492
SEC. 4612. OXYGEN AND OXYGEN EQUIPMENT.
Section 1834(a)(9)(C) (42 U.S.C. 1395m(a)(9)(C))
is amended—
(1) by striking ‘‘and’’ at the end of clause (iii);
(2) in clause (iv)—
(A) by striking ‘‘a subsequent year’’ and
inserting ‘‘1993, 1994, 1995, 1996, and 1997’’,
and
(B) by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following new
clauses:
‘‘(v) in each of the years 1998
through 2002, is 80 percent of the national
limited monthly payment rate computed
under subparagraph (B) for the item for
the year; and
‘‘(vi) in a subsequent year, is the na-
tional limited monthly payment rate com-
puted under subparagraph (B) for the item
for the year.’’.
SEC. 4613. REDUCTION IN UPDATES TO PAYMENT AMOUNTS
FOR CLINICAL DIAGNOSTIC LABORATORY
TESTS.
(a) 
CHANGE
IN
UPDATE.—Section
1833(h)(2)(A)(ii)(IV) (42 U.S.C. 1395l(h)(2)(A)(ii)(IV))
493
is amended by inserting ‘‘and 1998 through 2002’’ after
‘‘1995’’.
(b) LOWERING CAP ON PAYMENT AMOUNTS.—Sec-
tion 1833(h)(4)(B) (42 U.S.C. 1395l(h)(4)(B)) is amend-
ed—
(1) in clause (vi), by striking ‘‘and’’ at the end;
(2) in clause (vii)—
(A) by inserting ‘‘and before January 1,
1998,’’ after ‘‘1995,’’, and
(B) by striking the period at the end and
inserting ‘‘, and’’; and
(3) by adding at the end the following new
clause:
‘‘(viii) after December 31, 1997, is equal to 72
percent of such median.’’.
SEC. 4614. SIMPLIFICATION IN ADMINISTRATION OF LAB-
ORATORY TESTS.
(a) SELECTION OF REGIONAL CARRIERS.—
(1) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the
‘‘Secretary’’) shall—
(A) divide the United States into no more
than 5 regions, and
(B) designate a single carrier for each such
region,
494
for the purpose of payment of claims under part B
of title XVIII of the Social Security Act with respect
to clinical diagnostic laboratory tests (other than for
tests performed in physician offices) furnished on or
after such date (not later than January 1, 1999) as
the Secretary specifies.
(2) DESIGNATION.—In designating such car-
riers, the Secretary shall consider, among other cri-
teria—
(A) a carrier’s timeliness, quality, and ex-
perience in claims processing, and
(B) a carrier’s capacity to conduct elec-
tronic data interchange with laboratories and
data matches with other carriers.
(3) SINGLE DATA RESOURCE.—The Secretary
may select one of the designated carriers to serve as
a central statistical resource for all claims informa-
tion relating to such clinical diagnostic laboratory
tests handled by all the designated carriers under
such part.
(4) ALLOCATION OF CLAIMS.—The allocation of
claims for clinical diagnostic laboratory tests to par-
ticular designated carriers shall be based on whether
a carrier serves the geographic area where the lab-
495
oratory specimen was collected or other method
specified by the Secretary.
(b) ADOPTION OF UNIFORM POLICIES FOR CLINICAL
LABORATORY TESTS.—
(1) IN GENERAL.—Not later than July 1, 1998,
the Secretary shall first adopt, consistent with para-
graph (2), uniform coverage, administration, and
payment policies for clinical diagnostic laboratory
tests under part B of title XVIII of the Social Secu-
rity Act, using a negotiated rulemaking process
under subchapter III of chapter 5 of title 5, United
States Code.
(2) CONSIDERATIONS IN DESIGN OF UNIFORM
POLICIES.—The policies under paragraph (1) shall
be designed to promote uniformity and program in-
tegrity and reduce administrative burdens with re-
spect to clinical diagnostic laboratory tests payable
under such part in connection with the following:
(A) Beneficiary information required to be
submitted with each claim or order for labora-
tory tests.
