I

106TH CONGRESS

2D SESSION H. R. 5184

To amend the Internal Revenue Code of 1986 to provide tax incentives

to encourage small business health plans, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 14, 2000

Mr. MOORE (for himself, Mr. STENHOLM, Mr. BERRY, Mr. TANNER, Mr.

MINGE, Mr. SANDLIN, Mr. PHELPS, Mrs. TAUSCHER, Mr. SISISKY, Mr.

HOLDEN, Mr. TAYLOR of Mississippi, Ms. DANNER, Ms. SANCHEZ, Mr.

THOMPSON of California, Mr. BOYD, and Mr. LUCAS of Kentucky) introduced the following bill; which was referred to the Committee on Ways

and Means, and in addition to the Committee on Commerce, for a period

to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee

concerned

A BILL

To amend the Internal Revenue Code of 1986 to provide

tax incentives to encourage small business health plans,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Small Business Health

5 Insurance Expansion Act of 2000’’.
2

•HR 5184 IH

1 SEC. 2. DEDUCTION FOR 100 PERCENT OF HEALTH INSUR2 ANCE COSTS OF SELF-EMPLOYED INDIVID3 UALS.

4 (a) IN GENERAL.—Paragraph (1) of section 162(l)

5 is amended to read as follows:

6 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case

7 of an individual who is an employee within the

8 meaning of section 401(c)(1), there shall be allowed

9 as a deduction under this section an amount equal

10 to 100 percent of the amount paid during the tax11 able year for insurance which constitutes medical

12 care for the taxpayer and the taxpayer’s spouse and

13 dependents.’’.

14 (b) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to taxable years beginning after

16 December 31, 2000.

17 SEC. 3. CREDIT FOR HEALTH INSURANCE EXPENSES OF

18 SMALL BUSINESSES.

19 (a) IN GENERAL.—Subpart D of part IV of sub20 chapter A of chapter 1 of the Internal Revenue Code of

21 1986 (relating to business-related credits) is amended by

22 adding at the end the following:

23 ‘‘SEC. 45D. SMALL BUSINESS HEALTH INSURANCE EX24 PENSES.

25 ‘‘(a) GENERAL RULE.—For purposes of section 38,

26 in the case of a small employer, the health insurance credit
3

•HR 5184 IH

1 determined under this section for the taxable year is an

2 amount equal to the applicable percentage of the expenses

3 paid by the taxpayer during the taxable year for health

4 insurance coverage for such year provided under a new

5 health plan for employees of such employer.

6 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of

7 subsection (a), the applicable percentage is—

8 ‘‘(1) in the case of insurance purchased as a

9 member of a qualified health benefit purchasing coa10 lition (as defined in section 9841), 30 percent, and

11 ‘‘(2) in the case of insurance not described in

12 paragraph (1), 20 percent.

13 ‘‘(c) LIMITATIONS.—

14 ‘‘(1) PER EMPLOYEE DOLLAR LIMITATION.—

15 The amount of expenses taken into account under

16 subsection (a) with respect to any employee for any

17 taxable year shall not exceed—

18 ‘‘(A) $2,000 in the case of self-only cov19 erage, and

20 ‘‘(B) $5,000 in the case of family coverage.

21 In the case of an employee who is covered by a new

22 health plan of the employer for only a portion of

23 such taxable year, the limitation under the preceding

24 sentence shall be an amount which bears the same

25 ratio to such limitation (determined without regard
4

•HR 5184 IH

1 to this sentence) as such portion bears to the entire

2 taxable year.

3 ‘‘(2) PERIOD OF COVERAGE.—Expenses may be

4 taken into account under subsection (a) only with

5 respect to coverage for the 4-year period beginning

6 on the date the employer establishes a new health

7 plan.

8 ‘‘(d) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) HEALTH INSURANCE COVERAGE.—The

10 term ‘health insurance coverage’ has the meaning

11 given such term by section 9832(b)(1).

