I 

109TH CONGRESS 

1ST SESSION H. R. 2073 

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

encourage small employers to offer affordable health coverage to their 

employees through qualified health pooling arrangements, to encourage 

the establishment and operation of these arrangements, and for other 

purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 4, 2005 

Mr. BARROW (for himself, Mr. DINGELL, Mr. RANGEL, Mr. STARK, Mr. 

BROWN of Ohio, Mr. WAXMAN, Ms. PELOSI, Mr. GEORGE MILLER of 

California, Mr. PALLONE, Mr. ACKERMAN, Mr. ALLEN, Mr. ANDREWS, 

Mr. BACA, Ms. BALDWIN, Mr. BERMAN, Mr. BLUMENAUER, Mr. BOUCHER, Ms. CORRINE BROWN of Florida, Mr. BUTTERFIELD, Mr. 

CARNAHAN, Ms. CARSON, Mr. CLEAVER, Mr. CROWLEY, Mr. CUMMINGS, 

Mrs. DAVIS of California, Mr. DEFAZIO, Ms. DEGETTE, Ms. DELAURO, 

Mr. DOGGETT, Mr. ENGEL, Ms. ESHOO, Mr. FARR, Mr. FORD, Mr. GONZALEZ, Mr. AL GREEN of Texas, Mr. GENE GREEN of Texas, Mr. 

GRIJALVA, Mr. HASTINGS of Florida, Ms. HERSETH, Mr. HIGGINS, Mr. 

HINCHEY, Mr. HINOJOSA, Ms. NORTON, Mr. HOLT, Mr. HONDA, Mr. 

HOYER, Ms. JACKSON-LEE of Texas, Mr. JEFFERSON, Mr. KILDEE, Ms. 

KILPATRICK of Michigan, Mr. LANGEVIN, Mr. LANTOS, Mr. LARSEN of 

Washington, Mr. LARSON of Connecticut, Mr. LEWIS of Georgia, Mr. 

LYNCH, Mrs. MALONEY, Mr. MARKEY, Mrs. MCCARTHY, Ms. MCCOLLUM

of Minnesota, Mr. MCDERMOTT, Mr. MCGOVERN, Mr. MCNULTY, Mr. 

MEEKS of New York, Mr. MELANCON, Mr. MENENDEZ, Mr. MICHAUD, 

Ms. MILLENDER-MCDONALD, Mr. MURTHA, Mr. NADLER, Mr. OBERSTAR, Mr. OLVER, Mr. ORTIZ, Mr. OWENS, Mr. PASCRELL, Mr. PAYNE, 

Mr. REYES, Mr. ROSS, Ms. ROYBAL-ALLARD, Mr. RUPPERSBERGER, Mr. 

RYAN of Ohio, Mr. SALAZAR, Ms. LINDA T. SA ́NCHEZ of California, Ms. 

SCHAKOWSKY, Mr. SCHIFF, Ms. SCHWARTZ of Pennsylvania, Mr. SCOTT

of Georgia, Mr. SERRANO, Ms. SLAUGHTER, Mr. STRICKLAND, Mr. STUPAK, Mr. TIERNEY, Mr. VAN HOLLEN, Ms. WASSERMAN SCHULTZ, Mr. 

WEINER, and Ms. WOOLSEY) 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 Education and the Workforce, 

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 
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A BILL 

To amend the Internal Revenue Code of 1986 to provide 

tax subsidies to encourage small employers to offer affordable health coverage to their employees through 

qualified health pooling arrangements, to encourage the 

establishment and operation of these arrangements, and 

for other purposes. 

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Small Business Health Insurance Promotion Act of 

6 2005’’. 

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

8 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Temporary tax credit for small employers offering health coverage 

through a qualified health pooling arrangement. 

Sec. 3. Qualified State health pooling arrangements. 

Sec. 4. Establishment of national health pooling arrangement. 

Sec. 5. Funding of pooling arrangements. 

Sec. 6. Institute of Medicine study and report. 