(B) Physicians’ obligations regarding docu-
mentation requirements and recordkeeping.
(C) Procedures for filing claims and for
providing remittances by electronic media.
496
(D) The documentation of medical neces-
sity.
(E) Limitation on frequency of coverage
for the same tests performed on the same indi-
vidual.
(3) CHANGES
IN
CARRIER
REQUIREMENTS
PENDING ADOPTION OF UNIFORM POLICY.—During
the period that begins on the date of the enactment
of this Act and ends on the date the Secretary first
implements uniform policies pursuant to regulations
promulgated under this subsection, a carrier under
such part may implement changes relating to re-
quirements for the submission of a claim for clinical
diagnostic laboratory tests.
(4) USE
OF
INTERIM
REGIONAL
POLICIES.—
After the date the Secretary first implements such
uniform policies, the Secretary shall permit any car-
rier to develop and implement interim policies of the
type described in paragraph (1), in accordance with
guidelines established by the Secretary, in cases in
which a uniform national policy has not been estab-
lished under this subsection and there is a dem-
onstrated need for a policy to respond to aberrant
utilization or provision of unnecessary services. Ex-
cept as the Secretary specifically permits, no policy
497
shall be implemented under this paragraph for a pe-
riod of longer than 2 years.
(5) INTERIM
NATIONAL
POLICIES.—After the
date the Secretary first designates regional carriers
under subsection (a), the Secretary shall establish a
process under which designated carriers can collec-
tively develop and implement interim national stand-
ards of the type described in paragraph (1). No such
policy shall be implemented under this paragraph for
a period of longer than 2 years.
(6) BIENNIAL
REVIEW
PROCESS.—Not less
often than once every 2 years, the Secretary shall
solicit and review comments regarding changes in
the uniform policies established under this sub-
section. As part of such biennial review process, the
Secretary shall specifically review and consider
whether to incorporate or supersede interim, re-
gional, or national policies developed under para-
graph (4) or (5). Based upon such review, the Sec-
retary may provide for appropriate changes in the
uniform policies previously adopted under this sub-
section.
(7) NOTICE.— Before a carrier implements a
change or policy under paragraph (3), (4), or (5),
the carrier shall provide for advance notice to inter-
498
ested parties and a 45-day period in which such par-
ties may submit comments on the proposed change.
(c) INCLUSION OF LABORATORY REPRESENTATIVE
ON CARRIER ADVISORY COMMITTEES.—The Secretary
shall direct that any advisory committee established by
such a carrier, to advise with respect to coverage, adminis-
tration or payment policies under part B of title XVIII
of the Social Security Act, shall include an individual to
represent the interest and views of independent clinical
laboratories and such other laboratories as the Secretary
deems appropriate. Such individual shall be selected by
such committee from among nominations submitted by na-
tional and local organizations that represent independent
clinical laboratories.
SEC. 4615. UPDATES FOR AMBULATORY SURGICAL SERV-
ICES.
Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is
amended by striking all that follows ‘‘shall be increased’’
and inserting the following: ‘‘as follows:
‘‘(i) For fiscal years 1996 and 1997, by the
percentage increase in the consumer price index for
all urban consumers (U.S. city average) as estimated
by the Secretary for the 12-month period ending
with the midpoint of the year involved.
499
‘‘(ii) For each of fiscal years 1998 through
2002 by such percentage increase minus 2.0 percent-
age points.
‘‘(iii) For each succeeding fiscal year by such
percentage increase.’’.
SEC. 
4616. 
REIMBURSEMENT 
FOR 
DRUGS 
AND
BIOLOGICALS.
