I
104TH CONGRESS
1ST SESSION
H. R. 1234
To amend the Internal Revenue Code of 1986 to provide for reform of
the health insurance market, to promote the availability and continuity
of health coverage, to remove financial barriers to access, to enhance
health care quality, to contain costs through market incentives and ad-
ministrative reforms, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 14, 1995
Mr. THOMAS (for himself, Mrs. JOHNSON of Connecticut, Mr. MCCRERY, Mr.
ENSIGN, Mr. CRANE, Mr. HOUGHTON, Mr. CASTLE, Mr. HOBSON, Mr.
RIGGS, 
Mr. 
HORN, 
Mr. 
CLINGER, 
Mr. 
GREENWOOD, 
Mr.
FRELINGHUYSEN, Mr. LAZIO of New York, Mr. BLUTE, Mr. LONGLEY,
Mr. EHLERS, Ms. PRYCE, Mr. BASS, Mr. PORTMAN, Mr. KOLBE, Mrs.
FOWLER, Mr. SHAYS, Mr. GOSS, Mr. ENGLISH of Pennsylvania, Mr. CAL-
VERT, Mr. GUTKNECHT, and Mr. PACKARD) introduced the following bill;
which was referred to the Committee on Ways and Means, and in addi-
tion to the Committees on Commerce, Economic and Educational Oppor-
tunities, and the Judiciary, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to provide
for reform of the health insurance market, to promote
the availability and continuity of health coverage, to re-
move financial barriers to access, to enhance health care
quality, to contain costs through market incentives and
administrative reforms, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Basic Health Care Reform Act of 1995’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—ASSURING AVAILABILITY AND CONTINUITY OF HEALTH
COVERAGE
Subtitle A—Insurance Reform
PART 1—ACCESS TO HEALTH COVERAGE
Sec. 1001. Guaranteed offer by carriers.
Sec. 1002. Guaranteed issue by carriers.
Sec. 1003. Guaranteed renewal.
Sec. 1004. Restricting preexisting condition exclusions.
Sec. 1005. Enrollment periods.
PART 2—PROVISION OF BENEFITS
Sec. 1011. General coverage requirements.
Sec. 1012. Standards for managed care arrangements.
Sec. 1013. Utilization review.
Sec. 1014. Medical savings accounts.
PART 3—FAIR RATING PRACTICES
Sec. 1021. Use of fair rating practices.
Sec. 1022. Establishment of risk adjustment mechanisms.
PART 4—CONSUMER PROTECTIONS
Sec. 1031. Requirement for provision of information.
Sec. 1032. Prohibition of improper incentives.
Sec. 1033. Written policies and procedures respecting advance directives.
PART 5—STANDARDS AND CERTIFICATION; ENFORCEMENT; PREEMPTION;
GENERAL PROVISIONS
Sec. 1041. Establishment of standards.
Sec. 1042. Application of standards to carriers through States.
Sec. 1043. Application to group health plans.
Sec. 1044. Enforcement.
Sec. 1045. Limitation on self insurance for certain employer plans.
PART 6—MARKETPLACE FOR INDIVIDUALS
Sec. 1051. Application of similar requirements.
Subtitle B—Facilitating Establishment of Health Plan Choice Organizations
(HPCOs)
Sec. 1101. Establishment and organization.
Sec. 1102. Agreements to offer qualified health coverage.
Sec. 1103. Provision of information.
Sec. 1104. Enrolling qualifying employees and qualifying individuals for quali-
fied health coverage through a choice organization.
Sec. 1105. Restriction on charges.
Subtitle C—Preemption of State Benefit Mandates and Anti-Managed Care
Laws
Sec. 1201. Preemption from State benefit mandates.
Sec. 1202. Preemption of State law restrictions on managed care arrangements.
Sec. 1203. Preemption of State laws restricting utilization review programs.
Sec. 1204. Preemption relating to different insurance standards.
Subtitle D—Definitions; General Provisions
Sec. 1901. General definitions.
Sec. 1902. Definitions relating to employment.
Sec. 1903. Definitions relating to health coverage, plans, and carriers.
Sec. 1904. Definitions relating to residence and immigration status.
Sec. 1905. Effective dates.
TITLE II—ADMINISTRATIVE SIMPLIFICATION
Sec. 2000. Purpose.
Sec. 2001. Definitions.
Subtitle A—Standards for Data Elements and Transactions
Sec. 2101. General requirements on Secretary.
Sec. 2102. Standards for data elements of health information.
Sec. 2103. Information transaction standards.
Sec. 2104. Health information network privacy standards.
Sec. 2105. Timetables for adoption of standards.
Subtitle B—Requirements with Respect to Certain Transactions and
Information
Sec. 2201. Standard transactions and information.
Sec. 2202. Accessing health information for authorized purposes.
Sec. 2203. Ensuring availability of information.
Sec. 2304. Timetables for compliance with requirements.
Subtitle C—Miscellaneous Provisions
Sec. 2301. Standards and certification for health information network services.
Sec. 2302. Imposition of additional requirements.
Sec. 2303. Effect on State law.
TITLE III—FRAUD AND ABUSE REFORM: ADVISORY OPINIONS
Sec. 3001. Authorizing the Secretary of Health and Human Services to issue
advisory opinions under title XI.
Title I, Subtitle A
Sec. 3002. Authorizing the Secretary of Health and Human Services to issue
advisory opinions relating to physician ownership and referral.
Sec. 3003. Effective date.
TITLE IV—MALPRACTICE REFORM AND ANTITRUST
Subtitle A—Malpractice Reform
PART 1—UNIFORM STANDARDS FOR MALPRACTICE CLAIMS
Sec. 4001. Applicability.
Sec. 4002. Requirement for initial resolution of action through alternative dis-
pute resolution.
Sec. 4003. Optional application of practice guidelines.
Sec. 4004. Treatment of noneconomic and punitive damages.
Sec. 4005. Periodic payments for future losses.
Sec. 4006. Treatment of attorney’s fees and other costs.
Sec. 4007. Uniform statute of limitations.
Sec. 4008. Special provision for certain obstetric services.
Sec. 4009. Jurisdiction of Federal courts.
Sec. 4010. Preemption.
PART 2—REQUIREMENTS FOR STATE ALTERNATIVE DISPUTE RESOLUTION
SYSTEMS (ADR)
Sec. 4021. Basic requirements.
Sec. 4022. Certification of State systems; applicability of alternative Federal
system.
Sec. 4023. Reports on implementation and effectiveness of alternative dispute
resolution systems.
PART 3—DEFINITIONS
Sec. 4031. Definitions.
Subtitle B—Antitrust
Sec. 4101. Publication of antitrust guidelines on activities of health plans.
Sec. 4102. Issuance of health care certificates of public advantage.
TITLE I—ASSURING AVAILABIL-
ITY 
AND 
CONTINUITY 
OF
HEALTH COVERAGE
Subtitle A—Insurance Reform
PART 1—ACCESS TO HEALTH COVERAGE
SEC. 1001. GUARANTEED OFFER BY CARRIERS.
(a) IN GENERAL.—Each carrier that offers health in-
surance coverage in the small group market in a fair rat-
Title I, Subtitle A
ing area (as defined in section 1903) shall make available,
to each small employer (covered in such market) in such
fair rating area—
(1) qualified standard coverage consistent with
section 1011(a), and
(2) subject to subsection (b), qualified high-de-
ductible coverage consistent with section 1011(b).
(b) HIGH-DEDUCTIBLE COVERAGE.—
(1) EXCEPTION
FOR
HEALTH
MAINTENANCE
ORGANIZATIONS.—The requirement of subsection
(a)(2) shall not apply with respect to health insur-
ance coverage that—
(A) is provided by a Federally qualified
health maintenance organization (as defined in
section 1301(a) of the Public Health Service
Act), or
(B) is not provided by such an organiza-
tion but is provided by an organization recog-
nized under State law as a health maintenance
organization or managed care organization or a
similar organization regulated under State law
for solvency.
(2) LIMITATION ON OFFER OF HIGH-DEDUCT-
IBLE COVERAGE.—Qualified high-deductible coverage
may not be made available by a carrier to a small
Title I, Subtitle A
employer with respect to an employee unless the car-
rier also makes available qualified standard coverage
that has identical benefits (other than the amount of
the deductible) and the employee demonstrates to
the carrier that the employee has available assets (as
defined by the Secretary) equal to at least the de-
ductible 
amount 
established 
under 
section
1011(b)(2) applicable to the high-deductible cov-
erage. A carrier may not make available to an em-
ployee health coverage (other than coverage for sup-
plemental benefits) the actuarial value of which is
less than the actuarial value of qualified high-de-
ductible coverage, unless the employee has available
assets (as defined by the Secretary) equal to at least
the deductible amount of the coverage offered.
(3) OPTION TO OFFER MEDISAVE COVERAGE.—
The offer of high-deductible coverage under sub-
section (a)(2) may be accompanied by the contribu-
tion by an employer to a medical savings account (in
accordance with section 7705 of the Internal Reve-
nue Code of 1986).
(c) COVERAGE OF ENTIRE RATING AREA.—
(1) IN GENERAL.—With respect to each fair
rating area for which a carrier offers health insur-
ance coverage, the carrier shall provide for coverage
Title I, Subtitle A
of benefits for items and services furnished through-
out the fair rating area.
(2) SPECIAL
RULE
FOR
CARRIERS
OFFERING
COVERAGE IN MULTI-STATE METROPOLITAN STATIS-
TICAL AREAS.—In the case of a carrier that offers
qualified health insurance coverage in the small em-
ployer market in a portion of a State that is located
in an interstate metropolitan statistical area, the
carrier may not provide such coverage with respect
to an employer in such metropolitan statistical area
unless the carrier also offers such coverage in other
portions of the area located in other States.
(3) SPECIAL RULE FOR COVERAGE THROUGH
MANAGED CARE ARRANGEMENT.—In the case of cov-
erage offered by a carrier or under a group health
plan to the extent that it provides benefits through
a managed care arrangement in a fair rating area,
this subsection shall not be construed as requiring
the establishment of facilities throughout the area, if
the facilities are located consistent with section
1002(b)(1).
(d) FAMILY COVERAGE OPTION.—The offer of cov-
erage under this section with respect to an employee shall
include the option of coverage of family members of the
employee.
Title I, Subtitle A
(e) LIMITATION ON CARRIERS.—A carrier may not
require an employer under a group health plan to impose
through a waiting period for health coverage under a plan
or similarly require a limitation or condition on health cov-
erage or benefits based on—
(1) the health status of an individual,
(2) claims experience of an individual,
(3) receipt of health care by an individual,
(4) medical history of an individual, or
(5) receipt of public subsidies by an individual.
SEC. 1002. GUARANTEED ISSUE BY CARRIERS.
(a) IN GENERAL.—Subject to subsections (b) and (c)
and section 1003, each carrier that offers health insurance
coverage in the small group market in a fair rating area—
(1) must accept every small employer in the
area that applies for such coverage during an enroll-
ment period provided under section 1005; and
(2) must accept for enrollment under such cov-
erage every qualifying individual (and family mem-
ber of such an individual) who applies for enrollment
during an enrollment period provided under section
1005 and may not place any restriction on the eligi-
bility of an individual to enroll so long as such indi-
vidual is a qualifying individual.
Title I, Subtitle A
(b) SPECIAL RULES FOR MANAGED CARE ARRANGE-
MENTS.—In the case of coverage offered by a carrier or
under a group health plan that provides benefits through
a managed care arrangement in a fair rating area, the
carrier or plan—
(1) need not establish facilities for the delivery
of health care services throughout the area so long
as such facilities are located in a manner that does
not discriminate on the basis of health status of in-
dividuals residing in proximity to such facilities, and
(2) may deny such coverage in a fair rating
area to employers if the organization demonstrates
to the applicable regulatory authority that—
(A) it will not have the capacity to deliver
services adequately to enrollees of any addi-
tional groups or additional enrollees because of
its obligations to existing group contract hold-
ers and enrollees, and
(B) it is applying this paragraph uniformly
to all employers without regard to the health
status, claims experience, or duration of cov-
erage of those employers and their employees.
Coverage may be denied under paragraph (2) only if the
denial is applied during a consecutive period of at least
180 days.
Title I, Subtitle A
(c) SPECIAL RULE FOR FINANCIAL CAPACITY LIM-
ITS.—In addition to the authority provided under sub-
section (b)(2), in the case of coverage offered by any car-
rier, the carrier may deny coverage to a small employer
if the carrier demonstrates to the applicable regulatory au-
thority that—
(1) it does not have the financial reserves nec-
essary to underwrite additional coverage, and
(2) it is applying this subsection uniformly to
all employers without regard to the health status,
claims experience, or duration of coverage of those
employers and their employees.
Coverage may be denied under this subsection only if the
denial is applied during a consecutive period of at least
180 days.
SEC. 1003. GUARANTEED RENEWAL.
(a) LIMITATION ON TERMINATION BY CARRIERS.—
A carrier may not deny, cancel, or refuse to renew health
coverage of an eligible employer within a type of coverage
option described in section 1903(15) except—
(1) on the basis of nonpayment of premiums,
(2) on the basis of fraud or misrepresentation,
or
(3) subject to subsection (b), in a fair rating
area because the carrier is ceasing to provide any
Title I, Subtitle A
health insurance coverage in the small group market
within such type of coverage option in the area.
(b) LIMITATIONS ON MARKET EXIT BY CARRIERS.—
(1) NOTICE, ETC.—Subsection (a)(3) shall not
apply to a carrier ceasing to provide health insur-
ance coverage unless—
(A) such termination of coverage takes ef-
fect at the end of a contract year, and
(B) the carrier provides notice of such ter-
mination to employers and individuals covered
at least 30 days before the date of an annual
open enrollment period established with respect
to the employer or individual under section
1005.
(2) LIMITATION ON REENTRY IN SMALL GROUP
MARKET.—If a carrier ceases to offer or provide
health insurance coverage in an area with respect to
the small group market for a type of coverage op-
tion, the insurer may not offer health insurance cov-
erage in the area in such market within such type
of coverage option until 5 years after the date of the
termination.
(c) RULE FOR MULTIEMPLOYER PLANS.—A multi-
employer plan may not cancel coverage or deny renewal
Title I, Subtitle A
of coverage under such a plan or arrangement with respect
to an employer other than—
(1) for nonpayment of contributions,
(2) for fraud or other misrepresentation by the
employer, or
(3) because the plan is ceasing to provide any
coverage in a geographic area.
