II

103D CONGRESS

2D SESSION S. 1978

To amend part III of title 5, United States Code, to provide for participation

by non-Federal employees in health benefits plans under the Federal

Employees Health Benefits Program, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 24 (legislative day, FEBRUARY 22), 1994

Mr. ROTH introduced the following bill; which was read twice and referred to

the Committee on Governmental Affairs

A BILL

To amend part III of title 5, United States Code, to provide

for participation by non-Federal employees in health benefits plans under the Federal Employees Health Benefits

Program, 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 ‘‘Federal Health Care

5 Expansion Act of 1994’’.

6 SEC. 2. FINDINGS.

7 The Congress finds that—
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1 (1) the United States spends more on health

2 care than any other nation in the world, and costs

3 continue to increase at double digit rates;

4 (2) more than 35,000,000 people in the United

5 States do not have basic health care insurance;

6 (3) small businesses and the self-employed find

7 it particularly difficult to obtain affordable health in8 surance because of the small-risk pools in which they

9 are grouped; and

10 (4) the Federal Employees Health Benefits

11 Program provides quality health care coverage na12 tionwide while providing enrollees with a large de13 gree of choice.

14 SEC. 3. PURPOSES.

15 The purposes of this Act are to—

16 (1) reduce the rising cost of health care

17 through the use of market forces;

18 (2) increase access to affordable health care to

19 millions of individuals who do not have health insur20 ance;

21 (3) make available to millions of Americans the

22 health care coverage that is available to the Presi23 dent, Members of Congress, Supreme Court Jus24 tices, members of the President’s Cabinet, and mil25 lions of Federal employees and retirees;
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1 (4) accomplish these purposes without the use

2 of global spending caps, employer mandates, or the

3 establishment of a huge Government bureaucracy;

4 and

5 (5) strengthen the Federal Employees Health

6 Benefits Program by introducing greater competi7 tion into the Federal employee plan so that the Gov8 ernment can use its power as a major purchaser of

9 health care to drive down the costs of care for Fed10 eral enrollees while maintaining high quality care

11 and service.

12 TITLE I—SMALL BUSINESS PAR13 TICIPATION IN FEDERAL EM14 PLOYEES HEALTH BENEFITS

15 PLANS

16 SEC. 101. SMALL BUSINESS PARTICIPATION IN FEDERAL

17 EMPLOYEES HEALTH BENEFITS PLANS.

18 Part III of title 5, United States Code, is amended

19 by inserting after chapter 89 the following new chapter:

20 ‘‘CHAPTER 90—SMALL BUSINESS PARTICI21 PATION IN FEDERAL EMPLOYEE

22 HEALTH BENEFITS PLANS

‘‘Sec.

‘‘9001. Definition.

‘‘9002. Application to small business participants.

‘‘9003. Small business participation.

‘‘9004. Contributions.

‘‘9005. Continued coverage.
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‘‘9006. Schedule of small business participation.

1 ‘‘§ 9001. Definition

2 ‘‘For purposes of this chapter, the term ‘small busi3 ness’ means any business entity which employs 100 or less

4 employees (including businesses with one self-employed in5 dividual).

6 ‘‘§ 9002. Application to small business participants

7 ‘‘(a) The Office of Personnel Management shall pro8 mulgate regulations to apply the provisions of chapter 89,

9 relating to health benefits plans, to the greatest extent

10 practicable to small businesses and individuals covered

11 under the provisions of this chapter.

12 ‘‘(b) Notwithstanding the provisions of subsection

13 (a), carriers shall offer the same health benefits plans for

14 the same premiums as are offered under chapter 89.

15 ‘‘(c) Notwithstanding subsection (a), the provisions

16 of section 8907 shall not apply to individuals covered

17 under this chapter, except the Office of Personnel Man18 agement shall establish a method to disseminate informa19 tion relating to health benefits plans (including informa20 tion concerning periods of open enrollment and a summary

21 of the information described in section 8908) to such indi22 viduals through small business participants and carriers.

23 ‘‘§ 9003. Small business participation

24 ‘‘Any small business which desires to participate in

25 a health benefits plan under this chapter may enter into
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1 a contract with a carrier in accordance with this chapter.

2 Such contract shall be for a term of no less than 1 year.

3 ‘‘§ 9004. Contributions

4 ‘‘(a) Subject to the provisions of subsection (b), an

5 individual enrolled in a health benefits plan under this

6 chapter shall make contributions equal to the amount of

7 contributions made by—

8 ‘‘(1) a Federal enrollee in such plan under indi9 vidual, or self and family coverage, as the case may

10 be, as determined under section 8906; and

11 ‘‘(2) the Federal agency making Government

12 contributions determined under section 8906 for

13 such Federal enrollee.

14 ‘‘(b)(1) A small business may by contract agree to

15 make any amount of the contribution required under sub16 section (a) on behalf of an enrollee under such subsection.

17 ‘‘(2) An agency of a State government may provide

18 any amount of the contribution required under subsection

19 (a) on behalf of an enrollee under such subsection.

20 ‘‘(3) The Secretary of Health and Human Services

21 (HHS) may subsidize any amount of the contribution re22 quired by subsection (a) or section 9005(a) for any quali23 fied enrollee of any small business participating in a health

24 benefits plan under this chapter. For purposes of the pre25 ceding sentence, the term ‘qualified enrollee’ will be deter-
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1 mined by the Secretary of HHS according to the number

2 of individuals apply and the budget neutrality requirement

3 in section 105 of this Act.

4 ‘‘(c) A small business participating under this chap5 ter shall—

6 ‘‘(1) collect contributions from employees by

7 withholdings from pay or by another method or

8 schedule;

9 ‘‘(2) make payments of such contributions to

10 the contracted carrier;

11 ‘‘(3) maintain and make available such records

12 as the Office, applicable State insurance authority,

13 or carrier may require; and

14 ‘‘(4) provide any other related administrative

15 service in carrying out the provisions of this chapter.

16 ‘‘§ 9005. Continued coverage

17 ‘‘(a) Subject to subsection (b), the provisions of sec18 tion 8905a shall be made applicable to enrollees and indi19 viduals covered by such enrollments under this chapter

20 through section 9002 and the carrier contract entered into

21 under section 9003, except the enrollee shall pay all con22 tributions for continued coverage and the applicable

23 amount for administrative expenses unless the applicable

24 small business by contract agrees to pay any part of such

25 contributions or expenses.
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1 ‘‘(b) An individual may be covered under continued

2 coverage as provided under subsection (a), only if such in3 dividual remains in the same plan during the period of

4 continued coverage as such individual was enrolled in im5 mediately before such period of continued coverage.

6 ‘‘§ 9006. Schedule of small business participation

7 ‘‘(a) Subject to the provisions of subsections (b), (c),

8 (d), (e), and (f), each carrier enrolling individuals of small

9 business participants under this chapter shall ensure

10 that—

11 ‘‘(1) in the first contract year after the date of

12 the enactment of the Federal Health Care Expan13 sion Act of 1994, the number of enrollees from small

14 businesses as provided under this chapter shall be no

15 less than 5 percent of the number of Federal enroll16 ees enrolled under chapter 89;

17 ‘‘(2) in the second such year, the number of

18 small business enrollees shall be no less than 20 per19 cent of the number of such Federal enrollees;

20 ‘‘(3) in the third such year, the number of

21 small business enrollees shall be no less than 40 per22 cent of the number of such Federal enrollees;

23 ‘‘(4) in the fourth such year, the number of

24 small business enrollees shall be no less than 60 per25 cent of the number of such Federal enrollees; and
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1 ‘‘(5) in the fifth such year and in each year

2 thereafter, the number of small business enrollees

3 shall be no less than 80 percent of the number of

4 such Federal enrollees.

5 ‘‘(b) Beginning in the contract year described under

6 subsection (a)(1) and in each contract year thereafter, in

7 no event shall a carrier enroll enrollees from less than 1

8 small business.

9 ‘‘(c)(1) In the contract year described under sub10 section (a)(1), a small business may participate if such

11 business—

12 ‘‘(A) has between 75 and 100 employees; and

13 ‘‘(B) shall ensure that at least 80 percent of

14 such employees shall enroll.

15 ‘‘(2) In the contract year described under subsection

16 (a)(2) small businesses with between 50 and 74 employees

17 may additionally participate.

18 ‘‘(3) In the contract year described under subsection

19 (a)(3), small businesses with between 1 and 49 employees

20 may additionally participate.

21 ‘‘(4) In the contract year described under subsection

22 (a)(4) and each year thereafter, all small businesses may

23 participate.

24 ‘‘(d) If during any contract year described under sub25 section (a) (1) through (5), more small businesses apply
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1 for participation than are required to participate under

2 such subsection, the carrier shall—

3 ‘‘(1) subject to paragraph (2), randomly select

4 small businesses for participation from all applica5 tions; and

6 ‘‘(2) ensure that from such randomly selected

7 small businesses, at least 50 percent of such busi8 nesses are not offering any type of health insurance

9 benefits to its employees.

10 ‘‘(e) In the administration of subsection (a) (2)

11 through (5) each carrier enrolling individuals of small

12 business participants shall ensure that no less than 50

13 percent of small business enrollees in each contract year

14 shall be individuals who had no health insurance coverage

15 in the previous year.

16 ‘‘(f) A small business may participate in a health ben17 efits plan as provided under this section if such business

18 meets all such requirements otherwise provided under this

19 chapter.

20 ‘‘(g) The Office may waive the requirements under

21 subsection (a) but only after making a determination that

22 there is insufficient interest in small businesses within the

23 region in participating under this chapter.’’.
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1 SEC. 102. EXTENSION OF CONTINUED COVERAGE.

2 Section 8905a of title 5, United States Code, is

3 amended—

4 (1) in subsection (e)—

5 (A) in paragraph (1)(A) by striking out

6 ‘‘18 months’’ and inserting in lieu thereof ‘‘36

7 months’’; and

8 (B) in paragraph (2)(C) by striking out

9 ‘‘18-month period’’ and inserting in lieu thereof

10 ‘‘36-month period’’; and

11 (2) in subsection (f)(3)(B) by striking out ‘‘18-

12 month period’’ and inserting in lieu thereof ‘‘36-

13 month period.

14 SEC. 103. COST EXPERIENCE COMPARISON REPORT.

15 No later than January 30 following the first contract

16 year implementing the amendments made by section 101

17 of this Act, and on January 30 of each 4 years thereafter,

18 each carrier contracting under chapter 89 or 90 of title

19 5, United States Code, shall submit a report to the Office

20 of Personnel Management that compares the aggregate

21 cost experiences with respect to coverage between—

22 (1) Federal employees and other individuals

23 covered under chapter 89 of title 5, United States

24 Code; and

25 (2) individuals covered under chapter 90 of

26 such title.
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1 SEC. 104. RISK ADJUSTMENT STUDY.

