II 

109TH CONGRESS 

1ST SESSION S. 637 

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 16, 2005 

Mr. DURBIN (for himself, Mrs. LINCOLN, Mr. CARPER, Mr. PRYOR, Ms. 

LANDRIEU, Mr. NELSON of Florida, Mr. CORZINE, Mr. LAUTENBERG, 

Ms. CANTWELL, and Mr. LIEBERMAN) 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 2005’’. 
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1 SEC. 2. DEFINITIONS. 

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

3 of family’’, ‘‘health benefits plan’’, ‘‘carrier’’, ‘‘employee 

4 organizations’’, and ‘‘dependent’’ have the meanings given 

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

6 (b) OTHER TERMS.—In this Act: 

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

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

9 Employee Retirement Income Security Act of 1974 

10 (29 U.S.C. 1002(6)). Such term shall not include an 

11 employee of the Federal Government. 

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

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

14 Employee Retirement Income Security Act of 1974 

15 (29 U.S.C. 1002(5)), except that such term shall in16 clude only employers who employed an average of at 

17 least 1 but not more than 100 employees on busi18 ness days during the year preceding the date of ap19 plication. Such term shall not include the Federal 

20 Government. 

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

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

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

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

25 (4) OFFICE.—The term ‘‘Office’’ means the Of26 fice of Personnel Management. 
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1 (5) PARTICIPATING EMPLOYER.—The term 

2 ‘‘participating employer’’ means an employer that— 

3 (A) elects to provide health insurance cov4 erage under this Act to its employees; and 

5 (B) is not offering other comprehensive 

6 health insurance coverage to such employees. 

7 (c) APPLICATION OF CERTAIN RULES IN DETER8 MINATION OF EMPLOYER SIZE.—For purposes of sub9 section (b)(2): 

10 (1) APPLICATION OF AGGREGATION RULE FOR

11 EMPLOYERS.—All persons treated as a single em12 ployer under subsection (b), (c), (m), or (o) of sec13 tion 414 of the Internal Revenue Code of 1986 shall 

14 be treated as 1 employer. 

15 (2) EMPLOYERS NOT IN EXISTENCE IN PRE16 CEDING YEAR.—In the case of an employer which 

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

18 date on which the employer applies to participate, 

19 the determination of whether such employer meets 

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

21 on the average number of employees that it is rea22 sonably expected such employer will employ on busi23 ness days in the employer’s first full year. 
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1 (3) PREDECESSORS.—Any reference in this 

2 subsection to an employer shall include a reference 

3 to any predecessor of such employer. 

4 (d) WAIVER AND CONTINUATION OF PARTICIPA5 TION.— 

6 (1) WAIVER.—The Office may waive the limita7 tions relating to the size of an employer which may 

8 participate in the health insurance program estab9 lished under this Act on a case by case basis if the 

10 Office determines that such employer makes a com11 pelling case for such a waiver. In making determina12 tions under this paragraph, the Office may consider 

13 the effects of the employment of temporary and sea14 sonal workers and other factors. 

15 (2) CONTINUATION OF PARTICIPATION.—An 

16 employer participating in the program under this 

17 Act that experiences an increase in the number of 

18 employees so that such employer has in excess of 

19 100 employees, may not be excluded from participa20 tion solely as a result of such increase in employees. 

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

22 EMPLOYEES. 

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

24 health insurance program for non-Federal employees and 

25 employers in accordance with this Act. 
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1 (b) REGULATIONS.—Except as provided under this 

2 Act, the Office shall prescribe regulations to apply the pro3 visions of chapter 89 of title 5, United States Code, to 

4 the greatest extent practicable to participating carriers, 

5 employers, and employees covered under this Act. 

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

7 of this Act result in— 

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

9 Federal Government contributions required under 

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

11 copayments or deductibles; 

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

13 under such chapter 89; or 

14 (3) any other change that would adversely af15 fect the coverage afforded under such chapter 89 to 

16 employees and annuitants and members of family 

17 under that chapter. 

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

19 to facilitate enrollment under this Act, including the use 

20 of the Internet. 

21 (e) CONTRACTS FOR ADMINISTRATION.—The Office 

22 may enter into contracts for the performance of appro23 priate administrative functions under this Act. 

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

25 this Act, the Office shall ensure that covered employees 
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1 under this Act are in a risk pool that is separate from 

2 the risk pool maintained for covered individuals under 

3 chapter 89 of title 5, United States Code. 

