II 

108TH CONGRESS 

2D SESSION S. 2163

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 SENATE OF THE UNITED STATES 

MARCH 4, 2004

Mr. DURBIN (for himself, Mrs. LINCOLN, Mr. CARPER, and Mr. PRYOR) introduced the following bill; which was read twice and referred to the Committee on Finance 

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. 

4 This Act may be cited as the ‘‘Small Employers 

5 Health Benefits Program Act of 2004’’. 

6 SEC. 2. DEFINITIONS. 

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

8 of family’’, ‘‘health benefits plan’’, ‘‘carrier’’, ‘‘employee 
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1 organizations’’, and ‘‘dependent’’ have the meanings given 

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

3 (b) OTHER TERMS.—In this Act: 

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

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

6 Employee Retirement Income Security Act of 1974 

7 (29 U.S.C. 1002(6)). Such term shall not include an 

8 employee of the Federal Government. 

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

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

11 Employee Retirement Income Security Act of 1974 

12 (29 U.S.C. 1002(5)), except that such term shall in13 clude only employers who employed an average of at 

14 least 1 but not more than 100 employees on busi15 ness days during the year preceding the date of ap16 plication. Such term shall not include the Federal 

17 Government. 

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

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

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

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

22 (4) OFFICE.—The term ‘‘Office’’ means the Of23 fice of Personnel Management. 

24 (5) PARTICIPATING EMPLOYER.—The term 

25 ‘‘participating employer’’ means an employer that—
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1 (A) elects to provide health insurance cov2 erage under this Act to its employees; and 

3 (B) is not offering other health insurance 

4 coverage to such employees. 

5 (c) APPLICATION OF CERTAIN RULES IN DETER6 MINATION OF EMPLOYER SIZE.—For purposes of sub7 section (b)(2): 

8 (1) APPLICATION OF AGGREGATION RULE FOR

9 EMPLOYERS.—All persons treated as a single em10 ployer under subsection (b), (c), (m), or (o) of sec11 tion 414 of the Internal Revenue Code of 1986 shall 

12 be treated as 1 employer. 

13 (2) EMPLOYERS NOT IN EXISTENCE IN PRE14 CEDING YEAR.—In the case of an employer which 

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

16 date on which the employer applies to participate, 

17 the determination of whether such employer meets 

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

19 on the average number of employees that it is rea20 sonably expected such employer will employ on busi21 ness days in the employer’s first full year. 

22 (3) PREDECESSORS.—Any reference in this 

23 subsection to an employer shall include a reference 

24 to any predecessor of such employer. 
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1 (d) WAIVER AND CONTINUATION OF PARTICIPA2 TION.—

3 (1) WAIVER.—The Office may waive the limita4 tions relating to the size of an employer which may 

5 participate in the health insurance program estab6 lished under this Act on a case by case basis if the 

7 Office determines that such employer makes a com8 pelling case for such a waiver. In making determina9 tions under this paragraph, the Office may consider 

10 the effects of the employment of temporary and sea11 sonal workers and other factors. 

12 (2) CONTINUATION OF PARTICIPATION.—An 

13 employer participating in the program under this 

14 Act that experiences an increase in the number of 

15 employees so that such employer has in excess of 

16 100 employees, may not be excluded from participa17 tion solely as a result of such increase in employees. 

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

19 EMPLOYEES. 

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

21 health insurance program for non-Federal employees and 

22 employers in accordance with this Act. 

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

24 Act, the Office shall prescribe regulations to apply the pro25 visions of chapter 89 of title 5, United States Code, to 
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1 the greatest extent practicable to participating carriers, 

2 employers, and employees covered under this Act. 

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

4 of this Act result in—

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

6 Federal Government contributions required under 

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

8 copayments or deductibles; 

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

10 under such chapter 89; or 

11 (3) any other change that would adversely af12 fect the coverage afforded under such chapter 89 to 

13 employees and annuitants and members of family 

14 under that chapter. 

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

16 to facilitate enrollment under this Act, including the use 

17 of the Internet. 

18 (e) CONTRACTS FOR ADMINISTRATION.—The Office 

19 may enter into contracts for the performance of appro20 priate administrative functions under this Act. 

