I 

109TH CONGRESS 

1ST SESSION H. R. 2002

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

to encourage small business health plans, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 28, 2005

Mr. MOORE of Kansas introduced the following bill; which was referred to the 

Committee on Ways and Means, and in addition to the Committees on 

Energy and Commerce and Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such 

provisions as fall within the jurisdiction of the committee concerned 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

tax incentives to encourage small business health plans, 

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 ‘‘Small Business Health 

5 Insurance Affordability Act of 2005’’. 
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1 SEC. 2. CREDIT FOR HEALTH INSURANCE EXPENSES OF 

2 SMALL BUSINESSES. 

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to business-related credits) is amended by 

6 adding at the end the following: 

7 ‘‘SEC. 45J. SMALL BUSINESS HEALTH INSURANCE EX8 PENSES. 

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

10 in the case of a small employer, the health insurance credit 

11 determined under this section for the taxable year is an 

12 amount equal to the applicable percentage of the expenses 

13 paid or incurred by the taxpayer during the taxable year 

14 for health insurance coverage for such year for employees 

15 of such employer. 

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

17 subsection (a), the applicable percentage is—

18 ‘‘(1) in the case of insurance purchased as a 

19 member of a qualified health benefit purchasing coa20 lition (as defined in section 9841), 40 percent, and 

21 ‘‘(2) in the case of insurance not described in 

22 paragraph (1), 30 percent. 

23 ‘‘(c) LIMITATIONS.—

24 ‘‘(1) PER EMPLOYEE DOLLAR LIMITATION.—

25 The amount of expenses taken into account under 
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1 subsection (a) with respect to any employee for any 

2 taxable year shall not exceed—

3 ‘‘(A) in the case of insurance purchased as 

4 a member of a coalition referred to in sub5 section (b)(1)—

6 ‘‘(i) $800 in the case of self-only cov7 erage, and 

8 ‘‘(ii) $2,000 in the case of family cov9 erage, and 

10 ‘‘(B) in any other case—

11 ‘‘(i) $600 in the case of self-only cov12 erage, and 

13 ‘‘(ii) $1,500 in the case of family cov14 erage. 

15 In the case of an employee who is covered for only 

16 a portion of such taxable year, the limitation under 

17 the preceding sentence shall be an amount which 

18 bears the same ratio to such limitation (determined 

19 without regard to this sentence) as such portion 

20 bears to the entire taxable year. 

21 ‘‘(2) PERIOD OF COVERAGE.—Expenses may be 

22 taken into account under subsection (a) only with 

23 respect to coverage for the 4-year period beginning 

24 on the later of—
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1 ‘‘(A) the date of the enactment of this sec2 tion, or 

3 ‘‘(B) the earliest date that the employee is 

4 covered under the plan. 

5 ‘‘(3) EMPLOYER MUST BEAR 65 PERCENT OF

6 COST AND COVER 70 PERCENT OF QUALIFIED EM7 PLOYEES.—Expenses may be taken into account 

8 under subsection (a) only if—

9 ‘‘(A) at least 65 percent of the cost of the 

10 coverage (without regard to this section) is 

11 borne by the employer, and 

12 ‘‘(B) the plan provides health insurance 

13 coverage to at least 70 percent of the qualified 

14 employees of such employer. 

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

16 ‘‘(1) HEALTH INSURANCE COVERAGE.—The 

17 term ‘health insurance coverage’ has the meaning 

18 given such term by section 9832(b)(1). 

19 ‘‘(2) QUALIFIED EMPLOYEE.—

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

21 employee’ means any employee of an employer 

22 if the annual rate of such employee’s compensa23 tion (as defined in section 414(s)) does not ex24 ceed $40,000. 
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1 ‘‘(B) TREATMENT OF CERTAIN EMPLOY2 EES.—The term ‘employee’ shall include a 

3 leased employee within the meaning of section 

4 414(n). 

5 ‘‘(C) REDUCTION OF CREDIT FOR EMPLOY6 EES EARNING MORE THAN $30,000.—If the an7 nual rate of an employee’s compensation (as de8 fined in section 414(s)) exceeds $30,000, the 

9 applicable limitation under subsection (c)(1) 

10 (determined without regard to this clause) shall 

11 be reduced (but not below zero) by an amount 

12 which bears the same ratio to such limitation as 

13 such excess bears to $10,000. 