SEC. 1004. RESTRICTING PREEXISTING CONDITION EXCLU-
SIONS.
(a) IN GENERAL.—Except as provided in this section,
a carrier or group health plan providing health coverage
may not exclude health coverage with respect to services
related to treatment of a condition based on the fact that
the condition of an individual existed before the effective
date of coverage of the individual.
(b) LIMITED 12-MONTH EXCLUSION PERMITTED.—
(1) IN
GENERAL.—Subject to paragraph (2)
and subsections (c) through (e), a carrier or group
health plan providing health coverage may exclude
health coverage with respect to services related to
treatment of a condition of an individual based on
the fact that the condition existed before the effec-
tive date of coverage of the individual only if the pe-
riod of the exclusion does not exceed 12 months be-
ginning on the date of coverage.
Title I, Subtitle A
(2) CREDITING OF PREVIOUS COVERAGE.—
(A) IN
GENERAL.—A carrier or group
health plan providing health coverage shall pro-
vide that if a covered individual is in a period
of continuous coverage (as defined in subpara-
graph (C)) as of a date upon which coverage is
initiated or reinitiated, any period of exclusion
of coverage with respect to a preexisting condi-
tion (as defined in subparagraph (B)) for such
services or type of services shall be reduced by
1 month for each month in the period of contin-
uous coverage.
(B) PREEXISTING CONDITION DEFINED.—
In this paragraph, the term ‘‘preexisting condi-
tion’’ means, with respect to health coverage, a
condition which has been diagnosed or treated
during the 6-month period ending on the day
before the first date of such coverage (without
regard to any waiting period).
(C) PERIOD OF CONTINUOUS COVERAGE.—
In this part, the term ‘‘period of continuous
coverage’’ means the period beginning on the
date an individual has health coverage (or cov-
erage under a public plan providing medical
benefits) and ends on the date the individual
Title I, Subtitle A
does not have such coverage for a continuous
period of more than 3 months (or 6 months in
the case of an individual who loses coverage due
to involuntary termination of employment, other
than by reason of an employee’s gross mis-
conduct).
(c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—
Any exclusion of coverage under subsection (b)(1) shall
not apply if the exclusion relates to pregnancy.
(d) EXCLUSION NOT APPLICABLE TO NEWBORNS
AND ADOPTED CHILDREN.—
(1) NEWBORNS.—Any exclusion of coverage
under subsection (b)(1) shall not apply to a child
who is covered at the time of birth and remains in
a period of continuous coverage after such time.
(2) ADOPTED
CHILDREN.—Any exclusion of
coverage under subsection (b)(1) shall not apply (be-
ginning on the date of adoption) to an adopted child
who is covered at the time of adoption and remains
in a period of continuous coverage after such time.
(e) EXCLUSION NOT APPLICABLE TO INDIVIDUALS
ENROLLED OR ENROLLING DURING CERTAIN OPEN EN-
ROLLMENT PERIODS.—
(1) INDIVIDUALS
ENROLLING
DURING
PE-
RIOD.—In the case of an individual who enrolls and
Title I, Subtitle A
obtains coverage during an open enrollment period
described in section 1005(b), any exclusion of cov-
erage under subsection (b)(1) shall not apply so long
as the individual remains in a period of continuous
coverage.
(2) INDIVIDUALS ENROLLED AT BEGINNING OF
PERIOD.—In the case of an individual who has
health coverage as of the first day of the initial open
enrollment period described in section 1005(b)(1),
any exclusion of coverage under subsection (b)(1)
shall not apply as of such date and so long as the
individual is in a period of continuous coverage.
(f) APPLICATION OF RULES BY CERTAIN HEALTH
MAINTENANCE ORGANIZATIONS.—A health maintenance
organization that provides health insurance coverage shall
not be considered as failing to meet the requirements of
section 1301 of the Public Health Service Act notwith-
standing that it provides for an exclusion of the coverage
based on a preexisting condition consistent with the provi-
sions of this part so long as such exclusion is applied con-
sistent with the provisions of this part.
SEC. 1005. ENROLLMENT PERIODS.
(a) IN GENERAL.—Each carrier and each group
health plan providing health coverage (and each health
plan choice organization under subtitle B) in the small
Title I, Subtitle A
group market shall permit qualifying individuals and eligi-
ble employers to obtain health coverage from the carrier
or group health plan during each enrollment period pro-
vided under this section.
(b) OPEN ENROLLMENT PERIODS FOR WHICH PRE-
EXISTING CONDITION EXCLUSIONS WAIVED.—
(1) INITIAL PERIOD.—There shall be an initial
open enrollment period, with respect to individuals
and employees who are residents of a State, during
the 60-day period beginning on January 1, 1997.
(2) ENROLLMENT OF NEWBORNS AND NEWLY
ADOPTED CHILDREN.—There shall be an open en-
rollment period with respect to a newborn child and
a newly adopted child during the 30-day period be-
ginning on the date of the birth or adoption of a
child, if family coverage is available as of such date.
(c) ANNUAL OPEN ENROLLMENT PERIODS
FOR
WHICH
PREEXISTING
CONDITION
EXCLUSIONS
MAY
APPLY.—
(1) IN GENERAL.—Each carrier and each group
health plan providing health coverage (and each
health plan choice organization under subtitle B) in
the small group market shall provide for at least one
annual open enrollment period (of not less than 30
days) each year. Such period shall be in addition to
Title I, Subtitle A
the open enrollment periods described in subsection
(b).
(2) COORDINATION.—Such annual open enroll-
ment periods with respect to carriers in the small
group market are subject to coordination by States.
(d) OTHER
OPEN
ENROLLMENT
PERIODS
FOR
WHICH
PREEXISTING
CONDITION
EXCLUSIONS
MAY
APPLY.—
(1) TERMINATION OF RESIDENCE AREA.—For
each qualifying individual, at the time the individual
terminates residence in the service area of coverage
provided by a carrier to the individual, there shall be
an open enrollment period (of not less than 30 days)
during which the individual may enroll in health cov-
erage.
(2) FAMILY
OR
EMPLOYMENT
CHANGES.—In
the case of a qualifying individual who—
(A) through divorce or death of a family
member experiences a change in family com-
position, or
(B) experiences a change in employment
status (including a significant change in the
terms and conditions of employment or the
terms and conditions of employment of a
spouse),
Title I, Subtitle A
there shall be an open enrollment period (of at least
30 days) in which the individual is permitted to
change the individual or family basis of coverage or
the health coverage in which the individual is en-
rolled. The circumstances under which such enroll-
ment periods are required and the duration of such
periods shall be specified by the Secretary.
(3) ENROLLMENT DUE TO LOSS OF PREVIOUS
COVERAGE.—In the case of a qualifying individual
who—
(A) had health coverage at the time of an
individual’s enrollment period,
(B) stated at the time of such period that
having other health coverage was the reason for
declining enrollment, and
(C) lost the other health coverage as a re-
sult of the termination of the coverage, termi-
nation or reduction of employment, or other
reason, except termination at the option of the
individual,
there shall be an open enrollment period during the
30-day period beginning on the date of termination
of the other coverage.
(4) ENROLLMENT
AT
TIME
OF
MARRIAGE.—
There shall be an open enrollment period with re-
Title I, Subtitle A
spect to the spouse of an individual (including chil-
dren of the spouse) during the 30-day period begin-
ning on the date of the marriage, if family coverage
is available as of such date.
(5) NO EFFECT ON COBRA CONTINUATION BEN-
EFITS.—Nothing in this subsection shall be con-
strued as affecting rights of individuals to continu-
ation coverage under section 4980B of the Internal
Revenue Code of 1986 or under similar provisions of
law.
(e) PERIOD OF COVERAGE.—
(1) IN GENERAL.—In the case of a qualifying
individual who enrolls under health coverage during
an open enrollment period under this section, cov-
erage shall begin on such date (not later than the
first day of the first month that begins at least 15
days after the date of enrollment) as the Secretary
shall specify, consistent with this subsection.
(2) COVERAGE OF FAMILY MEMBERS.—In the
case of an open enrollment period described in sub-
section (b)(2), (b)(3), or (d)(4), the Secretary shall
provide for coverage of family members to begin as
soon as possible on or after the date of the event
that gives rise to the special enrollment period (or,
Title I, Subtitle A
in the case of birth or adoption, as of the date of
birth or adoption).
PART 2—PROVISION OF BENEFITS
SEC. 1011. GENERAL COVERAGE REQUIREMENTS.
(a) STANDARD COVERAGE.—For purposes of this
title, health insurance coverage is considered to provide
standard coverage consistent with this subsection if bene-
fits under such coverage meet standards promulgated
under section 1041 to carry out this subsection. In pro-
mulgating such standards to carry out this section, the
NAIC and the Secretary shall take into account the follow-
ing:
(1) CLASSES
OF
BENEFITS.—The classes of
benefits (such as inpatient and outpatient hospital
services and physicians services) typically included in
health plans under the Federal Employees Health
Benefits Program.
(2) ACTUARIAL VALUE.—The actuarial value of
benefits included in benchmark coverage for the
areas involved (adjusted to take into account a
standardized population and standardized utilization
and cost factors).
(3) PREVENTIVE BENEFITS.—The need to cover
cost-effective preventive benefits (such as well-baby
Title I, Subtitle A
and well-child care and childhood immunizations)
without inappropriate cost sharing.
(b) HIGH-DEDUCTIBLE COVERAGE.—For purposes
of this title, health insurance coverage is considered to
provide high-deductible coverage consistent with this sub-
section if—
(1) benefits include the same type of benefits as
provided for under standard coverage under sub-
section (a);
(2) the deductible amount is within a range of
amounts established under such standards so that
the actuarial value of high-deductible coverage is at
least 20 percent (but not more than 40 percent) less
than the actuarial value of standard coverage;
(3) benefits under the coverage in any year
(other than preventive benefits as provided under
the standards) are covered only to the extent ex-
penses incurred for items and services included in
the coverage for the year exceed the deductible
amount specified in paragraph (2); and
(4) the actuarial value of the coverage (as de-
termined under rules established under such stand-
ards) is equivalent to a percentage (specified in such
standards and not less than 60 percent and not
Title I, Subtitle A
more than 80 percent) of an actuarial value for
standard coverage.
(c) RULES
REGARDING
OFFERING
OF
SUPPLE-
MENTAL BENEFITS.—A carrier or group health plan offer-
ing qualified health coverage may offer coverage of items
and services only in addition to the qualified standard cov-
erage offered (whether in the form of coverage of addi-
tional items and services or a reduction in cost sharing)
and only if—
(1) such supplemental coverage is offered and
priced separately from the standard coverage offered
and is only made available to individuals who obtain
qualified standard coverage through the carrier or
plan;
(2) the purchase of the qualified health cov-
erage is not conditioned upon the purchase of such
supplemental coverage; and
(3) in the case of supplemental coverage that
consists of a reduction in the cost-sharing otherwise
applicable, the premium for the supplemental cov-
erage takes into account any expected increase in
utilization of items and services included in the
qualified health coverage resulting from obtaining
the supplemental coverage.
Title I, Subtitle A
(d) MODEL BENEFIT PACKAGES.—The standards es-
tablished to carry out this section may provide for model
benefit packages that will be considered to meet applicable
requirements for standard coverage or high-deductible cov-
erage, and which shall include model cost sharing arrange-
ments for fee-for-service options, managed care options,
and point-of-service options.
(e) FLEXIBILITY IN BENEFITS.—Nothing in this sec-
tion (or section 1103) may be construed—
(1) to require the coverage of any specific pro-
cedure or treatment or class of service in health cov-
erage under this Act or through regulation;
(2) as requiring coverage to include benefits for
items and services that are not medically necessary
or appropriate;
(3) as limiting the benefits that may be offered
as part of a group health plan or health insurance
coverage; and
(4) to require or prohibit the use of a particular
class of provider, among the providers that are le-
gally authorized to provide such treatment.
SEC. 1012. STANDARDS FOR MANAGED CARE ARRANGE-
MENTS.
(a) APPLICATION OF REQUIREMENTS.—Each group
health plan, and each carrier providing health insurance
Title I, Subtitle A
coverage, that provides for health care through a managed
care arrangement (as defined in section 1903(12)(A))
shall comply with the applicable requirements of this sec-
tion.
(b) SCOPE OF ARRANGEMENTS WITH PROVIDERS.—
(1) ACCESS TO CARE.—The entity providing for
a managed care arrangement with respect to health
coverage shall enter into such agreements with
health care providers (including primary and spe-
cialty providers) or have such other arrangements as
may be necessary to assure that covered individuals
have reasonably prompt access through the entity’s
provider network to all items and services contained
in the package of benefits for which coverage is pro-
vided (including access to emergency services on a
24-hour basis where medically necessary), in a man-
ner that assures the continuity of the provision of
such items and services.
(2) ACCESS
TO
SPECIALIZED
TREATMENT.—
The entity providing for a managed care arrange-
ment under health coverage shall demonstrate that
covered individuals (including individuals with chron-
ic diseases) have access through the entity’s provider
network to specialized treatment expertise.
Title I, Subtitle A
(3) CHOICE OF PERSONAL PHYSICIAN.—The en-
tity providing for a managed care arrangement
under health coverage shall permit each enrollee to
choose a personal physician from among available
participating physicians and change that selection as
appropriate.
(c) PROVISION OF EMERGENCY CARE SERVICES.—
The entity providing for a managed care arrangement
under health coverage must cover medically necessary
emergency care services provided to covered individuals
without regard to whether or not the provider furnishing
such services has a contractual (or other) arrangement
with the entity to provide items or services to covered indi-
viduals and, in the case of services furnished for the treat-
ment of an emergency medical condition (as defined in sec-
tion 1867(e)(1) of the Social Security Act), without regard
to prior authorization.
(d) DUE PROCESS STANDARDS RELATING TO PRO-
VIDER NETWORKS.—
(1) STANDARDS FOR SELECTION OF PROVIDERS
FOR NETWORK.—The entity providing for a man-
aged care arrangement under health coverage shall
establish standards (including criteria for quality, ef-
ficiency, credentialing, and services) to be used by
the entity for contracting with health care providers
Title I, Subtitle A
with respect to the entity’s provider network. Such
standards shall be established in consultation with
providers who are members of the network.
