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(B) CERTIFICATION.—If the Secretary de-
termines that the NAIC has submitted a target
actuarial value for catastrophic coverage that
comply with the requirements of subparagraph
(A), the Secretary shall certify such value for
use under this subtitle. If the Secretary deter-
mines that such a value has not been submitted
or does not comply with such requirements, the
Secretary shall promptly determine such a tar-
get actuarial value that meets such require-
ments.
(e) MEDISAVE COVERAGE.—
(1) IN GENERAL.—For purposes of subsection
(a)(1)(C), a health insurance plan is considered to
provide medisave coverage consistent with this sub-
section if such plan consists of—
(A) a catastrophic health plan (within the
meaning of section 220(c)(2) of the Internal
Revenue Code of 1986, as inserted by section
2202 of this Act), and
(B) a medical savings account described in
section 220(d)(1)(B) of such Code.
(f) SUBSEQUENT REVISIONS.—
(1) NAIC.—The NAIC may submit from time
to time to the Secretary revisions of the set of rules
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of actuarial equivalence and target actuarial values
previously established or determined under this sec-
tion if the NAIC determines such revision necessary
to take into account changes in the relevant types of
health benefits provisions, in deductible levels for
catastrophic coverage, or in demographic conditions
which form the basis for such set of rules or values.
The provisions of subsection (b)(2) shall apply to
such a revision in the same manner as they apply to
the initial determination of the set of rules.
(2) SECRETARY.—The Secretary may by regu-
lation revise such set or rules and values from time
to time if the Secretary determines such revision
necessary to take into account changes described in
paragraph (1).
SEC. 1103. ESTABLISHMENT OF OTHER MEDACCESS STAND-
ARDS.
(a) ESTABLISHMENT OF GENERAL STANDARDS.—
(1) ROLE OF NAIC.—The Secretary shall re-
quest the NAIC to develop, within 9 months after
the date of the enactment of this Act, model regula-
tions that specify standards with respect to each of
the following:
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(A)(i) The requirement, under section
1101(a), 
that 
insurers 
make 
available
MedAccess plans.
(ii) The requirements of guaranteed avail-
ability of MedAccess plans to small employers
under section 1101(b).
(B)(i) The requirements of section 1104
(relating to limits on premiums and miscellane-
ous consumer protections).
(ii) The requirement of section 1105 (re-
lating to limitation on annual premium in-
creases).
If the NAIC develops recommended regulations
specifying such standards within such period, the
Secretary shall review the standards. Such review
shall be completed within 60 days after the date the
regulations are developed. Unless the Secretary de-
termines within such period that the standards do
not meet the requirements, such standards shall
serve as the standards under this section, with such
amendments as the Secretary deems necessary.
(2) CONTINGENCY.—If the NAIC does not de-
velop such model regulations within such period or
the Secretary determines that such regulations do
not specify standards that meet the requirements de-
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scribed in paragraph (1), the Secretary shall specify,
within 15 months after the date of the enactment of
this Act, standards to carry out those requirements.
(3) EFFECTIVE DATE.—The MedAccess stand-
ards and consumer protection standards (as defined
in paragraph (5)) shall apply to MedAccess plans
and health insurance plans in a State on or after the
respective date the standards are implemented in the
State under subsections (b) and (c).
(4) NONPREEMPTION OF STATE LAW.—A State
may implement standards for health insurance plans
made available to small employers that are more
stringent than the requirements under this part; ex-
cept that a State may not implement standards that
prevent the offering by an insurer of at least one
MedAccess standard plan, one MedAccess cata-
strophic plan, and one MedAccess medical plan.
(5) DEFINITIONS.—In this section:
(A) 
CONSUMER
PROTECTION
STAND-
ARDS.—The term ‘‘consumer protection stand-
ards’’ means the standards established under
paragraph (1)(B).
(B) MEDACCESS STANDARDS.—The term
‘‘MedAccess standards’’ means the standards
established under paragraph (1)(A) (relating to
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the requirements of section 1101), and includes
the consumer protection standards insofar as
they relate to MedAccess plans.
(b) 
APPLICATION
OF
STANDARDS
THROUGH
STATES.—
(1) APPLICATION
OF
MEDACCESS
STAND-
ARDS.—
(A) IN GENERAL.—Each State shall sub-
mit to the Secretary, by the deadline specified
in subparagraph (B), a report on steps the
State is taking to implement and enforce the
consumer protection standards with respect to
insurers, and MedAccess plans offered, not later
than such deadline.
(B) DEADLINE FOR REPORT.—
(i) 1 YEAR AFTER STANDARDS ESTAB-
LISHED.—Subject to clause (ii), the dead-
line under this subparagraph is 1 year
after the date the MedAccess standards
are established under subsection (a).
(ii) EXCEPTION FOR LEGISLATION.—
In the case of a State which the Secretary
identifies, in consultation with the NAIC,
as—
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(I) requiring State legislation
(other than legislation appropriating
funds) in order for insurers and
MedAccess plans offered to meet the
MedAccess 
standards 
established
under subsection (a), but
(II) having a legislature which is
not scheduled to meet in 1994 in a
legislative session in which such legis-
lation may be considered,
the date specified in this subparagraph is
the first day of the first calendar quarter
beginning after the close of the first legis-
lative session of the State legislature that
begins on or after January 1, 1996. For
purposes of the previous sentence, in the
case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of
the State legislature.
(2) FEDERAL ROLE.—If the Secretary deter-
mines that a State has failed to submit a report by
the deadline specified under paragraph (1) or finds
that the State has not implemented and provided
adequate enforcement of the MedAccess standards
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under such paragraph, the Secretary shall notify the
State and provide the State a period of 60 days in
which to submit such report or to implement and en-
force such standards under such paragraph. If, after
such 60-day period, the Secretary finds that such a
failure has not been corrected, the Secretary shall
provide for such mechanism for the implementation
and enforcement of such standards in the State as
the Secretary determines to be appropriate. Such
implementation and enforcement shall take effect
with respect to insurers, and MedAccess plans of-
fered or renewed, on or after 3 months after the
date of the Secretary’s finding under the previous
sentence, and until the date the Secretary finds that
such a failure has been corrected. In exercising au-
thority under this subparagraph, the Secretary shall
determine whether the use of a risk-allocation mech-
anism, described in section 1101(c), would be more
consistent with the small employer group health cov-
erage market in the State than the guaranteed avail-
ability provisions of section 1101(b).
(2) APPLICATION OF CONSUMER PROTECTION
STANDARDS.—
(A) IN GENERAL.—Each State shall sub-
mit to the Secretary, by the deadline specified
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in subparagraph (B), a report on steps the
State is taking to implement and enforce the
MedAccess standards with respect to insurers,
and 
health 
insurance 
plans 
(other 
than
MedAccess plans) offered, not later than such
deadline.
(B) DEADLINE FOR REPORT.—
(i) 1 YEAR AFTER STANDARDS ESTAB-
LISHED.—Subject to clause (ii), the dead-
line under this subparagraph is 1 year
after the date the consumer protection
standards are established under subsection
(a).
(ii) EXCEPTION FOR LEGISLATION.—
In the case of a State which the Secretary
identifies, in consultation with the NAIC,
as—
(I) requiring State legislation
(other than legislation appropriating
funds) in order for insurers and
health insurance plans offered to meet
the consumer protection standards es-
tablished under subsection (a), but
(II) having a legislature which is
not scheduled to meet in 1994 in a
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legislative session in which such legis-
lation may be considered,
the date specified in this subparagraph is
the first day of the first calendar quarter
beginning after the close of the first legis-
lative session of the State legislature that
begins on or after January 1, 1996. For
purposes of the previous sentence, in the
case of a State that has a 2-year legislative
session, each year of such session shall be
deemed to be a separate regular session of
the State legislature.