12 ‘‘(2) NEW HEALTH PLAN.—

13 ‘‘(A) IN GENERAL.—The term ‘new health

14 plan’ means any arrangement of the employer

15 which provides health insurance coverage to em16 ployees if—

17 ‘‘(i) such employer (and any prede18 cessor employer) did not establish or main19 tain such arrangement (or any similar ar20 rangement) at any time during the 2 tax21 able years ending prior to the taxable year

22 in which the credit under this section is

23 first allowed, and

24 ‘‘(ii) such arrangement provides

25 health insurance coverage to at least 70
5

•HR 5184 IH

1 percent of the qualified employees of such

2 employer.

3 ‘‘(B) QUALIFIED EMPLOYEE.—

4 ‘‘(i) IN GENERAL.—The term ‘quali5 fied employee’ means any employee of an

6 employer if the annual rate of such em7 ployee’s compensation (as defined in sec8 tion 414(s)) exceeds $10,000.

9 ‘‘(ii) TREATMENT OF CERTAIN EM10 PLOYEES.—The term ‘employee’ shall in11 clude a leased employee within the mean12 ing of section 414(n).

13 ‘‘(3) SMALL EMPLOYER.—The term ‘small em14 ployer’ has the meaning given to such term by sec15 tion 4980D(d)(2); except that only qualified employ16 ees shall be taken into account.

17 ‘‘(e) SPECIAL RULES.—

18 ‘‘(1) CERTAIN RULES MADE APPLICABLE.—For

19 purposes of this section, rules similar to the rules of

20 section 52 shall apply.

21 ‘‘(2) AMOUNTS PAID UNDER SALARY REDUC22 TION ARRANGEMENTS.—No amount paid or incurred

23 pursuant to a salary reduction arrangement shall be

24 taken into account under subsection (a).
6

•HR 5184 IH

1 ‘‘(f) TERMINATION.—This section shall not apply to

2 expenses paid or incurred by an employer with respect to

3 any arrangement established on or after January 1,

4 2009.’’.

5 (b) CREDIT TO BE PART OF GENERAL BUSINESS

6 CREDIT.—Section 38(b) of such Code (relating to current

7 year business credit) is amended by striking ‘‘plus’’ at the

8 end of paragraph (11), by striking the period at the end

9 of paragraph (12) and inserting ‘‘, plus’’, and by adding

10 at the end the following:

11 ‘‘(13) in the case of a small employer (as de12 fined in section 45D(d)(3)), the health insurance

13 credit determined under section 45D(a).’’

14 (c) NO CARRYBACKS.—Subsection (d) of section 39

15 of such Code (relating to carryback and carryforward of

16 unused credits) is amended by adding at the end the fol17 lowing:

18 ‘‘(9) NO CARRYBACK OF SECTION 45D CREDIT

19 BEFORE EFFECTIVE DATE.—No portion of the un20 used business credit for any taxable year which is

21 attributable to the employee health insurance ex22 penses credit determined under section 45D may be

23 carried back to a taxable year ending before the date

24 of the enactment of section 45D.’’
7

•HR 5184 IH

1 (d) DENIAL OF DOUBLE BENEFIT.—Section 280C of

2 such Code is amended by adding at the end the following

3 new subsection:

4 ‘‘(d) CREDIT FOR SMALL BUSINESS HEALTH INSUR5 ANCE EXPENSES.—

6 ‘‘(1) IN GENERAL.—No deduction shall be al7 lowed for that portion of the expenses (otherwise al8 lowable as a deduction) taken into account in deter9 mining the credit under section 45D for the taxable

10 year which is equal to the amount of the credit de11 termined for such taxable year under section

12 45D(a).

13 ‘‘(2) CONTROLLED GROUPS.—Persons treated

14 as a single employer under subsection (a) or (b) of

15 section 52 shall be treated as 1 person for purposes

16 of this section.’’

17 (e) CLERICAL AMENDMENT.—The table of sections

18 for subpart D of part IV of subchapter A of chapter 1

19 of such Code is amended by adding at the end the fol20 lowing:

‘‘Sec. 45D. Small business health insurance expenses.’’

