I 
108TH CONGRESS 
2D SESSION 
H. R. 4498 
To establish a national health program administered by the Office of Per-
sonnel Management to offer health benefits plans to individuals who 
are not Federal employees, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 3, 2004 
Mr. KIND (for himself, Mr. JOHN, Mr. ANDREWS, Mr. KENNEDY of Rhode 
Island, Mr. SCHIFF, Mr. SMITH of Washington, and Mr. VAN HOLLEN) 
introduced the following bill; which was referred to the Committee on 
Ways and Means, and in addition to the Committee on Education and 
the Workforce, for a period to be subsequently determined by the Speak-
er, in each case for consideration of such provisions as fall within the ju-
risdiction of the committee concerned 
A BILL 
To establish a national health program administered by the 
Office of Personnel Management to offer health benefits 
plans to individuals who are not Federal employees, and 
for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Small Employers 
Health Benefits Program Act of 2004’’.
SEC. 2. DEFINITIONS. 
(a) IN GENERAL.—In this Act, the terms ‘‘member 
of family’’, ‘‘health benefits plan’’, ‘‘carrier’’, ‘‘employee 
organizations’’, and ‘‘dependent’’ have the meanings given 
such terms in section 8901 of title 5, United States Code. 
(b) OTHER TERMS.—In this Act: 
(1) EMPLOYEE.—The term ‘‘employee’’ has the 
meaning given such term under section 3(6) of the 
Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1002(6)). Such term shall not include an 
employee of the Federal Government. 
(2) EMPLOYER.—The term ‘‘employer has the 
meaning given such term under section 3(5) of the 
Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1002(5)), except that such term shall in-
clude only employers who employed an average of at 
least 1 but not more than 100 employees on busi-
ness days during the year preceding the date of ap-
plication. Such term shall not include the Federal 
Government. 
(3) HEALTH STATUS-RELATED FACTOR.—The 
term ‘‘health status-related factor’’ has the meaning 
given such term in section 2791(d)(9) of the Public 
Health Service Act (42 U.S.C. 300gg–91(d)(9)). 
(4) OFFICE.—The term ‘‘Office’’ means the Of-
fice of Personnel Management.
(5) PARTICIPATING
EMPLOYER.—The term 
‘‘participating employer’’ means an employer that— 
(A) elects to provide comprehensive health 
insurance coverage under this Act to its em-
ployees; and 
(B) is not offering other comprehensive 
health insurance coverage to such employees. 
(c) APPLICATION OF CERTAIN RULES IN DETER-
MINATION OF EMPLOYER SIZE.—For purposes of sub-
section (b)(2): 
(1) APPLICATION OF AGGREGATION RULE FOR 
EMPLOYERS.—All persons treated as a single em-
ployer under subsection (b), (c), (m), or (o) of sec-
tion 414 of the Internal Revenue Code of 1986 shall 
be treated as 1 employer. 
(2) EMPLOYERS NOT IN EXISTENCE IN PRE-
CEDING YEAR.—In the case of an employer which 
was not in existence for the full year prior to the 
date on which the employer applies to participate, 
the determination of whether such employer meets 
the requirements of subsection (b)(2) shall be based 
on the average number of employees that it is rea-
sonably expected such employer will employ on busi-
ness days in the employer’s first full year.
(3) PREDECESSORS.—Any reference in this 
subsection to an employer shall include a reference 
to any predecessor of such employer. 
(d) WAIVER
AND CONTINUATION
OF PARTICIPA-
TION.— 
(1) WAIVER.—The Office may waive the limita-
tions relating to the size of an employer which may 
participate in the health insurance program estab-
lished under this Act on a case by case basis if the 
Office determines that such employer makes a com-
pelling case for such a waiver. In making determina-
tions under this paragraph, the Office may consider 
the effects of the employment of temporary and sea-
sonal workers and other factors. 
(2) CONTINUATION
OF
PARTICIPATION.—An 
employer participating in the program under this 
Act that experiences an increase in the number of 
employees so that such employer has in excess of 
100 employees, may not be excluded from participa-
tion solely as a result of such increase in employees. 
SEC. 3. HEALTH INSURANCE COVERAGE FOR NON-FEDERAL 
EMPLOYEES. 