(2) FEDERAL ROLE.—If the Secretary deter-
mines that a State has failed to submit a report by
the deadline specified under paragraph (1) or finds
that the State has not implemented and provided
adequate enforcement of the consumer protection
standards under such paragraph, the Secretary shall
notify the State and provide the State a period of
60 days in which to submit such report or to imple-
ment and enforce such standards under such para-
graph. If, after such 60-day period, the Secretary
finds that such a failure has not been corrected, the
Secretary shall provide for such mechanism for the
implementation and enforcement of such standards
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in the State as the Secretary determines to be ap-
propriate. Such implementation and enforcement
shall take effect with respect to insurers, and health
insurance plans (other than MedAccess plans) of-
fered or renewed, on or after 3 months after the
date of the Secretary’s finding under the previous
sentence, and until the date the Secretary finds that
such a failure has been corrected.
SEC. 1104. LIMITS ON PREMIUMS AND MISCELLANEOUS
CONSUMER PROTECTIONS.
(a) LIMITS ON PREMIUMS.—
(1) LIMIT ON VARIATION OF INDEX RATES BE-
TWEEN CLASSES OF BUSINESS.—
(A) IN GENERAL.—As a standard under
section 1103(a)(1)(B)(i), the index rate for a
rating period for any class of business of an in-
surer may not exceed by more than 20 percent
the index rate for any other class of business.
(B) EXCEPTION.—The limitation of sub-
paragraph (A) shall not apply to a class of busi-
ness if—
(i) the class is one for which the in-
surer does not reject, and never has re-
jected, small employers included within the
definition of employers eligible for the class
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of business or otherwise eligible employees
and dependents who enroll on a timely
basis, based upon their claim experience or
health status,
(ii) the insurer does not involuntarily
transfer, and never has involuntarily trans-
ferred, a health insurance plan into or out
of the class of business, and
(iii) the class of business is currently
available for purchase.
(2) LIMIT ON VARIATION OF PREMIUM RATES
WITHIN A CLASS OF BUSINESS.—For a class of busi-
ness of an insurer, as a standard under section
1103(a)(1)(B)(i), the highest premium rates charged
during a rating period to small employers with simi-
lar demographic and other similar objective charac-
teristics (and not relating to claims experience,
health status, industry, occupation, or duration of
coverage since issue) for the same or similar cov-
erage, or the highest rates which could be charged
to such employers under the rating system for that
class of business, shall not exceed an amount that is
1.5 times the base premium rate for the class of
business for a rating period (or portion thereof) that
occurs in the first 3 years in which this section is
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in effect, and 1.35 times the base premium rate
thereafter.
(3) OBJECTIVE
BASIS
FOR
DIFFERENCES
IN
PREMIUMS
FOR
STANDARD
AND
CATASTROPHIC
MEDACCESS
PLANS.—The difference between the
index rates for MedAccess catastrophic plans and
the index rates for MedAccess standard plans shall
be reasonable and shall reflect the difference in plan
design and shall not take into account differences
due to the nature of the groups assumed to select
particular health plans.
(4) LIMIT
ON
TRANSFER
OF
EMPLOYERS
AMONG
CLASSES
OF
BUSINESS.—As a standard
under section 1103(a)(1)(B)(i), an insurer may not
involuntarily transfer a small employer into or out of
a class of business. An insurer may not offer to
transfer a small employer into or out of a class of
business unless such offer is made to transfer all
small employers in the class of business without re-
gard to demographic characteristics, claim experi-
ence, health status, industry, occupation, or duration
since issue.
(5) DEFINITIONS.—In this subsection:
(A) BASE
PREMIUM
RATE.—The term
‘‘base premium rate’’ means, for each class of
•HR 3080 SC2
business for each rating period, the lowest pre-
mium rate charged or which could have been
charged under a rating system for that class of
business by the insurer to small employers with
similar demographic characteristics and other
similar objective characteristics (not relating to
claims experience, health status, industry, occu-
pation, or duration of coverage since issue) for
health insurance plans with the same or similar
coverage.
(B) CLASS
OF
BUSINESS.—The term
‘‘class of business’’ means, with respect to an
insurer, all (or a distinct group of) small em-
ployers as shown on the records of the insurer.
(C) RULES
FOR
ESTABLISHING
CLASSES
OF BUSINESS.—For purposes of subparagraph
(B)—
(i) an insurer may establish, subject
to clause (ii), a distinct group of small em-
ployers on the basis that the applicable
health insurance plans either—
(I) 
are 
marketed 
and 
sold
through individuals and organizations
which are not participating in the
marketing or sale of other distinct
•HR 3080 SC2
groups of small employers for the in-
surer,
(II) have been acquired from an-
other insurer as a distinct group, or
(III) are provided through an as-
sociation that has a membership of
not less than 100 small employers and
that has been formed for purposes
other than obtaining health coverage;
(ii) an insurer may not establish more
than 2 groupings under each class of busi-
ness based on the insurer’s use of man-
aged-care techniques if the techniques are
expected to produce substantial variation
in health care costs; and
(iii) notwithstanding clauses (i) and
(ii), a State commissioner of insurance,
upon application and if authorized under
State law, may approve additional distinct
groups upon a finding that such approval
would enhance the efficiency and fairness
of the small employer marketplace.
(D) INDEX RATE.—The term ‘‘index rate’’
means, with respect to a class of business, the
arithmetic average of the applicable base pre-
•HR 3080 SC2
mium rate and the corresponding highest pre-
mium rate for the class.
(E) DEMOGRAPHIC
CHARACTERISTICS.—
Except as otherwise permitted under the stand-
ard under section 1103(b)(1)(B)(i), the term
‘‘demographic characteristics’’ means age, gen-
der, geographic area, family composition, and
group size.
(b) FULL DISCLOSURE OF RATING PRACTICES.—At
the time an insurer offers a health insurance plan to a
small employer, the insurer shall fully disclose to the em-
ployer rating practices for health insurance plans, includ-
ing rating practices for different populations and benefit
designs.
(c) ACTUARIAL CERTIFICATION.—Each insurer that
offers a health insurance plan to a small employer in a
State shall file annually with the State commissioner of
insurance a written statement by a member of the Amer-
ican Academy of Actuaries (or other individual acceptable
to the commissioner) that, based upon an examination by
the individual which includes a review of the appropriate
records and of the actuarial assumptions of the insurer
and methods used by the insurer in establishing premium
rates for applicable health insurance plans—
•HR 3080 SC2
(1) the insurer is in compliance with the appli-
cable provisions of this section, and
(2) the rating methods are actuarially sound.
Each such insurer shall retain a copy of such statement
for examination at its principal place of business.
(d) REGISTRATION AND REPORTING.—Each insurer
that issues any health insurance plan to a small employer
in a State shall be registered or licensed with the State
commissioner of insurance and shall comply with any re-
porting requirements of the commissioner relating to such
a plan.
SEC. 1105. LIMITATION ON ANNUAL PREMIUM INCREASES.
An insurer may not provide for an increase in the
premium charged a small employer for a health insurance
plan in a percentage that exceeds the percentage change
in the premium charged under the plan for a newly cov-
ered small employer within the same class of business rate
plus 15 percentage points.
SEC. 1106. ESTABLISHMENT OF REINSURANCE OR ALLOCA-
TION OF RISK MECHANISMS FOR HIGH RISK
INDIVIDUALS IN MARKETPLACE FOR SMALL
BUSINESS.
(a) ESTABLISHMENT OF STANDARDS.—
(1) ROLE OF NAIC.—The Secretary shall re-
quest the NAIC to develop, within 9 months after
•HR 3080 SC2
the date of the enactment of this Act, models for re-
insurance or allocation of risk mechanisms (each in
this section referred to as a ‘‘reinsurance or alloca-
tion of risk mechanism’’) for health insurance plans
made available to small employers and for whom an
insurer is at risk of incurring high costs under the
plan. If the NAIC develops such models within such
period, the Secretary shall review such models to de-
termine if they provide for an effective reinsurance
or allocation of risk mechanism. Such review shall be
completed within 30 days after the date the models
are developed. Unless the Secretary determines with-
in such period that such a model is not an effective
reinsurance or allocation of risk mechanism, such re-
maining models shall serve as the models under this
section, with such amendments as the Secretary
deems necessary.