(a) IN GENERAL.—Section 1842 (42 U.S.C. 1395u)
is amended by inserting after subsection (n) the following
new subsection:
‘‘(o) If a physician’s, supplier’s, or any other person’s
bill or request for payment for services includes a charge
for a drug or biological for which payment may be made
under this part and the drug or biological is not paid on
a cost or prospective payment basis as otherwise provided
in this part, the amount payable for the drug or biological
is equal to 95 percent of the average wholesale price.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to drugs and biologicals furnished on
or after January 1, 1998.
SEC. 4617. COVERAGE OF ORAL ANTI-NAUSEA DRUGS
UNDER CHEMOTHERAPEUTIC REGIMEN.
(a) IN GENERAL.—Section 1861(s)(2) (42 U.S.C.
1395x(s)(2)), as amended, is amended by inserting after
subparagraph (S) the following new subparagraph:
500
‘‘(T) an oral drug (which is approved by the
Federal Food and Drug Administration) prescribed
for use as an acute anti-emetic used as part of an
anticancer chemotherapeutic regimen if the drug is
administered by a physician (or as prescribed by a
physician)—
‘‘(i) for use immediately before, at, or
within 48 hours after the time of the adminis-
tration of the anticancer chemotherapeutic
agent; and
‘‘(ii) as a full replacement for the anti-
emetic therapy which would otherwise be ad-
ministered intravenously.’’.
(b) PAYMENT LEVELS.—Section 1834 (42 U.S.C.
1395m), as amended by sections 4421(a)(2) and
4431(b)(2), is amended by adding at the end the following
new subsection:
‘‘(m) SPECIAL RULES
FOR PAYMENT
FOR ORAL
ANTI-NAUSEA DRUGS.—
‘‘(1) LIMITATION
ON
PER
DOSE
PAYMENT
BASIS.—Subject to paragraph (2), the per dose pay-
ment basis under this part for oral anti-nausea
drugs (as defined in paragraph (3)) administered
during a year shall not exceed 90 percent of the av-
erage per dose payment basis for the equivalent in-
501
travenous anti-emetics administered during the year,
as computed based on the payment basis applied
during 1996.
‘‘(2) AGGREGATE LIMIT.—The Secretary shall
make such adjustment in the coverage of, or pay-
ment basis for, oral anti-nausea drugs so that cov-
erage of such drugs under this part does not result
in any increase in aggregate payments per capita
under this part above the levels of such payments
per capita that would otherwise have been made if
there were no coverage for such drugs under this
part.
‘‘(3) ORAL
ANTI-NAUSEA
DRUGS
DEFINED.—
For purposes of this subsection, the term ‘oral anti-
nausea drugs’ means drugs for which coverage is
provided under this part pursuant to section
1861(s)(2)(P).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to items and services furnished on
or after January 1, 1998.
SEC. 4618. RURAL HEALTH CLINIC SERVICES.
(a) PER-VISIT PAYMENT LIMITS
FOR PROVIDER-
BASED CLINICS.—
(1) EXTENSION OF LIMIT.—
502
(A) IN GENERAL.—The matter in section
1833(f) (42 U.S.C. 1395l(f)) preceding para-
graph (1) is amended by striking ‘‘independent
rural health clinics’’ and inserting ‘‘rural health
clinics (other than such clinics in rural hospitals
with less than 50 beds)’’.
(B) EFFECTIVE
DATE.—The amendment
made by subparagraph (A) applies to services
furnished after 1997.
(2) 
TECHNICAL
CLARIFICATION.—Section
1833(f)(1) (42 U.S.C. 1395l(f)(1)) is amended by
inserting ‘‘per visit’’ after ‘‘$46’’.
(b) ASSURANCE OF QUALITY SERVICES.—
(1) IN
GENERAL.—Subparagraph (I) of the
first sentence of section 1861(aa)(2) (42 U.S.C.
1395x(aa)(2)) is amended to read as follows:
‘‘(I) has a quality assessment and perform-
ance improvement program, and appropriate
procedures for review of utilization of clinic
services, as the Secretary may specify,’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on January 1,
1998.