2 No later than 2 years after the date of the enactment

3 of this Act, the Office of Personnel Management shall con4 duct a study and submit a health benefits plan risk adjust5 ment report to the Congress. Such report shall examine

6 in the administration of chapters 89 and 90 of title 5,

7 United States Code (as amended and added by this Act)—

8 (1) the feasibility of risk adjusting premiums,

9 by the use of subsidies and surcharges to hold car10 riers harmless for enrollment risks, based on demo11 graphic variables;

12 (2) the risk adjustment factors that are cor13 related with increased or diminished risk for con14 sumption of the type of health services included in

15 the standardized level of benefits established under

16 such chapters;

17 (3) a formula for assigning numerical risk fac18 tors for lower than average risk for consumption of

19 services, the average risk for consumption of serv20 ices, and higher than average risk factors, and a

21 methodology for the adjustment of such factors; and

22 (4) any recommendations for the enactment of

23 legislation.
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1 SEC. 105. ELIMINATION OF MEDICARE AND MEDICAID DIS2 PROPORTIONATE SHARE HOSPITAL PAY3 MENTS TO FINANCE SELF-EMPLOYED DEDUC4 TION AND BUY-IN SUBSIDY.

5 (a) PHASE-OUT OF DISPROPORTIONATE SHARE HOS6 PITAL PAYMENTS.—The Secretary of Health and Human

7 Services shall phase-out over a 5-fiscal-year period begin8 ning with the first fiscal year following the second January

9 1 described in section 107, the disproportionate share hos10 pital payments under sections 1886(d)(5)(F) and

11 1902(a)(13)(A) of the Social Security Act (42 U.S.C.

12 1395ww(d)(5)(F) and 1396a(a)(13)(A)).

13 (b) BUDGET NEUTRAL MANNER.—The phase-out de14 scribed in subsection (a) shall be accomplished in a Fed15 eral budget neutral manner such that the savings for each

16 fiscal year resulting from such phase-out are fully used

17 to offset the additional costs resulting from the amend18 ments made by section 301 and section 201 of this Act

19 and such costs resulting from the premium subsidy pro20 gram for low-income workers of participating small busi21 nesses described in section 9003(b)(3) of title 5, United

22 States Code (as added by section 101 of this Act).

23 (c) CONFORMING AMENDMENTS.—

24 (1) Clause (i) of section 1886(d)(5)(F) of the

25 Social Security Act (42 U.S.C. 1395ww(d)(5)(F)) is

26 amended by striking ‘‘For discharges’’ and inserting
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1 ‘‘Except as provided in section 105 of the Federal

2 Health Care Expansion Act of 1994, for dis3 charges’’.

4 (2) Subparagraph (A) of section 1902(a)(13) of

5 the Social Security Act (42 U.S.C. 1396a(a)(13)) is

6 amended by striking ‘‘take into account the situation

7 of hospitals’’ and inserting ‘‘take into account, ex8 cept as provided in section 105 of the Federal

9 Health Care Expansion Act of 1994, the situation of

10 hospitals’’.

11 SEC. 106. STUDY REGARDING NONWORKER AND

12 NONCOVERED EMPLOYEE BUY-INS.

13 The Secretary of Health and Human Services shall

14 study by what method nonworkers and employees of em15 ployers not covered under chapter 90 of title 5, United

16 States Code (as added by section 101 of this Act), may

17 be incorporated into the buy-in for coverage under the

18 Federal Employees Health Benefits Plan. The Secretary

19 shall report the results of such study and any appropriate

20 legislative recommendations to the Congress not later than

21 2 years after the date of the enactment of this Act.

22 SEC. 107. EFFECTIVE DATE.

23 (a) IN GENERAL.—Except as provided under sub24 section (b), the provisions of this Act and the amendments

25 made by this Act shall be effective on and after the first
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1 January 1, occurring after the date of the enactment of

2 this Act.

3 (b) EXCEPTION.—The provisions of chapters 89 and

4 90 of title 5, United States Code, as amended and added

5 by this title, relating to the establishment of or exercise

6 of authority (including the promulgation of regulations)

7 by the Office of Personnel Management, the Secretary of

8 Health and Human Services, the President, or any other

9 applicable Federal officer shall take effect on the date of

10 the enactment of this Act in order to establish health bene11 fits plans and fully implement the provisions and amend12 ments made by this Act no later than the first January

13 1 occurring after the date of the enactment of this Act.

14 TITLE II—BETTER ACCESS TO

15 AFFORDABLE HEALTH CARE

16 Subtitle A—Improvements in

17 Health Insurance Affordability

18 for Small Employers

19 SEC. 201. GRANTS TO STATES FOR SMALL EMPLOYER

20 HEALTH INSURANCE PURCHASING PRO21 GRAMS.

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

23 Human Services (hereafter in this section referred to as

24 the ‘‘Secretary’’) shall make grants to States that submit

25 applications meeting the requirements of this section for
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1 the establishment and operation of small employer health

2 insurance purchasing programs.

3 (b) USE OF FUNDS.—Grant funds awarded under

4 this section to a State may be used to finance administra5 tive costs associated with developing and operating a

6 group purchasing program for small employers, such as

7 the costs associated with—

8 (1) engaging in marketing and outreach efforts

9 to inform small employers about the group purchas10 ing program, which may include the payment of

11 sales commissions;

12 (2) negotiating with insurers to provide health

13 insurance through the group purchasing program; or

14 (3) providing administrative functions, such as

15 eligibility screening, claims administration, and cus16 tomer service.

17 (c) APPLICATION REQUIREMENTS.—An application

18 submitted by a State to the Secretary must describe—

19 (1) whether the program will be operated di20 rectly by the State or through one or more State21 sponsored private organizations and the details of

22 such operation;

23 (2) any participation requirements for small

24 employers;
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1 (3) the extent of insurance coverage among the

2 eligible population, projections for change in the ex3 tent of such coverage, and the price of insurance

4 currently available to these small employers;

5 (4) program goals for reducing the price of

6 health insurance for small employers and increasing

7 insurance coverage among employees of small em8 ployers and their dependents;

9 (5) the approaches proposed for enlisting par10 ticipation by insurers and small employers, including

11 any plans to use State funds to subsidize the cost

12 of insurance for participating employers; and

13 (6) the methods proposed for evaluating the ef14 fectiveness of the program in reducing the number

15 of uninsured in the State and on lowering the price

16 of health insurance to small employers in the State.

17 (d) GRANT CRITERIA.—In awarding grants, the Sec18 retary shall consider the potential impact of the State’s

19 proposal on the cost of health insurance for small employ20 ers and on the number of uninsured, and the need for re21 gional variation in the awarding of grants. To the extent

22 the Secretary deems appropriate, grants shall be awarded

23 to fund programs employing a variety of approaches for

24 establishing small employer health insurance group pur25 chasing programs.
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1 (e) PROHIBITION ON GRANTS.—No grant funds shall

2 be paid to States that do not meet the requirements of

3 title XXI of the Social Security Act with respect to small

4 employer health insurance plans, or to States with group

5 purchasing programs involving small employer health in6 surance plans that do not meet the requirements of such

7 title.

8 (f) ANNUAL REPORT BY STATES.—States receiving

9 grants under this section must report to the Secretary an10 nually on the numbers and rates of participation by eligi11 ble insurers and small employers, on the estimated impact

12 of the program on reducing the number of uninsured, and

13 on the price of insurance available to small employers in

14 the State.

15 (g) AUTHORIZATION OF APPROPRIATIONS.—There

16 are authorized to be appropriated for each of fiscal years

17 1995, 1996, and 1997, such sums as may be necessary

18 for the purposes of awarding grants under this section.

19 (h) SECRETARIAL REPORT.—The Secretary shall re20 port to Congress by no later than January 1, 1997, on

21 the number and amount of grants awarded under this sec22 tion, and include with such report an evaluation of the

23 impact of the grant program on the number of uninsured

24 and price of health insurance to small employers in partici25 pating States.
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1 Subtitle B—Improvements in

2 Health Insurance for Small Em3 ployers

4 PART I—STANDARDS AND REQUIREMENTS OF

5 SMALL EMPLOYER HEALTH INSURANCE REFORM

6 SEC. 211. STANDARDS AND REQUIREMENTS OF SMALL EM7 PLOYER HEALTH INSURANCE.

8 The Social Security Act is amended by adding at the

9 end the following new title:

10 ‘‘TITLE XXI—STANDARDS FOR SMALL EM11 PLOYER HEALTH INSURANCE AND CER12 TIFICATION OF MANAGED CARE PLANS

13 ‘‘PART A—GENERAL STANDARDS; DEFINITIONS

14 ‘‘APPLICATION OF REQUIREMENTS TO SMALL EMPLOYER

15 HEALTH INSURANCE PLANS

16 ‘‘SEC. 2101. (a) PLAN UNDER STATE REGULATORY

17 PROGRAM OR CERTIFIED BY THE SECRETARY.—An in18 surer offering a health insurance plan to a small employer

19 in a State on or after the effective date applicable to the

20 State under subsection (b) shall be treated as meeting the

21 requirements of this title if—

22 ‘‘(1) the Secretary determines that the State

23 has established a regulatory program that provides

24 for the application and enforcement of standards
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1 meeting the requirements under section 2102 to

2 meet the requirements of part B of this title; and

3 ‘‘(2) if the State has not established such a pro4 gram or if the program has been decertified by the

5 Secretary under section 2102(b), the health insur6 ance plan has been certified by the Secretary (in ac7 cordance with such procedures as the Secretary es8 tablishes) as meeting the requirements of part B of

9 this title.

10 ‘‘(b) EFFECTIVE DATES.—

11 ‘‘(1) IN GENERAL.—Except as specified in

12 paragraph (2) and provided in paragraph (3), the

13 standards established under section 2102 to meet

14 the requirements of part B of this title shall apply

15 to health insurance plans offered, issued, or renewed

16 to a small employer in a State on or after January

17 1, 1995.

18 ‘‘(2) EXCEPTION FOR LEGISLATION.—In the

19 case of a State which the Secretary identifies, in

20 consultation with the NAIC, as—

21 ‘‘(A) requiring State legislation (other than

22 legislation appropriating funds) in order for in23 surers and health insurance plans offered to

24 small employers to meet the standards under
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1 the program established under subsection (a),

2 or

3 ‘‘(B) having a legislature which does not

4 meet in 1995 in a legislative session in which

5 such legislation may be considered,

6 the date specified in this paragraph is the first day

7 of the first calendar quarter beginning after the

8 close of the first regular legislative session of the

9 State legislature that begins on or after January 1,

10 1996. For purposes of the previous sentence, in the

11 case of a State that has a 2-year legislative session,

12 each year of such session shall be deemed to be a

13 separate regular legislative session of the State legis14 lature.

