentives—

(i) are disclosed to the consumer in the insurance 

contract; 

(ii) are based on specific wellness activities that are 

not applicable to all individuals; and 

(iii) are not obtainable by all individuals to whom 

coverage is offered; 

(D) from reinstating lapsed coverage; or 

(E) from retroactively adjusting the rates charged an insured individual if the initial rates were set based on material misrepresentation by the individual at the time of 

issue. 

(e) PRIOR OFFERING OF POLICY IN PRIMARY STATE.—A health insurance issuer may not offer for sale individual health insurance 

coverage in a secondary State unless that coverage is currently offered for sale in the primary State. 

(f) LICENSING OF AGENTS OR BROKERS FOR HEALTH INSURANCE

ISSUERS.—Any State may require that a person acting, or offering 

to act, as an agent or broker for a health insurance issuer with respect to the offering of individual health insurance coverage obtain 

a license from that State, with commissions or other compensation 

subject to the provisions of the laws of that State, except that a State 

may not impose any qualification or requirement which discriminates against a nonresident agent or broker. 

(g) DOCUMENTS FOR SUBMISSION TO STATE INSURANCE COMMISSIONER.—Each health insurance issuer issuing individual health insurance coverage in both primary and secondary States shall submit—


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(1) to the insurance commissioner of each State in which it 

intends to offer such coverage, before it may offer individual 

health insurance coverage in such State— (A) a copy of the plan of operation or feasibility study or 

any similar statement of the policy being offered and its 

coverage (which shall include the name of its primary State 

and its principal place of business); 

(B) written notice of any change in its designation of its 

primary State; and 

(C) written notice from the issuer of the issuer’s compliance with all the laws of the primary State; and 

(2) to the insurance commissioner of each secondary State in 

which it offers individual health insurance coverage, a copy of 

the issuer’s quarterly financial statement submitted to the primary State, which statement shall be certified by an independent public accountant and contain a statement of opinion 

on loss and loss adjustment expense reserves made by— (A) a member of the American Academy of Actuaries; or 

(B) a qualified loss reserve specialist. 

(h) POWER OF COURTS TO ENJOIN CONDUCT.—Nothing in this 

section shall be construed to affect the authority of any Federal or 

State court to enjoin—

(1) the solicitation or sale of individual health insurance coverage by a health insurance issuer to any person or group who 

is not eligible for such insurance; or 

(2) the solicitation or sale of individual health insurance coverage that violates the requirements of the law of a secondary 

State which are described in subparagraphs (A) through (H) of 

section 2796(b)(1). 

(i) POWER OF SECONDARY STATES TO TAKE ADMINISTRATIVE AC- TION.—Nothing in this section shall be construed to affect the authority of any State to enjoin conduct in violation of that State’s 

laws described in section 2796(b)(1). 

(j) STATE POWERS TO ENFORCE STATE LAWS.—

(1) IN GENERAL.—Subject to the provisions of subsection 

(b)(1)(G) (relating to injunctions) and paragraph (2), nothing in 

this section shall be construed to affect the authority of any 

State to make use of any of its powers to enforce the laws of 

such State with respect to which a health insurance issuer is 

not exempt under subsection (b). 

(2) COURTS OF COMPETENT JURISDICTION.—If a State seeks 

an injunction regarding the conduct described in paragraphs 

(1) and (2) of subsection (h), such injunction must be obtained 

from a Federal or State court of competent jurisdiction. 

(k) STATES’ AUTHORITY TO SUE.—Nothing in this section shall affect the authority of any State to bring action in any Federal or 

State court. 

(l) GENERALLY APPLICABLE LAWS.—Nothing in this section shall 

be construed to affect the applicability of State laws generally applicable to persons or corporations. 

(m) GUARANTEED AVAILABILITY OF COVERAGE TO HIPAA ELIGI- BLE INDIVIDUALS.—To the extent that a health insurance issuer is 

offering coverage in a primary State that does not accommodate 

residents of secondary States or does not provide a working mechanism for residents of a secondary State, and the issuer is offering 


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coverage under this part in such secondary State which has not 

adopted a qualified high risk pool as its acceptable alternative 

mechanism (as defined in section 2744(c)(2)), the issuer shall, with 

respect to any individual health insurance coverage offered in a secondary State under this part, comply with the guaranteed availability requirements for eligible individuals in section 2741. 

