I

103D CONGRESS

2D SESSION H. R. 4410

To provide for universal affordable access to health care and health insurance

through tax and savings incentives, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MAY 12, 1994

Mr. JACOBS (for himself and Mr. INHOFE) introduced the following bill; which

was referred jointly to the Committees on Ways and Means, Energy and

Commerce, and Education and Labor

A BILL

To provide for universal affordable access to health care

and health insurance through tax and savings incentives,

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; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Bipartisan Health Security Reform Act of 1994’’.

6 (b) TABLE OF CONTENTS.—The table of contents of

7 this Act is as follows:

TITLE I—AMENDMENTS OF INTERNAL REVENUE CODE OF 1986

Subtitle A—Tax Incentives for Purchase of Health Care Coverage
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Sec. 101. Refundable credit for purchase of health care coverage.

Subtitle B—Medical Care Savings Accounts

Sec. 111. Medical care savings accounts.

Sec. 112. Unused amounts in flexible spending accounts transferable to medical

care savings accounts.

Subtitle C—Expansion of COBRA Continuation Coverage

Sec. 121. Expansion of COBRA continuation coverage.

TITLE II—INSURANCE REFORM

Subtitle A—Employer Insurance Protections

Sec. 201. Small group employer insurance protections.

Sec. 202. General portability requirement for employer-based health insurance.

Sec. 203. Exemption from certain State mandates.

Sec. 204. Enforcement.

Sec. 205. Definitions.

Sec. 206. Effective date.

Subtitle B—Guaranteeing Portability of Health Insurance for Individuals

Sec. 211. Coverage of individual health benefit plans.

Sec. 212. Portability protections.

Sec. 213. Definitions.

Sec. 214. Effective date.

Subtitle C—Assuring Health Insurance Coverage for Uninsurable Individuals

Sec. 221. Establishment of programs by States.

Sec. 222. Uninsurable individuals eligible for coverage.

Sec. 223. Qualified health insurance coverage under program.

Sec. 224. Funding of program.

Sec. 225. Administration.

TITLE III—MEDICAID REFORM

Sec. 301. Providing coverage for out-of-pocket expenses under private health

plans.

TITLE IV—MEDICAL CHARGE DISCLOSURE

Sec. 401. Requiring providers of medical services to disclose maximum charges.
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1 TITLE I—AMENDMENTS OF IN2 TERNAL REVENUE CODE OF

3 1986

4 Subtitle A—Tax Incentives for

5 Purchase of Health Care Coverage

6 SEC. 101. REFUNDABLE CREDIT FOR PURCHASE OF

7 HEALTH CARE COVERAGE.

8 (a) ALLOWANCE OF CREDIT.—Subpart C of part IV

9 of subchapter A of chapter 1 of the Internal Revenue Code

10 of 1986 (relating to refundable credits) is amended by re11 designating section 35 as section 36 and by inserting after

12 section 34 the following new section:

13 ‘‘SEC. 35. PURCHASE OF HEALTH CARE COVERAGE.

14 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in15 dividual, there shall be allowed as a credit against the tax

16 imposed by this subtitle for the taxable year an amount

17 equal to 30 percent of the sum of—

18 ‘‘(1) the amount paid by the taxpayer during

19 the taxable year for health care coverage for the tax20 payer, the spouse of the taxpayer, and any depend21 ent (as defined in section 152) of the taxpayer, and

22 ‘‘(2) if the individual is an eligible individual,

23 the amount contributed by the taxpayer for the tax24 able year to a medical care savings account of such

25 individual.
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1 ‘‘(b) LIMITATION ON CONTRIBUTIONS TO MEDICAL

2 CARE SAVINGS ACCOUNTS.—

3 ‘‘(1) IN GENERAL.—The amount taken into ac4 count under subsection (a)(2) for any taxable year

5 for contributions to a medical care savings account

6 of an individual shall not exceed the amount of pa7 tient cost-sharing required under the high deductible

8 health plan or the health maintenance organization

9 covering the individual. In the case of a husband

10 and wife, the excess described in the preceding sen11 tence shall be divided equally between such spouses.

12 ‘‘(2) PRORATION OF LIMITATION IF PART-YEAR

13 ELIGIBILITY.—In the case of an individual who is an

14 eligible individual only for a portion (but not all) of

15 the calendar year ending with or within the taxable

16 year, the limitation under this subsection for such

17 taxable year shall be an amount which bears the

18 same ratio to such limitation (determined without

19 regard to this paragraph) as such portion bears to

20 the entire calendar year.

21 ‘‘(c) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible

23 individual’ means any individual who is covered

24 under a high deductible health plan or by a health

25 maintenance organization. Such term shall not in-
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1 clude an individual with respect to whom a deduc2 tion under section 151 is allowable to another tax3 payer for a taxable year beginning in the calendar

4 year in which the individual’s taxable year begins.

5 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—The

6 term ‘high deductible health plan’ means insurance

7 which constitutes medical care (as defined in section

8 213(d)), but only if such insurance requires patient

9 cost-sharing of at least $1,000 per year but not

10 more than $5,000 per year.

11 ‘‘(3) HEALTH CARE COVERAGE.—The term

12 ‘health care coverage’ means—

13 ‘‘(A) coverage under insurance which con14 stitutes medical care (as defined in section

15 213(d)),

16 ‘‘(B) coverage under an accident or health

17 plan, and

18 ‘‘(C) coverage by a health maintenance or19 ganization.

20 Such term does not include excluded coverage.

21 ‘‘(4) EXCLUDED COVERAGE.—The term ‘ex22 cluded coverage’ means—

23 ‘‘(A) any coverage providing wages or pay24 ments in lieu of wages for any period during
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1 which the employee is absent from work on ac2 count of sickness or injury,

3 ‘‘(B) any coverage providing for payments

4 referred to in section 105(c),

5 ‘‘(C) any coverage provided to an employee

6 or former employee after such employee has at7 tained age 65, unless such coverage is provided

8 by reason of the current employment of the in9 dividual (within the meaning of section

10 1862(b)(1)(A)(i)(I) of the Social Security Act)

11 with the employer providing the coverage,

12 ‘‘(D) any coverage provided under Federal

13 law to any individual (or spouse or dependent

14 thereof) by reason of such individual being—

15 ‘‘(i) a member of the Armed Forces of

16 the United States, or

17 ‘‘(ii) a veteran, and

18 ‘‘(E) any other coverage to the extent that

19 the Secretary determines that the continuation

20 of an exclusion for such coverage is not incon21 sistent with the purposes of this section.’’

22 ‘‘(d) SPECIAL RULES.—

23 ‘‘(1) COORDINATION WITH MEDICAL EXPENSE

24 DEDUCTION.—Any amount which is taken into ac-
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1 count in determining the credit under this section

2 shall not be taken into account under section 213.

3 ‘‘(2) COORDINATION WITH FLEXIBLE SPENDING

4 ACCOUNTS.—Any amount paid from a flexible spend5 ing account shall be treated as not paid by the tax6 payer.’’

7 (b) REPEAL OF DEDUCTION OF HEALTH INSURANCE

8 COSTS FOR SELF-EMPLOYED INDIVIDUALS.—Subsection

9 (l) of section 162 is hereby repealed.

10 (c) TECHNICAL AMENDMENTS.—

11 (1) The table of sections for such subpart C is

12 amended by striking the last item and inserting the

13 following new items:

‘‘Sec. 35. Purchase of health care coverage.

‘‘Sec. 36. Overpayments of tax.’’

14 (2) Paragraph (2) of section 1324(b) of title

15 31, United States Code, is amended by inserting be16 fore the period ‘‘or from section 35 of such Code’’.