(2) TERMINATION PROCESS.—The entity may
not terminate or refuse to renew a participation
agreement with a provider in the entity’s provider
network unless the entity provides written notifica-
tion to the provider of the entity’s decision to termi-
nate or refuse to renew the agreement. The notifica-
tion shall include a statement of the reasons for the
entity’s decision, consistent with the standards es-
tablished under paragraph (1).
(3) REVIEW PROCESS.—The entity shall provide
a process under which the provider may request a
review of the entity’s decision to terminate or refuse
to renew the provider’s participation agreement.
(4) CONSTRUCTION.—Nothing in this sub-
section shall be construed to affect any other provi-
sion of law that provides an appeals process or other
form of relief to a provider of health care services
or an entity providing for a managed care arrange-
ment.
SEC. 1013. UTILIZATION REVIEW.
(a) ESTABLISHMENT
OF
STANDARDS
BY
SEC-
RETARY.—The Secretary shall establish standards for uti-
Title I, Subtitle A
lization review programs, consistent with subsection (c),
and shall periodically review and update such standards
to reflect changes in the delivery of health care services.
The Secretary shall establish such standards in consulta-
tion with appropriate parties.
(b) REQUIRING REVIEW TO MEET STANDARDS.—A
group health plan or carrier providing health insurance
coverage may not deny coverage of or payment for items
and services on the basis of a utilization review program
unless the program meets the standards established by the
Secretary under this section.
(c) REQUIREMENTS
FOR STANDARDS.—Under the
standards established under subsection (a)—
(1) individuals performing utilization review
may not receive financial compensation based upon
the number of denials of coverage;
(2) negative determinations of the medical ne-
cessity or appropriateness of services or the site at
which services are furnished may be made only by
clinically qualified personnel;
(3) the utilization review program shall provide
for a process under which an enrollee or provider
may obtain timely review of a denial of coverage, in-
cluding upon request a review conducted by the med-
Title I, Subtitle A
ical director of the carrier or plan or a physician
designated by the carrier or plan;
(4) utilization review shall be conducted in ac-
cordance with uniformly applied standards that are
based on currently available medical evidence; and
(5) providers shall participate in the develop-
ment of the utilization review program.
(d) PREEMPTION.—For provision preempting State
laws relating to utilization review, see section 1103.
SEC. 1014. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Chapter 79 of the Internal Reve-
nue Code of 1986 is amended by adding at the end the
following new section:
‘‘SEC. 7705. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) GENERAL RULE.—For purposes of this title, the
term ‘medical savings account’ means a trust created or
organized in the United States for the exclusive benefit
of an individual or his beneficiaries, but only if the written
instrument creating the trust meets the following require-
ments:
‘‘(1) Except in the case of a rollover contribu-
tion described in subsection (d)(3), no contribution
will be accepted unless—
‘‘(A) it is in cash, and
Title I, Subtitle A
‘‘(B) such individual is a qualifying em-
ployee for the period for which such contribu-
tion is made.
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)), insurance company (as defined in sec-
tion 816), or such other person who demonstrates to
the satisfaction of the Secretary that the manner in
which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance of the account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(b) ELIGIBLE EMPLOYEE.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘eligible em-
ployee’ means any employee who has high-deductible
coverage (as defined in section 1011(b) of the Basic
Health Care Reform Act of 1995) offered by the em-
ployer.
Title I, Subtitle A
‘‘(2) EXCEPTION.—An employee shall be treat-
ed as not being an eligible employee for any calendar
year if, for any month during such year, it is reason-
ably expected that such employee—
‘‘(A) will have adjusted gross income that
is less than 100 percent of the income official
poverty line (as determined by the Director of
the Office of Management and Budget) for a
family of the size involved; or
‘‘(B) is an AFDC recipient or SSI recipi-
ent.
‘‘(3) DEFINITIONS.—For purposes of paragraph
(2)—
‘‘(A) 
AFDC 
RECIPIENT.—The 
term
‘AFDC recipient’ means, for a month, an indi-
vidual who is receiving aid or assistance under
any plan of the State approved under title I, X,
XIV, or XVI, or part A or part E of title IV,
of the Social Security Act for the month.
‘‘(B) SSI RECIPIENT.—The term ‘SSI re-
cipient’ means, for a month, an individual—
‘‘(i) with respect to whom supple-
mental security income benefits are being
paid under title XVI of the Social Security
Act for the month,
Title I, Subtitle A
‘‘(ii) who is receiving a supplementary
payment under section 1616 of such Act or
under section 212 of Public Law 93–66 for
the month,
‘‘(iii) who is receiving monthly bene-
fits under section 1619(a) of the Social Se-
curity Act (whether or not pursuant to sec-
tion 1616(c)(3) of such Act) for the
month, or
‘‘(iv) who is treated under section
1619(b) of the Social Security Act as re-
ceiving supplemental security income bene-
fits in a month for purposes of title XIX
of such Act.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the account beneficiary of a
medical savings account shall be treated for
purposes of this title as the owner of such ac-
count and shall be subject to tax thereon in ac-
cordance with subpart E of part I of subchapter
J of this chapter (relating to grantors and oth-
ers treated as substantial owners).
Title I, Subtitle A
‘‘(B) TREATMENT OF CAPITAL LOSSES.—
With respect to assets held in a medical savings
account, any capital loss for a taxable year
from the sale or exchange of such an asset shall
be allowed only to the extent of capital gains
from such assets for such taxable year. Any
capital loss which is disallowed under the pre-
ceding sentence shall be treated as a capital
loss from the sale or exchange of such an asset
in the next taxable year. For purposes of this
subparagraph, all medical savings accounts of
the account beneficiary shall be treated as 1 ac-
count.
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the account beneficiary, such beneficiary
engages in any transaction prohibited by section
4975 with respect to the account, the account
shall cease to be a medical savings account as
of the first day of such taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
Title I, Subtitle A
any taxable year, subsection (d) shall be applied
as if—
‘‘(i) there were a distribution on such
first day in an amount equal to the fair
market value (on such first day) of all as-
sets in the account (on such first day), and
‘‘(ii) no portion of such distribution
were used to pay qualified medical ex-
penses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the account ben-
eficiary uses the account or any portion thereof as
security for a loan, the portion so used is treated as
distributed and not used to pay qualified medical ex-
penses.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
which is not used exclusively to pay the quali-
fied medical expenses of the account beneficiary
or of the spouse or dependents (as defined in
section 152) of such beneficiary shall be in-
cluded in the gross income of such beneficiary
Title I, Subtitle A
to the extent such amount does not exceed the
excess of—
‘‘(i) the aggregate contributions to
such account which were not includible in
gross income by reason of section 106(2),
over
‘‘(ii) the aggregate prior payments or
distributions from such account which were
includible in gross income under this para-
graph.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all medical savings accounts of
the account beneficiary shall be treated as
1 account,
‘‘(ii) all payments and distributions
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
chapter 1 on the account beneficiary for any
Title I, Subtitle A
taxable year in which there is a payment or dis-
tribution from a medical savings account of
such beneficiary which is includible in gross in-
come under paragraph (1) shall be increased by
100 percent of the amount which is so includ-
ible.
‘‘(B) 
EXCEPTION
FOR
DISTRIBUTIONS
AFTER
AGE
65.—Subparagraph (A) shall not
apply to any payment or distribution after the
date on which the account beneficiary attains
age 65.
‘‘(C) EXCEPTION
FOR
DISABILITY
OR
DEATH.—Subparagraph (A) shall not apply if
the payment or distribution is made after the
account beneficiary becomes disabled within the
meaning of section 72(m)(7) or dies.
‘‘(3) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribu-
tion if it meets the requirements of subparagraphs
(A) and (B).
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any amount paid or distributed
from a medical savings account to the account
beneficiary to the extent the amount received is
paid into a medical savings account for the ben-
Title I, Subtitle A
efit of such beneficiary not later than the 60th
day after the day on which he receives the pay-
ment or distribution.
‘‘(B) LIMITATION.—This paragraph shall
not apply to any amount described in subpara-
graph (A) received by an individual from a
medical savings account if, at any time during
the 1-year period ending on the day of such re-
ceipt, such individual received any other amount
described in subparagraph (A) from a medical
savings account which was not includible in his
gross income because of the application of this
paragraph.
‘‘(4) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a medical savings ac-
count for qualified medical expenses shall not be
treated as an expense paid for medical care to the
extent of the amount of such payment or distribu-
tion which is excludable from gross income solely by
reason of paragraph (1)(A).
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means any amounts paid dur-
Title I, Subtitle A
ing the taxable year, not compensated for by in-
surance or otherwise, for medical care (as de-
fined in section 213(d)) of the taxpayer, his
spouse, or a dependent (as defined in section
152).
‘‘(B) LONG-TERM
CARE
INSURANCE.—
Such term includes premiums paid during the
taxable year for any long-term care insurance
contract for the benefit of the individual or
such individual’s spouse.
‘‘(C) LONG-TERM CARE INSURANCE CON-
TRACT.—For purposes of subparagraph (B),
the term ‘long-term care insurance contract’
means any insurance contract issued if—
‘‘(i) the only insurance protection pro-
vided under such contract is coverage of
qualified long-term care services and bene-
fits incidental to such coverage (as defined
under regulations prescribed by the Sec-
retary),
‘‘(ii) the maximum benefit under the
policy for expenses incurred for any day
does not exceed $200,
‘‘(iii) such contract does not cover ex-
penses incurred for services or items to the
Title I, Subtitle A
extent that such expenses are reimbursable
under title XVIII of the Social Security
Act or would be so reimbursable but for
the application of a deductible or coinsur-
ance amount,
‘‘(iv) such contract is guaranteed re-
newable,
‘‘(v) such contract does not have any
cash surrender value, and
‘‘(vi) all refunds of premiums, and all
policyholder dividends or similar amounts,
under such contract are to be applied as a
reduction in future premiums or to in-
crease future benefits.
‘‘(2) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual for whose
benefit the medical savings account is maintained.
‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)), insurance com-
pany (as defined in section 816), or another person
who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
Title I, Subtitle A
‘‘(1) employer-provided coverage under an acci-
dent or health plan, and
‘‘(2) employer contributions to any medical sav-
ings account (as defined in section 7705) of an eligi-
ble employee, but only to the extent that the amount
contributed does not exceed the excess of premium
for standard coverage over the premium for high-de-
ductible coverage (as such terms are defined in sec-
tion 1903 of the Basic Health Care Reform Act of
1995).’’
(2) EMPLOYER
PAYMENTS
EXCLUDED
FROM
EMPLOYMENT TAX BASE.—
(A) SOCIAL SECURITY TAXES.—
(i) Subsection (a) of section 3121 of
such Code is amended by striking ‘‘or’’ at
the end of paragraph (20), by striking the
period at the end of paragraph (21) and
inserting ‘‘; or’’, and by inserting after
paragraph (21) the following new para-
graph:
‘‘(22) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
Title I, Subtitle A
(ii) Subsection (a) of section 209 of
the Social Security Act is amended by
striking ‘‘or’’ at the end of paragraph (18),
by striking the period at the end of para-
graph (19) and inserting ‘‘; or’’, and by in-
serting after paragraph (19) the following
new paragraph:
‘‘(20) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2) of the Internal Revenue Code of 1986.’’
(B) RAILROAD
RETIREMENT
TAX.—Sub-
section (e) of section 3231 of such Code is
amended by adding at the end the following
new paragraph:
‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU-
TIONS.—The term ‘compensation’ shall not include
any payment made to or for the benefit of an em-
ployee if at the time of such payment it is reason-
able to believe that the employee will be able to ex-
clude such payment from income under section
106(2).’’
(C) UNEMPLOYMENT TAX.—Subsection (b)
of section 3306 of such Code is amended by
Title I, Subtitle A
striking ‘‘or’’ at the end of paragraph (15), by
striking the period at the end of paragraph (16)
and inserting ‘‘; or’’, and by inserting after
paragraph (16) the following new paragraph:
‘‘(17) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
(D) WITHHOLDING
TAX.—Subsection (a)
of section 3401 of such Code is amended by
striking ‘‘or’’ at the end of paragraph (19), by
striking the period at the end of paragraph (20)
and inserting ‘‘; or’’, and by inserting after
paragraph (20) the following new paragraph:
‘‘(21) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
(c) TECHNICAL AMENDMENTS.—
(1) TAX ON PROHIBITED TRANSACTIONS.—Sec-
tion 4975 of such Code (relating to prohibited trans-
actions) is amended—
Title I, Subtitle A
(A) by adding at the end of subsection (c)
the following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
7705) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 7705(c)(2)(A) to such account.’’, and
(B) by inserting ‘‘or a medical savings ac-
count described in section 7705’’ in subsection
(e)(1) after ‘‘described in section 408(a)’’.
(2) FAILURE TO PROVIDE REPORTS ON MEDI-
CAL
SAVINGS
ACCOUNTS.—Section 6693 of such
Code (relating to failure to provide reports on indi-
vidual retirement account or annuities) is amend-
ed—
(A) by inserting ‘‘OR ON MEDICAL SAV-
INGS ACCOUNTS’’ after ‘‘ANNUITIES’’ in the
heading of such section, and
(B) by adding at the end of subsection (a)
the following: ‘‘The person required by section
Title I, Subtitle A
7705(g) to file a report regarding a medical
savings account at the time and in the manner
required by such section shall pay a penalty of
$50 for each failure unless it is shown that
such failure is due to reasonable cause.’’
(3) CLERICAL AMENDMENTS.—
(A) The table of sections for chapter 79 of
such Code is amended by adding at the end the
following:
‘‘Sec. 7705. Medical savings accounts.’’
(B) The table of sections for subchapter B
of chapter 68 of such Code is amended by in-
serting ‘‘or on medical savings accounts’’ after
‘‘annuities’’ in the item relating to section
6693.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
PART 3—FAIR RATING PRACTICES
SEC. 1021. USE OF FAIR RATING PRACTICES.
(a) USE OF FAIR RATING PRACTICES.—The pre-
mium rate established by a carrier for health insurance
coverage in the small group market may not vary except
by the following:
Title I, Subtitle A
(1) AGE.—By age, based on classes of age es-
tablished by the Secretary, in consultation with the
NAIC, consistent with subsection (b).
