II

104TH CONGRESS

1ST SESSION S. 715

To provide for portability of health insurance, guaranteed renewability, high

risk pools, medical care savings accounts, and for other purposes.

IN THE SENATE OF THE UNITED STATES

APRIL 7 (legislative day, APRIL 5), 1995

Mr. D’AMATO (for himself, Mr. INHOFE, and Mr. HATCH) introduced the

following bill; which was read twice and referred to the Committee on Finance

A BILL

To provide for portability of health insurance, guaranteed

renewability, high risk pools, medical care savings accounts, 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 ‘‘Health Insurance Portability and Guaranteed Renewabil6 ity Act of 1995’’.

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

8 this Act is as follows:

Sec. 1. Short title; table of contents.

TITLE I—AMENDMENTS OF INTERNAL REVENUE CODE OF 1986
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Subtitle A—Medical Care Savings Accounts

Sec. 101. Medical care savings benefits.

Sec. 102. Medical care savings accounts.

Sec. 103. Unused amounts in flexible spending accounts transferable to medical

care savings accounts.

Subtitle B—Expansion of COBRA Continuation Coverage

Sec. 111. Expansion of COBRA continuation coverage.

Sec. 112. Expansion of COBRA options and continuation coverage requirements.

Sec. 113. Continuation coverage must offer conversion option at end of required

coverage period.

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. Enforcement.

Sec. 204. Definitions.

Sec. 205. 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. Limitations on nonrenewal and premium increases.

Sec. 214. Definitions.

Sec. 215. Effective date.

Subtitle C—Assuring Health Insurance Coverage for Uninsurable Individuals

Sec. 221. Establishment of high risk health insurance pools.

Sec. 222. Uninsurable individuals eligible for coverage.

Sec. 223. Qualified health insurance coverage under pool.

Sec. 224. Funding of pool.

Sec. 225. Administration.
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1 TITLE I—AMENDMENTS OF IN2 TERNAL REVENUE CODE OF

3 1986

4 Subtitle A—Medical Care Savings

5 Accounts

6 SEC. 101. MEDICAL CARE SAVINGS BENEFITS.

7 (a) IN GENERAL.—Part III of subchapter B of chap8 ter 1 of the Internal Revenue Code of 1986 is amended

9 by inserting after section 125 the following new section:

10 ‘‘SEC. 125A. MEDICAL CARE SAVINGS BENEFITS.

11 ‘‘(a) IN GENERAL.—A medical care savings benefit

12 is a qualified benefit which consists of a health plan meet13 ing the requirements of this section that includes, as part

14 thereof, a medical care savings account, as set forth in

15 section 408A.

16 ‘‘(b) ESTABLISHMENT OF MEDICAL CARE SAVINGS

17 BENEFIT.—A medical care savings benefit shall be estab18 lished as a health plan which provides that all or part of

19 the premium differential realized by instituting a qualified

20 higher deductible health plan is credited to a participating

21 employee during a plan year to pay for medical care de22 scribed in section 213(d) subject to the limitations set

23 forth in subsection (e) hereof. To the extent that any

24 amount remains credited to that participant at the end

25 of each plan year, such amount shall be deposited to a
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1 section 408A medical care savings account (which may

2 also be referred to as a ‘Medical IRA’) for that partici3 pant.

4 ‘‘(c) PAYMENTS FROM ACCOUNT BALANCE.—If the

5 plan provides for level installment payments, the plan may

6 also provide that the maximum amount of reimbursement

7 at a particular time during the period of coverage may

8 be limited to the amount of actual contributions to the

9 participant’s benefit account. A participant may be ad10 vanced, interest free, such amounts necessary to cover in11 curred medical expenses which exceed the amount then

12 credited to the participant’s benefit account, upon the par13 ticipant’s agreement to repay such advancement from fu14 ture installments or upon ceasing to be a participant.

15 ‘‘(d) REPORTING.—Employers shall cause to be is16 sued to participating employees, not less frequently than

17 quarterly, a statement setting forth amounts remaining in

18 their accounts.

19 ‘‘(e) LIMITATIONS ON MEDICAL CARE SAVINGS BEN20 EFITS.—For purposes of this section—

21 ‘‘(1) IN GENERAL.—In the case of an employer

22 who has a health plan in existence immediately prior

23 to the adoption of the medical care savings benefit,

24 the maximum amount that may be contributed an-
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1 nually to a participant’s benefit account shall be

2 equal to—

3 ‘‘(A) the cost of that health plan for that

4 participant’s type of coverage; plus

5 ‘‘(B) a cost of living adjustment for the

6 calendar year in which the plan year begins, de7 termined under section 1(f)(3) as adjusted an8 nually based on the CPI-medical cost of living

9 component.

10 ‘‘(2) OTHER EMPLOYERS.—In the case of an

11 employer to whom paragraph (1) does not apply, the

12 contribution limit shall be equal to the excess of the

13 annual cost of the catastrophic health plan covering

14 the individual (whether or not such cost is borne by

15 the employer or the employee) over the annual ag16 gregate cost (including the government and em17 ployee share) of the standard option of the Blue

18 Cross-Blue Shield plan offered under the Federal

19 Employees Health Benefits Program under chapter

20 89 of title 5, United States Code for the same type

21 of family coverage.

22 ‘‘(3) OVERALL LIMITATION.—In no event may

23 any contribution described above exceed the deduct24 ible amount of the qualified higher deductible plan.
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1 ‘‘(f) HEALTH PLAN.—The term ‘health plan’ means

2 an employee welfare benefit plan providing medical care

3 (as defined in section 213(d)) to participants or bene4 ficiaries directly or through insurance, reimbursement, or

5 otherwise.

6 ‘‘(g) QUALIFIED HIGHER DEDUCTIBLE PLAN.—The

7 term ‘qualified higher deductible plan’ is a health plan

8 which provides for payment of covered benefits in excess

9 of the higher deductible, which higher deductible shall not

10 exceed $5,000 in 1996 and, adjusted annually thereafter

11 for increases in the cost of living in accordance with regu12 lations prescribed by the Secretary.

13 ‘‘(h) COORDINATION WITH HEALTH FLEXIBLE

14 SPENDING ACCOUNTS.—If, during a plan year, a partici15 pating employee has a medical care savings benefit in ef16 fect and a health flexible spending account established

17 under section 125, coverage under the health flexible

18 spending account, for the type of medical expenses that

19 may be reimbursed under the medical care savings benefit,

20 would be limited to 100 percent of the deductible under

21 the qualified higher deductible plan, less the amount cred22 ited in the current year to the employee’s medical care

23 savings account. For purposes of section 125, a medical

24 care savings benefit is not considered to involve the defer25 ral of compensation for purposes of this title.
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1 ‘‘(i) SEPARATE DETERMINATIONS FOR CATEGORIES

2 OF EMPLOYEES AND SEPARATE LINES OF BUSINESS.—

3 Contributions to Health Plans established by an Employer

4 may be separately determined on the basis of:

5 ‘‘(1) Types of coverage.

6 ‘‘(2) Reasonable classifications of employees

7 based on such classifications as hours of work per

8 week, retirement status, coverage by a collective bar9 gaining agreement.

10 ‘‘(3) Employees within separate lines of busi11 ness, within the meaning of section 414(r).

12 ‘‘(j) OTHER DEFINITIONS FOR PURPOSES OF THIS

13 SECTION.—

14 ‘‘(1) EMPLOYEE.—The term ‘employee’ means

15 any individual employed by an employer, including—

16 ‘‘(A) an individual who is an employee

17 within the meaning of section 401(c)(1); and

18 ‘‘(B) former employees.

19 ‘‘(2) TYPES OF COVERAGE.—The types of cov20 erage are—

21 ‘‘(A) self-only coverage; and

22 ‘‘(B) coverage other than self-only cov23 erage.