17 (d) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to taxable years beginning after

19 December 31, 1995.

20 Subtitle B—Medical Care Savings

21 Accounts

22 SEC. 111. MEDICAL CARE SAVINGS ACCOUNTS.

23 (a) IN GENERAL.—Subpart A of part I of subchapter

24 D of chapter 1 of the Internal Revenue Code of 1986 is
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1 amended by inserting after section 408 the following new

2 section:

3 ‘‘SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.

4 ‘‘(a) GENERAL RULE.—For purposes of this title, the

5 term ‘medical care savings account’ (which may also be

6 referred to as a ‘Medical IRA’) means a trust created or

7 organized in the United States for the exclusive benefit

8 of an individual and the individual’s spouse and depend9 ents (as defined in section 152), but only if the written

10 instrument creating the trust meets the following require11 ments:

12 ‘‘(1) Except in the case of a rollover contribu13 tion described in subsection (c)(5), no contribution

14 will be accepted unless it is in cash and contribu15 tions will not be accepted during any calendar year

16 in excess of the limitation applicable to the individ17 ual under section 35(b)(2).

18 ‘‘(2) The trustee is a bank (as defined in sec19 tion 408(n)), insurance company (as defined in sec20 tion 816), or such other person who demonstrates to

21 the satisfaction of the Secretary that the manner in

22 which such other person will administer the trust

23 will be consistent with the requirements of this

24 section.
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1 ‘‘(3) No part of the trust funds will be invested

2 in life insurance contracts.

3 ‘‘(4) The interest of an individual in the bal4 ance of the account is nonforfeitable.

5 ‘‘(5) The assets of the trust will not be commin6 gled with other property except in a common trust

7 fund or common investment fund.

8 ‘‘(b) TAX TREATMENT OF ACCOUNTS.—

9 ‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—

10 The account beneficiary of a medical care savings

11 account shall be treated for purposes of this title as

12 the owner thereof and shall be subject to tax thereon

13 in accordance with subpart E of part I of subchapter

14 J of this chapter (relating to grantors and others

15 treated as substantial owners).

16 ‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN17 GAGES IN PROHIBITED TRANSACTION.—

18 ‘‘(A) IN GENERAL.—If, during any taxable

19 year of the account beneficiary, such beneficiary

20 engages in any transaction prohibited by section

21 4975 with respect to the account, the account

22 ceases to be a medical care savings account as

23 of the first day of that taxable year.

24 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

25 ALL ITS ASSETS.—In any case in which any ac-
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1 count ceases to be a medical care savings ac2 count by reason of subparagraph (A) on the

3 first day of any taxable year, subsection (c)

4 shall be applied as if—

5 ‘‘(i) there were a distribution on such

6 first day in an amount equal to the fair

7 market value (on such first day) of all as8 sets in the account (on such first day), and

9 ‘‘(ii) no portion of such distribution

10 were used to pay qualified expenses.

11 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU12 RITY.—If, during any taxable year, the account ben13 eficiary uses the account or any portion thereof as

14 security for a loan, the portion so used is treated as

15 distributed and not used to pay qualified expenses.

16 ‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.—

17 ‘‘(1) IN GENERAL.—Any amount paid or dis18 tributed out of a medical care savings account shall

19 be included in the gross income of the account bene20 ficiary unless such amount is used exclusively to pay

21 the qualified expenses of such beneficiary or of the

22 spouse and dependents (as defined in section 152) of

23 such beneficiary.

24 ‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE25 FORE DUE DATE OF RETURN.—Paragraph (1) shall
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1 not apply to the distribution of any contribution paid

2 during a taxable year to a medical care savings ac3 count to the extent that such contribution exceeds

4 the limitation applicable under section 35(b)(2) if—

5 ‘‘(A) such distribution is received by the

6 individual on or before the last day prescribed

7 by law (including extensions of time) for filing

8 such individual’s return for such taxable year,

9 and

10 ‘‘(B) such distribution is accompanied by

11 the amount of net income attributable to such

12 excess contribution.

13 Any net income described in subparagraph (B) shall

14 be included in the gross income of the individual for

15 the taxable year in which it is received.

16 ‘‘(3) PENALTY FOR DISTRIBUTIONS NOT USED

17 FOR QUALIFIED EXPENSES.—

18 ‘‘(A) IN GENERAL.—The tax imposed by

19 this chapter for any taxable year in which there

20 is a payment or distribution from a medical

21 care savings account which is includible in gross

22 income under paragraph (1) shall be increased

23 by 10 percent of the amount which is so includ24 ible.
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1 ‘‘(B) EXCEPTION FOR DISTRIBUTIONS

AFTER AGE 591 2 ⁄2.—Subparagraph (A) shall not

3 apply to any distribution or payment after the

4 date on which the account beneficiary attains

age 591 5 ⁄2.

6 ‘‘(C) DISABILITY OR DEATH CASES.—Sub7 paragraph (A) shall not apply if the payment or

8 distribution is made after the account bene9 ficiary becomes disabled within the meaning of

10 section 72(m)(7) or dies.

11 ‘‘(4) ROLLOVER CONTRIBUTION.—An amount is

12 described in this paragraph as a rollover contribu13 tion if it meets the requirements of subparagraphs

14 (A) and (B).

15 ‘‘(A) IN GENERAL.—Paragraph (1) does

16 not apply to any amount paid or distributed out

17 of a medical care savings account to the ac18 count beneficiary if the entire amount received

19 is paid into a medical care savings account for

20 the benefit of such beneficiary not later than

21 the 60th day after the day on which he receives

22 the payment or distribution.

23 ‘‘(B) LIMITATION.—This paragraph does

24 not apply to any amount described in subpara25 graph (A) received by an individual from a
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1 medical care savings account if at any time dur2 ing the one-year period ending on the day of

3 such receipt such individual received any other

4 amount described in subparagraph (A) from a

5 medical care savings account which was not in6 cludible in his gross income because of the ap7 plication of this paragraph.

8 ‘‘(C) DENIAL OF ROLLOVER TREATMENT

9 FOR INHERITED ACCOUNTS, ETC.—

10 ‘‘(i) IN GENERAL.—In the case of an

11 inherited medical care savings account—

12 ‘‘(I) this paragraph shall not

13 apply to any amount received by an

14 individual from such an account (and

15 no amount transferred from such ac16 count to another medical care savings

17 account shall be excluded from gross

18 income by reason of such transfer),

19 and

20 ‘‘(II) such inherited account shall

21 not be treated as a medical care sav22 ings account for purposes of determin23 ing whether any other amount is a

24 rollover contribution.
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1 ‘‘(ii) INHERITED MEDICAL CARE SAV2 INGS ACCOUNT.—A medical care savings

3 account shall be treated as inherited if—

4 ‘‘(I) the account beneficiary ac5 quired such account by reason of the

6 death of another individual, and

7 ‘‘(II) the account beneficiary was

8 not the surviving spouse of such other

9 individual.

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

11 ‘‘(1) QUALIFIED EXPENSES.—The term ‘quali12 fied expenses’ means any of the following expenses

13 which are incurred for the benefit of the account

14 beneficiary or the spouse or dependents (as defined

15 in section 152) of such beneficiary:

16 ‘‘(A) Expenses for medical care (as defined

17 in section 213(d)).

18 ‘‘(B) Expenses for long-term care services

19 (or premiums for long-term care insurance).

20 ‘‘(C) Expenses for work-related training,

21 education, and child care.