(2) GEOGRAPHIC AREA.—By geographic area,
as identified by a State consistent with subsection
(c).
(3) FAMILY CLASS.—By family class, based on
the following 4 classes of family coverage: individual,
individual with one or more children, married couple
without a child, and married couple with one or
more children.
(4) BENEFIT
DESIGN.—By benefit design of
coverage, including by type of coverage, such as
standard coverage and high-deductible coverage, and
by type of coverage option (described in section
1903(15)) with respect to standard coverage.
(5) ADMINISTRATIVE
CATEGORIES.—By per-
mitted expense category, based on differences in ex-
penses among such categories, consistent with sub-
section (d).
The premiums shall be established for the different benefit
designs (including standard coverage and high-deductible
coverage) based on the actuarial value of the coverage for
the population of the small group market in the fair rating
Title I, Subtitle A
area, without regard to the distribution of such population
among the types of coverage or type of coverage options.
(b) LIMITATION ON VARIATION BY AGE.—
(1) IN GENERAL.—Any variation in premium
rates by age under subsection (a)(1) for age classes
of individuals under 65 years of age may not result
in the ratio of the highest age rate to the lowest age
rate exceeding the limiting ratio described in para-
graph (2).
(2) LIMITING RATIO.—For purposes of para-
graph (1), the limiting ratio described in this para-
graph is—
(A) 4-to-1, for premiums for months in
1997,
(B) 3.67-to-1, for premiums for months in
1998,
(C) 3.33-to-1, for premiums for months in
1999, and
(D) 3-to-1, for premiums for months in
2000 and any succeeding year.
(3) SEPARATE AGE CLASSES FOR INDIVIDUALS
65 YEARS OF AGE OR OLDER.—The Secretary shall
establish one or more separate age classes for indi-
viduals 65 years of age or older.
Title I, Subtitle A
(4) PREEMPTION.—For preemption of State
laws relating to establishment of premium rates, see
section 1204.
(c) GEOGRAPHIC AREA VARIATIONS.—For purposes
of subsection (a)(2), a State—
(1) may not identify an area that divides a 3-
digit zip code, a county, or all portions of a metro-
politan statistical area,
(2) shall not permit premium rates for coverage
offered in a portion of an interstate metropolitan
statistical area to vary based on the State in which
the coverage is offered, and
(3) may, upon agreement with one or more ad-
jacent States, identify multi-state geographic areas
consistent with paragraphs (1) and (2).
(d) ADMINISTRATIVE VARIATIONS.—
(1) 
EXPENSE
CATEGORIES.—Expense 
cat-
egories shall be established under subsection (a)(5)
by a carrier in a manner that only reflects dif-
ferences based on marketing, commissions, and simi-
lar expenses. Such categories shall take into account
health plan choice organizations.
(2) LIMITATION
ON
VARIATIONS.—The vari-
ation provided among expense categories under sub-
section (a)(5) may not result in a premium for the
Title I, Subtitle A
highest expense category exceeding 120 percent of
the premium for the lowest expense category.
(e) PREMIUM RATING IN GROUP HEALTH PLANS.—
The premium rate established under a group health plan
for health insurance coverage may not vary within a bene-
fit design except by the factors described in subsection (a)
and subject to the limitation specified in subsection (b).
(f) ACTUARIAL CERTIFICATION.—Each carrier that
offers health insurance coverage in a State shall file annu-
ally with the State commissioner of insurance a written
statement by a member of the American Academy of Actu-
aries (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 carrier and methods used by
the carrier in establishing premium rates for applicable
health insurance coverage—
(1) the carrier is in compliance with the appli-
cable provisions of this section, and
(2) the rating methods are actuarially sound.
Each such carrier shall retain a copy of such statement
for examination at its principal place of business.
(g) CONSTRUCTION.—The provisions of this section
shall apply to premium rates based on the fair rating area
Title I, Subtitle A
in which the covered individual or employee resides to re-
flect the population in the small group market.
SEC. 1022. ESTABLISHMENT OF RISK ADJUSTMENT MECHA-
NISMS.
(a) ESTABLISHMENT OF STANDARDS.—
(1) DEVELOPMENT OF MODELS.—
(A) IN GENERAL.—The Secretary shall re-
quest the NAIC to develop, within 9 months
after the date of the enactment of this Act and
in consultation with the American Academy of
Actuaries, a model risk adjustment system com-
posed of one or more risk adjustment mecha-
nisms under which premiums applicable to
health insurance coverage in the small group
market would be adjusted to take into account
such factors as may be appropriate to predict
the future need and the efficient use of services
by covered individuals in the market. Such fac-
tors may include the age, gender, geographic
residence, health status, or other demographic
characteristics of individuals enrolled in such
plans and shall include consideration of enroll-
ment of a disproportionate share of individuals
who enroll during the initial open enrollment
period under section 1005(b)(1).
Title I, Subtitle A
(B) 
PROMULGATION
AS
PROPOSED
RULE.—If the NAIC develops such model with-
in such period, the Secretary shall publish the
model as a proposed rule under section 553 of
title 5, United States Code. If the NAIC has
not developed such model within such period,
the Secretary shall publish (not later than 60
days after the end of such period) a proposed
rule that specifies a proposed model that pro-
vides for effective risk adjustment mechanisms.
(2) RULE
MAKING
PROCESS.—The Secretary
shall provide for a period (described in section
553(c) of title 5, United States Code) of not less
than 30 days for public comment on a proposed rule
published under paragraph (1)(B). The Secretary
shall publish a final rule, by not later than July 1,
1996, that specifies risk adjustment mechanisms
that the Secretary finds are effective for purposes of
carrying out this section. Such rule shall include
models developed by the NAIC if the Secretary finds
that such models provide for effective risk adjust-
ment mechanisms.
(3) MODIFICATION.—The Secretary, at the re-
quest of the NAIC or otherwise, may by regulation
Title I, Subtitle A
modify the model risk adjustment system established
under this subsection.
(b) IMPLEMENTATION OF RISK ADJUSTMENT SYS-
TEM.—Each State shall establish and maintain a risk ad-
justment system that conforms with the model established
under this section by not later than January 1, 1997. A
State may establish and maintain such a system jointly
with one or more other States.
PART 4—CONSUMER PROTECTIONS
SEC. 1031. REQUIREMENT FOR PROVISION OF INFORMA-
TION.
(a) CARRIERS.—
(1) IN
GENERAL.—Each carrier that offers
health insurance coverage to small employers (or
qualifying employees of small employers) must dis-
close to such prospective enrollees, to brokers, and
to health plan choice organizations the information
that the Secretary may specify relating to the per-
formance of the carrier in providing such coverage
and relating to differences between the coverage pro-
vided and the most similar model benefit package es-
tablished under section 1104(b)(2). If a carrier of-
fers to employers coverage the actuarial value of
which is more than the actuarial value for high-de-
ductible coverage but less than such value for stand-
Title I, Subtitle A
ard coverage, the carrier must disclose to such em-
ployers detailed information on how the coverage of-
fered compares to any standard and high-deductible
coverage offered by the carrier to such employers.
(2) MARKETING MATERIAL.—Each carrier that
provides any health insurance coverage in a State
shall file with the State those marketing materials
relating to the offer and sale of health insurance
coverage to be used for distribution before the mate-
rials are used. Such materials shall be in a uniform
format specified under the standards established
under section 1041.
(b) GROUP HEALTH PLANS.—Each group health
plan that provides health coverage must disclose to enroll-
ees and potential enrollees information, similar to the in-
formation described in subsection (a), relating to perform-
ance of the plan in providing such coverage and relating
to differences between the coverage provided and the most
similar model benefit package established under section
1104(b)(2).
(c) INFORMATION
RELATING
TO
RISK
ADJUST-
MENT.—Each carrier or group health plan providing cov-
erage in the small group market shall provide to the State
such information as the State may require in order to
Title I, Subtitle A
carry out section 1022 (relating to risk adjustment mecha-
nisms).
SEC. 1032. PROHIBITION OF IMPROPER INCENTIVES.
(a) LIMITATION
ON FINANCIAL INCENTIVES.—No
carrier that provides health insurance coverage may vary
the commission or financial or other remuneration to a
person based on the claims experience or health status of
individuals enrolled by or through the person.
(b) NONDISCRIMINATION
IN
AGENT
COMPENSA-
TION.—A carrier—
(1) may not vary or condition the compensation
provided to an agent or broker related to the sale or
renewal of health insurance coverage because of the
health status or claims experience of any individuals
enrolled with the carrier through the agent or
broker; and
(2) may not terminate, fail to renew, or limit its
contract or agreement of representation with an
agent or broker for any reason related to the health
status or claims experience of any individuals en-
rolled with the carrier through the agent or broker.
(c) PROHIBITION OF TIE-IN ARRANGEMENTS.—No
carrier that offers health insurance coverage may require
the purchase of any other insurance or product as a condi-
tion for the purchase of such coverage.
Title I, Subtitle A
SEC. 1033. WRITTEN POLICIES AND PROCEDURES RESPECT-
ING ADVANCE DIRECTIVES.
A carrier and a group health plan offering health cov-
erage shall meet the requirements of section 1866(f) of
the Social Security Act (relating to maintaining written
policies and procedures respecting advance directives), in-
sofar as such requirements would apply to the carrier or
plan if the carrier or plan were an eligible organization.
PART 5—STANDARDS AND CERTIFICATION; EN-
FORCEMENT; PREEMPTION; GENERAL PRO-
VISIONS
SEC. 1041. ESTABLISHMENT OF STANDARDS.
(a) ROLE OF NAIC.—
(1) IN GENERAL.—The Secretary shall request
the NAIC to develop, within 9 months after the date
of the enactment of this Act, model regulations that
specify standards with respect to the requirements of
this subtitle as applicable to carriers and health in-
surance coverage.
(2) REVIEW OF STANDARDS.—If the NAIC de-
velops recommended regulations specifying such
standards within such period, the Secretary shall re-
view the standards. Such review shall be completed
within 60 days after the date the regulations are de-
veloped. Unless the Secretary determines within
such period that the standards do not meet the re-
Title I, Subtitle A
quirements, such standards shall serve as the stand-
ards under this subtitle, with such amendments as
the Secretary deems necessary.
(b) CONTINGENCY.—If the NAIC does not develop
such model regulations within such period or the Secretary
determines that such regulations do not specify standards
that meet the requirements described in subsection (a),
the Secretary shall specify, within 15 months after the
date of the enactment of this Act, standards to carry out
those requirements.
SEC. 1042. APPLICATION OF STANDARDS TO CARRIERS
THROUGH STATES.
(a) APPLICATION OF STANDARDS.—
(1) IN GENERAL.—Each State shall submit to
the Secretary, by the deadline specified in paragraph
(2), a report on steps the State is taking to imple-
ment and enforce the standards established under
section 1041 with respect to carriers and health in-
surance coverage offered or renewed not later than
such deadline.
(2) DEADLINE
FOR
REPORT.—The deadline
under this paragraph is 1 year after the date the
standards are established under section 1041.
(b) FEDERAL ROLE.—
Title I, Subtitle A
(1) NOTICE OF DEFICIENCY.—If the Secretary
determines that a State has failed to submit a report
by the deadline specified under subsection (a)(2) or
finds that the State has not implemented and pro-
vided adequate enforcement of the standards estab-
lished under section 1041, 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
enforce such standards.
(2) IMPLEMENTATION OF ALTERNATIVE.—
(A) IN GENERAL.—If, after such 60-day
period, the Secretary finds that such a failure
has not been corrected, the Secretary shall pro-
vide for such mechanism for the implementation
and enforcement of such standards in the State
as the Secretary determines to be appropriate.
(B) EFFECTIVE PERIOD.—Such implemen-
tation and enforcement shall take effect with
respect to carriers, and health insurance cov-
erage offered or renewed, on or after 3 months
after the date of the Secretary’s finding under
subparagraph (A), and until the date the Sec-
retary finds that such a failure has been cor-
rected.
Title I, Subtitle A
SEC. 1043. APPLICATION TO GROUP HEALTH PLANS.
(a) IN GENERAL.—Subject to subsection (b), sections
1041 and 1042 shall apply to group health plans providing
health coverage in the same manner as they apply to car-
riers providing health insurance coverage.
(b) SUBSTITUTION OF REFERENCES.—For purposes
of subsection (a), any reference in section 1041 or 1042
to—
(1) a State is deemed a reference to the Sec-
retary, and
(2) a carrier or health insurance coverage is
deemed a reference to a group health plan and
health coverage, respectively.
SEC. 1044. ENFORCEMENT.
(a) IN GENERAL.—Chapter 43 of the Internal Reve-
nue Code of 1986 (relating to qualified pension plans, etc.)
is amended by adding at the end thereof the following new
section:
‘‘SEC. 4980C. FAILURE OF CARRIER OR GROUP HEALTH
PLANS TO COMPLY WITH STANDARDS.
‘‘(a) IMPOSITION OF TAX.—
‘‘(1) IN GENERAL.—There is hereby imposed a
tax on the failure of a carrier or group health plan
to comply with the requirements applicable to the
carrier or group health plan under parts 1 through
Title I, Subtitle A
4 of subtitle A of title I of the Basic Health Care
Reform Act of 1995.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply to a failure by a carrier in a State if the Sec-
retary of Health and Human Services determines
that the State has in effect a regulatory enforcement
mechanism that provides adequate sanctions with re-
spect to such a failure by such a carrier.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
the amount of the tax imposed by subsection (a)
shall be $100 for each day during which such failure
persists for each individual to which such failure re-
lates. A rule similar to the rule of section
4980B(b)(3) shall apply for purposes of this section.
‘‘(2) LIMITATION.—The amount of the tax im-
posed by subsection (a) for a carrier with respect to
health insurance coverage shall not exceed 25 per-
cent of the amounts received for such coverage dur-
ing the period such failure persists.
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid by the carrier or administrator of
the group health plan (as the case may be).
‘‘(d) EXCEPTIONS.—
Title I, Subtitle A
‘‘(1) CORRECTIONS WITHIN 30 DAYS.—No tax
shall be imposed by subsection (a) by reason of any
failure if—
‘‘(A) such failure was due to reasonable
cause and not to willful neglect, and
‘‘(B) such failure is corrected within the
30-day period beginning on the earliest date the
carrier or administrator of the group health
plan knew, or exercising reasonable diligence
would have known, that such failure existed.
