IIB 

108TH CONGRESS 

1ST SESSION H. R. 660

IN THE SENATE OF THE UNITED STATES 

JUNE 20, 2003

Received; read once and referred to the Committee on Health, Education, 

Labor, and Pensions 

AN ACT

To amend title I of the Employee Retirement Income Security Act of 1974 to improve access and choice for entrepreneurs with small businesses with respect to medical 

care for their employees.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 

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

3 ‘‘Small Business Health Fairness Act of 2003’’. 

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

5 as follows:

Sec. 1. Short title and table of contents. 

Sec. 2. Rules governing association health plans. 

Sec. 3. Clarification of treatment of single employer arrangements. 

Sec. 4. Enforcement provisions relating to association health plans. 

Sec. 5. Cooperation between Federal and State authorities. 

Sec. 6. Effective date and transitional and other rules.

6 SEC. 2. RULES GOVERNING ASSOCIATION HEALTH PLANS. 

7 (a) IN GENERAL.—Subtitle B of title I of the Em8 ployee Retirement Income Security Act of 1974 is amend9 ed by adding after part 7 the following new part: 

10 ‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH

11 PLANS

12 ‘‘SEC. 801. ASSOCIATION HEALTH PLANS. 

13 ‘‘(a) IN GENERAL.—For purposes of this part, the 

14 term ‘association health plan’ means a group health plan 

15 whose sponsor is (or is deemed under this part to be) de16 scribed in subsection (b). 

17 ‘‘(b) SPONSORSHIP.—The sponsor of a group health 

18 plan is described in this subsection if such sponsor—

19 ‘‘(1) is organized and maintained in good faith, 

20 with a constitution and bylaws specifically stating its 

21 purpose and providing for periodic meetings on at 

22 least an annual basis, as a bona fide trade associa-
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1 tion, a bona fide industry association (including a 

2 rural electric cooperative association or a rural tele3 phone cooperative association), a bona fide profes4 sional association, or a bona fide chamber of com5 merce (or similar bona fide business association, in6 cluding a corporation or similar organization that 

7 operates on a cooperative basis (within the meaning 

8 of section 1381 of the Internal Revenue Code of 

9 1986)), for substantial purposes other than that of 

10 obtaining or providing medical care; 

11 ‘‘(2) is established as a permanent entity which 

12 receives the active support of its members and re13 quires for membership payment on a periodic basis 

14 of dues or payments necessary to maintain eligibility 

15 for membership in the sponsor; and 

16 ‘‘(3) does not condition membership, such dues 

17 or payments, or coverage under the plan on the 

18 basis of health status-related factors with respect to 

19 the employees of its members (or affiliated mem20 bers), or the dependents of such employees, and does 

21 not condition such dues or payments on the basis of 

22 group health plan participation. 

23 Any sponsor consisting of an association of entities which 

24 meet the requirements of paragraphs (1), (2), and (3) 
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1 shall be deemed to be a sponsor described in this sub2 section. 

3 ‘‘SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH 

4 PLANS. 

5 ‘‘(a) IN GENERAL.—The applicable authority shall 

6 prescribe by regulation a procedure under which, subject 

7 to subsection (b), the applicable authority shall certify as8 sociation health plans which apply for certification as 

9 meeting the requirements of this part. 

10 ‘‘(b) STANDARDS.—Under the procedure prescribed 

11 pursuant to subsection (a), in the case of an association 

12 health plan that provides at least one benefit option which 

13 does not consist of health insurance coverage, the applica14 ble authority shall certify such plan as meeting the re15 quirements of this part only if the applicable authority is 

16 satisfied that the applicable requirements of this part are 

17 met (or, upon the date on which the plan is to commence 

18 operations, will be met) with respect to the plan. 

19 ‘‘(c) REQUIREMENTS APPLICABLE TO CERTIFIED

20 PLANS.—An association health plan with respect to which 

21 certification under this part is in effect shall meet the ap22 plicable requirements of this part, effective on the date 

23 of certification (or, if later, on the date on which the plan 

24 is to commence operations). 
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1 ‘‘(d) REQUIREMENTS FOR CONTINUED CERTIFI2 CATION.—The applicable authority may provide by regula3 tion for continued certification of association health plans 

4 under this part. 

5 ‘‘(e) CLASS CERTIFICATION FOR FULLY INSURED

6 PLANS.—The applicable authority shall establish a class 

7 certification procedure for association health plans under 

8 which all benefits consist of health insurance coverage. 

9 Under such procedure, the applicable authority shall pro10 vide for the granting of certification under this part to 

11 the plans in each class of such association health plans 

12 upon appropriate filing under such procedure in connec13 tion with plans in such class and payment of the pre14 scribed fee under section 807(a). 

15 ‘‘(f) CERTIFICATION OF SELF-INSURED ASSOCIATION

16 HEALTH PLANS.—An association health plan which offers 

17 one or more benefit options which do not consist of health 

18 insurance coverage may be certified under this part only 

19 if such plan consists of any of the following: 

20 ‘‘(1) a plan which offered such coverage on the 

21 date of the enactment of the Small Business Health 

22 Fairness Act of 2003, 

23 ‘‘(2) a plan under which the sponsor does not 

24 restrict membership to one or more trades and busi25 nesses or industries and whose eligible participating 
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1 employers represent a broad cross-section of trades 

2 and businesses or industries, or 

3 ‘‘(3) a plan whose eligible participating employ4 ers represent one or more trades or businesses, or 

5 one or more industries, consisting of any of the fol6 lowing: agriculture; equipment and automobile deal7 erships; barbering and cosmetology; certified public 

8 accounting practices; child care; construction; dance, 

9 theatrical and orchestra productions; disinfecting 

10 and pest control; financial services; fishing; 

11 foodservice establishments; hospitals; labor organiza12 tions; logging; manufacturing (metals); mining; med13 ical and dental practices; medical laboratories; pro14 fessional consulting services; sanitary services; trans15 portation (local and freight); warehousing; whole16 saling/distributing; or any other trade or business or 

17 industry which has been indicated as having average 

18 or above-average risk or health claims experience by 

19 reason of State rate filings, denials of coverage, pro20 posed premium rate levels, or other means dem21 onstrated by such plan in accordance with regula22 tions. 
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1 ‘‘SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND 

2 BOARDS OF TRUSTEES. 

3 ‘‘(a) SPONSOR.—The requirements of this subsection 

4 are met with respect to an association health plan if the 

5 sponsor has met (or is deemed under this part to have 

6 met) the requirements of section 801(b) for a continuous 

7 period of not less than 3 years ending with the date of 

8 the application for certification under this part. 

9 ‘‘(b) BOARD OF TRUSTEES.—The requirements of 

10 this subsection are met with respect to an association 

11 health plan if the following requirements are met: 

12 ‘‘(1) FISCAL CONTROL.—The plan is operated, 

13 pursuant to a trust agreement, by a board of trust14 ees which has complete fiscal control over the plan 

15 and which is responsible for all operations of the 

16 plan. 

17 ‘‘(2) RULES OF OPERATION AND FINANCIAL

18 CONTROLS.—The board of trustees has in effect 

19 rules of operation and financial controls, based on a 

20 3-year plan of operation, adequate to carry out the 

21 terms of the plan and to meet all requirements of 

22 this title applicable to the plan. 

23 ‘‘(3) RULES GOVERNING RELATIONSHIP TO

24 PARTICIPATING EMPLOYERS AND TO CONTRAC25 TORS.—

26 ‘‘(A) BOARD MEMBERSHIP.—
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1 ‘‘(i) IN GENERAL.—Except as pro2 vided in clauses (ii) and (iii), the members 

3 of the board of trustees are individuals se4 lected from individuals who are the owners, 

5 officers, directors, or employees of the par6 ticipating employers or who are partners in 

7 the participating employers and actively 

8 participate in the business. 

9 ‘‘(ii) LIMITATION.—

10 ‘‘(I) GENERAL RULE.—Except as 

11 provided in subclauses (II) and (III), 

12 no such member is an owner, officer, 

13 director, or employee of, or partner in, 

14 a contract administrator or other 

15 service provider to the plan. 

16 ‘‘(II) LIMITED EXCEPTION FOR

17 PROVIDERS OF SERVICES SOLELY ON

18 BEHALF OF THE SPONSOR.—Officers 

19 or employees of a sponsor which is a 

20 service provider (other than a contract 

21 administrator) to the plan may be 

22 members of the board if they con23 stitute not more than 25 percent of 

24 the membership of the board and they 
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1 do not provide services to the plan 

2 other than on behalf of the sponsor. 

3 ‘‘(III) TREATMENT OF PRO4 VIDERS OF MEDICAL CARE.—In the 

5 case of a sponsor which is an associa6 tion whose membership consists pri7 marily of providers of medical care, 

8 subclause (I) shall not apply in the 

9 case of any service provider described 

10 in subclause (I) who is a provider of 

11 medical care under the plan. 

12 ‘‘(iii) CERTAIN PLANS EXCLUDED.—

13 Clause (i) shall not apply to an association 

14 health plan which is in existence on the 

15 date of the enactment of the Small Busi16 ness Health Fairness Act of 2003. 