22 ‘‘(2) ACCOUNT BENEFICIARY.—The term ‘ac23 count beneficiary’ means the individual for whose

24 benefit the medical care savings account is estab25 lished.
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1 ‘‘(e) CUSTODIAL ACCOUNTS.—For purposes of this

2 section, a custodial account shall be treated as a trust if—

3 ‘‘(1) the assets of such account are held by a

4 bank (as defined in section 408(n)), insurance com5 pany (as defined in section 816), or another person

6 who demonstrates to the satisfaction of the Sec7 retary that the manner in which he will administer

8 the account will be consistent with the requirements

9 of this section, and

10 ‘‘(2) the custodial account would, except for the

11 fact that it is not a trust, constitute a medical care

12 savings account described in subsection (a).

13 For purposes of this title, in the case of a custodial ac14 count treated as a trust by reason of the preceding sen15 tence, the custodian of such account shall be treated as

16 the trustee thereof.

17 ‘‘(f) REPORTS.—The trustee of a medical care sav18 ings account shall make such reports regarding such ac19 count to the Secretary and to the account beneficiary with

20 respect to contributions, distributions, and such other

21 matters as the Secretary may require under regulations.

22 The reports required by this subsection shall be filed at

23 such time and in such manner and furnished to such indi24 viduals at such time and in such manner as may be re25 quired by those regulations.’’
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1 (b) EMPLOYER PAYMENTS EXCLUDED FROM EM2 PLOYMENT TAX BASE.—

3 (1) SOCIAL SECURITY TAXES.—

4 (A) Subsection (a) of section 3121 of such

5 Code is amended by striking ‘‘or’’ at the end of

6 paragraph (20), by striking the period at the

7 end of paragraph (21) and inserting ‘‘; or’’, and

8 by inserting after paragraph (21) the following

9 new paragraph:

10 ‘‘(22) any payment made to or for the benefit

11 of an employee if at the time of such payment it is

12 reasonable to believe that the employee will be able

13 to exclude such payment from income under section

14 106.’’

15 (B) Subsection (a) of section 209 of the

16 Social Security Act is amended by striking ‘‘or’’

17 at the end of paragraph (18), by striking the

18 period at the end of paragraph (19) and insert19 ing ‘‘; or’’, and by inserting after paragraph

20 (19) the following new paragraph:

21 ‘‘(20) any payment made to or for the benefit

22 of an employee if at the time of such payment it is

23 reasonable to believe that the employee will be able

24 to exclude such payment from income under section

25 106 of the Internal Revenue Code of 1986.’’
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1 (2) RAILROAD RETIREMENT TAX.—Subsection

2 (e) of section 3231 of such Code is amended by add3 ing at the end the following new paragraph:

4 ‘‘(10) MEDICAL CARE SAVINGS ACCOUNT CON5 TRIBUTIONS.—The term ‘compensation’ shall not in6 clude any payment made to or for the benefit of an

7 employee if at the time of such payment it is reason8 able to believe that the employee will be able to ex9 clude such payment from income under section

10 106.’’

11 (3) UNEMPLOYMENT TAX.—Subsection (b) of

12 section 3306 of such Code is amended by striking

13 ‘‘or’’ at the end of paragraph (15), by striking the

14 period at the end of paragraph (16) and inserting ‘‘;

15 or’’, and by inserting after paragraph (16) the fol16 lowing new paragraph:

17 ‘‘(17) any payment made to or for the benefit

18 of an employee if at the time of such payment it is

19 reasonable to believe that the employee will be able

20 to exclude such payment from income under section

21 106.’’

22 (4) WITHHOLDING TAX.—Subsection (a) of sec23 tion 3401 of such Code is amended by striking ‘‘or’’

24 at the end of paragraph (19), by striking the period

25 at the end of paragraph (20) and inserting ‘‘; or’’,
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1 and by inserting after paragraph (20) the following

2 new paragraph:

3 ‘‘(21) any payment made to or for the benefit

4 of an employee if at the time of such payment it is

5 reasonable to believe that the employee will be able

6 to exclude such payment from income under section

7 106.’’

8 (c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

9 of such Code (relating to tax on excess contributions to

10 individual retirement accounts, certain section 403(b) con11 tracts, and certain individual retirement annuities) is

12 amended—

13 (1) by inserting ‘‘MEDICAL CARE SAVINGS

14 ACCOUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading

15 of such section,

16 (2) by redesignating paragraph (2) of sub17 section (a) as paragraph (3) and by inserting after

18 paragraph (1) the following:

19 ‘‘(2) a medical care savings account (within the

20 meaning of section 408A),’’,

21 (3) by striking ‘‘or’’ at the end of paragraph

22 (1) of subsection (a), and

23 (4) by adding at the end thereof the following

24 new subsection:
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1 ‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL CARE

2 SAVINGS ACCOUNTS.—For purposes of this section, in the

3 case of a medical care savings account (within the mean4 ing of section 408A), the term ‘excess contributions’

5 means the amount by which the amount contributed for

6 the taxable year to the account exceeds the limitation ap7 plicable under section 35(b)(2) for such taxable year. For

8 purposes of this subsection, any contribution which is dis9 tributed out of the medical care savings account in a dis10 tribution to which section 408A(c)(2) applies shall be

11 treated as an amount not contributed.’’

12 (d) TAX ON PROHIBITED TRANSACTIONS.—Section

13 4975 of such Code (relating to prohibited transactions)

14 is amended—

15 (1) by adding at the end of subsection (c) the

16 following new paragraph:

17 ‘‘(4) SPECIAL RULE FOR MEDICAL CARE SAV18 INGS ACCOUNTS.—An individual for whose benefit a

19 medical care savings account (within the meaning of

20 section 408A) is established shall be exempt from

21 the tax imposed by this section with respect to any

22 transaction concerning such account (which would

23 otherwise be taxable under this section) if, with re24 spect to such transaction, the account ceases to be

25 a medical care savings account by reason of the ap-
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1 plication of section 408A(b)(2)(A) to such account.’’,

2 and

3 (2) by inserting ‘‘or a medical care savings ac4 count described in section 408A’’ in subsection

5 (e)(1) after ‘‘described in section 408(a)’’.

6 (e) FAILURE TO PROVIDE REPORTS ON MEDICAL

7 CARE SAVINGS ACCOUNTS.—Section 6693 of such Code

8 (relating to failure to provide reports on individual retire9 ment account or annuities) is amended—

10 (1) by inserting ‘‘OR ON MEDICAL CARE

11 SAVINGS ACCOUNTS’’ after ‘‘ANNUITIES’’ in the

12 heading of such section, and

13 (2) by adding at the end of subsection (a) the

14 following: ‘‘The person required by section 408A(f)

15 to file a report regarding a medical care savings ac16 count at the time and in the manner required by

17 such section shall pay a penalty of $50 for each fail18 ure unless it is shown that such failure is due to rea19 sonable cause.’’

20 (f) CLERICAL AMENDMENTS.—

21 (1) The table of sections for subpart A of part

22 I of subchapter D of chapter 1 of such Code is

23 amended by inserting after the item relating to sec24 tion 408 the following:

‘‘Sec. 408A. Medical care savings accounts.’’
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1 (2) The table of sections for chapter 43 of such

2 Code is amended by striking the item relating to sec3 tion 4973 and inserting the following:

‘‘Sec. 4973. Tax on excess contributions to individual retirement

accounts, medical care savings accounts, certain

403(b) contracts, and certain individual retirement

annuities.’’

4 (3) The table of sections for subchapter B of

5 chapter 68 of such Code is amended by inserting ‘‘or

6 on medical care savings accounts’’ after ‘‘annuities’’

7 in the item relating to section 6693.

