II 

108TH CONGRESS 

1ST SESSION S. 1901

To amend the Internal Revenue Code of 1986 to provide for a tax credit 

for offering employer-based health insurance coverage and to provide 

for the establishment of health insurance purchasing pools. 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 20, 2003

Mr. BAYH introduced the following bill; which was read twice and referred to 

the Committee on Finance 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

for a tax credit for offering employer-based health insurance coverage and to provide for the establishment of 

health insurance purchasing pools.

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 Care Act of 2003’’. 
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1 SEC. 2. CREDIT FOR EMPLOYEE HEALTH INSURANCE EX2 PENSES. 

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. 45G. EMPLOYEE HEALTH INSURANCE EXPENSES. 

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

9 in the case of a qualified small employer, the employee 

10 health insurance expenses credit determined under this 

11 section is an amount equal to the applicable percentage 

12 of the amount paid by the taxpayer during the taxable 

13 year for qualified employee health insurance expenses. 

14 ‘‘(b) APPLICABLE PERCENTAGE.—

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

16 (a), the applicable percentage is—

17 ‘‘(A) 50 percent in the case of an employer 

18 with less than 26 qualified employees, 

19 ‘‘(B) 40 percent in the case of an employer 

20 with more than 25 but less than 36 qualified 

21 employees, 

22 ‘‘(C) 30 percent in the case of an employer 

23 with more than 35 but less than 51 qualified 

24 employees, 
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1 ‘‘(D) 20 percent in the case of an employer 

2 with more than 50 but less than 76 qualified 

3 employees, and 

4 ‘‘(E) 10 percent in the case of an employer 

5 with more than 75 but less than 101 qualified 

6 employees. 

7 ‘‘(2) HIGH CONTRIBUTION BONUS.—With re8 spect to any taxable year during which a qualified 

9 small employer pays 100 percent of qualified em10 ployee health insurance expenses for the qualified 

11 employees of the small employer, the applicable per12 centage otherwise determined for such taxable year 

13 under the preceding paragraph shall be increased by 

14 5 percentage points. 

15 ‘‘(c) PER EMPLOYEE DOLLAR LIMITATION.—The 

16 amount of qualified employee health insurance expenses 

17 taken into account under subsection (a) with respect to 

18 any qualified employee for any taxable year shall not ex19 ceed the maximum employer contribution for self-only cov20 erage or family coverage (as applicable) determined under 

21 section 8906(a) of title 5, United States Code, for the cal22 endar year in which such taxable year begins. 

23 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur24 poses of this section—

25 ‘‘(1) QUALIFIED SMALL EMPLOYER.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 small employer’ means any small employer 

3 which—

4 ‘‘(i) provides eligibility for health in5 surance coverage (after any waiting period 

6 (as defined in section 9801(b)(4))) to all 

7 qualified employees of the employer, 

8 ‘‘(ii) pays at least 70 percent of the 

9 cost of such coverage (60 percent in the 

10 case of family coverage) for each qualified 

11 employee, and 

12 ‘‘(iii) in the case of a small employer 

13 which is located in a State which has es14 tablished a health insurance purchasing 

15 pool under section 3 of the Small Business 

16 Health Care Act of 2003, joins such pool. 

17 ‘‘(B) TRANSITION RULE FOR NEW

18 PLANS.—

19 ‘‘(i) IN GENERAL.—If a small em20 ployer (or any predecessor) did not provide 

21 health insurance coverage to the qualified 

22 employees of the employer during the em23 ployer’s precompliance period, then sub24 paragraph (A) shall be applied to such em25 ployer for the first 5 taxable years fol-
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1 lowing such period by substituting ‘50 per2 cent’ for ‘70 percent’ in clause (ii) (or for 

3 ‘60 percent’ in such clause, in the case of 

4 family coverage). 

5 ‘‘(ii) PRECOMPLIANCE PERIOD.—For 

6 purposes of clause (i), the precompliance 

7 periods are—

8 ‘‘(I) the period beginning with 

9 the small employer’s taxable year pre10 ceding its first taxable year beginning 

11 after the date of the enactment of this 

12 section, and 

13 ‘‘(II) the period beginning with 

14 the small employer’s taxable year pre15 ceding the first taxable year for which 

16 the employer meets the requirement of 

17 subparagraph (A)(i). 

18 An employer not in existence for any pe19 riod shall be treated in the same manner 

20 as an employer which is in existence and 

21 not providing coverage. 

22 ‘‘(C) SMALL EMPLOYER.—

23 ‘‘(i) IN GENERAL.—For purposes of 

24 this paragraph, the term ‘small employer’ 

25 means, with respect to any calendar year, 
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1 any employer if such employer employed 

2 an average of not less than 2 and not more

3 than 100 qualified employees on business 

4 days during either of the 2 preceding cal5 endar years. For purposes of the preceding 

6 sentence, a preceding calendar year may be 

7 taken into account only if the employer 

8 was in existence throughout such year. 

9 ‘‘(ii) EMPLOYERS NOT IN EXISTENCE

10 IN PRECEDING YEAR.—In the case of an 

11 employer which was not in existence 

12 throughout the 1st preceding calendar 

13 year, the determination under clause (i) 

14 shall be based on the average number of 

15 qualified employees that it is reasonably 

16 expected such employer will employ on 

17 business days in the current calendar year. 