(a) ADMINISTRATION.—The Office shall administer a 
health insurance program for non-Federal employees and 
employers in accordance with this Act.
(b) REGULATIONS.—Except as provided under this 
Act, the Office shall prescribe regulations to apply the pro-
visions of chapter 89 of title 5, United States Code, to 
the greatest extent practicable to participating carriers, 
employers, and employees covered under this Act. 
(c) LIMITATIONS.—In no event shall the enactment 
of this Act result in— 
(1) any increase in the level of individual or 
Federal Government contributions required under 
chapter 89 of title 5, United States Code, including 
copayments or deductibles; 
(2) any decrease in the types of benefits offered 
under such chapter 89; or 
(3) any other change that would adversely af-
fect the coverage afforded under such chapter 89 to 
employees and annuitants and members of family 
under that chapter. 
(d) ENROLLMENT.—The Office shall develop methods 
to facilitate enrollment under this Act, including the use 
of the Internet. 
(e) CONTRACTS FOR ADMINISTRATION.—The Office 
may enter into contracts for the performance of appro-
priate administrative functions under this Act. 
(f) SEPARATE RISK POOL.—In the administration of 
this Act, the Office shall ensure that covered employees
under this Act are in a risk pool that is separate from 
the risk pool maintained for covered individuals under 
chapter 89 of title 5, United States Code. 
(g) RULE OF CONSTRUCTION.—Nothing in this Act 
shall be construed to require a carrier that is participating 
in the program under chapter 89 of title 5, United States 
Code, to provide health benefits plan coverage under this 
Act. 
SEC. 4. CONTRACT REQUIREMENT. 
(a) IN GENERAL.—The Office may enter into con-
tracts with qualified carriers offering health benefits plans 
of the type described in section 8903 or 8903a of title 
5, United States Code, without regard to section 5 of title 
41, United States Code, or other statutes requiring com-
petitive bidding, to provide health insurance coverage to 
employees of participating employers under this Act. Each 
contract shall be for a uniform term of at least 1 year, 
but may be made automatically renewable from term to 
term in the absence of notice of termination by either 
party. In entering into such contracts, the Office shall en-
sure that health benefits coverage is provided for individ-
uals only, married individuals without children, and fami-
lies. 
(b) ELIGIBILITY.—A carrier shall be eligible to enter 
into a contract under subsection (a) if such carrier—
(1) is licensed to offer health benefits plan cov-
erage in each State in which the plan is offered; and 
(2) meets such other requirements as deter-
mined appropriate by the Office. 
(c) STATEMENT
OF
BENEFITS.—Each contract 
under this Act shall contain a detailed statement of bene-
fits offered and shall include information concerning such 
maximums, limitations, exclusions, and other definitions 
of benefits as the Office considers necessary or desirable. 
(d) STANDARDS.—The minimum standards pre-
scribed for health benefits plans under section 8902(e) of 
title 5, United States Code, and for carriers offering plans, 
shall apply to plans and carriers under this Act. Approval 
of a plan may be withdrawn by the Office only after notice 
and opportunity for hearing to the carrier concerned with-
out regard to subchapter II of chapter 5 and chapter 7 
of title 5, United States Code. 
(e) CONVERSION.— 
(1) IN GENERAL.—A contract may not be made 
or a plan approved under this section if the carrier 
under such contract or plan does not offer to each 
enrollee whose enrollment in the plan is ended, ex-
cept by a cancellation of enrollment, a temporary ex-
tension of coverage during which the individual may 
exercise the option to convert, without evidence of
good health, to a nongroup contract providing health 
benefits. An enrollee who exercises this option shall 
pay the full periodic charges of the nongroup con-
tract. 
(2) NONCANCELLABLE.—The benefits and cov-
erage made available under paragraph (1) are 
noncancellable by the carrier except for fraud, over- 
insurance, or nonpayment of periodic charges. 
(f) RATES.—Rates charged under health benefits 
plans under this Act shall reasonably and equitably reflect 
the cost of the benefits provided. Such rates shall be deter-
mined on a basis which, in the judgment of the Office, 
is consistent with the lowest schedule of basic rates gen-
erally charged for new group health benefits plans issued 
to large employers. The rates determined for the first con-
tract term shall be continued for later contract terms, ex-
cept that they may be readjusted for any later term, based 
on past experience and benefit adjustments under the later 
contract. Any readjustment in rates shall be made in ad-
vance of the contract term in which they will apply and 
on a basis which, in the judgment of the Office, is con-
sistent with the general practice of carriers which issue 
group health benefits plans to large employers. Rates 
charged for coverage under this Act shall not vary based 
on health-status related factors.