8 (g) EFFECTIVE DATE.—The amendments made by

9 this section shall take effect on January 1, 1996.

10 SEC. 112. UNUSED AMOUNTS IN FLEXIBLE SPENDING AC11 COUNTS TRANSFERABLE TO MEDICAL CARE

12 SAVINGS ACCOUNTS.

13 (a) IN GENERAL.—Subsection (d) of section 125 of

14 the Internal Revenue Code of 1986 (relating to cafeteria

15 plans) is amended by adding at the end thereof the follow16 ing new paragraph:

17 ‘‘(3) UNUSED AMOUNTS TRANSFERABLE TO

18 MEDICAL CARE SAVINGS ACCOUNTS.—Subsection (a)

19 shall not fail to apply to a participant in a plan, and

20 a plan shall not fail to be treated as a cafeteria plan,

21 solely because under the plan amounts not paid out

22 as reimbursements under a flexible spending ar23 rangement for medical care (as defined in section
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1 213(d)) for an individual or such individual’s spouse

2 and dependents) are contributed on the last day of

3 the plan year of the cafeteria plan to a medical care

4 savings account (as defined in section 408A) of such

5 individual.’’

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

7 this section shall apply to cafeteria plan years ending after

8 December 31, 1995.

9 Subtitle C—Expansion of COBRA

10 Continuation Coverage

11 SEC. 121. EXPANSION OF COBRA CONTINUATION COV12 ERAGE.

13 (a) AMENDMENTS TO INTERNAL REVENUE CODE.—

14 (1) SMALLER EMPLOYERS SUBJECT TO RE15 QUIREMENTS.—Paragraph (1) of section 4980B(d)

16 of the Internal Revenue Code of 1986 (relating to

17 tax not to apply to certain plans) is amended by

18 striking ‘‘20 employees’’ and inserting ‘‘4 employ19 ees’’.

20 (2) PERIOD OF COVERAGE EXTENDED TO 36

21 MONTHS.—

22 (A) IN GENERAL.—Clause (i) of section

23 4980B(f)(2)(B) of such Code (relating to period

24 of coverage) is amended to read as follows:

25 ‘‘(i) MAXIMUM REQUIRED PERIOD.—
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1 ‘‘(I) IN GENERAL.—The date

2 which is 36 months after the date of

3 the qualifying event.

4 ‘‘(II) SPECIAL RULE FOR CER5 TAIN BANKRUPTCY PROCEEDINGS.—

6 In the case of a qualifying event de7 scribed in paragraph (3)(F) (relating

8 to bankruptcy proceedings), the date

9 of the death of the covered employee

10 or qualified beneficiary (described in

11 subsection (g)(1)(D)(iii)), or in the

12 case of the surviving spouse or de13 pendent children of the covered em14 ployee, 36 months after the date of

15 the death of the covered employee.

16 ‘‘(III) QUALIFYING EVENT IN17 VOLVING MEDICARE ENTITLEMENT.—

18 In the case of an event described in

19 paragraph (3)(D) (without regard to

20 whether such event is a qualifying

21 event), the period of coverage for

22 qualified beneficiaries other than the

23 covered employee for such event or

24 any subsequent qualifying event shall

25 not terminate before the close of the
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1 36-month period beginning on the

2 date the covered employee becomes

3 entitled to benefits under title XVIII

4 of the Social Security Act.’’

5 (B) TECHNICAL AMENDMENT.—The last

6 sentence of section 4980B(f)(2)(C) of such

7 Code is amended to read as follows: ‘‘In the

8 case of a qualified beneficiary who is deter9 mined, under title II or XVI of the Social Secu10 rity Act, to have been disabled at the time of

11 a qualifying event described in paragraph

12 (3)(B), any reference in clause (i) to ‘102 per13 cent’ is deemed a reference to ‘150 percent’ for

14 any month after the 36th month of continu15 ation coverage.’’

16 (b) AMENDMENTS TO EMPLOYEE RETIREMENT IN17 COME SECURITY ACT OF 1974.—

18 (1) SMALLER EMPLOYERS SUBJECT TO RE19 QUIREMENTS.—Subsection (b) of section 601 of the

20 Employee Retirement Income Security Act of 1974

21 (29 U.S.C. 1161) (relating to exception for certain

22 plans) is amended by striking ‘‘20 employees’’ and

23 inserting ‘‘4 employees’’.

24 (2) PERIOD OF COVERAGE EXTENDED TO 36

25 MONTHS.—
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1 (A) IN GENERAL.—Subparagraph (A) of

2 section 602(2) of such Act (29 U.S.C. 1161(2))

3 (relating to period of coverage) is amended to

4 read as follows:

5 ‘‘(A) MAXIMUM REQUIRED PERIOD.—

6 ‘‘(i) IN GENERAL.—The date which is

7 36 months after the date of the qualifying

8 event.

9 ‘‘(ii) SPECIAL RULE FOR CERTAIN

10 BANKRUPTCY PROCEEDINGS.—In the case

11 of a qualifying event described in section

12 603(6) (relating to bankruptcy proceed13 ings), the date of the death of the covered

14 employee or qualified beneficiary (described

15 in section 607(3)(C)(iii)), or in the case of

16 the surviving spouse or dependent children

17 of the covered employee, 36 months after

18 the date of the death of the covered

19 employee.

20 ‘‘(iii) QUALIFYING EVENT INVOLVING

21 MEDICARE ENTITLEMENT.—In the case of

22 an event described in section 603(4) (with23 out regard to whether such event is a

24 qualifying event), the period of coverage

25 for qualified beneficiaries other than the
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1 covered employee for such event or any

2 subsequent qualifying event shall not ter3 minate before the close of the 36-month

4 period beginning on the date the covered

5 employee becomes entitled to benefits

6 under title XVIII of the Social Security

7 Act.’’

8 (B) TECHNICAL AMENDMENT.—The last

9 sentence of section 602(3) of such Act is

10 amended to read as follows: ‘‘In the case of an

11 individual who is determined, under title II or

12 XVI of the Social Security Act, to have been

13 disabled at the time of a qualifying event de14 scribed in section 603(2), any reference in sub15 paragraph (A) to ‘102 percent’ is deemed a ref16 erence to ‘150 percent’ for any month after the

17 36th month of continuation coverage.’’

18 (c) AMENDMENTS TO PUBLIC HEALTH SERVICE

19 ACT.—

20 (1) SMALLER EMPLOYERS SUBJECT TO RE21 QUIREMENTS.—Paragraph (1) of section 2201(b) of

22 the Public Health Service Act (42 U.S.C. 300bb23 1(b)) (relating to exception for certain plans) is

24 amended by striking ‘‘20 employees’’ and inserting

25 ‘‘4 employees’’.
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1 (2) PERIOD OF COVERAGE EXTENDED TO 36

2 MONTHS.—

3 (A) IN GENERAL.—Subparagraph (A) of

4 section 2202(2) of such Act (42 U.S.C. 300bb–

5 2(2)) (relating to period of coverage) is amend6 ed to read as follows:

7 ‘‘(A) MAXIMUM REQUIRED PERIOD.—

8 ‘‘(i) IN GENERAL.—The date which is

9 36 months after the date of the qualifying

10 event.