SEC. 2797. PRIMARY STATE MUST MEET FEDERAL FLOOR BEFORE 

ISSUER MAY SELL INTO SECONDARY STATES. 

A health insurance issuer may not offer, sell, or issue individual 

health insurance coverage in a secondary State if the State insurance commissioner does not use a risk-based capital formula for the 

determination of capital and surplus requirements for all health insurance issuers. 

SEC. 2798. INDEPENDENT EXTERNAL APPEALS PROCEDURES. 

(a) RIGHT TO EXTERNAL APPEAL.—A health insurance issuer may 

not offer, sell, or issue individual health insurance coverage in a 

secondary State under the provisions of this title unless——

(1) both the secondary State and the primary State have legislation or regulations in place establishing an independent review process for individuals who are covered by individual 

health insurance coverage, or 

(2) in any case in which the requirements of subparagraph 

(A) are not met with respect to the either of such States, the 

issuer provides an independent review mechanism substantially 

identical (as determined by the applicable State authority of 

such State) to that prescribed in the ‘‘Health Carrier External 

Review Model Act’’ of the National Association of Insurance 

Commissioners for all individuals who purchase insurance coverage under the terms of this part, except that, under such 

mechanism, the review is conducted by an independent medical 

reviewer, or a panel of such reviewers, with respect to whom the 

requirements of subsection (b) are met. 

(b) QUALIFICATIONS OF INDEPENDENT MEDICAL REVIEWERS.—In 

the case of any independent review mechanism referred to in subsection (a)(2)—

(1) IN GENERAL.—In referring a denial of a claim to an independent medical reviewer, or to any panel of such reviewers, to 

conduct independent medical review, the issuer shall ensure 

that—

(A) each independent medical reviewer meets the qualifications described in paragraphs (2) and (3); 

(B) with respect to each review, each reviewer meets the 

requirements of paragraph (4) and the reviewer, or at least 

1 reviewer on the panel, meets the requirements described 

in paragraph (5); and 

(C) compensation provided by the issuer to each reviewer 

is consistent with paragraph (6). 

(2) LICENSURE AND EXPERTISE.—Each independent medical 

reviewer shall be a physician (allopathic or osteopathic) or 

health care professional who—

(A) is appropriately credentialed or licensed in 1 or more 

States to deliver health care services; and 

(B) typically treats the condition, makes the diagnosis, or 

provides the type of treatment under review. 


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(3) INDEPENDENCE.— (A) IN GENERAL.—Subject to subparagraph (B), each 

independent medical reviewer in a case shall— (i) not be a related party (as defined in paragraph 

(7)); 

(ii) not have a material familial, financial, or professional relationship with such a party; and 

(iii) not otherwise have a conflict of interest with 

such a party (as determined under regulations). 

(B) EXCEPTION.—Nothing in subparagraph (A) shall be 

construed to— (i) prohibit an individual, solely on the basis of affiliation with the issuer, from serving as an independent medical reviewer if— (I) a non-affiliated individual is not reasonably 

available; 

(II) the affiliated individual is not involved in 

the provision of items or services in the case under 

review; 

(III) the fact of such an affiliation is disclosed to 

the issuer and the enrollee (or authorized representative) and neither party objects; and 

(IV) the affiliated individual is not an employee 

of the issuer and does not provide services exclusively or primarily to or on behalf of the issuer; 

(ii) prohibit an individual who has staff privileges at 

the institution where the treatment involved takes place 

from serving as an independent medical reviewer merely on the basis of such affiliation if the affiliation is 

disclosed to the issuer and the enrollee (or authorized 

representative), and neither party objects; or 

(iii) prohibit receipt of compensation by an independent medical reviewer from an entity if the compensation is provided consistent with paragraph (6). 