(c) WAIVER OF CERTAIN STAFFING REQUIREMENTS
LIMITED TO CLINICS IN PROGRAM.—
503
(1) IN GENERAL.—Section 1861(aa)(7)(B) (42
U.S.C. 1395x(aa)(7)(B)) is amended by inserting
before the period at the end the following: ‘‘, or if
the facility has not yet been determined to meet the
requirements (including subparagraph (J) of the
first sentence of paragraph (2)) of a rural health
clinic’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) applies to waiver requests made
after 1997.
(d) REFINEMENT
OF SHORTAGE AREA REQUIRE-
MENTS.—
(1) DESIGNATION REVIEWED TRIENNIALLY.—
Section 1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is
amended in the second sentence, in the matter in
clause (i) preceding subclause (I)—
(A) by striking ‘‘and that is designated’’
and inserting ‘‘and that, within the previous
three-year period, has been designated’’; and
(B) by striking ‘‘or that is designated’’ and
inserting ‘‘or designated’’.
(2) AREA MUST HAVE SHORTAGE OF HEALTH
CARE
PRACTITIONERS.—Section 1861(aa)(2) (42
U.S.C. 1395x(aa)(2)), as amended by paragraph (1),
504
is further amended in the second sentence, in the
matter in clause (i) preceding subclause (I)—
(A) by striking the comma after ‘‘personal
health services’’; and
(B) by inserting ‘‘and in which there are
insufficient numbers of needed health care prac-
titioners (as determined by the Secretary),’’
after ‘‘Bureau of the Census)’’.
(3) PREVIOUSLY QUALIFYING CLINICS GRAND-
FATHERED ONLY TO PREVENT SHORTAGE.—Section
1861(aa)(2) (42 U.S.C. 1395x(aa)(2)) is amended in
the third sentence by inserting before the period ‘‘if
it is determined, in accordance with criteria estab-
lished by the Secretary in regulations, to be essential
to the delivery of primary care services that would
otherwise be unavailable in the geographic area
served by the clinic’’.
(4) EFFECTIVE DATES; IMPLEMENTING REGU-
LATIONS.—
(A) IN
GENERAL.—Except as otherwise
provided, the amendments made by the preced-
ing paragraphs take effect on January 1 of the
first calendar year beginning at least one month
after enactment of this Act.
505
(B) CURRENT RURAL HEALTH CLINICS.—
The amendments made by the preceding para-
graphs take effect, with respect to entities that
are rural health clinics under title XVIII of the
Social Security Act on the date of enactment of
this Act, on January 1 of the second calendar
year following the calendar year specified in
subparagraph (A).
(C) GRANDFATHERED CLINICS.—
(i) IN
GENERAL.—The amendment
made by paragraph (3) shall take effect on
the effective date of regulations issued by
the Secretary under clause (ii).
(ii) REGULATIONS.—The Secretary
shall issue final regulations implementing
paragraph (3) that shall take effect no
later than January 1 of the third calendar
year beginning at least one month after en-
actment of this Act.
SEC. 4619. INCREASED MEDICARE REIMBURSEMENT FOR
NURSE 
PRACTITIONERS 
AND 
CLINICAL
NURSE SPECIALISTS.
(a) REMOVAL OF RESTRICTIONS ON SETTINGS.—
506
(1) IN
GENERAL.—Clause (ii) of section
1861(s)(2)(K) 
(42 
U.S.C. 
1395x(s)(2)(K)) 
is
amended to read as follows:
‘‘(ii) services which would be physicians’ serv-
ices if furnished by a physician (as defined in sub-
section (r)(1)) and which are performed by a nurse
practitioner or clinical nurse specialist (as defined in
subsection (aa)(5)) working in collaboration (as de-
fined in subsection (aa)(6)) with a physician (as de-
fined in subsection (r)(1)) which the nurse practi-
tioner or clinical nurse specialist is legally authorized
to perform by the State in which the services are
performed, and such services and supplies furnished
as an incident to such services as would be covered
under subparagraph (A) if furnished incident to a
physician’s professional service, but only if no facil-
ity or other provider charges or is paid any amounts
with respect to the furnishing of such services;’’.