‘‘(2) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that payment of such tax would be excessive relative
to the failure involved.
‘‘(e) DEFINITIONS.—For purposes of this section, the
terms ‘health insurance coverage’, ‘group health plan’, and
‘carrier’ have the respective meanings given such terms
in section 1903 of the Basic Health Care Reform Act of
1995.’’
(b) 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. 4980C. Failure of carrier or group health plans to comply
with standards.’’
Title I, Subtitle A
SEC. 1045. LIMITATION ON SELF INSURANCE FOR CERTAIN
EMPLOYER PLANS.
(a) IN GENERAL.—An employer plan (other than a
multiemployer plan, as defined in section 414(f) of the In-
ternal Revenue Code of 1986) may not offer health cov-
erage other than through a carrier unless the plan has
at least 50 qualifying employees.
(b) EXCEPTION.—Subsection (a) shall not apply to
an employer plan that offers health coverage through a
multiple employer welfare arrangement if the arrangement
covers at least 1,000 qualifying employees and meets sol-
vency standards established by the State.
PART 6—MARKETPLACE FOR INDIVIDUALS
SEC. 1051. APPLICATION OF SIMILAR REQUIREMENTS.
(a) IN GENERAL.—Except as provided in subsection
(b), the provisions of this subtitle shall apply to carriers
offering health insurance coverage to qualifying individ-
uals in the individual market (as defined in section
1903(11)) in the same manner as such provisions apply
to carriers offering health insurance coverage to employ-
ers. For purposes of this subsection, any reference to an
employee or a qualifying employee is deemed a reference
to such an individual.
(b) EXCEPTION FOR RISK ADJUSTMENT.—Section
1022 (relating to risk adjustment systems) shall be ap-
Title I, Subtitle B
plied under this part in a manner that is separate from
its application under part 3.
Subtitle B—Facilitating Establish-
ment of Health Plan Choice Or-
ganizations (HPCOs)
SEC. 1101. ESTABLISHMENT AND ORGANIZATION.
(a) IN GENERAL.—Health plan choice organizations
(each in this part referred to as a ‘‘choice organization’’)
may be established in accordance with this part. Each
choice organization shall be chartered under State law and
operated as a not-for-profit corporation. A carrier may not
form, underwrite, or possess a majority vote of a choice
organization, but may administer such an organization.
(b) BOARD OF DIRECTORS.—
(1) IN
GENERAL.—Each choice organization
shall be governed by a Board of Directors. Such
Board shall initially be appointed under procedures
established by the State in which it operates. Subse-
quently, the Board shall be elected by the members
of the organization in accordance with paragraph
(3). Such Board shall be composed as follows:
(A) In the case of a choice organization of-
fering coverage in the small group market, the
Board shall be composed of small employers (or
representatives of small employers) and qualify-
Title I, Subtitle B
ing employees of small employers (or represent-
atives of such employees) in the area in which
the organization operates.
(B) In the case of a choice organization of-
fering coverage in the individual market, the
Board shall be composed of qualifying individ-
uals in the area in which the organization oper-
ates.
(C) In the case of a choice organization of-
fering coverage in both the small group market
and the individual market, the Board shall be
composed of individuals described in subpara-
graph (A) and individuals described in subpara-
graph (B).
(2) MEMBERSHIP.—For each market for which
a choice organization offers coverage, the choice or-
ganization shall accept all small employers, qualify-
ing employees, and qualifying individuals who are in
the market within the area served by the organiza-
tion as members if such employers, employees, or in-
dividuals request such membership.
(3) VOTING.—Members of a choice organization
shall have voting rights consistent with the rules es-
tablished under the bylaws governing the organiza-
tion.
Title I, Subtitle B
(B) perform any activity (including certifi-
cation or enforcement) relating to compliance of
carriers (and health coverage provided by car-
riers) with the requirements of subtitle A;
(C) assume financial risk in relation to any
such carrier; or
(D) perform other activities identified by
the State as being inconsistent with the per-
formance of its duties under paragraph (1).
(3) CHARACTERISTICS OF SERVICE AREA.—
(A) IN GENERAL.—A choice organization
need not serve geographic areas that are contig-
uous, but the geographic boundaries of such
areas shall be consistent with the boundaries es-
tablished under section 1021 for fair rating
areas.
(B) SERVICE OF ENTIRE METROPOLITAN
STATISTICAL
AREA.—If a choice organization
serves a part of a metropolitan statistical area
the organization shall serve the entire area.
(d) ESTABLISHMENT NOT REQUIRED.—Nothing in
this section shall be construed as requiring—
(1) that a choice organization be established in
each area of a State in which it operates; and
Title I, Subtitle B
(2) that there be only one choice organization
established with respect to any area.
SEC. 1102. AGREEMENTS TO OFFER QUALIFIED HEALTH
COVERAGE.
(a) AGREEMENTS.—
(1) IN GENERAL.—Except as provided in para-
graph (3), each choice organization for an area shall
enter into an agreement under this section—
(A) with each carrier that desires to make
available qualified health coverage in the small
group market through the choice organization
(consistent with any procedures established by
the State);
(B) with each carrier that desires to make
available qualified health coverage in the indi-
vidual market through the choice organization
(consistent with any procedures established by
the State); or
(C) with each carrier described in subpara-
graph (A) or subparagraph (B).
(2) TERMINATION OF AGREEMENT.—An agree-
ment under paragraph (1) shall remain in effect for
a 12-month period, except that the choice organiza-
tion may terminate an agreement under paragraph
(1) if the carrier’s license or certification under
Title I, Subtitle B
State law is terminated or for other good cause
shown.
(b) RECEIPT OF PREMIUMS ON BEHALF OF CAR-
RIERS.—
(1) IN GENERAL.—Under an agreement under
this section between a choice organization and a car-
rier—
(A) premiums shall be payable, and
(B) payment of premiums may be made by
individuals (or employers on their behalf) di-
rectly to the choice organization for the benefit
of the carrier.
(2) TIMING OF PAYMENT OF PREMIUMS.—Pre-
miums may be payable on a monthly basis (or, at
the option of a qualifying employee or individual, on
a quarterly basis). The choice organization may pro-
vide for reasonable penalties and grace periods for
late payment.
(3) 
CARRIERS
RETAIN
RISK
OF
NONPAYMENT.—Nothing in this subsection shall be
construed as placing upon a choice organization any
risk associated with the failure of individuals and
employers to make prompt payment of premiums
(other than the portion of the premium representing
the choice organization administrative fee under sec-
Title I, Subtitle B
tion 1105). Each small employer and qualifying indi-
vidual who enrolls with a carrier providing qualified
health coverage through the choice organization is
liable to the carrier for premiums.
(c) FORWARDING OF PREMIUMS.—
(1) IN
GENERAL.—If, under an agreement
under subsection (a), premium payments for quali-
fied health coverage are made to the choice organi-
zation, the choice organization shall forward to the
carrier the amount of the premiums.
(2) PAYMENTS.—Payments shall be made by
the choice organization under this subsection within
a period of days (specified by the Secretary and not
to exceed 7 days) after receipt of the premium from
the small employer of the qualifying employee or the
qualifying individual, as the case may be.
(d) PAYMENT OF COMMISSIONS.—
(1) IN GENERAL.—Subject to paragraph (2),
nothing in this part shall be construed to preclude
a carrier from paying a commission or other remu-
neration in connection with the purchase of health
care coverage by individuals or groups, consistent
with State law.
(2) LIMITATION ON VARIATION.—A carrier may
not vary such compensation or remuneration based,
Title I, Subtitle B
directly or indirectly, on the anticipated or actual
claims experience associated with the group or indi-
viduals purchasing health care coverage.
SEC. 1103. PROVISION OF INFORMATION.
Each choice organization for an area shall make
available to small employers that employ individuals in the
area and to qualifying individuals who reside in the area—
(1) information provided to the choice organiza-
tion by the State or carriers, and
(2) the opportunity to enter into an agreement
with the organization for the purchase of qualified
health coverage (to the extent that the organization
offers coverage in the market through which the em-
ployer or individual seeks coverage).
SEC. 
1104. 
ENROLLING 
INDIVIDUALS 
FOR 
QUALIFIED
HEALTH COVERAGE THROUGH A CHOICE OR-
GANIZATION.
A choice organization shall offer, on behalf of each
carrier with which an agreement was entered into under
section 1102 and in accordance with the enrollment proce-
dures of such carriers and the enrollment periods provided
under section 1005, enrollment for the coverage only to
individuals in the market through which the organization
offers coverage in the area served by the choice organiza-
tion. Each choice organization shall coordinate annual
Title I, Subtitle C
open enrollment periods (described in section 1005(c)) of
all carriers through which coverage is offered by the orga-
nization so that there is one common annual open enroll-
ment period for all such carriers with respect to each indi-
vidual enrolled for coverage through the organization.
Nothing in this section shall preclude a choice organiza-
tion from having different common annual open enroll-
ment periods for different individuals.
SEC. 1105. RESTRICTION ON CHARGES.
(a) IN GENERAL.—A choice organization may impose
an administrative fee with respect to a qualifying employee
or qualifying individual enrolled for qualified health cov-
erage offered through the choice organization.
(b) FEE.—A choice organization that elects to impose
a fee under subsection (a) shall ensure that such fee is
set as a percentage of the premium for each such coverage
option, is imposed uniformly with respect to all coverage
options offered through the organization, and is disclosed
explicitly as an addition to the premium.
Subtitle C—Preemption of State
Benefit Mandates and Anti-Man-
aged Care Laws
SEC. 1201. PREEMPTION FROM STATE BENEFIT MANDATES.
Effective as of January 1, 1997, no State shall estab-
lish or enforce any law or regulation that—
Title I, Subtitle C
(1) requires the offering, as part of health in-
surance coverage, of any services, category of care,
or services of any class or type of provider; or
(2) specifies the individuals to be provided
health insurance coverage or the duration of such
coverage.
SEC. 1202. PREEMPTION OF STATE LAW RESTRICTIONS ON
MANAGED CARE ARRANGEMENTS.
(a) LIMITATION
ON RESTRICTIONS
ON NETWORK
PLANS.—Effective as of January 1, 1997—
(1) a State may not prohibit or limit a carrier
or group health plan providing health coverage from
including incentives for enrollees to use the services
of participating providers;
(2) a State may not prohibit or limit such a
carrier or plan from limiting coverage of services to
those provided by a participating provider;
(3) a State may not prohibit or limit the nego-
tiation of rates and forms of payments for providers
by such a carrier or plan with respect to health cov-
erage;
(4) a State may not prohibit or limit such a
carrier or plan from limiting the number of partici-
pating providers;
Title I, Subtitle C
(5) a State may not prohibit or limit such a
carrier or plan from requiring that services be pro-
vided (or authorized) by a practitioner selected by
the enrollee from a list of available participating pro-
viders or from requiring enrollees to obtain referral
in order to have coverage for treatment by a special-
ist or health institution; and
(6) a State may not prohibit or limit the cor-
porate practice of medicine.
(b) DEFINITIONS.—In this section:
(1) MANAGED
CARE
COVERAGE.—The term
‘‘managed care coverage’’ means health coverage to
the extent the coverage is provided through a man-
aged care arrangement (as defined in section
1903(12)(A)) that meets the applicable requirements
of such section.
(2) 
PARTICIPATING
PROVIDER.—The 
term
‘‘participating provider’’ means an entity or individ-
ual which provides, sells, or leases health care serv-
ices as part of a provider network (as defined in sec-
tion 1903(12)(B)).
(c) REFERENCE
TO STANDARDS
FOR MANAGED
CARE ARRANGEMENTS.—For requirements relating to
managed care arrangements, see section 1011.
Title I, Subtitle C
SEC. 1203. PREEMPTION OF STATE LAWS RESTRICTING UTI-
LIZATION REVIEW PROGRAMS.
(a) IN GENERAL.—Effective January 1, 1997, no
State law or regulation shall prohibit or regulate activities
under a utilization review program (as defined in sub-
section (b)).
(b) UTILIZATION REVIEW PROGRAM DEFINED.—In
this section, the term ‘‘utilization review program’’ means
a system of reviewing the medical necessity and appro-
priateness of patient services (which may include inpatient
and outpatient services) using specified guidelines. Such
a system may include preadmission certification, the appli-
cation of practice guidelines, continued stay review, dis-
charge planning, preauthorization of ambulatory proce-
dures, and retrospective review.
(c) EXEMPTION OF LAWS PREVENTING DENIAL OF
LIFESAVING MEDICAL TREATMENT PENDING TRANSFER
TO ANOTHER HEALTH CARE PROVIDER.—Nothing in this
subtitle shall be construed to invalidate any State law that
has the effect of preventing involuntary denial of life-pre-
serving medical treatment when such denial would cause
the involuntary death of the patient pending transfer of
the patient to a health care provider willing to provide
such treatment.
Title I, Subtitle D
SEC. 1204. PREEMPTION RELATING TO DIFFERENT INSUR-
ANCE STANDARDS.
A State may not establish or enforce standards for
health insurance coverage made available in the individual
and small group markets that are different from the
standards established under this title.
Subtitle D—Definitions; General
Provisions
SEC. 1901. GENERAL DEFINITIONS.
For purposes of this Act:
(1) APPLICABLE
REGULATORY
AUTHORITY.—
The term ‘‘applicable regulatory authority’’ means,
with respect to a carrier operating in a State—
(A) the State insurance commissioner, or
(B) the Secretary, in the case described in
section 1042(b)(2).
(2) FAMILY MEMBER.—
(A) IN GENERAL.—Individuals are consid-
ered to be members of a family if—
(i) they are married, or
(ii) they have a legal parent-to-child
relationship (whether by natural birth or
adoption), if the child is—
(I) under 19 years of age,
(II) is under 25 years of age and
a full-time student, or
Title I, Subtitle D
(III) an unmarried dependent re-
gardless of age who is incapable of
self-support because of mental or
physical disability which existed before
age 22.
(B) SPECIAL RULES.—Family members—
(i) include an adopted child and a rec-
ognized natural child;
(ii) include a stepchild or foster child
with respect to an individual but only if
the child lives with the individual in a reg-
ular parent-child relationship; and
(iii) include such other children as the
Secretary may specify, but shall not in-
clude an emancipated minor.