(4) PRACTICING HEALTH CARE PROFESSIONAL IN SAME FIELD.— (A) IN GENERAL.—In a case involving treatment, or the 

provision of items or services— (i) by a physician, a reviewer shall be a practicing 

physician (allopathic or osteopathic) of the same or 

similar specialty, as a physician who, acting within the 

appropriate scope of practice within the State in which 

the service is provided or rendered, typically treats the 

condition, makes the diagnosis, or provides the type of 

treatment under review; or 

(ii) by a non-physician health care professional, the 

reviewer, or at least 1 member of the review panel, 

shall be a practicing non-physician health care professional of the same or similar specialty as the non-physician health care professional who, acting within the 

appropriate scope of practice within the State in which 

the service is provided or rendered, typically treats the 

condition, makes the diagnosis, or provides the type of 

treatment under review. 

(B) PRACTICING DEFINED.—For purposes of this paragraph, the term ‘‘practicing’’ means, with respect to an indiVerDate Aug 31 2005 13:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00046 Fmt 6659 Sfmt 6603 E:\HR\OC\HR378.XXX HR378

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vidual who is a physician or other health care professional, 

that the individual provides health care services to individual patients on average at least 2 days per week. 

(5) PEDIATRIC EXPERTISE.—In the case of an external review 

relating to a child, a reviewer shall have expertise under paragraph (2) in pediatrics. 

(6) LIMITATIONS ON REVIEWER COMPENSATION.—Compensation provided by the issuer to an independent medical reviewer 

in connection with a review under this section shall—

(A) not exceed a reasonable level; and 

(B) not be contingent on the decision rendered by the reviewer. 

(7) RELATED PARTY DEFINED.—For purposes of this section, 

the term ‘‘related party’’ means, with respect to a denial of a 

claim under a coverage relating to an enrollee, any of the following: 

(A) The issuer involved, or any fiduciary, officer, director, 

or employee of the issuer. 

(B) The enrollee (or authorized representative). 

(C) The health care professional that provides the items 

or services involved in the denial. 

(D) The institution at which the items or services (or 

treatment) involved in the denial are provided. 

(E) The manufacturer of any drug or other item that is 

included in the items or services involved in the denial. 

(F) Any other party determined under any regulations to 

have a substantial interest in the denial involved. 

(8) DEFINITIONS.—For purposes of this subsection: 

(A) ENROLLEE.—The term ‘‘enrollee’’ means, with respect 

to health insurance coverage offered by a health insurance 

issuer, an individual enrolled with the issuer to receive 

such coverage. 

(B) HEALTH CARE PROFESSIONAL.—The term ‘‘health care 

professional’’ means an individual who is licensed, accredited, or certified under State law to provide specified health 

care services and who is operating within the scope of such 

licensure, accreditation, or certification. 

SEC. 2799. ENFORCEMENT. 

(a) IN GENERAL.—Subject to subsection (b), with respect to specific 

individual health insurance coverage the primary State for such 

coverage has sole jurisdiction to enforce the primary State’s covered 

laws in the primary State and any secondary State. 

(b) SECONDARY STATE’S AUTHORITY.—Nothing in subsection (a) 

shall be construed to affect the authority of a secondary State to enforce its laws as set forth in the exception specified in section 

2796(b)(1). 

(c) COURT INTERPRETATION.—In reviewing action initiated by the 

applicable secondary State authority, the court of competent jurisdiction shall apply the covered laws of the primary State. 

(d) NOTICE OF COMPLIANCE FAILURE.—In the case of individual 

health insurance coverage offered in a secondary State that fails to 

comply with the covered laws of the primary State, the applicable 


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State authority of the secondary State may notify the applicable 

State authority of the primary State. 

* * * * * * * 


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(49) 

1 June 24, 2005, letter from the American Diabetes Association to Representative John B. 

Shadegg. 

DISSENTING VIEWS OF REPRESENTATIVES DINGELL, WAXMAN, MARKEY, TOWNS, PALLONE, BROWN OF OHIO, GORDON, RUSH, ESHOO, STUPAK, ENGEL, WYNN, GENE 

GREEN OF TEXAS, STRICKLAND, DEGETTE, CAPPS, 

DOYLE, ALLEN, DAVIS, SCHAKOWSKY, SOLIS, GONZALEZ, 

INSLEE, BALDWIN, AND ROSS 

H.R. 2355, the ‘‘Health Care Choice Act of 2005’’, is a serious 

threat to the individual health insurance market. This legislation 

would allow health insurance companies to be licensed in one State 

but then sell policies in any of the other 49 States without meeting 

the other State’s consumer protection and insurance laws. Democrats strenuously objected to the legislation on a number of 

grounds and offered a series of amendments to correct its fundamental flaws. 