(2) CONTINGENCY.—If the NAIC does not de-
velop such models within such period or the Sec-
retary determines that all such models do not pro-
vide for an effective reinsurance or allocation of risk
mechanism, the Secretary shall specify, within 15
months after the date of the enactment of this Act,
models to carry out this section.
•HR 3080 SC2
(b) IMPLEMENTATION OF REINSURANCE OR ALLOCA-
TION OF RISK MECHANISMS.—
(1) BY
STATES.—Each State shall establish
and maintain one or more reinsurance or allocation
of risk mechanisms that are consistent with a model
established under subsection (a) by not later than
the deadline specified in section 1103(b)(1)(B). A
State may establish and maintain such a mechanism
jointly with one or more other States.
(2) FEDERAL ROLE.—
(A) IN GENERAL.—If the Secretary deter-
mines that a State has failed to establish or
maintain a reinsurance or allocation of risk
mechanism in accordance with paragraph (1),
the Secretary shall establish and maintain such
a reinsurance or allocation of risk mechanism
meeting the requirements of this paragraph.
(B) REINSURANCE
MECHANISM.—Unless
the Secretary determines under subparagraph
(C) that an allocation of risk mechanism is the
appropriate mechanism to use in a State under
this paragraph, the Secretary shall establish
and maintain for use under this section for
each State an appropriate reinsurance mecha-
nism.
•HR 3080 SC2
(C) ALLOCATION OF RISK MECHANISM.—If
the Secretary determines that, due to the na-
ture of the health coverage market in the State
(including a relatively small number of health
insurance plans offered or a relatively small
number of uninsurable small employers), an al-
location of risk mechanism would be a better
mechanism than a reinsurance mechanism, the
Secretary shall establish and maintain for use
under this section for a State an allocation of
risk mechanism under which uninsurable small
employers would be equitably assigned among
insurers offering health insurance plans to
small employers.
(D) FINANCING
DEFICIT
FOR
REINSUR-
ANCE MECHANISMS.—
(i) IN GENERAL.—Chapter 43 of the
Internal Revenue Code of 1986 (relating to
qualified pension plans, etc.) is amended
by adding at the end thereof the following
new section:
•HR 3080 SC2
‘‘SEC. 4980D. ADDITIONAL TAX TO FUND REINSURANCE IN
STATES UNDER FEDERAL REINSURANCE.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on the providing of any health insurance plan which
covers any employee in a Federal reinsurance State.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by sub-
section (a) shall be equal to the applicable percent-
age of the amount received by the insurer for provid-
ing such plan in such Federal reinsurance State.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the term ‘applicable percentage’
means, with respect to any State for any period, the
lowest percentage estimated by the Secretary as gen-
erating sufficient revenues to carry out section
1106(b)(2) of the Affordable Health Care Now Act
of 1993 in such State for such period.
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid by the insurer.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) INSURER.—The term ‘insurer’ has the
meaning given such term in section 1107(6) of the
Affordable Health Care Now Act of 1993.
‘‘(2) FEDERAL
REINSURANCE
STATE.—The
term ‘Federal reinsurance State’ means any State
with respect to which a determination is in effect
•HR 3080 SC2
under section 1106(b)(2) of the Affordable Health
Care Now Act of 1993 and for which the Secretary
of Health and Human Services has established and
is maintaining a reinsurance mechanism under sub-
paragraph (B) of such section for the State.’’
(ii) 
CLERICAL
AMENDMENT.—The
table of sections for chapter 43 of such
Code is amended by adding at the end
thereof the following new item:
‘‘Sec. 4980D. Additional tax to fund reinsurance in States under
Federal reinsurance.’’
(c) CONSTRUCTION.—Nothing in this section shall be
construed to prohibit reinsurance or allocation of risk ar-
rangements relating to health insurance plans, whether on
a State or multi-State basis, not required under this sec-
tion.
SEC. 1107. DEFINITIONS.
Except as otherwise specifically provided, for pur-
poses of this subtitle:
(1) DEPENDENT CHILD.—The term ‘‘dependent
child’’ means a child (including an adopted child)
who is under 19 years of age or who is a full-time
student and under 25 years of age.
(2) ELIGIBLE EMPLOYEE.—The term ‘‘eligible
employee’’ means, with respect to an employer, an
employee who normally performs on a monthly basis
•HR 3080 SC2
at least 30 hours of service per week for that em-
ployer.
(3) EMPLOYER.—The term ‘‘employer’’ shall
have the meaning applicable under section 3(5) of
the Employee Retirement Income Security Act of
1974.
(4) HEALTH INSURANCE PLAN.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
plan’’ means any hospital or medical service
policy or certificate, hospital or medical service
plan contract, or health maintenance organiza-
tion group contract offered by an insurer.
(B) EXCEPTION.—Such term does not in-
clude any of the following—
(i) coverage only for accident, dental,
vision, disability income, or long-term care
insurance, or any combination thereof,
(ii) medicare supplemental health in-
surance,
(iii) coverage issued as a supplement
to liability insurance,
(iv) worker’s compensation or similar
insurance, or
•HR 3080 SC2
(v) automobile medical-payment insur-
ance,
or any combination thereof.
(5) HEALTH
MAINTENANCE
ORGANIZATION.—
The term ‘‘health maintenance organization’’ in-
cludes, as defined in standards established under
section 1103, a health insurance plan that meets
specified standards and that offers to provide health
services on a prepaid, at-risk basis primarily through
a defined set of providers.
(6) INSURER.—The term ‘‘insurer’’ means a li-
censed insurance company, a prepaid hospital or
medical service plan, and a health maintenance orga-
nization offering such a plan to an employer, and in-
cludes a similar organization regulated under State
law for solvency.
(7) NAIC.—The term ‘‘NAIC’’ means the Na-
tional Association of Insurance Commissioners.
(8) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(9) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means, with respect to a calendar year, an
employer that normally employs more than 1 but
less than 51 eligible employees on a typical business
day. For the purposes of this paragraph, the term
•HR 3080 SC2
‘‘employee’’ includes a self-employed individual. For
purposes of determining if an employer is a small
employer, rules similar to the rules of subsection (b)
and (c) of section 414 of the Internal Revenue Code
of 1986 shall apply.
(10) STATE.—The term ‘‘State’’ means the 50
States, the District of Columbia, Puerto Rico, the
Virgin Islands, Guam, and American Samoa.
(11) STATE COMMISSIONER OF INSURANCE.—
The term ‘‘State commissioner of insurance’’ in-
cludes a State superintendent of insurance.
SEC. 1108. OFFICE OF PRIVATE HEALTH CARE COVERAGE;
ANNUAL 
REPORTS 
ON 
EVALUATION 
OF
HEALTH CARE COVERAGE REFORM.
(a) IN GENERAL.—In order to carry out the respon-
sibilities of the Secretary under this subtitle, the Secretary
shall establish an Office of Private Health Care Coverage,
to be headed by a Director (in this section and section
1109 referred to as the ‘‘Director’’) appointed by the Sec-
retary.
(b) ANNUAL REPORT.—
(1) IN GENERAL.—The Director shall submit to
Congress an annual report on the implementation of
this subtitle.
•HR 3080 SC2
(2) INFORMATION TO BE INCLUDED.—Each an-
nual report shall include information concerning at
least the following:
(A) Implementation and enforcement of
the 
applicable 
MedAccess 
standards 
and
consumer protection standards under this sub-
title by the States and by the Secretary.
(B) An evaluation of the impact of the re-
forms under this subtitle on the availability of
affordable health coverage for small employers
that purchase group health coverage and for
their employees, and, in particular, the impact
of—
(i) guaranteed availability of health
coverage,
(ii) limitations of restrictions from
coverage of preexisting conditions,
(iii) requirement for continuity of cov-
erage,
(iv) risk-management mechanisms for
health coverage,
(v) limits on premium variations,
(vi) limits on annual premium in-
creases, and
•HR 3080 SC2
(vii) preemption of State benefit man-
dates.
In performing such evaluation, the Secretary
shall seek to discount the effect of the insur-
ance cycle on health insurance premiums.