17 ‘‘(B) SOLE AUTHORITY.—The board has 

18 sole authority under the plan to approve appli19 cations for participation in the plan and to con20 tract with a service provider to administer the 

21 day-to-day affairs of the plan. 

22 ‘‘(c) TREATMENT OF FRANCHISE NETWORKS.—In 

23 the case of a group health plan which is established and 

24 maintained by a franchiser for a franchise network con25 sisting of its franchisees—
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1 ‘‘(1) the requirements of subsection (a) and sec2 tion 801(a) shall be deemed met if such require3 ments would otherwise be met if the franchiser were 

4 deemed to be the sponsor referred to in section 

5 801(b), such network were deemed to be an associa6 tion described in section 801(b), and each franchisee 

7 were deemed to be a member (of the association and 

8 the sponsor) referred to in section 801(b); and 

9 ‘‘(2) the requirements of section 804(a)(1) shall 

10 be deemed met. 

11 The Secretary may by regulation define for purposes of 

12 this subsection the terms ‘franchiser’, ‘franchise network’, 

13 and ‘franchisee’. 

14 ‘‘SEC. 804. PARTICIPATION AND COVERAGE REQUIRE15 MENTS. 

16 ‘‘(a) COVERED EMPLOYERS AND INDIVIDUALS.—The 

17 requirements of this subsection are met with respect to 

18 an association health plan if, under the terms of the 

19 plan—

20 ‘‘(1) each participating employer must be—

21 ‘‘(A) a member of the sponsor, 

22 ‘‘(B) the sponsor, or 

23 ‘‘(C) an affiliated member of the sponsor 

24 with respect to which the requirements of sub25 section (b) are met, 
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1 except that, in the case of a sponsor which is a pro2 fessional association or other individual-based asso3 ciation, if at least one of the officers, directors, or 

4 employees of an employer, or at least one of the in5 dividuals who are partners in an employer and who 

6 actively participates in the business, is a member or 

7 such an affiliated member of the sponsor, partici8 pating employers may also include such employer; 

9 and 

10 ‘‘(2) all individuals commencing coverage under 

11 the plan after certification under this part must 

12 be—

13 ‘‘(A) active or retired owners (including 

14 self-employed individuals), officers, directors, or 

15 employees of, or partners in, participating em16 ployers; or 

17 ‘‘(B) the beneficiaries of individuals de18 scribed in subparagraph (A). 

19 ‘‘(b) COVERAGE OF PREVIOUSLY UNINSURED EM20 PLOYEES.—In the case of an association health plan in 

21 existence on the date of the enactment of the Small Busi22 ness Health Fairness Act of 2003, an affiliated member 

23 of the sponsor of the plan may be offered coverage under 

24 the plan as a participating employer only if—
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1 ‘‘(1) the affiliated member was an affiliated 

2 member on the date of certification under this part; 

3 or 

4 ‘‘(2) during the 12-month period preceding the 

5 date of the offering of such coverage, the affiliated 

6 member has not maintained or contributed to a 

7 group health plan with respect to any of its employ8 ees who would otherwise be eligible to participate in 

9 such association health plan. 

10 ‘‘(c) INDIVIDUAL MARKET UNAFFECTED.—The re11 quirements of this subsection are met with respect to an 

12 association health plan if, under the terms of the plan, 

13 no participating employer may provide health insurance 

14 coverage in the individual market for any employee not 

15 covered under the plan which is similar to the coverage 

16 contemporaneously provided to employees of the employer 

17 under the plan, if such exclusion of the employee from cov18 erage under the plan is based on a health status-related 

19 factor with respect to the employee and such employee 

20 would, but for such exclusion on such basis, be eligible 

21 for coverage under the plan. 

22 ‘‘(d) PROHIBITION OF DISCRIMINATION AGAINST

23 EMPLOYERS AND EMPLOYEES ELIGIBLE TO PARTICI24 PATE.—The requirements of this subsection are met with 

25 respect to an association health plan if—
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1 ‘‘(1) under the terms of the plan, all employers 

2 meeting the preceding requirements of this section 

3 are eligible to qualify as participating employers for 

4 all geographically available coverage options, unless, 

5 in the case of any such employer, participation or 

6 contribution requirements of the type referred to in 

7 section 2711 of the Public Health Service Act are 

8 not met; 

9 ‘‘(2) upon request, any employer eligible to par10 ticipate is furnished information regarding all cov11 erage options available under the plan; and 

12 ‘‘(3) the applicable requirements of sections 

13 701, 702, and 703 are met with respect to the plan. 

14 ‘‘SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN 

15 DOCUMENTS, CONTRIBUTION RATES, AND 

16 BENEFIT OPTIONS. 

17 ‘‘(a) IN GENERAL.—The requirements of this section 

18 are met with respect to an association health plan if the 

19 following requirements are met: 

20 ‘‘(1) CONTENTS OF GOVERNING INSTRU21 MENTS.—The instruments governing the plan in22 clude a written instrument, meeting the require23 ments of an instrument required under section 

24 402(a)(1), which—
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1 ‘‘(A) provides that the board of trustees 

2 serves as the named fiduciary required for plans 

3 under section 402(a)(1) and serves in the ca4 pacity of a plan administrator (referred to in 

5 section 3(16)(A)); 

6 ‘‘(B) provides that the sponsor of the plan 

7 is to serve as plan sponsor (referred to in sec8 tion 3(16)(B)); and 

9 ‘‘(C) incorporates the requirements of sec10 tion 806. 

11 ‘‘(2) CONTRIBUTION RATES MUST BE NON12 DISCRIMINATORY.—

13 ‘‘(A) The contribution rates for any par14 ticipating small employer do not vary on the 

15 basis of any health status-related factor in rela16 tion to employees of such employer or their 

17 beneficiaries and do not vary on the basis of the 

18 type of business or industry in which such em19 ployer is engaged. 

20 ‘‘(B) Nothing in this title or any other pro21 vision of law shall be construed to preclude an 

22 association health plan, or a health insurance 

23 issuer offering health insurance coverage in 

24 connection with an association health plan, 

25 from—
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1 ‘‘(i) setting contribution rates based 

2 on the claims experience of the plan; or 

3 ‘‘(ii) varying contribution rates for 

4 small employers in a State to the extent 

5 that such rates could vary using the same 

6 methodology employed in such State for 

7 regulating premium rates in the small 

8 group market with respect to health insur9 ance coverage offered in connection with 

10 bona fide associations (within the meaning 

11 of section 2791(d)(3) of the Public Health 

12 Service Act), 

13 subject to the requirements of section 702(b) 

14 relating to contribution rates. 

15 ‘‘(3) FLOOR FOR NUMBER OF COVERED INDI16 VIDUALS WITH RESPECT TO CERTAIN PLANS.—If 

17 any benefit option under the plan does not consist 

18 of health insurance coverage, the plan has as of the 

19 beginning of the plan year not fewer than 1,000 par20 ticipants and beneficiaries. 

21 ‘‘(4) MARKETING REQUIREMENTS.—

22 ‘‘(A) IN GENERAL.—If a benefit option 

23 which consists of health insurance coverage is 

24 offered under the plan, State-licensed insurance 

25 agents shall be used to distribute to small em-
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1 ployers coverage which does not consist of 

2 health insurance coverage in a manner com3 parable to the manner in which such agents are 

4 used to distribute health insurance coverage. 

5 ‘‘(B) STATE-LICENSED INSURANCE

6 AGENTS.—For purposes of subparagraph (A), 

7 the term ‘State-licensed insurance agents’ 

8 means one or more agents who are licensed in 

9 a State and are subject to the laws of such 

10 State relating to licensure, qualification, test11 ing, examination, and continuing education of 

12 persons authorized to offer, sell, or solicit 

13 health insurance coverage in such State. 

14 ‘‘(5) REGULATORY REQUIREMENTS.—Such 

15 other requirements as the applicable authority deter16 mines are necessary to carry out the purposes of this 

17 part, which shall be prescribed by the applicable au18 thority by regulation. 

19 ‘‘(b) ABILITY OF ASSOCIATION HEALTH PLANS TO

20 DESIGN BENEFIT OPTIONS.—Subject to section 514(d), 

21 nothing in this part or any provision of State law (as de22 fined in section 514(c)(1)) shall be construed to preclude 

23 an association health plan, or a health insurance issuer 

24 offering health insurance coverage in connection with an 

25 association health plan, from exercising its sole discretion 
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1 in selecting the specific items and services consisting of 

2 medical care to be included as benefits under such plan 

3 or coverage, except (subject to section 514) in the case 

4 of (1) any law to the extent that it is not preempted under 

5 section 731(a)(1) with respect to matters governed by sec6 tion 711, 712, or 713, or (2) any law of the State with 

7 which filing and approval of a policy type offered by the 

8 plan was initially obtained to the extent that such law pro9 hibits an exclusion of a specific disease from such cov10 erage. 