Erosion of consumer protections 

One of the most serious concerns with this legislation is that it 

would erode State consumer protections. States would be powerless 

to stop out-of-State insurance companies from selling coverage in 

their State which did not meet important State consumer and benefit protections. The legislation would undermine access to coverage 

and benefits for all consumers in the individual insurance market, 

and it would particularly hurt those with either existing medical 

needs, such as diabetics, cancer patients, pregnant women, and 

asthmatics, or those who develop a need for care. It would allow 

insurers to craft policies that serve only the healthy and avoid the 

sick either by excluding them outright from coverage or by pricing 

policies out of reach. 

Numerous advocacy groups expressed concerns with H.R. 2355. 

The American Diabetes Association indicated: ‘‘The Association is 

concerned that by permitting insurers to be licensed in only one 

State, H.R. 2355 could cause the end of guaranteed-issue individual 

health insurance policies. Many people with diabetes rely on this 

type of policy when employers do not offer coverage, or when they 

are self-employed. Under these policies, consumers can never be 

turned down for health insurance coverage because of their health 

status. However, insurers in other States without these types of 

provisions can and usually do deny coverage to individuals with diabetes because of their pre-existing condition.’’ 1

In a letter to Representative Ted Strickland on H.R. 2355, the 

National Mental Health Association noted: ‘‘As you know, mental 

illnesses are the leading cause of disability and premature death 

in this country. Absent strong laws, discriminatory health-insurance practices that limit people’s access to needed mental health 


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2 July 19, 2005, letter from Michael Faenza, National Mental Health Association, to Representative Ted Strickland. 3March of Dimes testimony submitted to the Committee on Energy and Commerce on H.R. 

2355, June 28, 2005. 4Statement of Ron Pollack on H.R. 2355, the ‘‘Health Care Choice Act’’ for the record before 

the Committee on Energy and Commerce, June 28, 2005. 5Statement of the National Partnership of Women and Families on H.R. 2355, ‘‘National 

Health Care Advocate Opposes the Health Care Choice Act’’, June 28, 2005. 

care are widespread across the country. Enactment of this legislation would, in our view, be a setback for many people with mental 

illnesses who have won protections against such discrimination 

under State laws.’’ 2

The March of Dimes stated in testimony submitted to the Committee: ‘‘We have strong reservations about any proposal that 

would have the effect of putting at risk existing State coverage protections for pregnant women, infants and children. In our judgment, health insurers should not be allowed to sell coverage that 

excludes maternity and pediatric benefit protections approved by 

individual States. As illustrated by experience with maternity coverage in the individual insurance market, permitting exclusion of 

basic benefits can have the perverse result of making such benefits 

unaffordable or even unavailable.’’ 3

FamiliesUSA said: ‘‘Under the Health Care Choice Act, the 

rights and protections granted by many States will be undercut by 

a small number of States that have fewer—or no—protections.’’ 4

The National Partnership for Women and Families stated: ‘‘Insurers could select the State with the most lenient rules, and thereby circumvent State laws that protect consumers from unfair rates 

and rate hikes. These insurers would be exempt from critical consumer protections such as guaranteed coverage for individual with 

preexisting conditions, and required coverage of critical health benefits like mammography screenings and preventive care.’’ 5

In an effort to protect such individuals from harm under this legislation, Democrats offered a number of amendments that would 

have prohibited insurers from discriminating against these groups 

by excluding needed benefits or excluding them from coverage. 

Amendments were offered that would require insurers operating in 

a State to comply with that State’s laws regarding access to coverage and benefits for individuals with diabetes, mental illness, pediatric cancer, and breast cancer, as well as to protect access and 

benefits for pregnant women and children. Amendments were also 

offered to protect State laws regarding access to prescription drug 

coverage and ensuring access to immunizations for children. Unfortunately, all of these amendments were defeated by the Majority. 