15 ‘‘(3) REQUIREMENTS APPLIED TO EXISTING

16 POLICIES.—In the case of a health insurance plan in

17 effect before the applicable effective date specified in

18 paragraph (1) or (2), the requirements referred to in

19 subsections (a) and (b) of section 2112 shall not

20 apply to any such plan, or any renewal of such plan,

21 before the date which is 2 years after such effective

22 date.

23 ‘‘(c) REPORTING REQUIREMENTS OF STATES.—Each

24 State shall submit to the Secretary, at intervals estab25 lished by the Secretary, a report on the implementation
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1 and enforcement of the standards under the program es2 tablished under subsection (a)(1) with respect to health

3 insurance plans offered to small employers.

4 ‘‘(d) MORE STRINGENT STATE STANDARDS PER5 MITTED.—Except as provided in subsections (b)(8) and

6 (c)(4) of section 2113, a State may implement standards

7 that are more stringent than the standards established to

8 meet the requirements of part B of this title.

9 ‘‘(e) LIMITED WAIVER OF RATING REQUIRE10 MENTS.—The Secretary may waive requirements with re11 spect to subsections (b) and (e) of section 2112 in the

12 case of a State with equally stringent but not identical

13 standards in effect prior to January 1, 1994.

14 ‘‘ESTABLISHMENT OF STANDARDS

15 ‘‘SEC. 2102. (a) ESTABLISHMENT OF STANDARDS.—

16 ‘‘(1) ROLE OF THE NAIC.—The Secretary shall

17 request that the NAIC—

18 ‘‘(A) develop specific standards, in the

19 form of a model Act and model regulations, to

20 implement the requirements of part B of this

21 title; and

22 ‘‘(B) report to the Secretary on such

23 standards,

24 by not later than September 30, 1994. If the NAIC

25 develops such standards within such period and the

26 Secretary finds that such standards implement the
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1 requirements of part B of this title, such standards

2 shall be the standards applied under section 2101.

3 ‘‘(2) ROLE OF THE SECRETARY.—If the NAIC

4 fails to develop and report on the standards de5 scribed in paragraph (1) by the date specified in

6 such paragraph or the Secretary finds that such

7 standards do not implement the requirements under

8 part B of this title, the Secretary shall develop and

9 publish such standards, by not later than December

10 31, 1994. Such standards shall then be the stand11 ards applied under section 2101.

12 ‘‘(3) STANDARDS ON GUARANTEED AVAILABIL13 ITY.—The standards developed under paragraphs

14 (1) and (2) shall provide alternative standards for

15 guaranteeing availability of health insurance plans

16 for all small employers in a State as provided in sec17 tion 2111(c).

18 ‘‘(4) GUIDELINES FOR DEMOGRAPHIC RATING

19 FACTORS.—The standards developed under para20 graphs (1) and (2) shall include guidelines with re21 spect to rating factors used by insurers to adjust

22 premiums to reflect demographic characteristics of a

23 small employer group.

24 ‘‘(b) PERIODIC SECRETARIAL REVIEW OF STATE

25 REGULATORY PROGRAM.—The Secretary periodically
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1 shall review State regulatory programs to determine if

2 they continue to meet and enforce the standards referred

3 to in subsection (a). If the Secretary initially determines

4 that a State regulatory program no longer meets and en5 forces such standards, the Secretary shall provide the

6 State an opportunity to adopt a plan of correction that

7 would bring such program into compliance with such

8 standards. If the Secretary makes a final determination

9 that the State regulatory program fails to meet and en10 force such standards and requirements after such an op11 portunity, the Secretary shall decertify such program and

12 assume responsibility under section 2101(a)(2) with re13 spect to plans in the State.

14 ‘‘(c) GAO AUDITS.—The Comptroller General of the

15 United States shall conduct periodic reviews on a sample

16 of State regulatory programs to determine their compli17 ance with the standards and requirements of this title.

18 The Comptroller General of the United States shall report

19 to the Secretary and Congress on the findings of such re20 views.

21 ‘‘DEFINITIONS

22 ‘‘SEC. 2103. (a) HEALTH INSURANCE PLAN.—As

23 used in this title, the term ‘health insurance plan’ means

24 any hospital or medical service policy or certificate, hos25 pital or medical service plan contract, health maintenance
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1 organization group contract, or a multiple employer wel2 fare arrangement, but does not include—

3 ‘‘(1) a self-insured group health plan;

4 ‘‘(2) a self-insured multiemployer group health

5 plan; or

6 ‘‘(3) any of the following offered by an in7 surer—

8 ‘‘(A) accident only, dental only, vision only,

9 disability only insurance, or long-term care only

10 insurance,

11 ‘‘(B) coverage issued as a supplement to li12 ability insurance,

13 ‘‘(C) medicare supplemental insurance as

14 defined in section 1882(g)(1),

15 ‘‘(D) workmen’s compensation or similar

16 insurance, or

17 ‘‘(E) automobile medical-payment insur18 ance.

19 In the case of a multiple employer welfare arrangement

20 that is fully insured, the requirements of this Act shall

21 only apply to the insurer of the arrangement.

22 ‘‘(b) INSURER.—As used in this title the term ‘in23 surer’ means any person that offers a health insurance

24 plan to a small employer.

25 ‘‘(c) GENERAL DEFINITIONS.—As used in this title:
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1 ‘‘(1) APPLICABLE REGULATORY AUTHORITY.—

2 The term ‘applicable regulatory authority’ means—

3 ‘‘(A) in the case of a health insurance plan

4 offered in a State with a program meeting the

5 requirements of part B of this title, the State

6 commissioner or superintendent of insurance or

7 other State authority responsible for regulation

8 of health insurance; or

9 ‘‘(B) in the case of a health insurance plan

10 certified by the Secretary under section

11 2101(a)(2), the Secretary.

12 ‘‘(2) SMALL EMPLOYER.—The term ‘small em13 ployer’ means, with respect to a calendar year, an

14 employer that normally employs more than 1 but

15 less than 101 eligible employees on a typical busi16 ness day. For the purposes of this paragraph, the

17 term ‘employee’ includes a self-employed individual.

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

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

20 employee who normally performs on a monthly basis

21 at least 30 hours of service per week for that em22 ployer.

23 ‘‘(4) NAIC.—The term ‘NAIC’ means the Na24 tional Association of Insurance Commissioners.
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1 ‘‘(5) STATE.—The term ‘State’ means each of

2 the several States, the District of Columbia, and the

3 Commonwealth of Puerto Rico.

4 ‘‘PART B—SMALL EMPLOYER HEALTH INSURANCE

5 REFORM

6 ‘‘GENERAL REQUIREMENTS FOR HEALTH INSURANCE

7 PLANS ISSUED TO SMALL EMPLOYERS

8 ‘‘SEC. 2111. (a) REGISTRATION WITH APPLICABLE

9 REGULATORY AUTHORITY.—Each insurer shall register

10 with the applicable regulatory authority for each State in

11 which it issues or offers a health insurance plan to small

12 employers.

13 ‘‘(b) GUARANTEED ELIGIBILITY.—

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

15 from coverage any eligible employee, or the spouse

16 or any dependent child of the eligible employee, to

17 whom coverage is made available by a small em18 ployer.

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

20 not apply to any period an eligible employee is ex21 cluded from coverage under the health insurance

22 plan solely by reason of a requirement imposed by

23 an employer applicable to all employees that a mini24 mum period of service with the small employer is re-
27

•S 1978 IS

1 quired before the employee is eligible for such cov2 erage.

3 ‘‘(c) GUARANTEED AVAILABILITY.—

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

5 provisions of this subsection, an insurer that offers

6 a health insurance plan to small employers located

7 in a State must meet the standards adopted by the

8 State described in paragraph (2).

9 ‘‘(2) STANDARDS ON GUARANTEED AVAILABIL10 ITY.—

11 ‘‘(A) IN GENERAL.—In order to implement

12 the requirements of this title, the standards de13 veloped under paragraphs (1) and (2) of section

14 2102(a) shall—

15 ‘‘(i) require that a State adopt a

16 mechanism for guaranteeing the availabil17 ity of health insurance plans for all small

18 employers in the State,

19 ‘‘(ii) specify alternative mechanisms,

20 including at least the alternative mecha21 nisms described in subparagraph (B), that

22 a State may adopt, and

23 ‘‘(iii) prohibit marketing or other

24 practices by an insurer intended to dis25 courage or limit the issuance of a health
28

•S 1978 IS

1 insurance plan to a small employer on the

2 basis of size, industry, geographic area, ex3 pected need for health services, or other

4 risk factors.

5 ‘‘(B) ALTERNATIVE MECHANISMS.—The

6 alternative mechanisms described in this sub7 paragraph are:

8 ‘‘(i) A mechanism under which the

9 State—

10 ‘‘(I) requires that any insurer of11 fering a health insurance plan to a

12 small employer in the State shall offer

13 the same plan to all other small em14 ployers in the State or in the portion

15 of the State established as the insur16 er’s geographic service area (as ap17 proved by the State), and

18 ‘‘(II) requires the participation of

19 all such insurers in a small employer

20 reinsurance program established by

21 the State.

22 ‘‘(ii) A mechanism under which the

23 State—

24 ‘‘(I) requires that any insurer of25 fering a health insurance plan to a
29

•S 1978 IS

1 small employer in the State shall offer

2 the same plan to all other small em3 ployers in the State or in the portion

4 of the State established as the insur5 er’s geographic service area (as ap6 proved by the State), and

7 ‘‘(II) permits any such insurer to

8 participate in a small employer rein9 surance program established by the

10 State.

11 ‘‘(iii) A mechanism under which the

12 State requires that any insurer offering a

13 health insurance plan to a small employer

14 in the State shall participate in a program

15 for assigning high-risk groups among all

16 such insurers.

17 ‘‘(iv) A mechanism under which the

18 State requires that any insurer that—

19 ‘‘(I) offers a health insurance

20 plan to a small employer in the State,

21 and

22 ‘‘(II) does not agree to offer the

23 same plan to all other small employers

24 in the State or in the portion of the

25 State established as the insurer’s geo-
30

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1 graphic service area (as approved by

2 the State),

3 shall participate in a program for assign4 ing high-risk groups among all such insur5 ers.

6 ‘‘(C) STATE ADOPTION OF CERTAIN

7 STANDARDS.—A regulatory program adopted by

8 the State under section 2101 must provide—

9 ‘‘(i) for the adoption of one of the

10 mechanisms described in clauses (i)

11 through (iv) of subparagraph (B), or

12 ‘‘(ii) for such other program that

13 guarantees availability of health insurance

14 to all small employers in the State and is

15 approved by the Secretary.

