I

107TH CONGRESS

1ST SESSION H. R. 2082

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

JUNE 6, 2001

Mr. MOORE (for himself, Mr. BOYD, Mr. TURNER, Mr. BERRY, Mr. TANNER,

Mr. STENHOLM, Mr. SCHIFF, Mrs. TAUSCHER, Mr. SANDLIN, Ms. HARMAN, Mr. ROSS, Mr. MATHESON, Mr. SHOWS, Mr. HOLDEN, Mr. CARSON

of Oklahoma, Mr. PHELPS, Ms. SANCHEZ, and Mr. MCINTYRE) 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 witin

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 2001’’.
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1 SEC. 2. DEDUCTION FOR 100 PERCENT OF HEALTH INSUR2 ANCE COSTS OF SELF-EMPLOYED INDIVID3 UALS.

4 (a) IN GENERAL.—Paragraph (1) of section 162(l)

5 is amended to read as follows:

6 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case

7 of an individual who is an employee within the

8 meaning of section 401(c)(1), there shall be allowed

9 as a deduction under this section an amount equal

10 to 100 percent of the amount paid during the tax11 able year for insurance which constitutes medical

12 care for the taxpayer and the taxpayer’s spouse and

13 dependents.’’.

14 (b) EFFECTIVE DATE.—The amendment made by

15 this section shall apply to taxable years beginning after

16 December 31, 2001.

17 SEC. 3. CREDIT FOR HEALTH INSURANCE EXPENSES OF

18 SMALL BUSINESSES.

19 (a) IN GENERAL.—Subpart D of part IV of sub20 chapter A of chapter 1 of the Internal Revenue Code of

21 1986 (relating to business-related credits) is amended by

22 adding at the end the following:

23 ‘‘SEC. 45E. SMALL BUSINESS HEALTH INSURANCE EX24 PENSES.

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

26 in the case of a small employer, the health insurance credit
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1 determined under this section for the taxable year is an

2 amount equal to the applicable percentage of the expenses

3 paid by the taxpayer during the taxable year for health

4 insurance coverage for such year provided under a new

5 health plan for employees of such employer.

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

7 subsection (a), the applicable percentage is—

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

9 member of a qualified health benefit purchasing coa10 lition (as defined in section 9841), 30 percent, and

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

12 paragraph (1), 20 percent.

13 ‘‘(c) LIMITATIONS.—

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

15 The amount of expenses taken into account under

16 subsection (a) with respect to any employee for any

17 taxable year shall not exceed—

18 ‘‘(A) $2,000 in the case of self-only cov19 erage, and

20 ‘‘(B) $5,000 in the case of family coverage.

21 In the case of an employee who is covered by a new

22 health plan of the employer for only a portion of

23 such taxable year, the limitation under the preceding

24 sentence shall be an amount which bears the same

25 ratio to such limitation (determined without regard
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1 to this sentence) as such portion bears to the entire

2 taxable year.

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

4 taken into account under subsection (a) only with

5 respect to coverage for the 4-year period beginning

6 on the date the employer establishes a new health

7 plan.

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 which provides health insurance coverage to em16 ployees if—

17 ‘‘(i) such employer (and any prede18 cessor employer) did not establish or main19 tain such arrangement (or any similar ar20 rangement) at any time during the 2 tax21 able years ending prior to the taxable year

22 in which the credit under this section is

23 first allowed, and

24 ‘‘(ii) such arrangement provides

25 health insurance coverage to at least 70
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1 percent of the qualified employees of such

2 employer.

3 ‘‘(B) QUALIFIED EMPLOYEE.—

4 ‘‘(i) IN GENERAL.—The term ‘quali5 fied employee’ means any employee of an

6 employer if the annual rate of such em7 ployee’s compensation (as defined in sec8 tion 414(s)) does not exceed $40,000.

9 ‘‘(ii) TREATMENT OF CERTAIN EM10 PLOYEES.—The term ‘employee’ shall in11 clude a leased employee within the mean12 ing of section 414(n).

13 ‘‘(iii) REDUCTION OF CREDIT FOR EM14 PLOYEES EARNING MORE THAN $30,000.—

15 If the annual rate of an employee’s com16 pensation (as defined in section 414(s)) ex17 ceeds $30,000, the limitation under sub18 section (c)(1) (determined without regard

19 to this clause) shall be reduced (but not

20 below zero) by an amount which bears the

21 same ratio to such limitation as such ex22 cess bears to $10,000.

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 2002, 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 2001’ 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 (12), by striking the period at the end

9 of paragraph (13) and inserting ‘‘, plus’’, and by adding

10 at the end the following:

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

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

14 (c) NO CARRYBACKS.—Subsection (d) of section 39

15 of such Code (relating to carryback and carryforward of

16 unused credits) is amended by adding at the end the fol17 lowing:

18 ‘‘(10) NO CARRYBACK OF SECTION 45E CREDIT

19 BEFORE EFFECTIVE DATE.—No portion of the un20 used business credit for any taxable year which is

21 attributable to the employee health insurance ex22 penses credit determined under section 45E may be

23 carried back to a taxable year beginning before Jan24 uary 1, 2002.’’
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1 (d) DENIAL OF DOUBLE BENEFIT.—Section 280C of

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

3 new subsection:

4 ‘‘(d) 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 45E for the taxable

10 year which is equal to the amount of the credit de11 termined for such taxable year under section

12 45E(a).

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

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

15 section 52 shall be treated as 1 person for purposes

16 of this section.’’

17 (e) CLERICAL AMENDMENT.—The table of sections

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

19 of such Code is amended by adding at the end the fol20 lowing:

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

21 (f) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to amounts paid or incurred in tax23 able years beginning after December 31, 2001, for ar24 rangements established after the date of the enactment

25 of this Act.
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1 SEC. 4. 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, 2008, and

18 ‘‘(B) with respect to start-up costs of a co19 alition which are paid or incurred after Decem20 ber 31, 2010.’’.

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

6 COALITION.

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, 2000.

11 SEC. 5. 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 the continuation after

18 the completion of the demonstration grant pe19 riod; and

20 (B) the Secretary determines that the

21 demonstration grant will be used consistent

22 with this section.

23 (3) FOCUS.—A demonstration grant proposal

24 under section need not cover all uninsured individ-
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1 uals 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.—Notwithstanding the previous provisions of this

12 section, under the program the Secretary may provide for

13 a portion of the amounts appropriated under subsection

14 (f) (not to exceed $5,000,000) to be made available to any

15 State for initial planning grants to permit States to de16 velop demonstration grant proposals under the previous

17 provisions of this section.

18 (f) AUTHORIZATION OF APPROPRIATIONS.—There

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

20 fiscal year to carry out this section. Amounts appropriated

21 under this subsection shall remain available until ex22 pended.

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

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

25 purposes of title XIX of the Social Security Act.
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1 SEC. 6. 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).

Æ