Creation of a regulatory void; increase in fraud 

The bill would strip regulatory authority from State insurance 

commissioners and prevent them from protecting residents of their 

State from unlicensed insurance companies. Section 2976 exempts 

a health insurer from complying with the covered laws of a State, 

such as consumer protections (i.e., access to emergency care, access 

to specialty care); benefit protections (i.e., diabetes coverage, maternity coverage, mental illness coverage, etc.); protections on premiums that can be charged; fraud and abuse laws (other than 

those that meet the narrow definition of fraud and abuse in the 


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legislation); protections on access to coverage (i.e., guarantee issue 

and renewability, pre-existing condition protections); and other 

laws relating to insurance. For these laws, if a consumer had a 

problem with an unlicensed insurance policy, he or she would have 

to request that an out-of-State insurance commissioner take action, 

if that other State even had such protections. The insurance commissioner in the consumer’s home State could not assist them. 

Democrats offered a number of amendments to address this matter including: requiring the State insurance commissioners to certify that a policy licensed in another State would not cause harm 

to in-State consumers before such a policy could be sold in the 

State; allowing a State to enforce laws against an unlicensed insurance plan if the licensing State did not take action; and allowing 

a State to ban unlicensed bad actors from the State if the company 

was found to violate required laws. All of these amendments were 

defeated on near party-line votes. 

The removal of regulatory oversight by this legislation will provide an environment ripe for unscrupulous actors to enter States 

and defraud consumers. Rather than simplify insurance regulation, 

this legislation would make it more complex because of the varying 

State and Federal standards that would apply to companies operating without being licensed in that State. The insurance laws of 

the State where the company is licensed would apply in most instances, but in some instances, such as in the case of certain fraud 

laws or external appeals, the State laws where the consumer lives 

would apply. In other cases, a Federal standard would apply. For 

example, there is a Federal standard for premium reclassifications, 

enforced by the licensing State, and a Federal standard for external 

appeals in instances where a State has no policy, enforced by that 

State. 

Consumers would be required to sort through the different layers 

of regulation to determine to whom and where certain provisions 

applied and where they would go to enforce them. Today, consumers know to turn to their State office for assistance. Under this 

legislation, insurers could frequently change the State in which 

they are licensed. Consumers would have to canvass different 

States to find out where their policy was regulated at the time 

their problem occurred. Moreover, having to navigate a State insurance department hundreds of miles away in another State would 

create significant obstacles for consumers seeking to file complaints. Thus, the legislation establishes operational and practical 

barriers to filing and investigating complaints. The end result 

would likely be little oversight of insurers. 

Moreover, State insurance departments are not equipped to serve 

residents of other States. In addition, State insurance departments 

do not have the resources to enforce or even monitor the conduct 

of insurance companies beyond its borders in a State where the insurer is not licensed. Under this legislation many consumer complaints or problems would go unaddressed and insurance companies would get away with bad practices with no consequences. 

Insufficient consumer information 

Adding to Democrats’ concerns about fraud is the lack of information required to be provided to consumers about the policies liVerDate Aug 31 2005 13:05 Feb 17, 2006 Jkt 049006 PO 00000 Frm 00051 Fmt 6604 Sfmt 6602 E:\HR\OC\HR378.XXX HR378

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censed in another State they would be purchasing. The legislation, 

at section 2976(c), requires a brief notice to be provided to consumers indicating which State laws and regulations govern that 

policy. Democrats offered an amendment to improve the information provided to consumers by insurance companies in order to ensure that individuals were making an informed choice in purchasing a policy not licensed and regulated primarily by their 

State. 

The amendment would have required insurers offering coverage 

in a State where they were not licensed to provide an explanation 

in easy to understand language of any variance of that policy from 

the mandated benefits, consumer protections, fraud protections, or 

premium protections that would be provided under the State’s laws 

where the insurer is not licensed that would not apply. In addition, 

the amendment would have required that each time an insurer 

changed the State in which it was licensed, it must notify policy 

holders in writing of the change, and must include a summary of 

any material changes in law and regulation between the old and 

new primary jurisdiction as well as where to contact in the State 

where the plan is licensed to file a complaint. 