21 (f) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to amounts paid or incurred in tax23 able years beginning after December 31, 2000, for ar24 rangements established after the date of the enactment

25 of this Act.
8

•HR 5184 IH

1 SEC. 4. CERTAIN GRANTS BY PRIVATE FOUNDATIONS TO

2 QUALIFIED HEALTH BENEFIT PURCHASING

3 COALITIONS.

4 (a) IN GENERAL.—Section 4942 of the Internal Rev5 enue Code of 1986 (relating to taxes on failure to dis6 tribute income) is amended by adding at the end the fol7 lowing:

8 ‘‘(k) CERTAIN QUALIFIED HEALTH BENEFIT PUR9 CHASING COALITION DISTRIBUTIONS.—

10 ‘‘(1) IN GENERAL.—For purposes of subsection

11 (g), sections 170, 501, 507, 509, and 2522, and this

12 chapter, a qualified health benefit purchasing coali13 tion distribution by a private foundation shall be

14 considered to be a distribution for a charitable pur15 pose.

16 ‘‘(2) QUALIFIED HEALTH BENEFIT PUR17 CHASING COALITION DISTRIBUTION.—For purposes

18 of paragraph (1)—

19 ‘‘(A) IN GENERAL.—The term ‘qualified

20 health benefit purchasing coalition distribution’

21 means any amount paid or incurred by a pri22 vate foundation to or on behalf of a qualified

23 health benefit purchasing coalition (as defined

24 in section 9841) for purposes of payment or re25 imbursement of amounts paid or incurred in
9

•HR 5184 IH

1 connection with the establishment and mainte2 nance of such coalition.

3 ‘‘(B) EXCLUSIONS.—Such term shall not

4 include any amount used by a qualified health

5 benefit purchasing coalition (as so defined)—

6 ‘‘(i) for the purchase of real property,

7 ‘‘(ii) as payment to, or for the benefit

8 of, members (or employees or affiliates of

9 such members) of such coalition, or

10 ‘‘(iii) for any expense paid or incurred

11 more than 48 months after the date of es12 tablishment of such coalition.

13 ‘‘(3) TERMINATION.—This subsection shall not

14 apply—

15 ‘‘(A) to qualified health benefit purchasing

16 coalition distributions paid or incurred after

17 December 31, 2008, and

18 ‘‘(B) with respect to start-up costs of a co19 alition which are paid or incurred after Decem20 ber 31, 2010.’’.

21 (b) QUALIFIED HEALTH BENEFIT PURCHASING CO22 ALITION.—

23 (1) IN GENERAL.—Chapter 100 of such Code

24 (relating to group health plan requirements) is
10

•HR 5184 IH

1 amended by adding at the end the following new

2 subchapter:

3 ‘‘Subchapter D—Qualified Health Benefit

4 Purchasing Coalition

‘‘Sec. 9841. Qualified health benefit purchasing coalition.

5 ‘‘SEC. 9841. QUALIFIED HEALTH BENEFIT PURCHASING CO6 ALITION.

7 ‘‘(a) IN GENERAL.—A qualified health benefit pur8 chasing coalition is a private not-for-profit corporation

9 which—

10 ‘‘(1) sells health insurance through State li11 censed health insurance issuers in the State in which

12 the employers to which such coalition is providing

13 insurance are located, and

14 ‘‘(2) establishes to the Secretary, under State

15 certification procedures or other procedures as the

16 Secretary may provide by regulation, that such coali17 tion meets the requirements of this section.

18 ‘‘(b) BOARD OF DIRECTORS.—

19 ‘‘(1) IN GENERAL.—Each purchasing coalition

20 under this section shall be governed by a Board of

21 Directors.

22 ‘‘(2) ELECTION.—The Secretary shall establish

23 procedures governing election of such Board.
11

•HR 5184 IH

1 ‘‘(3) MEMBERSHIP.—The Board of Directors

2 shall—

3 ‘‘(A) be composed of representatives of the

4 members of the coalition, in equal number, in5 cluding small employers and employee rep6 resentatives of such employers, but

7 ‘‘(B) not include other interested parties,

8 such as service providers, health insurers, or in9 surance agents or brokers which may have a

10 conflict of interest with the purposes of the coa11 lition.

12 ‘‘(c) MEMBERSHIP OF COALITION.—

13 ‘‘(1) IN GENERAL.—A purchasing coalition

14 shall accept all small employers residing within the

15 area served by the coalition as members if such em16 ployers request such membership.