9 SEC. 2. TEMPORARY TAX CREDIT FOR SMALL EMPLOYERS 

10 OFFERING HEALTH COVERAGE THROUGH A 

11 QUALIFIED HEALTH POOLING ARRANGE12 MENT. 

13 (a) IN GENERAL.—Subpart D of part IV of sub14 chapter A of chapter 1 of the Internal Revenue Code of 

15 1986 (relating to business-related credits) is amended by 

16 adding at the end the following: 
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1 ‘‘SEC. 45J. SMALL BUSINESS HEALTH POOL ARRANGE2 MENTS. 

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

4 in the case of an eligible small employer, the health pool 

5 arrangement credit determined under this section for the 

6 taxable year is an amount equal to 50 percent of amounts 

7 paid or incurred by the employer during the taxable year 

8 as premiums for self-only or family coverage for health 

9 benefits under a qualified health pooling arrangement for 

10 employees of such employer. 

11 ‘‘(b) LIMITATIONS.— 

12 ‘‘(1) EMPLOYER MUST BEAR 50 PERCENT OF

13 COST.—Expenses may be taken into account under 

14 subsection (a) only if at least 50 percent of the pre15 miums under the qualified health pooling arrange16 ment are paid by the employer. 

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

18 taken into account under subsection (a) only with 

19 respect to coverage for the 4-year period beginning 

20 on the date the employer first begins participating in 

21 a qualified health pooling arrangement. 

22 ‘‘(3) EMPLOYERS OFFERING OTHER HEALTH

23 BENEFITS.—In the case of an employer who paid or 

24 incurred any expenses for health benefits for the em25 ployees of such employer during the first taxable 

26 year ending on or after the date of the enactment 
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1 of this section, subsection (a) shall apply to such 

2 employer only if such employer begins participating 

3 in a qualified health pooling arrangement during the 

4 2-year period beginning on the later of— 

5 ‘‘(A) the date of the enactment of this sec6 tion, or 

7 ‘‘(B) the first date that a qualified health 

8 pooling arrangement exists which allows such 

9 employer to participate. 

10 ‘‘(4) NO EMPLOYEES EXCLUDED.—Subsection 

11 (a) shall not apply to an employer for any period un12 less at all times during such period coverage for 

13 health benefits under a qualified health pooling ar14 rangement is available to all employees of such em15 ployer under similar terms. 

16 ‘‘(5) AMOUNTS PAID UNDER SALARY REDUC17 TION ARRANGEMENTS.—No amount paid or incurred 

18 pursuant to a salary reduction arrangement shall be 

19 taken into account under subsection (a). 

20 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur21 poses of this section— 

22 ‘‘(1) ELIGIBLE SMALL EMPLOYER.— 

23 ‘‘(A) IN GENERAL.—The term ‘eligible 

24 small employer’ means an employer who em25 ployed, with respect to the calendar year in 
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1 which such employer first begins participating 

2 in a qualified health pooling arrangement, an 

3 average of not more than 50 employees on busi4 ness days during the preceding calendar year. 

5 ‘‘(B) EMPLOYERS NOT IN EXISTENCE IN

6 PRECEDING YEAR.—In the case of an employer 

7 which was not in existence throughout the pre8 ceding calendar year, the determination of 

9 whether such employer is an eligible small em10 ployer shall be based on the average number of 

11 employees that it is reasonably expected such 

12 employer will employ on business days in the 

13 current calendar year. 

14 ‘‘(C) PERMANENT STATUS AS ELIGIBLE

15 SMALL EMPLOYER.—In the case of an employer 

16 who meets the requirements of this subsection 

17 with respect to the calendar year in which such 

18 employer first begins participating in a quali19 fied health pooling arrangement, such employer 

20 shall not fail to be treated as an eligible small 

21 employer for any subsequent calendar year. 

22 ‘‘(D) PREDECESSORS.—The Secretary may 

23 prescribe regulations which provide for ref24 erences in this paragraph to an employer to be 
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1 treated as including references to predecessors 

2 of such employer. 

3 ‘‘(2) SELF-EMPLOYED INDIVIDUALS.— 

4 ‘‘(A) TREATMENT AS EMPLOYEE.—The 

5 term ‘employee’ includes an individual who is 

6 an employee within the meaning of section 

7 401(c)(1) (relating to self-employed individ8 uals). 

