I

103D CONGRESS

1ST SESSION H. R. 1526

To limit discrimination in health insurance coverage based on health status

or past claims experience and to reform the provision of health coverage

to small employer groups.

IN THE HOUSE OF REPRESENTATIVES

Mr. DURBIN (for himself, Mr. REYNOLDS, Mr. SMITH of New Jersey, Mrs.

BYRNE, Mr. HASTINGS, and Mr. PASTOR) introduced the following bill;

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

Energy and Commerce

A BILL

To limit discrimination in health insurance coverage based

on health status or past claims experience and to reform

the provision of health coverage to small employer

groups.

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 ‘‘Health Insurance Fair5 ness Act of 1993’’.
2

•HR 1526 IH

1 SEC. 2. HEALTH PLAN STANDARDS.

2 The Social Security Act is amended by adding at the

3 end the following new title:

4 ‘‘TITLE XXI—HEALTH PLAN STANDARDS

5 ‘‘PART A—INDIVIDUAL HEALTH PLANS

6 ‘‘SEC. 2101. PROHIBITION OF DISCRIMINATION BASED ON

7 HEALTH STATUS FOR COVERAGE, BENEFITS,

8 AND PREMIUMS.

9 ‘‘(a) IN GENERAL.—Except as provided under sub10 section (b), an individual health plan, and any person

11 which issues such a plan, may not deny, limit, or condition

12 the coverage under (or benefits of) the plan with respect

13 to health services, or vary the premiums charged for such

14 coverage, based on the health status, claims experience,

15 receipt of health care, medical history, or lack of evidence

16 of insurability, of an individual.

17 ‘‘(b) EXCEPTION FOR CERTAIN PRE-EXISTING CON18 DITIONS.—

19 ‘‘(1) IN GENERAL.—Subject to the succeeding

20 provisions of this subsection, individual health plans

21 may exclude coverage of services related to treat22 ment of a preexisting condition, but the period of

23 such exclusion may not exceed 24 months. The ex24 clusion of coverage shall not apply to services fur25 nished to newborns who are covered at the time of

26 birth.
3

•HR 1526 IH

1 ‘‘(2) CREDITING OF PREVIOUS COVERAGE.—

2 ‘‘(A) IN GENERAL.—An individual health

3 plan shall provide that if an individual under

4 such plan is in a period of continuous coverage

5 (as defined in subparagraph (B)(i)) with re6 spect to particular services as of the date of ap7 plication for coverage under such plan (deter8 mined without regard to any waiting period

9 under such plan), any period of exclusion of

10 coverage with respect to a preexisting condition

11 for such services or type of services shall be re12 duced by 1 month for each month in the period

13 of continuous coverage.

14 ‘‘(B) DEFINITIONS.—As used in this sub15 section:

16 ‘‘(i) PERIOD OF CONTINUOUS COV17 ERAGE.—The term ‘period of continuous

18 coverage’ means, with respect to particular

19 services, the period beginning on the date

20 an individual is enrolled under an individ21 ual or group health plan or under title

22 XVIII or XIX of the Social Security Act

23 which provides substantially the same or

24 similar benefits with respect to such serv25 ices and ends on the date the individual is
4

•HR 1526 IH

1 not so enrolled for a continuous period of

2 more than 3 months.

3 ‘‘(ii) PREEXISTING CONDITION.—The

4 term ‘preexisting condition’ means a condi5 tion which has been diagnosed or treated

6 during the 1-year period ending on the day

7 before the first date of such coverage.

8 ‘‘(3) EXCEPTION.—

9 ‘‘(A) IN GENERAL.—Subsection (a) shall

10 not affect an individual health plan’s variation

11 of premiums based only on the age, sex, or geo12 graphic area of residence of an individual.

13 ‘‘(B) WAITING PERIOD.—An individual

14 health plan may offer to an individual to waive

15 an exclusion of coverage with respect to a pre16 existing condition for which an exclusion could

17 otherwise be applied under this subsection in

18 exchange for an increase in the premium during

19 the period in which the exclusion could other20 wise be applied. If the individual rejects this

21 offer, the limitations on premiums and exclu22 sions that would apply in the absence of such

23 offer shall continue to apply.
5

•HR 1526 IH

1 ‘‘PART B—GROUP HEALTH PLANS

2 ‘‘Subpart 1—Prohibition of Discrimination Based on

3 Health Status

4 ‘‘SEC. 2111. PROHIBITION OF DISCRIMINATION BASED ON

5 HEALTH STATUS FOR COVERAGE, BENEFITS,

6 AND PREMIUMS.

7 ‘‘(a) IN GENERAL.—Except as provided under sub8 section (b), a group health plan, and any person which

9 issues such a plan, may not deny, limit, or condition the

10 coverage under (or benefits of) the plan with respect to

11 health services, or vary the premiums charged for such

12 coverage, based on the health status, claims experience,

13 receipt of health care, medical history, or lack of evidence

14 of insurability, of an individual.