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

22 this Act, the Office shall ensure that covered employees 

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

24 the risk pool maintained for covered individuals under 

25 chapter 89 of title 5, United States Code.
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1 (g) RULE OF CONSTRUCTION.—Nothing in this Act 

2 shall be construed to require a carrier that is participating 

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

4 Code, to provide health benefits plan coverage under this 

5 Act. 

6 SEC. 4. CONTRACT REQUIREMENT. 

7 (a) IN GENERAL.—The Office may enter into con8 tracts with qualified carriers offering health benefits plans 

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

10 5, United States Code, without regard to section 5 of title 

11 41, United States Code, or other statutes requiring com12 petitive bidding, to provide health insurance coverage to 

13 employees of participating employers under this Act. Each 

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

15 but may be made automatically renewable from term to 

16 term in the absence of notice of termination by either 

17 party. In entering into such contracts, the Office shall en18 sure that health benefits coverage is provided for individ19 uals only, married individuals without children, and fami20 lies. 

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

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

23 (1) is licensed to offer health benefits plan cov24 erage in each State in which the plan is offered; and 
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1 (2) meets such other requirements as deter2 mined appropriate by the Office. 

3 (c) STATEMENT OF BENEFITS.—Each contract 

4 under this Act shall contain a detailed statement of bene5 fits offered and shall include information concerning such 

6 maximums, limitations, exclusions, and other definitions 

7 of benefits as the Office considers necessary or desirable. 

8 (d) STANDARDS.—The minimum standards pre9 scribed for health benefits plans under section 8902(e) of 

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

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

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

13 and opportunity for hearing to the carrier concerned with14 out regard to subchapter II of chapter 5 and chapter 7 

15 of title 5, United States Code. 

16 (e) CONVERSION.—

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

18 or a plan approved under this section if the carrier 

19 under such contract or plan does not offer to each 

20 enrollee whose enrollment in the plan is ended, ex21 cept by a cancellation of enrollment, a temporary ex22 tension of coverage during which the individual may 

23 exercise the option to convert, without evidence of 

24 good health, to a nongroup contract providing health 

25 benefits. An enrollee who exercises this option shall 
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1 pay the full periodic charges of the nongroup con2 tract. 

3 (2) NONCANCELLABLE.—The benefits and cov4 erage made available under paragraph (1) are 

5 noncancellable by the carrier except for fraud, over6 insurance, or nonpayment of periodic charges. 

7 (f) RATES.—Rates charged under health benefits 

8 plans under this Act shall reasonably and equitably reflect 

9 the cost of the benefits provided. Such rates shall be deter10 mined on a basis which, in the judgment of the Office, 

11 is consistent with the lowest schedule of basic rates gen12 erally charged for new group health benefits plans issued 

13 to large employers. The rates determined for the first con14 tract term shall be continued for later contract terms, ex15 cept that they may be readjusted for any later term, based 

16 on past experience and benefit adjustments under the later 

17 contract. Any readjustment in rates shall be made in ad18 vance of the contract term in which they will apply and 

19 on a basis which, in the judgment of the Office, is con20 sistent with the general practice of carriers which issue 

21 group health benefits plans to large employers. Rates 

22 charged for coverage under this Act shall not vary based 

23 on health-status related factors. 

24 (g) REQUIREMENT OF PAYMENT FOR OR PROVISION

25 OF HEALTH SERVICE.—Each contract entered into under 
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1 this Act shall require the carrier to agree to pay for or 

2 provide a health service or supply in an individual case 

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

4 member, former spouse, or person having continued cov5 erage under section 8905a of title 5, United States Code, 

6 is entitled thereto under the terms of the contract. 

7 (h) PREEMPTION.—

8 (1) IN GENERAL.—The terms of any contract 

9 entered into under this Act that relate to the nature, 

10 provision, or extent of coverage or benefits (includ11 ing payments with respect to benefits) shall super12 sede and preempt any State or local law, or any reg13 ulation issued thereunder, which relates to health in14 surance or plans. 

15 (2) HEALTH PROVIDERS.—

16 (A) IN GENERAL.—Notwithstanding para17 graph (1), if a contract entered into under this 

18 Act provides for the provision of, the payment 

19 for, or the reimbursement of the cost of health 

20 services for the care and treatment of any par21 ticular health condition, the carrier shall pro22 vide, pay, or reimburse up to the limits of its 

23 contract for any such health service properly 

24 provided by any person licensed under State law 

25 to provide such service if such service is pro-
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1 vided to an individual covered by such contract 

2 in a State where 25 percent or more of the pop3 ulation is located in primary medical care man4 power shortage areas designated pursuant to 

5 section 332 of the Public Health Service Act 

6 (42 U.S.C. 254e). 