9 ‘‘(B) TREATMENT AS EMPLOYER.—An in10 dividual who owns the entire interest in an un11 incorporated trade or business shall be treated 

12 as his own employer. A partnership shall be 

13 treated as the employer of each partner who is 

14 an employee within the meaning of subpara15 graph (A). 

16 ‘‘(3) FAMILY COVERAGE.—The term ‘family 

17 coverage’ means coverage for health benefits of the 

18 employee and qualified family members of the em19 ployee (as defined in section 35(d), but without re20 gard to the last sentence of paragraph (1) thereof). 

21 ‘‘(4) QUALIFIED HEALTH POOLING ARRANGE22 MENT.—The term ‘qualified health pooling arrange23 ment’ means a qualified State health pooling ar24 rangement described in section 3 of the Small Busi25 ness Health Insurance Promotion Act of 2005 or the 
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1 national health pooling arrangement described in 

2 section 4 of such Act. 

3 ‘‘(5) CERTAIN RULES MADE APPLICABLE.— 

4 Rules similar to the rules of section 52 shall apply 

5 for purposes of this section.’’. 

6 (b) CREDIT TO BE PART OF GENERAL BUSINESS

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

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

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

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

11 at the end the following: 

12 ‘‘(20) in the case of an eligible small employer 

13 (as defined in section 45J(c)), the health pool ar14 rangement credit determined under section 45J(a).’’. 

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

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

17 new subsection: 

18 ‘‘(e) CREDIT FOR SMALL BUSINESS HEALTH POOL

19 ARRANGEMENTS.— 

20 ‘‘(1) IN GENERAL.—No deduction shall be al21 lowed for that portion of the expenses (otherwise al22 lowable as a deduction) taken into account in deter23 mining the credit under section 45J for the taxable 

24 year which is equal to the amount of the credit de25 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 pool arrangements.’’. 

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, 2004, for ar12 rangements established after the date of the enactment 

13 of this Act. 

14 SEC. 3. QUALIFIED STATE HEALTH POOLING ARRANGE15 MENTS. 

16 (a) DEFINED.—For purposes of this Act, the term 

17 ‘‘qualified State health pooling arrangement’’ means an 

18 arrangement established by a State which meets the fol19 lowing requirements: 

20 (1) HEALTH BENEFITS COVERAGE.—The ar21 rangement provides health benefits coverage that the 

22 Secretaries of Health and Human Services and 

23 Labor jointly determine is substantially similar to 

24 the health benefits coverage in any of the four larg25 est health benefits plans (determined by enrollment) 
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1 offered under chapter 89 of title 5, United States 

2 Code. 

3 (2) GROUP HEALTH PLAN REQUIREMENTS.— 

4 The health benefits coverage provided under the ar5 rangement meets the requirements applicable to a 

6 group health plan under chapter 100 of the Internal 

7 Revenue Code of 1986, part 7 of subtitle B of title 

8 I of the Employee Retirement Income Security Act 

9 of 1974, and State law. 

10 (3) GUARANTEED ISSUE AND RENEWABLE.— 

11 The arrangement does not deny coverage (including 

12 renewal of coverage) with respect to employees of 

13 any eligible small employer or qualifying family 

14 members of such employees on the basis of health 

15 status of such employees or family members or any 

16 other condition or requirement that the Secretaries 

17 of Health and Human Services and Labor jointly de18 termine constitutes health underwriting. 

19 (4) NO PREEXISTING CONDITION EXCLUSION.— 

20 The arrangement does not permit a preexisting con21 dition exclusion as defined under section 9801(b)(1) 

22 of the Internal Revenue Code of 1986 and under 

23 section 701(b)(1) of the Employee Retirement In24 come Security Act of 1974 (29 U.S.C. 11(b)(1)). 
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1 (5) NO UNDERWRITING; COMMUNITY-RATED

2 PREMIUMS.—(A) Subject to subparagraph (B), the 

3 arrangement does not permit underwriting, through 

4 a preexisting condition limitation, differential bene5 fits, or different premium levels, or otherwise, with 

6 respect to such coverage for employees or their 

7 qualifying family members. 