(g) REQUIREMENT OF PAYMENT FOR OR PROVISION 
OF HEALTH SERVICE.—Each contract entered into under 
this Act shall require the carrier to agree to pay for or 
provide a health service or supply in an individual case 
if the Office finds that the employee, annuitant, family 
member, former spouse, or person having continued cov-
erage under section 8905a of title 5, United States Code, 
is entitled thereto under the terms of the contract. 
(h) PREEMPTION.—The terms of any contract en-
tered into under this Act that relate to the nature, provi-
sion, or extent of coverage or benefits (including payments 
with respect to benefits) shall supersede and preempt any 
State or local law, or any regulation issued thereunder, 
which relates to health insurance or plans. 
SEC. 5. ELIGIBILITY. 
An individual shall be eligible to enroll in a plan 
under this Act if such individual— 
(1) is an employee of an employer described in 
section 2(b)(2), or is a self employed individual as 
defined in section 401(c)(1)(B) of the Internal Rev-
enue Code of 1986; and 
(2) is not otherwise enrolled or eligible for en-
rollment in a plan under chapter 89 of title 5, 
United States Code.
SEC. 6. ALTERNATIVE CONDITIONS TO FEDERAL EM-
PLOYEE PLANS. 
(a) TREATMENT OF EMPLOYEE.—For purposes of 
enrollment in a health benefits plan under this Act, an 
individual who had coverage under a health insurance plan 
and is not a qualified beneficiary as defined under section 
4980B(g)(1) of the Internal Revenue Code of 1986 shall 
be treated in a similar manner as an individual who begins 
employment as an employee under chapter 89 of title 5, 
United States Code. 
(b) PREEXISTING CONDITION EXCLUSIONS.— 
(1) IN
GENERAL.—Each contract under this 
Act may include a preexisting condition exclusion as 
defined under section 9801(b)(1) of the Internal 
Revenue Code of 1986. 
(2) EXCLUSION PERIOD.— 
(A) IN GENERAL.—A preexisting condition 
exclusion under this subsection shall provide for 
coverage of a preexisting condition to begin not 
later than 6 months after the date on which the 
coverage of the individual under a health bene-
fits plan commences, reduced by 1 month for 
each month that the individual was covered 
under a health insurance plan immediately pre-
ceding the date the individual submitted an ap-
plication for coverage under this Act.
(B) LAPSE IN COVERAGE.—For purposes 
of this paragraph, a lapse in coverage of not 
more than 63 days immediately preceding the 
date of the submission of an application for cov-
erage under this Act shall not be considered a 
lapse in continuous coverage. 
(c) RATES AND PREMIUMS.— 
(1) IN
GENERAL.—Rates charged and pre-
miums paid for a health benefits plan under this 
Act— 
(A) may be adjusted and differ from such 
rates charged and premiums paid for the same 
health benefits plan offered under chapter 89 of 
title 5, United States Code; 
(B) shall be negotiated in the same man-
ner as rates and premiums are negotiated 
under such chapter 89; and 
(C) shall be adjusted to cover the adminis-
trative costs of the Office under this Act. 
(2) DETERMINATIONS.—In determining rates 
and premiums under this Act— 
(A) the age of covered individuals may be 
considered; and 
(B) rebates or lower rates and premiums 
may be set to encourage longevity of coverage.
(d) TERMINATION AND REENROLLMENT.—If an indi-
vidual who is enrolled in a health benefits plan under this 
Act terminates the enrollment, the individual shall not be 
eligible for reenrollment until the first open enrollment pe-
riod following the expiration of 6 months after the date 
of such termination. 
(e) RULE OF CONSTRUCTION.—Nothing in this Act 
shall be construed to limit the application of the service- 
charge system used by the Office for determining profits 
for participating carriers under chapter 89 of title 5, 
United States Code. 
SEC. 7. ENCOURAGING PARTICIPATION BY CARRIERS 
THROUGH ADJUSTMENTS FOR RISK. 