11 ‘‘(ii) QUALIFYING EVENT INVOLVING

12 MEDICARE ENTITLEMENT.—In the case of

13 an event described in section 2203(4)

14 (without regard to whether such event is a

15 qualifying event), the period of coverage

16 for qualified beneficiaries other than the

17 covered employee for such event or any

18 subsequent qualifying event shall not ter19 minate before the close of the 36-month

20 period beginning on the date the covered

21 employee becomes entitled to benefits

22 under title XVIII of the Social Security

23 Act.’’

24 (B) TECHNICAL AMENDMENT.—The last

25 sentence of section 2202(3) of such Act is
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1 amended to read as follows: ‘‘In the case of an

2 individual who is determined, under title II or

3 XVI of the Social Security Act, to have been

4 disabled at the time of a qualifying event de5 scribed in section 2203(2), any reference in

6 subparagraph (A) to ‘102 percent’ is deemed a

7 reference to ‘150 percent’ for any month after

8 the 36th month of continuation coverage.’’

9 (d) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to—

11 (1) qualifying events occurring after December

12 31, 1995, and

13 (2) qualifying events occurring on or before

14 such date if the period of continuation coverage re15 quired under section 4980B of the Internal Revenue

16 Code of 1986 (determined without regard to the

17 amendments made by this section) has not expired

18 on or before such date.

19 TITLE II—INSURANCE REFORM

20 Subtitle A—Employer Insurance

21 Protections

22 SEC. 201. SMALL GROUP EMPLOYER INSURANCE PROTEC23 TIONS.

24 (a) REQUIREMENTS FOR INSURERS.—Any health

25 benefit insurer that provides or offers a small group health
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1 benefit plan within a State (in this subtitle referred to as

2 a ‘‘covered insurer’’) must meet the requirements specified

3 in this section with respect to such a plan.

4 (b) SMALL EMPLOYER PROTECTION AGAINST TER5 MINATION OR NON-RENEWAL OR INDUSTRY BLACKLIST6 ING.—

7 (1) IN GENERAL.—A covered insurer may not—

8 (A) cancel or nonrenew an individual small

9 employer group because of high claims costs or

10 the health of the group, or

11 (B) refuse to provide coverage to such a

12 group based solely on the nature of the employ13 er’s business or industry.

14 (2) PERMISSIBLE TERMINATION.—A covered in15 surer may cancel or nonrenew a small group health

16 benefit plan for an individual small employer group

17 for any of the following:

18 (A) Failure to make premium payments.

19 (B) Failure to remain eligible for inclusion

20 in the class of business by which its coverage

21 was provided.

22 (C) Failure to comply with the insurer’s

23 minimum participation requirements.

24 (D) Fraud or misrepresentation by the

25 employer.
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1 (3) CANCELLATION OF CLASS OF BUSINESS.—

2 (A) IN GENERAL.—A covered insurer may

3 cancel or nonrenew an entire class of business

4 with respect to a small group health benefit

5 plan.

6 (B) LIMITATION ON MARKET REENTRY.—

7 In the case of such a cancellation or

8 nonrenewal, the insurer may not write new

9 business with the same or similar class of small

10 group employers for a period of 5 years begin11 ning on the date of termination of the last plan

12 so cancelled or not renewed.

13 (c) LIMITS ON PREMIUM RATES.—The annual in14 crease in the premium rate charged to a small employer

15 group by a covered insurer may not exceed the sum of

16 the following:

17 (1) The percentage change in the premium rate

18 for new business for employers with similar case

19 characteristics, as measured between the first day of

20 the year in which the new rates take effect and the

21 first day of the previous year.

22 (2) A percentage (not to exceed 15 percent)

23 based on claims experience, health status, or dura24 tion of coverage.
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1 (3) Any adjustment due to changes in the cov2 erage provided or changes in the case characteristics

3 of the small employer group.

4 (d) LIMIT ON VARIATION IN PREMIUMS.—

5 (1) ACROSS CLASSES OF BUSINESS.—The index

6 rate for a rating period for any class of business

7 shall not exceed the index rate for any other class

8 of business by more than 20 percent.

9 (2) WITHIN A CLASS OF BUSINESS.—For a

10 class of business, the premium rates charged during

11 a rating period to small employer groups with simi12 lar case characteristics for the same or similar cov13 erage (or rates that could be charged to such em14 ployers under the rating system for that class of

15 business) shall not vary from the index rate for such

16 class by more than 25 percent of the index rate.

17 (3) USE OF INDUSTRY AS A CASE CHAR18 ACTERISTIC.—

19 (A) IN GENERAL.—Subject to subpara20 graph (B), a covered insurer may utilize indus21 try as a case characteristic in establishing pre22 mium rates.

23 (B) LIMITATION ON VARIATION.—If a cov24 ered insurer that utilizes industry as a case

25 characteristic in establishing premium rates,
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1 the highest rate factor associated with an in2 dustry classification may not exceed the lowest

3 rate associated with any industry classification

4 by more than 15 percent.

5 SEC. 202. GENERAL PORTABILITY REQUIREMENT FOR EM6 PLOYER-BASED HEALTH INSURANCE.

7 (a) LIMITATIONS ON USE OF PREEXISTING CONDI8 TIONS.—

9 (1) IN GENERAL.—A group health benefit plan

10 of an employer shall not deny, exclude, or limit bene11 fits for a covered individual for losses incurred more

12 than 12 months following the effective date of the

13 individual’s coverage due to a preexisting condition.

14 (2) RESTRICTIONS ON DEFINITION OF PRE15 EXISTING CONDITION.—For purposes of paragraph

16 (1), such a plan shall not define a preexisting condi17 tion more restrictively than the following:

18 (A) A condition that would have caused an

19 ordinarily prudent person to seek medical ad20 vice, diagnosis, care, or treatment during the 6

21 months immediately preceding the effective date

22 of coverage.

23 (B) A condition for which medical advice,

24 diagnosis, care, or treatment was recommended
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1 or received during the 6 months immediately

2 preceding the effective date of coverage.

3 (C) A pregnancy existing on the effective

4 date of coverage.

5 (b) LIMITATION ON UNDERWRITING.—

6 (1) IN GENERAL.—In the case of a previously

7 covered individual who becomes an employee of an

8 employer, the group health plan of (or contributed to

9 by) the employer shall accept the individual for cov10 erage upon the date of application for coverage on

11 the basis relating to the individual’s health status as

12 of the date the individual applied for employment

13 with the previous employer.

14 (2) PREVIOUSLY COVERED INDIVIDUAL DE15 FINED.—For purposes of paragraph (1), the term

16 ‘‘previously covered individual’’ means, with respect

17 to an employer, an individual who before employ18 ment by the employer was an employee of another

19 employer and was provided coverage under a group

20 health plan of (or contributed to by) the previous

21 employer.

22 (c) RESTRICTIONS FOR SMALL EMPLOYER HEALTH

23 PLANS.—

24 (1) IN GENERAL.—No insurer offering a health

25 benefit plan to a small employer shall refuse to ac-
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1 cept under the plan any individual who, on the date

2 of the application for such coverage, has been con3 tinuously covered (as defined in paragraph (2)) and

4 would be eligible for such coverage except for under5 writing considerations relating to the individual’s

6 health status.

7 (2) CONTINUOUS COVERAGE.—

8 (A) IN GENERAL.—For purposes of this

9 subsection, an individual is deemed to be con10 tinuously covered as of a date if the individual

11 is covered under any employee health benefit

12 plan or other health insurance policy at the be13 ginning and end of the 1-year period ending

14 with such date and has not had any lapse in

15 such coverage during such period totalling more

16 than 31 days, not including as such a lapse any

17 applicable employment waiting or probationary

18 period.

19 (B) SPECIAL RULE.—For purposes of sub20 paragraph (A), there shall not be taken into ac21 count coverage provided by or in connection

22 with any State high risk insurance pool.

23 (d) CONSTRUCTION.—Nothing in this section shall be

24 construed as requiring an insurer or health benefit plan

25 to provide benefits greater than those provided to an indi-
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1 vidual insured as a standard risk had the previous cov2 erage remained in force.