8 (B) The premiums charged for such coverage 

9 are community-rated for individuals without regard 

10 to health status. 

11 (6) NO RIDERS.—The arrangement does not 

12 permit riders to the health benefits coverage. 

13 (7) ACCESSIBILITY TO ELIGIBLE SMALL EM14 PLOYERS.—The arrangement makes such coverage 

15 available to an eligible small employer without re16 gard to whether a credit is available under section 

17 45J of the Internal Revenue Code of 1986 with re18 spect to such employer. 

19 (8) MINIMUM OF TWO PLANS OFFERED UNDER

20 THE ARRANGEMENT.—The arrangement makes 

21 available at least two plans for health benefits cov22 erage. 

23 (b) ELIGIBLE SMALL EMPLOYER; SELF-EMPLOYED

24 INDIVIDUAL.—For purposes of this Act, the terms ‘‘eligi25 ble small employer’’ and ‘‘employee’’ have the same mean-
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1 ings as when such terms are used in section 45J of the 

2 Internal Revenue Code of 1986 and rules similar to the 

3 rules of subsection (c) of such section shall apply for pur4 poses of this Act. 

5 (c) QUALIFYING FAMILY MEMBER.—For purposes of 

6 this Act, the term ‘‘qualifying family member’’ has the 

7 meaning given such term in section 35(d) of the Internal 

8 Revenue Code of 1986, applied without regard to the last 

9 sentence of paragraph (1) thereof. 

10 (d) STATE DEFINED.—For purposes of this Act, the 

11 term ‘‘State’’ includes the District of Columbia, Puerto 

12 Rico, the Virgin Islands of the United States, Guam, 

13 American Samoa, and the Northern Mariana Islands. 

14 (e) CONSTRUCTION.—Nothing in this section shall be 

15 construed as requiring a State to establish or maintain 

16 a qualified State health pooling arrangement. 

17 (f) CREDITABLE COVERAGE FOR PURPOSES OF

18 HIPAA.—Health benefits coverage provided under a 

19 qualified State health pooling arrangement under this sec20 tion (and coverage provided under a National Pooling Ar21 rangement under section 4 of this title) shall be treated 

22 as creditable coverage for purposes of part 7 of subtitle 

23 B of title I of the Employee Retirement Income Security 

24 Act of 1974 (29 U.S.C. 1181 et seq.), title XXVII of the 
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1 Public Health Service Act (42 U.S.C. 300gg et seq.), and 

2 subtitle K of the Internal Revenue Code of 1986. 

3 (g) OVERSIGHT AND ACCOUNTABILITY.— 

4 (1) OVERSIGHT.—The Secretaries of Health 

5 and Human Services and Labor shall jointly oversee 

6 the offering of health benefits coverage under quali7 fied State health pooling arrangements to eligible 

8 small employers. 

9 (2) ANNUAL REPORTS.— 

10 (A) IN GENERAL.—Each State that offers 

11 a qualified State health pooling arrangement 

12 under this section in a year shall submit, in a 

13 form and manner specified jointly by the Secre14 taries of Health and Human Services and 

15 Labor, a report on the operation of the ar16 rangement in that year. 

17 (B) CONTENTS OF REPORT.—Reports re18 quired under subparagraph (A) shall include 

19 the following: 

20 (i) A description of the health benefits 

21 coverage offered under the arrangement. 

22 (ii) The number of employers that 

23 participated in the arrangement. 

24 (iii) The number of employees and 

25 qualifying family members of employees 
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1 who received health benefits coverage 

2 under the arrangement. 

3 (iv) The premiums charged for the 

4 health benefits coverage under the arrange5 ment. 

6 (3) CERTIFICATION.—Each State that offers a 

7 qualified State health pooling arrangement under 

8 this section in a year shall submit, in a form and 

9 manner specified jointly by the Secretaries of Health 

10 and Human Services and Labor, a certification that 

11 the arrangement meets the requirements of this Act. 