4 (g) RULE OF CONSTRUCTION.—Nothing in this Act 

5 shall be construed to require a carrier that is participating 

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

7 Code, to provide health benefits plan coverage under this 

8 Act. 

9 SEC. 4. CONTRACT REQUIREMENT. 

10 (a) IN GENERAL.—The Office may enter into con11 tracts with qualified carriers offering health benefits plans 

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

13 5, United States Code, without regard to section 5 of title 

14 41, United States Code, or other statutes requiring com15 petitive bidding, to provide health insurance coverage to 

16 employees of participating employers under this Act. Each 

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

18 but may be made automatically renewable from term to 

19 term in the absence of notice of termination by either 

20 party. In entering into such contracts, the Office shall en21 sure that health benefits coverage is provided for individ22 uals only, married individuals without children, and fami23 lies. 

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

25 into a contract under subsection (a) if such carrier— 
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1 (1) is licensed to offer health benefits plan cov2 erage in each State in which the plan is offered; and 

3 (2) meets such other requirements as deter4 mined appropriate by the Office. 

5 (c) STATEMENT OF BENEFITS.— 

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

7 Act shall contain a detailed statement of benefits of8 fered and shall include information concerning such 

9 maximums, limitations, exclusions, and other defini10 tions of benefits as the Office considers necessary or 

11 desirable. 

12 (2) NATIONWIDE PLAN.—The Office shall de13 velop a benefit package that shall be offered in the 

14 case of a contract for a health benefit plan that is 

15 to be offered on a nationwide basis. 

16 (d) STANDARDS.—The minimum standards pre17 scribed for health benefits plans under section 8902(e) of 

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

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

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

21 and opportunity for hearing to the carrier concerned with22 out regard to subchapter II of chapter 5 and chapter 7 

23 of title 5, United States Code. 

24 (e) CONVERSION.— 
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1 (1) IN GENERAL.—A contract may not be made 

2 or a plan approved under this section if the carrier 

3 under such contract or plan does not offer to each 

4 enrollee whose enrollment in the plan is ended, ex5 cept by a cancellation of enrollment, a temporary ex6 tension of coverage during which the individual may 

7 exercise the option to convert, without evidence of 

8 good health, to a nongroup contract providing health 

9 benefits. An enrollee who exercises this option shall 

10 pay the full periodic charges of the nongroup con11 tract. 

12 (2) NONCANCELLABLE.—The benefits and cov13 erage made available under paragraph (1) may not 

14 be canceled by the carrier except for fraud, over-in15 surance, or nonpayment of periodic charges. 

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

17 plans under this Act shall reasonably and equitably reflect 

18 the cost of the benefits provided. Such rates shall be deter19 mined on a basis which, in the judgment of the Office, 

20 is consistent with the lowest schedule of basic rates gen21 erally charged for new group health benefits plans issued 

22 to large employers. The rates determined for the first con23 tract term shall be continued for later contract terms, ex24 cept that they may be readjusted for any later term, based 

25 on past experience and benefit adjustments under the later 
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1 contract. Any readjustment in rates shall be made in ad2 vance of the contract term in which they will apply and 

3 on a basis which, in the judgment of the Office, is con4 sistent with the general practice of carriers which issue 

5 group health benefits plans to large employers. Rates 

6 charged for coverage under this Act shall not vary based 

7 on health-status related factors. 

8 (g) REQUIREMENT OF PAYMENT FOR OR PROVISION

9 OF HEALTH SERVICE.—Each contract entered into under 

10 this Act shall require the carrier to agree to pay for or 

11 provide a health service or supply in an individual case 

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

13 member, former spouse, or person having continued cov14 erage under section 8905a of title 5, United States Code, 

15 is entitled thereto under the terms of the contract. 

16 SEC. 5. ELIGIBILITY. 

17 An individual shall be eligible to enroll in a plan 

18 under this Act if such individual— 

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

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

21 defined in section 401(c)(1)(B) of the Internal Rev22 enue Code of 1986; and 

23 (2) is not otherwise enrolled or eligible for en24 rollment in a plan under chapter 89 of title 5, 

25 United States Code. 
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1 SEC. 6. ALTERNATIVE CONDITIONS TO FEDERAL EM2 PLOYEE PLANS. 