15 ‘‘(b) EXCEPTION FOR CERTAIN PRE-EXISTING CON16 DITIONS.—

17 ‘‘(1) IN GENERAL.—Subject to the succeeding

18 provisions of this subsection, group health plans may

19 exclude coverage of services related to treatment of

20 a preexisting condition, but the period of such exclu21 sion may not exceed 6 months. The exclusion of cov22 erage shall not apply to services furnished to

23 newborns who are covered at the time of birth.

24 ‘‘(2) CREDITING OF PREVIOUS COVERAGE.—
6

•HR 1526 IH

1 ‘‘(A) IN GENERAL.—A group health plan

2 shall provide that if an individual under such

3 plan is in a period of continuous coverage (as

4 defined in subparagraph (B)(i)) with respect to

5 particular services as of the date of coverage

6 under such plan (determined without regard to

7 any waiting period under such plan), any period

8 of exclusion of coverage with respect to a pre9 existing condition for such services or type of

10 services shall be reduced by 1 month for each

11 month in the period of continuous coverage.

12 ‘‘(B) DEFINITIONS.—As used in this sub13 section:

14 ‘‘(i) PERIOD OF CONTINUOUS COV15 ERAGE.—The term ‘period of continuous

16 coverage’ means, with respect to particular

17 services, the period beginning on the date

18 an individual is enrolled under an individ19 ual or group health plan or title XVIII or

20 XIX of the Social Security Act which pro21 vides substantially the same or similar ben22 efits with respect to such services and ends

23 on the date the individual is not so en24 rolled for a continuous period of more than

25 3 months.
7

•HR 1526 IH

1 ‘‘(ii) PREEXISTING CONDITION.—The

2 term ‘preexisting condition’ means a condi3 tion which has been diagnosed or treated

4 during the 3-month period ending on the

5 day before the first date of such coverage.

6 ‘‘SEC. 2112. PROHIBITION OF RATE VARIATION IN GROUP

7 HEALTH PLANS BASED ON HEALTH STATUS.

8 ‘‘A person that issues a group health plan with re9 spect to a group may not vary premiums charged for cov10 erage with respect to health services based on the health

11 status, claims experience, receipt of health care, medical

12 history, or lack of evidence of insurability, of a member

13 of the group.

14 ‘‘Subpart 2—Requirements for Health Plans Issued to

15 Small Employers

16 ‘‘SEC. 2121. GENERAL REQUIREMENTS FOR HEALTH PLANS

17 ISSUED TO SMALL EMPLOYERS.

18 ‘‘(a) REGISTRATION.—Each insurer (as defined in

19 section 2133(b)(1)) shall register with the Secretary and

20 with any applicable regulatory authority for each State in

21 which it issues or offers a health plan to small employers.

22 ‘‘(b) GUARANTEED ELIGIBILITY.—

23 ‘‘(1) IN GENERAL.—No insurer may exclude

24 from coverage under a health plan any eligible em25 ployee, the spouse or any dependent child of the eli-
8

•HR 1526 IH

1 gible employee to whom coverage is made available

2 by a small employer.

3 ‘‘(2) WAITING PERIODS.—Paragraph (1) shall

4 not apply to any period an eligible employee is ex5 cluded from coverage under the health plan solely by

6 reason of a requirement applicable to all employees

7 that a minimum period of service with the small em8 ployer is required before the employee is eligible for

9 such coverage.

10 ‘‘(c) GUARANTEED ISSUE.—

11 ‘‘(1) IN GENERAL.—

12 ‘‘(A) IN GENERAL.—Subject to the suc13 ceeding provisions of this subsection, an insurer

14 that offers a health plan to small employers in

15 a geographic area in a community must offer

16 the same plan to any other small employer lo17 cated in the area. Such requirement shall apply

18 on a continuous, year-round basis.

19 ‘‘(B) STATE ALTERNATIVE.—Subpara20 graph (A) shall not apply to a community in a

21 State if the Secretary certifies that the State

22 has implemented an alternative approach for

23 assuring the availability for all small employers

24 in the community of health insurance that pro25 vides the same benefits at the same premium as
9

•HR 1526 IH

1 would have applied if subparagraph (A) had

2 continued to apply.