7 (B) LIMITATION.—Subparagraph (A) shall 

8 not apply to contracts entered into under this 

9 Act providing prepayment plans described in 

10 section 8903(4) of title 5, United States Code. 

11 SEC. 5. ELIGIBILITY. 

12 An individual shall be eligible to enroll in a plan 

13 under this Act if such individual—

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

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

16 defined in section 401(c)(1)(B) of the Internal Rev17 enue Code of 1986; and 

18 (2) is not otherwise enrolled or eligible for en19 rollment in a plan under chapter 89 of title 5, 

20 United States Code. 

21 SEC. 6. ALTERNATIVE CONDITIONS TO FEDERAL EM22 PLOYEE PLANS. 

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

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

25 individual who had coverage under a health insurance plan
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1 and is not a qualified beneficiary as defined under section 

2 4980B(g)(1) of the Internal Revenue Code of 1986 shall 

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

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

5 United States Code. 

6 (b) PREEXISTING CONDITION EXCLUSIONS.—

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

8 Act may include a preexisting condition exclusion as 

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

10 Revenue Code of 1986. 

11 (2) EXCLUSION PERIOD.—

12 (A) IN GENERAL.—A preexisting condition 

13 exclusion under this subsection shall provide for 

14 coverage of a preexisting condition to begin not 

15 later than 1 year after the date on which the 

16 coverage of the individual under a health bene17 fits plan commences, reduced by 1 month for 

18 each month that the individual was covered 

19 under a health insurance plan immediately pre20 ceding the date the individual submitted an ap21 plication for coverage under this Act. 

22 (B) LAPSE IN COVERAGE.—For purposes 

23 of this paragraph, a lapse in coverage of not 

24 more than 63 days immediately preceding the 

25 date of the submission of an application for cov-
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1 erage under this Act shall not be considered a 

2 lapse in continuous coverage. 

3 (c) RATES AND PREMIUMS.—

4 (1) IN GENERAL.—Rates charged and pre5 miums paid for a health benefits plan under this 

6 Act—

7 (A) may be adjusted and differ from such 

8 rates charged and premiums paid for the same 

9 health benefits plan offered under chapter 89 of 

10 title 5, United States Code; 

11 (B) shall be negotiated in the same man12 ner as rates and premiums are negotiated 

13 under such chapter 89; and 

14 (C) shall be adjusted to cover the adminis15 trative costs of the Office under this Act. 

16 (2) DETERMINATIONS.—In determining rates 

17 and premiums under this Act—

18 (A) the age of covered individuals may be 

19 considered; and 

20 (B) rebates or lower rates and premiums 

21 may be set to encourage longevity of coverage. 

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) RULE OF CONSTRUCTION.—Nothing in this Act 

4 shall be construed to limit the application of the service5 charge system used by the Office for determining profits 

6 for participating carriers under chapter 89 of title 5, 

7 United States Code. 

8 SEC. 7. ENCOURAGING PARTICIPATION BY CARRIERS 

9 THROUGH ADJUSTMENTS FOR RISK. 

10 (a) APPLICATION OF RISK CORRIDORS.—

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

12 to carriers with respect to health benefits plans of13 fered under this Act during any of calendar years 

14 2005 through 2009. 

15 (2) NOTIFICATION OF COSTS UNDER THE

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

17 benefits plan under this Act in any of calendar years 

18 2005 through 2009, the carrier shall notify the Of19 fice, before such date in the succeeding year as the 

20 Office specifies, of the total amount of costs incurred 

21 in providing benefits under the health benefits plan 

22 for the year involved and the portion of such costs 

23 that is attributable to administrative expenses. 

24 (3) ALLOWABLE COSTS DEFINED.—For pur25 poses of this section, the term ‘‘allowable costs’’
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1 means, with respect to a health benefits plan offered 

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

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

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

5 attributable to administrative expenses incurred in 

6 providing the benefits described in such paragraph. 

7 (b) ADJUSTMENT OF PAYMENT.—

8 (1) NO ADJUSTMENT IF ALLOWABLE COSTS

9 WITHIN 3 PERCENT OF TARGET AMOUNT.—If the al10 lowable costs for the carrier with respect to the 

11 health benefits plan involved for a calendar year are 

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

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

14 there shall be no payment adjustment under this 

15 section for the plan and year. 