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

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

5 individual who had coverage under a health insurance plan 

6 and is not a qualified beneficiary as defined under section 

7 4980B(g)(1) of the Internal Revenue Code of 1986 shall 

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

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

10 United States Code. 

11 (b) PREEXISTING CONDITION EXCLUSIONS.— 

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

13 Act may include a preexisting condition exclusion as 

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

15 Revenue Code of 1986. 

16 (2) EXCLUSION PERIOD.— 

17 (A) IN GENERAL.—A preexisting condition 

18 exclusion under this subsection shall provide for 

19 coverage of a preexisting condition to begin not 

20 later than 6 months after the date on which the 

21 coverage of the individual under a health bene22 fits plan commences, reduced by 1 month for 

23 each month that the individual was covered 

24 under a health insurance plan immediately pre25 ceding the date the individual submitted an ap26 plication for coverage under this Act. 
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1 (B) LAPSE IN COVERAGE.—For purposes 

2 of this paragraph, a lapse in coverage of not 

3 more than 63 days immediately preceding the 

4 date of the submission of an application for cov5 erage under this Act shall not be considered a 

6 lapse in continuous coverage. 

7 (c) RATES AND PREMIUMS.— 

8 (1) IN GENERAL.—Rates charged and pre9 miums paid for a health benefits plan under this 

10 Act— 

11 (A) shall be determined in accordance with 

12 this subsection; 

13 (B) may be annually adjusted and differ 

14 from such rates charged and premiums paid for 

15 the same health benefits plan offered under 

16 chapter 89 of title 5, United States Code; 

17 (C) shall be negotiated in the same manner 

18 as rates and premiums are negotiated under 

19 such chapter 89; and 

20 (D) shall be adjusted to cover the adminis21 trative costs of the Office under this Act. 

22 (2) DETERMINATIONS.—In determining rates 

23 and premiums under this Act, the following provi24 sions shall apply: 
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1 (A) IN GENERAL.—A carrier that enters 

2 into a contract under this Act shall determine 

3 that amount of premiums to assess for coverage 

4 under a health benefits plan based on an com5 munity rate that may be annually adjusted— 

6 (i) for the geographic area involved if 

7 the adjustment is based on geographical 

8 divisions that are not smaller than a met9 ropolitan statistical area; 

10 (ii) based on whether such coverage is 

11 for an individual, a married individual with 

12 no children, or a family; and 

13 (iii) based on the age of covered indi14 viduals (subject to subparagraph (B)). 

15 (B) AGE ADJUSTMENTS.— 

16 (i) IN GENERAL.—With respect to 

17 subparagraph (A)(iii), in making adjust18 ments based on age, a carrier may not use 

19 age brackets in increments that are smaller 

20 than 5 years, which begin not earlier than 

21 age 30 and end not later than age 65. 

22 (ii) AGE 65 AND OLDER.—With re23 spect to subparagraph (A)(iii), a carrier 

24 may develop separate rates for covered in25 dividuals who are 65 years of age or older 
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1 for whom medicare is the primary payor 

2 for health benefits coverage which is not 

3 covered under medicare. 

4 (iii) LIMITATION.—In making an ad5 justment to premium rates under subpara6 graph (A)(iii), a carrier shall ensure that 

7 such adjustment does not result in an av8 erage premium rate applicable to enrollees 

9 under the plan involved that is more than 

10 200 percent of the lowest rate for all age 

11 groups. 

12 (d) TERMINATION AND REENROLLMENT.—If an indi13 vidual who is enrolled in a health benefits plan under this 

14 Act terminates the enrollment, the individual shall not be 

15 eligible for reenrollment until the first open enrollment pe16 riod following the expiration of 6 months after the date 

17 of such termination. 

18 (e) PREEMPTION.— 

19 (1) HEALTH INSURANCE OR PLANS.— 

20 (A) IN GENERAL.—Except as provided in 

21 subparagraph (B), the terms of any contract 

22 entered into under this Act that relate to the 

23 nature, provision, or extent of coverage or bene24 fits shall supersede and preempt any State or 

25 local law, or any regulation issued thereunder, 
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1 which relates to the nature, provision, or extent 

2 of coverage or benefits. 

3 (B) LOCAL PLANS.—With respect to a con4 tract entered into under this Act under which 

5 a carrier will offer health benefits plan coverage 

6 in a limited geographic area, subparagraph (A) 

7 shall not apply to the extent that a mandated 

8 benefit law is in effect in the State in which the 

9 plan is offered. Such mandated benefit law shall 

10 continue to apply to such health benefits plan. 

11 (C) RATING RULES.—The rating require12 ments under subsection (c)(2) shall supercede 

13 State rating rules for qualified plans under this 

14 Act. 

15 (2) LIMITATION.—Nothing in this subsection 

16 shall be construed to preempt— 

17 (A) any State or local law or regulation ex18 cept those laws and regulations described in 

19 subparagraphs (A) and (C) of paragraph (1); 

20 and 

21 (B) State network adequacy laws. 

22 (f) RULE OF CONSTRUCTION.—Nothing in this Act 

23 shall be construed to limit the application of the service24 charge system used by the Office for determining profits 
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1 for participating carriers under chapter 89 of title 5, 

2 United States Code. 

3 SEC. 7. ENCOURAGING PARTICIPATION BY CARRIERS 

4 THROUGH ADJUSTMENTS FOR RISK. 

5 (a) APPLICATION OF RISK CORRIDORS.— 

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

7 to carriers with respect to health benefits plans of8 fered under this Act during any of calendar years 

9 2006 through 2010. 

10 (2) NOTIFICATION OF COSTS UNDER THE

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

12 benefits plan under this Act in any of calendar years 

13 2006 through 2010, the carrier shall notify the Of14 fice, before such date in the succeeding year as the 

15 Office specifies, of the total amount of costs incurred 

16 in providing benefits under the health benefits plan 

17 for the year involved and the portion of such costs 

18 that is attributable to administrative expenses. 

19 (3) ALLOWABLE COSTS DEFINED.—For pur20 poses of this section, the term ‘‘allowable costs’’ 

21 means, with respect to a health benefits plan offered 

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

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

24 plan and year, reduced by the portion of such costs 
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1 attributable to administrative expenses incurred in 

2 providing the benefits described in such paragraph. 

3 (b) ADJUSTMENT OF PAYMENT.— 

4 (1) NO ADJUSTMENT IF ALLOWABLE COSTS

5 WITHIN 3 PERCENT OF TARGET AMOUNT.—If the al6 lowable costs for the carrier with respect to the 

7 health benefits plan involved for a calendar year are 

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

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

10 there shall be no payment adjustment under this 

11 section for the plan and year. 

12 (2) INCREASE IN PAYMENT IF ALLOWABLE

13 COSTS ABOVE 103 PERCENT OF TARGET AMOUNT.— 

14 (A) COSTS BETWEEN 103 AND 108 PER15 CENT OF TARGET AMOUNT.—If the allowable 

16 costs for the carrier with respect to the health 

17 benefits plan involved for the year are greater 

18 than 103 percent, but not greater than 108 

19 percent, of the target amount for the plan and 

20 year, the Office shall reimburse the carrier for 

21 such excess costs through payment to the car22 rier of an amount equal to 75 percent of the 

23 difference between such allowable costs and 103 

24 percent of such target amount. 
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1 (B) COSTS ABOVE 108 PERCENT OF TAR2 GET AMOUNT.—If the allowable costs for the 

3 carrier with respect to the health benefits plan 

4 involved for the year are greater than 108 per5 cent of the target amount for the plan and 

6 year, the Office shall reimburse the carrier for 

7 such excess costs through payment to the car8 rier in an amount equal to the sum of— 

9 (i) 3.75 percent of such target 

10 amount; and 

11 (ii) 90 percent of the difference be12 tween such allowable costs and 108 percent 

13 of such target amount. 

14 (3) REDUCTION IN PAYMENT IF ALLOWABLE

15 COSTS BELOW 97 PERCENT OF TARGET AMOUNT.— 

16 (A) COSTS BETWEEN 92 AND 97 PERCENT

17 OF TARGET AMOUNT.—If the allowable costs for 

18 the carrier with respect to the health benefits 

19 plan involved for the year are less than 97 per20 cent, but greater than or equal to 92 percent, 

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

22 carrier shall be required to pay into the contin23 gency reserve fund maintained under section 

24 8909(b)(2) of title 5, United States Code, an 

25 amount equal to 75 percent of the difference 
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1 between 97 percent of the target amount and 

2 such allowable costs. 

3 (B) COSTS BELOW 92 PERCENT OF TARGET

4 AMOUNT.—If the allowable costs for the carrier 

5 with respect to the health benefits plan involved 

6 for the year are less than 92 percent of the tar7 get amount for the plan and year, the carrier 

8 shall be required to pay into the stabilization 

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

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

11 (i) 3.75 percent of such target 

12 amount; and 

13 (ii) 90 percent of the difference be14 tween 92 percent of such target amount 

15 and such allowable costs. 

16 (4) TARGET AMOUNT DESCRIBED.— 

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

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

19 with respect to a health benefits plan offered by 

20 a carrier under this Act in any of calendar 

21 years 2006 through 2010, an amount equal 

22 to— 

23 (i) the total of the monthly premiums 

24 estimated by the carrier and approved by 

25 the Office to be paid for enrollees in the 
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1 plan under this Act for the calendar year 

2 involved; reduced by 

3 (ii) the amount of administrative ex4 penses that the carrier estimates, and the 

5 Office approves, will be incurred by the 

6 carrier with respect to the plan for such 

7 calendar year. 

8 (B) SUBMISSION OF TARGET AMOUNT.— 

9 Not later than December 31, 2005, and each 

10 December 31 thereafter through calendar year 

11 2009, a carrier shall submit to the Office a de12 scription of the target amount for such carrier 

13 with respect to health benefits plans provided 

14 by the carrier under this Act. 

15 (c) DISCLOSURE OF INFORMATION.— 

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

17 Act shall provide— 

18 (A) that a carrier offering a health benefits 

19 plan under this Act shall provide the Office 

20 with such information as the Office determines 

21 is necessary to carry out this subsection includ22 ing the notification of costs under subsection 

23 (a)(2) and the target amount under subsection 

24 (b)(4)(B); and 
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1 (B) that the Office has the right to inspect 

2 and audit any books and records of the organi3 zation that pertain to the information regarding 

4 costs provided to the Office under such sub5 sections. 

6 (2) RESTRICTION ON USE OF INFORMATION.— 

7 Information disclosed or obtained pursuant to the 

8 provisions of this subsection may be used by officers, 

9 employees, and contractors of the Office only for the 

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

11 out this section. 

12 SEC. 8. ENCOURAGING PARTICIPATION BY CARRIERS 

13 THROUGH REINSURANCE. 

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

15 reinsurance fund to provide payments to carriers that ex16 perience one or more catastrophic claims during a year 

17 for health benefits provided to individuals enrolled in a 

18 health benefits plan under this Act. 

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

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

21 carrier under this Act shall submit to the Office an appli22 cation that contains— 

23 (1) a certification by the carrier that the carrier 

24 paid for at least one episode of care during the year 
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1 for covered health benefits for an individual in an 

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

3 (2) such other information determined appro4 priate by the Office. 

5 (c) PAYMENT.— 

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

7 from the reinsurance fund to a carrier under this 

8 section for a catastrophic episode of care shall be de9 termined by the Office but shall not exceed an 

10 amount equal to 80 percent of the applicable cata11 strophic claim amount. 

12 (2) APPLICABLE CATASTROPHIC CLAIM

13 AMOUNT.—For purposes of paragraph (1), the appli14 cable catastrophic episode of care amount shall be 

15 equal to the difference between— 

16 (A) the amount of the catastrophic claim; 

17 and 

18 (B) $50,000. 

19 (3) LIMITATION.—In determining the amount 

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

21 the catastrophic claim exceeds the amount that 

22 would be paid for the healthcare items or services in23 volved under title XVIII of the Social Security Act 

24 (42 U.S.C. 1395 et seq.), the Office shall use the 
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1 amount that would be paid under such title XVIII 

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

3 (d) DEFINITION.—In this section, the term ‘‘cata4 strophic claim’’ means a claim submitted to a carrier, by 

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

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

7 SEC. 9. CONTINGENCY RESERVE FUND. 

8 Beginning on October 1, 2010, the Office may use 

9 amounts appropriated under section 14(a) that remain un10 obligated to establish a contingency reserve fund to pro11 vide assistance to carriers offering health benefits plans 

12 under this Act that experience unanticipated financial 

13 hardships (as determined by the Office). 

14 SEC. 10. EMPLOYER PARTICIPATION. 

15 (a) REGULATIONS.—The Office shall prescribe regu16 lations providing for employer participation under this 

17 Act, including the offering of health benefits plans under 

18 this Act to employees. 

19 (b) ENROLLMENT AND OFFERING OF OTHER COV20 ERAGE.— 

21 (1) ENROLLMENT.—A participating employer 

22 shall ensure that each eligible employee has an op23 portunity to enroll in a plan under this Act. 

24 (2) PROHIBITION ON OFFERING OTHER COM25 PREHENSIVE HEALTH BENEFIT COVERAGE.—A par-
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1 ticipating employer may not offer a health insurance 

2 plan providing comprehensive health benefit coverage 

3 to employees other than a health benefits plan 

4 that— 

5 (A) meets the requirements described in 

6 section 4(a); and 

7 (B) is offered only through the enrollment 

8 process established by the Office under section 

9 3. 

10 (3) OFFER OF SUPPLEMENTAL COVERAGE OP11 TIONS.— 

12 (A) IN GENERAL.—A participating em13 ployer may offer supplementary coverage op14 tions to employees. 

15 (B) DEFINITION.—In subparagraph (A), 

16 the term ‘‘supplementary coverage’’ means ben17 efits described as ‘‘excepted benefits’’ under 

18 section 2791(c) of the Public Health Service 

19 Act (42 U.S.C. 300gg–91(c)). 

20 (c) RULE OF CONSTRUCTION.—Except as provided in 

21 section 15, nothing in this Act shall be construed to re22 quire that an employer make premium contributions on 

23 behalf of employees. 
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1 SEC. 11. ADMINISTRATION THROUGH REGIONAL ADMINIS2 TRATIVE ENTITIES. 

3 (a) IN GENERAL.—In order to provide for the admin4 istration of the benefits under this Act with maximum effi5 ciency and convenience for participating employers and 

6 health care providers and other individuals and entities 

7 providing services to such employers, the Office is author8 ized to enter into contracts with eligible entities to per9 form, on a regional basis, one or more of the following: 

10 (1) Collect and maintain all information relat11 ing to individuals, families, and employers partici12 pating in the program under this Act in the region 

13 served. 

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

15 of premiums to participating employers by individ16 uals in the region served, and for payments by par17 ticipating employers to carriers. 

18 (3) Serve as a channel of communication be19 tween carriers, participating employers, and individ20 uals relating to the administration of this Act. 

21 (4) Otherwise carry out such activities for the 

22 administration of this Act, in such manner, as may 

23 be provided for in the contract entered into under 

24 this section. 

25 (5) The processing of grievances and appeals. 
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1 (b) APPLICATION.—To be eligible to receive a con2 tract under subsection (a), an entity shall prepare and 

3 submit to the Office an application at such time, in such 

4 manner, and containing such information as the Office 

5 may require. 

6 (c) PROCESS.— 

7 (1) COMPETITIVE BIDDING.—All contracts 

8 under this section shall be awarded through a com9 petitive bidding process on a bi-annual basis. 

10 (2) REQUIREMENT.—No contract shall be en11 tered into with any entity under this section unless 

12 the Office finds that such entity will perform its ob13 ligations under the contract efficiently and effec14 tively and will meet such requirements as to finan15 cial responsibility, legal authority, and other matters 

16 as the Office finds pertinent. 

17 (3) PUBLICATION OF STANDARDS AND CRI18 TERIA.—The Office shall publish in the Federal 

19 Register standards and criteria for the efficient and 

20 effective performance of contract obligations under 

21 this section, and opportunity shall be provided for 

22 public comment prior to implementation. In estab23 lishing such standards and criteria, the Office shall 

24 provide for a system to measure an entity’s perform25 ance of responsibilities. 
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1 (4) TERM.—Each contract under this section 

2 shall be for a term of at least 1 year, and may be 

3 made automatically renewable from term to term in 

4 the absence of notice by either party of intention to 

5 terminate at the end of the current term, except that 

6 the Office may terminate any such contract at any 

7 time (after such reasonable notice and opportunity 

8 for hearing to the entity involved as the Office may 

9 provide in regulations) if the Office finds that the 

10 entity has failed substantially to carry out the con11 tract or is carrying out the contract in a manner in12 consistent with the efficient and effective adminis13 tration of the program established by this Act. 

14 (d) TERMS OF CONTRACT.—A contract entered into 

15 under this section shall include— 

16 (1) a description of the duties of the con17 tracting entity; 

18 (2) an assurance that the entity will furnish to 

19 the Office such timely information and reports as 

20 the Office determines appropriate; 

21 (3) an assurance that the entity will maintain 

22 such records and afford such access thereto as the 

23 Office finds necessary to assure the correctness and 

24 verification of the information and reports under 
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1 paragraph (2) and otherwise to carry out the pur2 poses of this Act; 

3 (4) an assurance that the entity shall comply 

4 with such confidentiality and privacy protection 

5 guidelines and procedures as the Office may require; 

6 and 

7 (5) such other terms and conditions not incon8 sistent with this section as the Office may find nec9 essary or appropriate. 