(3) PRISONER.—The term ‘‘prisoner’’ means,
as specified by the Secretary, an individual during a
period of imprisonment under Federal, State, or
local authority after conviction as an adult.
(4) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(5) STATE.—The term ‘‘State’’ means the 50
States, the District of Columbia, Puerto Rico, the
Virgin Islands, Guam, American Samoa, and the
Northern Mariana Islands.
Title I, Subtitle D
SEC. 1902. DEFINITIONS RELATING TO EMPLOYMENT.
For purposes of this title:
(1) COUNTABLE EMPLOYEE.—The term ‘‘count-
able employee’’ means, with respect to an employer
for a month, any employee other than an employee
whose normal work week is less than 10 hours.
(2) EMPLOYEE.—The term ‘‘employee’’ means
any individual employed by an employer.
(3) EMPLOYER.—The term ‘‘employer’’ means
any person acting directly as an employer, or indi-
rectly in the interest of an employer, in relation to
an employee benefit plan; and includes a group or
association of employers acting for an employer in
such capacity.
(4) LARGE EMPLOYER.—The term ‘‘large em-
ployer’’ means an employer that is not a small em-
ployer (as defined in paragraph (4)).
(5) MULTIEMPLOYER PLAN.—The term ‘‘multi-
employer plan’’ has the meaning given such term in
section 414(f) of the Internal Revenue Code of
1986.
(6) QUALIFYING EMPLOYEE.—
(A) IN GENERAL.—The term ‘‘qualifying
employee’’ means, with respect to an employer
for a month, any employee other than—
Title I, Subtitle D
(i) a part-time, seasonal, or temporary
employee (as defined in subparagraph
(B)); or
(ii) an employee who is a child de-
scribed in section 1901(2)(A)(ii).
(B) PART-TIME, 
SEASONAL, 
OR
TEM-
PORARY EMPLOYEE DEFINED.—For purposes of
subparagraph (A), the term ‘‘part-time, sea-
sonal, or temporary employee’’ means any of
the following employees with respect to a
month:
(i) CERTAIN
PART-TIME
EMPLOY-
EES.—Any employee whose normal work
week is reasonably expected as of the first
day of such month to be less than 20
hours.
(ii) SEASONAL
OR
TEMPORARY
EM-
PLOYEES.—Any employee who is not rea-
sonably expected as of the first day of such
month to be employed by the employer for
a period of 120 consecutive days during
any 365-day period that includes such first
day.
(iii) DELAY FOR CERTAIN PART-TIME
EMPLOYEES.—Any employee whose normal
Title I, Subtitle D
work week is reasonably expected as of the
first day of such month to be at least 20
hours, but less than 35 hours, and the nor-
mal work week of the employee during the
preceding 3 months was less than 20
hours.
(7) 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 countable employees on a typical busi-
ness day. For the purposes of this paragraph, the
term ‘‘employee’’ includes a self-employed individual.
For purposes of determining if an employer is a
small employer, rules similar to the rules of sub-
section (b) and (c) of section 414 of the Internal
Revenue Code of 1986 shall apply.
SEC. 1903. DEFINITIONS RELATING TO HEALTH COVERAGE,
PLANS, AND CARRIERS.
Except as otherwise provided, for purposes of this
Act:
(1) 
BENCHMARK
COVERAGE.—The 
term
‘‘benchmark coverage’’ means the standard option of
the Blue Cross-Blue Shield plan offered under the
Federal Employees Health Benefits Program under
Title I, Subtitle D
chapter 89 of title 5, United States Code, as in ef-
fect during 1995.
(2) CARRIER.—The term ‘‘carrier’’ means a li-
censed insurance company, an entity offering pre-
paid hospital or medical services, and a health main-
tenance organization, and includes a similar organi-
zation regulated under State law for solvency.
(3) CLASS OF FAMILY COVERAGE.—The term
‘‘class of family coverage’’ means the 4 classes de-
scribed in section 1021(a)(3).
(4) FAIR RATING AREA.—The term ‘‘fair rating
area’’ means a geographic area identified by a State
for purposes of section 1021(a)(2).
(5) GROUP HEALTH PLAN.—The term ‘‘group
health plan’’ has the meaning given such term in
section 5000(b)(1) of the Internal Revenue Code of
1986, but does not include any type of coverage ex-
cluded from the definition of a health insurance cov-
erage under paragraph (8)(B).
(6) HEALTH
COVERAGE.—The term ‘‘health
coverage’’ means health insurance coverage provided
by a carrier or medical care provided under a group
health plan.
(7) HEALTH INSURANCE COVERAGE.—
Title I, Subtitle D
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
coverage’’ means any hospital or medical service
policy or certificate, hospital or medical service
plan contract, or health maintenance organiza-
tion group contract offered by a carrier.
(B) EXCEPTION.—Such term does not in-
clude any of the following (or any combination
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) Liability insurance, including gen-
eral liability insurance and automobile li-
ability insurance.
(v) Workers’ compensation or similar
insurance.
(vi) Automobile medical-payment in-
surance.
(vii) Coverage for a specified disease
or illness.
Title I, Subtitle D
(viii) A hospital or fixed indemnity
policy.
(ix) Coverage provided exclusively to
individuals who are not eligible individuals.
(8) HEALTH
MAINTENANCE
ORGANIZATION.—
The term ‘‘health maintenance organization’’ in-
cludes, as defined in standards established under
section 1103, an organization that provides health
benefits coverage which meets specified standards
and provides (or arranges for the provision of) cov-
ered health benefits primarily through a defined set
of providers.
(9) HEALTH
PLAN
CHOICE
ORGANIZATION.—
The term ‘‘health plan choice organization’’ means
an organization established under subtitle E.
(10) HIGH DEDUCTIBLE COVERAGE.—The term
‘‘high deductible coverage’’ means coverage provided
consistent with section 1011(b).
(11) INDIVIDUAL MARKET.—The term ‘‘individ-
ual market’’ means the insurance market offered to
individuals seeking health insurance coverage on be-
half of themselves (and their dependents) insofar as
no employer is seeking such coverage on behalf of
the individual.
(12) MANAGED CARE ARRANGEMENTS.—
Title I, Subtitle D
(A) MANAGED CARE ARRANGEMENT.—The
term ‘‘managed care arrangement’’ means, with
respect to a group health plan or under health
insurance coverage, an arrangement under such
plan or coverage under which providers agree to
provide items and services covered under the ar-
rangement to individuals covered under the
plan or who have such coverage.
(B) 
PROVIDER
NETWORK.—The 
term
‘‘provider network’’ means, with respect to a
group health plan or health insurance coverage,
providers who have entered into an agreement
described in subparagraph (A).
(13) MULTIPLE
EMPLOYER
WELFARE
AR-
RANGEMENT.—The term ‘‘multiple employer welfare
arrangement’’ shall have the meaning applicable
under section 3(40) of the Employee Retirement In-
come Security Act of 1974.
(14) NAIC.—The term ‘‘NAIC’’ means the Na-
tional Association of Insurance Commissioners.
(15) OPTIONS.—Each of the following is a
‘‘type of coverage option’’ in relation to standard
coverage:
(A) FEE-FOR-SERVICE OPTION.—Standard
coverage is considered to provide a ‘‘fee-for-
Title I, Subtitle D
service option’’ if, regardless of whether covered
individuals may receive benefits through a pro-
vider network, benefits with respect to the cov-
ered items and services in the coverage are
made available for such items and services pro-
vided through any lawful provider of such cov-
ered items and services and payment is made to
such a provider whether or not there is a con-
tractual arrangement between the provider and
the carrier or plan.
(B) MANAGED
CARE
OPTION.—Standard
coverage is considered to provide a ‘‘managed
care option’’ if benefits with respect to the cov-
ered items and services in the coverage are
made available exclusively through a provider
network, except in the case of emergency serv-
ices and as otherwise required under law.
(C) POINT-OF-SERVICE OPTION.—Standard
coverage is considered to provide a ‘‘point-of-
service option’’ if the benefits with respect to
covered items and services in the coverage are
made available principally through a managed
care arrangement, with the choice of the en-
rollee to obtain such benefits for items and
services provided through any lawful provider of
Title I, Subtitle D
such covered items and services. The coverage
may provide for different cost sharing schedules
based on whether the items and services are
provided through such an arrangement or out-
side such an arrangement.
(16) QUALIFIED
HEALTH
COVERAGE.—The
term ‘‘qualified health coverage’’ means health cov-
erage that—
(1) provides standard coverage or high-deduct-
ible coverage, and
(2) meets other requirements of subtitle A ap-
plicable to the coverage and the carrier or group
health plan providing the coverage.
(17) SMALL GROUP MARKET.—The term ‘‘small
group market’’ means the insurance market offered
to small employers seeking health insurance coverage
on behalf of their employees (and their dependents),
regardless of whether or not such coverage is made
available directly or through a multiple employer
welfare arrangement, association, or otherwise.
(18) STANDARD COVERAGE.—The term ‘‘stand-
ard coverage’’ means coverage provided consistent
with section 1011(a).
Title I, Subtitle D
(19) STATE COMMISSIONER OF INSURANCE.—
The term ‘‘State commissioner of insurance’’ in-
cludes a State superintendent of insurance.
SEC. 1904. DEFINITIONS RELATING TO RESIDENCE AND IM-
MIGRATION STATUS.
Except as otherwise provided, for purposes of this
Act:
(1) ALIEN
PERMANENTLY
RESIDING
IN
THE
UNITED STATES UNDER COLOR OF LAW.—The term
‘‘alien permanently residing in the United States
under color of law’’ means an alien lawfully admitted
for permanent residence (within the meaning of sec-
tion 101(a)(20) of the Immigration and Nationality
Act), and includes any of the following (such status
not having changed):
(A) An alien who is admitted as a refugee
under section 207 of the Immigration and Na-
tionality Act.
(B) An alien who is granted asylum under
section 208 of such Act.
(C) An alien whose deportation is withheld
under section 243(h) of such Act.
(D) An alien whose deportation is sus-
pended pursuant to section 244 of such Act.
Title I, Subtitle D
(E) An alien who is granted conditional
entry pursuant to section 203(a)(7) of such Act
as in effect before April 1, 1980.
(F) An alien who is admitted for tem-
porary residence under section 210, 210A, or
245A of such Act.
(G) An alien who is within a class of aliens
lawfully present in the United States pursuant
to any other provision of such Act, if (i) the At-
torney General determines that the continued
presence of such class of aliens serves a human-
itarian or other compelling public interest, and
(ii) the Secretary determines that such interest
would be further served by treating each such
alien within such class as a ‘‘legal permanent
resident’’ for purposes of this Act or who has
been granted extended voluntary departure as a
member of a nationality group.
(H) An alien who is the spouse or unmar-
ried child under 21 years of age of a citizen of
the United States, or the parent of such a citi-
zen if the citizen is over 21 years of age, and
with respect to whom an application for adjust-
ment to lawful permanent residence is pending.
Title I, Subtitle D
(I) An alien within such other classification
of permanent resident aliens as the Secretary
may establish by regulation.
(2) LONG-TERM
NONIMMIGRANT.—The term
‘‘long-term nonimmigrant’’ means a nonimmigrant
described in subparagraph (E), (H), (I), (K), (L),
(N), (O), (Q), or (R) of section 101(a)(15) of the
Immigration and Nationality Act.
(3) 
QUALIFYING
INDIVIDUAL.—The 
term
‘‘qualifying individual’’ means, an individual who is
a resident of the United States, who is not a pris-
oner, and is—
(A) a citizen or national of the United
States;
(B) an alien permanently residing in the
United States under color of law (as defined in
paragraph (1)); or
(C) a long-term nonimmigrant (as defined
in paragraph (2)).
SEC. 1905. EFFECTIVE DATES.
The requirements of this title shall apply with respect
to—
(1) group health plans for plan years beginning
on or after January 1, 1997, and
Title II
(2) carriers (with respect to coverage other than
under a group health plan) as of January 1, 1997.
TITLE II—ADMINISTRATIVE
SIMPLIFICATION
SEC. 2000. PURPOSE.
It is the purpose of this title to improve the efficiency
and effectiveness of the health care system, including the
medicare program under title XVIII of the Social Security
Act and the medicaid program under title XIX of such
Act, by encouraging the development of a health informa-
tion network through the adoption of standards and the
establishment of requirements for the electronic trans-
mission of certain health information.
SEC. 2001. DEFINITIONS.
For purposes of this title:
(1) CODE SET.—The term ‘‘code set’’ means
any set of codes used for encoding data elements,
such as tables of terms, medical concepts, medical
diagnostic codes, or medical procedure codes.
(2) COORDINATION OF BENEFITS.—The term
‘‘coordination of benefits’’ means determining and
coordinating the financial obligations of plan spon-
sors when health care benefits are payable by more
than one such sponsor.
Title II
(3) HEALTH INFORMATION.—The term ‘‘health
information’’ means any information that relates to
the past, present, or future physical or mental health
or condition or functional status of an individual,
the provision of health care to an individual, or pay-
ment for the provision of health care to an individ-
ual.
(4) HEALTH
INFORMATION
NETWORK.—The
term ‘‘health information network’’ means the health
information system that is formed through the appli-
cation of the requirements and standards established
under this title.
(5) HEALTH
INFORMATION
NETWORK
SERV-
ICE.—The term ‘‘health information network serv-
ice’’—
(A) means a private entity or an entity op-
erated by a State that enters into contracts—
(i) to process or facilitate the process-
ing of nonstandard data elements of health
information into standard data elements;
(ii) to provide the means by which
persons are connected to the health infor-
mation network for purposes of meeting
the requirements of this title, including the
Title II
holding of standard data elements of
health information;
(iii) to provide authorized access to
health information through the health in-
formation network; or
(iv) to provide specific information
processing services, such as automated co-
ordination of benefits and claims trans-
action routing; and
(B) includes a health information security
organization.
(6) HEALTH INFORMATION SECURITY ORGANI-
ZATION.—The term ‘‘health information security or-
ganization’’ means a private entity or an entity oper-
ated by a State that accesses standard data elements
of health information through the health information
network, processes such information into non-identi-
fiable health information, and may store such infor-
mation.