14 ‘‘(D) EMPLOYEES HAVING FAMILY COV15 ERAGE.—In the case of an employee who has 

16 family coverage—

17 ‘‘(i) subparagraph (A) shall be applied 

18 by substituting ‘$50,000’ for ‘$40,000’, 

19 and 

20 ‘‘(ii) subparagraph (C) shall be ap21 plied by substituting ‘$40,000’ for 

22 ‘$30,000’. 

23 ‘‘(3) SMALL EMPLOYER.—The term ‘small em24 ployer’ has the meaning given to such term by sec-
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1 tion 4980D(d)(2); except that only qualified employ2 ees shall be taken into account. 

3 ‘‘(e) SPECIAL RULES.—

4 ‘‘(1) CERTAIN RULES MADE APPLICABLE.—For 

5 purposes of this section, rules similar to the rules of 

6 section 52 shall apply. 

7 ‘‘(2) AMOUNTS PAID UNDER SALARY REDUC8 TION ARRANGEMENTS.—No amount paid or incurred 

9 pursuant to a salary reduction arrangement shall be 

10 taken into account under subsection (a). 

11 ‘‘(3) INFLATION ADJUSTMENT.—In the case of 

12 any taxable year beginning in a calendar year after 

13 2006, each dollar amount contained in subsections 

14 (c)(1) and (d)(2)(B) shall be increased by an 

15 amount equal to—

16 ‘‘(A) such dollar amount, multiplied by 

17 ‘‘(B) the cost-of-living adjustment deter18 mined under section 1(f)(3) for the calendar 

19 year in which the taxable year begins, deter20 mined by substituting ‘calendar year 2005’ for 

21 ‘calendar year 1992’ in subparagraph (B) 

22 thereof. 

23 Any increase determined under the preceding sen24 tence shall be rounded to the nearest multiple of 

25 $50. 
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1 ‘‘(f) TERMINATION.—This section shall not apply to 

2 expenses paid or incurred by an employer with respect to 

3 any arrangement established on or after January 1, 

4 2010.’’. 

5 (b) CREDIT TO BE PART OF GENERAL BUSINESS

6 CREDIT.—Section 38(b) of such Code (relating to current 

7 year business credit) is amended by striking ‘‘plus’’ at the 

8 end of paragraph (18), by striking the period at the end 

9 of paragraph (19) and inserting ‘‘, plus’’, and by adding 

10 at the end the following: 

11 ‘‘(20) in the case of a small employer (as de12 fined in section 45J(d)(3)), the health insurance 

13 credit determined under section 45J(a).’’. 

14 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C of 

15 such Code is amended by adding at the end the following 

16 new subsection: 

17 ‘‘(e) CREDIT FOR SMALL BUSINESS HEALTH INSUR18 ANCE EXPENSES.—

19 ‘‘(1) IN GENERAL.—No deduction shall be al20 lowed for that portion of the expenses (otherwise al21 lowable as a deduction) taken into account in deter22 mining the credit under section 45J for the taxable 

23 year which is equal to the amount of the credit de24 termined for such taxable year under section 45J(a). 
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1 ‘‘(2) CONTROLLED GROUPS.—Persons treated 

2 as a single employer under subsection (a) or (b) of 

3 section 52 shall be treated as 1 person for purposes 

4 of this section.’’. 

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

6 for subpart D of part IV of subchapter A of chapter 1 

7 of such Code is amended by adding at the end the fol8 lowing:

‘‘Sec. 45J. Small business health insurance expenses.’’.

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

10 this section shall apply to amounts paid or incurred in tax11 able years beginning after December 31, 2005. 

12 SEC. 3. CERTAIN GRANTS BY PRIVATE FOUNDATIONS TO 

13 QUALIFIED HEALTH BENEFIT PURCHASING 

14 COALITIONS. 

15 (a) IN GENERAL.—Section 4942 of the Internal Rev16 enue Code of 1986 (relating to taxes on failure to dis17 tribute income) is amended by adding at the end the fol18 lowing: 

19 ‘‘(k) CERTAIN QUALIFIED HEALTH BENEFIT PUR20 CHASING COALITION DISTRIBUTIONS.—

21 ‘‘(1) IN GENERAL.—For purposes of subsection 

22 (g), sections 170, 501, 507, 509, and 2522, and this 

23 chapter, a qualified health benefit purchasing coali24 tion distribution by a private foundation shall be 
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1 considered to be a distribution for a charitable pur2 pose. 