11 ‘‘SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS 

12 FOR SOLVENCY FOR PLANS PROVIDING 

13 HEALTH BENEFITS IN ADDITION TO HEALTH 

14 INSURANCE COVERAGE. 

15 ‘‘(a) IN GENERAL.—The requirements of this section 

16 are met with respect to an association health plan if—

17 ‘‘(1) the benefits under the plan consist solely 

18 of health insurance coverage; or 

19 ‘‘(2) if the plan provides any additional benefit 

20 options which do not consist of health insurance cov21 erage, the plan—

22 ‘‘(A) establishes and maintains reserves 

23 with respect to such additional benefit options, 

24 in amounts recommended by the qualified actu25 ary, consisting of—
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1 ‘‘(i) a reserve sufficient for unearned 

2 contributions; 

3 ‘‘(ii) a reserve sufficient for benefit li4 abilities which have been incurred, which 

5 have not been satisfied, and for which risk 

6 of loss has not yet been transferred, and 

7 for expected administrative costs with re8 spect to such benefit liabilities; 

9 ‘‘(iii) a reserve sufficient for any other 

10 obligations of the plan; and 

11 ‘‘(iv) a reserve sufficient for a margin 

12 of error and other fluctuations, taking into 

13 account the specific circumstances of the 

14 plan; and 

15 ‘‘(B) establishes and maintains aggregate 

16 and specific excess /stop loss insurance and sol17 vency indemnification, with respect to such ad18 ditional benefit options for which risk of loss 

19 has not yet been transferred, as follows: 

20 ‘‘(i) The plan shall secure aggregate 

21 excess /stop loss insurance for the plan 

22 with an attachment point which is not 

23 greater than 125 percent of expected gross 

24 annual claims. The applicable authority 

25 may by regulation provide for upward ad-
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1 justments in the amount of such percent2 age in specified circumstances in which the 

3 plan specifically provides for and maintains 

4 reserves in excess of the amounts required 

5 under subparagraph (A). 

6 ‘‘(ii) The plan shall secure specific ex7 cess /stop loss insurance for the plan with 

8 an attachment point which is at least equal 

9 to an amount recommended by the plan’s 

10 qualified actuary. The applicable authority 

11 may by regulation provide for adjustments 

12 in the amount of such insurance in speci13 fied circumstances in which the plan spe14 cifically provides for and maintains re15 serves in excess of the amounts required 

16 under subparagraph (A). 

17 ‘‘(iii) The plan shall secure indem18 nification insurance for any claims which 

19 the plan is unable to satisfy by reason of 

20 a plan termination. 

21 Any person issuing to a plan insurance described in clause 

22 (i), (ii), or (iii) shall notify the Secretary of any failure 

23 of premium payment meriting cancellation of the policy 

24 prior to undertaking such a cancellation. Any regulations 

25 prescribed by the applicable authority pursuant to clause 
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1 (i) or (ii) of subparagraph (B) may allow for such adjust2 ments in the required levels of excess /stop loss insurance 

3 as the qualified actuary may recommend, taking into ac4 count the specific circumstances of the plan. 

5 ‘‘(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS

6 RESERVES.—In the case of any association health plan de7 scribed in subsection (a)(2), the requirements of this sub8 section are met if the plan establishes and maintains sur9 plus in an amount at least equal to—

10 ‘‘(1) $500,000, or 

11 ‘‘(2) such greater amount (but not greater than 

12 $2,000,000) as may be set forth in regulations pre13 scribed by the applicable authority, considering the 

14 level of aggregate and specific excess /stop loss insur15 ance provided with respect to such plan and other 

16 factors related to solvency risk, such as the plan’s 

17 projected levels of participation or claims, the nature 

18 of the plan’s liabilities, and the types of assets avail19 able to assure that such liabilities are met. 

20 ‘‘(c) ADDITIONAL REQUIREMENTS.—In the case of 

21 any association health plan described in subsection (a)(2), 

22 the applicable authority may provide such additional re23 quirements relating to reserves, excess /stop loss insur24 ance, and indemnification insurance as the applicable au25 thority considers appropriate. Such requirements may be 
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1 provided by regulation with respect to any such plan or 

2 any class of such plans. 

3 ‘‘(d) ADJUSTMENTS FOR EXCESS /STOP LOSS INSUR4 ANCE.—The applicable authority may provide for adjust5 ments to the levels of reserves otherwise required under 

6 subsections (a) and (b) with respect to any plan or class 

7 of plans to take into account excess /stop loss insurance 

8 provided with respect to such plan or plans. 

9 ‘‘(e) ALTERNATIVE MEANS OF COMPLIANCE.—The 

10 applicable authority may permit an association health plan 

11 described in subsection (a)(2) to substitute, for all or part 

12 of the requirements of this section (except subsection 

13 (a)(2)(B)(iii)), such security, guarantee, hold-harmless ar14 rangement, or other financial arrangement as the applica15 ble authority determines to be adequate to enable the plan 

16 to fully meet all its financial obligations on a timely basis 

17 and is otherwise no less protective of the interests of par18 ticipants and beneficiaries than the requirements for 

19 which it is substituted. The applicable authority may take 

20 into account, for purposes of this subsection, evidence pro21 vided by the plan or sponsor which demonstrates an as22 sumption of liability with respect to the plan. Such evi23 dence may be in the form of a contract of indemnification, 

24 lien, bonding, insurance, letter of credit, recourse under 

25 applicable terms of the plan in the form of assessments 
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1 of participating employers, security, or other financial ar2 rangement. 

3 ‘‘(f) MEASURES TO ENSURE CONTINUED PAYMENT

4 OF BENEFITS BY CERTAIN PLANS IN DISTRESS.—

5 ‘‘(1) PAYMENTS BY CERTAIN PLANS TO ASSO6 CIATION HEALTH PLAN FUND.—

7 ‘‘(A) IN GENERAL.—In the case of an as8 sociation health plan described in subsection 

9 (a)(2), the requirements of this subsection are 

10 met if the plan makes payments into the Asso11 ciation Health Plan Fund under this subpara12 graph when they are due. Such payments shall 

13 consist of annual payments in the amount of 

14 $5,000, and, in addition to such annual pay15 ments, such supplemental payments as the Sec16 retary may determine to be necessary under 

17 paragraph (2). Payments under this paragraph 

18 are payable to the Fund at the time determined 

19 by the Secretary. Initial payments are due in 

20 advance of certification under this part. Pay21 ments shall continue to accrue until a plan’s as22 sets are distributed pursuant to a termination 

23 procedure. 

24 ‘‘(B) PENALTIES FOR FAILURE TO MAKE

25 PAYMENTS.—If any payment is not made by a 
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1 plan when it is due, a late payment charge of 

2 not more than 100 percent of the payment 

3 which was not timely paid shall be payable by 

4 the plan to the Fund. 

5 ‘‘(C) CONTINUED DUTY OF THE SEC6 RETARY.—The Secretary shall not cease to 

7 carry out the provisions of paragraph (2) on ac8 count of the failure of a plan to pay any pay9 ment when due. 

10 ‘‘(2) PAYMENTS BY SECRETARY TO CONTINUE

11 EXCESS /STOP LOSS INSURANCE COVERAGE AND IN12 DEMNIFICATION INSURANCE COVERAGE FOR CER13 TAIN PLANS.—In any case in which the applicable 

14 authority determines that there is, or that there is 

15 reason to believe that there will be: (A) a failure to 

16 take necessary corrective actions under section 

17 809(a) with respect to an association health plan de18 scribed in subsection (a)(2); or (B) a termination of 

19 such a plan under section 809(b) or 810(b)(8) (and, 

20 if the applicable authority is not the Secretary, cer21 tifies such determination to the Secretary), the Sec22 retary shall determine the amounts necessary to 

23 make payments to an insurer (designated by the 

24 Secretary) to maintain in force excess /stop loss in25 surance coverage or indemnification insurance cov-
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1 erage for such plan, if the Secretary determines that 

2 there is a reasonable expectation that, without such 

3 payments, claims would not be satisfied by reason of 

4 termination of such coverage. The Secretary shall, to 

5 the extent provided in advance in appropriation 

6 Acts, pay such amounts so determined to the insurer 

7 designated by the Secretary. 

8 ‘‘(3) ASSOCIATION HEALTH PLAN FUND.—

9 ‘‘(A) IN GENERAL.—There is established 

10 on the books of the Treasury a fund to be 

11 known as the ‘Association Health Plan Fund’. 

12 The Fund shall be available for making pay13 ments pursuant to paragraph (2). The Fund 

14 shall be credited with payments received pursu15 ant to paragraph (1)(A), penalties received pur16 suant to paragraph (1)(B); and earnings on in17 vestments of amounts of the Fund under sub18 paragraph (B). 

19 ‘‘(B) INVESTMENT.—Whenever the Sec20 retary determines that the moneys of the fund 

21 are in excess of current needs, the Secretary 

22 may request the investment of such amounts as 

23 the Secretary determines advisable by the Sec24 retary of the Treasury in obligations issued or 

25 guaranteed by the United States. 
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1 ‘‘(g) EXCESS /STOP LOSS INSURANCE.—For pur2 poses of this section—

3 ‘‘(1) AGGREGATE EXCESS /STOP LOSS INSUR4 ANCE.—The term ‘aggregate excess /stop loss insur5 ance’ means, in connection with an association 

6 health plan, a contract—

7 ‘‘(A) under which an insurer (meeting such 

8 minimum standards as the applicable authority 

9 may prescribe by regulation) provides for pay10 ment to the plan with respect to aggregate 

11 claims under the plan in excess of an amount 

12 or amounts specified in such contract; 

13 ‘‘(B) which is guaranteed renewable; and 

14 ‘‘(C) which allows for payment of pre15 miums by any third party on behalf of the in16 sured plan. 