16 ‘‘(D) STANDARDS FOR NONCOMPLYING

17 STATES.—The Secretary, in consultation with

18 the Secretary of the Treasury, shall develop re19 quirements with respect to guaranteed availabil20 ity to apply with respect to insurers located in

21 a State that has not adopted the standards

22 under section 2102 and who wish to apply for

23 certification under section 2101(a)(2).

24 ‘‘(3) GROUNDS FOR REFUSAL TO RENEW.—
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1 ‘‘(A) IN GENERAL.—An insurer may refuse

2 to renew, or (except with respect to clause (iii))

3 may terminate, a health insurance plan under

4 this part only for—

5 ‘‘(i) nonpayment of premiums,

6 ‘‘(ii) fraud or misrepresentation,

7 ‘‘(iii) failure to maintain minimum

8 participation rates (consistent with sub9 paragraph (B)), or

10 ‘‘(iv) repeated misuse of a provider

11 network provision.

12 ‘‘(B) MINIMUM PARTICIPATION RATES.—

13 An insurer may require, with respect to a

14 health insurance plan issued to a small em15 ployer, that a minimum percentage of eligible

16 employees who do not otherwise have health in17 surance are enrolled in such plan if such per18 centage is applied uniformly to all plans offered

19 to employers of comparable size.

20 ‘‘(d) GUARANTEED RENEWABILITY.—

21 ‘‘(1) IN GENERAL.—An insurer shall ensure

22 that a health insurance plan issued to a small em23 ployer be renewed, at the option of the small em24 ployer, unless the plan is terminated for a reason

25 specified in paragraph (2) or in subsection (c)(3)(A).
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1 ‘‘(2) TERMINATION OF SMALL EMPLOYER BUSI2 NESS.—An insurer is not required to renew a health

3 insurance plan with respect to a small employer if

4 the insurer—

5 ‘‘(A) elects not to renew all of its health

6 insurance plans issued to small employers in a

7 State; and

8 ‘‘(B) provides notice to the applicable regu9 latory authority in the State and to each small

10 employer covered under a plan of such termi11 nation at least 180 days before the date of expi12 ration of the plan.

13 In the case of such a termination, the insurer may

14 not provide for issuance of any health insurance plan

15 to a small employer in the State during the 5-year

16 period beginning on the date of termination of the

17 last plan not so renewed.

18 ‘‘(e) NO DISCRIMINATION BASED ON HEALTH STA19 TUS FOR CERTAIN SERVICES.—

20 ‘‘(1) IN GENERAL.—Except as provided under

21 paragraph (2), a health insurance plan offered to a

22 small employer by an insurer may not deny, limit, or

23 condition the coverage under (or benefits of) the

24 plan based on the health status, claims experience,
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1 receipt of health care, medical history, or lack of evi2 dence of insurability, of an individual.

3 ‘‘(2) TREATMENT OF PREEXISTING CONDITION

4 EXCLUSIONS FOR ALL SERVICES.—

5 ‘‘(A) IN GENERAL.—Subject to the suc6 ceeding provisions of this paragraph, a health

7 insurance plan offered to a small employer by

8 an insurer may exclude coverage with respect to

9 services related to treatment of a preexisting

10 condition, but the period of such exclusion may

11 not exceed 6 months. The exclusion of coverage

12 shall not apply to services furnished to

13 newborns.

14 ‘‘(B) CREDITING OF PREVIOUS COV15 ERAGE.—

16 ‘‘(i) IN GENERAL.—A health insur17 ance plan issued to a small employer by an

18 insurer shall provide that if an individual

19 under such plan is in a period of continu20 ous coverage (as defined in clause (ii)(I))

21 with respect to particular services as of the

22 date of initial coverage under such plan,

23 any period of exclusion of coverage with re24 spect to a preexisting condition for such

25 services or type of services shall be reduced
34

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1 by 1 month for each month in the period

2 of continuous coverage.

3 ‘‘(ii) DEFINITIONS.—As used in this

4 subparagraph:

5 ‘‘(I) PERIOD OF CONTINUOUS

6 COVERAGE.—The term ‘period of con7 tinuous coverage’ means, with respect

8 to particular services, the period be9 ginning on the date an individual is

10 enrolled under a health insurance

11 plan, title XVIII, title XIX, or other

12 health benefit arrangement including

13 a self-insured plan which provides

14 benefits with respect to such services

15 and ends on the date the individual is

16 not so enrolled for a continuous period

17 of more than 3 months.

18 ‘‘(II) PREEXISTING CONDI19 TION.—The term ‘preexisting condi20 tion’ means, with respect to coverage

21 under a health insurance plan issued

22 to a small employer by an insurer, a

23 condition which has been diagnosed or

24 treated during the 3-month period

25 ending on the day before the first date
35

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1 of such coverage (without regard to

2 any waiting period).

3 ‘‘REQUIREMENTS RELATED TO RESTRICTIONS ON RATING

4 PRACTICES

5 ‘‘SEC. 2112. (a) LIMIT ON VARIATION OF PREMIUMS

6 BETWEEN BLOCKS OF BUSINESS.—

7 ‘‘(1) IN GENERAL.—The base premium rate for

8 any block of business of an insurer (as defined in

9 section 2103(b)(1)) may not exceed the base pre10 mium rate for any other block of business by more

11 than 20 percent.

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

13 apply to a block of business if the applicable regu14 latory authority determines that—

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

16 does not reject, and never has rejected, small

17 employers included within the definition of em18 ployers eligible for the block of business or oth19 erwise eligible employees and dependents who

20 enroll on a timely basis, based upon their claims

21 experience, health status, industry, or occupa22 tion,

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

24 never has transferred, a health insurance plan

25 involuntarily into or out of the block of busi26 ness, and
36

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1 ‘‘(C) health insurance plans offered under

2 the block of business are currently available for

3 purchase by small employers at the time an ex4 ception to paragraph (1) is sought by the in5 surer.

6 ‘‘(b) LIMIT ON VARIATION IN PREMIUM RATES

7 WITHIN A BLOCK OF BUSINESS.—For a block of business

8 of an insurer, the highest premium rates charged during

9 a rating period to small employers with similar demo10 graphic characteristics (limited to age, sex, family size,

11 and geography and not relating to claims experience,

12 health status, industry, occupation, or duration of cov13 erage since issue) for the same or similar coverage, or the

14 highest rates which could be charged to such employers

15 under the rating system for that block of business, shall

16 not exceed an amount that is 1.5 times the base premium

17 rate for the block of business for a rating period (or por18 tion thereof) that occurs in the first 3 years in which this

19 section is in effect, and 1.35 times the base premium rate

20 thereafter.

21 ‘‘(c) CONSISTENT APPLICATION OF RATING FAC22 TORS.—In establishing premium rates for health insur23 ance plans offered to small employers—

24 ‘‘(1) an insurer making adjustments with re25 spect to age, sex, family size, or geography must
37

•S 1978 IS

1 apply such adjustments consistently across small

2 employers (as provided in guidelines developed under

3 section 2102(a)(4)), and

4 ‘‘(2) no insurer may use a geographic area that

5 is smaller than a county or smaller than an area

6 that includes all areas in which the first three digits

7 of the zip code are identical, whichever is smaller.

8 ‘‘(d) LIMIT ON TRANSFER OF EMPLOYERS AMONG

9 BLOCKS OF BUSINESS.—

10 ‘‘(1) IN GENERAL.—An insurer may not trans11 fer a small employer from one block of business to

12 another without the consent of the employer.

13 ‘‘(2) OFFERS TO TRANSFER.—An insurer may

14 not offer to transfer a small employer from one

15 block of business to another unless—

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

17 age, sex, geography, claims experience, health

18 status, industry, occupation or the date on

19 which the policy was issued, and

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

21 small employers in the same block of business.

22 ‘‘(e) LIMITS ON VARIATION IN PREMIUM IN23 CREASES.—The percentage increase in the premium rate

24 charged to a small employer for a new rating period (de25 termined on an annual basis) may not exceed the sum of
38

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1 the percentage change in the base premium rate plus 5

2 percentage points.

3 ‘‘(f) DEFINITIONS.—In this section:

4 ‘‘(1) BASE PREMIUM RATE.—The term ‘base

5 premium rate’ means, for each block of business for

6 each rating period, the lowest premium rate which

7 could have been charged under a rating system for

8 that block of business by the insurer to small em9 ployers with similar demographic or other relevant

10 characteristics (limited to age, sex, family size, and

11 geography and not relating to claims experience,

12 health status, industry, occupation or duration of

13 coverage since issue) for health insurance plans with

14 the same or similar coverage.

15 ‘‘(2) BLOCK OF BUSINESS.—

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

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

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

19 small employers with a health insurance plan is20 sued by the insurer (as shown on the records of

21 the insurer).

22 ‘‘(B) DISTINCT GROUPS.—

23 ‘‘(i) IN GENERAL.—Subject to clause

24 (ii), a distinct group of small employers

25 with health insurance plans issued by an
39

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1 insurer may be treated as a block of busi2 ness by such insurer if all of the plans in

3 such group—

4 ‘‘(I) are marketed and sold

5 through individuals and organizations

6 that do not participate in the market7 ing or sale of other distinct groups by

8 the insurer,

9 ‘‘(II) have been acquired from

10 another insurer as a distinct group, or

11 ‘‘(III) are provided through an

12 association with membership of not

13 less than 25 small employers that has

14 been formed for purposes other than

15 obtaining health insurance.

16 ‘‘(ii) LIMITATION.—An insurer may

17 not establish more than six distinct groups

18 of small employers.

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

20 ‘‘(1) IN GENERAL.—At the time an insurer of21 fers a health insurance plan to a small employer, the

22 insurer shall fully disclose to the employer all of the

23 following:

24 ‘‘(A) Rating practices for small employer

25 health insurance plans, including rating prac-
40

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1 tices for different populations and benefit de2 signs.

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

4 for the small employer are established or ad5 justed based upon the actual or expected vari6 ation in claims costs or health condition of the

7 employees of such small employer and their de8 pendents.

9 ‘‘(C) The provisions concerning the insur10 er’s right to change premium rates, the extent

11 to which premiums can be modified, and the

12 factors which affect changes in premium rates.

13 ‘‘(2) NOTICE ON EXPIRATION.—An insurer pro14 viding health insurance plans to small employers

15 shall provide for notice, at least 60 days before the

16 date of expiration of the health insurance plan, of

17 the terms for renewal of the plan. Such notice shall

18 include an explanation of the extent to which any in19 crease in premiums is due to actual or expected

20 claims experience of the individuals covered under

21 the small employer’s health insurance plan contract.