24 ‘‘(k) PREVENTATIVE HEALTH CARE.—By allowing

25 medical expenses payable from a medical care savings ben-
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1 efit to be those permitted under section 213(d), participat2 ing employees are encouraged to use this benefit to pro3 mote good health, to use preventative medical and health

4 procedures, and to seek appropriate consultative and sec5 ond opinions.

6 ‘‘(l) NONDUPLICATION OF BENEFITS.—Policies is7 sued as a part of a medical care savings benefit shall not

8 be required to duplicate expenses that may be proper ex9 penses covered by the medical care savings benefit. Addi10 tionally, the qualified higher deductible plan may provide

11 that the deductible specified in the insurance policy may

12 be increased by the amount of any benefits payable by any

13 other health benefits program or plan.’’.

14 (b) CLERICAL AMENDMENT.—The table of sections

15 for part III of subchapter B of chapter 1 of such Code

16 is amended by inserting after the item relating to section

17 125 the following new item:

‘‘Sec. 125A. Medical care savings benefits.’’

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

19 this section shall apply to taxable years beginning after

20 December 31, 1995.

21 SEC. 102. MEDICAL CARE SAVINGS ACCOUNTS.

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

23 D of chapter 1 of the Internal Revenue Code of 1986 is

24 amended by inserting after section 408 the following new

25 section:
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1 ‘‘SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.

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

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

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

5 organized in the United States for the exclusive benefit

6 of an individual and the individual’s spouse and depend7 ents (as defined in section 152), but only if the written

8 instrument creating the trust meets the following require9 ments:

10 ‘‘(1) Except in the case of a rollover contribu11 tion described in subsection (c)(3), no contribution

12 will be accepted unless it is in cash and contribu13 tions will not be accepted during any calendar year

14 in excess of the amount permitted under section

15 125A(b).

16 ‘‘(2) The trustee is a bank (as defined in sec17 tion 408(n)), insurance company (as defined in sec18 tion 816), or such other person who demonstrates to

19 the satisfaction of the Secretary that the manner in

20 which such other person will administer the trust

21 will be consistent with the requirements of this

22 section.

23 ‘‘(3) No part of the trust funds will be invested

24 in life insurance contracts.

25 ‘‘(4) The interest of an individual in the bal26 ance of the account is nonforfeitable.
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1 ‘‘(5) The assets of the trust will not be commin2 gled with other property except in a common trust

3 fund or common investment fund.

4 ‘‘(b) TAX TREATMENT OF ACCOUNTS.—

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

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

7 subparagraph (B), the account beneficiary of a

8 medical care savings account shall be treated

9 for purposes of this title as the owner of such

10 account and shall be subject to tax thereon in

11 accordance with subpart E of part I of sub12 chapter J of this chapter (relating to grantors

13 and others treated as substantial owners).

14 ‘‘(B) TREATMENT OF CAPITAL LOSSES.—

15 With respect to assets held in a medical care

16 savings account, any capital loss for a taxable

17 year from the sale or exchange of such an asset

18 shall be allowed only to the extent of capital

19 gains from such assets for such taxable year.

20 Any capital loss which is disallowed under the

21 preceding sentence shall be treated as a capital

22 loss from the sale or exchange of such an asset

23 in the next taxable year. For purposes of this

24 subparagraph, all medical care savings accounts
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1 of the account beneficiary shall be treated as

2 1 account.

3 ‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN4 GAGES IN PROHIBITED TRANSACTION.—

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

6 year of the account beneficiary, such beneficiary

7 engages in any transaction prohibited by section

8 4975 with respect to the account, the account

9 ceases to be a medical care savings account as

10 of the first day of that taxable year.

11 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

12 ALL ITS ASSETS.—In any case in which any ac13 count ceases to be a medical care savings ac14 count by reason of subparagraph (A) on the

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

16 shall be applied as if—

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

18 first day in an amount equal to the fair

19 market value (on such first day) of all as20 sets in the account (on such first day), and

21 ‘‘(ii) no portion of such distribution

22 were used to pay qualified expenses.

23 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU24 RITY.—If, during any taxable year, the account ben25 eficiary uses the account or any portion thereof as
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1 security for a loan, the portion so used is treated as

2 distributed and not used to pay qualified expenses.

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

4 ‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR

5 QUALIFIED MEDICAL EXPENSES.—

6 ‘‘(A) IN GENERAL.—Any amount paid or

7 distributed out of a medical care savings ac8 count which is not used exclusively to pay the

9 qualified medical expenses of the account bene10 ficiary or of the spouse or dependents of such

11 beneficiary shall be included in the gross in12 come of such beneficiary to the extent such

13 amount does not exceed the excess of—

14 ‘‘(i) the aggregate contributions by

15 the employer to such account which were

16 not includible in gross income, over

17 ‘‘(ii) the aggregate prior payments or

18 distributions from such account which were

19 includible in gross income under this para20 graph.

21 ‘‘(B) SPECIAL RULES.—For purposes of

22 subparagraph (A)—

23 ‘‘(i) all medical care savings accounts

24 of the account beneficiary shall be treated

25 as 1 account,
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1 ‘‘(ii) all payments and distributions

2 during any taxable year shall be treated as

3 1 distribution, and

4 ‘‘(iii) any distribution of property

5 shall be taken into account at its fair mar6 ket value on the date of the distribution.

7 ‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED

8 FOR QUALIFIED EXPENSES.—

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

10 this chapter for any taxable year in which there

11 is a payment or distribution from a medical

12 care savings account which is includible in gross

13 income under paragraph (1) shall be increased

14 by 10 percent of the amount which is so includ15 ible.

16 ‘‘(B) EXCEPTION FOR DISTRIBUTIONS

AFTER AGE 591 17 ⁄2.—Subparagraph (A) shall not

18 apply to any distribution or payment after the

19 date on which the account beneficiary attains

age 591 20 ⁄2.

21 ‘‘(C) DISABILITY OR DEATH CASES.—Sub22 paragraph (A) shall not apply if the payment or

23 distribution is made after the account bene24 ficiary becomes disabled within the meaning of

25 section 72(m)(7) or dies.
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1 ‘‘(3) ROLLOVER CONTRIBUTION.—An amount is

2 described in this paragraph as a rollover contribu3 tion if it meets the requirements of subparagraphs

4 (A) and (B).

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

6 not apply to any amount paid or distributed out

7 of a medical care savings account to the ac8 count beneficiary if the entire amount received

9 is paid into a medical care savings account for

10 the benefit of such beneficiary not later than

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

12 the payment or distribution.

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

14 not apply to any amount described in subpara15 graph (A) received by an individual from a

16 medical care savings account if at any time dur17 ing the one-year period ending on the day of

18 such receipt such individual received any other

19 amount described in subparagraph (A) from a

20 medical care savings account which was not in21 cludible in his gross income because of the ap22 plication of this paragraph.

23 ‘‘(C) TREATMENT AFTER DEATH OF AC24 COUNT BENEFICIARY.—
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1 ‘‘(i) IN GENERAL.—After the death of

2 the account beneficiary, the assets in such

3 beneficiary’s medical care savings account

4 may continue to be used for the benefit of

5 the beneficiary’s spouse and dependents if,

6 not more than 60 days after the bene7 ficiary’s death—

8 ‘‘(I) the beneficiary’s medical

9 care savings account is transferred to

10 a new account administrator; or

11 ‘‘(II) the legatee requests in writ12 ing that the account administrator re13 main the administrator of the ac14 count, and the account administrator

15 agrees to retain the account.

16 ‘‘(ii) FAILURE TO GIVE NOTICE.—If

17 the former account administrator of a

18 medical care savings account of a deceased

19 beneficiary is not informed, within 90 days

20 after the beneficiary’s death, of the name

21 and address of an account administrator to

22 which the medical care savings account has

23 been transferred under clause (i), the

24 former account administrator shall liq25 uidate the assets in such account and pay
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1 the proceeds to the estate of the bene2 ficiary.