(C) An assessment of the implications of
the reforms on adverse selection among health
insurance plans and the distribution of risk
among health insurance plans.
(c) ADVISORY COMMITTEE.—The Secretary shall pro-
vide for appointment of an advisory committee to advise
the Director concerning activities of the Office under this
subtitle. Membership on the committee shall consist of 17
individuals and shall include individuals from the general
public, small and large business, labor, insurance and
other group health plans, and health care providers, and
shall include individuals who are experts in the fields of
the actuarial science, health economics, and health services
research. The Secretary may include, as additional, ex
officio members of the committee, such representatives of
government agencies as the Secretary deems appropriate.
The chairperson of the committee shall not be a health
care provider or receive any direct or indirect compensa-
tion from an insurer, health insurance plan, or a health
care provider.
•HR 3080 SC2
SEC. 1109. RESEARCH AND DEMONSTRATION PROJECTS;
DEVELOPMENT OF A HEALTH RISK POOLING
MODEL.
(a) RESEARCH AND DEMONSTRATIONS.—The Direc-
tor is authorized, directly, by contract, and through grants
and cooperative agreements within the Department of
Health and Human Services and outside the Depart-
ment—
(1) to conduct research on the impact of this
subtitle on the availability of affordable health cov-
erage for employees and dependents in the small em-
ployers group health care coverage market and other
topics described in section 1108(b), and
(2) to conduct demonstration projects relating
to such topics.
(b) DEVELOPMENT
OF METHODS
OF MEASURING
RELATIVE HEALTH RISK.—
(1) IN GENERAL.—The Director shall develop
methods for measuring, in terms of the expected
costs of providing benefits under health insurance
plans and, in particular, MedAccess plans, the rel-
ative health risks of eligible individuals.
(2) METHODOLOGY.—The methods—
(A) shall rely on diagnosis or other health-
related information that is predictive of individ-
ual health care needs,
•HR 3080 SC2
(B) may rely upon information routinely
collected in the process of making payments
under group health plans, and
(C) may provide for such random, sample
audits of records as may be necessary to verify
the accuracy of measurements.
(c) DEVELOPMENT OF A HEALTH RISK POOLING
MODEL.—
(1) IN GENERAL.—The Director shall develop a
model, based on the methods of measuring risks
under subsection (b), for equitably distributing
health risks among insurers in the small employer
health care coverage market.
(2) REDISTRIBUTION
OF
RISK.—Under such
model, insurers with below average health risks
would be required to contribute to a common fund
for payment to insurers with above average health
risks, each in relation to the degree of their favor-
able or adverse risk selection.
(3) INCENTIVES.—Such model shall include in-
centives to encourage continuous coverage of eligible
individuals and small employers.
(d) CONSULTATION.—The methods and model under
this section shall be developed in consultation with the
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NAIC and the advisory committee established under sec-
tion 1108(c).
(e) REPORT.—By not later than January 1, 1995,
the Director shall submit to Congress a report on the
methods and model developed under this section (as well
as on research and demonstration projects conducted
under subsection (a)). The Director shall include in the
report such recommendations respecting the application of
the model to insurers (and, in particular, to MedAccess
plans) under this subtitle as the Director deems appro-
priate.
(f) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated to carry out this section,
$5,000,000 in each of fiscal years 1994 through 1998.
Subtitle C—Preemption
PART 1—SCOPE OF STATE REGULATION
SEC. 1201. PROHIBITION OF STATE BENEFIT MANDATES
FOR GROUP HEALTH PLANS.
In the case of a group health plan, no provision of
State or local law shall apply that requires the coverage
of one or more specific benefits, services, or categories of
health care, or services of any class or type of provider
of health care.
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SEC. 1202. PROHIBITION OF PROVISIONS PROHIBITING EM-
PLOYER 
GROUPS 
FROM 
PURCHASING
HEALTH INSURANCE.
No provision of State or local law shall apply that
prohibits 2 or more employers from obtaining coverage
under an insured multiple employer health plan.
SEC. 1203. RESTRICTIONS ON MANAGED CARE.
(a) PREEMPTION OF STATE LAW PROVISIONS.—Sub-
ject to subsection (c), the following provisions of State law
are preempted and may not be enforced:
(1) RESTRICTIONS ON REIMBURSEMENT RATES
OR
SELECTIVE
CONTRACTING.—Any law that re-
stricts the ability of a group health plan to negotiate
reimbursement rates with providers or to contract
selectively with one provider or a limited number of
providers.
(2) RESTRICTIONS
ON
DIFFERENTIAL
FINAN-
CIAL INCENTIVES.—Any law that limits the financial
incentives that a group health plan may require a
beneficiary to pay when a non-plan provider is used
on a non-emergency basis.
(3) RESTRICTIONS
ON
UTILIZATION
REVIEW
METHODS.—Any law that—
(A) prohibits utilization review of any or
all treatments and conditions,
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(B) requires that such review be made (i)
by a resident of the State in which the treat-
ment is to be offered or by an individual li-
censed in such State, or (ii) by a physician in
any particular specialty or with any board cer-
tified specialty of the same medical specialty as
the provider whose services are being reviewed,
(C) requires the use of specified standards
of health care practice in such reviews or re-
quires the disclosure of the specific criteria used
in such reviews,
(D) requires payments to providers for the
expenses of responding to utilization review re-
quests, or
(E) imposes liability for delays in perform-
ing such review.
Nothing in subparagraph (B) shall be construed as
prohibiting a State from (i) requiring a licensed phy-
sician or other health care professional be available
at some time in the review or appeal process, or (ii)
requiring that any decision in an appeal from such
a review be made by a licensed physician.
(b) GAO STUDY.—
(1) IN
GENERAL.—The Comptroller General
shall conduct a study of the benefits and cost effec-
•HR 3080 SC2
tiveness of the use of managed care in the delivery
of health services.
(2) REPORT.—By not later than 4 years after
the date of the enactment of this Act, the Comptrol-
ler General shall submit a report to Congress on the
study conducted under paragraph (1) and shall in-
clude in the report such recommendations (including
whether the provisions of subsection (a) should be
extended) as may be appropriate.
(c) SUNSET.—Unless otherwise provided, subsection
(a) shall not apply 5 years after the date of the enactment
of this Act.
SEC. 1204. DEFINITIONS.
For purposes of this part, the terms ‘‘dependent’’,
‘‘employee’’, ‘‘employer’’, ‘‘group health plan’’, ‘‘health in-
surance plan’’, ‘‘insured multiple employer health plan’’,
and ‘‘State’’ have the meanings given such terms in sec-
tion 1023(a).
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PART 2—MULTIPLE EMPLOYER HEALTH
BENEFITS PROTECTIONS
SEC. 1211. LIMITED EXEMPTION UNDER PREEMPTION
RULES FOR MULTIPLE EMPLOYER PLANS
PROVIDING HEALTH BENEFITS SUBJECT TO
CERTAIN FEDERAL STANDARDS.
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding at the end the following new part:
‘‘Part 7—Multiple Employer Health Plans
‘‘SEC. 701. DEFINITIONS.
‘‘For purposes of this part—
‘‘(1) INSURER.—The term ‘insurer’ means an
insurance company, insurance service, or insurance
organization, licensed to engage in the business of
insurance by a State.
‘‘(2) PARTICIPATING
EMPLOYER.—The term
‘participating employer’ means, in connection with a
multiple employer welfare arrangement, any em-
ployer if any of its employees, or any of the depend-
ents of its employees, are or were covered under
such arrangement in connection with the employ-
ment of the employees.
‘‘(3) EXCESS/STOP LOSS COVERAGE.—The term
‘excess/stop loss coverage’ means, in connection with
a multiple employer welfare arrangement, a contract
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under which an insurer provides for payment with
respect to claims under the arrangement, relating to
participants or beneficiaries individually or other-
wise, in excess of an amount or amounts specified in
such contract.
‘‘(4) QUALIFIED
ACTUARY.—The term ‘quali-
fied actuary’ means an individual who is a member
of the American Academy of Actuaries or meets
such reasonable standards and qualifications as the
Secretary may provide by regulation.