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

23 shall file annually with the applicable regulatory authority

24 a written statement by a member of the American Acad25 emy of Actuaries (or other individual acceptable to such
41

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1 authority) certifying that, based upon an examination by

2 the individual which includes a review of the appropriate

3 records and of the actuarial assumptions of the insurer

4 and methods used by the insurer in establishing premium

5 rates for small employer health insurance plans—

6 ‘‘(1) the insurer is in compliance with the appli7 cable provisions of this section, and

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

9 Each insurer shall retain a copy of such statement for ex10 amination at its principal place of business.

11 ‘‘REQUIREMENTS FOR SMALL EMPLOYER HEALTH

12 INSURANCE BENEFIT PACKAGE OFFERINGS

13 ‘‘SEC. 2113. (a) BASIC AND STANDARD BENEFIT

14 PACKAGES.—

15 ‘‘(1) IN GENERAL.—If an insurer offers any

16 health insurance plan to small employers in a State,

17 the insurer shall also offer a health insurance plan

18 providing for the standard benefit package defined

19 in subsection (b) and a health insurance plan provid20 ing for the basic benefit package defined in sub21 section (c).

22 ‘‘(2) MANAGED CARE OPTION.—

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

24 subparagraph (B), if an insurer offers any

25 health insurance plan to small employers in a

26 State and also offers a managed care plan in
42

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1 the State or a geographic area within the State

2 to employers that are not small employers, the

3 insurer must offer a similar managed care plan

4 to small employers in the State or geographic

5 area.

6 ‘‘(B) SIZE LIMITS.—An insurer may cease

7 enrolling new small employer groups in all or a

8 portion of the insurer’s service area for a man9 aged care plan if it ceases to enroll any new

10 employer groups within the service area or

11 within a portion of a service area of such plan.

12 ‘‘(b) STANDARD BENEFIT PACKAGE.—

13 ‘‘(1) IN GENERAL.—

14 ‘‘(A) PACKAGE DEFINED.—Except as oth15 erwise provided in this section, a health insur16 ance plan providing for a standard benefit

17 package shall be limited to payment for—

18 ‘‘(i) inpatient and outpatient hospital

19 care, except that treatment for a mental

20 disorder, as defined in subparagraph

21 (B)(i), is subject to the special limitations

22 described in clause (v)(I);

23 ‘‘(ii) inpatient and outpatient physi24 cian services, as defined in subparagraph

25 (B)(ii), except that psychotherapy or coun-
43

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1 seling for a mental disorder is subject to

2 the special limitations described in clause

3 (v)(II);

4 ‘‘(iii) diagnostic tests;

5 ‘‘(iv) preventive services limited to—

6 ‘‘(I) prenatal care and well-baby

7 care provided to children who are 1

8 year of age or younger;

9 ‘‘(II) well-child care;

10 ‘‘(III) Pap smears;

11 ‘‘(IV) mammograms; and

12 ‘‘(V) colorectal screening services;

13 and

14 ‘‘(v)(I) inpatient hospital care for a

15 mental disorder for not less than 45 days

16 per year, except that days of partial hos17 pitalization or residential care may be sub18 stituted for days of inpatient care; and

19 ‘‘(II) outpatient psychotherapy and

20 counseling for a mental disorder for not

21 less than 20 visits per year provided by a

22 provider who is acting within the scope of

23 State law and who—

24 ‘‘(aa) is a physician; or
44

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1 ‘‘(bb) is a duly licensed or cer2 tified clinical psychologist or a duly li3 censed or certified clinical social work4 er, a duly licensed or certified equiva5 lent mental health professional, or a

6 clinic or center providing duly licensed

7 or certified mental health services.

8 ‘‘(B) DEFINITIONS.—For purposes of this

9 paragraph:

10 ‘‘(i) MENTAL DISORDER.—The term

11 ‘mental disorder’ has the same meaning

12 given such term in the International Clas13 sification of Diseases, 9th Revision, Clini14 cal Modification.

15 ‘‘(ii) PHYSICIAN SERVICES.—The term

16 ‘physician services’ means professional

17 medical services lawfully provided by a

18 physician under State medical practice

19 acts, and includes professional services

20 provided by a dentist, licensed advanced21 practice nurse, physician assistant, optom22 etrist, podiatrist, or chiropractor acting

23 within the scope of their practices (as de24 termined under State law) if such services
45

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1 would be treated as physician services if

2 furnished by a physician.

3 ‘‘(2) AMOUNT, SCOPE, AND DURATION OF CER4 TAIN BENEFITS.—

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

6 subparagraph (B) and in paragraph (3), a

7 health insurance plan providing for a standard

8 benefit package shall place no limits on the

9 amount, scope, or duration of benefits described

10 in subparagraphs (A) through (C) of paragraph

11 (1).

12 ‘‘(B) PREVENTIVE SERVICES.—A health

13 insurance plan providing for a standard benefit

14 package may limit the amount, scope, and du15 ration of preventive services described in sub16 paragraph (D) of paragraph (1) provided that

17 the amount, scope, and duration of such serv18 ices are reasonably consistent with rec19 ommendations and periodicity schedules devel20 oped by appropriate medical experts.

21 ‘‘(3) EXCEPTIONS.—Paragraph (1) shall not be

22 construed as requiring a plan to include payment

23 for—

24 ‘‘(A) items and services that are not medi25 cally necessary;
46

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1 ‘‘(B) routine physical examinations or pre2 ventive care (other than care and services de3 scribed in subparagraph (D) of paragraph (1));

4 or

5 ‘‘(C) experimental services and procedures.

6 ‘‘(4) LIMITATION ON PREMIUMS.—

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

8 subparagraph (B), an insurer issuing a health

9 insurance plan providing for a standard benefit

10 package shall not require an employee to pay a

11 monthly premium which exceeds 20 percent of

12 the total monthly premium.

13 ‘‘(B) PART-TIME EMPLOYEE EXCEPTED.—

14 In the case of a part-time employee, an insurer

15 issuing a health insurance plan providing for a

16 standard benefit package may require that such

17 an employee pay a monthly premium that does

18 not exceed 50 percent of the total monthly pre19 mium.

20 ‘‘(5) LIMITATION ON DEDUCTIBLES.—

21 ‘‘(A) IN GENERAL.—Except as permitted

22 under subparagraph (B), a health insurance

23 plan providing for a standard benefit package

24 shall not provide a deductible amount for bene25 fits provided in any plan year that exceeds—
47

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1 ‘‘(i) with respect to benefits payable

2 for items and services furnished to any em3 ployee with no family member enrolled

4 under the plan, for a plan year beginning

5 in—

6 ‘‘(I) a calendar year prior to

7 1995, $400; or

8 ‘‘(II) for a subsequent calendar

9 year, the limitation specified in this

10 clause for the previous calendar year

11 increased by the percentage increase

12 in the consumer price index for all

13 urban consumers (United States city

14 average, as published by the Bureau

15 of Labor Statistics) for the 12-month

16 period ending on September 30 of the

17 preceding calendar year; and

18 ‘‘(ii) with respect to benefits payable

19 for items and services furnished to any em20 ployee with a family member enrolled

21 under the standard benefit package plan,

22 for a plan year beginning in—

23 ‘‘(I) a calendar year prior to

24 1995, $400 per family member and

25 $700 per family; or
48

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1 ‘‘(II) for a subsequent calendar

2 year, the limitation specified in this

3 clause for the previous calendar year

4 increased by the percentage increase

5 in the consumer price index for all

6 urban consumers (United States city

7 average, as published by the Bureau

8 of Labor Statistics) for the 12-month

9 period ending on September 30 of the

10 preceding calendar year.

11 If the limitation computed under clause (i)(II)

12 or (ii)(II) is not a multiple of $10, it shall be

13 rounded to the next highest multiple of $10.

14 ‘‘(B) WAGE-RELATED DEDUCTIBLE.—A

15 health insurance plan may provide for any other

16 deductible amount instead of the limitations

17 under—

18 ‘‘(i) subparagraph (A)(i), if such

19 amount does not exceed (on an annualized

20 basis) 1 percent of the total wages paid to

21 the employee in the plan year; or

22 ‘‘(ii) subparagraph (A)(ii), if such

23 amount does not exceed (on an annualized

24 basis) 1 percent per family member or 2
49

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1 percent per family of the total wages paid

2 to the employee in the plan year.

3 ‘‘(6) LIMITATION ON COPAYMENTS AND COIN4 SURANCE.—

5 ‘‘(A) IN GENERAL.—Subject to subpara6 graphs (B) through (D), a health insurance

7 plan providing for a standard health benefit

8 package may not require the payment of any

9 copayment or coinsurance for an item or service

10 for which coverage is required under this sec11 tion—

12 ‘‘(i) in an amount that exceeds 20

13 percent of the amount payable for the item

14 or service under the plan; or

15 ‘‘(ii) after an employee and family

16 covered under the plan have incurred out17 of-pocket expenses under the plan that are

18 equal to the out-of-pocket limit (as defined

19 in subparagraph (E)(ii)) for a plan year.

20 ‘‘(B) EXCEPTION FOR MANAGED CARE

21 PLANS.—A health insurance plan that is a man22 aged care plan may require payments in excess

23 of the amount permitted under subparagraph

24 (A) in the case of items and services furnished

25 by nonparticipating providers.
50

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1 ‘‘(C) EXCEPTION FOR IMPROPER UTILIZA2 TION.—A health insurance plan may provide for

3 copayment or coinsurance in excess of the

4 amount permitted under subparagraph (A) for

5 any item or service that an individual obtains

6 without complying with procedures established

7 by a managed care plan or under a utilization

8 program to ensure the efficient and appropriate

9 utilization of covered services.

10 ‘‘(D) EXCEPTIONS FOR MENTAL HEALTH

11 CARE.—In the case of care described in para12 graph (1)(E)(ii), a health insurance plan shall

13 not require payment of any copayment or coin14 surance for an item or service for which cov15 erage is required by this part in an amount that

16 exceeds 50 percent of the amount payable for

17 the item or service.

18 ‘‘(7) LIMIT ON OUT-OF-POCKET EXPENSES.—

19 ‘‘(A) OUT-OF-POCKET EXPENSES DE20 FINED.—As used in this section, the term ‘out21 of-pocket expenses’ means, with respect to an

22 employee in a plan year, amounts payable under

23 the plan as deductibles and coinsurance with re24 spect to items and services provided under the

25 plan and furnished in the plan year on behalf
51

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1 of the employee and family covered under the

2 plan.