(a) APPLICATION OF RISK CORRIDORS.— 
(1) IN GENERAL.—This section shall only apply 
to carriers with respect to health benefits plans of-
fered under this Act during any of calendar years 
2005 through 2009. 
(2) NOTIFICATION
OF
COSTS
UNDER
THE 
PLAN.—In the case of a carrier that offers a health 
benefits plan under this Act in any of calendar years 
2005 through 2009, the carrier shall notify the Of-
fice, before such date in the succeeding year as the 
Office specifies, of the total amount of costs incurred 
in providing benefits under the health benefits plan
for the year involved and the portion of such costs 
that is attributable to administrative expenses. 
(3) ALLOWABLE
COSTS
DEFINED.—For pur-
poses of this section, the term ‘‘allowable costs’’ 
means, with respect to a health benefits plan offered 
by a carrier under this Act, for a year, the total 
amount of costs described in paragraph (2) for the 
plan and year, reduced by the portion of such costs 
attributable to administrative expenses incurred in 
providing the benefits described in such paragraph. 
(b) ADJUSTMENT OF PAYMENT.— 
(1) NO
ADJUSTMENT
IF
ALLOWABLE
COSTS 
WITHIN 3 PERCENT OF TARGET AMOUNT.—If the al-
lowable costs for the carrier with respect to the 
health benefits plan involved for a calendar year are 
at least 97 percent, but do not exceed 103 percent, 
of the target amount for the plan and year involved, 
there shall be no payment adjustment under this 
section for the plan and year. 
(2) INCREASE
IN
PAYMENT
IF
ALLOWABLE 
COSTS ABOVE 103 PERCENT OF TARGET AMOUNT.— 
(A) COSTS
BETWEEN
103
AND
108
PER-
CENT OF TARGET AMOUNT.—If the allowable 
costs for the carrier with respect to the health 
benefits plan involved for the year are greater
than 103 percent, but not greater than 108 
percent, of the target amount for the plan and 
year, the Office shall reimburse the carrier for 
such excess costs through payment to the car-
rier of an amount equal to 75 percent of the 
difference between such allowable costs and 103 
percent of such target amount. 
(B) COSTS ABOVE 108 PERCENT OF TAR-
GET AMOUNT.—If the allowable costs for the 
carrier with respect to the health benefits plan 
involved for the year are greater than 108 per-
cent of the target amount for the plan and 
year, the Office shall reimburse the carrier for 
such excess costs through payment to the car-
rier in an amount equal to the sum of— 
(i) 3.75 percent of such target 
amount; and 
(ii) 90 percent of the difference be-
tween such allowable costs and 108 percent 
of such target amount. 
(3) REDUCTION
IN
PAYMENT
IF
ALLOWABLE 
COSTS BELOW 97 PERCENT OF TARGET AMOUNT.— 
(A) COSTS BETWEEN 92 AND 97 PERCENT 
OF TARGET AMOUNT.—If the allowable costs for 
the carrier with respect to the health benefits
plan involved for the year are less than 97 per-
cent, but greater than or equal to 92 percent, 
of the target amount for the plan and year, the 
carrier shall be required to pay into the contin-
gency reserve fund maintained under section 
8909(b)(2) of title 5, United States Code, an 
amount equal to 75 percent of the difference 
between 97 percent of the target amount and 
such allowable costs. 
(B) COSTS BELOW 92 PERCENT OF TARGET 
AMOUNT.—If the allowable costs for the carrier 
with respect to the health benefits plan involved 
for the year are less than 92 percent of the tar-
get amount for the plan and year, the carrier 
shall be required to pay into the stabilization 
fund under section 8909(b)(2) of title 5, United 
States Code, an amount equal to the sum of— 
(i) 3.75 percent of such target 
amount; and 
(ii) 90 percent of the difference be-
tween 92 percent of such target amount 
and such allowable costs. 
(4) TARGET AMOUNT DESCRIBED.— 
(A) IN GENERAL.—For purposes of this 
subsection, the term ‘‘target amount’’ means,
with respect to a health benefits plan offered by 
a carrier under this Act in any of calendar 
years 2005 through 2009, an amount equal 
to— 
(i) the total of the monthly premiums 
estimated by the carrier and approved by 
the Office to be paid for enrollees in the 
plan under this Act for the calendar year 
involved; reduced by 
(ii) the amount of administrative ex-
penses that the carrier estimates, and the 
Office approves, will be incurred by the 
carrier with respect to the plan for such 
calendar year. 
