I 

108TH CONGRESS 

2D SESSION H. R. 4356 

To amend the Internal Revenue Code of 1986 to provide tax subsidies to 

encourage small employers to offer affordable health coverage to their 

employees through qualified health pooling arrangements, to encourage 

the establishment and operation of these arrangements, and for other 

purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 12, 2004 

Mr. SANDLIN (for himself, Ms. PELOSI, Mr. RANGEL, Mr. DINGELL, Mr. 

STARK, Mr. BROWN of Ohio, Mr. PALLONE, Mr. WAXMAN, Mr. HOYER, 

Mr. MENENDEZ, Mr. BERRY, Mr. GEORGE MILLER of California, Mr. 

GEPHARDT, Mr. ROSS, Mr. MATSUI, Mr. STENHOLM, Mr. LAMPSON, Mr. 

HOEFFEL, Mrs. JONES of Ohio, Mr. KILDEE, Mr. GRIJALVA, Mr. 

RUPPERSBERGER, Mr. MCDERMOTT, Mr. TOWNS, Ms. SLAUGHTER, Mr. 

GREEN of Texas, Mr. MARKEY, Mr. LYNCH, Mr. CROWLEY, Ms. 

MILLENDER-MCDONALD, Mr. BOUCHER, Mrs. CHRISTENSEN, Mr. JACKSON of Illinois, Ms. ROYBAL-ALLARD, Mr. RODRIGUEZ, Mr. NADLER, Mr. 

CONYERS, Ms. DELAURO, Ms. KILPATRICK, Mr. SERRANO, Ms. LEE, Mr. 

EVANS, Mr. TIERNEY, Mr. ISRAEL, Ms. MCCOLLUM, Mr. LANTOS, Mr. 

GUTIERREZ, Ms. WATERS, Mr. ALEXANDER, Ms. WOOLSEY, Mrs. DAVIS

of California, Ms. JACKSON-LEE of Texas, Mrs. MCCARTHY of New York, 

Mr. HINCHEY, Mr. ABERCROMBIE, Mr. VAN HOLLEN, Ms. LINDA T. 

SA ́NCHEZ of California, Mr. TURNER of Texas, Mr. EMANUEL, Mr. 

MOORE, Ms. CARSON of Indiana, Mr. STUPAK, Mr. BISHOP of New York, 

Mr. CASE, Mr. WEINER, Ms. SCHAKOWSKY, Ms. SOLIS, Mr. FROST, Mr. 

WEXLER, Mr. HOLT, Mr. CUMMINGS, Mr. CARDOZA, Mr. BISHOP of 

Georgia, Mr. ENGEL, Mrs. CAPPS, Mr. HONDA, Mr. SCHIFF, Mr. 

MICHAUD, Mr. DELAHUNT, Mr. CHANDLER, Mr. CLAY, Mr. OLVER, Mr. 

REYES, Mr. SCOTT of Georgia, Mr. ORTIZ, Mr. CAPUANO, and Mr. 

ALLEN) 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 Education and the Workforce, 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 
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A BILL 

To amend the Internal Revenue Code of 1986 to provide 

tax subsidies to encourage small employers to offer affordable health coverage to their employees through 

qualified health pooling arrangements, to encourage the 

establishment and operation of these arrangements, and 

for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Small Business Health Insurance Promotion Act of 

6 2004’’. 

7 (b) TABLE OF CONTENTS.—The table of contents of 

8 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Temporary tax credit for small employers offering health coverage 

through a qualified health pooling arrangement. 

Sec. 3. Qualified State health pooling arrangements. 

Sec. 4. Establishment of national health pooling arrangement. 

Sec. 5. Funding of pooling arrangements. 

Sec. 6. Institute of Medicine study and report. 

9 SEC. 2. TEMPORARY TAX CREDIT FOR SMALL EMPLOYERS 

10 OFFERING HEALTH COVERAGE THROUGH A 

11 QUALIFIED HEALTH POOLING ARRANGE12 MENT. 

13 (a) IN GENERAL.—Subpart D of part IV of sub14 chapter A of chapter 1 of the Internal Revenue Code of 

15 1986 (relating to business-related credits) is amended by 

16 adding at the end the following: 
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1 ‘‘SEC. 45G. SMALL BUSINESS HEALTH POOL ARRANGE2 MENTS. 