12 (h) COORDINATION OF COMPLAINTS WITH STATE

13 INSURANCE COMMISSIONERS.—The Secretaries of Health 

14 and Human Services and Labor shall coordinate with the 

15 insurance commissioners for the various States in estab16 lishing a process for handling and resolving any com17 plaints relating to health benefits coverage offered under 

18 this Act, to the extent necessary to augment processes oth19 erwise available under State law. 

20 (i) NO PREEMPTION OF STATE LAW.—Nothing in 

21 this section shall be construed as preempting provisions 

22 of State law that provide protections in excess of the pro23 tections required under this section. 
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1 SEC. 4. ESTABLISHMENT OF NATIONAL HEALTH POOLING 

2 ARRANGEMENT. 

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

4 Human Services and Labor, jointly in consultation with 

5 the Director of the Office of Personnel Management, shall 

6 provide for the offering and oversight of a national health 

7 pooling arrangement to eligible small employers. 

8 (b) NATIONAL HEALTH POOLING ARRANGEMENT

9 DEFINED.—For purposes of this section, the term ‘‘na10 tional health pooling arrangement’’ means an arrange11 ment under which health plans are offered under terms 

12 and conditions that meet the requirements of section 3(a). 

13 (c) USE OF FEHBP MODEL.—The Secretaries of 

14 Health and Human Services and Labor shall jointly pro15 vide for the national health pooling arrangement using the 

16 model of the Federal employees health benefits program 

17 under chapter 89 of title 5, United States Code, to the 

18 extent practicable and consistent with the provisions of 

19 this Act. In carrying out such model, the Secretaries shall, 

20 to the maximum extent practicable, negotiate the most af21 fordable and substantial coverage possible for small em22 ployers. 

23 SEC. 5. FUNDING OF POOLING ARRANGEMENTS. 

24 (a) FUNDING OF STATES TO ESTABLISH AND OPER25 ATE QUALIFIED STATE HEALTH POOLING ARRANGE26 MENTS.—There are authorized to be appropriated to the 
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1 Secretaries of Health and Human Services and Labor 

2 such sums as may be necessary to provide grants to States 

3 to establish and operate qualified State health pooling ar4 rangements described in section 3. 

5 (b) FUNDING OF NATIONAL HEALTH POOLING AR6 RANGEMENT.—There are authorized to be appropriated to 

7 the Secretaries of Health and Human Services and Labor 

8 such sums as may be necessary to provide for the offering 

9 and operation of the national health pooling arrangement 

10 under section 4. 

11 SEC. 6. INSTITUTE OF MEDICINE STUDY AND REPORT. 

12 (a) STUDY.—The Secretaries of Health and Human 

13 Services and Labor shall jointly enter into an arrangement 

14 under which the Institute of Medicine of the National 

15 Academy of Sciences shall conduct a study on the oper16 ation of qualified State health pooling arrangements under 

17 section 3 and the national health pooling arrangement 

18 under section 4. 

19 (b) MATTERS STUDIED.—The study conducted under 

20 subsection (a) shall include the following: 

21 (1) An assessment of the success of the ar22 rangements. 

23 (2) A determination of the affordability of 

24 health benefits coverage under the arrangements for 

25 employers and employees. 
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1 (3) A determination of the access of small em2 ployers to health benefits coverage. 

3 (4) A determination of the extent to which the 

4 tax credit under section 45J of the Internal Revenue 

5 Code of 1986 provides a subsidy for eligible small 

6 employers that provided (or would have provided) 

7 health benefits coverage in the absence of such cred8 it. 

9 (5) Recommendations with respect to— 

10 (A) extension of the period for which the 

11 tax credit under section 45J of the Internal 

12 Revenue Code of 1986 is available to employers 

13 or an appropriate phase-out of such credit over 

14 time; 

15 (B) expansion of categories of persons eli16 gible for such tax credit; 

17 (C) expansion of persons eligible for health 

18 benefits coverage under the arrangements; and 

19 (D) such other matters as the Institute de20 termines appropriate. 

21 (c) REPORT.—Not later than January 1, 2010, the 

22 Comptroller General shall submit to Congress a report on 

23 the study conducted under subsection (a). 

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