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need for covered health care services (consistent
with the national health security spending
growth limit under subsection (b)(2)).
(b) BASIS FOR TOTAL EXPENDITURES.—
(1) IN GENERAL.—The total expenditures speci-
fied in such budget shall be the sum of the capita-
tion amounts computed under section 602(a) and
the amount of Federal administrative expenditures
needed to carry out this Act.
(2) NATIONAL
HEALTH
SECURITY
SPENDING
GROWTH LIMIT.—For purposes of this subtitle, the
national health security spending growth limit de-
scribed in this paragraph for a year is zero, or, if
greater, the percentage increase in the gross domes-
tic product (in current dollars) from the first quar-
ter of the second previous year to the first quarter
of the previous year.
(c) DEFINITIONS.—In this title:
(1) CAPITAL EXPENDITURES.—The term ‘‘cap-
ital expenditures’’ means expenses for the purchase,
lease, construction, or renovation of capital facilities
and for equipment and includes return on equity
capital.
(2) HEALTH
PROFESSIONAL
EDUCATION
EX-
PENDITURES.—The term ‘‘health professional edu-
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cation expenditures’’ means expenditures in hospitals
and other health care facilities to cover costs associ-
ated with teaching and related research activities.
SEC. 602. COMPUTATION OF INDIVIDUAL AND STATE CAPI-
TATION AMOUNTS.
(a) CAPITATION AMOUNTS.—
(1) INDIVIDUAL CAPITATION AMOUNTS.—In es-
tablishing the national health security budget under
section 601(a) and in computing the national aver-
age per capita cost under subsection (b) for each
year, the Board shall establish a method for comput-
ing the capitation amount for each eligible individual
residing in each State. The capitation amount for an
eligible individual in a State classified within a risk
group (established under subsection (d)(2)) is the
product of—
(A) a national average per capita cost for
all covered health care services (computed
under subsection (b)),
(B) the State adjustment factor (estab-
lished under subsection (c)) for the State, and
(C) the risk adjustment factor (established
under subsection (d)) for the risk group.
(2) STATE CAPITATION AMOUNT.—
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(A) IN GENERAL.—For purposes of this
title, the term ‘‘State capitation amount’’
means, for a State for a year, the sum of the
capitation amounts computed under paragraph
(1) for all the residents of the State in the year,
as estimated by the Board before the beginning
of the year involved.
(B) USE
OF
STATISTICAL
MODEL.—The
Board may provide for the computation of
State capitation amounts based on statistical
models that fairly reflect the elements that com-
prise the State capitation amount described in
subparagraph (A).
(C) POPULATION INFORMATION.—The Bu-
reau of the Census shall assist the Board in de-
termining the number, place of residence, and
risk group classification of eligible individuals.
(b) COMPUTATION OF NATIONAL AVERAGE PER CAP-
ITA COST.—
(1) FOR 1995.—For 1995, the national average
per capita cost under this paragraph is equal to—
(A) the average per capita health care ex-
penditures in the United States in 1993 (as
estimated by the Board),
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(B) increased to 1994 by the Board’s esti-
mate of the actual amount of such per capita
expenditures during 1994, and
(C) updated to 1995 by the national health
security spending growth limit specified in sec-
tion 601(b)(2) for 1995.
(2) FOR SUCCEEDING YEARS.—For each suc-
ceeding year, the national average per capita cost
under this subsection is equal to the national aver-
age per capita cost computed under this subsection
for the previous year increased by the national
health security spending growth limit (specified in
section 601(b)(2)) for the year involved.
(c) STATE ADJUSTMENT FACTORS.—
(1) IN
GENERAL.—Subject to the succeeding
paragraphs of this subsection, the Board shall de-
velop for each State a factor to adjust the national
average per capita costs to reflect differences
between the State and the United States in—
(A) average labor and nonlabor costs that
are necessary to provide covered health services;
(B) any social, environmental, or geo-
graphic condition affecting health status or the
need for health care services, to the extent such
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a condition is not taken into account in the es-
tablishment of risk groups under subsection (d);
(C) the geographic distribution of the
State’s population, particularly the proportion
of the population residing in medically under-
served areas, to the extent such a condition is
not taken into account in the establishment of
risk groups under subsection (d); and
(D) any other factor relating to operating
costs required to assure equitable distribution
of funds among the States.
(2) MODIFICATION OF HEALTH PROFESSIONAL
EDUCATION COMPONENT.—With respect to the por-
tion of the national health security budget allocated
to expenditures for health professional education, the
Board shall modify the State adjustment factors so
as to take into account—
(A) differences among States in health
professional education programs in operation as
of the date of the enactment of this Act, and
(B) differences among States in their rel-
ative need for expenditures for health profes-
sional education, taking into account the health
professional education expenditures proposed in
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State health security budgets under section
603(a).
(3) BUDGET NEUTRALITY.—The State adjust-
ment factors, as modified under paragraph (2), shall
be applied under this subsection in a manner that
results in neither an increase nor a decrease in the
total amount of the Federal contributions to all
State health security programs under subsection (b)
as a result of the application of such factors.
(4) PHASE-IN.—In applying State adjustment
factors under this subsection during the five-year pe-
riod beginning with 1995, the Board shall phase-in,
over such period, the use of factors described in
paragraph (1) in a manner so that the adjustment
factor for a State is based on a blend of such factors
and a factor that reflects the relative actual average
per capita costs of health services of the different
States as of the time of enactment of this Act.
(5) PERIODIC
ADJUSTMENT.—In establishing
the national health security budget before the begin-
ning of each year, the Board shall provide for appro-
priate adjustments in the State adjustment factors
under this subsection.