3 ‘‘(2) TREATMENT OF HEALTH MAINTENANCE

4 ORGANIZATIONS.—

5 ‘‘(A) GEOGRAPHIC LIMITATIONS.—A

6 health maintenance organization may deny en7 rollment to employees (and family members) of

8 a small employer if the employees are located

9 outside the service area of the organization, but

10 only if such denial is applied uniformly without

11 regard to health status or insurability.

12 ‘‘(B) SIZE LIMITS.—A health maintenance

13 organization may apply to the Secretary to

14 cease enrolling new small employer groups in its

15 health plan (or in a geographic area served by

16 the plan) if—

17 ‘‘(i) it ceases to enroll any new em18 ployer groups, and

19 ‘‘(ii) it can demonstrate that its finan20 cial or administrative capacity to serve pre21 viously enrolled groups and individuals

22 (and additional individuals who will be ex23 pected to enroll because of affiliation with

24 such previously enrolled groups) will be im-
10

•HR 1526 IH

1 paired if it is required to enroll new em2 ployer groups.

3 ‘‘(3) GROUNDS FOR REFUSAL TO RENEW.—

4 ‘‘(A) IN GENERAL.—An insurer may refuse

5 to renew, or may terminate, a health plan

6 under this subpart only for—

7 ‘‘(i) nonpayment of premiums,

8 ‘‘(ii) fraud or misrepresentation,

9 ‘‘(iii) failure to maintain minimum

10 participation rates (consistent with sub11 paragraph (B)), or

12 ‘‘(iv) in the case of a managed care

13 plan, the employer leaves the geographic

14 service area of the plan.

15 ‘‘(B) MINIMUM PARTICIPATION RATES.—

16 An insurer may require, with respect to a

17 health plan issued to a small employer, that a

18 minimum percentage of eligible employees who

19 do not otherwise have health insurance are en20 rolled in such plan, so long as such percentage

21 is enforced uniformly for all plans offered to

22 employers of comparable size.

23 ‘‘(d) MINIMUM PLAN PERIOD.—An insurer may not

24 offer to, or issue with respect to, a small employer a health

25 plan with a term of less than 12 months.
11

•HR 1526 IH

1 ‘‘(e) NOTICES AND RENEWAL PERIODS.—

2 ‘‘(1) NOTICE ON EXPIRATION.—An insurer pro3 viding health plans to small employers shall provide

4 for notice, at least 60 days before the date of expira5 tion of the health plan, of the terms for renewal of

6 the plan. Except with respect to rates and adminis7 trative changes, the terms of renewal (including ben8 efits) shall be the same as the terms of issuance.

9 ‘‘(2) PERIOD OF RENEWAL.—The period of re10 newal of each small employer health plan shall be for

11 a period of not less than 12 months.

12 ‘‘(f) GUARANTEED RENEWABILITY.—

13 ‘‘(1) IN GENERAL.—

14 ‘‘(A) GENERAL RULE.—Subject to the suc15 ceeding provisions of this subsection, an insurer

16 shall ensure that a health plan issued to a small

17 employer be renewed, at the option of the small

18 employer, unless the plan is terminated for a

19 reason specified in subparagraph (B) or in sub20 section (c)(3)(A).

21 ‘‘(B) TERMINATION OF SMALL EMPLOYER

22 BUSINESS.—An insurer need not renew a health

23 plan with respect to a small employer if the in24 surer—
12

•HR 1526 IH

1 ‘‘(i) elects not to renew all of its

2 health plans issued to small employers in a

3 State; and

4 ‘‘(ii) provides notice to the Secretary,

5 any applicable regulatory authority in the

6 State, and to each small employer covered

7 under the plan of such termination at least

8 180 days before the date of expiration of

9 the plan.

10 In the case of such a termination, the insurer

11 may not provide for issuance of any health plan

12 to a small employer in the State during the 5-

13 year period beginning on the date of termi14 nation of the last plan not so renewed.

15 ‘‘SEC. 2122. REQUIREMENTS RELATED TO RESTRICTIONS

16 ON RATING PRACTICES.

17 ‘‘(a) LIMIT ON VARIATION OF REFERENCE PREMIUM

18 RATES BETWEEN BLOCKS OF BUSINESS.—

19 ‘‘(1) IN GENERAL.—The index rate for any

20 block of business of an insurer may not exceed the

21 index rate for any other block of business by more

22 than 20 percent.