(2) CONFORMING AMENDMENTS.—(A) Section
1861(s)(2)(K) 
of 
such 
Act 
(42 
U.S.C.
1395x(s)(2)(K)) is further amended—
(i) in clause (i), by inserting ‘‘and such
services and supplies furnished as incident to
such services as would be covered under sub-
paragraph (A) if furnished incident to a physi-
507
cian’s professional service; and’’ after ‘‘are per-
formed,’’; and
(ii) by striking clauses (iii) and (iv).
(B) 
Section 
1861(b)(4) 
(42 
U.S.C.
1395x(b)(4)) is amended by striking ‘‘clauses (i) or
(iii) of subsection (s)(2)(K)’’ and inserting ‘‘sub-
section (s)(2)(K)’’.
(C) 
Section 
1862(a)(14) 
(42 
U.S.C.
1395y(a)(14)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and insert-
ing ‘‘section 1861(s)(2)(K)’’.
(D) 
Section 
1866(a)(1)(H) 
(42 
U.S.C.
1395cc(a)(1)(H)) is amended by striking ‘‘section
1861(s)(2)(K)(i) or 1861(s)(2)(K)(iii)’’ and insert-
ing ‘‘section 1861(s)(2)(K)’’.
(E) 
Section 
1888(e)(2)(A)(ii) 
(42 
U.S.C.
1395yy(e)(2)(A)(ii)), as added by section 10401(a),
is amended by striking ‘‘through (iii)’’ and inserting
‘‘and (ii)’’.
(b) INCREASED PAYMENT.—
(1) FEE SCHEDULE AMOUNT.—Clause (O) of
section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is
amended to read as follows: ‘‘(O) with respect to
services described in section 1861(s)(2)(K)(ii) (relat-
ing to nurse practitioner or clinical nurse specialist
508
services), the amounts paid shall be equal to 80 per-
cent of (i) the lesser of the actual charge or 85 per-
cent of the fee schedule amount provided under sec-
tion 1848, or (ii) in the case of services as an assist-
ant at surgery, the lesser of the actual charge or 85
percent of the amount that would otherwise be rec-
ognized if performed by a physician who is serving
as an assistant at surgery; and’’.
(2) CONFORMING AMENDMENTS.—(A) Section
1833(r) (42 U.S.C. 1395l(r)) is amended—
(i) in paragraph (1), by striking ‘‘section
1861(s)(2)(K)(iii) (relating to nurse practi-
tioner or clinical nurse specialist services pro-
vided in a rural area)’’ and inserting ‘‘section
1861(s)(2)(K)(ii) (relating to nurse practitioner
or clinical nurse specialist services)’’;
(ii) by striking paragraph (2);
(iii) in paragraph (3), by striking ‘‘section
1861(s)(2)(K)(iii)’’ 
and 
inserting 
‘‘section
1861(s)(2)(K)(ii)’’; and
(iv) by redesignating paragraph (3) as
paragraph (2).
(B) 
Section 
1842(b)(12)(A) 
(42 
U.S.C.
1395u(b)(12)(A)) is amended, in the matter preced-
ing clause (i), by striking ‘‘clauses (i), (ii), or (iv) of
509
section 1861(s)(2)(K) (relating to a physician assist-
ants and nurse practitioners)’’ and inserting ‘‘sec-
tion 1861(s)(2)(K)(i) (relating to physician assist-
ants)’’.