17 ‘‘(2) SPECIFIC EXCESS /STOP LOSS INSUR18 ANCE.—The term ‘specific excess /stop loss insur19 ance’ means, in connection with an association 

20 health plan, a contract—

21 ‘‘(A) under which an insurer (meeting such 

22 minimum standards as the applicable authority 

23 may prescribe by regulation) provides for pay24 ment to the plan with respect to claims under 

25 the plan in connection with a covered individual 
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1 in excess of an amount or amounts specified in 

2 such contract in connection with such covered 

3 individual; 

4 ‘‘(B) which is guaranteed renewable; and 

5 ‘‘(C) which allows for payment of pre6 miums by any third party on behalf of the in7 sured plan. 

8 ‘‘(h) INDEMNIFICATION INSURANCE.—For purposes 

9 of this section, the term ‘indemnification insurance’ 

10 means, in connection with an association health plan, a 

11 contract—

12 ‘‘(1) under which an insurer (meeting such min13 imum standards as the applicable authority may pre14 scribe by regulation) provides for payment to the 

15 plan with respect to claims under the plan which the 

16 plan is unable to satisfy by reason of a termination 

17 pursuant to section 809(b) (relating to mandatory 

18 termination); 

19 ‘‘(2) which is guaranteed renewable and 

20 noncancellable for any reason (except as the applica21 ble authority may prescribe by regulation); and 

22 ‘‘(3) which allows for payment of premiums by 

23 any third party on behalf of the insured plan. 

24 ‘‘(i) RESERVES.—For purposes of this section, the 

25 term ‘reserves’ means, in connection with an association 
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1 health plan, plan assets which meet the fiduciary stand2 ards under part 4 and such additional requirements re3 garding liquidity as the applicable authority may prescribe 

4 by regulation. 

5 ‘‘(j) SOLVENCY STANDARDS WORKING GROUP.—

6 ‘‘(1) IN GENERAL.—Within 90 days after the 

7 date of the enactment of the Small Business Health 

8 Fairness Act of 2003, the applicable authority shall 

9 establish a Solvency Standards Working Group. In 

10 prescribing the initial regulations under this section, 

11 the applicable authority shall take into account the 

12 recommendations of such Working Group. 

13 ‘‘(2) MEMBERSHIP.—The Working Group shall 

14 consist of not more than 15 members appointed by 

15 the applicable authority. The applicable authority 

16 shall include among persons invited to membership 

17 on the Working Group at least one of each of the 

18 following: 

19 ‘‘(A) a representative of the National Asso20 ciation of Insurance Commissioners; 

21 ‘‘(B) a representative of the American 

22 Academy of Actuaries; 

23 ‘‘(C) a representative of the State govern24 ments, or their interests; 
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1 ‘‘(D) a representative of existing self-in2 sured arrangements, or their interests; 

3 ‘‘(E) a representative of associations of the 

4 type referred to in section 801(b)(1), or their 

5 interests; and 

6 ‘‘(F) a representative of multiemployer 

7 plans that are group health plans, or their in8 terests. 

9 ‘‘SEC. 807. REQUIREMENTS FOR APPLICATION AND RE10 LATED REQUIREMENTS. 

11 ‘‘(a) FILING FEE.—Under the procedure prescribed 

12 pursuant to section 802(a), an association health plan 

13 shall pay to the applicable authority at the time of filing 

14 an application for certification under this part a filing fee 

15 in the amount of $5,000, which shall be available in the 

16 case of the Secretary, to the extent provided in appropria17 tion Acts, for the sole purpose of administering the certifi18 cation procedures applicable with respect to association 

19 health plans. 

20 ‘‘(b) INFORMATION TO BE INCLUDED IN APPLICA21 TION FOR CERTIFICATION.—An application for certifi22 cation under this part meets the requirements of this sec23 tion only if it includes, in a manner and form which shall 

24 be prescribed by the applicable authority by regulation, at 

25 least the following information: 
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1 ‘‘(1) IDENTIFYING INFORMATION.—The names 

2 and addresses of—

3 ‘‘(A) the sponsor; and 

4 ‘‘(B) the members of the board of trustees 

5 of the plan. 

6 ‘‘(2) STATES IN WHICH PLAN INTENDS TO DO

7 BUSINESS.—The States in which participants and 

8 beneficiaries under the plan are to be located and 

9 the number of them expected to be located in each 

10 such State. 

11 ‘‘(3) BONDING REQUIREMENTS.—Evidence pro12 vided by the board of trustees that the bonding re13 quirements of section 412 will be met as of the date 

14 of the application or (if later) commencement of op15 erations. 

16 ‘‘(4) PLAN DOCUMENTS.—A copy of the docu17 ments governing the plan (including any bylaws and 

18 trust agreements), the summary plan description, 

19 and other material describing the benefits that will 

20 be provided to participants and beneficiaries under 

21 the plan. 

22 ‘‘(5) AGREEMENTS WITH SERVICE PRO23 VIDERS.—A copy of any agreements between the 

24 plan and contract administrators and other service 

25 providers. 
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1 ‘‘(6) FUNDING REPORT.—In the case of asso2 ciation health plans providing benefits options in ad3 dition to health insurance coverage, a report setting 

4 forth information with respect to such additional 

5 benefit options determined as of a date within the 

6 120-day period ending with the date of the applica7 tion, including the following: 

8 ‘‘(A) RESERVES.—A statement, certified 

9 by the board of trustees of the plan, and a 

10 statement of actuarial opinion, signed by a 

11 qualified actuary, that all applicable require12 ments of section 806 are or will be met in ac13 cordance with regulations which the applicable 

14 authority shall prescribe. 

15 ‘‘(B) ADEQUACY OF CONTRIBUTION

16 RATES.—A statement of actuarial opinion, 

17 signed by a qualified actuary, which sets forth 

18 a description of the extent to which contribution 

19 rates are adequate to provide for the payment 

20 of all obligations and the maintenance of re21 quired reserves under the plan for the 12-

22 month period beginning with such date within 

23 such 120-day period, taking into account the 

24 expected coverage and experience of the plan. If 

25 the contribution rates are not fully adequate, 
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1 the statement of actuarial opinion shall indicate 

2 the extent to which the rates are inadequate 

3 and the changes needed to ensure adequacy. 

4 ‘‘(C) CURRENT AND PROJECTED VALUE OF

5 ASSETS AND LIABILITIES.—A statement of ac6 tuarial opinion signed by a qualified actuary, 

7 which sets forth the current value of the assets 

8 and liabilities accumulated under the plan and 

9 a projection of the assets, liabilities, income, 

10 and expenses of the plan for the 12-month pe11 riod referred to in subparagraph (B). The in12 come statement shall identify separately the 

13 plan’s administrative expenses and claims. 

14 ‘‘(D) COSTS OF COVERAGE TO BE

15 CHARGED AND OTHER EXPENSES.—A state16 ment of the costs of coverage to be charged, in17 cluding an itemization of amounts for adminis18 tration, reserves, and other expenses associated 

19 with the operation of the plan. 

20 ‘‘(E) OTHER INFORMATION.—Any other 

21 information as may be determined by the appli22 cable authority, by regulation, as necessary to 

23 carry out the purposes of this part. 

24 ‘‘(c) FILING NOTICE OF CERTIFICATION WITH

25 STATES.—A certification granted under this part to an 
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1 association health plan shall not be effective unless written 

2 notice of such certification is filed with the applicable 

3 State authority of each State in which at least 25 percent 

4 of the participants and beneficiaries under the plan are 

5 located. For purposes of this subsection, an individual 

6 shall be considered to be located in the State in which a 

7 known address of such individual is located or in which 

8 such individual is employed. 

9 ‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case 

10 of any association health plan certified under this part, 

11 descriptions of material changes in any information which 

12 was required to be submitted with the application for the 

13 certification under this part shall be filed in such form 

14 and manner as shall be prescribed by the applicable au15 thority by regulation. The applicable authority may re16 quire by regulation prior notice of material changes with 

17 respect to specified matters which might serve as the basis 

18 for suspension or revocation of the certification. 

19 ‘‘(e) REPORTING REQUIREMENTS FOR CERTAIN AS20 SOCIATION HEALTH PLANS.—An association health plan 

21 certified under this part which provides benefit options in 

22 addition to health insurance coverage for such plan year 

23 shall meet the requirements of section 103 by filing an 

24 annual report under such section which shall include infor25 mation described in subsection (b)(6) with respect to the 
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1 plan year and, notwithstanding section 104(a)(1)(A), shall 

2 be filed with the applicable authority not later than 90 

3 days after the close of the plan year (or on such later date 

4 as may be prescribed by the applicable authority). The ap5 plicable authority may require by regulation such interim 

6 reports as it considers appropriate. 