3 ‘‘(B) OUT-OF-POCKET LIMIT DEFINED.—

4 As used in this section and except as provided

5 in subparagraph (C), the term ‘out-of-pocket

6 limit’ means for a plan year beginning in—

7 ‘‘(i) a calendar year prior to 1995,

8 $3,000; or

9 ‘‘(ii) for a subsequent calendar year,

10 the limit specified in this subparagraph for

11 the previous calendar year increased by the

12 percentage increase in the consumer price

13 index for all urban consumers (United

14 States city average, as published by the

15 Bureau of Labor Statistics) for the 12-

16 month period ending on September 30 of

17 the preceding calendar year.

18 If the limit computed under clause (ii) is not a

19 multiple of $10, it shall be rounded to the next

20 highest multiple of $10.

21 ‘‘(C) ALTERNATIVE OUT-OF-POCKET

22 LIMIT.—A health insurance plan may provide

23 for an out-of-pocket limit other than that de24 fined in subparagraph (B) if, for a plan year

25 with respect to an employee and the family of
52

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1 the employee, the limit does not exceed (on an

2 annualized basis) 10 percent of the total wages

3 paid to the employee in the plan year.

4 ‘‘(8) LIMITED PREEMPTION OF STATE MAN5 DATED BENEFITS.—No State law or regulation in

6 effect in a State that requires health insurance plans

7 offered to small employers in the State to include

8 specified items and services other than those speci9 fied by this subsection shall apply with respect to a

10 health insurance plan providing for a standard bene11 fit package offered by an insurer to a small em12 ployer. A State law or regulation requiring the cov13 erage of newborns, adopted children or other speci14 fied categories of dependents shall continue to apply.

15 ‘‘(c) BASIC BENEFITS PACKAGE.—

16 ‘‘(1) IN GENERAL.—A health insurance plan

17 providing for a basic benefit package shall be limited

18 to payment for—

19 ‘‘(A) inpatient and outpatient hospital

20 care, including emergency services;

21 ‘‘(B) inpatient and outpatient physicians’

22 services;

23 ‘‘(C) diagnostic tests; and

24 ‘‘(D) preventive services (which may in25 clude one or more of the following services)—
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•S 1978 IS

1 ‘‘(i) prenatal care and well-baby care

2 provided to children who are 1 year of age

3 or younger;

4 ‘‘(ii) well-child care;

5 ‘‘(iii) Pap smears;

6 ‘‘(iv) mammograms; and

7 ‘‘(v) colorectal screening services.

8 Nothing in this paragraph shall prohibit a basic

9 health benefit package from including coverage for

10 treatment of a mental disorder.

11 ‘‘(2) COST-SHARING.—Each health insurance

12 plan providing for the basic benefit package issued

13 to a small employer by an insurer may impose pre14 miums, deductibles, copayments, or other cost-shar15 ing on enrollees of such plan.

16 ‘‘(3) OUT-OF-POCKET LIMIT.—Each health in17 surance plan providing for a basic benefit package

18 shall provide for a limit on out-of-pocket expenses.

19 ‘‘(4) LIMITED PREEMPTION OF STATE MAN20 DATED BENEFITS.—No State law or regulation in

21 effect in a State that requires health insurance plans

22 offered to small employers in the State to include

23 specified items and services other than those de24 scribed in this subsection shall apply with respect to

25 a health insurance plan providing for a basic benefit
54

•S 1978 IS

1 package offered by an insurer to a small employer.

2 A State law or regulation requiring the coverage of

3 newborns, adopted children or other specified cat4 egories of dependents shall continue to apply.’’.

5 PART II—TAX PENALTY ON NONCOMPLYING

6 INSURERS

7 SEC. 221. EXCISE TAX ON PREMIUMS RECEIVED ON

8 HEALTH INSURANCE POLICIES WHICH DO

9 NOT MEET CERTAIN REQUIREMENTS.

10 (a) IN GENERAL.—Chapter 47 of the Internal Reve11 nue Code of 1986 (relating to taxes on group health plans)

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

13 section:

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

15 FOR HEALTH INSURANCE.

16 ‘‘(a) GENERAL RULE.—In the case of any person is17 suing a health insurance plan to a small employer, there

18 is hereby imposed a tax on the failure of such person to

19 meet at any time during any taxable year the applicable

20 requirements of title XXI of the Social Security Act. The

21 Secretary of Health and Human Services shall determine

22 whether any person meets the requirements of such title.

23 ‘‘(b) AMOUNT OF TAX.—

24 ‘‘(1) IN GENERAL.—The amount of tax imposed

25 by subsection (a) by reason of 1 or more failures
55

•S 1978 IS

1 during a taxable year shall be equal to 25 percent

2 of the gross premiums received during such taxable

3 year with respect to all health insurance plans issued

4 to a small employer by the person on whom such tax

5 is imposed.

6 ‘‘(2) GROSS PREMIUMS.—For purposes of para7 graph (1), gross premiums shall include any consid8 eration received with respect to any accident and

9 health insurance contract.

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

11 paragraph (1)—

12 ‘‘(A) CONTROLLED GROUP OF CORPORA13 TIONS.—All corporations which are members of

14 the same controlled group of corporations shall

15 be treated as 1 person. For purposes of the pre16 ceding sentence, the term ‘controlled group of

17 corporations’ has the meaning given to such

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

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

20 substituted for ‘at least 80 percent’ each

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

22 ‘‘(ii) the determination shall be made

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

24 (e)(3)(C) of section 1563.
56

•S 1978 IS

1 ‘‘(B) PARTNERSHIPS, PROPRIETORSHIPS,

2 ETC., WHICH ARE UNDER COMMON CONTROL.—

3 Under regulations prescribed by the Secretary,

4 all trades or business (whether or not incor5 porated) which are under common control shall

6 be treated as 1 person. The regulations pre7 scribed under this subparagraph shall be based

8 on principles similar to the principles which

9 apply in the case of subparagraph (A).

10 ‘‘(c) LIMITATION ON TAX.—

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

12 DISCOVERED EXERCISING REASONABLE DILI13 GENCE.—No tax shall be imposed by subsection (a)

14 with respect to any failure for which it is established

15 to the satisfaction of the Secretary that the person

16 on whom the tax is imposed did not know, and exer17 cising reasonable diligence would not have known,

18 that such failure existed.

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

20 CORRECTED WITHIN 30 DAYS.—No tax shall be im21 posed by subsection (a) with respect to any failure

22 if—

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

24 cause and not to willful neglect, and
57

•S 1978 IS

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

2 30-day period beginning on the 1st date any of

3 the persons on whom the tax is imposed knew,

4 or exercising reasonable diligence would have

5 known, that such failure existed.

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

7 failure which is due to reasonable cause and not to

8 willful neglect, the Secretary may waive part or all

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

10 that the payment of such tax would be excessive rel11 ative to the failure involved.

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

13 ‘‘(1) HEALTH INSURANCE PLAN.—The term

14 ‘health insurance plan’ means any hospital or medi15 cal service policy or certificate, hospital or medical

16 service plan contract, health maintenance organiza17 tion group contract, or a multiple employer welfare

18 arrangement, but does not include—

19 ‘‘(A) a self-insured group health plan;

20 ‘‘(B) a self-insured multiemployer group

21 health plan; or

22 ‘‘(C) any of the following:

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

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

25 insurance,
58

•S 1978 IS

1 ‘‘(ii) coverage issued as a supplement

2 to liability insurance,

3 ‘‘(iii) medicare supplemental insur4 ance as defined in section 1882(g)(1),

5 ‘‘(iv) workmen’s compensation or

6 similar insurance, or

7 ‘‘(v) automobile medical-payment in8 surance.

9 In the case of a multiple employer welfare arrange10 ment that is fully insured, this Act shall only apply

11 to the insurer of the arrangement.

12 ‘‘(2) SMALL EMPLOYER.—The term ‘small em13 ployer’ means, with respect to a calendar year, an

14 employer that normally employs more than 1 but

15 less than 101 eligible employees on a typical busi16 ness day. For the purposes of this paragraph, the

17 term ‘employee’ includes a self-employed individual.

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

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

20 employee who normally performs on a monthly basis

21 at least 30 hours of service per week for that em22 ployer.

23 ‘‘(4) PERSON.—The term ‘person’ means any

24 person that offers a health insurance plan to a small

25 employer, including a licensed insurance company, a
59

•S 1978 IS

1 prepaid hospital or medical service plan, a health

2 maintenance organization, or in States which have

3 distinct insurance licensure requirements, a multiple

4 employer welfare arrangement.’’.

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

6 section 275(a) of the Internal Revenue Code of 1986 (re7 lating to nondeductibility of certain taxes) is amended by

8 inserting ‘‘47,’’ after ‘‘46,’’.

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

10 for such chapter 47 of the Internal Revenue Code of 1986

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

12 item:

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

13 (d) EFFECTIVE DATES.—

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

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

16 of the enactment of this Act.

17 (2) NONDEDUCTIBILITY OF TAX.—The amend18 ment made by subsection (b) shall apply to taxable

19 years beginning after December 31, 1993.
60

•S 1978 IS

1 PART III—STUDIES AND REPORTS

2 SEC. 231. GAO STUDY AND REPORT ON RATING REQUIRE3 MENTS AND BENEFIT PACKAGES FOR SMALL

4 GROUP HEALTH INSURANCE.

5 (a) IN GENERAL.—The Comptroller General of the

6 United States shall study and report to the Congress by

7 no later than January 1, 1996, on—

8 (1) the impact of the standards for rating prac9 tices for small group health insurance established

10 under section 2112 of the Social Security Act and

11 the requirements for benefit packages established

12 under section 2113 of such Act on the availability

13 and price of insurance offered to small employers,

14 differences in available benefit packages, the number

15 of small employers choosing standard or basic pack16 ages, and the impact of the standards on the num17 ber of small employers offering health insurance to

18 employees through a self-funded employer welfare

19 benefit plan; and

20 (2) differences in State laws and regulations af21 fecting the availability and price of health insurance

22 plans sold to individuals and the impact of such laws

23 and regulations, including the extension of require24 ments for health insurance plans sold to small em25 ployers in the State to individual health insurance
61

•S 1978 IS

1 and the establishment of State risk pools for individ2 ual health insurance.

3 (b) RECOMMENDATIONS.—The Comptroller General

4 shall include in the report to Congress under this section

5 recommendations with respect to adjusting rating stand6 ards under section 2112 of the Social Security Act—

7 (1) to eliminate variation in premiums charged

8 to small employers resulting from adjustments for

9 such factors as claims experience and health status,

10 and

11 (2) to eliminate variation in premiums associ12 ated with age, sex, and other demographic factors.