(7) HEALTH
PROVIDER.—The term ‘‘health
provider’’ includes a provider of services (as defined
in section 1861(u) of the Social Security Act), a pro-
vider of medical or other health services (as defined
in section 1861(s) of such Act), and any other per-
Title II
son (other than a plan sponsor) furnishing health
care items or services.
(8) INDIVIDUALLY IDENTIFIABLE HEALTH IN-
FORMATION.—The term ‘‘individually identifiable
health information’’ means health information in the
health information network—
(A) that identifies an individual who is the
subject of the information; or
(B) with respect to which there is a rea-
sonable basis to believe that the information
can be used to identify such an individual.
(9) NON-IDENTIFIABLE
HEALTH
INFORMA-
TION.—The term ‘‘non-identifiable health informa-
tion’’ means health information that is not individ-
ually identifiable health information.
(10) PLAN SPONSOR.—The term ‘‘plan spon-
sor’’ means—
(A) a carrier (as defined in section
1903(2)) providing health insurance coverage
(as defined in section 1903(7));
(B) a group health plan;
(C) an association or other entity which es-
tablishes or maintains a multiple employer wel-
fare 
arrangement 
(as 
defined 
in 
section
1903(13)) providing benefits consisting of medi-
Title II, Subtitle A
cal care described in section 213(d) of the In-
ternal Revenue Code of 1986; and
(D) a State, or the Federal Government,
acting in a capacity as a provider of health ben-
efits to eligible individuals that is equivalent to
that of a carrier.
(11) STANDARD.—The term ‘‘standard’’, when
used with reference to a transaction or to data ele-
ments of health information, means that the trans-
action or data elements meet any standard adopted
by the Secretary under subtitle A that applies to the
transaction or data elements.
Subtitle A—Standards for Data
Elements and Transactions
SEC. 2101. GENERAL REQUIREMENTS ON SECRETARY.
(a) IN GENERAL.—The Secretary shall adopt stand-
ards and modifications to standards under this subtitle
that are—
(1) consistent with the objective of reducing the
costs of providing and paying for health care; and
(2) in use and generally accepted, developed, or
modified by the standard-setting organizations ac-
credited by the American National Standard Insti-
tute.
Title II, Subtitle A
(b) INITIAL STANDARDS.—The Secretary may de-
velop an expedited process for the adoption of initial
standards under this subtitle.
(c) PROTECTION OF COMMERCIAL INFORMATION.—
In adopting standards under this subtitle, the Secretary
may not require disclosure of trade secrets and confiden-
tial commercial information by any person.
SEC. 2102. STANDARDS FOR DATA ELEMENTS OF HEALTH
INFORMATION.
(a) IN GENERAL.—The Secretary shall adopt stand-
ards necessary to make uniform and compatible for elec-
tronic transmission through the health information net-
work the data elements of any health information that the
Secretary determines is appropriate for transmission in
connection with a transaction described in section 2201.
(b) ADDITIONS.—The Secretary may make additions
to any set of data elements adopted under subsection (a)
as the Secretary determines appropriate in a manner that
minimizes the disruption and cost of compliance with such
additions.
(c) CERTAIN DATA ELEMENTS.—
(1) UNIQUE HEALTH IDENTIFIERS.—The Sec-
retary shall establish a system to provide for a
standard unique health identifier for each individual,
Title II, Subtitle A
employer, plan sponsor, and health provider for use
in the health care system.
(2) CODE SETS.—
(A) IN GENERAL.—The Secretary, in con-
sultation with experts from the private sector
and Federal agencies, shall—
(i) select code sets for appropriate
data elements from among the code sets
that have been developed by private and
public entities; or
(ii) establish code sets for such data
elements if no code sets for the data ele-
ments have been developed.
(B) DISTRIBUTION.—The Secretary shall
establish efficient and low-cost procedures for
distribution of code sets and modifications to
code sets.
SEC. 2103. INFORMATION TRANSACTION STANDARDS.
(a) IN GENERAL.—The Secretary shall adopt tech-
nical standards that are consistent with the health infor-
mation network privacy standards adopted under section
2104 relating to the method by which standard data ele-
ments of health information may be transmitted electroni-
cally, including standards with respect to the format in
which such data elements may be transmitted.
Title II, Subtitle A
(b) SPECIAL RULE FOR COORDINATION OF BENE-
FITS.—Any standard adopted by the Secretary under sub-
section (a) that relates to coordination of benefits shall
provide that a claim for reimbursement for health services
furnished shall be tested, by an algorithm specified by the
Secretary, against all records of enrollment and eligibility
for the individual who received such services that are avail-
able to the recipient of the claim through the health infor-
mation network to determine any primary and secondary
obligors for payment.
(c) ELECTRONIC SIGNATURE.—The Secretary, in co-
ordination with the Secretary of Commerce, shall promul-
gate regulations specifying procedures for the electronic
transmission and authentication of signatures, compliance
with which shall be deemed to satisfy State and Federal
statutory requirements for written signatures with respect
to transactions described in section 2201 and written sig-
natures on health records and prescriptions.
(d) STANDARDS FOR CLAIMS FOR CLINICAL LABORA-
TORY TESTS.—The standards under this section shall pro-
vide that claims for clinical laboratory tests for which ben-
efits are payable by a plan sponsor shall be submitted di-
rectly by the person or entity that performed (or super-
vised the performance of) the tests to the sponsor in a
manner consistent with (and subject to such exceptions
Title II, Subtitle A
as are provided under) the requirement for direct submis-
sion of such claims under the medicare program.
SEC. 2104. HEALTH INFORMATION NETWORK PRIVACY
STANDARDS.
The Secretary shall adopt standards respecting the
privacy of individually identifiable health information that
is in the health information network. Such standards shall
include standards concerning at least the following:
(1) The rights of an individual who is the sub-
ject of such information.
(2) The procedures to be established for the ex-
ercise of such rights.
(3) The uses and disclosures of such informa-
tion that are authorized or required.
(4) Safeguards for the security of such informa-
tion and adequate security practices.
SEC. 2105. TIMETABLES FOR ADOPTION OF STANDARDS.
(a) INITIAL STANDARDS FOR DATA ELEMENTS.—
The Secretary shall adopt standards relating to—
(1) the data elements for the information de-
scribed in section 2102(a) not later than 9 months
after the date of the enactment of this Act (except
in the case of standards with respect to data ele-
ments for claims attachments, which shall be adopt-
Title II, Subtitle A
ed not later than 24 months after the date of the
enactment of this Act); and
(2) any addition to a set of data elements, in
conjunction with making such an addition.
(b) INITIAL PRIVACY STANDARDS.—The Secretary
shall adopt standards relating to the privacy of individ-
ually identifiable health information in the health informa-
tion network under section 2104 not later than 12 months
after the date of the enactment of this Act.
(c) INITIAL STANDARDS FOR INFORMATION TRANS-
ACTIONS.—The Secretary shall adopt standards relating
to information transactions under section 2103 not later
than 18 months after the date of the enactment of this
Act (except in the case of standards for claims attach-
ments, which shall be adopted not later than 24 months
after the date of the enactment of this Act).
(d) MODIFICATIONS TO STANDARDS.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the Secretary shall review the standards
adopted under this subtitle and shall adopt modified
standards as determined appropriate, but not more
frequently than once every 6 months. Any modifica-
tion to standards shall be completed in a manner
which minimizes the disruption to, and costs of com-
pliance incurred by, a plan sponsor, health provider,
Title II, Subtitle A
or health plan choice organization that is required
to comply with subtitle B.
(2) SPECIAL RULES.—
(A) MODIFICATIONS
DURING
FIRST
12-
MONTH PERIOD.—Except with respect to addi-
tions and modifications to code sets under sub-
paragraph (B), the Secretary may not adopt
any modification to a standard adopted under
this subtitle during the 12-month period begin-
ning on the date the standard is adopted, un-
less the Secretary determines that the modifica-
tion is necessary in order to permit a plan spon-
sor, a health provider, or a health plan choice
organization to comply with subtitle B.
(B) ADDITIONS
AND
MODIFICATIONS
TO
CODE SETS.—
(i) IN GENERAL.—The Secretary shall
ensure that procedures exist for the rou-
tine maintenance, testing, enhancement,
and expansion of code sets.
(ii) ADDITIONAL
RULES.—If a code
set is modified under this subsection, the
modified code set shall include instructions
on how data elements that were encoded
prior to the modification are to be con-
Title II, Subtitle B
verted or translated so as to preserve the
value of the data elements. Any modifica-
tion to a code set under this subsection
shall be implemented in a manner that
minimizes the disruption to, and costs of
compliance incurred by, a plan sponsor,
health provider, or health plan choice orga-
nization that is required to comply with
subtitle B.
(e) EVALUATION
OF STANDARDS.—The Secretary
may establish a process to measure or verify the consist-
ency of standards adopted or modified under this subtitle.
Such process may include demonstration projects and
analyses of the cost of implementing such standards and
modifications.
Subtitle B—Requirements with Re-
spect to Certain Transactions
and Information
SEC. 2201. STANDARD TRANSACTIONS AND INFORMATION.
(a) TRANSACTIONS BY SPONSORS.—
(1) TRANSACTIONS
WITH
PROVIDERS.—If a
plan sponsor conducts any of the transactions de-
scribed in paragraph (3) with a health provider—
(A) the transaction shall be a standard
transaction; and
Title II, Subtitle B
(B) the health information transmitted by
the sponsor to the provider or by the provider
to the sponsor in connection with the trans-
action shall be in the form of standard data ele-
ments.
(2) TRANSACTIONS WITH SPONSORS.—If a plan
sponsor conducts any of the transactions described
in paragraph (3) with another plan sponsor—
(A) the transaction shall be a standard
transaction; and
(B) the health information transmitted by
either sponsor in connection with the trans-
action shall be in the form of standard data ele-
ments.
(3) TRANSACTIONS.—The transactions referred
to in paragraphs (1) and (2) are the following:
(A) Verification of eligibility for benefits.
(B) Coordination of benefits.
(C) Claim submission.
(D) Claim attachment submission.
(E) Claim status notification.
(F) Claim status verification.
(G) Claim adjudication.
(H) Payment and remittance advice.
100
Title II, Subtitle B
(I) Certification or authorization of a re-
ferral to a health provider who is not part of a
provider network.
(b) TRANSACTIONS BY CHOICE ORGANIZATIONS.—
(1) IN GENERAL.—If a health plan choice orga-
nization conducts any of the transactions described
in paragraph (2) with a plan sponsor—
(A) the transaction shall be a standard
transaction; and
(B) the health information transmitted by
the organization to the sponsor or by the spon-
sor to the organization in connection with the
transaction shall be in the form of standard
data elements.
(2) TRANSACTIONS.—The transactions referred
to in paragraph (1) are the following:
(A) Enrollment and disenrollment.
(B) Premium payment.
(c) USE OF HEALTH INFORMATION NETWORK SERV-
ICES.—A plan sponsor, a health provider, or a health plan
choice organization may comply with any provision of this
section by entering into an agreement or other arrange-
ment with a health information network service certified
under section 2301 pursuant to which the service under-
101
Title II, Subtitle B
takes the duties applicable to the sponsor, provider, or or-
ganization under the provision.
SEC. 2202. ACCESSING HEALTH INFORMATION FOR AU-
THORIZED PURPOSES.
(a) PROCUREMENT RULE FOR GOVERNMENT AGEN-
CIES.—
(1) IN GENERAL.—A health information secu-
rity organization that is certified under section 2301
shall make available to a Federal or State agency,
pursuant to a cost-type contract (as defined under
the Federal Acquisition Regulation), any non-identi-
fiable health information, including non-identifiable
health information that is derived from individually
identifiable health information, that—
(A) is held by the service or may be ob-
tained by the service under paragraph (2) or
subsection (b);
(B) consists of data elements that are sub-
ject to a standard under subtitle A; and
(C) is requested by the agency to fulfill a
requirement under this Act.
(2) CERTAIN INFORMATION AVAILABLE AT LOW
COST.—If a health information security organization
requires health information consisting of data ele-
ments that are subject to a standard under subtitle
102
Title II, Subtitle B
A from a plan sponsor or a health provider in order
to comply with a request made by a Federal or State
agency under paragraph (1), the sponsor or provider
shall make such information available to such orga-
nization for a charge that does not exceed the rea-
sonable cost of transmitting the information.
(b) PROCUREMENT RULE FOR INFORMATION SECU-
RITY ORGANIZATIONS.—A health information security or-
ganization that makes non-identifiable health information
available to a Federal or State agency under subsection
(a) shall make such non-identifiable information available,
for a charge that does not exceed the reasonable cost of
transmitting the information, to any other health informa-
tion security organization that—
(A) is certified under section 2301; and
(B) requests the information.
SEC. 2203. ENSURING AVAILABILITY OF INFORMATION.
The Secretary shall establish a procedure under
which a plan sponsor or health provider that does not have
the ability to transmit standard data elements directly,
and does not have access to a health information network
service certified under section 2301, may comply with the
provisions of this subtitle.
103
Title II, Subtitle B
SEC. 2304. TIMETABLES FOR COMPLIANCE WITH REQUIRE-
MENTS.
(a) INITIAL COMPLIANCE.—
(1) IN GENERAL.—Not later than 12 months
after the date on which standards are adopted under
subtitle A with respect to a type of transaction, or
data elements for a type of health information, a
plan sponsor, health provider, or health plan choice
organization shall comply with the requirements of
this subtitle with respect to such transaction or in-
formation.
(2) ADDITIONAL DATA ELEMENTS.—Not later
than 12 months after the date on which the Sec-
retary adopts an addition to a set of data elements
for health information under section 2102, a plan
sponsor, health provider, or health plan choice orga-
nization shall comply with the requirements of this
subtitle using such data elements.
(b) COMPLIANCE WITH MODIFIED STANDARDS.—
(1) IN GENERAL.—If the Secretary adopts a
modified standard under section 2105(c), a plan
sponsor, health provider, or health plan choice orga-
nization shall comply with the modified standard at
such time as the Secretary determines appropriate,
taking into account the time needed to comply due
to the nature and extent of the modification.
104
Title II, Subtitle C
(2) SPECIAL RULE.—In the case of a modifica-
tion to a standard that does not occur within the 12-
month period beginning on the date the standard is
adopted, the time determined appropriate by the
Secretary under paragraph (1) may not be—
(A) earlier than the last day of the 90-day
period beginning on the date the modified
standard is adopted; or
(B) later than the last day of the 12-
month period beginning on the date the modi-
fied standard is adopted.
