II

106TH CONGRESS

2D SESSION S. 2964

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

to make health insurance more affordable for small businesses, and

for other purposes.

IN THE SENATE OF THE UNITED STATES

JULY 27, 2000

Ms. COLLINS (for herself and Ms. LANDRIEU) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

new tax incentives to make health insurance more affordable for small businesses, and for other purposes.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Access to Affordable

5 Health Care Act’’.

6 SEC. 2. FINDINGS AND PURPOSE.

7 (a) FINDINGS.—Congress makes the following find8 ings:
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1 (1) More than 44,000,000 Americans,

2 11,000,000 of whom are children, currently lack

3 health insurance.

4 (2) According to the Health Insurance Associa5 tion of America (HIAA), almost 7 out of 10 Ameri6 cans live in a family whose head of household works

7 full-time.

8 (3) The great majority of the uninsured are

9 members of families with at least 1 full-time worker.

10 (4) Nearly half of the uninsured workers are in

11 firms with fewer than 25 employees.

12 (5) Small employers generally face higher costs

13 for health insurance than do larger firms, which

14 makes small firms less likely to offer coverage.

15 (6) According to the Congressional Budget Of16 fice, only 42 percent of small-firm establishments

17 with fewer than 50 employees offer health insurance

18 to their employees.

19 (7) The smaller the firm size, the less likely it

20 is to offer coverage. According to the Employee Ben21 efit Research Institute (EBRI), in 1998, among pri22 vate sector workers in firms with fewer than 10 em23 ployees, 27.4 percent received health insurance from

24 their employers in their own name, compared with
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1 66.5 percent of workers in firms with 1,000 or more

2 employees.

3 (b) PURPOSE.—The purpose of this Act is to provide

4 new tax incentives to make health insurance more afford5 able for small businesses, thus encouraging those busi6 nesses that do not currently offer health insurance to do

7 so and discouraging businesses that currently do offer

8 heatlh insurance from dropping coverage because of rising

9 costs.

10 SEC. 3. CREDIT FOR EMPLOYEE HEALTH INSURANCE EX11 PENSES.

12 (a) IN GENERAL.—Subpart D of part IV of sub13 chapter A of chapter 1 of the Internal Revenue Code of

14 1986 (relating to business-related credits) is amended by

15 adding at the end the following:

16 ‘‘SEC. 45D. EMPLOYEE HEALTH INSURANCE EXPENSES.

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

18 in the case of an employer, the employee health insurance

19 expenses credit determined under this section is an

20 amount equal to the applicable percentage of the amount

21 paid by the taxpayer during the taxable year for qualified

22 employee health insurance expenses.

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

24 subsection (a), the applicable percentage is equal to—
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1 ‘‘(1) 50 percent in the case of an employer with

2 less than 10 employees, and

3 ‘‘(2) 30 percent in the case of an employer with

4 more than 9 but less than 26 employees.

5 ‘‘(c) PER EMPLOYEE DOLLAR LIMITATION.—The

6 amount of qualified employee health insurance expenses

7 taken into account under subsection (a) with respect to

8 any qualified employee for any taxable year shall not

9 exceed—

10 ‘‘(1) $2,000 in the case of self-only coverage,

11 and

12 ‘‘(2) $4,000 in the case of family coverage (as

13 so defined).

14 ‘‘(d) SPECIAL RULES AND DEFINITIONS.—For pur15 poses of this section—

16 ‘‘(1) DETERMINATION OF EMPLOYMENT.—

17 ‘‘(A) IN GENERAL.—An employer shall be

18 considered an employer described in paragraph

19 (1) or (2) of subsection (b) if such employer

20 employed an average of the number of employ21 ees described in such paragraph on business

22 days during either of the 2 preceding calendar

23 years. For purposes of the preceding sentence,

24 a preceding calendar year may be taken into ac-
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1 count only if the employer was in existence

2 throughout such year.

3 ‘‘(B) EMPLOYERS NOT IN EXISTENCE IN

4 PRECEDING YEAR.—In the case of an employer

5 which was not in existence throughout the 1st

6 preceding calendar year, the determination

7 under subparagraph (A) shall be based on the

8 average number of employees that it is reason9 ably expected such employer will employ on

10 business days in the current calendar year.

11 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR12 ANCE EXPENSES.—

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

14 employee health insurance expenses’ means any

15 amount paid by an employer for health insur16 ance coverage to the extent such amount is at17 tributable to coverage provided to any employee

18 while such employee is a qualified employee.

19 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

20 UNDER SALARY REDUCTION ARRANGEMENTS.—

21 No amount paid or incurred for health insur22 ance coverage pursuant to a salary reduction

23 arrangement shall be taken into account under

24 subparagraph (A).
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1 ‘‘(C) HEALTH INSURANCE COVERAGE.—

2 The term ‘health insurance coverage’ has the

3 meaning given such term by section 9832(b)(1).

4 ‘‘(3) QUALIFIED EMPLOYEE.—

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

6 employee’ means, with respect to any period, an

7 employee of an employer if the total amount of

8 wages paid or incurred by such employer to

9 such employee at an annual rate during the

10 taxable year is not less than $5,000.

