I 

109TH CONGRESS 

1ST SESSION H. R. 1955 

To establish a national health program administered by the Office of Personnel Management to offer health benefits plans to individuals who 

are not Federal employees, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 28, 2005 

Mr. KIND (for himself, Mr. COOPER, Mr. WU, Mr. EMANUEL, Mr. KENNEDY

of Rhode Island, Mr. SMITH of Washington, Mr. MCDERMOTT, Mr. ANDREWS, Mr. VAN HOLLEN, Mr. DAVIS of Alabama, Mr. FORD, Mr. 

DICKS, Mr. ALLEN, and Mr. PRICE of North Carolina) introduced the following bill; which was referred to the Committee on Ways and Means, 

and in addition to the Committees on Education and the Workforce and 

Budget, 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 establish a national health program administered by the 

Office of Personnel Management to offer health benefits 

plans to individuals who are not Federal employees, 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 Employers Health Benefits Program Act of 2005’’. 
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1 (b) TABLE OF CONTENTS.—The table of contents of 

2 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Definitions. 

Sec. 3. Health insurance coverage for non-federal employees. 

Sec. 4. Contract requirement. 

Sec. 5. Eligibility. 

Sec. 6. Alternative conditions to Federal employee plans. 

Sec. 7. Encouraging participation by carriers through adjustments for risk. 

Sec. 8. Encouraging participation by carriers through reinsurance. 

Sec. 9. Contingency reserve fund. 

Sec. 10. Employer participation. 

Sec. 11. Administration through regional administrative entities. 

Sec. 12. Coordination with social security benefits. 

Sec. 13. Public education campaign. 

Sec. 14. Appropriations. 

Sec. 15. Refundable credit for small business employee health insurance expenses. 

Sec. 16. Extension of pay-as-you-go requirement. 

Sec. 17. Effective date. 

3 SEC. 2. DEFINITIONS. 

4 (a) IN GENERAL.—In this Act, the terms ‘‘member 

5 of family’’, ‘‘health benefits plan’’, ‘‘carrier’’, ‘‘employee 

6 organizations’’, and ‘‘dependent’’ have the meanings given 

7 such terms in section 8901 of title 5, United States Code. 

8 (b) OTHER TERMS.—In this Act: 

9 (1) EMPLOYEE.—The term ‘‘employee’’ has the 

10 meaning given such term under section 3(6) of the 

11 Employee Retirement Income Security Act of 1974 

12 (29 U.S.C. 1002(6)). Such term shall not include an 

13 employee of the Federal Government. 

14 (2) EMPLOYER.—The term ‘‘employer’’ has the 

15 meaning given such term under section 3(5) of the 

16 Employee Retirement Income Security Act of 1974 

17 (29 U.S.C. 1002(5)), except that such term shall in-
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1 clude only employers who employed an average of at 

2 least 1 but not more than 100 employees on busi3 ness days during the year preceding the date of ap4 plication. Such term shall not include the Federal 

5 Government. 

6 (3) HEALTH STATUS-RELATED FACTOR.—The 

7 term ‘‘health status-related factor’’ has the meaning 

8 given such term in section 2791(d)(9) of the Public 

9 Health Service Act (42 U.S.C. 300gg–91(d)(9)). 

10 (4) OFFICE.—The term ‘‘Office’’ means the Of11 fice of Personnel Management. 

12 (5) PARTICIPATING EMPLOYER.—The term 

13 ‘‘participating employer’’ means an employer that— 

14 (A) elects to provide health insurance cov15 erage under this Act to its employees; and 

16 (B) is not offering other comprehensive 

17 health insurance coverage to such employees. 

18 (c) APPLICATION OF CERTAIN RULES IN DETER19 MINATION OF EMPLOYER SIZE.—For purposes of sub20 section (b)(2): 

21 (1) APPLICATION OF AGGREGATION RULE FOR

22 EMPLOYERS.—All persons treated as a single em23 ployer under subsection (b), (c), (m), or (o) of sec24 tion 414 of the Internal Revenue Code of 1986 shall 

25 be treated as 1 employer. 
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1 (2) EMPLOYERS NOT IN EXISTENCE IN PRE2 CEDING YEAR.—In the case of an employer which 

3 was not in existence for the full year prior to the 

4 date on which the employer applies to participate, 

5 the determination of whether such employer meets 

6 the requirements of subsection (b)(2) shall be based 

7 on the average number of employees that it is rea8 sonably expected such employer will employ on busi9 ness days in the employer’s first full year. 

10 (3) PREDECESSORS.—Any reference in this 

11 subsection to an employer shall include a reference 

12 to any predecessor of such employer. 

13 (d) WAIVER AND CONTINUATION OF PARTICIPA14 TION.— 

15 (1) WAIVER.—The Office may waive the limita16 tions relating to the size of an employer which may 

17 participate in the health insurance program estab18 lished under this Act on a case by case basis if the 

19 Office determines that such employer makes a com20 pelling case for such a waiver. In making determina21 tions under this paragraph, the Office may consider 

22 the effects of the employment of temporary and sea23 sonal workers and other factors. 