23 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not

24 apply to a block of business if—
13

•HR 1526 IH

1 ‘‘(A) the block is one for which the insurer

2 does not reject, and never has rejected, small

3 employers included within the definition of em4 ployers eligible for the block of business or oth5 erwise eligible employees and dependents who

6 enroll on a timely basis, based upon their claims

7 experience, health status, industry, or occupa8 tion,

9 ‘‘(B) the insurer does not transfer, and

10 never has transferred, a health plan involuntar11 ily into or out of the block of business, and

12 ‘‘(C) the block of business is currently

13 available for purchase at the time an exception

14 to paragraph (1) is sought by the insurer.

15 ‘‘(b) USE OF COMMUNITY RATING IN PREMIUM

16 RATES WITHIN A BLOCK OF BUSINESS.—

17 ‘‘(1) LIMITING VARIATIONS ON PREMIUM TO

18 AGE AND SEX.—Subject to paragraph (5), the ref19 erence premium rate charged for a health plan of20 fered to small employers within a community (as de21 fined under the plan consistent with paragraph (3))

22 with similar benefits for a type of family enrollment

23 (described in paragraph (4)) shall be the same for

24 all small employers in the same block of business in

25 the community.
14

•HR 1526 IH

1 ‘‘(2) AGE AND SEX ADJUSTMENT TO COMMU2 NITY-RATING.—

3 ‘‘(A) IN GENERAL.—Subject to subpara4 graph (B), a health plan offered to a small em5 ployer may provide for an adjustment to the

6 reference premium rate based on age and

7 gender of covered individuals. Any such adjust8 ment shall be applied consistently to all small

9 employers.

10 ‘‘(B) LIMITATION ON ADJUSTMENT.—The

11 adjustment under subparagraph (A) may not

12 result, with respect to health plans with similar

13 benefits in a community in a block of business,

14 in premium rates that vary from the index rate

15 by more than 25 percent of the index rate.

16 ‘‘(3) SPECIFICATION OF COMMUNITY.—For pur17 poses of paragraph (1), no insurer may use a geo18 graphic area that is smaller than a metropolitan sta19 tistical area as a community.

20 ‘‘(4) TYPES OF FAMILY ENROLLMENT.—Each

21 health plan offered to a small employer shall permit

22 enrollment of (and shall compute premiums sepa23 rately for) individuals based on each of the following

24 beneficiary classes:

25 ‘‘(A) 1 adult.
15

•HR 1526 IH

1 ‘‘(B) A married couple without children.

2 ‘‘(C) A married couple with 1 or more chil3 dren, or 1 adult with 1 or more children.

4 ‘‘(5) ADDITIONAL VARIATIONS.—

5 ‘‘(A) IN GENERAL.—Subject to subpara6 graph (B), a health plan offered to a small em7 ployer may provide for an adjustment to pre8 mium rates based on features of the plan that

9 involve the use of managed care, the pursuit of

10 healthy lifestyles, and other factors within the

11 control of plan beneficiaries that cut costs by

12 reducing the need for health care services and

13 not by reducing the benefits associated with

14 such services. Any such adjustment shall be ap15 plied consistently to all small employers.

16 ‘‘(B) LIMITATION ON ADJUSTMENT.—The

17 adjustment under subparagraph (A) may not

18 result, with respect to health plans with similar

19 benefits in a community in a block of business

20 with respect to an age and gender class of cov21 ered individuals, in premium rates that vary

22 from the rate described in subparagraph (C) by

23 more than 25 percent of such rate.

24 ‘‘(C) RATE.—For purposes of subpara25 graph (B), the rate described in this paragraph,
16

•HR 1526 IH

1 for an age and gender class of covered individ2 uals within a block of business for each rating

period in a community, is 1331 3 ⁄3 percent of the

4 lowest premium rate charged or which could

5 have been charged for individuals in such class

6 by the insurer under a rating system for that

7 block of business to small employers in the com8 munity for health plans with the same or simi9 lar coverage.

10 ‘‘(c) LIMIT ON TRANSFER OF EMPLOYERS AMONG

11 BLOCKS OF BUSINESS.—

12 ‘‘(1) An insurer may not transfer a small em13 ployer from one block of business to another without

14 the consent of the employer.

15 ‘‘(2) An insurer may not offer to transfer a

16 small employer from one block of business to an17 other unless—

18 ‘‘(A) the offer is made without regard to

19 age, sex, geography, claims experience, health

20 status, industry, occupation or the date on

21 which the policy was issued, and

22 ‘‘(B) the same offer is made to all other

23 small employers in the same block of business.