Finally, the amendment would have required insurers to maintain a website (and provide information in each policy on how to 

access that site) containing: (1) copies of each insurance policy form 

sold in other States where it was not licensed; (2) copies of or links 

to the insurance law and regulation used in the State where it was 

licensed; (3) a discussion of the rating approach used by the licensing State including whether it varies by duration and how it approaches closed blocks of business; and (4) information on how the 

applicant or policy holder can file a complaint with the insurance 

regulator of the licensing State. This amendment, like all other 

Democratic amendments, was defeated. 

Erosion of choice 

H.R. 2355 is likely to lead to an erosion of choice for consumers 

as a result of a number of different factors. Insurance companies 

that currently offer more diverse policies including broader benefits 

and using less restrictive underwriting rules would find it difficult 

to continue offering that coverage as unlicensed out-of-State insurers moved into the market. These out-of-State policies would siphon off the healthy ‘‘good risks’’ into bare-bones policies, raising 

costs in more comprehensive health insurance policies. Ultimately, 

this would create a competitive disadvantage for any insurer that 

wished to (or was required by law to) meet more comprehensive 

State consumer protection standards. Consumers would find that 

policies that offered more comprehensive coverage and protections 

were no longer available or were unaffordable. 

To address this matter, Democrats offered an amendment which 

would require any insurer wishing to offer a policy in a State 

where it was not licensed (and thus did not meet the States consumer protections, benefit protections, access, rate or other requirements) to also offer a second policy that did meet all of the State 

standards. This would ensure that consumers were, in fact, able to 

decide which type of policy best met their needs by guaranteeing 


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that both State-regulated and out-of-State unlicensed policies were 

offered to consumers. The amendment was defeated. 

Evisceration of State legislative authority 

Because this legislation would allow insurance companies to circumvent State laws by operating without a license in that State, 

it usurps the legislative authority of State legislatures. By allowing 

insurance companies to choose which State to be licensed in, this 

legislation would block the ability of State legislatures to enact 

laws that had stronger protections than those of another State. 

There would be no incentive for States to pass laws to protect residents if the insurer could just register elsewhere to avoid it. Rather 

than foster a climate of continual improvement in industry practices, it would encourage companies to choose as its primary State 

the one with the lowest standards. Democrats objected to the Federal Government supplanting State powers in this manner, particularly as the end result would be fewer protections for consumers. 

An amendment to return authority to State legislatures was also 

defeated. 

Summary 

In short, we have grave reservations about H.R. 2355 and its effect on millions of Americans who obtain their health coverage in 

their State’s individual health insurance market. This bill, which 

was brought directly to the full Committee for consideration after 

only one hearing in the Subcommittee on Health, clearly would 

allow health insurance companies to avoid important State consumer protections and as such avoid serving individuals with medical needs. The legislation also sets up a confusing and inadequate 

regulatory structure that is certain to lead to an increase in fraudulent health insurance companies operating across the Nation. 

States, under the legislation, will have little ability to enforce their 

laws for their residents against plans operating without a license 

in that State. And, licensing States will not have the resources or 

potentially even the desire to assist out-of-State consumers experiencing problems with an out-of-State insurance company. 

For all of these reasons, we strongly oppose this legislation. 

JOHN D. DINGELL. HENRY A. WAXMAN. EDWARD J. MARKEY. EDOLPHUS TOWNS. FRANK PALLONE, Jr. 

SHERROD BROWN. 

BART GORDON. 

BOBBY L. RUSH. 

ANNA G. ESHOO. 

BART STUPAK. 

ELIOT L. ENGEL. 

ALBERT R. WYNN. GENE GREEN. TED STRICKLAND. DIANA DEGETTE. LOIS CAPPS. 

MICHAEL F. DOYLE. 


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TOM ALLEN. JIM DAVIS. JAN SCHAKOWSKY. HILDA L. SOLIS. CHARLES A. GONZALEZ. JAY INSLEE. TAMMY BALDWIN. MIKE ROSS. 

Æ 


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