17 ‘‘(2) OTHER MEMBERS.—The coalition, at the

18 discretion of its Board of Directors, may be open to

19 individuals and large employers.

20 ‘‘(3) VOTING.—Members of a purchasing coali21 tion shall have voting rights consistent with the rules

22 established by the State.

23 ‘‘(d) DUTIES OF PURCHASING COALITIONS.—Each

24 purchasing coalition shall—
12

•HR 5184 IH

1 ‘‘(1) enter into agreements with small employ2 ers (and, at the discretion of its Board, with individ3 uals and other employers) to provide health insur4 ance benefits to employees and retirees of such em5 ployers,

6 ‘‘(2) where feasible, enter into agreements with

7 3 or more unaffiliated, qualified licensed health

8 plans, to offer benefits to members,

9 ‘‘(3) offer to members at least 1 open enroll10 ment period of at least 30 days per calendar year,

11 ‘‘(4) serve a significant geographical area and

12 market to all eligible members in that area, and

13 ‘‘(5) carry out other functions provided for

14 under this section.

15 ‘‘(e) LIMITATION ON ACTIVITIES.—A purchasing coa16 lition shall not—

17 ‘‘(1) perform any activity (including certifi18 cation or enforcement) relating to compliance or li19 censing of health plans,

20 ‘‘(2) assume insurance or financial risk in rela21 tion to any health plan, or

22 ‘‘(3) perform other activities identified by the

23 State as being inconsistent with the performance of

24 its duties under this section.
13

•HR 5184 IH

1 ‘‘(f) ADDITIONAL REQUIREMENTS FOR PURCHASING

2 COALITIONS.—As provided by the Secretary in regula3 tions, a purchasing coalition shall be subject to require4 ments similar to the requirements of a group health plan

5 under this chapter.

6 ‘‘(g) RELATION TO OTHER LAWS.—

7 ‘‘(1) PREEMPTION OF STATE FICTITIOUS

8 GROUP LAWS.—Requirements (commonly referred to

9 as fictitious group laws) relating to grouping and

10 similar requirements for health insurance coverage

11 are preempted to the extent such requirements im12 pede the establishment and operation of qualified

13 health benefit purchasing coalitions.

14 ‘‘(2) ALLOWING SAVINGS TO BE PASSED

15 THROUGH.—Any State law that prohibits health in16 surance issuers from reducing premiums on health

17 insurance coverage sold through a qualified health

18 benefit purchasing coalition to reflect administrative

19 savings is preempted. This paragraph shall not be

20 construed to preempt State laws that impose restric21 tions on premiums based on health status, claims

22 history, industry, age, gender, or other underwriting

23 factors.

24 ‘‘(3) NO WAIVER OF HIPAA REQUIREMENTS.—

25 Nothing in this section shall be construed to change
14

•HR 5184 IH

1 the obligation of health insurance issuers to comply

2 with the requirements of title XXVII of the Public

3 Health Service Act with respect to health insurance

4 coverage offered to small employers in the small

5 group market through a qualified health benefit pur6 chasing coalition.

7 ‘‘(h) DEFINITION OF SMALL EMPLOYER.—For pur8 poses of this section—

9 ‘‘(1) IN GENERAL.—The term ‘small employer’

10 means, with respect to any calendar year, any em11 ployer if such employer employed an average of at

12 least 2 and not more than 50 qualified employees on

13 business days during either of the 2 preceding cal14 endar years. For purposes of the preceding sentence,

15 a preceding calendar year may be taken into account

16 only if the employer was in existence throughout

17 such year.

18 ‘‘(2) EMPLOYERS NOT IN EXISTENCE IN PRE19 CEDING YEAR.—In the case of an employer which

20 was not in existence throughout the 1st preceding

21 calendar year, the determination under paragraph

22 (1) shall be based on the average number of quali23 fied employees that it is reasonably expected such

24 employer will employ on business days in the current

25 calendar year.’’.
15

•HR 5184 IH

1 (2) CONFORMING AMENDMENT.—The table of

2 subchapters for chapter 100 of such Code is amend3 ed by adding at the end the following item:

‘‘Subchapter D. Qualified health benefit purchasing coalition.’’.