24 ‘‘(d) LIMITS ON VARIATION IN PREMIUM IN25 CREASES.—The percentage increase in the premium rate
17

•HR 1526 IH

1 charged to a small employer for a new rating period (de2 termined on an annual basis) may not exceed the sum of

3 the percentage change in the base premium rate plus 5

4 percentage points.

5 ‘‘(e) DEFINITIONS.—In this section:

6 ‘‘(1) BLOCK OF BUSINESS.—

7 ‘‘(A) IN GENERAL.—Except as provided in

8 subparagraph (B), the term ‘block of business’

9 means, with respect to an insurer, all of the

10 small employers with a health plan issued by

11 the insurer (as shown on the records of the in12 surer).

13 ‘‘(B) DISTINCT GROUPS.—A distinct group

14 of small employers with health plans issued by

15 an insurer may be treated as a block of busi16 ness by such insurer if all of the plans in such

17 group—

18 ‘‘(i) are marketed primarily by direct

19 mail or are not marketed primarily by di20 rect mail,

21 ‘‘(ii) have been acquired from another

22 insurer as a distinct group, or

23 ‘‘(iii) are provided through an associa24 tion with membership of not less than 25

25 small employers that has been formed for
18

•HR 1526 IH

1 purposes other than obtaining health in2 surance.

3 ‘‘(2) INDEX RATE.—The term ‘index rate’

means, with respect to a block of business, 1331 4 ⁄3

5 percent of the reference premium rate for the block

6 of business.

7 ‘‘(3) REFERENCE PREMIUM RATE.—The term

8 ‘reference premium rate’ means, for each block of

9 business for each rating period in a community, the

10 lowest premium rate charged or which could have

11 been charged, for the most favorable actuarial class,

12 by the insurer under a rating system for that block

13 of business to small employers in the community for

14 health plans with the same or similar coverage. Such

15 a rate shall be determined without regard to an ad16 justment under subsection (b)(5).

17 ‘‘(f) FULL DISCLOSURE OF RATING PRACTICES.—

18 ‘‘(1) IN GENERAL.—At the time an insurer of19 fers a health plan to a small employer, the insurer

20 shall fully disclose to the employer all of the follow21 ing:

22 ‘‘(A) Rating practices for small employer

23 health plans, including rating practices for dif24 ferent populations and benefit designs.
19

•HR 1526 IH

1 ‘‘(B) The extent to which premium rates

2 for the small employer are established or ad3 justed based upon the actual or expected vari4 ation in claims costs or health condition of the

5 employees and of such small employer and their

6 dependents.

7 ‘‘(C) The provisions concerning the insur8 er’s right to change premium rates, the extent

9 to which premiums can be modified, and the

10 factors which affect changes in premium rates.

11 ‘‘(2) NOTICE ON EXPIRATION.—An insurer pro12 viding health plans to small employers shall provide

13 for notice, at least 60 days before the date of expira14 tion of the health plan, of the terms for renewal of

15 the plan.

16 ‘‘(g) ACTUARIAL CERTIFICATION.—Each insurer

17 shall file annually with the Secretary and any applicable

18 regulatory authority a written statement by a member of

19 the American Academy of Actuaries (or other individual

20 acceptable to such authority) that, based upon an exam21 ination by the individual which includes a review of the

22 appropriate records and of the actuarial assumptions of

23 the insurer and methods used by the insurer in establish24 ing premium rates for small employer health plans—
20

•HR 1526 IH

1 ‘‘(1) the insurer is in compliance with the appli2 cable provisions of this section, and

3 ‘‘(2) the rating methods are actuarially sound.

4 Each insurer shall retain a copy of such statement for ex5 amination at its principal place of business.

6 ‘‘PART C—ESTABLISHMENT OF STANDARDS;

7 DEFINITIONS

8 ‘‘SEC. 2131. STANDARDS AND REQUIREMENTS.

9 ‘‘(a) APPROVAL REQUIRED.—

10 ‘‘(1) IN GENERAL.—No individual or group pol11 icy may be issued under a health plan (as defined

12 in section 2133(a)) on or after the effective date

13 specified in subsection (d) (and no new contract may

14 be offered under such plan with respect to any small

15 employer beginning on or after such effective date)

16 unless the plan has been certified by the Secretary

17 (in accordance with such procedures as the Sec18 retary establishes) or approved by a State regulatory

19 program (approved under subsection (b)) as meeting

20 the applicable standards established under section

21 2132 by such effective date.