3 ‘‘(2) QUALIFIED HEALTH BENEFIT PUR4 CHASING COALITION DISTRIBUTION.—For purposes 

5 of paragraph (1)—

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

7 health benefit purchasing coalition distribution’ 

8 means any amount paid or incurred by a pri9 vate foundation to or on behalf of a qualified 

10 health benefit purchasing coalition (as defined 

11 in section 9841) for purposes of payment or re12 imbursement of amounts paid or incurred in 

13 connection with the establishment and mainte14 nance of such coalition. 

15 ‘‘(B) EXCLUSIONS.—Such term shall not 

16 include any amount used by a qualified health 

17 benefit purchasing coalition (as so defined)—

18 ‘‘(i) for the purchase of real property, 

19 ‘‘(ii) as payment to, or for the benefit 

20 of, members (or employees or affiliates of 

21 such members) of such coalition, or 

22 ‘‘(iii) for any expense paid or incurred 

23 more than 48 months after the date of es24 tablishment of such coalition. 
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1 ‘‘(3) TERMINATION.—This subsection shall not 

2 apply—

3 ‘‘(A) to qualified health benefit purchasing 

4 coalition distributions paid or incurred after 

5 December 31, 2010, and 

6 ‘‘(B) with respect to start-up costs of a co7 alition which are paid or incurred after Decem8 ber 31, 2012.’’. 

9 (b) QUALIFIED HEALTH BENEFIT PURCHASING CO10 ALITION.—

11 (1) IN GENERAL.—Chapter 100 of such Code 

12 (relating to group health plan requirements) is 

13 amended by adding at the end the following new 

14 subchapter: 

15 ‘‘Subchapter D—Qualified Health Benefit 

16 Purchasing Coalition

‘‘Sec. 9841. Qualified health benefit purchasing coalition.

17 ‘‘SEC. 9841. QUALIFIED HEALTH BENEFIT PURCHASING CO18 ALITION. 

19 ‘‘(a) IN GENERAL.—A qualified health benefit pur20 chasing coalition is a private not-for-profit corporation 

21 which—

22 ‘‘(1) sells health insurance through State li23 censed health insurance issuers in the State in which 
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1 the employers to which such coalition is providing 

2 insurance are located, and 

3 ‘‘(2) establishes to the Secretary, under State 

4 certification procedures or other procedures as the 

5 Secretary may provide by regulation, that such coali6 tion meets the requirements of this section. 

7 ‘‘(b) BOARD OF DIRECTORS.—

8 ‘‘(1) IN GENERAL.—Each purchasing coalition 

9 under this section shall be governed by a Board of 

10 Directors. 

11 ‘‘(2) ELECTION.—The Secretary shall establish 

12 procedures governing election of such Board. 

13 ‘‘(3) MEMBERSHIP.—The Board of Directors 

14 shall—

15 ‘‘(A) be composed of representatives of the 

16 members of the coalition, in equal number, in17 cluding small employers and employee rep18 resentatives of such employers, but 

19 ‘‘(B) not include other interested parties, 

20 such as health care service providers, health in21 surers, or insurance agents or brokers which 

22 may have a conflict of interest with the pur23 poses of the coalition. 

24 ‘‘(c) MEMBERSHIP OF COALITION.—
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1 ‘‘(1) IN GENERAL.—A purchasing coalition 

2 shall accept all small employers residing within the 

3 area served by the coalition as members if such em4 ployers request such membership. 

5 ‘‘(2) OTHER MEMBERS.—The coalition, at the 

6 discretion of its Board of Directors, may be open to 

7 individuals and large employers. 

8 ‘‘(3) VOTING.—Members of a purchasing coali9 tion shall have voting rights consistent with the rules 

10 established by the State. 