24 (2) CONTINUATION OF PARTICIPATION.—An 

25 employer participating in the program under this 
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1 Act that experiences an increase in the number of 

2 employees so that such employer has in excess of 

3 100 employees, may not be excluded from participa4 tion solely as a result of such increase in employees. 

5 SEC. 3. HEALTH INSURANCE COVERAGE FOR NON-FEDERAL 

6 EMPLOYEES. 

7 (a) ADMINISTRATION.—The Office shall administer a 

8 health insurance program for non-Federal employees and 

9 employers in accordance with this Act. 

10 (b) REGULATIONS.—Except as provided under this 

11 Act, the Office shall prescribe regulations to apply the pro12 visions of chapter 89 of title 5, United States Code, to 

13 the greatest extent practicable to participating carriers, 

14 employers, and employees covered under this Act. 

15 (c) LIMITATIONS.—In no event shall the enactment 

16 of this Act result in— 

17 (1) any increase in the level of individual or 

18 Federal Government contributions required under 

19 chapter 89 of title 5, United States Code, including 

20 copayments or deductibles; 

21 (2) any decrease in the types of benefits offered 

22 under such chapter 89; or 

23 (3) any other change that would adversely af24 fect the coverage afforded under such chapter 89 to 
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1 employees and annuitants and members of family 

2 under that chapter. 

3 (d) ENROLLMENT.—The Office shall develop methods 

4 to facilitate enrollment under this Act, including the use 

5 of the Internet. 

6 (e) CONTRACTS FOR ADMINISTRATION.—The Office 

7 may enter into contracts for the performance of appro8 priate administrative functions under this Act. 

9 (f) SEPARATE RISK POOL.—In the administration of 

10 this Act, the Office shall ensure that covered employees 

11 under this Act are in a risk pool that is separate from 

12 the risk pool maintained for covered individuals under 

13 chapter 89 of title 5, United States Code. 

14 (g) RULE OF CONSTRUCTION.—Nothing in this Act 

15 shall be construed to require a carrier that is participating 

16 in the program under chapter 89 of title 5, United States 

17 Code, to provide health benefits plan coverage under this 

18 Act. 

19 SEC. 4. CONTRACT REQUIREMENT. 

20 (a) IN GENERAL.—The Office may enter into con21 tracts with qualified carriers offering health benefits plans 

22 of the type described in section 8903 or 8903a of title 

23 5, United States Code, without regard to section 5 of title 

24 41, United States Code, or other statutes requiring com25 petitive bidding, to provide health insurance coverage to 
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1 employees of participating employers under this Act. Each 

2 contract shall be for a uniform term of at least 1 year, 

3 but may be made automatically renewable from term to 

4 term in the absence of notice of termination by either 

5 party. In entering into such contracts, the Office shall en6 sure that health benefits coverage is provided for individ7 uals only, married individuals without children, and fami8 lies. 

9 (b) ELIGIBILITY.—A carrier shall be eligible to enter 

10 into a contract under subsection (a) if such carrier— 

11 (1) is licensed to offer health benefits plan cov12 erage in each State in which the plan is offered; and 

13 (2) meets such other requirements as deter14 mined appropriate by the Office. 

15 (c) STATEMENT OF BENEFITS.— 

16 (1) IN GENERAL.—Each contract under this 

17 Act shall contain a detailed statement of benefits of18 fered and shall include information concerning such 

19 maximums, limitations, exclusions, and other defini20 tions of benefits as the Office considers necessary or 

21 desirable. 

22 (2) NATIONWIDE PLAN.—The Office shall de23 velop a benefit package that shall be offered in the 

24 case of a contract for a health benefit plan that is 

25 to be offered on a nationwide basis. 
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1 (d) STANDARDS.—The minimum standards pre2 scribed for health benefits plans under section 8902(e) of 

3 title 5, United States Code, and for carriers offering plans, 

4 shall apply to plans and carriers under this Act. Approval 

5 of a plan may be withdrawn by the Office only after notice 

6 and opportunity for hearing to the carrier concerned with7 out regard to subchapter II of chapter 5 and chapter 7 

8 of title 5, United States Code. 

9 (e) CONVERSION.— 

10 (1) IN GENERAL.—A contract may not be made 

11 or a plan approved under this section if the carrier 

12 under such contract or plan does not offer to each 

13 enrollee whose enrollment in the plan is ended, ex14 cept by a cancellation of enrollment, a temporary ex15 tension of coverage during which the individual may 

16 exercise the option to convert, without evidence of 

17 good health, to a nongroup contract providing health 

18 benefits. An enrollee who exercises this option shall 

19 pay the full periodic charges of the nongroup con20 tract. 

21 (2) NONCANCELLABLE.—The benefits and cov22 erage made available under paragraph (1) may not 

23 be canceled by the carrier except for fraud, over-in24 surance, or nonpayment of periodic charges. 
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1 (f) RATES.—Rates charged under health benefits 

2 plans under this Act shall reasonably and equitably reflect 

3 the cost of the benefits provided. Such rates shall be deter4 mined on a basis which, in the judgment of the Office, 

5 is consistent with the lowest schedule of basic rates gen6 erally charged for new group health benefits plans issued 

7 to large employers. The rates determined for the first con8 tract term shall be continued for later contract terms, ex9 cept that they may be readjusted for any later term, based 

10 on past experience and benefit adjustments under the later 

11 contract. Any readjustment in rates shall be made in ad12 vance of the contract term in which they will apply and 

13 on a basis which, in the judgment of the Office, is con14 sistent with the general practice of carriers which issue 

15 group health benefits plans to large employers. Rates 

16 charged for coverage under this Act shall not vary based 

17 on health-status related factors. 