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

4 in the case of an eligible small employer, the health pool 

5 arrangement credit determined under this section for the 

6 taxable year is an amount equal to 50 percent of amounts 

7 paid or incurred by the employer during the taxable year 

8 as premiums for self-only or family coverage for health 

9 benefits under a qualified health pooling arrangement for 

10 employees of such employer. 

11 ‘‘(b) LIMITATIONS.— 

12 ‘‘(1) EMPLOYER MUST BEAR 50 PERCENT OF

13 COST.—Expenses may be taken into account under 

14 subsection (a) only if at least 50 percent of the pre15 miums under the qualified health pooling arrange16 ment are paid by the employer. 

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

18 taken into account under subsection (a) only with 

19 respect to coverage for the 4-year period beginning 

20 on the date the employer first begins participating in 

21 a qualified health pooling arrangement. 

22 ‘‘(3) EMPLOYERS OFFERING OTHER HEALTH

23 BENEFITS.—In the case of an employer who paid or 

24 incurred any expenses for health benefits for the em25 ployees of such employer during the first taxable 

26 year ending on or after the date of the enactment 
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1 of this section, subsection (a) shall apply to such 

2 employer only if such employer begins participating 

3 in a qualified health pooling arrangement during the 

4 2-year period beginning on the later of— 

5 ‘‘(A) the date of the enactment of this sec6 tion, or 

7 ‘‘(B) the first date that a qualified health 

8 pooling arrangement exists which allows such 

9 employer to participate. 

10 ‘‘(4) NO EMPLOYEES EXCLUDED.—Subsection 

11 (a) shall not apply to an employer for any period un12 less at all times during such period coverage for 

13 health benefits under a qualified health pooling ar14 rangement is available to all employees of such em15 ployer under similar terms. 

16 ‘‘(5) AMOUNTS PAID UNDER SALARY REDUC17 TION ARRANGEMENTS.—No amount paid or incurred 

18 pursuant to a salary reduction arrangement shall be 

19 taken into account under subsection (a). 

20 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur21 poses of this section— 

22 ‘‘(1) ELIGIBLE SMALL EMPLOYER.— 

23 ‘‘(A) IN GENERAL.—The term ‘eligible 

24 small employer’ means an employer who em25 ployed, with respect to the calendar year in 
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1 which such employer first begins participating 

2 in a qualified health pooling arrangement, an 

3 average of not more than 50 employees on busi4 ness days during the preceding calendar year. 

5 ‘‘(B) EMPLOYERS NOT IN EXISTENCE IN

6 PRECEDING YEAR.—In the case of an employer 

7 which was not in existence throughout the pre8 ceding calendar year, the determination of 

9 whether such employer is an eligible small em10 ployer shall be based on the average number of 

11 employees that it is reasonably expected such 

12 employer will employ on business days in the 

13 current calendar year. 

14 ‘‘(C) PERMANENT STATUS AS ELIGIBLE

15 SMALL EMPLOYER.—In the case of an employer 

16 who meets the requirements of this subsection 

17 with respect to the calendar year in which such 

18 employer first begins participating in a quali19 fied health pooling arrangement, such employer 

20 shall not fail to be treated as an eligible small 

21 employer for any subsequent calendar year. 

22 ‘‘(D) PREDECESSORS.—The Secretary may 

23 prescribe regulations which provide for ref24 erences in this paragraph to an employer to be 
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1 treated as including references to predecessors 

2 of such employer. 

3 ‘‘(2) SELF-EMPLOYED INDIVIDUALS.— 

4 ‘‘(A) TREATMENT AS EMPLOYEE.—The 

5 term ‘employee’ includes an individual who is 

6 an employee within the meaning of section 

7 401(c)(1) (relating to self-employed individ8 uals). 

9 ‘‘(B) TREATMENT AS EMPLOYER.—An in10 dividual who owns the entire interest in an un11 incorporated trade or business shall be treated 

12 as his own employer. A partnership shall be 

13 treated as the employer of each partner who is 

14 an employee within the meaning of subpara15 graph (A). 

16 ‘‘(3) FAMILY COVERAGE.—The term ‘family 

17 coverage’ means coverage for health benefits of the 

18 employee and qualified family members of the em19 ployee (as defined in section 35(d), but without re20 gard to the last sentence of paragraph (1) thereof). 

21 ‘‘(4) QUALIFIED HEALTH POOLING ARRANGE22 MENT.—The term ‘qualified health pooling arrange23 ment’ means a qualified State health pooling ar24 rangement described in section 3 of Small Business 

25 Health Insurance Promotion Act of 2004 or the na-
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1 tional health pooling arrangement described in sec2 tion 4 of such Act. 

3 ‘‘(5) CERTAIN RULES MADE APPLICABLE.— 

4 Rules similar to the rules of section 52 shall apply 

5 for purposes of this section.’’. 

6 (b) CREDIT TO BE PART OF GENERAL BUSINESS

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

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

9 end of paragraph (13), by striking the period at the end 

10 of paragraph (14) and inserting ‘‘, plus’’, and by adding 

11 at the end the following: 

12 ‘‘(15) in the case of an eligible small employer 

13 (as defined in section 45G(c)), the health pool ar14 rangement credit determined under section 

15 45G(a).’’. 

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

17 of such Code (relating to carryback and carryforward of 

18 unused credits) is amended by adding at the end the fol19 lowing: 

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

21 BEFORE EFFECTIVE DATE.—No portion of the un22 used business credit for any taxable year which is 

23 attributable to the health pool arrangement credit 

24 determined under section 45G may be carried back 
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1 to a taxable year beginning before January 1, 

2 2004.’’. 

3 (d) DENIAL OF DOUBLE BENEFIT.—Section 280C of 

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

5 new subsection: 

6 ‘‘(d) CREDIT FOR SMALL BUSINESS HEALTH POOL

7 ARRANGEMENTS.— 

8 ‘‘(1) IN GENERAL.—No deduction shall be al9 lowed for that portion of the expenses (otherwise al10 lowable as a deduction) taken into account in deter11 mining the credit under section 45G for the taxable 

12 year which is equal to the amount of the credit de13 termined for such taxable year under section 

14 45G(a). 

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

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

17 section 52 shall be treated as 1 person for purposes 

18 of this section.’’. 

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

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

21 of such Code is amended by adding at the end the fol22 lowing: 

‘‘Sec. 45G. Small business health pool arrangements.’’. 

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

24 this section shall apply to amounts paid or incurred in tax25 able years beginning after December 31, 2003, for ar-
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1 rangements established after the date of the enactment 

2 of this Act. 

3 SEC. 3. QUALIFIED STATE HEALTH POOLING ARRANGE4 MENTS. 

5 (a) DEFINED.—For purposes of this Act, the term 

6 ‘‘qualified State health pooling arrangement’’ means an 

7 arrangement established by a State which meets the fol8 lowing requirements: 

9 (1) HEALTH BENEFITS COVERAGE.—The ar10 rangement provides health benefits coverage that the 

11 Secretaries of Health and Human Services and 

12 Labor jointly determine is substantially similar to 

13 the health benefits coverage in any of the four larg14 est health benefits plans (determined by enrollment) 

15 offered under chapter 89 of title 5, United States 

16 Code. 

17 (2) GROUP HEALTH PLAN REQUIREMENTS.— 

18 The health benefits coverage provided under the ar19 rangement meets the requirements applicable to a 

20 group health plan under chapter 100 of the Internal 

21 Revenue Code of 1986, part 7 of subtitle B of title 

22 I of the Employee Retirement Income Security Act 

23 of 1974, and State law. 

24 (3) GUARANTEED ISSUE AND RENEWABLE.— 

25 The arrangement does not deny coverage (including 
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1 renewal of coverage) with respect to employees of 

2 any eligible small employer or qualifying family 

3 members of such employees on the basis of health 

4 status of such employees or family members or any 

5 other condition or requirement that the Secretaries 

6 of Health and Human Services and Labor jointly de7 termine constitutes health underwriting. 

8 (4) NO PREEXISTING CONDITION EXCLUSION.— 

9 The arrangement does not permit a preexisting con10 dition exclusion as defined under section 9801(b)(1) 

11 of the Internal Revenue Code of 1986 and under 

12 section 701(b)(1) of the Employee Retirement In13 come Security Act of 1974 (29 U.S.C. 11(b)(1)). 