Subtitle C—Miscellaneous
Provisions
SEC. 2301. STANDARDS AND CERTIFICATION FOR HEALTH
INFORMATION NETWORK SERVICES.
(a) STANDARDS
FOR OPERATION.—The Secretary
shall establish standards with respect to the operation of
health information network services, including standards
ensuring that such services—
(1) develop, operate, and cooperate with one an-
other to form the health information network;
(2) meet all of the standards adopted under
part 1 that are applicable to the services;
(3) make public information concerning their
performance, as measured by uniform indicators
105
Title II, Subtitle C
such as accessibility, transaction responsiveness, ad-
ministrative efficiency, reliability, dependability, and
any other indicator determined appropriate by the
Secretary; and
(4) if they are part of a larger organization,
have policies and procedures in place which isolate
their activities with respect to processing informa-
tion in a manner that prevents access to such infor-
mation by such larger organization.
(b) CERTIFICATION BY THE SECRETARY.—
(1) ESTABLISHMENT.—Not later than 18
months after the date of the enactment of this Act,
the Secretary shall establish a certification proce-
dure for health information network services which
ensures that certified services are qualified to meet
the requirements of this title and the standards es-
tablished by the Secretary under this section. Such
certification procedure shall be implemented in a
manner that minimizes the costs and delays of oper-
ations for such services.
(2) APPLICATION.—Each entity desiring to be
certified as a health information network service
shall apply to the Secretary for certification in a
form and manner determined appropriate by the
Secretary.
106
Title II, Subtitle C
(3) AUDITS AND REPORTS.—The procedure es-
tablished under paragraph (1) shall provide for au-
dits by the Secretary and reports by an entity cer-
tified under this section as the Secretary determines
appropriate in order to monitor such entity’s compli-
ance with the requirements of this subtitle and the
standards established by the Secretary under this
section.
(4) RECERTIFICATION.—A health information
network service shall be recertified under this sub-
section at least every 3 years.
(c) LOSS OF CERTIFICATION.—
(1) MANDATORY
TERMINATION.—Except as
provided in paragraph (2), if a health information
network service violates a health information net-
work privacy standard adopted under section 2104
that is applicable to the service, its certification
under this section shall be terminated unless the
Secretary determines that appropriate corrective ac-
tion has been taken.
(2) CONDITIONAL
CERTIFICATION.—The Sec-
retary may establish a procedure under which a
health information network service may remain cer-
tified on a conditional basis if the service is operat-
ing consistently with a plan intended to correct any
107
Title II, Subtitle C
violations described in paragraph (1). Such proce-
dure may provide for the appointment of a trustee
to continue operation of the service until the require-
ments for full certification are met.
(d) CERTIFICATION
BY PRIVATE ENTITIES.—The
Secretary may designate private entities to conduct the
certification procedures established by the Secretary under
this section. A health information network service certified
by such an entity in accordance with such designation
shall be considered to be certified by the Secretary.
(e) INFORMATION HELD BY HEALTH INFORMATION
NETWORK SERVICES.—If a health information network
service certified under this section loses its certified status
or takes any action that would threaten the continued
availability of the standard data elements of health infor-
mation held by such service, such data elements shall be
transferred to another health information network service
certified under this section that has been designated by
the Secretary.
SEC. 2302. IMPOSITION OF ADDITIONAL REQUIREMENTS.
(a) IN GENERAL.—Except as provided in subsection
(c), after the Secretary has established standards under
section 2102 that are necessary to make uniform and com-
patible for electronic transmission the data elements that
the Secretary determines are appropriate for transmission
108
Title II, Subtitle C
in connection with a transaction described in subtitle B,
an individual or entity may not require an individual or
entity, to provide in any manner any additional data ele-
ment in connection with—
(1) the transaction; or
(2) an inquiry with respect to the transaction.
(b) TRANSMISSION METHOD.—Except as provided in
subsection (c), after the Secretary has established stand-
ards under section 2103 relating to the method by which
data elements that the Secretary determines are appro-
priate for transmission in connection with a transaction
described in subtitle B may be transmitted electronically,
an individual or entity may not require an individual or
entity to transmit any data element in a manner inconsist-
ent with the standards in connection with—
(1) the transaction; or
(2) an inquiry with respect to the transaction.
(c) EXCEPTION.—Subsections (a) and (b) do not
apply if—
(1) an individual or entity voluntarily agrees to
provide the additional data element; or
(2) a waiver is granted under subsection (d) to
permit the requirement to be imposed.
(d) CONDITIONS FOR WAIVERS.—
109
Title II, Subtitle C
(1) IN GENERAL.—An individual or entity may
request a waiver from the Secretary in order to im-
pose on an individual or entity a requirement other-
wise prohibited under subsection (a) or (b). Subject
to paragraph (2), the Secretary may grant such a
waiver.
(2) CONSIDERATION OF WAIVER REQUESTS.—A
waiver may not be granted under this subsection to
impose an otherwise prohibited requirement unless
the Secretary determines that the value of any addi-
tional information to be provided under the require-
ment for research or other purposes significantly
outweighs the administrative cost of the imposition
of the requirement, taking into account the burden
of the timing of the imposition of the requirement.
(e) ANONYMOUS REPORTING.—If an individual or en-
tity attempts to impose on an individual or entity a re-
quirement prohibited under subsection (a) or (b), the indi-
vidual or entity on whom the requirement is being imposed
may contact the Secretary. The Secretary shall develop a
procedure under which an individual or entity that con-
tacts the Secretary under the preceding sentence shall re-
main anonymous. The Secretary shall notify the individual
or entity imposing the requirement that the requirement
may not be imposed unless the other individual or entity
110
Title II, Subtitle C
voluntarily agrees to such requirement or a waiver is ob-
tained under subsection (d).
SEC. 2303. EFFECT ON STATE LAW.
(a) IN GENERAL.—Except as otherwise provided in
this section, a provision, requirement, or standard under
this subtitle shall supersede any contrary provision of
State law.
(b) STATE ‘‘QUILL AND PEN’’ LAWS.—A State may
not establish, continue in effect, or enforce any provision
of State law that requires medical or health plan records
(including billing information) to be maintained or trans-
mitted in written rather than electronic form, except
where the Secretary determines that the provision is nec-
essary to prevent fraud and abuse, with respect to con-
trolled substances, or for other purposes.
(c) PUBLIC HEALTH REPORTING.—Nothing in this
title shall be construed to invalidate or limit the authority,
power, or procedures established under any law providing
for the reporting of disease or injury, child abuse, birth,
or death, public health surveillance, or public health inves-
tigation or intervention.
(d) PUBLIC USE FUNCTIONS.—Nothing in this title
shall be construed to limit the authority of a Federal or
State agency to make non-identifiable health information
available for public use.
111
Title III
(e) PAYMENT FOR HEALTH CARE SERVICES OR PRE-
MIUMS.—Nothing in this title shall be construed to pro-
hibit a consumer from paying for health care items or
services, or plan or health insurance coverage premiums,
by debit, credit, or other payment cards or numbers or
other electronic payment means.
TITLE III—FRAUD AND ABUSE
REFORM: ADVISORY OPINIONS
SEC. 3001. AUTHORIZING THE SECRETARY OF HEALTH AND
HUMAN SERVICES TO ISSUE ADVISORY OPIN-
IONS UNDER TITLE XI.
Title XI of the Social Security Act (42 U.S.C. 1301
et seq.) is amended by inserting after section 1128B the
following new section:
‘‘ADVISORY OPINIONS
‘‘SEC. 1129. (a) ISSUANCE
OF ADVISORY OPIN-
IONS.—The Secretary shall issue advisory opinions as pro-
vided in this section.
‘‘(b) MATTERS SUBJECT TO ADVISORY OPINIONS.—
The Secretary shall issue advisory opinions as to the fol-
lowing matters:
‘‘(1) What constitutes prohibited remuneration
within the meaning of section 1128B(b).
‘‘(2) Whether an arrangement or proposed ar-
rangement satisfies the criteria set forth in section
112
Title III
1128B(b)(3) for activities which do not result in
prohibited remuneration.
‘‘(3) Whether an arrangement or proposed ar-
rangement satisfies the criteria which the Secretary
has established, or shall establish by regulation for
activities which do not result in prohibited remu-
neration.
‘‘(4) What constitutes an inducement to reduce
or limit services to individuals entitled to benefits
under title XVIII or title XIX within the meaning
of section 1128B(b).
‘‘(5) Whether an arrangement, activity or pro-
posed arrangement or proposed activity violates any
other provision of this Act.
‘‘(c) MATTERS NOT SUBJECT TO ADVISORY OPIN-
IONS.—Such advisory opinions shall not address the fol-
lowing matters:
‘‘(1) Whether the fair market value shall be, or
was paid or received for any goods, services or prop-
erty.
‘‘(2) Whether an individual is a bona fide em-
ployee within the requirements of section 3121(d)(2)
of the Internal Revenue Code of 1986.
‘‘(d) EFFECT OF ADVISORY OPINIONS.—
113
Title III
‘‘(1) Each advisory opinion issued by the Sec-
retary shall be binding as to the Secretary and the
party or parties requesting the opinion.
‘‘(2) The failure of a party to seek an advisory
opinion may not be introduced into evidence to prove
that the party intended to violate the provisions of
sections 1128, 1128A, or 1128B.
‘‘(e) REGULATIONS.—The Secretary within 180 days
of the date of enactment, shall issue regulations establish-
ing a system for the issuance of advisory opinions. Such
regulations shall provide for—
‘‘(1) the procedure to be followed by a party ap-
plying for an advisory opinion;
‘‘(2) the procedure to be followed by the Sec-
retary in responding to a request for an advisory
opinion;
‘‘(3) the interval in which the Secretary shall
respond;
‘‘(4) the reasonable fee to be charged to the
party requesting an advisory opinion; and
‘‘(5) the manner in which advisory opinions will
be made available to the public.
‘‘(f) INTERVAL FOR ISSUANCE OF ADVISORY OPIN-
IONS.—Under no circumstances shall the interval in which
114
Title III
the Secretary shall respond to a party requesting an advi-
sory opinion exceed 30 days.’’.
SEC. 3002. AUTHORIZING THE SECRETARY OF HEALTH AND
HUMAN SERVICES TO ISSUE ADVISORY OPIN-
IONS RELATING TO PHYSICIAN OWNERSHIP
AND REFERRAL.
Section 1877 of the Social Security Act (42 U.S.C.
1395nn) is amended by the addition of the following new
subsection:
‘‘(i) ADVISORY OPINIONS.—
‘‘(1) IN GENERAL.—The Secretary shall issue
advisory opinions on whether an arrangement or
proposed arrangement will result in a prohibited re-
ferral within the meaning of this section.
‘‘(2) EFFECT OF ADVISORY OPINIONS.—
‘‘(A) Each advisory opinion issued by the
Secretary shall be binding as to the Secretary
and the party or parties requesting the opinion.
‘‘(B) The failure of a party to seek an ad-
visory opinion may not be introduced into evi-
dence to prove that the party intended to vio-
late the provisions of this section.
‘‘(3) REGULATIONS.—The Secretary within one
hundred and eighty days of the date of enactment,
shall issue regulations establishing a system for the
115
Title III
issuance of advisory opinions. Such regulations shall
provide for—
‘‘(A) the procedure to be followed by a
party applying for an advisory opinion;
‘‘(B) the procedure to be followed by the
Secretary in responding to a request for an ad-
visory opinion;
‘‘(C) the interval in which the Secretary
shall respond;
‘‘(D) the reasonable fee to be charged to
the party requesting an advisory opinion; and
‘‘(E) the manner in which advisory opin-
ions will be made available to the public.
‘‘(4) INTERVAL
FOR
ISSUANCE
OF
ADVISORY
OPINIONS.—Under no circumstances shall the inter-
val in which the Secretary shall respond to a party
requesting an advisory opinion exceed thirty days.’’.
SEC. 3003. EFFECTIVE DATE.
Unless otherwise specified, the amendments made by
this title shall be effective upon the enactment of this Act.
116
Title IV, Subtitle A
TITLE IV—MALPRACTICE
REFORM AND ANTITRUST
Subtitle A—Malpractice Reform
PART 1—UNIFORM STANDARDS FOR
MALPRACTICE CLAIMS
SEC. 4001. APPLICABILITY.
Except as provided in section 4021, this part shall
apply to any medical malpractice liability action brought
in a Federal or State court, and to any medical mal-
practice claim subject to an alternative dispute resolution
system, that is initiated on or after January 1, 1996.
SEC. 4002. REQUIREMENT FOR INITIAL RESOLUTION OF AC-
TION THROUGH ALTERNATIVE DISPUTE RES-
OLUTION.
(a) IN GENERAL.—
(1) STATE CASES.—A medical malpractice li-
ability action may not be brought in any State court
during a calendar year unless the medical mal-
practice liability claim that is the subject of the ac-
tion has been initially resolved under an alternative
dispute resolution system certified for the year by
the Secretary under section 4012(a), or, in the case
of a State in which such a system is not in effect
for the year, under the alternative Federal system
established under section 4022(b).
117
Title IV, Subtitle A
(2) FEDERAL DIVERSITY ACTIONS.—A medical
malpractice liability action may not be brought in
any Federal court under section 1332 of title 28,
United States Code, during a calendar year unless
the medical malpractice liability claim that is the
subject of the action has been initially resolved
under the alternative dispute resolution system re-
ferred to in paragraph (1) that applied in the State
whose law applies in such action.
(3) CLAIMS AGAINST UNITED STATES.—
(A) ESTABLISHMENT
OF
PROCESS
FOR
CLAIMS.—The Attorney General shall establish
an alternative dispute resolution process for the
resolution of tort claims consisting of medical
malpractice liability claims brought against the
United States under chapter 171 of title 28,
United States Code. Under such process, the
resolution of a claim shall occur after the com-
pletion of the administrative claim process ap-
plicable to the claim under section 2675 of such
title.
(B) REQUIREMENT FOR INITIAL RESOLU-
TION UNDER PROCESS.—A medical malpractice
liability action based on a medical malpractice
liability claim described in subparagraph (A)