3 ‘‘(iii) ACCOUNT ADMINISTRATOR UN4 WILLING TO MAINTAIN ACCOUNT.—If—

5 ‘‘(I) the legatee makes a request

6 described in clause (i)(II); and

7 ‘‘(II) the account administrator

8 does not agree to retain the account;

9 the account administrator shall, within 90

10 days after the beneficiary’s death, liquidate

11 the assets in such account and pay the

12 proceeds to the estate of the beneficiary.

13 ‘‘(iv) TREATMENT OF TRANSFERS TO

14 ESTATE.—Any transfer to the estate of a

15 decedent under clause (ii) or (iii) shall not

16 be includible in the gross income of the

17 beneficiary or of the estate.

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

19 ‘‘(1) QUALIFIED EXPENSES.—The term ‘quali20 fied expenses’ means any of the following expenses

21 which are incurred for the benefit of the account

22 beneficiary or the spouse or dependents (as defined

23 in section 152) of such beneficiary:

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

25 in section 213(d)).
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1 ‘‘(B) Expenses for long-term care services

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

3 ‘‘(2) ACCOUNT BENEFICIARY.—The term ‘ac4 count beneficiary’ means the individual for whose

5 benefit the medical care savings account is estab6 lished.

7 ‘‘(e) CUSTODIAL ACCOUNTS.—For purposes of this

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

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

10 bank (as defined in section 408(n)), insurance com11 pany (as defined in section 816), or another person

12 who demonstrates to the satisfaction of the Sec13 retary that the manner in which he will administer

14 the account will be consistent with the requirements

15 of this section, and

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

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

18 savings account described in subsection (a).

19 For purposes of this title, in the case of a custodial ac20 count treated as a trust by reason of the preceding sen21 tence, the custodian of such account shall be treated as

22 the trustee thereof.

23 ‘‘(f) REPORTS.—The trustee of a medical care sav24 ings account shall make such reports regarding such ac25 count to the Secretary and to the account beneficiary with
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1 respect to contributions, distributions, and such other

2 matters as the Secretary may require under regulations.

3 The reports required by this subsection shall be filed at

4 such time and in such manner and furnished to such indi5 viduals at such time and in such manner as may be re6 quired by those regulations.’’

7 (b) EMPLOYER PAYMENTS EXCLUDED FROM EM8 PLOYMENT TAX BASE.—

9 (1) SOCIAL SECURITY TAXES.—

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

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

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

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

14 by inserting after paragraph (21) the following

15 new paragraph:

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

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

18 reasonable to believe that the employee will be able

19 to exclude such payment from gross income under

20 chapter 1.’’

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

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

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

24 period at the end of paragraph (19) and insert-
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1 ing ‘‘; or’’, and by inserting after paragraph

2 (19) the following new paragraph:

3 ‘‘(20) 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 gross income under

7 chapter 1 of the Internal Revenue Code of 1986.’’

8 (2) RAILROAD RETIREMENT TAX.—Subsection

9 (e) of section 3231 of such Code is amended by add10 ing at the end the following new paragraph:

11 ‘‘(10) MEDICAL CARE SAVINGS ACCOUNT CON12 TRIBUTIONS.—The term ‘compensation’ shall not in13 clude any payment made to or for the benefit of an

14 employee if at the time of such payment it is reason15 able to believe that the employee will be able to ex16 clude such payment from gross income under chap17 ter 1.’’

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

19 section 3306 of such Code is amended by striking

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

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

22 or’’, and by inserting after paragraph (16) the fol23 lowing new paragraph:

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

25 of an employee if at the time of such payment it is
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1 reasonable to believe that the employee will be able

2 to exclude such payment from gross income under

3 chapter 1.’’

4 (4) WITHHOLDING TAX.—Subsection (a) of sec5 tion 3401 of such Code is amended by striking ‘‘or’’

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

7 at the end of paragraph (20) and inserting ‘‘; or’’,

8 and by inserting after paragraph (20) the following

9 new paragraph:

10 ‘‘(21) 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 gross income under

14 chapter 1.’’

15 (c) TAX ON PROHIBITED TRANSACTIONS.—Section

16 4975 of such Code (relating to prohibited transactions)

17 is amended—

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

19 following new paragraph:

20 ‘‘(4) SPECIAL RULE FOR MEDICAL CARE SAV21 INGS ACCOUNTS.—An individual for whose benefit a

22 medical care savings account (within the meaning of

23 section 408A) is established shall be exempt from

24 the tax imposed by this section with respect to any

25 transaction concerning such account (which would
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1 otherwise be taxable under this section) if, with re2 spect to such transaction, the account ceases to be

3 a medical care savings account by reason of the ap4 plication of section 408A(b)(2)(A) to such account.’’,

5 and

6 (2) by inserting ‘‘or a medical care savings ac7 count described in section 408A’’ in subsection

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

9 (d) FAILURE TO PROVIDE REPORTS ON MEDICAL

10 CARE SAVINGS ACCOUNTS.—Section 6693 of such Code

11 (relating to failure to provide reports on individual retire12 ment account or annuities) is amended—

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

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

15 heading of such section, and

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

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

18 to file a report regarding a medical care savings ac19 count at the time and in the manner required by

20 such section shall pay a penalty of $50 for each fail21 ure unless it is shown that such failure is due to rea22 sonable cause.’’

23 (e) CLERICAL AMENDMENTS.—

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

25 I of subchapter D of chapter 1 of such Code is
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1 amended by inserting after the item relating to sec2 tion 408 the following:

‘‘Sec. 408A. Medical care savings accounts.’’

3 (2) The table of sections for chapter 43 of such

4 Code is amended by striking the item relating to sec5 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.’’

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

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

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

9 in the item relating to section 6693.

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

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

12 SEC. 103. UNUSED AMOUNTS IN FLEXIBLE SPENDING AC13 COUNTS TRANSFERABLE TO MEDICAL CARE

14 SAVINGS ACCOUNTS.

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

16 the Internal Revenue Code of 1986 (relating to cafeteria

17 plans) is amended by adding at the end thereof the follow18 ing new paragraph:

19 ‘‘(3) UNUSED AMOUNTS TRANSFERABLE TO

20 MEDICAL CARE SAVINGS ACCOUNTS.—Subsection (a)

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

22 a plan shall not fail to be treated as a cafeteria plan,
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1 solely because under the plan amounts not paid out

2 as reimbursements under a flexible spending ar3 rangement for medical care (as defined in section

4 213(d)) for an individual or such individual’s spouse

5 and dependents) are contributed on the last day of

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

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

8 individual.’’

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

10 this section shall apply to cafeteria plan years ending after

11 December 31, 1995.

12 Subtitle B—Expansion of COBRA

13 Continuation Coverage

14 SEC. 111. EXPANSION OF COBRA CONTINUATION COV15 ERAGE.

16 (a) AMENDMENTS TO INTERNAL REVENUE CODE.—

17 (1) SMALLER EMPLOYERS SUBJECT TO RE18 QUIREMENTS.—Paragraph (1) of section 4980B(d)

19 of the Internal Revenue Code of 1986 (relating to

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

21 striking ‘‘20 employees’’ and inserting ‘‘2 employ22 ees’’.

23 (2) PERIOD OF COVERAGE EXTENDED TO 36

24 MONTHS.—
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1 (A) IN GENERAL.—Clause (i) of section

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

3 of coverage) is amended to read as follows:

4 ‘‘(i) MAXIMUM REQUIRED PERIOD.—

5 ‘‘(I) IN GENERAL.—The date

6 which is 36 months after the date of

7 the qualifying event.

8 ‘‘(II) SPECIAL RULE FOR CER9 TAIN BANKRUPTCY PROCEEDINGS.—

10 In the case of a qualifying event de11 scribed in paragraph (3)(F) (relating

12 to bankruptcy proceedings), the date

13 of the death of the covered employee

14 or qualified beneficiary (described in

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

16 case of the surviving spouse or de17 pendent children of the covered em18 ployee, 36 months after the date of

19 the death of the covered employee.