18 (g) REQUIREMENT OF PAYMENT FOR OR PROVISION

19 OF HEALTH SERVICE.—Each contract entered into under 

20 this Act shall require the carrier to agree to pay for or 

21 provide a health service or supply in an individual case 

22 if the Office finds that the employee, annuitant, family 

23 member, former spouse, or person having continued cov24 erage under section 8905a of title 5, United States Code, 

25 is entitled thereto under the terms of the contract. 
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1 SEC. 5. ELIGIBILITY. 

2 An individual shall be eligible to enroll in a plan 

3 under this Act if such individual— 

4 (1) is an employee of an employer described in 

5 section 2(b)(2), or is a self employed individual as 

6 defined in section 401(c)(1)(B) of the Internal Rev7 enue Code of 1986; and 

8 (2) is not otherwise enrolled or eligible for en9 rollment in a plan under chapter 89 of title 5, 

10 United States Code. 

11 SEC. 6. ALTERNATIVE CONDITIONS TO FEDERAL EM12 PLOYEE PLANS. 

13 (a) TREATMENT OF EMPLOYEE.—For purposes of 

14 enrollment in a health benefits plan under this Act, an 

15 individual who had coverage under a health insurance plan 

16 and is not a qualified beneficiary as defined under section 

17 4980B(g)(1) of the Internal Revenue Code of 1986 shall 

18 be treated in a similar manner as an individual who begins 

19 employment as an employee under chapter 89 of title 5, 

20 United States Code. 

21 (b) PREEXISTING CONDITION EXCLUSIONS.— 

22 (1) IN GENERAL.—Each contract under this 

23 Act may include a preexisting condition exclusion as 

24 defined under section 9801(b)(1) of the Internal 

25 Revenue Code of 1986. 

26 (2) EXCLUSION PERIOD.— 
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1 (A) IN GENERAL.—A preexisting condition 

2 exclusion under this subsection shall provide for 

3 coverage of a preexisting condition to begin not 

4 later than 6 months after the date on which the 

5 coverage of the individual under a health bene6 fits plan commences, reduced by 1 month for 

7 each month that the individual was covered 

8 under a health insurance plan immediately pre9 ceding the date the individual submitted an ap10 plication for coverage under this Act. 

11 (B) LAPSE IN COVERAGE.—For purposes 

12 of this paragraph, a lapse in coverage of not 

13 more than 63 days immediately preceding the 

14 date of the submission of an application for cov15 erage under this Act shall not be considered a 

16 lapse in continuous coverage. 

17 (c) RATES AND PREMIUMS.— 

18 (1) IN GENERAL.—Rates charged and pre19 miums paid for a health benefits plan under this 

20 Act— 

21 (A) shall be determined in accordance with 

22 this subsection; 

23 (B) may be annually adjusted and differ 

24 from such rates charged and premiums paid for 
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1 the same health benefits plan offered under 

2 chapter 89 of title 5, United States Code; 

3 (C) shall be negotiated in the same manner 

4 as rates and premiums are negotiated under 

5 such chapter 89; and 

6 (D) shall be adjusted to cover the adminis7 trative costs of the Office under this Act. 

8 (2) DETERMINATIONS.—In determining rates 

9 and premiums under this Act, the following provi10 sions shall apply: 

11 (A) IN GENERAL.—A carrier that enters 

12 into a contract under this Act shall determine 

13 that amount of premiums to assess for coverage 

14 under a health benefits plan based on an com15 munity rate that may be annually adjusted— 

16 (i) for the geographic area involved if 

17 the adjustment is based on geographical 

18 divisions that are not smaller than a met19 ropolitan statistical area; 

20 (ii) based on whether such coverage is 

21 for an individual, a married individual with 

22 no children, or a family; and 

23 (iii) based on the age of covered indi24 viduals (subject to subparagraph (B)). 

25 (B) AGE ADJUSTMENTS.— 
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1 (i) IN GENERAL.—With respect to 

2 subparagraph (A)(iii), in making adjust3 ments based on age, a carrier may not use 

4 age brackets in increments that are smaller 

5 than 5 years, which begin not earlier than 

6 age 30 and end not later than age 65. 

7 (ii) AGE 65 AND OLDER.—With re8 spect to subparagraph (A)(iii), a carrier 

9 may develop separate rates for covered in10 dividuals who are 65 years of age or older 

11 for whom medicare is the primary payor 

12 for health benefits coverage which is not 

13 covered under medicare. 

14 (iii) LIMITATION.—In making an ad15 justment to premium rates under subpara16 graph (A)(iii), a carrier shall ensure that 

17 such adjustment does not result in an av18 erage premium rate applicable to enrollees 

19 under the plan involved that is more than 

20 200 percent of the lowest rate for all age 

21 groups. 

22 (d) TERMINATION AND REENROLLMENT.—If an indi23 vidual who is enrolled in a health benefits plan under this 

24 Act terminates the enrollment, the individual shall not be 

25 eligible for reenrollment until the first open enrollment pe-
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1 riod following the expiration of 6 months after the date 

2 of such termination. 

3 (e) PREEMPTION.— 

4 (1) HEALTH INSURANCE OR PLANS.— 

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

6 subparagraph (B), the terms of any contract 

7 entered into under this Act that relate to the 

8 nature, provision, or extent of coverage or bene9 fits shall supersede and preempt any State or 

10 local law, or any regulation issued thereunder, 

11 which relates to the nature, provision, or extent 

12 of coverage or benefits. 

13 (B) LOCAL PLANS.—With respect to a con14 tract entered into under this Act under which 

15 a carrier will offer health benefits plan coverage 

16 in a limited geographic area, subparagraph (A) 

17 shall not apply to the extent that a mandated 

18 benefit law is in effect in the State in which the 

19 plan is offered. Such mandated benefit law shall 

20 continue to apply to such health benefits plan. 

21 (C) RATING RULES.—The rating require22 ments under subsection (c)(2) shall supersede 

23 State rating rules for qualified plans under this 

24 Act. 
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1 (2) LIMITATION.—Nothing in this subsection 

2 shall be construed to preempt— 

3 (A) any State or local law or regulation ex4 cept those laws and regulations described in 

5 subparagraphs (A) and (C) of paragraph (1); 

6 and 

7 (B) State network adequacy laws. 

8 (f) RULE OF CONSTRUCTION.—Nothing in this Act 

9 shall be construed to limit the application of the service10 charge system used by the Office for determining profits 

11 for participating carriers under chapter 89 of title 5, 

12 United States Code. 

13 SEC. 7. ENCOURAGING PARTICIPATION BY CARRIERS 

14 THROUGH ADJUSTMENTS FOR RISK. 

15 (a) APPLICATION OF RISK CORRIDORS.— 

16 (1) IN GENERAL.—This section shall only apply 

17 to carriers with respect to health benefits plans of18 fered under this Act during any of calendar years 

19 2006 through 2010. 

20 (2) NOTIFICATION OF COSTS UNDER THE

21 PLAN.—In the case of a carrier that offers a health 

22 benefits plan under this Act in any of calendar years 

23 2006 through 2010, the carrier shall notify the Of24 fice, before such date in the succeeding year as the 

25 Office specifies, of the total amount of costs incurred 
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1 in providing benefits under the health benefits plan 

2 for the year involved and the portion of such costs 

3 that is attributable to administrative expenses. 

4 (3) ALLOWABLE COSTS DEFINED.—For pur5 poses of this section, the term ‘‘allowable costs’’ 

6 means, with respect to a health benefits plan offered 

7 by a carrier under this Act, for a year, the total 

8 amount of costs described in paragraph (2) for the 

9 plan and year, reduced by the portion of such costs 

10 attributable to administrative expenses incurred in 

11 providing the benefits described in such paragraph. 

12 (b) ADJUSTMENT OF PAYMENT.— 

13 (1) NO ADJUSTMENT IF ALLOWABLE COSTS

14 WITHIN 3 PERCENT OF TARGET AMOUNT.—If the al15 lowable costs for the carrier with respect to the 

16 health benefits plan involved for a calendar year are 

17 at least 97 percent, but do not exceed 103 percent, 

18 of the target amount for the plan and year involved, 

19 there shall be no payment adjustment under this 

20 section for the plan and year. 

21 (2) INCREASE IN PAYMENT IF ALLOWABLE

22 COSTS ABOVE 103 PERCENT OF TARGET AMOUNT.— 

23 (A) COSTS BETWEEN 103 AND 108 PER24 CENT OF TARGET AMOUNT.—If the allowable 

25 costs for the carrier with respect to the health 
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1 benefits plan involved for the year are greater 

2 than 103 percent, but not greater than 108 

3 percent, of the target amount for the plan and 

4 year, the Office shall reimburse the carrier for 

5 such excess costs through payment to the car6 rier of an amount equal to 75 percent of the 

7 difference between such allowable costs and 103 

8 percent of such target amount. 

9 (B) COSTS ABOVE 108 PERCENT OF TAR10 GET AMOUNT.—If the allowable costs for the 

11 carrier with respect to the health benefits plan 

12 involved for the year are greater than 108 per13 cent of the target amount for the plan and 

14 year, the Office shall reimburse the carrier for 

15 such excess costs through payment to the car16 rier in an amount equal to the sum of— 

17 (i) 3.75 percent of such target 

18 amount; and 

19 (ii) 90 percent of the difference be20 tween such allowable costs and 108 percent 

21 of such target amount. 

22 (3) REDUCTION IN PAYMENT IF ALLOWABLE

23 COSTS BELOW 97 PERCENT OF TARGET AMOUNT.— 

24 (A) COSTS BETWEEN 92 AND 97 PERCENT

25 OF TARGET AMOUNT.—If the allowable costs for 
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1 the carrier with respect to the health benefits 

2 plan involved for the year are less than 97 per3 cent, but greater than or equal to 92 percent, 

4 of the target amount for the plan and year, the 

5 carrier shall be required to pay into the contin6 gency reserve fund maintained under section 

7 8909(b)(2) of title 5, United States Code, an 

8 amount equal to 75 percent of the difference 

9 between 97 percent of the target amount and 

10 such allowable costs. 

11 (B) COSTS BELOW 92 PERCENT OF TARGET

12 AMOUNT.—If the allowable costs for the carrier 

13 with respect to the health benefits plan involved 

14 for the year are less than 92 percent of the tar15 get amount for the plan and year, the carrier 

16 shall be required to pay into the stabilization 

17 fund under section 8909(b)(2) of title 5, United 

18 States Code, an amount equal to the sum of— 

19 (i) 3.75 percent of such target 

20 amount; and 

21 (ii) 90 percent of the difference be22 tween 92 percent of such target amount 

23 and such allowable costs. 

24 (4) TARGET AMOUNT DESCRIBED.— 
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1 (A) IN GENERAL.—For purposes of this 

2 subsection, the term ‘‘target amount’’ means, 

3 with respect to a health benefits plan offered by 

4 a carrier under this Act in any of calendar 

5 years 2006 through 2010, an amount equal 

6 to— 

7 (i) the total of the monthly premiums 

8 estimated by the carrier and approved by 

9 the Office to be paid for enrollees in the 

10 plan under this Act for the calendar year 

11 involved; reduced by 

12 (ii) the amount of administrative ex13 penses that the carrier estimates, and the 

14 Office approves, will be incurred by the 

15 carrier with respect to the plan for such 

16 calendar year. 

17 (B) SUBMISSION OF TARGET AMOUNT.— 

18 Not later than December 31, 2005, and each 

19 December 31 thereafter through calendar year 

20 2009, a carrier shall submit to the Office a de21 scription of the target amount for such carrier 

22 with respect to health benefits plans provided 

23 by the carrier under this Act. 

24 (c) DISCLOSURE OF INFORMATION.— 
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1 (1) IN GENERAL.—Each contract under this 

2 Act shall provide— 

3 (A) that a carrier offering a health benefits 

4 plan under this Act shall provide the Office 

5 with such information as the Office determines 

6 is necessary to carry out this subsection includ7 ing the notification of costs under subsection 

8 (a)(2) and the target amount under subsection 

9 (b)(4)(B); and 

10 (B) that the Office has the right to inspect 

11 and audit any books and records of the organi12 zation that pertain to the information regarding 

13 costs provided to the Office under such sub14 sections. 

15 (2) RESTRICTION ON USE OF INFORMATION.— 

16 Information disclosed or obtained pursuant to the 

17 provisions of this subsection may be used by officers, 

18 employees, and contractors of the Office only for the 

19 purposes of, and to the extent necessary in, carrying 

20 out this section. 

21 SEC. 8. ENCOURAGING PARTICIPATION BY CARRIERS 

22 THROUGH REINSURANCE. 

23 (a) ESTABLISHMENT.—The Office shall establish a 

24 reinsurance fund to provide payments to carriers that ex25 perience one or more catastrophic claims during a year 
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1 for health benefits provided to individuals enrolled in a 

2 health benefits plan under this Act. 

3 (b) ELIGIBILITY FOR PAYMENTS.—To be eligible for 

4 a payment from the reinsurance fund for a plan year, a 

5 carrier under this Act shall submit to the Office an appli6 cation that contains— 

7 (1) a certification by the carrier that the carrier 

8 paid for at least one episode of care during the year 

9 for covered health benefits for an individual in an 

10 amount that is in excess of $50,000; and 

11 (2) such other information determined appro12 priate by the Office. 

13 (c) PAYMENT.— 

14 (1) IN GENERAL.—The amount of a payment 

15 from the reinsurance fund to a carrier under this 

16 section for a catastrophic episode of care shall be de17 termined by the Office but shall not exceed an 

18 amount equal to 80 percent of the applicable cata19 strophic claim amount. 

20 (2) APPLICABLE CATASTROPHIC CLAIM

21 AMOUNT.—For purposes of paragraph (1), the appli22 cable catastrophic episode of care amount shall be 

23 equal to the difference between— 

24 (A) the amount of the catastrophic claim; 

25 and 
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1 (B) $50,000. 

2 (3) LIMITATION.—In determining the amount 

3 of a payment under paragraph (1), if the amount of 

4 the catastrophic claim exceeds the amount that 

5 would be paid for the health care items or services 

6 involved under title XVIII of the Social Security Act 

7 (42 U.S.C. 1395 et seq.), the Office shall use the 

8 amount that would be paid under such title XVIII 

9 for purposes of paragraph (2)(A). 

10 (d) DEFINITION.—In this section, the term ‘‘cata11 strophic claim’’ means a claim submitted to a carrier, by 

12 or on behalf of an enrollee in a health benefits plan under 

13 this Act, that is in excess of $50,000. 

14 SEC. 9. CONTINGENCY RESERVE FUND. 

15 Beginning on October 1, 2010, the Office may use 

16 amounts appropriated under section 14(a) that remain un17 obligated to establish a contingency reserve fund to pro18 vide assistance to carriers offering health benefits plans 

19 under this Act that experience unanticipated financial 

20 hardships (as determined by the Office). 

21 SEC. 10. EMPLOYER PARTICIPATION. 

22 (a) REGULATIONS.—The Office shall prescribe regu23 lations providing for employer participation under this 

24 Act, including the offering of health benefits plans under 

25 this Act to employees. 
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1 (b) ENROLLMENT AND OFFERING OF OTHER COV2 ERAGE.— 

3 (1) ENROLLMENT.—A participating employer 

4 shall ensure that each eligible employee has an op5 portunity to enroll in a plan under this Act. 

6 (2) PROHIBITION ON OFFERING OTHER COM7 PREHENSIVE HEALTH BENEFIT COVERAGE.—A par8 ticipating employer may not offer a health insurance 

9 plan providing comprehensive health benefit coverage 

10 to employees other than a health benefits plan 

11 that— 

12 (A) meets the requirements described in 

13 section 4(a); and 

14 (B) is offered only through the enrollment 

15 process established by the Office under section 

16 3. 

17 (3) OFFER OF SUPPLEMENTAL COVERAGE OP18 TIONS.— 

19 (A) IN GENERAL.—A participating em20 ployer may offer supplementary coverage op21 tions to employees. 

22 (B) DEFINITION.—In subparagraph (A), 

23 the term ‘‘supplementary coverage’’ means ben24 efits described as ‘‘excepted benefits’’ under 
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1 section 2791(c) of the Public Health Service 

2 Act (42 U.S.C. 300gg–91(c)). 

3 (c) RULE OF CONSTRUCTION.—Except as provided in 

4 section 15, nothing in this Act shall be construed to re5 quire that an employer make premium contributions on 

6 behalf of employees. 

7 SEC. 11. ADMINISTRATION THROUGH REGIONAL ADMINIS8 TRATIVE ENTITIES. 

9 (a) IN GENERAL.—In order to provide for the admin10 istration of the benefits under this Act with maximum effi11 ciency and convenience for participating employers and 

12 health care providers and other individuals and entities 

13 providing services to such employers, the Office is author14 ized to enter into contracts with eligible entities to per15 form, on a regional basis, one or more of the following: 

16 (1) Collect and maintain all information relat17 ing to individuals, families, and employers partici18 pating in the program under this Act in the region 

19 served. 

20 (2) Receive, disburse, and account for payments 

21 of premiums to participating employers by individ22 uals in the region served, and for payments by par23 ticipating employers to carriers. 
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1 (3) Serve as a channel of communication be2 tween carriers, participating employers, and individ3 uals relating to the administration of this Act. 

4 (4) Otherwise carry out such activities for the 

5 administration of this Act, in such manner, as may 

6 be provided for in the contract entered into under 

7 this section. 

8 (5) The processing of grievances and appeals. 

9 (b) APPLICATION.—To be eligible to receive a con10 tract under subsection (a), an entity shall prepare and 

11 submit to the Office an application at such time, in such 

12 manner, and containing such information as the Office 

13 may require. 

14 (c) PROCESS.— 

15 (1) COMPETITIVE BIDDING.—All contracts 

16 under this section shall be awarded through a com17 petitive bidding process on a bi-annual basis. 

18 (2) REQUIREMENT.—No contract shall be en19 tered into with any entity under this section unless 

20 the Office finds that such entity will perform its ob21 ligations under the contract efficiently and effec22 tively and will meet such requirements as to finan23 cial responsibility, legal authority, and other matters 

24 as the Office finds pertinent. 
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1 (3) PUBLICATION OF STANDARDS AND CRI2 TERIA.—The Office shall publish in the Federal 

3 Register standards and criteria for the efficient and 

4 effective performance of contract obligations under 

5 this section, and opportunity shall be provided for 

6 public comment prior to implementation. In estab7 lishing such standards and criteria, the Office shall 

8 provide for a system to measure an entity’s perform9 ance of responsibilities. 

10 (4) TERM.—Each contract under this section 

11 shall be for a term of at least 1 year, and may be 

12 made automatically renewable from term to term in 

13 the absence of notice by either party of intention to 

14 terminate at the end of the current term, except that 

15 the Office may terminate any such contract at any 

16 time (after such reasonable notice and opportunity 

17 for hearing to the entity involved as the Office may 

18 provide in regulations) if the Office finds that the 

19 entity has failed substantially to carry out the con20 tract or is carrying out the contract in a manner in21 consistent with the efficient and effective adminis22 tration of the program established by this Act. 

23 (d) TERMS OF CONTRACT.—A contract entered into 

24 under this section shall include— 
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1 (1) a description of the duties of the con2 tracting entity; 

3 (2) an assurance that the entity will furnish to 

4 the Office such timely information and reports as 

5 the Office determines appropriate; 

6 (3) an assurance that the entity will maintain 

7 such records and afford such access thereto as the 

8 Office finds necessary to assure the correctness and 

9 verification of the information and reports under 

10 paragraph (2) and otherwise to carry out the pur11 poses of this Act; 

12 (4) an assurance that the entity shall comply 

13 with such confidentiality and privacy protection 

14 guidelines and procedures as the Office may require; 

15 and 

16 (5) such other terms and conditions not incon17 sistent with this section as the Office may find nec18 essary or appropriate. 

19 SEC. 12. COORDINATION WITH SOCIAL SECURITY BENE20 FITS. 

21 Benefits under this Act shall, with respect to an indi22 vidual who is entitled to benefits under part A of title 

23 XVIII of the Social Security Act, be offered (for use in 

24 coordination with those medicare benefits) to the same ex-
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1 tent and in the same manner as if coverage were under 

2 chapter 89 of title 5, United States Code. 

3 SEC. 13. PUBLIC EDUCATION CAMPAIGN. 

4 (a) IN GENERAL.—In carrying out this Act, the Of5 fice shall develop and implement an educational campaign 

6 to provide information to employers and the general public 

7 concerning the health insurance program developed under 

8 this Act. 

9 (b) ANNUAL PROGRESS REPORTS.—Not later than 1 

10 year and 2 years after the implementation of the campaign 

11 under subsection (a), the Office shall submit to the appro12 priate committees of Congress a report that describes the 

13 activities of the Office under subsection (a), including a 

14 determination by the office of the percentage of employers 

15 with knowledge of the health benefits programs provided 

16 for under this Act. 

17 (c) PUBLIC EDUCATION CAMPAIGN.—There is au18 thorized to be appropriated to carry out this section, such 

19 sums as may be necessary for each of fiscal years 2006 

20 and 2007. 

21 SEC. 14. APPROPRIATIONS. 

22 (a) MANDATORY APPROPRIATIONS.—There are au23 thorized to be appropriated, and there are appropriated, 

24 to carry out sections 7 and 8— 

25 (1) $4,000,000,000 for fiscal year 2006; 
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1 (2) $4,000,000,000 for fiscal year 2007; 

2 (3) $4,000,000,000 for fiscal year 2008; 

3 (4) $3,000,000,000 for fiscal year 2009; and 

4 (5) $3,000,000,000 for fiscal year 2010. 

5 (b) OTHER APPROPRIATIONS.—There are authorized 

6 to be appropriated to the Office, such sums as may be 

7 necessary in each fiscal year for the development and ad8 ministration of the program under this Act. 

9 SEC. 15. REFUNDABLE CREDIT FOR SMALL BUSINESS EM10 PLOYEE HEALTH INSURANCE EXPENSES. 

11 (a) IN GENERAL.—Subpart C of part IV of sub12 chapter A of chapter 1 of the Internal Revenue Code of 

13 1986 (relating to refundable credits) is amended by redes14 ignating section 36 as section 37 and inserting after sec15 tion 35 the following new section: 

16 ‘‘SEC. 36. SMALL BUSINESS EMPLOYEE HEALTH INSURANCE 

17 EXPENSES. 

18 ‘‘(a) DETERMINATION OF AMOUNT.—In the case of 

19 a qualified small employer, there shall be allowed as a 

20 credit against the tax imposed by this subtitle for the tax21 able year an amount equal to the sum of— 

22 ‘‘(1) the expense amount described in sub23 section (b), and 
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1 ‘‘(2) the expense amount described in sub2 section (c), paid by the taxpayer during the taxable 

3 year. 

4 ‘‘(b) SUBSECTION (b) EXPENSE AMOUNT.—For pur5 poses of this section— 

6 ‘‘(1) IN GENERAL.—The expense amount de7 scribed in this subsection is the applicable percent8 age of the amount of qualified employee health in9 surance expenses of each qualified employee. 

10 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

11 of paragraph (1)— 

12 ‘‘(A) IN GENERAL.—The applicable per13 centage is equal to— 

14 ‘‘(i) 25 percent in the case of self-only 

15 coverage, 

16 ‘‘(ii) 35 percent in the case of family 

17 coverage (as defined in section 220(c)(5)), 

18 and 

19 ‘‘(iii) 30 percent in the case of cov20 erage for married adults with no children. 

21 ‘‘(B) BONUS FOR PAYMENT OF GREATER

22 PERCENTAGE OF PREMIUMS.—The applicable 

23 percentage otherwise specified in subparagraph 

24 (A) shall be increased by 5 percentage points 

25 for each additional 10 percent of the qualified 
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1 employee health insurance expenses of each 

2 qualified employee exceeding 60 percent which 

3 are paid by the qualified small employer. 

4 ‘‘(c) SUBSECTION (c) EXPENSE AMOUNT.—For pur5 poses of this section— 

6 ‘‘(1) IN GENERAL.—The expense amount de7 scribed in this subsection is, with respect to the first 

8 credit year of a qualified small employer which is an 

9 eligible employer, 10 percent of the qualified em10 ployee health insurance expenses of each qualified 

11 employee. 

12 ‘‘(2) FIRST CREDIT YEAR.—For purposes of 

13 paragraph (1), the term ‘first credit year’ means the 

14 taxable year which includes the date that the health 

15 insurance coverage to which the qualified employee 

16 health insurance expenses relate becomes effective. 

17 ‘‘(3) ELIGIBLE EMPLOYER.—For purposes of 

18 paragraph (1), the term ‘eligible employer’ shall not 

19 include a qualified small employer if, during the 3- 

20 taxable year period immediately preceding the first 

21 credit year, the employer or any member of any con22 trolled group including the employer (or any prede23 cessor of either) established or maintained health in24 surance coverage for substantially the same employ-
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1 ees as are the qualified employees to which the 

2 qualified employee health insurance expenses relate. 

3 ‘‘(d) LIMITATION BASED ON WAGES.— 

4 ‘‘(1) IN GENERAL.—The percentage which 

5 would (but for this subsection) be taken into account 

6 as the percentage for purposes of subsection (b)(2) 

7 or (c)(1) for the taxable year shall be reduced (but 

8 not below zero) by the percentage determined under 

9 paragraph (2). 

10 ‘‘(2) AMOUNT OF REDUCTION.— 

11 ‘‘(A) IN GENERAL.—The percentage deter12 mined under this paragraph is the percentage 

13 which bears the same ratio to the percentage 

14 which would be so taken into account as— 

15 ‘‘(i) the excess of— 

16 ‘‘(I) the qualified employee’s 

17 wages at an annual rate during such 

18 taxable year, over 

19 ‘‘(II) $25,000, bears to 

20 ‘‘(ii) $5,000. 

21 ‘‘(B) ANNUAL ADJUSTMENT.—For each 

22 taxable year after 2006, the dollar amounts 

23 specified for the preceding taxable year (after 

24 the application of this subparagraph) shall be 

25 increased by the same percentage as the aver-
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1 age percentage increase in premiums under the 

2 Federal Employees Health Benefits Program 

3 under chapter 89 of title 5, United States Code 

4 for the calendar year in which such taxable year 

5 begins over the preceding calendar year. 

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

7 ‘‘(1) QUALIFIED SMALL EMPLOYER.—The term 

8 ‘qualified small employer’ means any employer (as 

9 defined in section 2(b)(2) of the Small Employers 

10 Health Benefits Program Act of 2005) which— 

11 ‘‘(A) is a participating employer (as de12 fined in section 2(b)(5) of such Act), and 

13 ‘‘(B) pays or incurs at least 60 percent of 

14 the qualified employee health insurance ex15 penses of each qualified employee. 

16 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR17 ANCE EXPENSES.— 

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

19 employee health insurance expenses’ means any 

20 amount paid by an employer for health insur21 ance coverage under such Act to the extent 

22 such amount is attributable to coverage pro23 vided to any employee while such employee is a 

24 qualified employee. 
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1 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

2 UNDER SALARY REDUCTION ARRANGEMENTS.— 

3 No amount paid or incurred for health insur4 ance coverage pursuant to a salary reduction 

5 arrangement shall be taken into account under 

6 subparagraph (A). 

7 ‘‘(3) QUALIFIED EMPLOYEE.— 

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

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

10 employee (as defined in section 2(b)(1) of such 

11 Act) of an employer if the total amount of 

12 wages paid or incurred by such employer to 

13 such employee at an annual rate during the 

14 taxable year exceeds $5,000. 

15 ‘‘(B) WAGES.—The term ‘wages’ has the 

16 meaning given such term by section 3121(a) 

17 (determined without regard to any dollar limita18 tion contained in such section). 

19 ‘‘(f) CERTAIN RULES MADE APPLICABLE.—For pur20 poses of this section, rules similar to the rules of section 

21 52 shall apply. 

22 ‘‘(g) CREDITS FOR NONPROFIT ORGANIZATIONS.— 

23 Any credit which would be allowable under subsection (a) 

24 with respect to a qualified small business if such qualified 

25 small business were not exempt from tax under this chap-
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1 ter shall be treated as a credit allowable under this sub2 part to such qualified small business.’’. 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Paragraph (2) of section 1324(b) of title 

5 31, United States Code, is amended by inserting be6 fore the period ‘‘, or from section 36 of such Code’’. 

7 (2) The table of sections for subpart C of part 

8 IV of subchapter A of chapter 1 of the Internal Rev9 enue Code of 1986 is amended by striking the last 

10 item and inserting the following new items: 

‘‘36. Small business employee health insurance expenses. 

‘‘37. Overpayments of tax.’’. 

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

12 this section shall apply to amounts paid or incurred in tax13 able years beginning after December 31, 2005. 

14 SEC. 16. EXTENSION OF PAY-AS-YOU-GO REQUIREMENT. 

15 (a) PURPOSE.—Section 252(a) of the Balanced 

16 Budget and Emergency Deficit Control Act of 1985 is 

17 amended by striking ‘‘2002’’ and inserting ‘‘2010’’. 

18 (b) SEQUESTRATION.—Section 252(b)(1) of such Act 

19 is amended by striking ‘‘2002’’ and inserting ‘‘2010’’. 

20 (c) EXPIRATION.—Section 275(b) of such Act is 

21 amended by striking ‘‘2006’’ and inserting ‘‘2014’’. 

22 SEC. 17. EFFECTIVE DATE. 

23 Except as otherwise provided, this Act shall take ef24 fect on the date of enactment of this Act and shall apply 
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1 to contracts that take effect with respect to calendar year 

2 2006 and each calendar year thereafter. 

Æ