7 ‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The 

8 board of trustees of each association health plan which 

9 provides benefits options in addition to health insurance 

10 coverage and which is applying for certification under this 

11 part or is certified under this part shall engage, on behalf 

12 of all participants and beneficiaries, a qualified actuary 

13 who shall be responsible for the preparation of the mate14 rials comprising information necessary to be submitted by 

15 a qualified actuary under this part. The qualified actuary 

16 shall utilize such assumptions and techniques as are nec17 essary to enable such actuary to form an opinion as to 

18 whether the contents of the matters reported under this 

19 part—

20 ‘‘(1) are in the aggregate reasonably related to 

21 the experience of the plan and to reasonable expecta22 tions; and 

23 ‘‘(2) represent such actuary’s best estimate of 

24 anticipated experience under the plan. 
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1 The opinion by the qualified actuary shall be made with 

2 respect to, and shall be made a part of, the annual report. 

3 ‘‘SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TER4 MINATION. 

5 ‘‘Except as provided in section 809(b), an association 

6 health plan which is or has been certified under this part 

7 may terminate (upon or at any time after cessation of ac8 cruals in benefit liabilities) only if the board of trustees, 

9 not less than 60 days before the proposed termination 

10 date—

11 ‘‘(1) provides to the participants and bene12 ficiaries a written notice of intent to terminate stat13 ing that such termination is intended and the pro14 posed termination date; 

15 ‘‘(2) develops a plan for winding up the affairs 

16 of the plan in connection with such termination in 

17 a manner which will result in timely payment of all 

18 benefits for which the plan is obligated; and 

19 ‘‘(3) submits such plan in writing to the appli20 cable authority. 

21 Actions required under this section shall be taken in such 

22 form and manner as may be prescribed by the applicable 

23 authority by regulation. 
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1 ‘‘SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMI2 NATION. 

3 ‘‘(a) ACTIONS TO AVOID DEPLETION OF RE4 SERVES.—An association health plan which is certified 

5 under this part and which provides benefits other than 

6 health insurance coverage shall continue to meet the re7 quirements of section 806, irrespective of whether such 

8 certification continues in effect. The board of trustees of 

9 such plan shall determine quarterly whether the require10 ments of section 806 are met. In any case in which the 

11 board determines that there is reason to believe that there 

12 is or will be a failure to meet such requirements, or the 

13 applicable authority makes such a determination and so 

14 notifies the board, the board shall immediately notify the 

15 qualified actuary engaged by the plan, and such actuary 

16 shall, not later than the end of the next following month, 

17 make such recommendations to the board for corrective 

18 action as the actuary determines necessary to ensure com19 pliance with section 806. Not later than 30 days after re20 ceiving from the actuary recommendations for corrective 

21 actions, the board shall notify the applicable authority (in 

22 such form and manner as the applicable authority may 

23 prescribe by regulation) of such recommendations of the 

24 actuary for corrective action, together with a description 

25 of the actions (if any) that the board has taken or plans 

26 to take in response to such recommendations. The board 
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1 shall thereafter report to the applicable authority, in such 

2 form and frequency as the applicable authority may speci3 fy to the board, regarding corrective action taken by the 

4 board until the requirements of section 806 are met. 

5 ‘‘(b) MANDATORY TERMINATION.—In any case in 

6 which—

7 ‘‘(1) the applicable authority has been notified 

8 under subsection (a) (or by an issuer of excess /stop 

9 loss insurance or indemnity insurance pursuant to 

10 section 806(a)) of a failure of an association health 

11 plan which is or has been certified under this part 

12 and is described in section 806(a)(2) to meet the re13 quirements of section 806 and has not been notified 

14 by the board of trustees of the plan that corrective 

15 action has restored compliance with such require16 ments; and 

17 ‘‘(2) the applicable authority determines that 

18 there is a reasonable expectation that the plan will 

19 continue to fail to meet the requirements of section 

20 806, 

21 the board of trustees of the plan shall, at the direction 

22 of the applicable authority, terminate the plan and, in the 

23 course of the termination, take such actions as the appli24 cable authority may require, including satisfying any 

25 claims referred to in section 806(a)(2)(B)(iii) and recov-
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1 ering for the plan any liability under subsection 

2 (a)(2)(B)(iii) or (e) of section 806, as necessary to ensure 

3 that the affairs of the plan will be, to the maximum extent 

4 possible, wound up in a manner which will result in timely 

5 provision of all benefits for which the plan is obligated. 

6 ‘‘SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOL7 VENT ASSOCIATION HEALTH PLANS PRO8 VIDING HEALTH BENEFITS IN ADDITION TO 

9 HEALTH INSURANCE COVERAGE. 

10 ‘‘(a) APPOINTMENT OF SECRETARY AS TRUSTEE FOR

11 INSOLVENT PLANS.—Whenever the Secretary determines 

12 that an association health plan which is or has been cer13 tified under this part and which is described in section 

14 806(a)(2) will be unable to provide benefits when due or 

15 is otherwise in a financially hazardous condition, as shall 

16 be defined by the Secretary by regulation, the Secretary 

17 shall, upon notice to the plan, apply to the appropriate 

18 United States district court for appointment of the Sec19 retary as trustee to administer the plan for the duration 

20 of the insolvency. The plan may appear as a party and 

21 other interested persons may intervene in the proceedings 

22 at the discretion of the court. The court shall appoint such 

23 Secretary trustee if the court determines that the trustee24 ship is necessary to protect the interests of the partici25 pants and beneficiaries or providers of medical care or to 
38

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1 avoid any unreasonable deterioration of the financial con2 dition of the plan. The trusteeship of such Secretary shall 

3 continue until the conditions described in the first sen4 tence of this subsection are remedied or the plan is termi5 nated. 

6 ‘‘(b) POWERS AS TRUSTEE.—The Secretary, upon 

7 appointment as trustee under subsection (a), shall have 

8 the power—

9 ‘‘(1) to do any act authorized by the plan, this 

10 title, or other applicable provisions of law to be done 

11 by the plan administrator or any trustee of the plan; 

12 ‘‘(2) to require the transfer of all (or any part) 

13 of the assets and records of the plan to the Sec14 retary as trustee; 

15 ‘‘(3) to invest any assets of the plan which the 

16 Secretary holds in accordance with the provisions of 

17 the plan, regulations prescribed by the Secretary, 

18 and applicable provisions of law; 

19 ‘‘(4) to require the sponsor, the plan adminis20 trator, any participating employer, and any employee 

21 organization representing plan participants to fur22 nish any information with respect to the plan which 

23 the Secretary as trustee may reasonably need in 

24 order to administer the plan; 
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1 ‘‘(5) to collect for the plan any amounts due the 

2 plan and to recover reasonable expenses of the trust3 eeship; 

4 ‘‘(6) to commence, prosecute, or defend on be5 half of the plan any suit or proceeding involving the 

6 plan; 

7 ‘‘(7) to issue, publish, or file such notices, state8 ments, and reports as may be required by the Sec9 retary by regulation or required by any order of the 

10 court; 

11 ‘‘(8) to terminate the plan (or provide for its 

12 termination in accordance with section 809(b)) and 

13 liquidate the plan assets, to restore the plan to the 

14 responsibility of the sponsor, or to continue the 

15 trusteeship; 

16 ‘‘(9) to provide for the enrollment of plan par17 ticipants and beneficiaries under appropriate cov18 erage options; and 

19 ‘‘(10) to do such other acts as may be nec20 essary to comply with this title or any order of the 

21 court and to protect the interests of plan partici22 pants and beneficiaries and providers of medical 

23 care. 
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1 ‘‘(c) NOTICE OF APPOINTMENT.—As soon as prac2 ticable after the Secretary’s appointment as trustee, the 

3 Secretary shall give notice of such appointment to—

4 ‘‘(1) the sponsor and plan administrator; 

5 ‘‘(2) each participant; 

6 ‘‘(3) each participating employer; and 

7 ‘‘(4) if applicable, each employee organization 

8 which, for purposes of collective bargaining, rep9 resents plan participants. 

10 ‘‘(d) ADDITIONAL DUTIES.—Except to the extent in11 consistent with the provisions of this title, or as may be 

12 otherwise ordered by the court, the Secretary, upon ap13 pointment as trustee under this section, shall be subject 

14 to the same duties as those of a trustee under section 704 

15 of title 11, United States Code, and shall have the duties 

16 of a fiduciary for purposes of this title. 

17 ‘‘(e) OTHER PROCEEDINGS.—An application by the 

18 Secretary under this subsection may be filed notwith19 standing the pendency in the same or any other court of 

20 any bankruptcy, mortgage foreclosure, or equity receiver21 ship proceeding, or any proceeding to reorganize, conserve, 

22 or liquidate such plan or its property, or any proceeding 

23 to enforce a lien against property of the plan. 

24 ‘‘(f) JURISDICTION OF COURT.—
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1 ‘‘(1) IN GENERAL.—Upon the filing of an appli2 cation for the appointment as trustee or the issuance 

3 of a decree under this section, the court to which the 

4 application is made shall have exclusive jurisdiction 

5 of the plan involved and its property wherever lo6 cated with the powers, to the extent consistent with 

7 the purposes of this section, of a court of the United 

8 States having jurisdiction over cases under chapter 

9 11 of title 11, United States Code. Pending an adju10 dication under this section such court shall stay, and 

11 upon appointment by it of the Secretary as trustee, 

12 such court shall continue the stay of, any pending 

13 mortgage foreclosure, equity receivership, or other 

14 proceeding to reorganize, conserve, or liquidate the 

15 plan, the sponsor, or property of such plan or spon16 sor, and any other suit against any receiver, conser17 vator, or trustee of the plan, the sponsor, or prop18 erty of the plan or sponsor. Pending such adjudica19 tion and upon the appointment by it of the Sec20 retary as trustee, the court may stay any proceeding 

21 to enforce a lien against property of the plan or the 

22 sponsor or any other suit against the plan or the 

23 sponsor. 