(c) DIRECT PAYMENT FOR NURSE PRACTITIONERS
AND CLINICAL NURSE SPECIALISTS.—
(1) IN
GENERAL.—Section 1832(a)(2)(B)(iv)
(42 U.S.C. 1395k(a)(2)(B)(iv)) is amended by strik-
ing ‘‘provided in a rural area (as defined in section
1886(d)(2)(D))’’ and inserting ‘‘but only if no facil-
ity or other provider charges or is paid any amounts
with respect to the furnishing of such services’’.
(2) 
CONFORMING
AMENDMENT.—Section
1842(b)(6)(C) 
(42 
U.S.C. 
1395u(b)(6)(C)) 
is
amended—
(A) by striking ‘‘clauses (i), (ii), or (iv)’’
and inserting ‘‘clause (i)’’; and
(B) by striking ‘‘or nurse practitioner’’.
(d) DEFINITION OF CLINICAL NURSE SPECIALIST
CLARIFIED.—Section 
1861(aa)(5) 
(42 
U.S.C.
1395x(aa)(5)) is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(5)’’;
(2) by striking ‘‘The term ‘physician assist-
ant’ ’’ and all that follows through ‘‘who performs’’
and inserting ‘‘The term ‘physician assistant’ and
510
the term ‘nurse practitioner’ mean, for purposes of
this title, a physician assistant or nurse practitioner
who performs’’; and
(3) by adding at the end the following new sub-
paragraph:
‘‘(B) The term ‘clinical nurse specialist’ means, for
purposes of this title, an individual who—
‘‘(i) is a registered nurse and is licensed to
practice nursing in the State in which the clinical
nurse specialist services are performed; and
‘‘(ii) holds a master’s degree in a defined clini-
cal area of nursing from an accredited educational
institution.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to services furnished
and supplies provided on and after January 1, 1998.
SEC. 4620. INCREASED MEDICARE REIMBURSEMENT FOR
PHYSICIAN ASSISTANTS.
(a) REMOVAL OF RESTRICTION ON SETTINGS.—Sec-
tion 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) is
amended—
(1) by striking ‘‘(I) in a hospital’’ and all that
follows through ‘‘shortage area,’’, and
(2) by adding at the end the following: ‘‘but
only if no facility or other provider charges or is
511
paid any amounts with respect to the furnishing of
such services,’’.
(b) INCREASED PAYMENT.—Paragraph (12) of sec-
tion 1842(b) (42 U.S.C. 1395u(b)), as amended by section
4619(b)(2)(B), is amended to read as follows:
‘‘(12) With respect to services described in section
1861(s)(2)(K)(i)—
‘‘(A) payment under this part may only be
made on an assignment-related basis; and
‘‘(B) the amounts paid under this part shall be
equal to 80 percent of (i) the lesser of the actual
charge or 85 percent of the fee schedule amount
provided under section 1848 for the same service
provided by a physician who is not a specialist; or
(ii) in the case of services as an assistant at surgery,
the lesser of the actual charge or 85 percent of the
amount that would otherwise be recognized if per-
formed by a physician who is serving as an assistant
at surgery.’’.
(c) REMOVAL
OF RESTRICTION
ON EMPLOYMENT
RELATIONSHIP.—Section 
1842(b)(6) 
(42 
U.S.C.
1395u(b)(6)) is amended by adding at the end the follow-
ing new sentence: ‘‘For purposes of clause (C) of the first
sentence of this paragraph, an employment relationship
may include any independent contractor arrangement, and
512
employer status shall be determined in accordance with
the law of the State in which the services described in such
clause are performed.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to services furnished
and supplies provided on and after January 1, 1998.
SEC. 4621. RENAL DIALYSIS-RELATED SERVICES.
(a) AUDITING OF COST REPORTS.—The Secretary
shall audit a sample of cost reports of renal dialysis pro-
viders for 1995 and for each third year thereafter.