4 (c) EFFECTIVE DATE.—The amendment made by

5 subsection (a) shall apply to taxable years beginning after

6 December 31, 2000.

7 SEC. 5. STATE GRANT PROGRAM FOR MARKET INNOVA8 TION.

9 (a) IN GENERAL.—The Secretary of Health and

10 Human Services (in this section referred to as the ‘‘Sec11 retary’’) shall establish a program (in this section referred

12 to as the ‘‘program’’) to award demonstration grants

13 under this section to States to allow States to demonstrate

14 the effectiveness of innovative ways to increase access to

15 health insurance through market reforms and other inno16 vative means. Such innovative means may include (and are

17 not limited to) any of the following:

18 (1) Alternative group purchasing or pooling ar19 rangements, such as a purchasing cooperatives for

20 small businesses, reinsurance pools, or high risk

21 pools.

22 (2) Individual or small group market reforms.

23 (3) Consumer education and outreach.

24 (4) Subsidies to individuals, employers, or both,

25 in obtaining health insurance.
16

•HR 5184 IH

1 (b) SCOPE; DURATION.—The program shall be lim2 ited to not more than 10 States and to a total period of

3 5 years, beginning on the date the first demonstration

4 grant is made.

5 (c) CONDITIONS FOR DEMONSTRATION GRANTS.—

6 (1) IN GENERAL.—The Secretary may not pro7 vide for a demonstration grant to a State under the

8 program unless the Secretary finds that under the

9 proposed demonstration grant—

10 (A) the State will provide for demonstrated

11 increase of access for some portion of the exist12 ing uninsured population through a market in13 novation (other than merely through a financial

14 expansion of a program initiated before the

15 date of the enactment of this Act);

16 (B) the State will comply with applicable

17 Federal laws;

18 (C) the State will not discriminate among

19 participants on the basis of any health status20 related factor (as defined in section 2791(d)(9)

21 of the Public Health Service Act), except to the

22 extent a State wishes to focus on populations

23 that otherwise would not obtain health insur24 ance because of such factors; and
17

•HR 5184 IH

1 (D) the State will provide for such evalua2 tion, in coordination with the evaluation re3 quired under subsection (d), as the Secretary

4 may specify.

5 (2) APPLICATION.—The Secretary shall not

6 provide a demonstration grant under the program to

7 a State unless—

8 (A) the State submits to the Secretary

9 such an application, in such a form and man10 ner, as the Secretary specifies;

11 (B) the application includes information

12 regarding how the demonstration grant will ad13 dress issues such as governance, targeted popu14 lation, expected cost, and the continuation after

15 the completion of the demonstration grant pe16 riod; and

17 (B) the Secretary determines that the

18 demonstration grant will be used consistent

19 with this section.

20 (3) FOCUS.—A demonstration grant proposal

21 under section need not cover all uninsured individ22 uals in a State or all health care benefits with re23 spect to such individuals.

24 (d) EVALUATION.—The Secretary shall enter into a

25 contract with an appropriate entity outside the Depart-
18

•HR 5184 IH

1 ment of Health and Human Services to conduct an overall

2 evaluation of the program at the end of the program pe3 riod. Such evaluation shall include an analysis of improve4 ments in access, costs, quality of care, or choice of cov5 erage, under different demonstration grants.

6 (e) OPTION TO PROVIDE FOR INITIAL PLANNING

7 GRANTS.—Notwithstanding the previous provisions of this

8 section, under the program the Secretary may provide for

9 a portion of the amounts appropriated under subsection

10 (f) (not to exceed $5,000,000) to be made available to any

11 State for initial planning grants to permit States to de12 velop demonstration grant proposals under the previous

13 provisions of this section.

14 (f) AUTHORIZATION OF APPROPRIATIONS.—There

15 are authorized to be appropriated $100,000,000 for each

16 fiscal year to carry out this section. Amounts appropriated

17 under this subsection shall remain available until ex18 pended.

19 (g) STATE DEFINED.—For purposes of this section,

20 the term ‘‘State’’ has the meaning given such term for

21 purposes of title XIX of the Social Security Act.

Æ