‘‘(5) SPONSOR.—The term ‘sponsor’ means, in
connection with a multiple employer welfare arrange-
ment, the association or other entity which estab-
lishes or maintains the arrangement.
‘‘(6) STATE LOCATION OF COVERED INDIVID-
UALS.—
‘‘(A) IN GENERAL.—A multiple employer
welfare arrangement shall be treated as cover-
ing individuals located in a State only if the
minimum required number of individuals who
are covered under the arrangement are located
in such State, except that if the minimum re-
quired number of individuals are not located in
any State, such arrangement shall be treated as
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covering individuals in any State in which any
covered individual is located.
‘‘(B) MINIMUM REQUIRED NUMBER.—For
purposes of subparagraph (A), the minimum re-
quired number is the greater of—
‘‘(i) 5 percent of the total number of
individuals described in subparagraph (A),
or
‘‘(ii) 50.
‘‘(C) 
LOCATION
OF
INDIVIDUALS
IN
STATE.—For purposes of subparagraph (A), an
individual shall be treated as located in a State
if such individual is employed in such State or
the address of such individual last known by
the arrangement is located in such State.
‘‘(7) STATE INSURANCE COMMISSIONER.—The
term ‘State insurance commissioner’ means the in-
surance commissioner (or similar official) of a State.
‘‘(8) DOMICILE
STATE.—The term ‘domicile
State’ means, in connection with a multiple employer
welfare arrangement, the State in which, according
to the application for an exemption under this part,
most individuals to be covered under the arrange-
ment are located, except that, in any case in which
information contained in the latest annual report of
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the arrangement filed under this part indicates that
most individuals covered under the arrangement are
located in a different State, such term means such
different State.
‘‘(9) FULLY INSURED ARRANGEMENT.—A mul-
tiple employer welfare arrangement shall be treated
as fully insured only if one or more insurers, health
maintenance organizations, similar organizations
regulated under State law for solvency, or any com-
bination thereof are liable under one or more insur-
ance policies or contracts for all benefits under the
arrangement (irrespective of any recourse they may
have against other parties).
‘‘(10) MULTIPLE EMPLOYER HEALTH PLAN.—
The term ‘multiple employer health plan’ means a
multiple employer welfare arrangement treated as an
employee welfare benefit plan by reason of an
exemption under this part.
‘‘(11) INSURED MULTIPLE EMPLOYER HEALTH
PLAN.—The term ‘insured multiple employer health
plan’ means a fully insured multiple employer wel-
fare arrangement under which benefits consist solely
of medical care described in section 607(1) (dis-
regarding such incidental benefits as the Secretary
shall specify by regulations).
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‘‘(12) 
PREPAID
HEALTH
CARE
ARRANGE-
MENT.—The term ‘prepaid health care arrangement’
means a nonprofit entity which—
‘‘(A) offers benefits consisting of medical
care described in section 607(1) on a prepaid
basis, and
‘‘(B) is established and controlled by a
group medical practice or similar group, by a
hospital, or by such a practice (or group) and
a hospital.
‘‘SEC. 702. EXEMPTED MULTIPLE EMPLOYER PLANS PRO-
VIDING BENEFITS IN THE FORM OF MEDICAL
CARE RELIEVED OF CERTAIN RESTRICTIONS
ON PREEMPTION OF STATE LAW AND TREAT-
ED AS EMPLOYEE WELFARE BENEFIT PLANS.
‘‘(a) IN GENERAL.—Subject to subsection (b), a mul-
tiple employer welfare arrangement which is not fully in-
sured and with respect to which there is in effect an ex-
emption granted by the Secretary under this part (or with
respect to which there is pending a complete application
for such an exemption and the Secretary determines that
provisional protection under this part is appropriate)—
‘‘(1) shall be treated for purposes of subtitle A
and the preceding parts of this subtitle as an em-
ployee welfare benefit plan, irrespective of whether
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such arrangement is an employee welfare benefit
plan, and
‘‘(2) 
shall 
be 
exempt 
from 
section
514(b)(6)(A)(ii).
‘‘(b) BENEFITS
MUST
CONSIST
OF
MEDICAL
CARE.—Subsection (a) shall apply to a multiple employer
welfare arrangement only if the benefits provided there-
under consist solely of medical care described in section
607(1) (disregarding such incidental benefits as the
Secretary shall specify by regulation).
‘‘(c) RESTRICTION ON COMMENCEMENT OF NEW AR-
RANGEMENTS.—A multiple employer welfare arrangement
providing benefits which consist of medical care described
in section 607(1) which has not commenced operations as
of January 1, 1994, may commence operations only if an
exemption granted to the arrangement under this part is
in effect (or there is pending with respect to the arrange-
ment a complete application for such an exemption and
the Secretary determines that provisional protection under
this part is appropriate).
‘‘SEC. 703. EXEMPTION PROCEDURE.
‘‘(a) IN GENERAL.—The Secretary shall grant an ex-
emption described in section 702(a) to a multiple employer
welfare arrangement if—
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‘‘(1) an application for such exemption with re-
spect to such arrangement, identified individually or
by class, has been duly filed in complete form with
the Secretary in accordance with this part,
‘‘(2) such application demonstrates compliance
with the requirements of section 704 with respect to
such arrangement, and
‘‘(3) the Secretary finds that such exemption
is—
‘‘(A) administratively feasible,
‘‘(B) not adverse to the interests of the in-
dividuals covered under the arrangement, and
‘‘(C) protective of the rights and benefits
of the individuals covered under the arrange-
ment.
‘‘(b) NOTICE AND HEARING.—Before granting an ex-
emption under this section, the Secretary shall publish no-
tice in the Federal Register of the pendency of the exemp-
tion, shall require that adequate notice be given to inter-
ested persons, including the State insurance commissioner
of each State in which covered individuals under the ar-
rangement are, or are expected to be, located, and shall
afford interested persons opportunity to present views.
The Secretary may not grant an exemption under this sec-
tion unless the Secretary affords an opportunity for a
•HR 3080 SC2
hearing and makes a determination on the record with re-
spect to the findings required under subsection (a)(3). The
Secretary shall, to the maximum extent practicable, make
a final determination with respect to any application filed
under this section in the case of a newly established ar-
rangement within 90 days after the date which the Sec-
retary determines is the date on which such application
is filed in complete form.
‘‘SEC. 704. ELIGIBILITY REQUIREMENTS.
‘‘(a) APPLICATION FOR EXEMPTION.—
‘‘(1) IN
GENERAL.—An exemption may be
granted by the Secretary under this part only on the
basis of an application filed with the Secretary in
such form and manner as shall be prescribed in reg-
ulations of the Secretary. Any such application shall
be signed by the operating committee and the spon-
sor of the arrangement.
‘‘(2) FILING FEE.—The arrangement shall pay
to the Secretary at the time of filing an application
under this section a filing fee in the amount of
$5,000, which shall be available, to the extent pro-
vided in appropriation Acts, to the Secretary for the
sole purpose of administering the exemption proce-
dures under this part.
•HR 3080 SC2
‘‘(3) INFORMATION INCLUDED.—An application
filed under this section shall include, in a manner
and form prescribed in regulations of the Secretary,
at least the following information:
‘‘(A) IDENTIFYING
INFORMATION.—The
names and addresses of—
‘‘(i) the sponsor, and
‘‘(ii) the members of the operating
committee of the arrangement.
‘‘(B) STATES IN WHICH ARRANGEMENT IN-
TENDS TO DO BUSINESS.—The States in which
individuals covered under the arrangement are
to be located and the number of such individ-
uals expected to be located in each such State.
‘‘(C) BONDING REQUIREMENTS.—Evidence
provided by the operating committee that the
bonding requirements of section 412 will be met
as of the date of the application.
‘‘(D) PLAN DOCUMENTS.—A copy of the
documents governing the arrangement (includ-
ing any bylaws and trust agreements), the sum-
mary plan description, and other material de-
scribing the benefits and coverage that will be
provided to individuals covered under the ar-
rangement.