11 ‘‘(d) DUTIES OF PURCHASING COALITIONS.—Each 

12 purchasing coalition shall—

13 ‘‘(1) enter into agreements with small employ14 ers (and, at the discretion of its Board, with individ15 uals and other employers) to provide health insur16 ance benefits to employees and retirees of such em17 ployers, 

18 ‘‘(2) where it is feasible and advisable, enter 

19 into agreements with 3 or more unaffiliated, quali20 fied licensed health plans, to offer benefits to mem21 bers, 

22 ‘‘(3) offer to members at least 1 open enroll23 ment period of at least 30 days per calendar year, 
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1 ‘‘(4)(A) serve a geographical area which, under 

2 the State certification procedures referred to in sub3 section (a)(2), is significant, and 

4 ‘‘(B) market to all eligible members in that 

5 area, and 

6 ‘‘(5) carry out other functions provided for 

7 under this section. 

8 ‘‘(e) LIMITATION ON ACTIVITIES.—A purchasing coa9 lition shall not—

10 ‘‘(1) perform any activity (including certifi11 cation or enforcement) relating to compliance or li12 censing of health plans, 

13 ‘‘(2) assume insurance or financial risk in rela14 tion to any health plan, or 

15 ‘‘(3) perform other activities identified by the 

16 State as being inconsistent with the performance of 

17 its duties under this section. 

18 ‘‘(f) ADDITIONAL REQUIREMENTS FOR PURCHASING

19 COALITIONS.—As provided by the Secretary in regula20 tions, a purchasing coalition shall be subject to require21 ments similar to the requirements of a group health plan 

22 under this chapter. 

23 ‘‘(g) RELATION TO OTHER LAWS.—

24 ‘‘(1) PREEMPTION OF STATE FICTITIOUS

25 GROUP LAWS.—Requirements (commonly referred to 
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1 as fictitious group laws) relating to grouping and 

2 similar requirements for health insurance coverage 

3 are preempted to the extent such requirements im4 pede the establishment and operation of qualified 

5 health benefit purchasing coalitions. 

6 ‘‘(2) ALLOWING SAVINGS TO BE PASSED

7 THROUGH.—Any State law that prohibits health in8 surance issuers from reducing premiums on health 

9 insurance coverage sold through a qualified health 

10 benefit purchasing coalition to reflect administrative 

11 savings is preempted. This paragraph shall not be 

12 construed to preempt State laws that impose restric13 tions on premiums based on health status, claims 

14 history, industry, age, gender, or other underwriting 

15 factors. 

16 ‘‘(3) NO WAIVER OF HIPAA REQUIREMENTS.—

17 Nothing in this section shall be construed to change 

18 the obligation of health insurance issuers to comply 

19 with the requirements of title XXVII of the Public 

20 Health Service Act with respect to health insurance 

21 coverage offered to small employers in the small 

22 group market through a qualified health benefit pur23 chasing coalition. 

24 ‘‘(h) DEFINITION OF SMALL EMPLOYER.—For pur25 poses of this section—
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1 ‘‘(1) IN GENERAL.—The term ‘small employer’ 

2 means, with respect to any calendar year, any em3 ployer if such employer employed an average of at 

4 least 2 and not more than 50 qualified employees on 

5 business days during either of the 2 preceding cal6 endar years. For purposes of the preceding sentence, 

7 a preceding calendar year may be taken into account 

8 only if the employer was in existence throughout 

9 such year. 

10 ‘‘(2) EMPLOYERS NOT IN EXISTENCE IN PRE11 CEDING YEAR.—In the case of an employer which 

12 was not in existence throughout the 1st preceding 

13 calendar year, the determination under paragraph 

14 (1) shall be based on the average number of quali15 fied employees that it is reasonably expected such 

16 employer will employ on business days in the current 

17 calendar year.’’. 

18 (2) CONFORMING AMENDMENT.—The table of 

19 subchapters for chapter 100 of such Code is amend20 ed by adding at the end the following item:

‘‘SUBCHAPTER D. QUALIFIED HEALTH BENEFIT PURCHASING COALITION’’.

21 (c) EFFECTIVE DATE.—The amendment made by 

22 subsection (a) shall apply to taxable years beginning after 

23 December 31, 2004. 
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1 SEC. 4. STATE GRANT PROGRAM FOR MARKET INNOVA2 TION. 

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

4 Human Services (in this section referred to as the ‘‘Sec5 retary’’) shall establish a program (in this section referred 

6 to as the ‘‘program’’) to award demonstration grants 

7 under this section to States to allow States to demonstrate 

8 the effectiveness of innovative ways to increase access to 

9 health insurance through market reforms and other inno10 vative means. Such innovative means may include (and are 

11 not limited to) any of the following: 

12 (1) Alternative group purchasing or pooling ar13 rangements, such as a purchasing cooperatives for 

14 small businesses, reinsurance pools, or high risk 

15 pools. 