3 (e) DEFINITIONS.—For purposes of this section:

4 (1) COVERED INDIVIDUAL.—The term ‘‘covered

5 individual’’ means—

6 (A) an individual who is (or will be) pro7 vided coverage under a group health plan by

8 virtue of the performance of services by the in9 dividual for 1 or more persons maintaining the

10 plan (including as an employee defined in sec11 tion 401(c)(1) of the Internal Revenue Code of

12 1986), and

13 (B) the spouse or any dependent child of

14 such individual.

15 (2) GROUP HEALTH PLAN.—The term ‘‘group

16 health plan’’ has the meaning given such term by

17 section 5000(b)(1) of the Internal Revenue Code of

18 1986.

19 SEC. 203. EXEMPTION FROM CERTAIN STATE MANDATES.

20 An covered insurer that complies with the require21 ments of sections 201 and 202 with respect to a small

22 employer group is exempt from State law requirements

23 concerning the providing of specified health insurance ben24 efits or laws which prohibit the use of managed care net25 works.
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1 SEC. 204. ENFORCEMENT.

2 (a) IN GENERAL.—Chapter 47 of the Internal Reve3 nue Code of 1986 (relating to taxes on group health plans)

4 is amended by adding at the end thereof the following new

5 section:

6 ‘‘SEC. 5000A. ENFORCEMENT OF REQUIREMENTS FOR EM7 PLOYER HEALTH BENEFIT PLANS.

8 ‘‘(a) GENERAL RULE.—There is hereby imposed a

9 tax on the failure of an insurer or group health plan to

10 meet the applicable requirements of section 201 or 202

11 of the Bipartisan Health Security Reform Act of 1994

12 with respect to any covered individual.

13 ‘‘(b) AMOUNT OF TAX.—

14 ‘‘(1) IN GENERAL.—The amount of the tax im15 posed by subsection (a) on any failure with respect

16 to—

17 ‘‘(A) a requirement in such section 201

18 shall be $100 for each day in the noncompli19 ance period with respect to such failure; or

20 ‘‘(B) a requirement in such section 202

21 with respect to a covered individual shall be

22 $100 for each day in the noncompliance period

23 with respect to such failure.

24 ‘‘(2) NONCOMPLIANCE PERIOD.—For purposes

25 of this section, the term ‘noncompliance period’

26 means, with respect to any failure, the period—
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1 ‘‘(A) beginning on the date such failure

2 first occurs, and

3 ‘‘(B) ending on the date such failure is

4 corrected.

5 ‘‘(3) CORRECTION.—A failure of a group health

6 plan to meet the requirements of section 202 of the

7 Bipartisan Health Security Reform Act of 1994 with

8 respect to any covered individual shall be treated as

9 corrected if—

10 ‘‘(A) such failure is retroactively undone to

11 the extent possible, and

12 ‘‘(B) the covered individual is placed in a

13 financial position which is as good as such indi14 vidual would have been in had such failure not

15 occurred.

16 For purposes of applying subparagraph (B), the cov17 ered individual shall be treated as if the individual

18 had elected the most favorable coverage in light of

19 the expenses incurred since the failure first oc20 curred.

21 ‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—

22 ‘‘(1) TAX NOT TO APPLY WHERE FAILURE NOT

23 DISCOVERED EXERCISING REASONABLE DILI24 GENCE.—No tax shall be imposed by subsection (a)

25 on any failure during any period for which it is es-
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1 tablished to the satisfaction of the Secretary that

2 none of the persons referred to in subsection (d)

3 knew, or exercising reasonable diligence would have

4 known, that such failure existed.

5 ‘‘(2) TAX NOT TO APPLY TO FAILURES COR6 RECTED WITHIN 30 DAYS.—No tax shall be imposed

7 by subsection (a) on any failure if—

8 ‘‘(A) such failure was due to reasonable

9 cause and not to willful neglect, and

10 ‘‘(B) such failure is corrected during the

11 30-day period beginning on the first date any of

12 the persons referred to in subsection (d) knew,

13 or exercising reasonable diligence would have

14 known, that such failure existed.

15 ‘‘(3) WAIVER BY SECRETARY.—In the case of a

16 failure which is due to reasonable cause and not to

17 willful neglect, the Secretary may waive part or all

18 of the tax imposed by subsection (a) to the extent

19 that the payment of such tax would be excessive rel20 ative to the failure involved.

21 ‘‘(d) LIABILITY FOR TAX.—

22 ‘‘(1) IN GENERAL.—Except as otherwise pro23 vided in this subsection, the following shall be liable

24 for the tax imposed by subsection (a) on a failure:
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1 ‘‘(A) In the case of a group health plan

2 other than a self-insured group health plan, the

3 issuer.

4 ‘‘(B)(i) In the case of a self-insured group

5 health plan other than a multiemployer group

6 health plan, the employer.

7 ‘‘(ii) In the case of a self-insured group

8 health multiemployer plan, the plan.

9 ‘‘(C) Each person who is responsible (other

10 than in a capacity as an employee) for admin11 istering or providing benefits under the group

12 health plan, health insurance plan, or other

13 health benefit arrangement (including a self-in14 sured plan) and whose act or failure to act

15 caused (in whole or in part) the failure.

16 ‘‘(2) SPECIAL RULES FOR PERSONS DESCRIBED

17 IN PARAGRAPH (1)(C).—A person described in sub18 paragraph (C) (and not in subparagraphs (A) and

19 (B)) of paragraph (1) shall be liable for the tax im20 posed by subsection (a) on any failure only if such

21 person assumed (under a legally enforceable written

22 agreement) responsibility for the performance of the

23 act to which the failure relates.’’.

24 (b) NONDEDUCTIBILITY OF TAX.—Paragraph (6) of

25 section 275(a) of such Code (relating to nondeductibility
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1 of certain taxes) is amended by inserting ‘‘47,’’ after

2 ‘‘46,’’.

3 (c) CLERICAL AMENDMENTS.—The table of sections

4 for such chapter 47 is amended by adding at the end

5 thereof the following new item:

‘‘Sec. 5000A. Enforcement of requirements for employer health

benefit plans.’’

6 (d) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to taxable years beginning after

8 December 31, 1995.

9 SEC. 205. DEFINITIONS.

10 In this subtitle:

11 (1) CASE CHARACTERISTICS.—The term ‘‘case

12 characteristics’’ means demographic, geographic, and

13 other relevant characteristics as determined by the

14 insurer that are considered by the insurer in the de15 termination of premium rates for a small employer,

16 but not including—

17 (A) claims experience,

18 (B) health status, and

19 (C) duration of coverage since date of

20 issue.

21 (2) INSURER.—The term ‘‘insurer’’ means an

22 entity that provides health insurance in a State.

23 (3) SMALL EMPLOYER.—The term ‘‘small em24 ployer’’ means a business that, during the most re-
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1 cent calendar year, employed at least 3, but not

2 more than 25, employees who are eligible for cov3 erage under a health benefit plan on at least 50 per4 cent of that business’ working days.

5 (4) HEALTH BENEFIT PLAN.—The term

6 ’’health benefit plan’’ means any employee welfare

7 benefit plan (as defined in the Employee Retirement

8 Income Security Act of 1974) that is insured by an

9 insurer that provides medical, surgical, or hospital

10 care or benefits to employees of a small employer

11 and their dependents and to which the employer con12 tributes 50 percent or more of the single coverage

13 cost at the time of purchase. Such term does not in14 clude any individual major medical policies and

15 group insurance that are not designed or adminis16 tered as a health benefit plan to be provided by an

17 employer for its employees.