(B) SUBMISSION OF TARGET AMOUNT.— 
Not later than December 31, 2004, and each 
December 31 thereafter through calendar year 
2008, a carrier shall submit to the Office a de-
scription of the target amount for such carrier 
with respect to health benefits plans provided 
by the carrier under this Act. 
(c) DISCLOSURE OF INFORMATION.— 
(1) IN
GENERAL.—Each contract under this 
Act shall provide—
(A) that a carrier offering a health benefits 
plan under this Act shall provide the Office 
with such information as the Office determines 
is necessary to carry out this subsection includ-
ing the notification of costs under subsection 
(a)(2) and the target amount under subsection 
(b)(4)(B); and 
(B) that the Office has the right to inspect 
and audit any books and records of the organi-
zation that pertain to the information regarding 
costs provided to the Office under such sub-
sections. 
(2) RESTRICTION ON USE OF INFORMATION.— 
Information disclosed or obtained pursuant to the 
provisions of this subsection may be used by officers, 
employees, and contractors of the Office only for the 
purposes of, and to the extent necessary in, carrying 
out this section. 
SEC. 8. ENCOURAGING PARTICIPATION BY CARRIERS 
THROUGH REINSURANCE. 
(a) ESTABLISHMENT.—The Office shall establish a 
reinsurance fund to provide payments to carriers that ex-
perience one or more catastrophic claims during a year 
for health benefits provided to individuals enrolled in a 
health benefits plan under this Act.
(b) ELIGIBILITY FOR PAYMENTS.—To be eligible for 
a payment from the reinsurance fund for a plan year, a 
carrier under this Act shall submit to the Office an appli-
cation that contains— 
(1) a certification by the carrier that the carrier 
paid for at least one episode of care during the year 
for covered health benefits for an individual in an 
amount that is in excess of $50,000; and 
(2) such other information determined appro-
priate by the Office. 
(c) PAYMENT.— 
(1) IN GENERAL.—The amount of a payment 
from the reinsurance fund to a carrier under this 
section for a catastrophic episode of care shall be de-
termined by the Office but shall not exceed an 
amount equal to 80 percent of the applicable cata-
strophic claim amount. 
(2) 
APPLICABLE
CATASTROPHIC
CLAIM 
AMOUNT.—For purposes of paragraph (1), the appli-
cable catastrophic episode of care amount shall be 
equal to the difference between— 
(A) the amount of the catastrophic claim; 
and 
(B) $50,000.
(3) LIMITATION.—In determining the amount 
of a payment under paragraph (1), if the amount of 
the catastrophic claim exceeds the amount that 
would be paid for the healthcare items or services in-
volved under title XVIII of the Social Security Act 
(42 U.S.C. 1395 et seq.), the Office shall use the 
amount that would be paid under such title XVIII 
for purposes of paragraph (2)(A). 
(d) DEFINITION.—In this section, the term ‘‘cata-
strophic claim’’ means a claim submitted to a carrier, by 
or on behalf of an enrollee in a health benefits plan under 
this Act, that is in excess of $50,000. 
SEC. 9. CONTINGENCY RESERVE FUND. 
Beginning on October 1, 2009, the Office may use 
amounts appropriated under section 14(a) that remain un-
obligated to establish a contingency reserve fund to pro-
vide assistance to carriers offering health benefits plans 
under this Act that experience unanticipated financial 
hardships (as determined by the Office). 
SEC. 10. EMPLOYER PARTICIPATION. 
(a) REGULATIONS.—The Office shall prescribe regu-
lations providing for employer participation under this 
Act, including the offering of health benefits plans under 
this Act to employees.
(b) ENROLLMENT AND OFFERING OF OTHER COV-
ERAGE.— 
(1) ENROLLMENT.—A participating employer 
shall ensure that each eligible employee has an op-
portunity to enroll in a plan under this Act. 