20 ‘‘(III) QUALIFYING EVENT IN21 VOLVING MEDICARE ENTITLEMENT.—

22 In the case of an event described in

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

24 whether such event is a qualifying

25 event), the period of coverage for
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1 qualified beneficiaries other than the

2 covered employee for such event or

3 any subsequent qualifying event shall

4 not terminate before the close of the

5 36-month period beginning on the

6 date the covered employee becomes

7 entitled to benefits under title XVIII

8 of the Social Security Act.’’

9 (B) TECHNICAL AMENDMENT.—The last

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

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

12 case of a qualified beneficiary who is deter13 mined, under title II or XVI of the Social Secu14 rity Act, to have been disabled at the time of

15 a qualifying event described in paragraph

16 (3)(B), any reference in clause (i) to ‘102 per17 cent’ is deemed a reference to ‘150 percent’ for

18 any month after the 36th month of continu19 ation coverage.’’

20 (3) SUBSTANTIALLY SIMILAR COVERAGE UNDER

21 NEW EMPLOYER’S HEALTH PLAN TO TERMINATE

22 CONTINUATION COVERAGE OBLIGATION OF PRIOR

23 EMPLOYER.—Clause (iv) of section 4980B(f)(2)(B)

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

25 of subclause (I), by redesignating subclause (II) as
26

•S 715 IS

1 subclause (III), and by inserting after subclause (I)

2 the following new subclause:

3 ‘‘(II) covered under any other

4 group health plan by reason of the re5 employment of the covered employee if

6 such coverage is substantially similar

7 to (or in all respects greater than) the

8 coverage provided by reason of this

9 section, or’’.

10 (b) AMENDMENTS TO EMPLOYEE RETIREMENT IN11 COME SECURITY ACT OF 1974.—

12 (1) SMALLER EMPLOYERS SUBJECT TO RE13 QUIREMENTS.—Subsection (b) of section 601 of the

14 Employee Retirement Income Security Act of 1974

15 (29 U.S.C. 1161) (relating to exception for certain

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

17 inserting ‘‘2 employees’’.

18 (2) PERIOD OF COVERAGE EXTENDED TO 36

19 MONTHS.—

20 (A) IN GENERAL.—Subparagraph (A) of

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

22 (relating to period of coverage) is amended to

23 read as follows:

24 ‘‘(A) MAXIMUM REQUIRED PERIOD.—
27

•S 715 IS

1 ‘‘(i) IN GENERAL.—The date which is

2 36 months after the date of the qualifying

3 event.

4 ‘‘(ii) SPECIAL RULE FOR CERTAIN

5 BANKRUPTCY PROCEEDINGS.—In the case

6 of a qualifying event described in section

7 603(6) (relating to bankruptcy proceed8 ings), the date of the death of the covered

9 employee or qualified beneficiary (described

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

11 the surviving spouse or dependent children

12 of the covered employee, 36 months after

13 the date of the death of the covered

14 employee.

15 ‘‘(iii) QUALIFYING EVENT INVOLVING

16 MEDICARE ENTITLEMENT.—In the case of

17 an event described in section 603(4) (with18 out regard to whether such event is a

19 qualifying event), the period of coverage

20 for qualified beneficiaries other than the

21 covered employee for such event or any

22 subsequent qualifying event shall not ter23 minate before the close of the 36-month

24 period beginning on the date the covered

25 employee becomes entitled to benefits
28

•S 715 IS

1 under title XVIII of the Social Security

2 Act.’’

3 (B) TECHNICAL AMENDMENT.—The last

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

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

6 individual who is determined, under title II or

7 XVI of the Social Security Act, to have been

8 disabled at the time of a qualifying event de9 scribed in section 603(2), any reference in sub10 paragraph (A) to ‘102 percent’ is deemed a ref11 erence to ‘150 percent’ for any month after the

12 36th month of continuation coverage.’’

13 (3) SUBSTANTIALLY SIMILAR COVERAGE UNDER

14 NEW EMPLOYER’S HEALTH PLAN TO TERMINATE

15 CONTINUATION COVERAGE OBLIGATION OF PRIOR

16 EMPLOYER.—Subparagraph (D) of section 602(2) of

17 such Act is amended by striking ‘‘or’’ at the end of

18 clause (i), by redesignating clause (ii) as clause (iii),

19 and by inserting after clause (i) the following new

20 subclause:

21 ‘‘(ii) covered under any other

22 group health plan by reason of the re23 employment of the covered employee if

24 such coverage is substantially similar

25 to (or in all respects greater than) the
29

•S 715 IS

1 coverage provided by reason of this

2 section, or’’.

3 (c) AMENDMENTS TO PUBLIC HEALTH SERVICE

4 ACT.—

5 (1) SMALLER EMPLOYERS SUBJECT TO RE6 QUIREMENTS.—Paragraph (1) of section 2201(b) of

7 the Public Health Service Act (42 U.S.C. 300bb8 1(b)) (relating to exception for certain plans) is

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

10 ‘‘4 employees’’.

11 (2) PERIOD OF COVERAGE EXTENDED TO 36

12 MONTHS.—

13 (A) IN GENERAL.—Subparagraph (A) of

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

15 2(2)) (relating to period of coverage) is amend16 ed to read as follows:

17 ‘‘(A) MAXIMUM REQUIRED PERIOD.—

18 ‘‘(i) IN GENERAL.—The date which is

19 36 months after the date of the qualifying

20 event.

21 ‘‘(ii) QUALIFYING EVENT INVOLVING

22 MEDICARE ENTITLEMENT.—In the case of

23 an event described in section 2203(4)

24 (without regard to whether such event is a

25 qualifying event), the period of coverage
30

•S 715 IS

1 for qualified beneficiaries other than the

2 covered employee for such event or any

3 subsequent qualifying event shall not ter4 minate before the close of the 36-month

5 period beginning on the date the covered

6 employee becomes entitled to benefits

7 under title XVIII of the Social Security

8 Act.’’

9 (B) TECHNICAL AMENDMENT.—The last

10 sentence of section 2202(3) of such Act is

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

12 individual who is determined, under title II or

13 XVI of the Social Security Act, to have been

14 disabled at the time of a qualifying event de15 scribed in section 2203(2), any reference in

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

17 reference to ‘150 percent’ for any month after

18 the 36th month of continuation coverage.’’

19 (3) SUBSTANTIALLY SIMILAR COVERAGE UNDER

20 NEW EMPLOYER’S HEALTH PLAN TO TERMINATE

21 CONTINUATION COVERAGE OBLIGATION OF PRIOR

22 EMPLOYER.—Subparagraph (D) of section 2202(2)

23 of such Act is amended by striking ‘‘or’’ at the end

24 of clause (i), by redesignating clause (ii) as clause
31

•S 715 IS

1 (iii), and by inserting after clause (i) the following

2 new clause:

3 ‘‘(ii) covered under any other

4 group health plan by reason of the re5 employment of the covered employee if

6 such coverage is substantially similar

7 to (or in all respects greater than) the

8 coverage provided by reason of this

9 section, or’’.

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

11 this section shall apply to—

12 (1) qualifying events occurring after December

13 31, 1995, and

14 (2) qualifying events occurring on or before

15 such date if the period of continuation coverage re16 quired under section 4980B of the Internal Revenue

17 Code of 1986 (determined without regard to the

18 amendments made by this section) has not expired

19 on or before such date.

20 SEC. 112. EXPANSION OF COBRA OPTIONS AND CONTINU21 ATION COVERAGE REQUIREMENTS.

22 (a) AMENDMENTS TO INTERNAL REVENUE CODE.—

23 Subparagraph (A) of section 4980B(f)(2) of the Internal

24 Revenue Code of 1986 (relating to continuation coverage
32

•S 715 IS

1 requirements of group health plans) is amended to read

2 as follows:

3 ‘‘(A) TYPE OF BENEFIT COVERAGE.—The

4 coverage must consist of coverage which, as of

5 the time the coverage is being provided—

6 ‘‘(i) is identical to the coverage pro7 vided under the plan to similarly situated

8 beneficiaries under the plan with respect to

9 whom a qualifying event has not occurred,

10 ‘‘(ii) is so identical, except such cov11 erage is offered with an annual $1,000 de12 ductible, or

13 ‘‘(iii) is so identical, except such cov14 erage is offered with an annual $3,000 de15 ductible.