18 (5) INDEX RATE.—The term ‘‘index rate’’

19 means, for a class of business as to a small employ20 er’s rating period with similar case characteristics,

21 the arithmetic average of the applicable base pre22 mium rate and the corresponding highest premium

23 rate.

24 (6) CLASS OF BUSINESS.—The term ‘‘class of

25 business’’ means each separate class of business es-
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1 tablished by an insurer to reflect substantial dif2 ferences in expected claims experience or administra3 tive costs related only to one or more of the follow4 ing:

5 (A) The insurer’s use of more than one

6 type of system for the marketing and sale of

7 health benefit plans to small employers.

8 (B) The insurer’s acquisition of a class of

9 business from another insurer.

10 (C) The insurer providing coverage to one

11 or more association groups.

12 SEC. 206. EFFECTIVE DATE.

13 This title shall take effect on January 1, 1996.

14 Subtitle B—Guaranteeing Port15 ability of Health Insurance for

16 Individuals

17 SEC. 211. COVERAGE OF INDIVIDUAL HEALTH BENEFIT

18 PLANS.

19 (a) IN GENERAL.—This subtitle applies only to

20 health benefit plans delivered or issued for delivery to indi21 viduals in a State and does not apply to—

22 (1) any employer-based health benefit plan, or

23 (2) any eligible individual whose prior similar

24 health benefit plan was provided by—
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1 (A) a State high risk pool (as defined by

2 the Secretary of Health and Human Services),

3 (B) under title XVIII or XIX of the Social

4 Security Act, or

5 (C) under another State or Federal pro6 gram, unless the eligible individual was pre7 viously covered as an employee of the State or

8 Federal Government.

9 (b) INDIVIDUAL HEALTH BENEFIT PLAN.—In this

10 subtitle, the term ‘‘individual health benefit plan’’ means

11 a health benefit plan described in subsection (a).

12 SEC. 212. PORTABILITY PROTECTIONS.

13 (a) CONSIDERATION OF APPLICATIONS.—If an eligi14 ble individual or eligible family applies for an individual

15 health benefit plan, the insurer offering the plan must ei16 ther—

17 (1) offer coverage to all eligible individuals ap18 plying on the same application, or

19 (2) deny coverage to all eligible individuals ap20 plying on the application.

21 (b) PREEXISTING CONDITION PERIOD LIMITA22 TION.—No policy provision of an individual health benefit

23 plan shall exclude or limit coverage for a preexisting condi24 tion for a period beyond 12 months following the effective

25 date of the individual’s coverage.
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1 (c) PORTABILITY OF COVERAGE.—The preexisting

2 condition limitation period under any individual health

3 benefit plan shall be reduced by one month for each month

4 of continuous coverage the eligible individual had under

5 a prior health benefit plan.

6 (d) LIMITATION ON RIDERS.—

7 (1) IN GENERAL.—Except as provided in para8 graph (2), an insurer issuing an individual health

9 benefit plan may not modify the plan with respect

10 to an eligible individual.

11 (2) RELATION TO PREEXISTING CONDITION EX12 CLUSION PERIOD.—

13 (A) IN GENERAL.—To the extent that a

14 preexisting condition limitation applies, an in15 surer may restrict or exclude coverage or bene16 fits for a specific condition for a maximum pe17 riod of 12 months from the effective date of

18 coverage of an eligible individual by way of

19 rider or endorsement.

20 (B) NO ADDITION RIDERS.—No other rider

21 or endorsement may be placed on the health

22 benefit plan to restrict further coverage.

23 (C) COMBINATION.—If both a rider and a

24 preexisting condition exclusion period are used,
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1 the combined limitation period may not exceed

2 12 months.

3 (e) NO DISCLOSURE OF CONDITION REQUIRED.—A

4 preexisting condition limitation period may be applied

5 whether or not the specific condition has been disclosed

6 on the application for coverage under the individual health

7 benefit plan.

8 SEC. 213. DEFINITIONS.

9 In this subtitle:

10 (1) ELIGIBLE FAMILY.—The term ‘‘eligible

11 family’’ means an applicant, an applicant’s spouse,

12 and any eligible individual who is a dependent child

13 of the applicant.

14 (2) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible

15 individual’’ means an individual who was insured

16 under a prior similar health benefit plan which was

17 continuous to a date not more than 30 days prior

18 to the effective date of the new health benefit plan

19 for that individual.

20 (3) HEALTH BENEFIT PLAN.—

21 (A) IN GENERAL.—The term ‘‘health bene22 fit plan’’ means any hospital or medical expense

23 insured policy or certificate, hospital or medical

24 service plan contract, or health maintenance or25 ganization subscriber contract.
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1 (B) EXCLUSION.—Such term does not in2 clude any of the following:

3 (i) short-term limited duration insur4 ance,

5 (ii) accident-only, credit-only, dental6 only, vision-only insurance,

7 (iii) medicare supplement insurance,

8 (iv) hospital indemnity insurance,

9 (v) long-term care or disability income

10 insurance,

11 (vi) coverage issued as a supplement

12 to liability insurance,

13 (vii) workmen’s compensation or simi14 lar insurance, or

15 (viii) automobile medical-payment in16 surance.

17 (4) PREEXISTING CONDITION.—The term ‘‘pre18 existing condition’’ means any injury or illness—

19 (A) for which the covered individual re20 ceived medical advice or treatment within 12

21 months immediately preceding the applicable ef22 fective date the covered individual became in23 sured under the policy, or

24 (B) which in the opinion of a qualified doc25 tor—
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1 (i) probably began prior to the appli2 cable effective date the covered individual

3 became insured under the policy, and

4 (ii) manifested symptoms which would

5 cause an ordinarily prudent individual to

6 seek diagnosis or treatment within 12

7 months immediately preceding the applica8 ble effective date the covered individual be9 cause insured under the policy.

10 (5) PRIOR SIMILAR HEALTH BENEFIT PLAN.—

11 The term ‘‘prior similar health benefit plan’’ means

12 a health benefit plan under which an eligible individ13 ual was previously covered and which provides bene14 fits who do not materially differ from the new health

15 benefit plan in any of the following respects:

16 (A) The type of medical benefits provided.

17 (B) The level of medical benefits available

18 based on deductibles, coinsurance, or

19 copayments, or any combination thereof.

20 (C) The maximum benefits available for

21 specific services.

22 (D) Cost containment provisions.
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1 SEC. 214. EFFECTIVE DATE.

2 This subtitle shall apply to each health benefit plan

3 that is delivered or issued for delivery to an individual on

4 or after January 1, 1996.

5 Subtitle C—Assuring Health Insur6 ance Coverage for Uninsurable

7 Individuals

8 SEC. 221. ESTABLISHMENT OF PROGRAMS BY STATES.

9 (a) IN GENERAL.—For years beginning with 1997,

10 each State shall establish, administer, and fund a high

11 risk health insurance pool (in this subtitle referred to as

12 a ‘‘State high risk program’’) that assures, in accordance

13 with this subtitle, the availability of qualified health insur14 ance coverage to uninsurable individuals.

15 (b) DEADLINE.—Each State shall comply with sub16 section (a) by not later than January 1, 1997.

17 (c) WAIVER.—Subsection (a) shall not apply in the

18 case of a State that has established a comprehensive

19 health insurance program that assures the availability of

20 qualified health insurance coverage to all eligible individ21 uals residing in the State.