(b) IMPLEMENTATION OF QUALITY STANDARDS.—
The Secretary of Health and Human Services shall de-
velop and implement, by not later than January 1, 1999,
a method to measure and report quality of renal dialysis
services provided under the medicare program under title
XVIII of the Social Security Act in order to reduce pay-
ments for inappropriate or low quality care.
SEC. 4622. PAYMENT FOR COCHLEAR IMPLANTS AS CUS-
TOMIZED DURABLE MEDICAL EQUIPMENT.
(a) IN GENERAL.—Section 1834(h)(1)(E) (42 U.S.C.
1395m(h)(1)(E)) is amended by adding at the end the fol-
lowing: ‘‘Payment for cochlear implants shall be made in
accordance with subsection (a)(4), and, in applying such
subsection to cochlear implants, carriers shall take into
consideration technological innovations and data on
513
charges to the extent that such charges reflect such inno-
vations.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to implants implanted on or after
January 1, 1998.
CHAPTER 3—PART B PREMIUM
SEC. 4631. PART B PREMIUM.
(a) IN GENERAL.—The first, second and third sen-
tences of section 1839(a)(3) (42 U.S.C. 1395r(a)(3)) are
amended to read as follows: ‘‘The Secretary, during Sep-
tember of each year, shall determine and promulgate a
monthly premium rate for the succeeding calendar year.
That monthly premium rate shall be equal to 50 percent
of the monthly actuarial rate for enrollees age 65 and over,
determined according to paragraph (1), for that succeed-
ing calendar year.’’.
(b) CONFORMING AND TECHNICAL AMENDMENTS.—
(1) SECTION 1839.—Section 1839 (42 U.S.C.
1395r) is amended—
(A) in subsection (a)(2), by striking ‘‘(b)
and (e)’’ and inserting ‘‘(b), (c), and (f)’’,
(B) in the last sentence of subsection
(a)(3)—
(i) by inserting ‘‘rate’’ after ‘‘pre-
mium’’, and
514
(ii) by striking ‘‘and the derivation of
the dollar amounts specified in this para-
graph’’,
(C) by striking subsection (e), and
(D) by redesignating subsection (g) as sub-
section (e) and inserting that subsection after
subsection (d).
(2) SECTION 1844.—Subparagraphs (A)(i) and
(B)(i) 
of 
section 
1844(a)(1) 
(42 
U.S.C.
1395w(a)(1)) are each amended by striking ‘‘or
1839(e), as the case may be’’.
Subtitle H—Provisions Relating to
Parts A and B
CHAPTER 1—PROVISIONS RELATING TO
MEDICARE SECONDARY PAYER
SEC. 4701. PERMANENT EXTENSION AND REVISION OF CER-
TAIN SECONDARY PAYER PROVISIONS.
(a) APPLICATION
TO DISABLED INDIVIDUALS
IN
LARGE GROUP HEALTH PLANS.—
(1) IN GENERAL.—Section 1862(b)(1)(B) (42
U.S.C. 1395y(b)(1)(B)) is amended—
(A) in clause (i), by striking ‘‘clause (iv)’’
and inserting ‘‘clause (iii)’’,
(B) by striking clause (iii), and
515
(C) by redesignating clause (iv) as clause
(iii).
(2) CONFORMING
AMENDMENTS.—Paragraphs
(1) through (3) of section 1837(i) (42 U.S.C.
1395p(i)) and the second sentence of section
1839(b) (42 U.S.C. 1395r(b)) are each amended by
striking ‘‘1862(b)(1)(B)(iv)’’ each place it appears
and inserting ‘‘1862(b)(1)(B)(iii)’’.
(b) INDIVIDUALS WITH END STAGE RENAL DIS-
EASE.—
(1) IN GENERAL.—Section 1862(b)(1)(C) (42
U.S.C. 1395y(b)(1)(C)) is amended—
(A) in the first sentence, by striking ‘‘12-
month’’ each place it appears and inserting
‘‘30-month’’, and
(B) by striking the second sentence.