24 ‘‘(2) VENUE.—An action under this section 

25 may be brought in the judicial district where the 
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1 sponsor or the plan administrator resides or does 

2 business or where any asset of the plan is situated. 

3 A district court in which such action is brought may 

4 issue process with respect to such action in any 

5 other judicial district. 

6 ‘‘(g) PERSONNEL.—In accordance with regulations 

7 which shall be prescribed by the Secretary, the Secretary 

8 shall appoint, retain, and compensate accountants, actu9 aries, and other professional service personnel as may be 

10 necessary in connection with the Secretary’s service as 

11 trustee under this section. 

12 ‘‘SEC. 811. STATE ASSESSMENT AUTHORITY. 

13 ‘‘(a) IN GENERAL.—Notwithstanding section 514, a 

14 State may impose by law a contribution tax on an associa15 tion health plan described in section 806(a)(2), if the plan 

16 commenced operations in such State after the date of the 

17 enactment of the Small Business Health Fairness Act of 

18 2003. 

19 ‘‘(b) CONTRIBUTION TAX.—For purposes of this sec20 tion, the term ‘contribution tax’ imposed by a State on 

21 an association health plan means any tax imposed by such 

22 State if—

23 ‘‘(1) such tax is computed by applying a rate to 

24 the amount of premiums or contributions, with re25 spect to individuals covered under the plan who are 
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1 residents of such State, which are received by the 

2 plan from participating employers located in such 

3 State or from such individuals; 

4 ‘‘(2) the rate of such tax does not exceed the 

5 rate of any tax imposed by such State on premiums 

6 or contributions received by insurers or health main7 tenance organizations for health insurance coverage 

8 offered in such State in connection with a group 

9 health plan; 

10 ‘‘(3) such tax is otherwise nondiscriminatory; 

11 and 

12 ‘‘(4) the amount of any such tax assessed on 

13 the plan is reduced by the amount of any tax or as14 sessment otherwise imposed by the State on pre15 miums, contributions, or both received by insurers or 

16 health maintenance organizations for health insur17 ance coverage, aggregate excess /stop loss insurance 

18 (as defined in section 806(g)(1)), specific excess /

19 stop loss insurance (as defined in section 806(g)(2)), 

20 other insurance related to the provision of medical 

21 care under the plan, or any combination thereof pro22 vided by such insurers or health maintenance organi23 zations in such State in connection with such plan. 

24 ‘‘SEC. 812. DEFINITIONS AND RULES OF CONSTRUCTION. 

25 ‘‘(a) DEFINITIONS.—For purposes of this part—
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1 ‘‘(1) GROUP HEALTH PLAN.—The term ‘group 

2 health plan’ has the meaning provided in section 

3 733(a)(1) (after applying subsection (b) of this sec4 tion). 

5 ‘‘(2) MEDICAL CARE.—The term ‘medical care’ 

6 has the meaning provided in section 733(a)(2). 

7 ‘‘(3) HEALTH INSURANCE COVERAGE.—The 

8 term ‘health insurance coverage’ has the meaning 

9 provided in section 733(b)(1). 

10 ‘‘(4) HEALTH INSURANCE ISSUER.—The term 

11 ‘health insurance issuer’ has the meaning provided 

12 in section 733(b)(2). 

13 ‘‘(5) APPLICABLE AUTHORITY.—The term ‘ap14 plicable authority’ means the Secretary, except that, 

15 in connection with any exercise of the Secretary’s 

16 authority regarding which the Secretary is required 

17 under section 506(d) to consult with a State, such 

18 term means the Secretary, in consultation with such 

19 State. 

20 ‘‘(6) HEALTH STATUS-RELATED FACTOR.—The 

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

22 provided in section 733(d)(2). 

23 ‘‘(7) INDIVIDUAL MARKET.—

24 ‘‘(A) IN GENERAL.—The term ‘individual 

25 market’ means the market for health insurance 
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1 coverage offered to individuals other than in 

2 connection with a group health plan. 

3 ‘‘(B) TREATMENT OF VERY SMALL

4 GROUPS.—

5 ‘‘(i) IN GENERAL.—Subject to clause 

6 (ii), such term includes coverage offered in 

7 connection with a group health plan that 

8 has fewer than 2 participants as current 

9 employees or participants described in sec10 tion 732(d)(3) on the first day of the plan 

11 year. 

12 ‘‘(ii) STATE EXCEPTION.—Clause (i) 

13 shall not apply in the case of health insur14 ance coverage offered in a State if such 

15 State regulates the coverage described in 

16 such clause in the same manner and to the 

17 same extent as coverage in the small group 

18 market (as defined in section 2791(e)(5) of 

19 the Public Health Service Act) is regulated 

20 by such State. 

21 ‘‘(8) PARTICIPATING EMPLOYER.—The term 

22 ‘participating employer’ means, in connection with 

23 an association health plan, any employer, if any indi24 vidual who is an employee of such employer, a part25 ner in such employer, or a self-employed individual 
46

HR 660 RFS 

1 who is such employer (or any dependent, as defined 

2 under the terms of the plan, of such individual) is 

3 or was covered under such plan in connection with 

4 the status of such individual as such an employee, 

5 partner, or self-employed individual in relation to the 

6 plan. 

7 ‘‘(9) APPLICABLE STATE AUTHORITY.—The 

8 term ‘applicable State authority’ means, with respect 

9 to a health insurance issuer in a State, the State in10 surance commissioner or official or officials des11 ignated by the State to enforce the requirements of 

12 title XXVII of the Public Health Service Act for the 

13 State involved with respect to such issuer. 

14 ‘‘(10) QUALIFIED ACTUARY.—The term ‘quali15 fied actuary’ means an individual who is a member 

16 of the American Academy of Actuaries. 

17 ‘‘(11) AFFILIATED MEMBER.—The term ‘affili18 ated member’ means, in connection with a sponsor—

19 ‘‘(A) a person who is otherwise eligible to 

20 be a member of the sponsor but who elects an 

21 affiliated status with the sponsor, 

22 ‘‘(B) in the case of a sponsor with mem23 bers which consist of associations, a person who 

24 is a member of any such association and elects 

25 an affiliated status with the sponsor, or 
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1 ‘‘(C) in the case of an association health 

2 plan in existence on the date of the enactment 

3 of the Small Business Health Fairness Act of 

4 2003, a person eligible to be a member of the 

5 sponsor or one of its member associations. 

6 ‘‘(12) LARGE EMPLOYER.—The term ‘large em7 ployer’ means, in connection with a group health 

8 plan with respect to a plan year, an employer who 

9 employed an average of at least 51 employees on 

10 business days during the preceding calendar year 

11 and who employs at least 2 employees on the first 

12 day of the plan year. 

13 ‘‘(13) SMALL EMPLOYER.—The term ‘small em14 ployer’ means, in connection with a group health 

15 plan with respect to a plan year, an employer who 

16 is not a large employer. 

17 ‘‘(b) RULES OF CONSTRUCTION.—

18 ‘‘(1) EMPLOYERS AND EMPLOYEES.—For pur19 poses of determining whether a plan, fund, or pro20 gram is an employee welfare benefit plan which is an 

21 association health plan, and for purposes of applying 

22 this title in connection with such plan, fund, or pro23 gram so determined to be such an employee welfare 

24 benefit plan—
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1 ‘‘(A) in the case of a partnership, the term 

2 ‘employer’ (as defined in section 3(5)) includes 

3 the partnership in relation to the partners, and 

4 the term ‘employee’ (as defined in section 3(6)) 

5 includes any partner in relation to the partner6 ship; and 

7 ‘‘(B) in the case of a self-employed indi8 vidual, the term ‘employer’ (as defined in sec9 tion 3(5)) and the term ‘employee’ (as defined 

10 in section 3(6)) shall include such individual. 

11 ‘‘(2) PLANS, FUNDS, AND PROGRAMS TREATED

12 AS EMPLOYEE WELFARE BENEFIT PLANS.—In the 

13 case of any plan, fund, or program which was estab14 lished or is maintained for the purpose of providing 

15 medical care (through the purchase of insurance or 

16 otherwise) for employees (or their dependents) cov17 ered thereunder and which demonstrates to the Sec18 retary that all requirements for certification under 

19 this part would be met with respect to such plan, 

20 fund, or program if such plan, fund, or program 

21 were a group health plan, such plan, fund, or pro22 gram shall be treated for purposes of this title as an 

23 employee welfare benefit plan on and after the date 

24 of such demonstration.’’. 
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1 (b) CONFORMING AMENDMENTS TO PREEMPTION

2 RULES.—

3 (1) Section 514(b)(6) of such Act (29 U.S.C. 

4 1144(b)(6)) is amended by adding at the end the 

5 following new subparagraph: 

6 ‘‘(E) The preceding subparagraphs of this paragraph 

7 do not apply with respect to any State law in the case 

8 of an association health plan which is certified under part 

9 8.’’. 