13 Subtitle C—Improvements in Port14 ability of Private Health Insur15 ance

16 SEC. 241. EXCISE TAX IMPOSED ON FAILURE TO PROVIDE

17 FOR PREEXISTING CONDITION.

18 (a) IN GENERAL.—Chapter 47 of the Internal Reve19 nue Code of 1986 (relating to taxes on group health

20 plans), as amended by section 221, is amended by adding

21 at the end thereof the following new section:
62

•S 1978 IS

1 ‘‘SEC. 5000B. FAILURE TO SATISFY PREEXISTING CONDI2 TION REQUIREMENTS OF GROUP HEALTH

3 PLANS.

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

5 tax on the failure of—

6 ‘‘(1) a group health plan to meet the require7 ments of subsection (e), or

8 ‘‘(2) any person to meet the requirements of

9 subsection (f),

10 with respect to any covered individual.

11 ‘‘(b) AMOUNT OF TAX.—

12 ‘‘(1) IN GENERAL.—The amount of the tax im13 posed by subsection (a) on any failure with respect

14 to a covered individual shall be $100 for each day

15 in the noncompliance period with respect to such

16 failure.

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

18 of this section, the term ‘noncompliance period’

19 means, with respect to any failure, the period—

20 ‘‘(A) beginning on the date such failure

21 first occurs, and

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

23 corrected.

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

25 plan to meet the requirements of subsection (e) with
63

•S 1978 IS

1 respect to any covered individual shall be treated as

2 corrected if—

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

4 the extent possible, and

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

6 financial position which is as good as such indi7 vidual would have been in had such failure not

8 occurred.

9 For purposes of applying subparagraph (B), the cov10 ered individual shall be treated as if the individual

11 had elected the most favorable coverage in light of

12 the expenses incurred since the failure first oc13 curred.

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

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

16 DISCOVERED EXERCISING REASONABLE DILI17 GENCE.—No tax shall be imposed by subsection (a)

18 on any failure during any period for which it is es19 tablished to the satisfaction of the Secretary that

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

21 knew, or exercising reasonable diligence would have

22 known, that such failure existed.

23 ‘‘(2) TAX NOT TO APPLY TO FAILURES COR24 RECTED WITHIN 30 DAYS.—No tax shall be imposed

25 by subsection (a) on any failure if—
64

•S 1978 IS

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

2 cause and not to willful neglect, and

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

4 30-day period beginning on the first date any of

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

6 or exercising reasonable diligence would have

7 known, that such failure existed.

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

9 failure which is due to reasonable cause and not to

10 willful neglect, the Secretary may waive part or all

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

12 that the payment of such tax would be excessive rel13 ative to the failure involved.

14 ‘‘(d) LIABILITY FOR TAX.—

15 ‘‘(1) IN GENERAL.—Except as otherwise pro16 vided in this subsection, the following shall be liable

17 for the tax imposed by subsection (a) on a failure:

18 ‘‘(A) In the case of a group health plan

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

20 issuer.

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

22 health plan other than a multiemployer group

23 health plan, the employer.

24 ‘‘(ii) In the case of a self-insured multiem25 ployer group health plan, the plan.
65

•S 1978 IS

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

2 than in a capacity as an employee) for admin3 istering or providing benefits under the group

4 health plan, health insurance plan, or other

5 health benefit arrangement (including a self-in6 sured plan) and whose act or failure to act

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

8 ‘‘(2) SPECIAL RULES FOR PERSONS DESCRIBED

9 IN PARAGRAPH (1)(C).—A person described in sub10 paragraph (C) (and not in subparagraphs (A) and

11 (B)) of paragraph (1) shall be liable for the tax im12 posed by subsection (a) on any failure only if such

13 person assumed (under a legally enforceable written

14 agreement) responsibility for the performance of the

15 act to which the failure relates.

16 ‘‘(e) NO DISCRIMINATION BASED ON HEALTH STA17 TUS FOR CERTAIN SERVICES.—

18 ‘‘(1) IN GENERAL.—Except as provided under

19 paragraph (2), group health plans may not deny,

20 limit, or condition the coverage under (or benefits

21 of) the plan based on the health status, claims expe22 rience, receipt of health care, medical history, or

23 lack of evidence of insurability, of an individual.

24 ‘‘(2) TREATMENT OF PREEXISTING CONDITION

25 EXCLUSIONS FOR ALL SERVICES.—
66

•S 1978 IS

1 ‘‘(A) IN GENERAL.—Subject to the suc2 ceeding provisions of this paragraph, group

3 health plans may exclude coverage with respect

4 to services related to treatment of a preexisting

5 condition, but the period of such exclusion may

6 not exceed 6 months. The exclusion of coverage

7 shall not apply to services furnished to

8 newborns.

9 ‘‘(B) CREDITING OF PREVIOUS COV10 ERAGE.—

11 ‘‘(i) IN GENERAL.—A group health

12 plan shall provide that if an individual

13 under such plan is in a period of continu14 ous coverage (as defined in clause (ii)(I))

15 with respect to particular services as of the

16 date of initial coverage under such plan

17 (determined without regard to any waiting

18 period under such plan), any period of ex19 clusion of coverage with respect to a pre20 existing condition for such services or type

21 of services shall be reduced by 1 month for

22 each month in the period of continuous

23 coverage without regard to any waiting pe24 riod.
67

•S 1978 IS

1 ‘‘(ii) DEFINITIONS.—As used in this

2 subparagraph:

3 ‘‘(I) PERIOD OF CONTINUOUS

4 COVERAGE.—The term ‘period of con5 tinuous coverage’ means, with respect

6 to particular services, the period be7 ginning on the date an individual is

8 enrolled under a health insurance

9 plan, title XVIII or XIX of the Social

10 Security Act, or other health benefit

11 arrangement (including a self-insured

12 plan) which provides benefits with re13 spect to such services and ends on the

14 date the individual is not so enrolled

15 for a continuous period of more than

16 3 months.

17 ‘‘(II) PREEXISTING CONDI18 TION.—The term ‘preexisting condi19 tion’ means, with respect to coverage

20 under a group health plan, a condition

21 which has been diagnosed or treated

22 during the 3-month period ending on

23 the day before the first date of such

24 coverage without regard to any wait25 ing period.
68

•S 1978 IS

1 ‘‘(f) DISCLOSURE OF COVERAGE, ETC.—Any person

2 who has provided coverage (other than under title XVIII

3 or XIX of the Social Security Act) during a period of con4 tinuous coverage (as defined in subsection (e)(2)(B)(ii)(I))

5 with respect to a covered individual shall disclose, upon

6 the request of a group health plan subject to the require7 ments of subsection (e), the coverage provided the covered

8 individual, the period of such coverage, and the benefits

9 provided under such coverage.

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

11 ‘‘(1) COVERED INDIVIDUAL.—The term ‘cov12 ered individual’ means—

13 ‘‘(A) an individual who is (or will be) pro14 vided coverage under a group health plan by

15 virtue of the performance of services by the in16 dividual for 1 or more persons maintaining the

17 plan (including as an employee defined in sec18 tion 401(c)(1)), and

19 ‘‘(B) the spouse or any dependent child of

20 such individual.

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

22 health plan’ has the meaning given such term by

23 section 5000(b)(1).’’.

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

25 for such chapter 47 of the Internal Revenue Code of 1986
69

•S 1978 IS

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

2 item:

‘‘Sec. 5000B. Failure to satisfy preexisting condition requirements

of group health plans.’’.

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

4 this section shall apply to plan years beginning after De5 cember 31, 1994.

6 Subtitle D—Health Care Cost

7 Containment

8 SEC. 251. FEDERAL CERTIFICATION OF MANAGED CARE

9 PLANS AND UTILIZATION REVIEW PRO10 GRAMS.

11 Title XXI of the Social Security Act, as added by sec12 tion 211, is amended by adding at the end the following

13 part:

14 ‘‘PART C—FEDERAL CERTIFICATION OF MANAGED

15 CARE PLANS

16 ‘‘FEDERAL CERTIFICATION OF MANAGED CARE PLANS

17 AND UTILIZATION REVIEW PROGRAMS

18 ‘‘SEC. 2114. (a) VOLUNTARY CERTIFICATION PROC19 ESS.—

20 ‘‘(1) CERTIFICATION.—The Secretary shall es21 tablish a process for certification of managed care

22 plans meeting the requirements of subsection (b)(1)

23 and of utilization review programs meeting the re24 quirements of subsection (b)(2).
70

•S 1978 IS

1 ‘‘(2) QUALIFIED MANAGED CARE PLAN.—For

2 purposes of this title, the term ‘qualified managed

3 care plan’ means a managed care plan that the Sec4 retary certifies, upon application by the program, as

5 meeting the requirements of this section.

6 ‘‘(3) QUALIFIED UTILIZATION REVIEW PRO7 GRAM.—For purposes of this title, the term ‘quali8 fied utilization review program’ means a utilization

9 review program that the Secretary certifies, upon

10 application by the program, as meeting the require11 ments of this section.

12 ‘‘(4) UTILIZATION REVIEW PROGRAM.—For

13 purposes of this title, the term ‘utilization review

14 program’ means a system of reviewing the medical

15 necessity, appropriateness, or quality of health care

16 services and supplies covered under a health insur17 ance plan or a managed care plan using specified

18 guidelines. Such a system may include preadmission

19 certification, the application of practice guidelines,

20 continued stay review, discharge planning,

21 preauthorization of ambulatory procedures, and ret22 rospective review.

23 ‘‘(5) MANAGED CARE PLAN.—

24 ‘‘(A) IN GENERAL.—For purposes of this

25 title the term ‘managed care plan’ means a plan
71

•S 1978 IS

1 operated by a managed care entity as described

2 in subparagraph (B), that arranges for the fi3 nancing and delivery of health care services to

4 persons covered under such plan through—

5 ‘‘(i) arrangements with participating

6 providers to furnish health care services;

7 ‘‘(ii) explicit standards for the selec8 tion of participating providers;

9 ‘‘(iii) organizational arrangements for

10 ongoing quality assurance and utilization

11 review programs; and

12 ‘‘(iv) financial incentives for persons

13 covered under the plan to use the partici14 pating providers and procedures provided

15 for by the plan.

16 ‘‘(B) MANAGED CARE ENTITY DEFINED.—

17 For purposes of this title, a managed care en18 tity includes a licensed insurance company, hos19 pital or medical service plan, health mainte20 nance organization, an employer, or employee

21 organization, or a managed care contractor as

22 described in subparagraph (C), that operates a

23 managed care plan.
72

•S 1978 IS

1 ‘‘(C) MANAGED CARE CONTRACTOR DE2 FINED.—For purposes of this title, a managed

3 care contractor means a person that—

4 ‘‘(i) establishes, operates or maintains

5 a network of participating providers;

6 ‘‘(ii) conducts or arranges for utiliza7 tion review activities; and

8 ‘‘(iii) contracts with an insurance

9 company, a hospital or medical service

10 plan, an employer, an employee organiza11 tion, or any other entity providing coverage

12 for health care services to operate a man13 aged care plan.