16 If coverage under the plan is modified for any

17 group of similarly situated beneficiaries, the

18 coverage shall also be modified in the same

19 manner for all individuals who are qualified

20 beneficiaries under the plan pursuant to this

21 subsection in connection with such group.’’

22 (b) AMENDMENTS TO EMPLOYEE RETIREMENT IN23 COME SECURITY ACT OF 1974.—Paragraph (1) of section

24 602 of the Employee Retirement Income Security Act of

25 1974 (29 U.S.C. 1162) is amended to read as follows:
33

•S 715 IS

1 ‘‘(1) TYPE OF BENEFIT COVERAGE.—The cov2 erage must consist of coverage which, as of the time

3 the coverage is being provided—

4 ‘‘(A) is identical to the coverage provided

5 under the plan to similarly situated bene6 ficiaries under the plan with respect to whom a

7 qualifying event has not occurred,

8 ‘‘(B) is so identical, except such coverage

9 is offered with an annual $1,000 deductible, or

10 ‘‘(C) is so identical, except such coverage is

11 offered with an annual $3,000 deductible.

12 If coverage under the plan is modified for any group

13 of similarly situated beneficiaries, the coverage shall

14 also be modified in the same manner for all individ15 uals who are qualified beneficiaries under the plan

16 pursuant to this part in connection with such

17 group.’’

18 (c) AMENDMENTS TO PUBLIC HEALTH SERVICE

19 ACT.—Paragraph (1) of section 2202 of the Public Health

20 Service Act (42 U.S.C. 300bb–2) is amended to read as

21 follows:

22 ‘‘(1) TYPE OF BENEFIT COVERAGE.—The cov23 erage must consist of coverage which, as of the time

24 the coverage is being provided—
34

•S 715 IS

1 ‘‘(A) is identical to the coverage provided

2 under the plan to similarly situated bene3 ficiaries under the plan with respect to whom a

4 qualifying event has not occurred,

5 ‘‘(B) is so identical, except such coverage

6 is offered with an annual $1,000 deductible, or

7 ‘‘(C) is so identical, except such coverage is

8 offered with an annual $3,000 deductible.

9 If coverage under the plan is modified for any group

10 of similarly situated beneficiaries, the coverage shall

11 also be modified in the same manner for all individ12 uals who are qualified beneficiaries under the plan

13 pursuant to this part in connection with such

14 group.’’

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

16 this section shall apply to—

17 (1) qualifying events occurring after December

18 31, 1996, and

19 (2) qualifying events occurring on or before

20 such date if the period of continuation coverage re21 quired under section 4980B of the Internal Revenue

22 Code of 1986 (determined without regard to the

23 amendments made by this Act) has not expired on

24 or before such date.
35

•S 715 IS

1 SEC. 113. CONTINUATION COVERAGE MUST OFFER CON2 VERSION OPTION AT END OF REQUIRED COV3 ERAGE PERIOD.

4 (a) AMENDMENTS TO INTERNAL REVENUE CODE.—

5 Paragraph (1) of section 4980B(f) of the Internal Reve6 nue Code of 1986 is amended to read as follows:

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

8 the requirements of this subsection only if—

9 ‘‘(A) the coverage of the costs of pediatric

10 vaccines (as defined under section 2162 of the

11 Public Health Service Act) is not reduced below

12 the coverage provided by the plan as of May 1,

13 1993,

14 ‘‘(B) each qualified beneficiary who would

15 lose coverage under the plan as a result of a

16 qualifying event is entitled to elect, within the

17 election period, continuation coverage under the

18 plan, and

19 ‘‘(C) in the case of a group health plan

20 provided through insurance, at the termination

21 of the continuation coverage period with respect

22 to any qualified beneficiary (other than a period

23 which terminates by reason of paragraph

24 (2)(B)(iv)), such beneficiary has the option to

25 be covered under another health plan provided
36

•S 715 IS

1 through insurance issued by such the insurer

2 (or an affiliated insurer)—

3 ‘‘(i) which does not contain any exclu4 sion or limitation with respect to any pre5 existing condition of such beneficiary,

6 ‘‘(ii) which provides coverage which is

7 substantially similar to (or in all respects

8 greater than) the coverage being termi9 nated, and

10 ‘‘(iii) the premium for which is based

11 on the new, normal business rate within

12 the class of business involved for individ13 uals with similar demographic characteris14 tics and which is adjusted only for age and

15 sex.’’

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

18 601 of such Act is amended to read as follows:

19 ‘‘(a) IN GENERAL.—The plan sponsor of each group

20 health plan shall provide, in accordance with this part,

21 that—

22 ‘‘(1) each qualified beneficiary who would lose

23 coverage under the plan as a result of a qualifying

24 event is entitled, under the plan, to elect, within the
37

•S 715 IS

1 election period, continuation coverage under the

2 plan, and

3 ‘‘(2) in the case of such a group health plan

4 provided through insurance, at the termination of

5 the continuation coverage period with respect to any

6 qualified beneficiary (other than a period which ter7 minates by reason of section 602(2)(D)), such bene8 ficiary has the option to be covered under another

9 health plan provided through insurance issued by

10 such the insurer (or an affiliated insurer) which does

11 not contain any exclusion or limitation with respect

12 to any preexisting condition of such beneficiary and

13 which provides coverage which is substantially simi14 lar to (or in all respects greater than) the coverage

15 being terminated.’’.

16 (c) AMENDMENTS TO PUBLIC HEALTH SERVICE

17 ACT.—Subsection (a) of section 2201 of the Public Health

18 Service Act is amended to read as follows:

19 ‘‘(a) IN GENERAL.—In accordance with regulations

20 which the Secretary shall prescribe, each group health

21 plan that is maintained by any State that receives funds

22 under this Act, by any political subdivision of such a State,

23 or by any agency or instrumentality of such a State or

24 political subdivision, shall provide, in accordance with this

25 title, that—
38

•S 715 IS

1 ‘‘(1) each qualified beneficiary who would lose

2 coverage under the plan as a result of a qualifying

3 event is entitled, under the plan, to elect, within the

4 election period, continuation coverage under the

5 plan, and

6 ‘‘(2) in the case of such a group health plan

7 provided through insurance, at the termination of

8 the continuation coverage period with respect to any

9 qualified beneficiary (other than a period which ter10 minates by reason of section 2202(2)(D)), such ben11 eficiary has the option to be covered under another

12 health plan provided through insurance issued by

13 such the insurer (or an affiliated insurer) which does

14 not contain any exclusion or limitation with respect

15 to any preexisting condition of such beneficiary and

16 which provides coverage which is substantially simi17 lar to (or in all respects greater than) the coverage

18 being terminated.’’

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

20 this section shall apply to—

21 (1) qualifying events occurring after December

22 31, 1996, and

23 (2) qualifying events occurring on or before

24 such date if the period of continuation coverage re25 quired under section 4980B of the Internal Revenue
39

•S 715 IS

1 Code of 1986 (determined without regard to the

2 amendments made by this Act) has not expired on

3 or before such date.

4 TITLE II—INSURANCE REFORM

5 Subtitle A—Employer Insurance

6 Protections

7 SEC. 201. SMALL GROUP EMPLOYER INSURANCE PROTEC8 TIONS.

9 (a) REQUIREMENTS FOR INSURERS.—Any health

10 benefit insurer that provides or offers a small group health

11 benefit plan within a State (in this subtitle referred to as

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

13 in this section with respect to such a plan.