22 ‘‘(2) PLAN DISAPPROVED.—If the Secretary de23 termines that a health plan does not meet such ap24 plicable standards on or after such effective date, no

25 coverage may be provided under the plan to individ-
21

•HR 1526 IH

1 uals not enrolled as of the date of the determination

2 and the plan may not be continued for plan years

3 beginning after the date of such determination until

4 the Secretary determines that such plan is in compli5 ance with such standards.

6 ‘‘(b) CERTIFIED BY STATE APPROVED PROGRAMS.—

7 ‘‘(1) IN GENERAL.—If the Secretary determines

8 that a State has in effect an effective regulatory pro9 gram for the application of the standards established

10 under section 2132 to health plans, the Secretary

11 may approve such program for purposes of certifi12 cation of health plans under this part.

13 ‘‘(2) ANNUAL REPORTS.—As a condition for the

14 continued approval of such a regulatory program,

15 the State shall report to the Secretary annually such

16 information as the Secretary may require with re17 spect to the performance of the program. Such infor18 mation shall include the health plans certified under

19 the program, the compliance of such plans with the

20 standards established under section 2132, and en21 forcement actions taken to ensure such compliance.

22 ‘‘(3) PERIODIC SECRETARIAL REVIEW OF STATE

23 REGULATORY PROGRAMS.—The Secretary annually

24 shall review State regulatory programs approved

25 under paragraph (1) to determine if they continue to
22

•HR 1526 IH

1 meet and enforce the standards for approval. If the

2 Secretary initially determines that a State regulatory

3 program no longer meets such standards, the Sec4 retary shall provide the State an opportunity to

5 adopt such a plan of correction that would bring

6 such program into compliance with such standards.

7 If the Secretary makes a final determination that

8 the State regulatory program fails to meet and en9 force such standards after such an opportunity, the

10 Secretary shall disapprove such program and

11 reassume responsibility for certification of all health

12 plans in that State.

13 ‘‘(4) GAO AUDITS.—The Comptroller General

14 shall conduct periodic reviews on a sample of State

15 regulatory programs approved under paragraph (1)

16 to determine their compliance with the requirements

17 of such paragraph. The Comptroller General shall

18 report to the Secretary and Congress on the findings

19 of such reviews.

20 ‘‘(c) EXCISE TAX SANCTIONS.—For application of

21 excise tax in the case of a nonconforming plan, see section

22 5000A of the Internal Revenue Code of 1986.

23 ‘‘(d) EFFECTIVE DATE.—The effective date specified

24 in this subsection is—
23

•HR 1526 IH

1 ‘‘(1) January 1, 1994, with respect to the

2 standards established to carry out section 2111,

3 ‘‘(2) January 1, 1995, with respect to the

4 standards established to carry out part A, section

5 2112, and section 2121, and

6 ‘‘(3) January 1, 1996, with respect to the

7 standards established to carry out section 2122, ap8 plicable to premiums for months beginning with

9 January 1996.

10 ‘‘SEC. 2132. ESTABLISHMENT OF STANDARDS.

11 ‘‘(a) ESTABLISHMENT OF STANDARDS.—The Sec12 retary shall develop, establish, and publish, by not later

13 than 3 months before the respective effective date speci14 fied under section 2131(d), specific standards to imple15 ment the requirements of parts A and B and to be applied

16 under section 5000A of the Internal Revenue Code of

17 1986.

18 ‘‘(b) MORE STRINGENT STATE STANDARDS PER19 MITTED.—A State may implement standards that are

20 more stringent than the standards established under this

21 section to meet the requirements under parts A and B.

22 ‘‘(c) TELEPHONE INFORMATION SYSTEM.—The Sec23 retary shall provide for the establishment of a toll-free

24 telephone information and complaint system which pro25 vides for—
24

•HR 1526 IH

1 ‘‘(1) a system for the receipt and disposition of

2 consumer complaints or inquiries regarding compli3 ance of health plans with the standards, and

4 ‘‘(2) information to small employers about in5 surers in the area of the employers that offer health

6 plans that meet the standards.

7 ‘‘SEC. 2133. DEFINITIONS.

8 ‘‘(a) HEALTH PLAN; GROUP HEALTH PLAN; INDI9 VIDUAL HEALTH PLAN.—As used in this title:

10 ‘‘(1) HEALTH PLAN.—The term ‘health plan’

11 means any hospital or medical service policy or cer12 tificate, hospital or medical service plan contract,

13 health maintenance organization group contract, or

14 a multiple employer welfare arrangement, but—

15 ‘‘(A) does not include any of the following

16 offered by an insurer—

17 ‘‘(i) accident only, vision only, dental

18 only, disability only, or long-term care only

19 insurance,

20 ‘‘(ii) coverage issued as a supplement

21 to liability insurance,

22 ‘‘(iii) workmen’s compensation or

23 similar insurance,

24 ‘‘(iv) automobile medical-payment in25 surance, or
25

•HR 1526 IH

1 ‘‘(v) a medicare supplemental policy;

2 and

3 ‘‘(B) for purposes of subpart 2 of part B

4 only, does not include a qualified health mainte5 nance organization (as defined in section

6 1310(d) of the Public Health Service Act).