16 (2) INCREASE IN PAYMENT IF ALLOWABLE

17 COSTS ABOVE 103 PERCENT OF TARGET AMOUNT.—

18 (A) COSTS BETWEEN 103 AND 108 PER19 CENT OF TARGET AMOUNT.—If the allowable 

20 costs for the carrier with respect to the health 

21 benefits plan involved for the year are greater 

22 than 103 percent, but not greater than 108 

23 percent, of the target amount for the plan and 

24 year, the Office shall reimburse the carrier for 

25 such excess costs through payment to the car-
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1 rier of an amount equal to 75 percent of the 

2 difference between such allowable costs and 103 

3 percent of such target amount. 

4 (B) COSTS ABOVE 108 PERCENT OF TAR5 GET AMOUNT.—If the allowable costs for the 

6 carrier with respect to the health benefits plan 

7 involved for the year are greater than 108 per8 cent of the target amount for the plan and 

9 year, the Office shall reimburse the carrier for 

10 such excess costs through payment to the car11 rier in an amount equal to the sum of—

12 (i) 3.75 percent of such target 

13 amount; and 

14 (ii) 90 percent of the difference be15 tween such allowable costs and 108 percent 

16 of such target amount. 

17 (3) REDUCTION IN PAYMENT IF ALLOWABLE

18 COSTS BELOW 97 PERCENT OF TARGET AMOUNT.—

19 (A) COSTS BETWEEN 92 AND 97 PERCENT

20 OF TARGET AMOUNT.—If the allowable costs for 

21 the carrier with respect to the health benefits 

22 plan involved for the year are less than 97 per23 cent, but greater than or equal to 92 percent, 

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

25 carrier shall be required to pay into the contin-
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1 gency reserve fund maintained under section 

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

3 amount equal to 75 percent of the difference 

4 between 97 percent of the target amount and 

5 such allowable costs. 

6 (B) COSTS BELOW 92 PERCENT OF TARGET

7 AMOUNT.—If the allowable costs for the carrier 

8 with respect to the health benefits plan involved 

9 for the year are less than 92 percent of the tar10 get amount for the plan and year, the carrier 

11 shall be required to pay into the stabilization 

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

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

14 (i) 3.75 percent of such target 

15 amount; and 

16 (ii) 90 percent of the difference be17 tween 92 percent of such target amount 

18 and such allowable costs. 

19 (4) TARGET AMOUNT DESCRIBED.—

20 (A) IN GENERAL.—For purposes of this 

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

22 with respect to a health benefits plan offered by 

23 a carrier under this Act in any of calendar 

24 years 2005 through 2009, an amount equal 

25 to—
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1 (i) the total of the monthly premiums 

2 estimated by the carrier and approved by 

3 the Office to be paid for enrollees in the 

4 plan under this Act for the calendar year 

5 involved; reduced by 

6 (ii) the amount of administrative ex7 penses that the carrier estimates, and the 

8 Office approves, will be incurred by the 

9 carrier with respect to the plan for such 

10 calendar year. 

11 (B) SUBMISSION OF TARGET AMOUNT.—

12 Not later than December 31, 2004, and each 

13 December 31 thereafter through calendar year 

14 2008, a carrier shall submit to the Office a de15 scription of the target amount for such carrier 

16 with respect to health benefits plans provided 

17 by the carrier under this Act. 

18 (c) DISCLOSURE OF INFORMATION.—

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

20 Act shall provide—

21 (A) that a carrier offering a health benefits 

22 plan under this Act shall provide the Office 

23 with such information as the Office determines 

24 is necessary to carry out this subsection includ25 ing the notification of costs under subsection 
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1 (a)(2) and the target amount under subsection 

2 (b)(4)(B); and 

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

4 and audit any books and records of the organi5 zation that pertain to the information regarding 

6 costs provided to the Office under such sub7 sections. 

8 (2) RESTRICTION ON USE OF INFORMATION.—

9 Information disclosed or obtained pursuant to the 

10 provisions of this subsection may be used by officers, 

11 employees, and contractors of the Office only for the 

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

13 out this section. 

14 SEC. 8. ENCOURAGING PARTICIPATION BY CARRIERS 

15 THROUGH REINSURANCE. 

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

17 reinsurance fund to provide payments to carriers that ex18 perience one or more catastrophic claims during a year 

19 for health benefits provided to individuals enrolled in a 

20 health benefits plan under this Act. 