14 (b) SMALL EMPLOYER PROTECTION AGAINST TER15 MINATION OR NON-RENEWAL OR INDUSTRY BLACKLIST16 ING.—

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

18 (A) cancel or nonrenew an individual small

19 employer group except for a reason specified in

20 paragraph (2), or

21 (B) refuse to provide coverage to such a

22 group based solely on the nature of the employ23 er’s business or industry.

24 A covered insurer may not single out and cancel a

25 small group health benefit plan for an individual
40

•S 715 IS

1 small employer group because of claims experience

2 relating to the group.

3 (2) PERMISSIBLE TERMINATION.—A covered in4 surer may cancel or nonrenew a small group health

5 benefit plan for an individual small employer group

6 for any of the following:

7 (A) Nonpayment of required premium.

8 (B) Fraud or misrepresentation on the

9 part of the employer.

10 (C) Noncompliance with provisions of the

11 plan.

12 (D) Nonrenewal upon 90 days written no13 tice with respect to all persons insured under

14 the small group health benefit plan in a State.

15 (3) LIMITATION ON MARKET REENTRY.—A cov16 ered insurer that exercises its right of nonrenewal as

17 provided under paragraph (2)(D) may not accept

18 any new health business of the type it nonrenewed

19 for a period of 5 years, after the date it provides no20 tice of such nonrenewal.

21 (c) LIMITS ON PREMIUM RATES.—The annual in22 crease in the premium rate charged to a small employer

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

24 the following:
41

•S 715 IS

1 (1) The percentage change in the premium rate

2 for new business for employers with similar case

3 characteristics, as measured between the first day of

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

5 first day of the previous year.

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

7 based on claims experience, health status, or dura8 tion of coverage.

9 (3) Any adjustment due to changes in the cov10 erage provided or changes in the case characteristics

11 of the small employer group.

12 (d) LIMIT ON VARIATION IN PREMIUMS.—

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

14 rate for a rating period for any class of business

15 shall not exceed the index rate for any other class

16 of business by more than 20 percent.

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

18 class of business, the premium rates charged during

19 a rating period to small employer groups with simi20 lar case characteristics for the same or similar cov21 erage (or rates that could be charged to such em22 ployers under the rating system for that class of

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

24 class by more than 25 percent of the index rate.
42

•S 715 IS

1 (3) USE OF INDUSTRY AS A CASE CHAR2 ACTERISTIC.—

3 (A) IN GENERAL.—Subject to subpara4 graph (B), a covered insurer may utilize indus5 try as a case characteristic in establishing pre6 mium rates.

7 (B) LIMITATION ON VARIATION.—If a cov8 ered insurer that utilizes industry as a case

9 characteristic in establishing premium rates,

10 the highest rate factor associated with an in11 dustry classification may not exceed the lowest

12 rate associated with any industry classification

13 by more than 15 percent.

14 SEC. 202. GENERAL PORTABILITY REQUIREMENT FOR EM15 PLOYER-BASED HEALTH INSURANCE.

16 (a) LIMITATIONS ON USE OF PREEXISTING CONDI17 TIONS.—

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

19 of an employer shall not exclude or limit coverage

20 for a preexisting condition for a covered individual

21 for a period beyond 12 months following the effec22 tive date of the individual’s coverage.

23 (2) RESTRICTIONS ON DEFINITION OF PRE24 EXISTING CONDITION.—For purposes of paragraph
43

•S 715 IS

1 (1), such a plan shall not define a preexisting condi2 tion more restrictively than the following:

3 (A) A condition that would have caused an

4 ordinarily prudent person to seek medical ad5 vice, diagnosis, care, or treatment during the 6

6 months immediately preceding the effective date

7 of coverage.

8 (B) A condition for which medical advice,

9 diagnosis, care, or treatment was recommended

10 or received during the 6 months immediately

11 preceding the effective date of coverage.

12 (C) A pregnancy existing on the effective

13 date of coverage.

14 (3) LIMITATIONS ON RIDERS.—

15 (A) IN GENERAL.—Except as provided in

16 subparagraph (B), an insurer issuing a group

17 health plan may not modify the plan with re18 spect to an eligible individual, eligible employee,

19 or dependent.

20 (B) RELATION TO PREEXISTING CONDI21 TION EXCLUSION PERIOD.—

22 (i) IN GENERAL.—To the extent that

23 a preexisting condition limitation applies,

24 an insurer may restrict or exclude coverage

25 or benefits for a specific condition for a
44

•S 715 IS

1 maximum period of 12 months from the ef2 fective date of coverage of an eligible indi3 vidual by way of rider or endorsement.

4 (ii) NO ADDITION RIDERS.—No other

5 rider or endorsement may be placed on the

6 group health plan to restrict further cov7 erage.

8 (iii) COMBINATION.—If both a rider

9 and a preexisting condition exclusion pe10 riod are used, the combined limitation pe11 riod may not exceed 12 months.

12 (C) NO DISCLOSURE OF CONDITION RE13 QUIRED.—A preexisting condition limitation pe14 riod may be applied whether or not the specific

15 condition has been disclosed on the application

16 for coverage under the individual health benefit

17 plan.

18 (D) PORTABILITY OF COVERAGE.—The

19 preexisting condition limitation period under

20 any group health plan with respect to particular

21 services shall be reduced by one month for each

22 month of continuous coverage the eligible indi23 vidual had under prior similar coverage.

24 (b) LIMITATION ON UNDERWRITING.—
45

•S 715 IS

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

2 covered individual who becomes an employee of an

3 employer, the group health plan of the employer

4 shall accept the individual for coverage upon the

5 date of application for coverage on the basis relating

6 to the individual’s health status as of the date the

7 individual applied for employment with the previous

8 employer.

9 (2) PREVIOUSLY COVERED INDIVIDUAL DE10 FINED.—For purposes of paragraph (1), the term

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

12 to an employer, an individual who before employ13 ment by the employer was an employee of another

14 employer and was provided coverage under a group

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

16 employer.

17 (c) RESTRICTIONS FOR SMALL EMPLOYER HEALTH

18 PLANS.—If a small employer insurer offers coverage to

19 a small employer, the small employer insurer shall offer

20 coverage to all of the eligible employees of the small em21 ployer and their dependents. A small employer insurer

22 shall not offer coverage to only certain individuals in a

23 small employer group or to only part of the group, except

24 in the case of late enrollees.
46

•S 715 IS

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

2 construed as requiring an insurer or health benefit plan

3 to provide benefits greater than those provided to an indi4 vidual insured as a standard risk had the previous cov5 erage remained in force.

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

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

8 individual’’ means—

9 (A) an individual who is (or will be) pro10 vided coverage under a group health plan by

11 virtue of the performance of services by the in12 dividual for 1 or more persons maintaining the

13 plan (including as an employee defined in sec14 tion 401(c)(1) of the Internal Revenue Code of

15 1986), and

16 (B) the spouse or any dependent child of

17 such individual.

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

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

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

21 1986.

22 SEC. 203. ENFORCEMENT.

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

•S 715 IS

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

2 section:

3 ‘‘SEC. 5000A. ENFORCEMENT OF REQUIREMENTS FOR EM4 PLOYER HEALTH BENEFIT PLANS.

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

6 penalty on the failure of an insurer or group health plan

7 to meet the applicable requirements of section 201 or 202

8 of the Health Insurance Portability and Guaranteed Re9 newability Act of 1995 with respect to any covered individ10 ual.

11 ‘‘(b) AMOUNT OF PENALTY.—

12 ‘‘(1) IN GENERAL.—The amount of the penalty

13 imposed by subsection (a) on any failure with re14 spect to—

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

16 shall be $100 for each day in the noncompli17 ance period with respect to such failure; or

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

19 with respect to a covered individual shall be

20 $100 for each day in the noncompliance period

21 with respect to such failure.