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

8 health plan’ has the meaning given such term by

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

10 1986.

11 ‘‘(3) INDIVIDUAL HEALTH PLAN.—The term

12 ‘individual health plan’ means a health plan which is

13 not a group health plan.

14 ‘‘(b) INSURER AND HEALTH MAINTENANCE ORGANI15 ZATION.—As used in this title:

16 ‘‘(1) INSURER.—The term ‘insurer’ means any

17 person that offers to provide coverage under a health

18 plan to a small employer.

19 ‘‘(2) HEALTH MAINTENANCE ORGANIZATION.—

20 The term ‘health maintenance organization’ has the

21 meaning given the term ‘eligible organization’ in sec22 tion 1876(b).

23 ‘‘(c) GENERAL DEFINITIONS.—As used in this title:

24 ‘‘(1) APPLICABLE REGULATORY AUTHORITY.—

25 The term ‘applicable regulatory authority’ means,
26

•HR 1526 IH

1 with respect to a health plan in a State with a regu2 latory program approved under section 2131(b), the

3 State commissioner or superintendent of insurance

4 or other State authority responsible for regulation of

5 health insurance.

6 ‘‘(2) SMALL EMPLOYER.—The term ‘small em7 ployer’ means, with respect to a calendar year, an

8 employer that normally employs more than 1 but

9 less than 51 eligible employees on a typical business

10 day. For the purposes of this paragraph, the term

11 ‘employee’ includes a self-employed individual. Sec12 tion 5000A(b)(3) of the Internal Revenue Code of

13 1986 shall apply for purposes of the preceding

14 sentence.

15 ‘‘(3) ELIGIBLE EMPLOYEE.—The term ‘eligible

16 employee’ means, with respect to an employer, an

17 employee who normally performs on a monthly basis

at least 171 18 ⁄2 hours of service per week for that em19 ployer.’’.

20 SEC. 3. EXCISE TAX ON PREMIUMS RECEIVED ON HEALTH

21 PLANS WHICH DO NOT MEET CERTAIN RE22 QUIREMENTS.

23 (a) IN GENERAL.—Chapter 47 of the Internal Reve24 nue Code of 1986 (relating to taxes on group health plans)
27

•HR 1526 IH

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

2 section:

3 ‘‘SEC. 5000A. FAILURE TO SATISFY CERTAIN STANDARDS

4 FOR HEALTH PLANS.

5 ‘‘(a) GENERAL RULE.—

6 ‘‘(1) TITLE XXI STANDARDS.—

7 ‘‘(A) TAX.—In the case of any health plan,

8 there is hereby imposed a tax on the failure of

9 the plan (or the person issuing the plan) to

10 meet at any time during any taxable year the

11 applicable standards established under section

12 2131 of title XXI of the Social Security Act.

13 ‘‘(B) DETERMINATION OF VIOLATIONS.—

14 The Secretary of Health and Human Services

15 shall determine whether a plan or person meets

16 the standards requirements of such title.

17 ‘‘(2) SMALL EMPLOYER SELF-INSURING FOR

18 HEALTH BENEFITS.—In the case of a small em19 ployer, there is hereby imposed a tax on expendi20 tures for a health plan that is not an insured health

21 plan.

22 ‘‘(b) AMOUNT OF TAX.—

23 ‘‘(1) IN GENERAL.—

24 ‘‘(A) TITLE XXI STANDARDS.—The

25 amount of tax imposed by subsection (a)(1) by
28

•HR 1526 IH

1 reason of 1 or more failures during a taxable

2 year shall be equal to 25 percent of the gross

3 premiums received during such taxable year

4 with respect to all health plans issued by the

5 person on whom such tax is imposed (or in the

6 case of a violation of a standard established

7 with respect to a requirement of subpart 2 of

8 part B of title XXI of the Social Security Act

9 issued by the person to small employers).

10 ‘‘(B) SMALL EMPLOYER SELF-INSUR11 ANCE.—The amount of tax imposed by sub12 section (a)(2) by reason of 1 or more failures

13 during a taxable year shall be equal to 25 per14 cent of the expenditures under any uninsured

15 health plan during such taxable year.