14 (5) NO UNDERWRITING; COMMUNITY-RATED

15 PREMIUMS.—(A) Subject to subparagraph (B), the 

16 arrangement does not permit underwriting, through 

17 a preexisting condition limitation, differential bene18 fits, or different premium levels, or otherwise, with 

19 respect to such coverage for employees or their 

20 qualifying family members. 

21 (B) The premiums charged for such coverage 

22 are community-rated for individuals without regard 

23 to health status. 

24 (6) NO RIDERS.—The arrangement does not 

25 permit riders to the health benefits coverage. 
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1 (7) ACCESSIBILITY TO ELIGIBLE SMALL EM2 PLOYERS.—The arrangement makes such coverage 

3 available to an eligible small employer without re4 gard to whether a credit is available under section 

5 45G of the Internal Revenue Code of 1986 with re6 spect to such employer. 

7 (8) MINIMUM OF TWO PLANS OFFERED UNDER

8 THE ARRANGEMENT.—The arrangement makes 

9 available at least two plans for health benefits cov10 erage. 

11 (b) ELIGIBLE SMALL EMPLOYER; SELF-EMPLOYED

12 INDIVIDUAL.—For purposes of this Act, the terms ‘‘eligi13 ble small employer’’ and ‘‘employee’’ have the same mean14 ings as when such terms are used in section 45G of the 

15 Internal Revenue Code of 1986 and rules similar to the 

16 rules of subsection (c) of such section shall apply for pur17 poses of this Act. 

18 (c) QUALIFYING FAMILY MEMBER.—For purposes of 

19 this Act, the term ‘‘qualifying family member’’ has the 

20 meaning given such term in section 35(d) of the Internal 

21 Revenue Code of 1986, applied without regard to the last 

22 sentence of paragraph (1) thereof. 

23 (d) STATE DEFINED.—For purposes of this Act, the 

24 term ‘‘State’’ includes the District of Columbia, Puerto 
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1 Rico, the Virgin Islands of the United States, Guam, 

2 American Samoa, and the Northern Mariana Islands. 

3 (e) CONSTRUCTION.—Nothing in this section shall be 

4 construed as requiring a State to establish or maintain 

5 a qualified State health pooling arrangement. 

6 (f) CREDITABLE COVERAGE FOR PURPOSES OF

7 HIPAA.—Health benefits coverage provided under a 

8 qualified State health pooling arrangement under this sec9 tion (and coverage provided under a National Pooling Ar10 rangement under section 4 of this title) shall be treated 

11 as creditable coverage for purposes of part 7 of subtitle 

12 B of title I of the Employee Retirement Income Security 

13 Act of 1974 (29 U.S.C. 1181 et seq.), title XXVII of the 

14 Public Health Service Act (42 U.S.C. 300gg et seq.), and 

15 subtitle K of the Internal Revenue Code of 1986. 

16 (g) OVERSIGHT AND ACCOUNTABILITY.— 

17 (1) OVERSIGHT.—The Secretaries of Health 

18 and Human Services and Labor shall jointly oversee 

19 the offering of health benefits coverage under quali20 fied State health pooling arrangements to eligible 

21 small employers. 

22 (2) ANNUAL REPORTS.— 

23 (A) IN GENERAL.—Each State that offers 

24 a qualified State health pooling arrangement 

25 under this section in a year shall submit, in a 
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1 form and manner specified jointly by the Secre2 taries of Health and Human Services and 

3 Labor, a report on the operation of the ar4 rangement in that year. 

5 (B) CONTENTS OF REPORT.—Reports re6 quired under subparagraph (A) shall include 

7 the following: 

8 (i) A description of the health benefits 

9 coverage offered under the arrangement. 

10 (ii) The number of employers that 

11 participated in the arrangement. 

12 (iii) The number of employees and 

13 qualifying family members of employees 

14 who received health benefits coverage 

15 under the arrangement. 

16 (iv) The premiums charged for the 

17 health benefits coverage under the arrange18 ment. 

19 (3) CERTIFICATION.—Each State that offers a 

20 qualified State health pooling arrangement under 

21 this section in a year shall submit, in a form and 

22 manner specified jointly by the Secretaries of Health 

23 and Human Services and Labor, a certification that 

24 the arrangement meets the requirements of this Act. 
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1 (h) COORDINATION OF COMPLAINTS WITH STATE

2 INSURANCE COMMISSIONERS.—The Secretaries of Health 

3 and Human Services and Labor shall coordinate with the 

4 insurance commissioners for the various States in estab5 lishing a process for handling and resolving any com6 plaints relating to health benefits coverage offered under 

7 this Act, to the extent necessary to augment processes oth8 erwise available under State law. 

9 (i) NO PREEMPTION OF STATE LAW.—Nothing in 

10 this section shall be construed as preempting provisions 

11 of State law that provide protections in excess of the pro12 tections required under this section. 

13 SEC. 4. ESTABLISHMENT OF NATIONAL HEALTH POOLING 

14 ARRANGEMENT. 

15 (a) IN GENERAL.—The Secretaries of Health and 

16 Human Services and Labor, jointly in consultation with 

17 the Director of the Office of Personnel Management, shall 

18 provide for the offering and oversight of a national health 

19 pooling arrangement to eligible small employers. 

20 (b) NATIONAL HEALTH POOLING ARRANGEMENT

21 DEFINED.— For purposes of this section, the term ‘‘na22 tional health pooling arrangement’’ means an arrange23 ment under which health plans are offered under terms 

24 and conditions that meet the requirements of section 3(a). 
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1 (c) USE OF FEHBP MODEL.—The Secretaries of 

2 Health and Human Services and Labor shall jointly pro3 vide for the national health pooling arrangement using the 

4 model of the Federal employees health benefits program 

5 under chapter 89 of title 5, United States Code, to the 

6 extent practicable and consistent with the provisions of 

7 this Act. In carrying out such model, the Secretaries shall, 

8 to the maximum extent practicable, negotiate the most af9 fordable and substantial coverage possible for small em10 ployers. 

11 SEC. 5. FUNDING OF POOLING ARRANGEMENTS. 

12 (a) FUNDING OF STATES TO ESTABLISH AND OPER13 ATE QUALIFIED STATE HEALTH POOLING ARRANGE14 MENTS.—There are authorized to be appropriated to the 

15 Secretaries of Health and Human Services and Labor 

16 such sums as may be necessary to provide grants to States 

17 to establish and operate qualified State health pooling ar18 rangements described in section 3. 

19 (b) FUNDING OF NATIONAL HEALTH POOLING AR20 RANGEMENT.—There are authorized to be appropriated to 

21 the Secretaries of Health and Human Services and Labor 

22 such sums as may be necessary to provide for the offering 

23 and operation of the national health pooling arrangement 

24 under section 4. 
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1 SEC. 6. INSTITUTE OF MEDICINE STUDY AND REPORT. 

2 (a) STUDY.—The Secretaries of Health and Human 

3 Services and Labor shall jointly enter into an arrangement 

4 under which the Institute of Medicine of the National 

5 Academy of Sciences shall conduct a study on the oper6 ation of qualified State health pooling arrangements under 

7 section 3 and the national health pooling arrangement 

8 under section 4. 

9 (b) MATTERS STUDIED.—The study conducted under 

10 subsection (a) shall include the following: 

11 (1) An assessment of the success of the ar12 rangements. 

13 (2) A determination of the affordability of 

14 health benefits coverage under the arrangements for 

15 employers and employees. 

16 (3) A determination of the access of small em17 ployers to health benefits coverage. 

18 (4) A determination of the extent to which the 

19 tax credit under section 45G of the Internal Revenue 

20 Code of 1986 provides a subsidy for eligible small 

21 employers that provided (or would have provided) 

22 health benefits coverage in the absence of such cred23 it. 

24 (5) Recommendations with respect to— 

25 (A) extension of the period for which the 

26 tax credit under section 45G of the Internal 
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1 Revenue Code of 1986 is available to employers 

2 or an appropriate phase-out of such credit over 

3 time; 

4 (B) expansion of categories of persons eli5 gible for such tax credit; 

6 (C) expansion of persons eligible for health 

7 benefits coverage under the arrangements; and 

8 (D) such other matters as the Institute de9 termines appropriate. 

10 (c) REPORT.—Not later than January 1, 2009, the 

11 Comptroller General shall submit to Congress a report on 

12 the study conducted under subsection (a). 

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