14 ‘‘(6) PARTICIPATING PROVIDER.—The term

15 ‘participating provider’ means a physician, hospital,

16 pharmacy, laboratory, or other appropriately licensed

17 provider of health care services or supplies, that has

18 entered into an agreement with a managed care en19 tity to provide such services or supplies to a patient

20 covered under a managed care plan.

21 ‘‘(7) REVIEW AND RECERTIFICATION.—The

22 Secretary shall establish procedures for the periodic

23 review and recertification of qualified managed care

24 plans and qualified utilization review programs.
73

•S 1978 IS

1 ‘‘(8) TERMINATION OF CERTIFICATION.—The

2 Secretary shall terminate the certification of a quali3 fied managed care plan or a qualified utilization re4 view program if the Secretary determines that such

5 plan or program no longer meets the applicable re6 quirements for certification. Before effecting a ter7 mination, the Secretary shall provide the plan notice

8 and opportunity for a hearing on the proposed ter9 mination.

10 ‘‘(9) CERTIFICATION THROUGH ALTERNATIVE

11 REQUIREMENTS.—

12 ‘‘(A) CERTAIN ORGANIZATIONS RECOG13 NIZED.—An eligible organization as defined in

14 section 1876(b), shall be deemed to meet the

15 requirements of subsection (b) for certification

16 as a qualified managed care plan.

17 ‘‘(B) RECOGNITION OF ACCREDITATION.—

18 If the Secretary finds that a State licensure

19 program or a national accreditation body estab20 lishes a requirement or requirements for accred21 itation of a managed care plan or utilization re22 view program that are at least equivalent to a

23 requirement or requirements established under

24 subsection (b), the Secretary may, to the extent

25 he finds it appropriate, treat a managed care
74

•S 1978 IS

1 plan or a utilization review program thus ac2 credited as meeting the requirement or require3 ments of subsection (b) with respect to which

4 he made such finding.

5 ‘‘(b) REQUIREMENTS FOR CERTIFICATION.—

6 ‘‘(1) MANAGED CARE PLANS.—The Secretary,

7 in consultation with the Health Care Cost Commis8 sion, shall establish Federal standards for the cer9 tification of qualified managed care plans, including

10 standards related to—

11 ‘‘(A) the qualification and selection of par12 ticipating providers;

13 ‘‘(B) the number, type, and distribution of

14 participating providers necessary to assure that

15 all covered items and services are available and

16 accessible to persons covered under a managed

17 care plan in each service area;

18 ‘‘(C) the establishment and operation of an

19 ongoing quality assurance program, which in20 cludes procedures for—

21 ‘‘(i) evaluating the quality and appro22 priateness of care;

23 ‘‘(ii) using the results of quality eval24 uations to promote and improve quality of

25 care; and
75

•S 1978 IS

1 ‘‘(iii) resolving complaints from enroll2 ees regarding quality and appropriateness

3 of care;

4 ‘‘(D) the provision of benefits for covered

5 items and services not furnished by participat6 ing providers if the items and services are medi7 cally necessary and immediately required be8 cause of an unforeseen illness, injury, or condi9 tion;

10 ‘‘(E) the qualifications of individuals per11 forming utilization review activities;

12 ‘‘(F) procedures and criteria for evaluating

13 the necessity and appropriateness of health care

14 services;

15 ‘‘(G) the timeliness with which utilization

16 review determinations are to be made;

17 ‘‘(H) procedures for the operation of an

18 appeals process which provides a fair oppor19 tunity for individuals adversely affected by a

20 managed care review determination to have

21 such determination reviewed;

22 ‘‘(I) procedures for ensuring that all appli23 cable Federal and State laws designed to pro24 tect the confidentiality of individual medical

25 records are followed; and
76

•S 1978 IS

1 ‘‘(J) payment of providers for the expenses

2 associated with responding to requests for in3 formation needed to conduct a utilization re4 view.

5 ‘‘(2) QUALIFIED UTILIZATION REVIEW PRO6 GRAMS.—The Secretary, in consultation with the

7 Health Care Cost Commission, shall establish Fed8 eral standards for the certification of qualified utili9 zation review programs, including standards related

10 to—

11 ‘‘(A) the qualifications of individuals per12 forming utilization review activities;

13 ‘‘(B) procedures and criteria for evaluating

14 the necessity and appropriateness of health care

15 services;

16 ‘‘(C) the timeliness with which utilization

17 review determinations are to be made;

18 ‘‘(D) procedures for the operation of an

19 appeals process which provides a fair oppor20 tunity for individuals adversely affected by a

21 utilization review determination to have such

22 determination reviewed;

23 ‘‘(E) procedures for ensuring that all ap24 plicable Federal and State laws designed to pro-
77

•S 1978 IS

1 tect the confidentiality of individual medical

2 records are followed; and

3 ‘‘(F) payment of providers for the expenses

4 associated with responding to requests for in5 formation needed to conduct a utilization re6 view.

7 ‘‘(3) APPLICATION OF STANDARDS.—

8 ‘‘(A) IN GENERAL.—Standards shall first

9 be established under this subsection by not later

10 than 24 months after the date of the enactment

11 of this section. In developing standards under

12 this subsection, the Secretary shall—

13 ‘‘(i) review standards in use by na14 tional private accreditation organizations

15 and State licensure programs;

16 ‘‘(ii) recognize, to the extent appro17 priate, differences in the organizational

18 structure and operation of managed care

19 plans; and

20 ‘‘(iii) establish procedures for the

21 timely consideration of applications for cer22 tification by managed care plans and utili23 zation review programs.

24 ‘‘(B) REVISION OF STANDARDS.—The Sec25 retary shall periodically review the standards
78

•S 1978 IS

1 established under this subsection, taking into

2 account recommendations by the Health Care

3 Cost Commission, and may revise the standards

4 from time to time to assure that such standards

5 continue to reflect appropriate policies and

6 practices for the cost-effective and medically ap7 propriate use of services within managed care

8 plans and utilization review programs.

9 ‘‘(c) LIMITATION ON STATE RESTRICTIONS ON

10 QUALIFIED MANAGED CARE PLANS AND UTILIZATION

11 REVIEW PROGRAMS.—

12 ‘‘(1) IN GENERAL.—No requirement of any

13 State law or regulation shall—

14 ‘‘(A) prohibit or limit a qualified managed

15 care plan from including financial incentives for

16 covered persons to use the services of partici17 pating providers;

18 ‘‘(B) prohibit or limit a qualified managed

19 care plan from restricting coverage of services

20 to those—

21 ‘‘(i) provided by a participating pro22 vider; or

23 ‘‘(ii) authorized by a designated par24 ticipating provider;

25 ‘‘(C) subject to paragraph (2)—
79

•S 1978 IS

1 ‘‘(i) restrict the amount of payment

2 made by a qualified managed care plan to

3 participating providers for items and serv4 ices provided to covered persons; or

5 ‘‘(ii) restrict the ability of a qualified

6 managed care plan to pay participating

7 providers for items and services provided

8 to covered persons on a per capita basis;

9 ‘‘(D) prohibit or limit a qualified managed

10 care plan from restricting the location, number,

11 type, or professional qualifications of participat12 ing providers;

13 ‘‘(E) prohibit or limit a qualified managed

14 care plan from requiring that items and services

15 be authorized by a primary care physician se16 lected by the covered person from a list of avail17 able participating providers;

18 ‘‘(F) prohibit or limit the use of utilization

19 review procedures or criteria by a qualified uti20 lization review program or a qualified managed

21 care plan;

22 ‘‘(G) require a qualified utilization review

23 program or a qualified managed care plan to

24 make public utilization review procedures or cri25 teria;
80

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1 ‘‘(H) prohibit or limit a qualified utiliza2 tion review program or a qualified managed

3 care plan from determining the location or

4 hours of operation of a utilization review, pro5 vided that emergency services furnished during

6 the hours in which the utilization review pro7 gram is not open are not subject to utilization

8 review;

9 ‘‘(I) require a qualified utilization review

10 program or a qualified managed care plan to

11 pay providers for the expenses associated with

12 responding to requests for information needed

13 to conduct utilization review, other than as pro14 vided in standards for qualified managed care

15 plans and qualified utilization review programs;

16 ‘‘(J) restrict the amount of payment made

17 to a qualified utilization review program or a

18 qualified managed care plan for the conduct of

19 utilization review;

20 ‘‘(K) restrict access by a qualified utiliza21 tion review program or a qualified managed

22 care plan to medical information or personnel

23 required to conduct utilization review;
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1 ‘‘(L) define utilization review as the prac2 tice of medicine or another health care profes3 sion; or

4 ‘‘(M) require that utilization review be con5 ducted (i) by a resident of the State in which

6 the treatment is to be offered or by an individ7 ual licensed in such State, or (ii) by a physician

8 in any particular specialty or with any board

9 certified specialty of the same medical specialty

10 as the provider whose services are being ren11 dered.

12 ‘‘(2) EXCEPTIONS TO CERTAIN REQUIRE13 MENTS.—

14 ‘‘(A) SUBPARAGRAPH (C).—Subparagraph

15 (C) shall not apply where the amount of pay16 ments with respect to a block of services or pro17 viders is established under a statewide system

18 applicable to all non-Federal payors with re19 spect to such services or providers.

20 ‘‘(B) SUBPARAGRAPHS (L) AND (M).—

21 Nothing in subparagraphs (L) or (M) shall be

22 construed as prohibiting a State from (i) re23 quiring that utilization review be conducted by

24 a licensed health care professional or (ii) requir25 ing that any appeal from such a review be made
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1 by a licensed physician or by a licensed physi2 cian in any particular specialty or with any

3 board certified specialty of the same medical

4 specialty as the provider whose services are

5 being rendered.

6 ‘‘(3) RELATIONSHIP TO MEDICAID PROGRAM.—

7 Nothing in paragraph (1) shall be construed as pro8 hibiting a State from imposing requirements on

9 managed care plans or utilization review programs

10 that are necessary to conform with the requirements

11 of title XIX of the Social Security Act with respect

12 to services provided to, or with respect to, individ13 uals receiving medical assistance under such title.’’.

14 TITLE III—HEALTH INSURANCE

15 COSTS FOR SELF-EMPLOYED

16 SEC. 301. HEALTH INSURANCE COSTS FOR SELF-EM17 PLOYED.

18 (a) PERMANENT EXTENSION.—Section 162(l) of the

19 Internal Revenue Code of 1986 (relating to special rules

20 for health insurance costs of self-employed individuals) is

21 amended by striking paragraph (6).

22 (b) INCREASE IN DEDUCTION.—Section 162(l)(1) of

23 the Internal Revenue Code of 1986 is amended by striking

24 ‘‘25 percent of’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1994.

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