18 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR19 ANCE EXPENSES.—

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

21 employee health insurance expenses’ means any 

22 amount paid by an employer for health insur23 ance coverage to the extent such amount is at24 tributable to coverage provided to any employee 

25 while such employee is a 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 ‘‘(C) HEALTH INSURANCE COVERAGE.—

8 The term ‘health insurance coverage’ has the 

9 meaning given such term by section 9832(b)(1). 

10 ‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali11 fied employee’ means an employee of an employer 

12 who, with respect to any period, is not provided 

13 health insurance coverage under—

14 ‘‘(A) a health plan of the employee’s 

15 spouse, 

16 ‘‘(B) title XVIII, XIX, or XXI of the So17 cial Security Act, 

18 ‘‘(C) chapter 17 of title 38, United States 

19 Code, 

20 ‘‘(D) chapter 55 of title 10, United States 

21 Code, 

22 ‘‘(E) chapter 89 of title 5, United States 

23 Code, or 

24 ‘‘(F) any other provision of law. 

25 ‘‘(4) EMPLOYEE—The term ‘employee’—
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1 ‘‘(A) means any individual, with respect to 

2 any calendar year, who is reasonably expected 

3 to receive at least $5,000 and not more than 

4 $100,000 of compensation from the employer 

5 during such year, 

6 ‘‘(B) does not include an employee within 

7 the meaning of section 401(c)(1), and 

8 ‘‘(C) includes a leased employee within the 

9 meaning of section 414(n). 

10 ‘‘(5) COMPENSATION.—The term ‘compensa11 tion’ means amounts described in section 

12 6051(a)(3). 

13 ‘‘(e) CERTAIN RULES MADE APPLICABLE.—For pur14 poses of this section, rules similar to the rules of section 

15 52 shall apply. 

16 ‘‘(f) DENIAL OF DOUBLE BENEFIT.—No deduction 

17 or credit under any other provision of this chapter shall 

18 be allowed with respect to qualified employee health insur19 ance expenses taken into account under subsection (a).’’. 

20 (b) CREDIT TO BE PART OF GENERAL BUSINESS

21 CREDIT.—Section 38(b) of the Internal Revenue Code of 

22 1986 (relating to current year business credit) is amended 

23 by striking ‘‘plus’’ at the end of paragraph (14), by strik24 ing the period at the end of paragraph (15) and inserting 

25 ‘‘, plus’’, and by adding at the end the following: 
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1 ‘‘(16) the employee health insurance expenses 

2 credit determined under section 45G.’’.

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

4 of the Internal Revenue Code of 1986 (relating to 

5 carryback and carryforward of unused credits) is amended 

6 by adding at the end the following: 

7 ‘‘(11) NO CARRYBACK OF SECTION 45G CREDIT

8 BEFORE EFFECTIVE DATE.—No portion of the un9 used business credit for any taxable year which is 

10 attributable to the employee health insurance ex11 penses credit determined under section 45G may be 

12 carried back to a taxable year ending before the date 

13 of the enactment of section 45G.’’.

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

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

16 of the Internal Revenue Code of 1986 is amended by add17 ing at the end the following:

‘‘Sec. 45G. Employee health insurance expenses.’’.

18 (e) EMPLOYER OUTREACH.—The Internal Revenue 

19 Service shall, in conjunction with the Small Business Ad20 ministration, develop materials and implement an edu21 cational program to ensure that business personnel are 

22 aware of—

23 (1) the eligibility criteria for the tax credit pro24 vided under section 45G of the Internal Revenue 

25 Code of 1986 (as added by this section), 
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1 (2) the methods to be used in calculating such 

2 credit, and 

3 (3) the documentation needed in order to claim 

4 such credit, 

5 so that the maximum number of eligible businesses may 

6 claim the tax credit.

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

8 this section shall apply to amounts paid or incurred in tax9 able years beginning after the date of the enactment of 

10 this Act. 

11 SEC. 3. HEALTH INSURANCE PURCHASING POOLS. 

12 (a) MATCHING FUNDS FOR OPERATION OF POOLS.—

13 (1) IN GENERAL.—In the case of a State or a 

14 unit of local government that establishes a health in15 surance purchasing pool, the Secretary of Health 

16 and Human Services shall provide, from the funds 

17 allocated under subsection (b), a grant equal to the 

18 applicable percentage of the administrative costs as19 sociated with such pool. 

20 (2) APPLICABLE PERCENTAGE.—For purposes 

21 of paragraph (1), the applicable percentage is—

22 (A) 75 percent for the initial year of the 

23 grant; 

24 (B) 50 percent for year succeeding the 

25 year to which subparagraph (A) is applicable; 
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1 (C) 25 percent for the year succeeding the 

2 year to which subparagraph (B) is applicable; 

3 and 

4 (D) zero thereafter. 

5 (3) SPECIAL RULE FOR LOCAL GOVERNMENT

6 PURCHASING POOLS.—The Secretary of Health and 

7 Human Services shall not provide a grant under this 

8 section to any unit of a local government unless such 

9 unit of local government submits to the Secretary a 

10 certificate from the State in which such unit of local 

11 government is located authorizing such grant. 

12 (4) HEALTH INSURANCE PURCHASING POOL.—

13 For purposes of this section, the term ‘‘health insur14 ance purchasing pool’’ means a purchasing pool for 

15 small employers (as defined under section 45G of 

16 the Internal Revenue Code of 1986) for the purpose 

17 of providing health insurance coverage (as defined in 

18 such section) to qualified employees (as defined in 

19 such section). 

20 (b) FUNDING.—Out of the money in the Treasury of 

21 the United States not otherwise appropriated, there are 

22 authorized and appropriated such sums as are necessary 

23 to carry out this section.

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