11 ‘‘(B) TREATMENT OF CERTAIN EMPLOY12 EES.—For purposes of subparagraph (A), the

13 term ‘employee’—

14 ‘‘(i) shall not include an employee

15 within the meaning of section 401(c)(1),

16 but

17 ‘‘(ii) shall include a leased employee

18 within the meaning of section 414(n).

19 ‘‘(C) WAGES.—The term ‘wages’ has the

20 meaning given such term by section 3121(a)

21 (determined without regard to any dollar limita22 tion contained in such section).

23 ‘‘(e) CERTAIN RULES MADE APPLICABLE.—For pur24 poses of this section, rules similar to the rules of section

25 52 shall apply.
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1 ‘‘(f) DENIAL OF DOUBLE BENEFIT.—No deduction

2 or credit under any other provision of this chapter shall

3 be allowed with respect to qualified employee health insur4 ance expenses taken into account under subsection (a).’’.

5 (b) CREDIT TO BE PART OF GENERAL BUSINESS

6 CREDIT.—Section 38(b) of the Internal Revenue Code of

7 1986 (relating to current year business credit) is amended

8 by striking ‘‘plus’’ at the end of paragraph (11), by strik9 ing the period at the end of paragraph (12) and inserting

10 ‘‘, plus’’, and by adding at the end the following:

11 ‘‘(13) the employee health insurance expenses

12 credit determined under section 45D.’’.

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

14 of the Internal Revenue Code of 1986 (relating to

15 carryback and carryforward of unused credits) is amended

16 by adding at the end the following:

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

18 BEFORE EFFECTIVE DATE.—No portion of the un19 used business credit for any taxable year which is

20 attributable to the employee health insurance ex21 penses credit determined under section 45D may be

22 carried back to a taxable year ending before January

23 1, 2001.’’.

24 (d) CLERICAL AMENDMENT.—The table of sections

25 for subpart D of part IV of subchapter A of chapter 1
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1 of the Internal Revenue Code of 1986 is amended by add2 ing at the end the following:

‘‘Sec. 45D. Employee health insurance expenses.’’.

3 (e) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to amounts paid or incurred in tax5 able years beginning after December 31, 2000.

6 SEC. 4. DEDUCTION FOR HEALTH AND LONG-TERM CARE

7 INSURANCE COSTS OF INDIVIDUALS NOT

8 PARTICIPATING IN EMPLOYER-SUBSIDIZED

9 HEALTH PLANS.

10 (a) IN GENERAL.—Part VII of subchapter B of chap11 ter 1 of the Internal Revenue Code of 1986 is amended

12 by redesignating section 222 as section 223 and by insert13 ing after section 221 the following new section:

14 ‘‘SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE

15 COSTS.

16 ‘‘(a) IN GENERAL.—In the case of an individual,

17 there shall be allowed as a deduction an amount equal to

18 the applicable percentage of the amount paid during the

19 taxable year for insurance which constitutes medical care

20 for the taxpayer and the taxpayer’s spouse and depend21 ents.

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

23 subsection (a), the applicable percentage shall be deter24 mined in accordance with the following table:
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‘‘For taxable years beginning The applicable

in calendar year— percentage is—

2001, 2002, 2003 ........................................................................ 25

2004 and 2005 ............................................................................. 50

2006 and thereafter ..................................................................... 100.

1 ‘‘(c) LIMITATION BASED ON OTHER COVERAGE.—

2 ‘‘(1) COVERAGE UNDER CERTAIN SUBSIDIZED

3 EMPLOYER PLANS.—

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

5 not apply to any taxpayer for any calendar

6 month for which the taxpayer participates in

7 any health plan maintained by any employer of

8 the taxpayer or of the spouse of the taxpayer if

9 50 percent or more of the cost of coverage

10 under such plan (determined under section

11 4980B and without regard to payments made

12 with respect to any coverage described in sub13 section (e)) is paid or incurred by the employer.

14 ‘‘(B) EMPLOYER CONTRIBUTIONS TO CAF15 ETERIA PLANS, FLEXIBLE SPENDING ARRANGE16 MENTS, AND MEDICAL SAVINGS ACCOUNTS.—

17 Employer contributions to a cafeteria plan, a

18 flexible spending or similar arrangement, or a

19 medical savings account which are excluded

20 from gross income under section 106 shall be

21 treated for purposes of subparagraph (A) as

22 paid by the employer.
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1 ‘‘(C) AGGREGATION OF PLANS OF EM2 PLOYER.—A health plan which is not otherwise

3 described in subparagraph (A) shall be treated

4 as described in such subparagraph if such plan

5 would be so described if all health plans of per6 sons treated as a single employer under sub7 sections (b), (c), (m), or (o) of section 414 were

8 treated as one health plan.