10 SEC. 12. COORDINATION WITH SOCIAL SECURITY BENE11 FITS. 

12 Benefits under this Act shall, with respect to an indi13 vidual who is entitled to benefits under part A of title 

14 XVIII of the Social Security Act, be offered (for use in 

15 coordination with those medicare benefits) to the same ex16 tent and in the same manner as if coverage were under 

17 chapter 89 of title 5, United States Code. 

18 SEC. 13. PUBLIC EDUCATION CAMPAIGN. 

19 (a) IN GENERAL.—In carrying out this Act, the Of20 fice shall develop and implement an educational campaign 

21 to provide information to employers and the general public 

22 concerning the health insurance program developed under 

23 this Act. 

24 (b) ANNUAL PROGRESS REPORTS.—Not later than 1 

25 year and 2 years after the implementation of the campaign 
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1 under subsection (a), the Office shall submit to the appro2 priate committees of Congress a report that describes the 

3 activities of the Office under subsection (a), including a 

4 determination by the office of the percentage of employers 

5 with knowledge of the health benefits programs provided 

6 for under this Act. 

7 (c) PUBLIC EDUCATION CAMPAIGN.—There is au8 thorized to be appropriated to carry out this section, such 

9 sums as may be necessary for each of fiscal years 2006 

10 and 2007. 

11 SEC. 14. APPROPRIATIONS. 

12 (a) MANDATORY APPROPRIATIONS.—There are au13 thorized to be appropriated, and there are appropriated, 

14 to carry out sections 7 and 8— 

15 (1) $4,000,000,000 for fiscal year 2006; 

16 (2) $4,000,000,000 for fiscal year 2007; 

17 (3) $4,000,000,000 for fiscal year 2008; 

18 (4) $3,000,000,000 for fiscal year 2009; and 

19 (5) $3,000,000,000 for fiscal year 2010. 

20 (b) OTHER APPROPRIATIONS.—There are authorized 

21 to be appropriated to the Office, such sums as may be 

22 necessary in each fiscal year for the development and ad23 ministration of the program under this Act. 
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1 SEC. 15. REFUNDABLE CREDIT FOR SMALL BUSINESS EM2 PLOYEE HEALTH INSURANCE EXPENSES. 

3 (a) IN GENERAL.—Subpart C of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to refundable credits) is amended by redes6 ignating section 36 as section 37 and inserting after sec7 tion 35 the following new section: 

8 ‘‘SEC. 36. SMALL BUSINESS EMPLOYEE HEALTH INSURANCE 

9 EXPENSES. 

10 ‘‘(a) DETERMINATION OF AMOUNT.—In the case of 

11 a qualified small employer, there shall be allowed as a 

12 credit against the tax imposed by this subtitle for the tax13 able year an amount equal to the sum of— 

14 ‘‘(1) the expense amount described in sub15 section (b), and 

16 ‘‘(2) the expense amount described in sub17 section (c), paid by the taxpayer during the taxable 

18 year. 

19 ‘‘(b) SUBSECTION (b) EXPENSE AMOUNT.—For pur20 poses of this section— 

21 ‘‘(1) IN GENERAL.—The expense amount de22 scribed in this subsection is the applicable percent23 age of the amount of qualified employee health in24 surance expenses of each qualified employee. 

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

26 of paragraph (1)— 
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1 ‘‘(A) IN GENERAL.—The applicable per2 centage is equal to— 

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

4 coverage, 

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

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

7 and 

8 ‘‘(iii) 30 percent in the case of cov9 erage for married adults with no children. 

10 ‘‘(B) BONUS FOR PAYMENT OF GREATER

11 PERCENTAGE OF PREMIUMS.—The applicable 

12 percentage otherwise specified in subparagraph 

13 (A) shall be increased by 5 percentage points 

14 for each additional 10 percent of the qualified 

15 employee health insurance expenses of each 

16 qualified employee exceeding 60 percent which 

17 are paid by the qualified small employer. 