(d) ADJUSTMENTS FOR RISK GROUP CLASSIFICA-
TION.—
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(1) IN GENERAL.—The Board shall develop an
adjustment factor to the national average per capita
costs computed under subsection (b) for individuals
classified in each risk group (as designated under
paragraph (2)) to reflect the difference between the
average national average per capita costs and the
national average per capita cost for individuals clas-
sified in the risk group.
(2) RISK GROUPS.—The Board shall designate
a series of risk groups, determined by age, health in-
dicators, and other factors that represent distinct
patterns of health care services utilization and costs.
(3) PERIODIC
ADJUSTMENT.—In establishing
the national health security budget before the begin-
ning of each year, the Board shall provide for appro-
priate adjustments in the risk adjustment factors
under this subsection.
SEC. 603. STATE HEALTH SECURITY BUDGETS.
(a) ESTABLISHMENT AND SUBMISSION OF BUDG-
ETS.—
(1) IN GENERAL.—Each State health security
program shall establish and submit to the Board for
each year a proposed and a final State health secu-
rity budget, which specifies the following:
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(A) The total expenditures (including ex-
penditures for administrative costs) to be made
under the program in the State for covered
health care services under this Act, consistent
with subsection (b), broken down as follows:
(i) By the 4 components (described in
section 601(a)(2)), consistent with sub-
section (b).
(ii) Within the operating component—
(I) expenditures for operating
costs of hospitals and other facility-
based services in the State,
(II) expenditures for payment to
comprehensive health service organiza-
tions,
(III) expenditures for payment of
services provided by health care prac-
titioners, and
(IV) expenditures for other cov-
ered items and services.
Amounts included in the operating compo-
nent include amounts that may be used by
providers for capital expenditures.
(B) The total revenues required to meet
the State health security expenditures.
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(2) PROPOSED BUDGET DEADLINE.—The pro-
posed budget for a year shall be submitted under
paragraph (1) not later than June 1 before the year.
(3) FINAL BUDGET.—The final budget for a
year shall—
(A) be established and submitted under
paragraph (1) not later than October 1 before
the year, and
(B) take into account the amounts estab-
lished under the national health security budget
under section 601 for the year.
(4) 
ADJUSTMENT
IN
ALLOCATIONS
PER-
MITTED.—
(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), in the case of a final
budget, a State may change the allocation of
amounts among components.
(B) NOTICE.—No such change may be
made unless the State has provided prior notice
of the change to the Board.
(C) DENIAL.—Such a change may not be
made if the Board, within such time period as
the Board specifies, disapproves such change.
(b) EXPENDITURE LIMITS.—
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(1) IN GENERAL.—The total expenditures speci-
fied in each State health security budget under sub-
section (a)(1) shall take into account Federal
contributions made under section 604.
(2) LIMIT ON CLAIMS PROCESSING AND BILL-
ING
EXPENDITURES.—Each State health security
budget shall provide that State administrative ex-
penditures, including expenditures for claims proc-
essing and billing, shall not exceed 3 percent of the
total expenditures under the State health security
program, unless the Board determines, on a case-by-
case basis, that additional administrative expendi-
tures would improve health care quality and cost
effectiveness.
(3) WORKER ASSISTANCE.—A State health se-
curity program may provide that, for budgets for
years before 2000, up to 1 percent of the budget
may be used for purposes of programs providing as-
sistance to workers who are currently performing
functions in the administration of the health insur-
ance system and who may experience economic dis-
location as a result of the implementation of the
program.
(c) APPROVAL PROCESS
FOR CAPITAL EXPENDI-
TURES PERMITTED.—Nothing in this title shall be con-
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strued as preventing a State health security program from
providing for a process for the approval of capital expendi-
tures based on information derived from regional planning
agencies.
SEC. 604. FEDERAL PAYMENTS TO STATES.
(a) IN GENERAL.—Each State with an approved
State health security program is entitled to receive, from
amounts in the National Health Security Trust Fund, on
a monthly basis each year, of an amount equal to one-
twelfth of the product of—
(1) the State capitation amount (computed
under section 602(a)(2)) for the State for the year,
and
(2) the Federal contribution percentage (estab-
lished under subsection (b)).
(b) FEDERAL CONTRIBUTION PERCENTAGE.—The
Board shall establish a formula for the establishment of
a Federal contribution percentage for each State. Such
formula shall take into consideration a State’s per capita
income and revenue capacity and such other relevant eco-
nomic indicators as the Board determines to be appro-
priate. In addition, during the 5-year period beginning
with 1995, the Board may provide for a transition adjust-
ment to the formula in order to take into account current
expenditures by the State (and local governments thereof)
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for health services covered under the State health security
program. The weighted-average Federal contribution per-
centage for all States shall equal 86 percent and in no
event shall such percentage be less than 81 percent nor
more than 91 percent.
(c) USE OF PAYMENTS.—All payments made under
this section may only be used to carry out the State health
security program.
(d) EFFECT OF SPENDING EXCESS OR SURPLUS.—
(1) SPENDING EXCESS.—If a State exceeds it’s
budget in a given year, the State shall continue to
fund covered health services from its own revenues.
(2) SURPLUS.—If a State provides all covered
health services for less than the budgeted amount
for a year, it may retain its Federal payment for
that year for uses consistent with this Act.
SEC. 605. ACCOUNT FOR HEALTH PROFESSIONAL EDU-
CATION EXPENDITURES.
(a) SEPARATE ACCOUNT.—Each State health secu-
rity program shall—
(1) include a separate account for health pro-
fessional education expenditures, and
(2) specify the general manner, consistent with
subsection (b), in which such expenditures are to be