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

23 of this section, the term ‘noncompliance period’

24 means, with respect to any failure, the period—
48

•S 715 IS

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 Health Insurance Portability and Guaranteed Re8 newability Act of 1995 with respect to any covered

9 individual shall be treated as 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 PENALTY.—

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

23 NOT DISCOVERED EXERCISING REASONABLE DILI24 GENCE.—No penalty shall be imposed by subsection

25 (a) on any failure during any period for which it is
49

•S 715 IS

1 established 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) PENALTY NOT TO APPLY TO FAILURES

6 CORRECTED WITHIN 30 DAYS.—No penalty shall be

7 imposed 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 penalty imposed by subsection (a) to the ex19 tent that the payment of such penalty would be ex20 cessive relative to the failure involved.

21 ‘‘(d) LIABILITY FOR PENALTY.—

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

24 for the penalty imposed by subsection (a) on a fail25 ure:
50

•S 715 IS

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 penalty

20 imposed 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.
51

•S 715 IS

1 ‘‘(e) PENALTY TREATED AS TAX.—For purposes of

2 subtitle F, any penalty imposed by this section shall be

3 treated as a tax.’’

4 (b) NONDEDUCTIBILITY OF PENALTY.—Paragraph

5 (6) of section 275(a) of such Code (relating to

6 nondeductibility of certain taxes) is amended by inserting

7 ‘‘47,’’ after ‘‘46,’’.

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

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

10 thereof the following new item:

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

benefit plans.’’

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

12 this section shall apply to taxable years beginning after

13 December 31, 1995.

14 SEC. 204. DEFINITIONS.

15 In this subtitle:

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

17 characteristics’’ means demographic, geographic, and

18 other relevant characteristics as determined by the

19 insurer that are considered by the insurer in the de20 termination of premium rates for a small employer,

21 but not including—

22 (A) claims experience,

23 (B) health status, and
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1 (C) duration of coverage since date of

2 issue.

3 (2) CLASS OF BUSINESS.—The term ‘‘class of

4 business’’ means each separate class of business es5 tablished by an insurer to reflect substantial dif6 ferences in expected claims experience or administra7 tive costs related only to one or more of the follow8 ing:

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

10 type of system for the marketing and sale of

11 health benefit plans to small employers.

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

13 business from another insurer.

14 (C) The insurer providing coverage to one

15 or more association groups.

16 (3) DEPENDENT.—The term ‘‘dependent’’

17 means, in relation to an individual—

18 (A) the spouse of the individual,

19 (B) an unmarried child of the individual if

20 the child (i) is under 19 years of age or (ii) is

21 a full-time student, under 23 years of age, and

22 financially dependent upon the individual, and

23 (C) an unmarried child of the individual of

24 any age if the child is medically certified as dis-
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1 abled and the child is financially dependent

2 upon the individual.

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

4 employee’’ means a permanent employee who has a

5 normal work week of 30 hours or more. Such term

6 includes a sole proprietor or a general partner of a

7 partnership.

8 (5) HEALTH BENEFIT PLAN.—The term

9 ‘‘health benefit plan’’ means any employee welfare

10 benefit plan (as defined in the Employee Retirement

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

12 insurer that provides medical, surgical, or hospital

13 care or benefits to employees of a small employer

14 and their dependents and to which the employer con15 tributes 50 percent or more of the single coverage

16 cost at the time of purchase. Such term does not in17 clude any individual major medical policies and

18 group insurance that are not designed or adminis19 tered as a health benefit plan to be provided by an

20 employer for its employees.

21 (6) INDEX RATE.—The term ‘‘index rate’’

22 means, for a class of business as to a small employ23 er’s rating period with similar case characteristics,

24 the arithmetic average of the applicable base pre-
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1 mium rate and the corresponding highest premium

2 rate.

3 (7) INSURER.—The term ‘‘insurer’’ means an

4 entity that provides health insurance in a State.

5 (8) SMALL EMPLOYER.—The term ‘‘small em6 ployer’’ means a business that, during the most re7 cent calendar year, employed at least 2, but not

8 more than 25, employees who are eligible for cov9 erage under a health benefit plan on at least 50 per10 cent of that business’ working days.

11 SEC. 205. EFFECTIVE DATE.

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

13 Subtitle B—Guaranteeing Port14 ability of Health Insurance for

15 Individuals

16 SEC. 211. COVERAGE OF INDIVIDUAL HEALTH BENEFIT

17 PLANS.

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

19 health benefit plans delivered or issued for delivery to indi20 viduals in a State and does not apply to—

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

22 (2) any eligible individual whose prior similar

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

2 by the Secretary of Health and Human Serv3 ices),

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

5 Security Act, or

6 (C) under another State or Federal pro7 gram, unless the eligible individual was pre8 viously covered as an employee of the State or

9 Federal Government.

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

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

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

13 SEC. 212. PORTABILITY PROTECTIONS.

14 (a) CONSIDERATION OF APPLICATIONS.—If an eligi15 ble individual or eligible family applies for an individual

16 health benefit plan, the insurer offering the plan must

17 either—

18 (1) offer coverage to all eligible individuals ap19 plying on the same application, or

20 (2) deny coverage to all eligible individuals ap21 plying on the application.

22 (b) LIMITATIONS ON USE OF PREEXISTING CONDI23 TIONS.—

24 (1) IN GENERAL.—No policy provision of an in25 dividual health benefit plan shall exclude or limit
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1 coverage for a preexisting condition for a covered in2 dividual for a period beyond 12 months following the

3 effective date of the individual’s coverage.

4 (2) RESTRICTIONS ON DEFINITION OF PRE5 EXISTING CONDITION.—For purposes of paragraph

6 (1), such a plan shall not define a preexisting condi7 tion more restrictively than the following:

8 (A) A condition that would have caused an

9 ordinarily prudent person to seek medical ad10 vice, diagnosis, care, or treatment during the 6

11 months immediately preceding the effective date

12 of coverage.

13 (B) A condition for which medical advice,

14 diagnosis, care, or treatment was recommended

15 or received during the 6 months immediately

16 preceding the effective date of coverage.

17 (C) A pregnancy existing on the effective

18 date of coverage.

19 (c) PORTABILITY OF COVERAGE.—The preexisting

20 condition limitation period under any individual health

21 benefit plan with respect to particular services shall be re22 duced by one month for each month of continuous cov23 erage the eligible individual had under prior similar cov24 erage.

25 (d) LIMITATION ON RIDERS.—
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1 (1) IN GENERAL.—Except as provided in para2 graph (2), an insurer issuing an individual health

3 benefit plan may not modify the plan with respect

4 to an eligible individual or eligible family member.

5 (2) RELATION TO PREEXISTING CONDITION EX6 CLUSION PERIOD.—

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

8 preexisting condition limitation applies, an in9 surer may restrict or exclude coverage or bene10 fits for a specific condition for a maximum pe11 riod of 12 months from the effective date of

12 coverage of an eligible individual or eligible

13 family member by way of rider or endorsement.

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

15 or endorsement may be placed on the health

16 benefit plan to restrict further coverage.

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

18 preexisting condition exclusion period are used,

19 the combined limitation period may not exceed

20 12 months.

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

22 preexisting condition limitation period may be applied

23 whether or not the specific condition has been disclosed

24 on the application for coverage under the individual health

25 benefit plan.
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1 (f) OFFER OF CONTINUED COVERAGE FOR CERTAIN

2 DEPENDENTS.—An insurer shall offer to a person who

3 was covered as a dependent under an individual health

4 benefit plan who would otherwise lose eligibility for such

5 coverage because the person is a child and has attained

6 the termination age under the policy, because of the death

7 of the primary insured, or because of the divorce from the

8 primary insured, identical coverage to that which was pre9 viously issued the individual by that insurer. The insurer

10 may not apply additional underwriting, waiting periods,

11 or preexisting condition limitations to such coverage if the

12 person requests such coverage not later than 31 days after

13 the date of loss of coverage.