•HR 3080 SC2
‘‘(E) AGREEMENTS WITH SERVICE PROVID-
ERS.—A copy of any agreements between the
arrangement and contract administrators and
other service providers.
‘‘(F) FUNDING REPORT.—A report setting
forth information determined as of a date with-
in the 120-day period ending with the date of
the application, including the following:
‘‘(i) RESERVES.—A statement, cer-
tified by the operating committee of the ar-
rangement, and a statement of actuarial
opinion, signed by a qualified actuary, that
all applicable requirements of section 707
are or will be met in accordance with regu-
lations which the Secretary shall prescribe.
‘‘(ii) ADEQUACY
OF
CONTRIBUTION
RATES.—A statement of actuarial opinion,
signed by a qualified actuary, which sets
forth a description of the extent to which
contribution rates are adequate to provide
for the payment of all obligations and the
maintenance of required reserves under the
arrangement for the 12-month period be-
ginning with such date within such 120-
day period, taking into account the ex-
•HR 3080 SC2
pected coverage and experience of the ar-
rangement. If the contribution rates are
not fully adequate, the statement of actu-
arial opinion shall indicate the extent to
which the rates are inadequate and the
changes needed to ensure adequacy.
‘‘(iii) 
CURRENT
AND
PROJECTED
VALUE
OF
ASSETS
AND
LIABILITIES.—A
statement of actuarial opinion signed by a
qualified actuary, which sets forth the cur-
rent value of the assets and liabilities accu-
mulated under the arrangement and a pro-
jection of the assets, liabilities, income,
and expenses of the arrangement for the
12-month period referred to in clause (ii).
The income statement shall identify sepa-
rately the arrangement’s administrative ex-
penses and claims.
‘‘(iv) COSTS
OF
COVERAGE
TO
BE
CHARGED
AND
OTHER
EXPENSES.—A
statement of the costs of coverage to be
charged, 
including 
an 
itemization 
of
amounts for administration, reserves, and
other expenses associated with the oper-
ation of the arrangement.
•HR 3080 SC2
‘‘(v) 
OTHER
INFORMATION.—Any
other information which may be prescribed
in regulations of the Secretary as nec-
essary to carry out the purposes of this
part.
‘‘(b) OTHER REQUIREMENTS.—A complete applica-
tion for an exemption under this part shall include infor-
mation which the Secretary determines to be complete and
accurate and sufficient to demonstrate that the following
requirements are met with respect to the arrangement:
‘‘(1) SPONSOR.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the sponsor is, and has been
(together with its immediate predecessor, if
any) for a continuous period of not less than 3
years before the date of the application, orga-
nized and maintained in good faith, with a con-
stitution and bylaws specifically stating its pur-
pose, as a trade association, an industry asso-
ciation, a professional association, or a chamber
of commerce or other business group, for sub-
stantial purposes other than that of obtaining
or providing medical care described in section
607(1), and the applicant demonstrates to the
satisfaction of the Secretary that the sponsor is
•HR 3080 SC2
established as a permanent entity which re-
ceives the active support of its members.
‘‘(B) SPECIAL RULE FOR PREPAID HEALTH
CARE ARRANGEMENTS.—In the case of an ar-
rangement that is a prepaid health care ar-
rangement (as defined in section 701(12)), the
sponsor is the operating committee of the ar-
rangement.
‘‘(2) OPERATING COMMITTEE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the arrangement is operated,
pursuant to a trust agreement, by an operating
committee which has complete fiscal control
over the arrangement and which is responsible
for all operations of the arrangement, and the
operating committee has in effect rules of oper-
ation and financial controls, based on a 3-year
plan of operation, adequate to carry out the
terms of the arrangement and to meet all re-
quirements of this title applicable to the ar-
rangement. The members of the committee are
individuals selected from individuals who are
the owners, officers, directors, or employees of
the participating employers or who are partners
in the participating employers and actively par-
•HR 3080 SC2
ticipate in the business. No such member is an
owner, officer, director, or employee of, or part-
ner in, a contract administrator or other service
provider to the arrangement, except that offi-
cers or employees of a sponsor which is a serv-
ice provider (other than a contract adminis-
trator) to the arrangement may be members of
the committee if they constitute not more than
25 percent of the membership of the committee
and they do not provide services to the arrange-
ment other than on behalf of the sponsor. The
committee has sole authority to approve appli-
cations for participation in the arrangement
and to contract with a service provider to ad-
minister the day-to-day affairs of the arrange-
ment.
‘‘(B) SPECIAL RULE FOR PREPAID HEALTH
CARE ARRANGEMENTS.—In the case of an ar-
rangement that is a prepaid health care ar-
rangement (as defined in section 701(12)), the
operating committee is the board of the entity
that is the arrangement.
‘‘(3) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the arrange-
ment include a written instrument, meeting the re-
•HR 3080 SC2
quirements of an instrument required under section
1212(a)(1), which—
‘‘(A) provides that the committee serves as
the named fiduciary required for plans under
section 1212(a)(1) and serves in the capacity of
a plan administrator (referred to in section
3(16)(A)),
‘‘(B) provides that the sponsor is to serve
as plan sponsor (referred to in section
3(16)(B)),
‘‘(C) incorporates the requirements of sec-
tion 707, and
‘‘(D) provides that, effective upon the
granting of an exemption under this part—
‘‘(i) all participating employers must
be members or affiliated members of the
sponsor, except that, in the case of a spon-
sor which is a professional association or
other individual-based association, if at
least one of the officers, directors, or em-
ployees of an employer, or at least one of
the individuals who are partners in an em-
ployer and who actively participates in the
business, is a member or affiliated member
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of the sponsor, participating employers
may also include such employer, and
‘‘(ii) all individuals thereafter com-
mencing coverage under the arrangement
must be—
‘‘(I) active or retired owners, offi-
cers, directors, or employees of, or
partners in, participating employers,
or
‘‘(II) the beneficiaries of individ-
uals described in subclause (I).
‘‘(4) CONTRIBUTION RATES.—The contribution
rates referred to in subsection (a)(3)(F)(ii) are
adequate.
‘‘(5) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the Secretary may prescribe
by regulation as necessary to carry out the purposes
of this part.
‘‘(c) TREATMENT OF PARTY SEEKING EXEMPTION
WHERE PARTY IS SUBJECT TO DISQUALIFICATION.—
‘‘(1) IN GENERAL.—In the case of any applica-
tion for an exemption under this part with respect
to a multiple employer welfare arrangement, if the
Secretary determines that the sponsor of the ar-
rangement or any other person associated with the
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arrangement is subject to disqualification under
paragraph (2), the Secretary may deny the exemp-
tion with respect to such arrangement.
‘‘(2) DISQUALIFICATION.—A person is subject
to disqualification under this paragraph if such per-
son—
‘‘(A) has intentionally made a material
misstatement in the application for exemption;
‘‘(B) has obtained or attempted to obtain
an exemption under this part through misrepre-
sentation or fraud;
‘‘(C) has misappropriated or converted to
such person’s own use, or improperly withheld,
money held under a plan or any multiple
employer welfare arrangement;
‘‘(D) is prohibited (or would be prohibited
if the arrangement were a plan) from serving in
any capacity in connection with the arrange-
ment under section 411,
‘‘(E) has failed to appear without reason-
able cause or excuse in response to a subpoena,
examination, warrant, or any other order law-
fully issued by the Secretary compelling such
response,
•HR 3080 SC2
‘‘(F) has previously been subject to a de-
termination under this part resulting in the de-
nial, suspension, or revocation of an exemption
under this part on similar grounds, or
‘‘(G) has otherwise violated any provision
of this title with respect to a matter which the
Secretary determines of sufficient consequence
to merit disqualification for purposes of this
part.
‘‘(d) FRANCHISE NETWORKS.—In the case of a mul-
tiple employer welfare arrangement established and main-
tained by a franchisor for a franchise network consisting
of its franchisees, such franchisor shall be treated as the
sponsor referred to in the preceding provisions of this sec-
tion, such network shall be treated as an association re-
ferred to in such provisions, and each franchisee shall be
treated as a member (of the association and the sponsor)
referred to in such provisions, if all participating employ-
ers are such franchisees and the requirements of sub-
section (b)(1) with respect to a sponsor are met with
respect to the network.