(2) PROHIBITION
ON
OFFERING
OF
OTHER 
COMPREHENSIVE HEALTH BENEFIT COVERAGE.—A 
participating employer may not offer a health insur-
ance plan providing comprehensive health benefit 
coverage to employees other than a health benefits 
plan that— 
(A) meets the requirements described in 
section 4(a); and 
(B) is offered only through the enrollment 
process established by the Office under section 
3. 
(3) OFFER OF SUPPLEMENTARY COVERAGE OP-
TIONS.—A participating employer may offer supple-
mentary coverage options to employees. For pur-
poses of this paragraph, the term ‘‘supplementary 
coverage’’ means benefits described as ‘‘excepted 
benefits’’ under section 2791(c) of the Public Health 
Service Act (42 U.S.C. 300gg–91(c)).
(c) RULE OF CONSTRUCTION.—Nothing in this Act 
shall be construed to require that an employer make pre-
mium contributions on behalf of employees. 
SEC. 11. ADMINISTRATION THROUGH REGIONAL ADMINIS-
TRATIVE ENTITIES. 
(a) IN GENERAL.—In order to provide for the admin-
istration of the benefits under this Act with maximum effi-
ciency and convenience for participating employers and 
health care providers and other individuals and entities 
providing services to such employers, the Office is author-
ized to enter into contracts with eligible entities to per-
form, on a regional basis, one or more of the following: 
(1) Collect and maintain all information relat-
ing to individuals, families, and employers partici-
pating in the program under this Act in the region 
served. 
(2) Receive, disburse, and account for payments 
of premiums to participating employers by individ-
uals in the region served, and for payments by par-
ticipating employers to carriers. 
(3) Serve as a channel of communication be-
tween carriers, participating employers, and individ-
uals relating to the administration of this Act. 
(4) Otherwise carry out such activities for the 
administration of this Act, in such manner, as may
be provided for in the contract entered into under 
this section. 
(5) The processing of grievances and appeals. 
(b) APPLICATION.—To be eligible to receive a con-
tract under subsection (a), an entity shall prepare and 
submit to the Office an application at such time, in such 
manner, and containing such information as the Office 
may require. 
(c) PROCESS.— 
(1) 
COMPETITIVE
BIDDING.—All 
contracts 
under this section shall be awarded through a com-
petitive bidding process on a bi-annual basis. 
(2) REQUIREMENT.—No contract shall be en-
tered into with any entity under this section unless 
the Office finds that such entity will perform its ob-
ligations under the contract efficiently and effec-
tively and will meet such requirements as to finan-
cial responsibility, legal authority, and other matters 
as the Office finds pertinent. 
(3) PUBLICATION
OF
STANDARDS
AND
CRI-
TERIA.—The Office shall publish in the Federal 
Register standards and criteria for the efficient and 
effective performance of contract obligations under 
this section, and opportunity shall be provided for 
public comment prior to implementation. In estab-
lishing such standards and criteria, the Office shall 
provide for a system to measure an entity’s perform-
ance of responsibilities. 
(4) TERM.—Each contract under this section 
shall be for a term of at least 1 year, and may be 
made automatically renewable from term to term in 
the absence of notice by either party of intention to 
terminate at the end of the current term, except that 
the Office may terminate any such contract at any 
time (after such reasonable notice and opportunity 
for hearing to the entity involved as the Office may 
provide in regulations) if the Office finds that the 
entity has failed substantially to carry out the con-
tract or is carrying out the contract in a manner in-
consistent with the efficient and effective adminis-
tration of the program established by this Act. 
(d) TERMS OF CONTRACT.—A contract entered into 
under this section shall include— 
(1) a description of the duties of the con-
tracting entity; 
(2) an assurance that the entity will furnish to 
the Office such timely information and reports as 
the Office determines appropriate; 
(3) an assurance that the entity will maintain 
such records and afford such access thereto as the
Office finds necessary to assure the correctness and 
verification of the information and reports under 
paragraph (2) and otherwise to carry out the pur-
poses of this Act; 
(4) an assurance that the entity shall comply 
with such confidentiality and privacy protection 
guidelines and procedures as the Office may require; 
and 
(5) such other terms and conditions not incon-
sistent with this section as the Office may find nec-
essary or appropriate. 
SEC. 12. COORDINATION WITH SOCIAL SECURITY BENE-
FITS. 