18 ‘‘(c) SUBSECTION (c) EXPENSE AMOUNT.—For pur19 poses of this section— 

20 ‘‘(1) IN GENERAL.—The expense amount de21 scribed in this subsection is, with respect to the first 

22 credit year of a qualified small employer which is an 

23 eligible employer, 10 percent of the qualified em24 ployee health insurance expenses of each qualified 

25 employee. 
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1 ‘‘(2) FIRST CREDIT YEAR.—For purposes of 

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

3 taxable year which includes the date that the health 

4 insurance coverage to which the qualified employee 

5 health insurance expenses relate becomes effective. 

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

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

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

9 taxable year period immediately preceding the first 

10 credit year, the employer or any member of any con11 trolled group including the employer (or any prede12 cessor of either) established or maintained health in13 surance coverage for substantially the same employ14 ees as are the qualified employees to which the 

15 qualified employee health insurance expenses relate. 

16 ‘‘(d) LIMITATION BASED ON WAGES.— 

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

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

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

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

21 not below zero) by the percentage determined under 

22 paragraph (2). 

23 ‘‘(2) AMOUNT OF REDUCTION.— 

24 ‘‘(A) IN GENERAL.—The percentage deter25 mined under this paragraph is the percentage 
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1 which bears the same ratio to the percentage 

2 which would be so taken into account as— 

3 ‘‘(i) the excess of— 

4 ‘‘(I) the qualified employee’s 

5 wages at an annual rate during such 

6 taxable year, over 

7 ‘‘(II) $25,000, bears to 

8 ‘‘(ii) $5,000. 

9 ‘‘(B) ANNUAL ADJUSTMENT.—For each 

10 taxable year after 2006, the dollar amounts 

11 specified for the preceding taxable year (after 

12 the application of this subparagraph) shall be 

13 increased by the same percentage as the aver14 age percentage increase in premiums under the 

15 Federal Employees Health Benefits Program 

16 under chapter 89 of title 5, United States Code 

17 for the calendar year in which such taxable year 

18 begins over the preceding calendar year. 

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

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

21 ‘qualified small employer’ means any employer (as 

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

23 Health Benefits Program Act of 2005) which— 

24 ‘‘(A) is a participating employer (as de25 fined in section 2(b)(5) of such Act), and 
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1 ‘‘(B) pays or incurs at least 60 percent of 

2 the qualified employee health insurance ex3 penses of each qualified employee. 

4 ‘‘(2) QUALIFIED EMPLOYEE HEALTH INSUR5 ANCE EXPENSES.— 

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

7 employee health insurance expenses’ means any 

8 amount paid by an employer for health insur9 ance coverage under such Act to the extent 

10 such amount is attributable to coverage pro11 vided to any employee while such employee is a 

12 qualified employee. 

13 ‘‘(B) EXCEPTION FOR AMOUNTS PAID

14 UNDER SALARY REDUCTION ARRANGEMENTS.— 

15 No amount paid or incurred for health insur16 ance coverage pursuant to a salary reduction 

17 arrangement shall be taken into account under 

18 subparagraph (A). 

19 ‘‘(3) QUALIFIED EMPLOYEE.— 

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

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

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

23 Act) of an employer if the total amount of 

24 wages paid or incurred by such employer to 
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1 such employee at an annual rate during the 

2 taxable year exceeds $5,000. 

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

4 meaning given such term by section 3121(a) 

5 (determined without regard to any dollar limita6 tion contained in such section). 

7 ‘‘(f) CERTAIN RULES MADE APPLICABLE.—For pur8 poses of this section, rules similar to the rules of section 

9 52 shall apply. 

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

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

12 with respect to a qualified small business if such qualified 

13 small business were not exempt from tax under this chap14 ter shall be treated as a credit allowable under this sub15 part to such qualified small business.’’. 

16 (b) CONFORMING AMENDMENTS.— 

17 (1) Paragraph (2) of section 1324(b) of title 

18 31, United States Code, is amended by inserting be19 fore the period ‘‘, or from section 36 of such Code’’. 

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

21 IV of subchapter A of chapter 1 of the Internal Rev22 enue Code of 1986 is amended by striking the last 

23 item and inserting the following new items: 

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

‘‘Sec. 37. Overpayments of tax’’. 
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to amounts paid or incurred in tax3 able years beginning after December 31, 2005. 

4 SEC. 16. EFFECTIVE DATE. 

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

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

7 apply to contracts that take effect with respect to calendar 

8 year 2006 and each calendar year thereafter. 

Æ