‘‘(e) CERTAIN COLLECTIVELY BARGAINED ARRANGE-
MENTS.—In applying the preceding provisions of this sec-
tion in the case of a multiple employer welfare arrange-
ment which would be described in section 3(40)(A)(i) but
•HR 3080 SC2
for the failure to meet any requirement of section
3(40)(C)—
‘‘(1) paragraphs (1) and (2) of subsection (b)
and subparagraphs (A), (B), and (D) of paragraph
(3) of subsection (b) shall be disregarded, and
‘‘(2) the joint board of trustees shall be consid-
ered the operating committee of the arrangement.
‘‘(f) CERTAIN ARRANGEMENTS NOT MEETING SIN-
GLE EMPLOYER REQUIREMENT.—
‘‘(1) IN GENERAL.—In any case in which the
majority of the employees covered under a multiple
employer welfare arrangement are employees of a
single employer (within the meaning of clauses (i)
and (ii) of section 3(40)(B)), if all other employees
covered under the arrangement are employed by em-
ployers who are related to such single employer, sub-
section (b)(3)(D) shall be disregarded.
‘‘(2) RELATED EMPLOYERS.—For purposes of
paragraph (1), employers are ‘related’ if there is
among all such employers a common ownership in-
terest or a substantial commonality of business oper-
ations based on common suppliers or customers.
•HR 3080 SC2
‘‘SEC. 705. ADDITIONAL REQUIREMENTS APPLICABLE TO
EXEMPTED ARRANGEMENTS.
‘‘(a) NOTICE OF MATERIAL CHANGES.—In the case
of any multiple employer welfare arrangement with respect
to which there is in effect an exemption granted under
this part, descriptions of material changes in any informa-
tion which was required to be submitted with the applica-
tion for the exemption shall be filed in such form and man-
ner as shall be prescribed in regulations of the Secretary.
The Secretary may require by regulation prior notice of
material changes with respect to specified matters which
might serve as the basis for suspension or revocation of
the exemption.
‘‘(b) REPORTING REQUIREMENTS.—Under regula-
tions of the Secretary, the requirements of sections 102,
103, and 104 shall apply with respect to any multiple em-
ployer welfare arrangement with respect to which there is
or has been in effect an exemption granted under this part
in the same manner and to the same extent as such re-
quirements apply to employee welfare benefit plans, irre-
spective of whether such exemption continues in effect.
The annual report required under section 103 for any plan
year in the case of any such multiple employer welfare ar-
rangement shall also include information described in sec-
tion 704(a)(3)(F) with respect to the plan year and, not-
•HR 3080 SC2
withstanding section 104(a)(1)(A), shall be filed not later
than 90 days after the close of the plan year.
‘‘(c) ENGAGEMENT OF QUALIFIED ACTUARY.—The
operating committee of each multiple employer welfare ar-
rangement with respect to which there is or has been in
effect an exemption granted under this part shall engage,
on behalf of all covered individuals, a qualified actuary
who shall be responsible for the preparation of the mate-
rials comprising information necessary to be submitted by
a qualified actuary under this part. The qualified actuary
shall utilize such assumptions and techniques as are nec-
essary to enable such actuary to form an opinion as to
whether the contents of the matters reported under this
part—
‘‘(1) are in the aggregate reasonably related to
the experience of the arrangement and to reasonable
expectations, and
‘‘(2) represent such actuary’s best estimate of
anticipated experience under the arrangement.
The opinion by the qualified actuary shall be made with
respect to, and shall be made a part of, the annual report.
‘‘(d) 
FILING
NOTICE
OF
EXEMPTION
WITH
STATES.—An exemption granted to a multiple employer
welfare arrangement under this part shall not be effective
unless written notice of such exemption is filed with the
•HR 3080 SC2
State insurance commissioner of each State in which at
least 5 percent of the individuals covered under the ar-
rangement are located. For purposes of this paragraph,
an individual shall be considered to be located in the State
in which a known address of such individual is located or
in which such individual is employed. The Secretary may
by regulation provide in specified cases for the application
of the preceding sentence with lesser percentages in lieu
of such 5 percent amount.
‘‘SEC. 706. DISCLOSURE TO PARTICIPATING EMPLOYERS BY
ARRANGEMENTS PROVIDING MEDICAL CARE.
‘‘(a) IN GENERAL.—A multiple employer welfare ar-
rangement providing benefits consisting of medical care
described in section 607(1) shall issue to each participat-
ing employer—
‘‘(1) a document equivalent to the summary
plan description required of plans under part 1,
‘‘(2) information describing the contribution
rates applicable to participating employers, and
‘‘(3) a statement indicating—
‘‘(A) whether or not the arrangement is
fully insured,
‘‘(B) whether or not there is in effect with
respect to the arrangement an exemption grant-
ed under this part and, if there is in effect such
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an exemption, that the arrangement is (or is
treated as) an employee welfare benefit plan
under this title, and
‘‘(C) that the arrangement is not a li-
censed insurer under the laws of any State.
‘‘(b) TIME
FOR DISCLOSURE.—Such information
shall be issued to employers within such reasonable period
of time before becoming participating employers as may
be prescribed in regulations of the Secretary.
‘‘SEC. 707. MAINTENANCE OF RESERVES.
‘‘(a) IN GENERAL.—Each multiple employer welfare
arrangement with respect to which there is or has been
in effect an exemption granted under this part and which
is not fully insured shall establish and maintain reserves,
consisting of—
‘‘(1) a reserve for unearned contributions,
‘‘(2) a reserve for payment of claims reported
and not yet paid and claims incurred but not yet re-
ported, and for expected administrative costs with
respect to such claims, and
‘‘(3) a reserve, in an amount recommended by
the qualified actuary, for any other obligations of
the arrangement.
‘‘(b) MINIMUM AMOUNT FOR CERTAIN RESERVES.—
The total of the reserves described in subsection (a)(2)
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shall not be less than an amount equal to 25 percent of
expected incurred claims and expenses for the plan year.
‘‘(c) REQUIRED
MARGIN.—In determining the
amounts of reserves required under this section in connec-
tion with any multiple employer welfare arrangement, the
qualified actuary shall include a margin for error and
other fluctuations taking into account the specific
circumstances of such arrangement.
‘‘(d) ADDITIONAL REQUIREMENTS.—The Secretary
may provide such additional requirements relating to re-
serves and excess/stop loss coverage as the Secretary con-
siders appropriate. Such requirements may be provided,
by regulation or otherwise, with respect to any arrange-
ment or any class of arrangements.
‘‘(e) ADJUSTMENTS FOR EXCESS/STOP LOSS COV-
ERAGE.—The Secretary may provide for adjustments to
the levels of reserves otherwise required under subsections
(a) and (b) with respect to any arrangement or class of
arrangements to take into account excess/stop loss cov-
erage provided with respect to such arrangement or ar-
rangements.
‘‘(f) ALTERNATIVE MEANS OF COMPLIANCE.—The
Secretary may permit an arrangement (including a pre-
paid health care arrangement) to substitute, for all or part
of the reserves required under subsection (a), such secu-
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rity, guarantee, or other financial arrangement as the Sec-
retary determines to be adequate to enable the arrange-
ment to fully meet all its financial obligations on a timely
basis.
‘‘SEC. 708. CORRECTIVE ACTIONS.
‘‘(a) ACTIONS
TO
AVOID
DEPLETION
OF
RE-
SERVES.—A multiple employer welfare arrangement with
respect to which there is or has been in effect an exemp-
tion granted under this part shall continue to meet the
requirements of section 707, irrespective of whether such
exemption continues in effect. The operating committee of
such arrangement shall determine semiannually whether
the requirements of section 707 are met. In any case in
which the committee determines that there is reason to
believe that there is or will be a failure to meet such re-
quirements, or the Secretary makes such a determination
and so notifies the committee, the committee shall imme-
diately notify the qualified actuary engaged by the ar-
rangement, and such actuary shall, not later than the end
of the next following month, make such recommendations
to the committee for corrective action as the actuary deter-
mines necessary to ensure compliance with section 707.