16 ‘‘(2) GROSS PREMIUMS.—For purposes of para17 graph (1), gross premiums shall include any consid18 eration received with respect to any health plan.

19 ‘‘(3) CONTROLLED GROUPS.—For purposes of

20 paragraph (1)—

21 ‘‘(A) CONTROLLED GROUP OF CORPORA22 TIONS.—All corporations which are members of

23 the same controlled group of corporations shall

24 be treated as 1 person. For purposes of the pre25 ceding sentence, the term ‘controlled group of
29

•HR 1526 IH

1 corporations’ has the meaning given to such

2 term by section 1563(a), except that—

3 ‘‘(i) ‘more than 50 percent’ shall be

4 substituted for ‘at least 80 percent’ each

5 place it appears in section 1563(a)(1), and

6 ‘‘(ii) the determination shall be made

7 without regard to subsections (a)(4) and

8 (e)(3)(C) of section 1563.

9 ‘‘(B) PARTNERSHIPS, PROPRIETORSHIPS,

10 ETC., WHICH ARE UNDER COMMON CONTROL.—

11 Under regulations prescribed by the Secretary,

12 all trades or business (whether or not incor13 porated) which are under common control shall

14 be treated as 1 person. The regulations pre15 scribed under this subparagraph shall be based

16 on principles similar to the principles which

17 apply in the case of subparagraph (A).

18 ‘‘(c) LIMITATION ON TAX.—

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

20 DISCOVERED EXERCISING REASONABLE DILI21 GENCE.—No tax shall be imposed by subsection (a)

22 with respect to any failure for which it is established

23 to the satisfaction of the Secretary that the person

24 on whom the tax is imposed did not know, and exer-
30

•HR 1526 IH

1 cising reasonable diligence would not have known,

2 that such failure existed.

3 ‘‘(2) TAX NOT TO APPLY WHERE FAILURES

4 CORRECTED WITHIN 30 DAYS.—No tax shall be im5 posed by subsection (a) with respect to any failure

6 if—

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

8 cause and not to willful neglect, and

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

10 30-day period beginning on the 1st date any of

11 the persons on whom the tax is imposed knew,

12 or exercising reasonable diligence would have

13 known, that such failure existed.

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

15 failure which is due to reasonable cause and not to

16 willful neglect, the Secretary may waive part or all

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

18 that the payment of such tax would be excessive rel19 ative to the failure involved.

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

21 ‘‘(1) HEALTH PLAN.—The term ‘health plan’

22 has the meaning given such term in section

23 2133(a)(1) of the Social Security Act.

24 ‘‘(2) SMALL EMPLOYER.—The term ‘small em25 ployer’ means, with respect to a calendar year, an
31

•HR 1526 IH

1 employer that normally employs more than 1 but

2 less than 51 eligible employees on a typical business

3 day. For the purposes of this paragraph, the term

4 ‘employee’ includes a self-employed individual. Sub5 section (b)(3) shall also apply for purposes of the

6 preceding sentence.

7 ‘‘(3) ELIGIBLE EMPLOYEE.—The term ‘eligible

8 employee’ means, with respect to an employer, an

9 employee who normally performs on a monthly basis

at least 171 10 ⁄2 hours of service per week for that em11 ployer.’’

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

13 section 275(a) of such Code (relating to nondeductibility

14 of certain taxes) is amended by inserting ‘‘47,’’ after

15 ‘‘46,’’.

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

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

18 thereof the following new item:

‘‘Sec. 5000A. Failure to satisfy certain standards for health insurance.’’.

19 (d) EFFECTIVE DATES.—

20 (1) IN GENERAL.—The amendments made by

21 subsections (a) and (c) shall take effect on the date

22 of the enactment of this Act.
32

•HR 1526 IH

1 (2) NONDEDUCTIBILITY OF TAX.—The amend2 ment made by subsection (b) shall apply to taxable

3 years beginning after December 31, 1992.

4 SEC. 4. GAO STUDY AND REPORT ON RATING REQUIRE5 MENTS FOR SMALL GROUP HEALTH INSUR6 ANCE.

7 The Comptroller General of the United States shall

8 study and report to the Congress by no later than January

9 1, 1996, on the impact of the standards for rating prac10 tices for small group health insurance established under

11 section 2122 of the Social Security Act on the availability

12 and price of insurance offered to small employers. The

13 study shall also include the Comptroller General’s rec14 ommendations for adjusting the rating standards to elimi15 nate variation in premiums associated with demographic

16 factors.

Æ

HR 1526 IH——2

HR 1526 IH——3