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

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

23 carrier under this Act shall submit to the Office an appli24 cation that contains—
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1 (1) a certification by the carrier that the carrier 

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

3 for covered health benefits for an individual in an 

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

5 (2) such other information determined appro6 priate by the Office. 

7 (c) PAYMENT.—

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

9 from the reinsurance fund to a carrier under this 

10 section for a catastrophic episode of care shall be de11 termined by the Office but shall not exceed an 

12 amount equal to 80 percent of the applicable cata13 strophic claim amount. 

14 (2) APPLICABLE CATASTROPHIC CLAIM

15 AMOUNT.—For purposes of paragraph (1), the appli16 cable catastrophic episode of care amount shall be 

17 equal to the difference between—

18 (A) the amount of the catastrophic claim; 

19 and 

20 (B) $50,000. 

21 (3) LIMITATION.—In determining the amount 

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

23 the catastrophic claim exceeds the amount that 

24 would be paid for the healthcare items or services in25 volved under title XVIII of the Social Security Act 
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1 (42 U.S.C. 1395 et seq.), the Office shall use the 

2 amount that would be paid under such title XVIII 

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

4 (d) DEFINITION.—In this section, the term ‘‘cata5 strophic claim’’ means a claim submitted to a carrier, by 

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

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

8 SEC. 9. CONTINGENCY RESERVE FUND. 

9 Beginning on October 1, 2009, the Office may use 

10 amounts appropriated under section 14(a) that remain un11 obligated to establish a contingency reserve fund to pro12 vide assistance to carriers offering health benefits plans 

13 under this Act that experience unanticipated financial 

14 hardships (as determined by the Office). 

15 SEC. 10. EMPLOYER PARTICIPATION. 

16 (a) REGULATIONS.—The Office shall prescribe regu17 lations providing for employer participation under this 

18 Act, including the offering of health benefits plans under 

19 this Act to employees. 

20 (b) ENROLLMENT AND OFFERING OF OTHER COV21 ERAGE.—

22 (1) ENROLLMENT.—A participating employer 

23 shall ensure that each eligible employee has an op24 portunity to enroll in a plan under this Act. 
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1 (2) PROHIBITION ON OFFERING OF OTHER COV2 ERAGE.—A participating employer may not offer a 

3 health insurance plan to employees other than a 

4 health benefits plan under this Act. 

5 (c) RULE OF CONSTRUCTION.—Nothing in this Act 

6 shall be construed to require that an employer make pre7 mium contributions on behalf of employees. 

8 SEC. 11. ADMINISTRATION THROUGH REGIONAL ADMINIS9 TRATIVE ENTITIES. 

10 (a) IN GENERAL.—In order to provide for the admin11 istration of the benefits under this Act with maximum effi12 ciency and convenience for participating employers and 

13 health care providers and other individuals and entities 

14 providing services to such employers, the Office is author15 ized to enter into contracts with eligible entities to per16 form, on a regional basis, one or more of the following: 

17 (1) Collect and maintain all information relat18 ing to individuals, families, and employers partici19 pating in the program under this Act in the region 

20 served. 

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

22 of premiums to participating employers by individ23 uals in the region served, and for payments by par24 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 2005 

20 and 2006. 

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 2005; 
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1 (2) $4,000,000,000 for fiscal year 2006; 

2 (3) $4,000,000,000 for fiscal year 2007; 

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

4 (5) $3,000,000,000 for fiscal year 2009. 

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 

24 ‘‘(2) the expense amount described in sub25 section (c), 
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1 paid by the taxpayer during the taxable year. 

2 ‘‘(b) SUBSECTION (b) EXPENSE AMOUNT.—For pur3 poses of this section—

4 ‘‘(1) IN GENERAL.—The expense amount de5 scribed in this subsection is the applicable percent6 age of the amount of qualified employee health in7 surance expenses of each qualified employee. 

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

9 of paragraph (1)—

10 ‘‘(A) IN GENERAL.—The applicable per11 centage is equal to—

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

13 coverage, 

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

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

16 and 

17 ‘‘(iii) 30 percent in the case of cov18 erage for married adults with no children. 

19 ‘‘(B) BONUS FOR PAYMENT OF GREATER

20 PERCENTAGE OF PREMIUMS.—The applicable 

21 percentage otherwise specified in subparagraph 

22 (A) shall be increased by 5 percentage points 

23 for each additional 10 percent of the qualified 

24 employee health insurance expenses of each
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1 qualified employee exceeding 60 percent which 

2 are paid by the qualified small employer. 