22 (d) RECOMMENDATION FOR COMPLIANCE REQUIRE23 MENT.—Not later than January 1, 1996, the Secretary

24 of Health and Human Services shall submit to Congress

25 a recommendation on appropriate sanctions for States

26 that fail to meet the requirement of subsection (a).
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1 SEC. 222. UNINSURABLE INDIVIDUALS ELIGIBLE FOR COV2 ERAGE.

3 (a) UNINSURABLE AND ELIGIBLE INDIVIDUAL DE4 FINED.—In this subtitle:

5 (1) UNINSURABLE INDIVIDUAL.—The term

6 ‘‘uninsurable individual’’ means, with respect to a

7 State, an eligible individual who presents proof of

8 uninsurability by 2 private insurers in accordance

9 with subsection (b).

10 (2) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible

11 individual’’ means, with respect to a State, a citizen

12 or national of the United States (or an alien lawfully

13 admitted for permanent residence) who is a resident

14 of the State for at least 90 days.

15 (b) PROOF OF UNINSURABILITY.—

16 (1) IN GENERAL.—The proof of uninsurability

17 for an individual shall be in the form of—

18 (A) a notice of rejection or refusal to issue

19 substantially similar insurance for health rea20 sons, or

21 (B) a notice of refusal to insure except at

22 a rate in excess of the plan rate,

23 (C) an offer to insure but only subject to

24 a reduction or an exclusion of coverage for a

25 preexisting condition for a period exceeding 6

26 months.
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1 (2) EXCEPTION.—A State may waive the re2 quirement of proof described in paragraph (1) in the

3 case of an individual who demonstrates a provable

4 medical or health condition.

5 SEC. 223. QUALIFIED HEALTH INSURANCE COVERAGE

6 UNDER PROGRAM.

7 In this subtitle, the term ‘‘qualified health insurance

8 coverage’’ means health insurance coverage that—

9 (1) provides benefits typical of major medical

10 insurance available in the individual health insur11 ance market, and

12 (2) may include coinsurance (in a percentage

13 not to exceed 20 percent) and a stop loss on out-of14 pocket expenses of not to exceed—

15 (A) for 1997, $5,000, or

16 (B) for a subsequent year, the dollar

17 amount specified in this paragraph for the pre18 vious year increased by the percentage increase

19 in the medical care component of the consumer

20 price index for all urban consumers (United

21 States city average, as published by the Bureau

22 of Labor Statistics) for the 12-month period

23 ending with September of the preceding cal24 endar year.
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1 In applying subparagraph (B) for a year, if the dol2 lar amount computed under such subparagraph is

3 not a multiple of $10, it shall be rounded to the next

4 highest multiple of $10.

5 SEC. 224. FUNDING OF PROGRAM.

6 (a) LIMITATIONS ON PREMIUMS.—

7 (1) IN GENERAL.—The applicable premium es8 tablished under a State high-risk program may not

9 exceed 135 percent of the applicable standard risk

10 rate, except as provided in paragraph (2).

11 (2) SURCHARGE FOR AVOIDABLE HEALTH

12 RISKS.—A State high-risk program may impose a

13 surcharge on premiums for individuals with avoid14 able high risks, such as smoking.

15 (b) FLEXIBILITY IN ADDITIONAL FUNDING.—A

16 State high-risk program shall provide for additional fund17 ing through other means specified under State law. Such

18 means may include—

19 (1) an assessment on all insurers in the State

20 through a nonprofit association consisting of all

21 health benefits insurers doing business in the State

22 on an equitable and pro rata basis,

23 (2) a designated tax source, or

24 (3) general revenues of the State.
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1 SEC. 225. ADMINISTRATION.

2 A State high-risk program shall be administered

3 through a contract with one or more insurers operating

4 in the State.

5 TITLE III—MEDICAID REFORM

6 SEC. 301. PROVIDING COVERAGE FOR OUT-OF-POCKET EX7 PENSES UNDER PRIVATE HEALTH PLANS.

8 (a) STATE OPTION.—Section 1902(a) of the Social

9 Security Act (42 U.S.C. 1396a(a)) is amended—

10 (1) by striking ‘‘and’’ at the end of paragraph

11 (61);

12 (2) by striking the period at the end of para13 graph (62) and inserting ‘‘; and’’; and

14 (3) by adding at the end the following new

15 paragraph:

16 ‘‘(63) at the option of the State, provide that

17 an individual eligible for medical assistance under

18 the State plan has the option to receive medical as19 sistance through enrollment with a health plan

20 under a program described in section 1931.’’.

21 (b) PROGRAM FOR ENROLLMENT DESCRIBED.—Title

22 XIX of such Act (42 U.S.C. 1396 et seq.) is amended by

23 redesignating section 1931 as section 1932 and by insert24 ing after section 1930 the following new section:
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1 ‘‘OPTIONAL STATE PROGRAM TO ENROLL INDIVIDUALS IN

2 PRIVATE HEALTH PLANS

3 ‘‘SEC. 1931. (a) IN GENERAL.—For purposes of sec4 tion 1902(a)(63), a program under this section is a pro5 gram under which the State makes payments to health

6 plans that provide qualified health insurance coverage

7 under section 223 of the Bipartisan Health Security Re8 form Act for enrolling individuals for coverage under such

9 plans, including all necessary payments of premiums,

10 copayments, and deductibles applicable under such a plan

11 on behalf of such an individual.

12 ‘‘(b) TREATMENT OF PAYMENTS AS MEDICAL AS13 SISTANCE.—Subject to paragraph (3), for purposes of de14 termining the amount of Federal financial participation

15 for a State under section 1903 in a quarter, any payments

16 made by a State under the program under this section

17 shall be treated as expenditures for medical assistance

18 under the State plan for such quarter.

19 ‘‘(c) OPTIONAL USE OF CONTRIBUTIONS TO MEDI20 CAL SAVINGS ACCOUNTS OR VOUCHERS TO OBTAIN COV21 ERAGE.—Under a program under this section, a State

22 may provide for the enrollment of individuals in health

23 plans—
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1 ‘‘(1) by making contributions to an individual’s

2 medical savings account established under section

3 220 of the Internal Revenue Code of 1986; or

4 ‘‘(2) by providing the individual with a voucher

5 that may be used toward the payment of the costs

6 of enrollment in a health plan (as determined under

7 an agreement between the State and the plan).’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 subsections (a) and (b) shall apply to quarters beginning

10 on or after January 1, 1996.

11 TITLE IV—MEDICAL CHARGE

12 DISCLOSURE

13 SEC. 401. REQUIRING PROVIDERS OF MEDICAL SERVICES

14 TO DISCLOSE MAXIMUM CHARGES

15 (a) REQUIREMENT DESCRIBED.—Each individual or

16 entity providing a medical procedure or diagnostic test

17 shall post (at a place and in a manner that will be visible

18 to the individuals receiving the procedures or tests)—

19 (1) the maximum charge assessed for the proce20 dure or test; and

21 (2) the costs to the individual or entity that are

22 associated with the procedure or test.

23 (b) PROHIBITION AGAINST CHARGING IN EXCESS OF

24 POSTED MAXIMUM CHARGE.—An individual or entity may

25 not charge an amount for a medical procedure or diag-
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1 nostic test in excess of the maximum charge posted for

2 the procedure or test pursuant to paragraph (1).

3 (c) RECOMMENDATIONS FOR ENFORCEMENT.—Not

4 later than April 1, 1995, the Secretary of Health and

5 Human Services shall submit to Congress specific rec6 ommendations for sanctions that should be imposed on in7 dividuals and entities that fail to meet the requirements

8 of this section.

9 (d) EFFECTIVE DATE.—This section shall apply to

10 medical procedures and diagnostic tests provided on or

11 after January 1, 1996.

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