9 ‘‘(D) SEPARATE APPLICATION TO HEALTH

10 INSURANCE AND LONG-TERM CARE INSUR11 ANCE.—Subparagraphs (A) and (C) shall be

12 applied separately with respect to—

13 ‘‘(i) plans which include primarily cov14 erage for qualified long-term care services

15 or are qualified long-term care insurance

16 contracts, and

17 ‘‘(ii) plans which do not include such

18 coverage and are not such contracts.

19 ‘‘(2) COVERAGE UNDER CERTAIN FEDERAL

20 PROGRAMS.—

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

22 not apply to any amount paid for any coverage

23 for an individual for any calendar month if, as

24 of the first day of such month, the individual is
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1 covered under any medical care program de2 scribed in—

3 ‘‘(i) title XVIII, XIX, or XXI of the

4 Social Security Act,

5 ‘‘(ii) chapter 55 of title 10, United

6 States Code,

7 ‘‘(iii) chapter 17 of title 38, United

8 States Code,

9 ‘‘(iv) chapter 89 of title 5, United

10 States Code, or

11 ‘‘(v) the Indian Health Care Improve12 ment Act.

13 ‘‘(B) EXCEPTIONS.—

14 ‘‘(i) QUALIFIED LONG-TERM CARE.—

15 Subparagraph (A) shall not apply to

16 amounts paid for coverage under a quali17 fied long-term care insurance contract.

18 ‘‘(ii) CONTINUATION COVERAGE OF

19 FEHBP.—Subparagraph (A)(iv) shall not

20 apply to coverage which is comparable to

21 continuation coverage under section

22 4980B.

23 ‘‘(d) LONG-TERM CARE DEDUCTION LIMITED TO

24 QUALIFIED LONG-TERM CARE INSURANCE CON25 TRACTS.—In the case of a qualified long-term care insur-
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1 ance contract, only eligible long-term care premiums (as

2 defined in section 213(d)(10)) may be taken into account

3 under subsection (a).

4 ‘‘(e) DEDUCTION NOT AVAILABLE FOR PAYMENT OF

5 ANCILLARY COVERAGE PREMIUMS.—Any amount paid as

6 a premium for insurance which provides for—

7 ‘‘(1) coverage for accidents, disability, dental

8 care, vision care, or a specified illness, or

9 ‘‘(2) making payments of a fixed amount per

10 day (or other period) by reason of being hospitalized.

11 shall not be taken into account under subsection (a).

12 ‘‘(f) SPECIAL RULES.—

13 ‘‘(1) COORDINATION WITH DEDUCTION FOR

14 HEALTH INSURANCE COSTS OF SELF-EMPLOYED IN15 DIVIDUALS.—The amount taken into account by the

16 taxpayer in computing the deduction under section

17 162(l) shall not be taken into account under this

18 section.

19 ‘‘(2) COORDINATION WITH MEDICAL EXPENSE

20 DEDUCTION.—The amount taken into account by

21 the taxpayer in computing the deduction under this

22 section shall not be taken into account under section

23 213.

24 ‘‘(g) REGULATIONS.—The Secretary shall prescribe

25 such regulations as may be appropriate to carry out this
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1 section, including regulations requiring employers to re2 port to their employees and the Secretary such informa3 tion as the Secretary determines to be appropriate.’’.

4 (b) DEDUCTION ALLOWED WHETHER OR NOT TAX5 PAYER ITEMIZES OTHER DEDUCTIONS.—Subsection (a)

6 of section 62 of the Internal Revenue Code of 1986 is

7 amended by inserting after paragraph (17) the following

8 new item:

9 ‘‘(18) HEALTH AND LONG-TERM CARE INSUR10 ANCE COSTS.—The deduction allowed by section

11 222.’’.

12 (c) CLERICAL AMENDMENT.—The table of sections

13 for part VII of subchapter B of chapter 1 of the Internal

14 Revenue Code of 1986 is amended by striking the last

15 item and inserting the following new items:

‘‘Sec. 222. Health and long-term care insurance costs.

‘‘Sec. 223. Cross reference.’’.

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

17 this section shall apply to taxable years beginning after

18 December 31, 2000.

19 SEC. 5. DEDUCTION FOR 100 PERCENT OF HEALTH INSUR20 ANCE COSTS OF SELF-EMPLOYED INDIVID21 UALS.

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

23 of the Internal Revenue Code of 1986 is amended to read

24 as follows:
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1 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case

2 of an individual who is an employee within the

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

4 as a deduction under this section an amount equal

5 to 100 percent of the amount paid during the tax6 able year for insurance which constitutes medical

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

8 dependents.’’.

9 (b) CLARIFICATION OF LIMITATIONS ON OTHER COV10 ERAGE.—The first sentence of section 162(l)(2)(B) of the

11 Internal Revenue Code of 1986 is amended to read as fol12 lows: ‘‘Paragraph (1) shall not apply to any taxpayer for

13 any calendar month for which the taxpayer participates

14 in any subsidized health plan maintained by any employer

15 (other than an employer described in section 401(c)(4))

16 of the taxpayer or the spouse of the taxpayer.’’.

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

18 this section shall apply to taxable years beginning after

19 December 31, 2000.

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