3 ‘‘(c) SUBSECTION (c) EXPENSE AMOUNT.—For pur4 poses of this section—

5 ‘‘(1) IN GENERAL.—The expense amount de6 scribed in this subsection is, with respect to the first 

7 credit year of a qualified small employer which is an 

8 eligible employer, 10 percent of the qualified em9 ployee health insurance expenses of each qualified 

10 employee. 

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

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

13 taxable year which includes the date that the health 

14 insurance coverage to which the qualified employee 

15 health insurance expenses relate becomes effective. 

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

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

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

19 taxable year period immediately preceding the first 

20 credit year, the employer or any member of any con21 trolled group including the employer (or any prede22 cessor of either) established or maintained health in23 surance coverage for substantially the same employ24 ees as are the qualified employees to which the 

25 qualified employee health insurance expenses relate. 
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1 ‘‘(d) LIMITATION BASED ON WAGES.—

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

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

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

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

6 not below zero) by the percentage determined under 

7 paragraph (2). 

8 ‘‘(2) AMOUNT OF REDUCTION.—

9 ‘‘(A) IN GENERAL.—The percentage deter10 mined under this paragraph is the percentage 

11 which bears the same ratio to the percentage 

12 which would be so taken into account as—

13 ‘‘(i) the excess of—

14 ‘‘(I) the qualified employee’s 

15 wages at an annual rate during such 

16 taxable year, over 

17 ‘‘(II) $25,000, bears to 

18 ‘‘(ii) $5,000. 

19 ‘‘(B) ANNUAL ADJUSTMENT.—For each 

20 taxable year after 2005, the dollar amounts 

21 specified for the preceding taxable year (after 

22 the application of this subparagraph) shall be 

23 increased by the same percentage as the aver24 age percentage increase in premiums under the 

25 Federal Employees Health Benefits Program 
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1 under chapter 89 of title 5, United States Code 

2 for the calendar year in which such taxable year 

3 begins over the preceding calendar year. 

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

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

6 ‘qualified small employer’ means any employer (as 

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

8 Health Benefits Program Act of 2004) which—

9 ‘‘(A) is a participating employer (as de10 fined in section 2(b)(5) of such Act), and 

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

12 the qualified employee health insurance ex13 penses of each qualified employee. 

14 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR15 ANCE EXPENSES.—

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

17 employee health insurance expenses’ means any 

18 amount paid by an employer for health insur19 ance coverage under such Act to the extent 

20 such amount is attributable to coverage pro21 vided to any employee while such employee is a 

22 qualified employee. 

23 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

24 UNDER SALARY REDUCTION ARRANGEMENTS.—

25 No amount paid or incurred for health insur-
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1 ance coverage pursuant to a salary reduction 

2 arrangement shall be taken into account under 

3 subparagraph (A). 

4 ‘‘(3) QUALIFIED EMPLOYEE.—

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

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

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

8 Act) of an employer if the total amount of 

9 wages paid or incurred by such employer to 

10 such employee at an annual rate during the 

11 taxable year exceeds $5,000. 

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

13 meaning given such term by section 3121(a) 

14 (determined without regard to any dollar limita15 tion contained in such section). 

16 ‘‘(f) CERTAIN RULES MADE APPLICABLE.—For pur17 poses of this section, rules similar to the rules of section 

18 52 shall apply. 

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

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

21 with respect to a qualified small business if such qualified 

22 small business were not exempt from tax under this chap23 ter shall be treated as a credit allowable under this sub24 part to such qualified small business.’’. 

25 (b) CONFORMING AMENDMENTS.—
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1 (1) Paragraph (2) of section 1324(b) of title 

2 31, United States Code, is amended by inserting be3 fore the period ‘‘, or from section 36 of such Code’’. 

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

5 IV of subchapter A of chapter 1 of the Internal Rev6 enue Code of 1986 is amended by striking the last 

7 item and inserting the following new items:

‘‘Sec. 36. Small business employee health insurance expenses. 

‘‘Sec. 37. Overpayments of tax.’’.

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

9 this section shall apply to amounts paid or incurred in tax10 able years beginning after December 31, 2004. 

11 SEC. 16. EFFECTIVE DATE. 

12 Except as provided in section 10(e), this Act shall 

13 take effect on the date of enactment of this Act and shall 

14 apply to contracts that take effect with respect to calendar 

15 year 2005 and each calendar year thereafter.

Æ