Benefits under this Act shall, with respect to an indi-
vidual who is entitled to benefits under part A of title 
XVIII of the Social Security Act, be offered (for use in 
coordination with those medicare benefits) to the same ex-
tent and in the same manner as if coverage were under 
chapter 89 of title 5, United States Code. 
SEC. 13. PUBLIC EDUCATION CAMPAIGN. 
(a) IN GENERAL.—In carrying out this Act, the Of-
fice shall develop and implement an educational campaign 
to provide information to employers and the general public 
concerning the health insurance program developed under 
this Act.
(b) ANNUAL PROGRESS REPORTS.—Not later than 1 
year and 2 years after the implementation of the campaign 
under subsection (a), the Office shall submit to the appro-
priate committees of Congress a report that describes the 
activities of the Office under subsection (a), including a 
determination by the office of the percentage of employers 
with knowledge of the health benefits programs provided 
for under this Act. 
(c) PUBLIC EDUCATION CAMPAIGN.—There is au-
thorized to be appropriated to carry out this section, such 
sums as may be necessary for each of fiscal years 2005 
and 2006. 
SEC. 14. APPROPRIATIONS. 
(a) MANDATORY APPROPRIATIONS.—There are au-
thorized to be appropriated, and there are appropriated, 
to carry out sections 7 and 8— 
(1) $4,000,000,000 for fiscal year 2005; 
(2) $4,000,000,000 for fiscal year 2006; 
(3) $4,000,000,000 for fiscal year 2007; 
(4) $3,000,000,000 for fiscal year 2008; and 
(5) $3,000,000,000 for fiscal year 2009. 
(b) OTHER APPROPRIATIONS.—There are authorized 
to be appropriated to the Office, such sums as may be 
necessary in each fiscal year for the development and ad-
ministration of the program under this Act.
SEC. 15. REFUNDABLE CREDIT FOR SMALL BUSINESS EM-
PLOYEE HEALTH INSURANCE EXPENSES. 
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to refundable credits) is amended by redes-
ignating section 36 as section 37 and inserting after sec-
tion 35 the following new section: 
‘‘SEC. 36. SMALL BUSINESS EMPLOYEE HEALTH INSURANCE 
EXPENSES. 
‘‘(a) DETERMINATION OF AMOUNT.—In the case of 
a qualified small employer, there shall be allowed as a 
credit against the tax imposed by this subtitle for the tax-
able year an amount equal to the sum of— 
‘‘(1) the expense amount described in sub-
section (b), and 
‘‘(2) the expense amount described in sub-
section (c), 
paid by the taxpayer during the taxable year. 
‘‘(b) SUBSECTION (b) EXPENSE AMOUNT.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The expense amount de-
scribed in this subsection is the applicable percent-
age of the amount of qualified employee health in-
surance expenses of each qualified employee. 
‘‘(2) APPLICABLE PERCENTAGE.—For purposes 
of paragraph (1)—
‘‘(A) IN
GENERAL.—The applicable per-
centage is equal to— 
‘‘(i) 25 percent in the case of self-only 
coverage, 
‘‘(ii) 35 percent in the case of family 
coverage (as defined in section 220(c)(5)), 
and 
‘‘(iii) 30 percent in the case of cov-
erage for married adults with no children. 
‘‘(B) BONUS FOR PAYMENT OF GREATER 
PERCENTAGE
OF
PREMIUMS.—The applicable 
percentage otherwise specified in subparagraph 
(A) shall be increased by 5 percentage points 
for each additional 10 percent of the qualified 
employee health insurance expenses of each 
qualified employee exceeding 60 percent which 
are paid by the qualified small employer. 
‘‘(c) SUBSECTION (c) EXPENSE AMOUNT.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The expense amount de-
scribed in this subsection is, with respect to the first 
credit year of a qualified small employer which is an 
eligible employer, 10 percent of the qualified em-
ployee health insurance expenses of each qualified 
employee.
‘‘(2) FIRST
CREDIT
YEAR.—For purposes of 
paragraph (1), the term ‘first credit year’ means the 
taxable year which includes the date that the health 
insurance coverage to which the qualified employee 
health insurance expenses relate becomes effective. 