16 (2) Individual or small group market reforms. 

17 (3) Consumer education and outreach. 

18 (4) Subsidies to individuals, employers, or both, 

19 in obtaining health insurance. 

20 (b) SCOPE; DURATION.—The program shall be lim21 ited to not more than 10 States and to a total period of 

22 5 years, beginning on the date the first demonstration 

23 grant is made. 

24 (c) CONDITIONS FOR DEMONSTRATION GRANTS.—

25 (1) IN GENERAL.—The Secretary may not pro26 vide for a demonstration grant to a State under the 
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1 program unless the Secretary finds that under the 

2 proposed demonstration grant—

3 (A) the State will provide for demonstrated 

4 increase of access for some portion of the exist5 ing uninsured population through a market in6 novation (other than merely through a financial 

7 expansion of a program initiated before the 

8 date of the enactment of this Act); 

9 (B) the State will comply with applicable 

10 Federal laws; 

11 (C) the State will not discriminate among 

12 participants on the basis of any health status13 related factor (as defined in section 2791(d)(9) 

14 of the Public Health Service Act), except to the 

15 extent a State wishes to focus on populations 

16 that otherwise would not obtain health insur17 ance because of such factors; and 

18 (D) the State will provide for such evalua19 tion, in coordination with the evaluation re20 quired under subsection (d), as the Secretary 

21 may specify. 

22 (2) APPLICATION.—The Secretary shall not 

23 provide a demonstration grant under the program to 

24 a State unless—
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1 (A) the State submits to the Secretary 

2 such an application, in such a form and man3 ner, as the Secretary specifies; 

4 (B) the application includes information 

5 regarding how the demonstration grant will ad6 dress issues such as governance, targeted popu7 lation, expected cost, and continuation after the 

8 completion of the demonstration grant period; 

9 and 

10 (C) the Secretary determines that the dem11 onstration grant will be used in a manner con12 sistent with this section. 

13 (3) FOCUS.—A demonstration grant proposal 

14 under this section need not cover all uninsured indi15 viduals in a State or all health care benefits with re16 spect to such individuals. 

17 (d) EVALUATION.—The Secretary shall enter into a 

18 contract with an appropriate entity outside the Depart19 ment of Health and Human Services to conduct an overall 

20 evaluation of the program at the end of the program pe21 riod. Such evaluation shall include an analysis of improve22 ments in access, costs, quality of care, or choice of cov23 erage, under different demonstration grants. 

24 (e) OPTION TO PROVIDE FOR INITIAL PLANNING

25 GRANTS.—The Secretary may provide for a portion of the 
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1 amounts appropriated under subsection (f) (not to exceed 

2 $5,000,000) to be made available to any State for initial 

3 planning grants to permit States to develop demonstration 

4 grant proposals under this section. 

5 (f) AUTHORIZATION OF APPROPRIATIONS.—There 

6 are authorized to be appropriated $100,000,000 for each 

7 fiscal year to carry out this section. Amounts appropriated 

8 under this subsection shall remain available until ex9 pended. 

10 (g) STATE DEFINED.—For purposes of this section, 

11 the term ‘‘State’’ has the meaning given such term for 

12 purposes of title XIX of the Social Security Act. 

13 SEC. 5. GRANT PROGRAM TO FACILITATE HEALTH BENE14 FITS INFORMATION FOR SMALL EMPLOYERS. 

15 (a) IN GENERAL.—The Small Business Administra16 tion shall award grants to 1 or more States, local govern17 ments, and non-profit organizations for the purposes of—

18 (1) demonstrating new and effective ways to 

19 provide information about the benefits of health in20 surance to small employers, including tax benefits, 

21 increased productivity of employees, and decreased 

22 turnover of employees, 

23 (2) making employers aware of their current 

24 rights in the marketplace under State and Federal 

25 health insurance reforms, and 
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1 (3) making employers aware of the tax treat2 ment of insurance premiums. 

3 (b) AUTHORIZATION.—There is authorized to be ap4 propriated $10,000,000 for each of the first 5 fiscal years 

5 beginning after the date of the enactment of this Act for 

6 grants under subsection (a).

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