14 SEC. 213. LIMITATIONS ON NONRENEWAL AND PREMIUM

15 INCREASES.

16 (a) IN GENERAL.—An insurer issuing an individual

17 health benefit plan may not—

18 (1) cancel or nonrenew an individual health

19 benefit plan except for a reason specified in sub20 section (b),

21 (2) single out and cancel an individual health

22 benefit plan of an individual because of claims expe23 rience relating to the individual, and
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1 (3) single out an individual for a rate increase

2 upon renewal because of claims experience relating

3 to the individual.

4 (b) PERMISSIBLE NONRENEWAL.—An insurer may

5 cancel or nonrenew an individual health benefit plan for

6 any of the following:

7 (1) Nonpayment of required premium.

8 (2) Fraud or misrepresentation on the part of

9 the individual.

10 (3) Noncompliance with provisions of the plan.

11 (4) Nonrenewal upon 90 days written notice

12 with respect to all individuals insured under the in13 dividual health benefit plans in a State.

14 (c) LIMITATION ON MARKET REENTRY.—An insurer

15 that exercises its right of nonrenewal as provided under

16 subsection (b)(4) may not accept any new health business

17 of the type it nonrenewed for a period of 5 years, after

18 the date it provides notice of such nonrenewal.

19 SEC. 214. DEFINITIONS.

20 In this subtitle:

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

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

23 and any eligible individual who is a dependent child

24 of the applicant.
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1 (2) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible

2 individual’’ means an individual who was insured

3 under a prior similar health benefit plan which was

4 continuous to a date not more than 30 days prior

5 to the effective date of the new health benefit plan

6 for that individual.

7 (3) HEALTH BENEFIT PLAN.—

8 (A) IN GENERAL.—The term ‘‘health bene9 fit plan’’ means any hospital or medical expense

10 insured policy or certificate, hospital or medical

11 service plan contract, or health maintenance or12 ganization subscriber contract.

13 (B) EXCLUSION.—Such term does not in14 clude any of the following:

15 (i) short-term limited duration insur16 ance,

17 (ii) accident-only, credit-only, dental18 only, vision-only insurance,

19 (iii) medicare supplement insurance,

20 (iv) hospital indemnity insurance,

21 (v) long-term care or disability income

22 insurance,

23 (vi) coverage issued as a supplement

24 to liability insurance,
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1 (vii) workmen’s compensation or simi2 lar insurance, or

3 (viii) automobile medical-payment in4 surance.

5 (4) PRIOR SIMILAR HEALTH BENEFIT PLAN.—

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

7 a health benefit plan under which an eligible individ8 ual was previously covered and which provides bene9 fits who do not materially differ from the new health

10 benefit plan in any of the following respects:

11 (A) The type of medical benefits provided.

12 (B) The level of medical benefits available

13 based on deductibles, coinsurance, or

14 copayments, or any combination thereof.

15 (C) The maximum benefits available for

16 specific services.

17 (D) Cost containment provisions.

18 SEC. 215. EFFECTIVE DATE.

19 This subtitle shall apply to each health benefit plan

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

21 or after January 1, 1996.
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1 Subtitle C—Assuring Health Insur2 ance Coverage for Uninsurable

3 Individuals

4 SEC. 221. ESTABLISHMENT OF HIGH RISK HEALTH INSUR5 ANCE POOLS.

6 (a) IN GENERAL.—

7 (1) REQUIREMENT.—For years beginning with

8 1997, each health insurer, health service organiza9 tion, and health maintenance organization shall be a

10 participant in a high risk health insurance pool (in

11 this subtitle referred to as a ‘‘high risk pool’’) in

12 each State in which it operates. Such a pool may be

13 established by the State or, if not so established,

14 shall be established by such insurers and organiza15 tions.

16 (2) FUNCTIONS.—Any such pool shall assure,

17 in accordance with this subtitle, the availability of

18 qualified health insurance coverage to uninsurable

19 individuals.

20 (3) FUNDING.—Any such pool shall be funded

21 by an assessment against health insurers, health

22 service organizations, and health maintenance orga23 nizations on a pro rata basis of ‘‘lives covered’’ in

24 the State. The costs of the assessment may be added

25 by a health insurer, health service organization, or
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1 health maintenance organization to the costs of its

2 health insurance or health coverage provided in the

3 State.

4 (b) DEADLINE.—Pools required under subsection (a)

5 shall be established by not later than January 1, 1997.

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

7 case of insurers and organizations operating in a State

8 if the State has established a comprehensive health insur9 ance program that assures the availability of qualified

10 health insurance coverage to all eligible individuals resid11 ing in the State.

12 (d) RECOMMENDATION FOR COMPLIANCE REQUIRE13 MENT.—Not later than January 1, 1996, the Secretary

14 of Health and Human Services shall submit to Congress

15 a recommendation on appropriate sanctions for insurers

16 and organizations that fail to meet the requirement of sub17 section (a).

18 SEC. 222. UNINSURABLE INDIVIDUALS ELIGIBLE FOR COV19 ERAGE.

20 (a) UNINSURABLE AND ELIGIBLE INDIVIDUAL DE21 FINED.—In this subtitle:

22 (1) UNINSURABLE INDIVIDUAL.—The term

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

24 State, an eligible individual who presents proof of

25 uninsurability by a private insurer in accordance
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1 with subsection (b) or proof of a condition previously

2 recognized as uninsurable by the State.

3 (2) ELIGIBLE INDIVIDUAL.—

4 (A) IN GENERAL.—The term ‘‘eligible indi5 vidual’’ means, with respect to a State, a citizen

6 or national of the United States (or an alien

7 lawfully admitted for permanent residence) who

8 is a resident of the State for at least 90 days.

9 (B) EXCEPTION.—An individual is not an

10 ‘‘eligible individual’’ if the individual—

11 (i) is covered by or eligible for benefits

12 under a State medicaid plan approved

13 under title XIX of the Social Security Act,

14 (ii) has voluntarily terminated plan

15 coverage,

16 (iii) has received the maximum benefit

17 payable under the plan, or

18 (iv) is an inmate in a public institu19 tion or is eligible for other public programs

20 or has the individual’s premium paid for or

21 reimbursed under any government-spon22 sored program or by any government agen23 cy or health care provider.

24 (b) PROOF OF UNINSURABILITY.—
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1 (1) IN GENERAL.—The proof of uninsurability

2 for an individual shall be in the form of—

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

4 substantially similar insurance for health rea5 sons,

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

7 a rate in excess of the plan rate, or

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

9 a reduction or an exclusion of coverage for a

10 preexisting condition for a period exceeding 12

11 months.

12 (2) EXCEPTION.—A State may waive the re13 quirement of proof described in paragraph (1) in the

14 case of an individual who demonstrates a provable

15 medical or health condition.

16 SEC. 223. QUALIFIED HEALTH INSURANCE COVERAGE

17 UNDER POOL.

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

19 coverage’’ means health insurance coverage that provides

20 benefits typical of major medical insurance available in the

21 individual health insurance market.

22 SEC. 224. FUNDING OF POOL.

23 (a) LIMITATIONS ON PREMIUMS.—

24 (1) IN GENERAL.—The applicable premium es25 tablished under a high risk pool may not exceed 135
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1 percent of the applicable standard risk rate, except

2 as provided in paragraph (2).

3 (2) SURCHARGE FOR AVOIDABLE HEALTH

4 RISKS.—A high risk pool may impose a surcharge on

5 premiums for individuals with avoidable high risks,

6 such as smoking.

7 (b) ADDITIONAL FUNDING.—A high risk pool shall

8 provide for additional funding through an assessment on

9 all health insurers, health service organizations, and

10 health maintenance organizations in the State through a

11 nonprofit association consisting of all such insurers and

12 organizations doing business in the State on an equitable

13 and pro rata basis consistent with section 221.

14 SEC. 225. ADMINISTRATION.

15 A high risk pool in a State shall be administered

16 through a contract with one or more insurers operating

17 in the State.

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