10 (2) Section 514 of such Act (29 U.S.C. 1144) 

11 is amended—

12 (A) in subsection (b)(4), by striking ‘‘Sub13 section (a)’’ and inserting ‘‘Subsections (a) and 

14 (d)’’; 

15 (B) in subsection (b)(5), by striking ‘‘sub16 section (a)’’ in subparagraph (A) and inserting 

17 ‘‘subsection (a) of this section and subsections 

18 (a)(2)(B) and (b) of section 805’’, and by strik19 ing ‘‘subsection (a)’’ in subparagraph (B) and 

20 inserting ‘‘subsection (a) of this section or sub21 section (a)(2)(B) or (b) of section 805’’; 

22 (C) by redesignating subsection (d) as sub23 section (e); and 

24 (D) by inserting after subsection (c) the 

25 following new subsection: 
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HR 660 RFS 

1 ‘‘(d)(1) Except as provided in subsection (b)(4), the 

2 provisions of this title shall supersede any and all State 

3 laws insofar as they may now or hereafter preclude, or 

4 have the effect of precluding, a health insurance issuer 

5 from offering health insurance coverage in connection with 

6 an association health plan which is certified under part 

7 8. 

8 ‘‘(2) Except as provided in paragraphs (4) and (5) 

9 of subsection (b) of this section—

10 ‘‘(A) In any case in which health insurance cov11 erage of any policy type is offered under an associa12 tion health plan certified under part 8 to a partici13 pating employer operating in such State, the provi14 sions of this title shall supersede any and all laws 

15 of such State insofar as they may preclude a health 

16 insurance issuer from offering health insurance cov17 erage of the same policy type to other employers op18 erating in the State which are eligible for coverage 

19 under such association health plan, whether or not 

20 such other employers are participating employers in 

21 such plan. 

22 ‘‘(B) In any case in which health insurance cov23 erage of any policy type is offered in a State under 

24 an association health plan certified under part 8 and 

25 the filing, with the applicable State authority (as de-
51

HR 660 RFS 

1 fined in section 812(a)(9)), of the policy form in 

2 connection with such policy type is approved by such 

3 State authority, the provisions of this title shall su4 persede any and all laws of any other State in which 

5 health insurance coverage of such type is offered, in6 sofar as they may preclude, upon the filing in the 

7 same form and manner of such policy form with the 

8 applicable State authority in such other State, the 

9 approval of the filing in such other State. 

10 ‘‘(3) Nothing in subsection (b)(6)(E) or the preceding 

11 provisions of this subsection shall be construed, with re12 spect to health insurance issuers or health insurance cov13 erage, to supersede or impair the law of any State—

14 ‘‘(A) providing solvency standards or similar 

15 standards regarding the adequacy of insurer capital, 

16 surplus, reserves, or contributions, or 

17 ‘‘(B) relating to prompt payment of claims. 

18 ‘‘(4) For additional provisions relating to association 

19 health plans, see subsections (a)(2)(B) and (b) of section 

20 805. 

21 ‘‘(5) For purposes of this subsection, the term ‘asso22 ciation health plan’ has the meaning provided in section 

23 801(a), and the terms ‘health insurance coverage’, ‘par24 ticipating employer’, and ‘health insurance issuer’ have 
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1 the meanings provided such terms in section 812, respec2 tively.’’. 

3 (3) Section 514(b)(6)(A) of such Act (29 

4 U.S.C. 1144(b)(6)(A)) is amended—

5 (A) in clause (i)(II), by striking ‘‘and’’ at 

6 the end; 

7 (B) in clause (ii), by inserting ‘‘and which 

8 does not provide medical care (within the mean9 ing of section 733(a)(2)),’’ after ‘‘arrange10 ment,’’, and by striking ‘‘title.’’ and inserting 

11 ‘‘title, and’’; and 

12 (C) by adding at the end the following new 

13 clause: 

14 ‘‘(iii) subject to subparagraph (E), in the case 

15 of any other employee welfare benefit plan which is 

16 a multiple employer welfare arrangement and which 

17 provides medical care (within the meaning of section 

18 733(a)(2)), any law of any State which regulates in19 surance may apply.’’. 

20 (4) Section 514(e) of such Act (as redesignated 

21 by paragraph (2)(C)) is amended—

22 (A) by striking ‘‘Nothing’’ and inserting 

23 ‘‘(1) Except as provided in paragraph (2), noth24 ing’’; and 
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1 (B) by adding at the end the following new 

2 paragraph: 

3 ‘‘(2) Nothing in any other provision of law enacted 

4 on or after the date of the enactment of the Small Busi5 ness Health Fairness Act of 2003 shall be construed to 

6 alter, amend, modify, invalidate, impair, or supersede any 

7 provision of this title, except by specific cross-reference to 

8 the affected section.’’. 

9 (c) PLAN SPONSOR.—Section 3(16)(B) of such Act 

10 (29 U.S.C. 102(16)(B)) is amended by adding at the end 

11 the following new sentence: ‘‘Such term also includes a 

12 person serving as the sponsor of an association health plan 

13 under part 8.’’. 

14 (d) DISCLOSURE OF SOLVENCY PROTECTIONS RE15 LATED TO SELF-INSURED AND FULLY INSURED OPTIONS

16 UNDER ASSOCIATION HEALTH PLANS.—Section 102(b) 

17 of such Act (29 U.S.C. 102(b)) is amended by adding at 

18 the end the following: ‘‘An association health plan shall 

19 include in its summary plan description, in connection 

20 with each benefit option, a description of the form of sol21 vency or guarantee fund protection secured pursuant to 

22 this Act or applicable State law, if any.’’. 

23 (e) SAVINGS CLAUSE.—Section 731(c) of such Act is 

24 amended by inserting ‘‘or part 8’’ after ‘‘this part’’. 
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1 (f) REPORT TO THE CONGRESS REGARDING CERTIFI2 CATION OF SELF-INSURED ASSOCIATION HEALTH

3 PLANS.—Not later than January 1, 2008, the Secretary 

4 of Labor shall report to the Committee on Education and 

5 the Workforce of the House of Representatives and the 

6 Committee on Health, Education, Labor, and Pensions of 

7 the Senate the effect association health plans have had, 

8 if any, on reducing the number of uninsured individuals. 

9 (g) CLERICAL AMENDMENT.—The table of contents 

10 in section 1 of the Employee Retirement Income Security 

11 Act of 1974 is amended by inserting after the item relat12 ing to section 734 the following new items:

‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS

‘‘Sec. 801. Association health plans. 

‘‘Sec. 802. Certification of association health plans. 

‘‘Sec. 803. Requirements relating to sponsors and boards of trustees. 

‘‘Sec. 804. Participation and coverage requirements. 

‘‘Sec. 805. Other requirements relating to plan documents, contribution rates, 

and benefit options. 

‘‘Sec. 806. Maintenance of reserves and provisions for solvency for plans providing health benefits in addition to health insurance coverage. 

‘‘Sec. 807. Requirements for application and related requirements. 

‘‘Sec. 808. Notice requirements for voluntary termination. 

‘‘Sec. 809. Corrective actions and mandatory termination. 

‘‘Sec. 810. Trusteeship by the Secretary of insolvent association health plans 

providing health benefits in addition to health insurance coverage. 

‘‘Sec. 811. State assessment authority. 

‘‘Sec. 812. Definitions and rules of construction.’’.

13 SEC. 3. CLARIFICATION OF TREATMENT OF SINGLE EM14 PLOYER ARRANGEMENTS. 

15 Section 3(40)(B) of the Employee Retirement Income 

16 Security Act of 1974 (29 U.S.C. 1002(40)(B)) is amend17 ed—
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1 (1) in clause (i), by inserting after ‘‘control 

2 group,’’ the following: ‘‘except that, in any case in 

3 which the benefit referred to in subparagraph (A) 

4 consists of medical care (as defined in section 

5 812(a)(2)), two or more trades or businesses, wheth6 er or not incorporated, shall be deemed a single em7 ployer for any plan year of such plan, or any fiscal 

8 year of such other arrangement, if such trades or 

9 businesses are within the same control group during 

10 such year or at any time during the preceding 1-year 

11 period,’’; 

12 (2) in clause (iii), by striking ‘‘(iii) the deter13 mination’’ and inserting the following: 

14 ‘‘(iii)(I) in any case in which the benefit re15 ferred to in subparagraph (A) consists of medical 

16 care (as defined in section 812(a)(2)), the deter17 mination of whether a trade or business is under 

18 ‘common control’ with another trade or business 

19 shall be determined under regulations of the Sec20 retary applying principles consistent and coextensive 

21 with the principles applied in determining whether 

22 employees of two or more trades or businesses are 

23 treated as employed by a single employer under sec24 tion 4001(b), except that, for purposes of this para25 graph, an interest of greater than 25 percent may 
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1 not be required as the minimum interest necessary 

2 for common control, or 

3 ‘‘(II) in any other case, the determination’’; 

4 (3) by redesignating clauses (iv) and (v) as 

5 clauses (v) and (vi), respectively; and 

6 (4) by inserting after clause (iii) the following 

7 new clause: 

8 ‘‘(iv) in any case in which the benefit referred 

9 to in subparagraph (A) consists of medical care (as 

10 defined in section 812(a)(2)), in determining, after 

11 the application of clause (i), whether benefits are 

12 provided to employees of two or more employers, the 

13 arrangement shall be treated as having only one par14 ticipating employer if, after the application of clause 

15 (i), the number of individuals who are employees and 

16 former employees of any one participating employer 

17 and who are covered under the arrangement is 

18 greater than 75 percent of the aggregate number of 

19 all individuals who are employees or former employ20 ees of participating employers and who are covered 

21 under the arrangement,’’. 