Not later than 10 days after receiving from the actuary
recommendations for corrective actions, the committee
shall notify the Secretary (in such form and manner as
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the Secretary may prescribe by regulation) of such rec-
ommendations of the actuary for corrective action, to-
gether with a description of the actions (if any) that the
committee has taken or plans to take in response to such
recommendations. The committee shall thereafter report
to the Secretary, in such form and frequency as the Sec-
retary may specify to the committee, regarding corrective
action taken by the committee until the requirements of
section 707 are met.
‘‘(b) TERMINATION.—
‘‘(1) NOTICE OF TERMINATION.—In any case in
which the operating committee of a multiple em-
ployer welfare arrangement with respect to which
there is or has been in effect an exemption granted
under this part determines that there is reason to
believe that the arrangement will terminate, the
committee shall so inform the Secretary, shall de-
velop a plan for winding up the affairs of the ar-
rangement in connection with such termination in a
manner which will result in timely payment of all
benefits for which the arrangement is obligated, and
shall submit such plan in writing to the Secretary.
Actions required under this paragraph shall be taken
in such form and manner as may be prescribed in
regulations of the Secretary.
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‘‘(2) ACTIONS REQUIRED IN CONNECTION WITH
TERMINATION.—In any case in which—
‘‘(A) the Secretary has been notified under
subsection (a) of a failure of a multiple em-
ployer welfare arrangement with respect to
which there is or has been in effect an exemp-
tion granted under this part to meet the re-
quirements of section 707 and has not been no-
tified by the operating committee of the ar-
rangement that corrective action has restored
compliance with such requirements, and
‘‘(B) the Secretary determines that the
continuing failure to meet the requirements of
section 707 can be reasonably expected to result
in a continuing failure to pay benefits for which
the arrangement is obligated,
the operating committee of the arrangement shall, at
the direction of the Secretary, terminate the ar-
rangement and, in the course of the termination,
take such actions as the Secretary may require as
necessary to ensure that the affairs of the arrange-
ment will be, to the maximum extent possible, wound
up in a manner which will result in timely payment
of all benefits for which the arrangement is
obligated.
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‘‘SEC. 709. EXPIRATION, SUSPENSION, OR REVOCATION OF
EXEMPTION.
‘‘(a) EXPIRATION AND RENEWAL OF EXEMPTION.—
An exemption granted to a multiple employer welfare ar-
rangement under this part shall expire 3 years after the
date on which the exemption is granted. An exemption
which has expired may be renewed by means of application
for an exemption in accordance with section 704.
‘‘(b) SUSPENSION OR REVOCATION OF EXEMPTION
BY SECRETARY.—The Secretary may suspend or revoke
an exemption granted to a multiple employer welfare
arrangement under this part—
‘‘(1) for any cause that may serve as the basis
for the denial of an initial application for such an
exemption under section 704, or
‘‘(2) if the Secretary finds that—
‘‘(A) the arrangement, or the sponsor
thereof, in the transaction of business while
under the exemption, has used fraudulent, coer-
cive, or dishonest practices, or has dem-
onstrated incompetence, untrustworthiness, or
financial irresponsibility,
‘‘(B) the arrangement, or the sponsor
thereof, is using such methods or practices in
the conduct of its operations, so as to render its
further transaction of operations hazardous or
•HR 3080 SC2
injurious to participating employers, or covered
individuals,
‘‘(C) the arrangement, or the sponsor
thereof, has refused to be examined in accord-
ance with this part or to produce its accounts,
records, and files for examination in accordance
with this part, or
‘‘(D) any of the officers of the arrange-
ment, or the sponsor thereof, has refused to
give information with respect to the affairs of
the arrangement or the sponsor or to perform
any other legal obligation relating to such an
examination when required by the Secretary in
accordance with this part.
Any such suspension or revocation under this subsection
shall be effective only upon a final decision of the Sec-
retary made after notice and opportunity for a hearing
is provided in accordance with section 710.
‘‘(c) SUSPENSION OR REVOCATION OF EXEMPTION
UNDER COURT PROCEEDINGS.—An exemption granted to
a multiple employer welfare arrangement under this part
may be suspended or revoked by a court of competent ju-
risdiction in an action by the Secretary brought under
paragraph (2), (5), or (6) of section 502(a), except that
the suspension or revocation under this subsection shall
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be effective only upon notification of the Secretary of such
suspension or revocation.
‘‘(d) NOTIFICATION
OF PARTICIPATING EMPLOY-
ERS.—All participating employers in a multiple employer
welfare arrangement shall be notified of the expiration,
suspension, or revocation of an exemption granted to such
arrangement under this part, by such persons and in such
form and manner as shall be prescribed in regulations of
the Secretary, not later than 20 days after such expiration
or after receipt of notice of a final decision requiring such
suspension or revocation.
‘‘(e) PUBLICATION OF EXPIRATIONS, SUSPENSIONS,
AND REVOCATIONS.—The Secretary shall publish all expi-
rations of, and all final decisions to suspend or revoke,
exemptions granted under this part.
‘‘SEC. 710. REVIEW OF ACTIONS OF THE SECRETARY.
‘‘(a) IN GENERAL.—Any decision by the Secretary
which involves the denial of an application by a multiple
employer welfare arrangement for an exemption under this
part or the suspension or revocation of such an exemption
shall contain a statement of the specific reason or reasons
supporting the Secretary’s action, including reference to
the specific terms of the exemption and the statutory pro-
vision or provisions relevant to the determination.
•HR 3080 SC2
‘‘(b) DENIALS OF APPLICATIONS.—In the case of the
denial of an application for an exemption under this part,
the Secretary shall send a copy of the decision to the appli-
cant by certified or registered mail at the address specified
in the records of the Secretary. Such decision shall con-
stitute the final decision of the Secretary unless the ar-
rangement, or any party that would be prejudiced by the
decision, files a written appeal of the denial within 30 days
after the mailing of such decision. The Secretary may af-
firm, modify, or reverse the initial decision. The decision
on appeal shall become final upon the mailing of a copy
by certified or registered mail to the arrangement or party
that filed the appeal.
‘‘(c) SUSPENSIONS
OR REVOCATIONS
OF EXEMP-
TION.—In the case of the suspension or revocation of an
exemption granted under this part, the Secretary shall
send a copy of the decision to the arrangement by certified
or registered mail at its address, as specified in the
records of the Secretary. Upon the request of the arrange-
ment, or any party that would be prejudiced by the sus-
pension or revocation, filed within 15 days of the mailing
of the Secretary’s decision, the Secretary shall schedule
a hearing on such decision by written notice, sent by cer-
tified or registered mail to the arrangement or party
requesting such hearing. Such notice shall set forth—
•HR 3080 SC2
‘‘(1) a specific date and time for the hearing,
which shall be within the 10-day period commencing
20 days after the date of the mailing of the notice,
and
‘‘(2) a specific place for the hearing, which shall
be in the District of Columbia or in the State and
county thereof (or parish or other similar political
subdivision thereof) in which is located the arrange-
ment’s principal place of business.
The decision as affirmed or modified in such hearing shall
constitute the final decision of the Secretary, unless such
decision is reversed in such hearing.’’.
(b) CONFORMING AMENDMENT TO DEFINITION OF
PLAN SPONSOR.—Section 3(16)(B) of such Act (29
U.S.C. 1002(16)(B)) is amended by adding at the end the
following new sentence: ‘‘Such term also includes the spon-
sor (as defined in section 701(5)) of a multiple employer
welfare arrangement, or a multiple employer health plan
(as defined in section 701(10)), with respect to which
there is or has been in effect an exemption granted under
part 7.’’.
(c) ALTERNATIVE MEANS
OF DISTRIBUTION
OF
SUMMARY PLAN DESCRIPTIONS.—Section 110 of such
Act (29 U.S.C. 1030) is amended by adding at the end
the following new subsection: