I 

109TH CONGRESS 

1ST SESSION H. R. 2001

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 (for himself, Mr. ROSS, Mr. BOYD, Mrs. TAUSCHER, 

Mr. SCHIFF, and Mr. HOLDEN) 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 Expansion 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 provided under 

15 a new health plan for employees 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 by a new 

16 health plan of the employer for only a portion of 

17 such taxable year, the limitation under the preceding 

18 sentence shall be an amount which bears the same 

19 ratio to such limitation (determined without regard 

20 to this sentence) as such portion bears to the entire 

21 taxable year. 

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

23 taken into account under subsection (a) only with 

24 respect to coverage for the 4-year period beginning 
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1 on the date the employer establishes a new health 

2 plan. 

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

4 COST.—Expenses may be taken into account under 

5 subsection (a) only if at least 65 percent of the cost 

6 of the coverage (without regard to this section) is 

7 borne by the employer. 

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

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

10 term ‘health insurance coverage’ has the meaning 

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

12 ‘‘(2) NEW HEALTH PLAN.—

13 ‘‘(A) IN GENERAL.—The term ‘new health 

14 plan’ means any arrangement of the employer 

15 established after the date of the enactment of 

16 this section which provides health insurance 

17 coverage to employees if—

18 ‘‘(i) such employer (and any prede19 cessor employer) did not establish or main20 tain such arrangement (or any similar ar21 rangement) at any time during the 2 cal22 endar years ending prior to the taxable 

23 year in which the credit under this section 

24 is first allowed, and 
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1 ‘‘(ii) such arrangement provides 

2 health insurance coverage to at least 70 

3 percent of the qualified employees of such 

4 employer. 

5 ‘‘(B) QUALIFIED EMPLOYEE.—

6 ‘‘(i) IN GENERAL.—The term ‘quali7 fied employee’ means any employee of an 

8 employer if the annual rate of such em9 ployee’s compensation (as defined in sec10 tion 414(s)) does not exceed $40,000. 

11 ‘‘(ii) TREATMENT OF CERTAIN EM12 PLOYEES.—The term ‘employee’ shall in13 clude a leased employee within the mean14 ing of section 414(n). 

15 ‘‘(iii) REDUCTION OF CREDIT FOR EM16 PLOYEES EARNING MORE THAN $30,000.—

17 If the annual rate of an employee’s com18 pensation (as defined in section 414(s)) ex19 ceeds $30,000, the applicable limitation 

20 under subsection (c)(1) (determined with21 out regard to this clause) shall be reduced 

22 (but not below zero) by an amount which 

23 bears the same ratio to such limitation as 

24 such excess bears to $10,000. 
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1 ‘‘(iv) EMPLOYEES HAVING FAMILY

2 COVERAGE.—In the case of an employee 

3 who has family coverage—

4 ‘‘(I) clause (i) shall be applied by 

5 substituting ‘$50,000’ for ‘$40,000’, 

6 and 

7 ‘‘(II) clause (iii) shall be applied 

8 by substituting ‘$40,000’ for 

9 ‘$30,000’. 

10 ‘‘(3) SMALL EMPLOYER.—The term ‘small em11 ployer’ has the meaning given to such term by sec12 tion 4980D(d)(2); except that only qualified employ13 ees shall be taken into account. 

14 ‘‘(e) SPECIAL RULES.—

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

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

17 section 52 shall apply. 

18 ‘‘(2) AMOUNTS PAID UNDER SALARY REDUC19 TION ARRANGEMENTS.—No amount paid or incurred 

20 pursuant to a salary reduction arrangement shall be 

21 taken into account under subsection (a). 

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

23 any taxable year beginning in a calendar year after 

24 2006, each dollar amount contained in subsections 
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1 (c)(1) and (d)(2)(B) shall be increased by an 

2 amount equal to—

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

4 ‘‘(B) the cost-of-living adjustment deter5 mined under section 1(f)(3) for the calendar 

6 year in which the taxable year begins, deter7 mined by substituting ‘calendar year 2005’ for 

8 ‘calendar year 1992’ in subparagraph (B) 

9 thereof. 

10 Any increase determined under the preceding sen11 tence shall be rounded to the nearest multiple of 

12 $50. 

13 ‘‘(f) TERMINATION.—This section shall not apply to 

14 expenses paid or incurred by an employer with respect to 

15 any arrangement established on or after January 1, 

16 2010.’’. 

17 (b) CREDIT TO BE PART OF GENERAL BUSINESS

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

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

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

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

22 at the end the following: 

23 ‘‘(20) in the case of a small employer (as de24 fined in section 45J(d)(3)), the health insurance 

25 credit determined under section 45J(a).’’. 
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1 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C of 

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

3 new subsection: 

4 ‘‘(e) CREDIT FOR SMALL BUSINESS HEALTH INSUR5 ANCE EXPENSES.—

6 ‘‘(1) IN GENERAL.—No deduction shall be al7 lowed for that portion of the expenses (otherwise al8 lowable as a deduction) taken into account in deter9 mining the credit under section 45J for the taxable 

10 year which is equal to the amount of the credit de11 termined for such taxable year under section 45J(a). 

12 ‘‘(2) CONTROLLED GROUPS.—Persons treated 

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

14 section 52 shall be treated as 1 person for purposes 

15 of this section.’’. 

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

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

18 of such Code is amended by adding at the end the fol19 lowing:

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

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

21 this section shall apply to amounts paid or incurred in tax22 able years beginning after December 31, 2005. 
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1 SEC. 3. CERTAIN GRANTS BY PRIVATE FOUNDATIONS TO 

2 QUALIFIED HEALTH BENEFIT PURCHASING 

3 COALITIONS. 

4 (a) IN GENERAL.—Section 4942 of the Internal Rev5 enue Code of 1986 (relating to taxes on failure to dis6 tribute income) is amended by adding at the end the fol7 lowing: 

8 ‘‘(k) CERTAIN QUALIFIED HEALTH BENEFIT PUR9 CHASING COALITION DISTRIBUTIONS.—

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

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

12 chapter, a qualified health benefit purchasing coali13 tion distribution by a private foundation shall be 

14 considered to be a distribution for a charitable pur15 pose. 

16 ‘‘(2) QUALIFIED HEALTH BENEFIT PUR17 CHASING COALITION DISTRIBUTION.—For purposes 

18 of paragraph (1)—

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

20 health benefit purchasing coalition distribution’ 

21 means any amount paid or incurred by a pri22 vate foundation to or on behalf of a qualified 

23 health benefit purchasing coalition (as defined 

24 in section 9841) for purposes of payment or re25 imbursement of amounts paid or incurred in 
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1 connection with the establishment and mainte2 nance of such coalition. 

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

4 include any amount used by a qualified health 

5 benefit purchasing coalition (as so defined)—

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

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

8 of, members (or employees or affiliates of 

9 such members) of such coalition, or 

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

11 more than 48 months after the date of es12 tablishment of such coalition. 

13 ‘‘(3) TERMINATION.—This subsection shall not 

14 apply—

15 ‘‘(A) to qualified health benefit purchasing 

16 coalition distributions paid or incurred after 

17 December 31, 2010, and 

18 ‘‘(B) with respect to start-up costs of a co19 alition which are paid or incurred after Decem20 ber 31, 2012.’’. 

21 (b) QUALIFIED HEALTH BENEFIT PURCHASING CO22 ALITION.—

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

24 (relating to group health plan requirements) is 
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1 amended by adding at the end the following new 

2 subchapter: 

3 ‘‘Subchapter D—Qualified Health Benefit 

4 Purchasing Coalition

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

5 ‘‘SEC. 9841. QUALIFIED HEALTH BENEFIT PURCHASING CO6 ALITION. 

7 ‘‘(a) IN GENERAL.—A qualified health benefit pur8 chasing coalition is a private not-for-profit corporation 

9 which—

10 ‘‘(1) sells health insurance through State li11 censed health insurance issuers in the State in which 

12 the employers to which such coalition is providing 

13 insurance are located, and 

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

15 certification procedures or other procedures as the 

16 Secretary may provide by regulation, that such coali17 tion meets the requirements of this section. 

18 ‘‘(b) BOARD OF DIRECTORS.—

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

20 under this section shall be governed by a Board of 

21 Directors. 

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

23 procedures governing election of such Board. 
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1 ‘‘(3) MEMBERSHIP.—The Board of Directors 

2 shall—

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

4 members of the coalition, in equal number, in5 cluding small employers and employee rep6 resentatives of such employers, but 

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

8 such as health care service providers, health in9 surers, or insurance agents or brokers which 

10 may have a conflict of interest with the pur11 poses of the coalition. 

12 ‘‘(c) MEMBERSHIP OF COALITION.—

13 ‘‘(1) IN GENERAL.—A purchasing coalition 

14 shall accept all small employers residing within the 

15 area served by the coalition as members if such em16 ployers request such membership. 

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

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

19 individuals and large employers. 

20 ‘‘(3) VOTING.—Members of a purchasing coali21 tion shall have voting rights consistent with the rules 

22 established by the State. 

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

24 purchasing coalition shall—
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1 ‘‘(1) enter into agreements with small employ2 ers (and, at the discretion of its Board, with individ3 uals and other employers) to provide health insur4 ance benefits to employees and retirees of such em5 ployers, 

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

7 into agreements with 3 or more unaffiliated, quali8 fied licensed health plans, to offer benefits to mem9 bers, 

10 ‘‘(3) offer to members at least 1 open enroll11 ment period of at least 30 days per calendar year, 

12 ‘‘(4)(A) serve a geographical area which, under 

13 the State certification procedures referred to in sub14 section (a)(2), is significant, and 

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

16 area, and 

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

18 under this section. 

19 ‘‘(e) LIMITATION ON ACTIVITIES.—A purchasing coa20 lition shall not—

21 ‘‘(1) perform any activity (including certifi22 cation or enforcement) relating to compliance or li23 censing of health plans, 

24 ‘‘(2) assume insurance or financial risk in rela25 tion to any health plan, or 
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1 ‘‘(3) perform other activities identified by the 

2 State as being inconsistent with the performance of 

3 its duties under this section. 

4 ‘‘(f) ADDITIONAL REQUIREMENTS FOR PURCHASING

5 COALITIONS.—As provided by the Secretary in regula6 tions, a purchasing coalition shall be subject to require7 ments similar to the requirements of a group health plan 

8 under this chapter. 

9 ‘‘(g) RELATION TO OTHER LAWS.—

10 ‘‘(1) PREEMPTION OF STATE FICTITIOUS

11 GROUP LAWS.—Requirements (commonly referred to 

12 as fictitious group laws) relating to grouping and 

13 similar requirements for health insurance coverage 

14 are preempted to the extent such requirements im15 pede the establishment and operation of qualified 

16 health benefit purchasing coalitions. 

17 ‘‘(2) ALLOWING SAVINGS TO BE PASSED

18 THROUGH.—Any State law that prohibits health in19 surance issuers from reducing premiums on health 

20 insurance coverage sold through a qualified health 

21 benefit purchasing coalition to reflect administrative 

22 savings is preempted. This paragraph shall not be 

23 construed to preempt State laws that impose restric24 tions on premiums based on health status, claims 
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1 history, industry, age, gender, or other underwriting 

2 factors. 

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

4 Nothing in this section shall be construed to change 

5 the obligation of health insurance issuers to comply 

6 with the requirements of title XXVII of the Public 

7 Health Service Act with respect to health insurance 

8 coverage offered to small employers in the small 

9 group market through a qualified health benefit pur10 chasing coalition. 

11 ‘‘(h) DEFINITION OF SMALL EMPLOYER.—For pur12 poses of this section—

13 ‘‘(1) IN GENERAL.—The term ‘small employer’ 

14 means, with respect to any calendar year, any em15 ployer if such employer employed an average of at 

16 least 2 and not more than 50 qualified employees on 

17 business days during either of the 2 preceding cal18 endar years. For purposes of the preceding sentence, 

19 a preceding calendar year may be taken into account 

20 only if the employer was in existence throughout 

21 such year. 

22 ‘‘(2) EMPLOYERS NOT IN EXISTENCE IN PRE23 CEDING YEAR.—In the case of an employer which 

24 was not in existence throughout the 1st preceding 

25 calendar year, the determination under paragraph 
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1 (1) shall be based on the average number of quali2 fied employees that it is reasonably expected such 

3 employer will employ on business days in the current 

4 calendar year.’’. 

5 (2) CONFORMING AMENDMENT.—The table of 

6 subchapters for chapter 100 of such Code is amend7 ed by adding at the end the following item:

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

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

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

10 December 31, 2004. 

11 SEC. 4. STATE GRANT PROGRAM FOR MARKET INNOVA12 TION. 

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

14 Human Services (in this section referred to as the ‘‘Sec15 retary’’) shall establish a program (in this section referred 

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

17 under this section to States to allow States to demonstrate 

18 the effectiveness of innovative ways to increase access to 

19 health insurance through market reforms and other inno20 vative means. Such innovative means may include (and are 

21 not limited to) any of the following: 

22 (1) Alternative group purchasing or pooling ar23 rangements, such as a purchasing cooperatives for 

24 small businesses, reinsurance pools, or high risk 

25 pools. 
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1 (2) Individual or small group market reforms. 

2 (3) Consumer education and outreach. 

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

4 in obtaining health insurance. 

5 (b) SCOPE; DURATION.—The program shall be lim6 ited to not more than 10 States and to a total period of 

7 5 years, beginning on the date the first demonstration 

8 grant is made. 

9 (c) CONDITIONS FOR DEMONSTRATION GRANTS.—

10 (1) IN GENERAL.—The Secretary may not pro11 vide for a demonstration grant to a State under the 

12 program unless the Secretary finds that under the 

13 proposed demonstration grant—

14 (A) the State will provide for demonstrated 

15 increase of access for some portion of the exist16 ing uninsured population through a market in17 novation (other than merely through a financial 

18 expansion of a program initiated before the 

19 date of the enactment of this Act); 

20 (B) the State will comply with applicable 

21 Federal laws; 

22 (C) the State will not discriminate among 

23 participants on the basis of any health status24 related factor (as defined in section 2791(d)(9) 

25 of the Public Health Service Act), except to the 
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1 extent a State wishes to focus on populations 

2 that otherwise would not obtain health insur3 ance because of such factors; and 

4 (D) the State will provide for such evalua5 tion, in coordination with the evaluation re6 quired under subsection (d), as the Secretary 

7 may specify. 

8 (2) APPLICATION.—The Secretary shall not 

9 provide a demonstration grant under the program to 

10 a State unless—

11 (A) the State submits to the Secretary 

12 such an application, in such a form and man13 ner, as the Secretary specifies; 

14 (B) the application includes information 

15 regarding how the demonstration grant will ad16 dress issues such as governance, targeted popu17 lation, expected cost, and continuation after the 

18 completion of the demonstration grant period; 

19 and 

20 (C) the Secretary determines that the dem21 onstration grant will be used in a manner con22 sistent with this section. 

23 (3) FOCUS.—A demonstration grant proposal 

24 under this section need not cover all uninsured indi-
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1 viduals in a State or all health care benefits with re2 spect to such individuals. 

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

4 contract with an appropriate entity outside the Depart5 ment of Health and Human Services to conduct an overall 

6 evaluation of the program at the end of the program pe7 riod. Such evaluation shall include an analysis of improve8 ments in access, costs, quality of care, or choice of cov9 erage, under different demonstration grants. 

10 (e) OPTION TO PROVIDE FOR INITIAL PLANNING

11 GRANTS.—The Secretary may provide for a portion of the 

12 amounts appropriated under subsection (f) (not to exceed 

13 $5,000,000) to be made available to any State for initial 

14 planning grants to permit States to develop demonstration 

15 grant proposals under this section. 

16 (f) AUTHORIZATION OF APPROPRIATIONS.—There 

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

18 fiscal year to carry out this section. Amounts appropriated 

19 under this subsection shall remain available until ex20 pended. 

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

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

23 purposes of title XIX of the Social Security Act. 
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1 SEC. 5. GRANT PROGRAM TO FACILITATE HEALTH BENE2 FITS INFORMATION FOR SMALL EMPLOYERS. 

3 (a) IN GENERAL.—The Small Business Administra4 tion shall award grants to 1 or more States, local govern5 ments, and non-profit organizations for the purposes of—

6 (1) demonstrating new and effective ways to 

7 provide information about the benefits of health in8 surance to small employers, including tax benefits, 

9 increased productivity of employees, and decreased 

10 turnover of employees, 

11 (2) making employers aware of their current 

12 rights in the marketplace under State and Federal 

13 health insurance reforms, and 

14 (3) making employers aware of the tax treat15 ment of insurance premiums. 

16 (b) AUTHORIZATION.—There is authorized to be ap17 propriated $10,000,000 for each of the first 5 fiscal years 

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

19 grants under subsection (a).

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