22 SEC. 4. ENFORCEMENT PROVISIONS RELATING TO ASSO23 CIATION HEALTH PLANS. 

24 (a) CRIMINAL PENALTIES FOR CERTAIN WILLFUL

25 MISREPRESENTATIONS.—Section 501 of the Employee 
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1 Retirement Income Security Act of 1974 (29 U.S.C. 1131) 

2 is amended— 

3 (1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and 

4 (2) by adding at the end the following new sub5 section: 

6 ‘‘(b) Any person who willfully falsely represents, to 

7 any employee, any employee’s beneficiary, any employer, 

8 the Secretary, or any State, a plan or other arrangement 

9 established or maintained for the purpose of offering or 

10 providing any benefit described in section 3(1) to employ11 ees or their beneficiaries as—

12 ‘‘(1) being an association health plan which has 

13 been certified under part 8; 

14 ‘‘(2) having been established or maintained 

15 under or pursuant to one or more collective bar16 gaining agreements which are reached pursuant to 

17 collective bargaining described in section 8(d) of the 

18 National Labor Relations Act (29 U.S.C. 158(d)) or 

19 paragraph Fourth of section 2 of the Railway Labor 

20 Act (45 U.S.C. 152, paragraph Fourth) or which are 

21 reached pursuant to labor-management negotiations 

22 under similar provisions of State public employee re23 lations laws; or 

24 ‘‘(3) being a plan or arrangement described in 

25 section 3(40)(A)(i), 
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1 shall, upon conviction, be imprisoned not more than 5 

2 years, be fined under title 18, United States Code, or 

3 both.’’. 

4 (b) CEASE ACTIVITIES ORDERS.—Section 502 of 

5 such Act (29 U.S.C. 1132) is amended by adding at the 

6 end the following new subsection: 

7 ‘‘(n) ASSOCIATION HEALTH PLAN CEASE AND DE8 SIST ORDERS.—

9 ‘‘(1) IN GENERAL.—Subject to paragraph (2), 

10 upon application by the Secretary showing the oper11 ation, promotion, or marketing of an association 

12 health plan (or similar arrangement providing bene13 fits consisting of medical care (as defined in section 

14 733(a)(2))) that—

15 ‘‘(A) is not certified under part 8, is sub16 ject under section 514(b)(6) to the insurance 

17 laws of any State in which the plan or arrange18 ment offers or provides benefits, and is not li19 censed, registered, or otherwise approved under 

20 the insurance laws of such State; or 

21 ‘‘(B) is an association health plan certified 

22 under part 8 and is not operating in accordance 

23 with the requirements under part 8 for such 

24 certification, 
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1 a district court of the United States shall enter an 

2 order requiring that the plan or arrangement cease 

3 activities. 

4 ‘‘(2) EXCEPTION.—Paragraph (1) shall not 

5 apply in the case of an association health plan or 

6 other arrangement if the plan or arrangement shows 

7 that—

8 ‘‘(A) all benefits under it referred to in 

9 paragraph (1) consist of health insurance cov10 erage; and 

11 ‘‘(B) with respect to each State in which 

12 the plan or arrangement offers or provides ben13 efits, the plan or arrangement is operating in 

14 accordance with applicable State laws that are 

15 not superseded under section 514. 

16 ‘‘(3) ADDITIONAL EQUITABLE RELIEF.—The 

17 court may grant such additional equitable relief, in18 cluding any relief available under this title, as it 

19 deems necessary to protect the interests of the pub20 lic and of persons having claims for benefits against 

21 the plan.’’. 

22 (c) RESPONSIBILITY FOR CLAIMS PROCEDURE.—

23 Section 503 of such Act (29 U.S.C. 1133) is amended by 

24 inserting ‘‘(a) IN GENERAL.—’’ before ‘‘In accordance’’, 

25 and by adding at the end the following new subsection: 
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1 ‘‘(b) ASSOCIATION HEALTH PLANS.—The terms of 

2 each association health plan which is or has been certified 

3 under part 8 shall require the board of trustees or the 

4 named fiduciary (as applicable) to ensure that the require5 ments of this section are met in connection with claims 

6 filed under the plan.’’. 

7 SEC. 5. COOPERATION BETWEEN FEDERAL AND STATE AU8 THORITIES. 

9 Section 506 of the Employee Retirement Income Se10 curity Act of 1974 (29 U.S.C. 1136) is amended by adding 

11 at the end the following new subsection: 

12 ‘‘(d) CONSULTATION WITH STATES WITH RESPECT

13 TO ASSOCIATION HEALTH PLANS.—

14 ‘‘(1) AGREEMENTS WITH STATES.—The Sec15 retary shall consult with the State recognized under 

16 paragraph (2) with respect to an association health 

17 plan regarding the exercise of—

18 ‘‘(A) the Secretary’s authority under sec19 tions 502 and 504 to enforce the requirements 

20 for certification under part 8; and 

21 ‘‘(B) the Secretary’s authority to certify 

22 association health plans under part 8 in accord23 ance with regulations of the Secretary applica24 ble to certification under part 8. 
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1 ‘‘(2) RECOGNITION OF PRIMARY DOMICILE

2 STATE.—In carrying out paragraph (1), the Sec3 retary shall ensure that only one State will be recog4 nized, with respect to any particular association 

5 health plan, as the State to with which consultation 

6 is required. In carrying out this paragraph—

7 ‘‘(A) in the case of a plan which provides 

8 health insurance coverage (as defined in section 

9 812(a)(3)), such State shall be the State with 

10 which filing and approval of a policy type of11 fered by the plan was initially obtained, and 

12 ‘‘(B) in any other case, the Secretary shall 

13 take into account the places of residence of the 

14 participants and beneficiaries under the plan 

15 and the State in which the trust is main16 tained.’’. 

17 SEC. 6. EFFECTIVE DATE AND TRANSITIONAL AND OTHER 

18 RULES. 

19 (a) EFFECTIVE DATE.—The amendments made by 

20 this Act shall take effect one year from the date of the 

21 enactment. The Secretary of Labor shall first issue all reg22 ulations necessary to carry out the amendments made by 

23 this Act within one year after the date of the enactment 

24 of this Act. 
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1 (b) TREATMENT OF CERTAIN EXISTING HEALTH

2 BENEFITS PROGRAMS.—

3 (1) IN GENERAL.—In any case in which, as of 

4 the date of the enactment of this Act, an arrange5 ment is maintained in a State for the purpose of 

6 providing benefits consisting of medical care for the 

7 employees and beneficiaries of its participating em8 ployers, at least 200 participating employers make 

9 contributions to such arrangement, such arrange10 ment has been in existence for at least 10 years, and 

11 such arrangement is licensed under the laws of one 

12 or more States to provide such benefits to its par13 ticipating employers, upon the filing with the appli14 cable authority (as defined in section 812(a)(5) of 

15 the Employee Retirement Income Security Act of 

16 1974 (as amended by this subtitle)) by the arrange17 ment of an application for certification of the ar18 rangement under part 8 of subtitle B of title I of 

19 such Act—

20 (A) such arrangement shall be deemed to 

21 be a group health plan for purposes of title I 

22 of such Act; 

23 (B) the requirements of sections 801(a) 

24 and 803(a) of the Employee Retirement Income 
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1 Security Act of 1974 shall be deemed met with 

2 respect to such arrangement; 

3 (C) the requirements of section 803(b) of 

4 such Act shall be deemed met, if the arrange5 ment is operated by a board of directors 

6 which—

7 (i) is elected by the participating em8 ployers, with each employer having one 

9 vote; and 

10 (ii) has complete fiscal control over 

11 the arrangement and which is responsible 

12 for all operations of the arrangement; 

13 (D) the requirements of section 804(a) of 

14 such Act shall be deemed met with respect to 

15 such arrangement; and 

16 (E) the arrangement may be certified by 

17 any applicable authority with respect to its op18 erations in any State only if it operates in such 

19 State on the date of certification. 

20 The provisions of this subsection shall cease to apply 

21 with respect to any such arrangement at such time 

22 after the date of the enactment of this Act as the 

23 applicable requirements of this subsection are not 

24 met with respect to such arrangement. 
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1 (2) DEFINITIONS.—For purposes of this sub2 section, the terms ‘‘group health plan’’, ‘‘medical 

3 care’’, and ‘‘participating employer’’ shall have the 

4 meanings provided in section 812 of the Employee 

5 Retirement Income Security Act of 1974, except 

6 that the reference in paragraph (7) of such section 

7 to an ‘‘association health plan’’ shall be deemed a 

8 reference to an arrangement referred to in this sub9 section.

Passed the House of Representatives June 19, 2003. 

Attest: JEFF TRANDAHL, 

Clerk. 

By MARTHA C. MORRISON, 

Deputy Clerk.