‘‘(3) ELIGIBLE
EMPLOYER.—For purposes of 
paragraph (1), the term ‘eligible employer’ shall not 
include a qualified small employer if, during the 3- 
taxable year period immediately preceding the first 
credit year, the employer or any member of any con-
trolled group including the employer (or any prede-
cessor of either) established or maintained health in-
surance coverage for substantially the same employ-
ees as are the qualified employees to which the 
qualified employee health insurance expenses relate. 
‘‘(d) LIMITATION BASED ON WAGES.— 
‘‘(1) IN
GENERAL.—The percentage which 
would (but for this subsection) be taken into account 
as the percentage for purposes of subsection (b)(2) 
or (c)(1) for the taxable year shall be reduced (but 
not below zero) by the percentage determined under 
paragraph (2). 
‘‘(2) AMOUNT OF REDUCTION.— 
‘‘(A) IN GENERAL.—The percentage deter-
mined under this paragraph is the percentage
which bears the same ratio to the percentage 
which would be so taken into account as— 
‘‘(i) the excess of— 
‘‘(I) 
the 
qualified 
employee’s 
wages at an annual rate during such 
taxable year, over 
‘‘(II) $25,000, bears to 
‘‘(ii) $5,000. 
‘‘(B) ANNUAL
ADJUSTMENT.—For each 
taxable year after 2005, the dollar amounts 
specified for the preceding taxable year (after 
the application of this subparagraph) shall be 
increased by the same percentage as the aver-
age percentage increase in premiums under the 
Federal Employees Health Benefits Program 
under chapter 89 of title 5, United States Code 
for the calendar year in which such taxable year 
begins over the preceding calendar year. 
‘‘(e) DEFINITIONS.—For purposes of this section— 
‘‘(1) QUALIFIED SMALL EMPLOYER.—The term 
‘qualified small employer’ means any employer (as 
defined in section 2(b)(2) of the Small Employers 
Health Benefits Program Act of 2004) which— 
‘‘(A) is a participating employer (as de-
fined in section 2(b)(5) of such Act), and
‘‘(B) pays or incurs at least 60 percent of 
the qualified employee health insurance ex-
penses of each qualified employee. 
‘‘(2) QUALIFIED
EMPLOYEE
HEALTH
INSUR-
ANCE EXPENSES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
employee health insurance expenses’ means any 
amount paid by an employer for health insur-
ance coverage under such Act to the extent 
such amount is attributable to coverage pro-
vided to any employee while such employee is a 
qualified employee. 
‘‘(B) EXCEPTION
FOR
AMOUNTS
PAID 
UNDER SALARY REDUCTION ARRANGEMENTS.— 
No amount paid or incurred for health insur-
ance coverage pursuant to a salary reduction 
arrangement shall be taken into account under 
subparagraph (A). 
‘‘(3) QUALIFIED EMPLOYEE.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
employee’ means, with respect to any period, an 
employee (as defined in section 2(b)(1) of such 
Act) of an employer if the total amount of 
wages paid or incurred by such employer to
such employee at an annual rate during the 
taxable year exceeds $5,000. 
‘‘(B) WAGES.—The term ‘wages’ has the 
meaning given such term by section 3121(a) 
(determined without regard to any dollar limita-
tion contained in such section). 
‘‘(f) CERTAIN RULES MADE APPLICABLE.—For pur-
poses of this section, rules similar to the rules of section 
52 shall apply. 
‘‘(g) CREDITS FOR NONPROFIT ORGANIZATIONS.— 
Any credit which would be allowable under subsection (a) 
with respect to a qualified small business if such qualified 
small business were not exempt from tax under this chap-
ter shall be treated as a credit allowable under this sub-
part to such qualified small business.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (2) of section 1324(b) of title 
31, United States Code, is amended by inserting be-
fore the period ‘‘, or from section 36 of such Code’’. 
(2) The table of sections for subpart C of part 
IV of subchapter A of chapter 1 of the Internal Rev-
enue Code of 1986 is amended by striking the last 
item and inserting the following new items: 
‘‘36. Small business employee health insurance expenses. 
‘‘37. Overpayments of tax.’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2004. 
SEC. 16. EFFECTIVE DATE. 
Except as provided in section 10(e), this Act shall 
take effect on the date of enactment of this Act and shall 
apply to contracts that take effect with respect to calendar 
year 2005 and each calendar year thereafter. 
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