(2) EFFECTIVE DATE.—The amendments made
by paragraph (1) shall apply to items and services
furnished on or after the date of the enactment of
this Act and with respect to periods beginning on or
after the date that is 18 months prior to such date.
(c) IRS-SSA-HCFA DATA MATCH.—
(1) 
SOCIAL
SECURITY
ACT.—Section
1862(b)(5)(C) 
(42 
U.S.C. 
1395y(b)(5)(C)) 
is
amended by striking clause (iii).
516
(2) 
INTERNAL
REVENUE
CODE.—Section
6103(l)(12) of the Internal Revenue Code of 1986 is
amended by striking subparagraph (F).
SEC. 4702. CLARIFICATION OF TIME AND FILING LIMITA-
TIONS.
(a) EXTENSION OF CLAIMS FILING PERIOD.—Sec-
tion 1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amend-
ed by adding at the end the following new clause:
‘‘(v) CLAIMS-FILING
PERIOD.—Not-
withstanding any other time limits that
may exist for filing a claim under an em-
ployer group health plan, the United
States may seek to recover conditional pay-
ments in accordance with this subpara-
graph where the request for payment is
submitted to the entity required or respon-
sible under this subsection to pay with re-
spect to the item or service (or any portion
thereof) under a primary plan within the
3-year period beginning on the date on
which the item or service was furnished.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to items and services furnished after
1990. The previous sentence shall not be construed as per-
mitting any waiver of the 3-year-period requirement (im-
517
posed by such amendment) in the case of items and serv-
ices furnished more than 3 years before the date of the
enactment of this Act.
SEC. 4703. PERMITTING RECOVERY AGAINST THIRD PARTY
ADMINISTRATORS.
(a) PERMITTING RECOVERY AGAINST THIRD PARTY
ADMINISTRATORS
OF
PRIMARY
PLANS.—Section
1862(b)(2)(B)(ii) (42 U.S.C. 1395y(b)(2)(B)(ii)) is
amended—
(1) by striking ‘‘under this subsection to pay’’
and inserting ‘‘(directly, as a third-party adminis-
trator, or otherwise) to make payment’’, and
(2) by adding at the end the following: ‘‘The
United States may not recover from a third-party
administrator under this clause in cases where the
third-party administrator would not be able to re-
cover the amount at issue from the employer or
group health plan for whom it provides administra-
tive services due to the insolvency or bankruptcy of
the employer or plan.’’.
(b) CLARIFICATION OF BENEFICIARY LIABILITY.—
Section 1862(b)(1) (42 U.S.C. 1395y(b)(1)) is amended
by adding at the end the following new subparagraph:
‘‘(F) LIMITATION ON BENEFICIARY LIABIL-
ITY.—An individual who is entitled to benefits
518
under this title and is furnished an item or
service for which such benefits are incorrectly
paid is not liable for repayment of such benefits
under this paragraph unless payment of such
benefits was made to the individual.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to items and services furnished on or
after the date of the enactment of this Act.
CHAPTER 2—HOME HEALTH SERVICES
SEC. 4711. RECAPTURING SAVINGS RESULTING FROM TEM-
PORARY FREEZE ON PAYMENT INCREASES
FOR HOME HEALTH SERVICES.
(a) BASING UPDATES TO PER VISIT COST LIMITS ON
LIMITS FOR FISCAL YEAR 1993.—Section 1861(v)(1)(L)
(42 U.S.C. 1395x(v)(1)(L)) is amended by adding at the
end the following:
‘‘(iv) In establishing limits under this subparagraph
for cost reporting periods beginning after September 30,
1997, the Secretary shall not take into account any
changes in the home health market basket, as determined
by the Secretary, with respect to cost reporting periods
which began on or after July 1, 1994, and before July
1, 1996.’’.
(b) NO EXCEPTIONS PERMITTED BASED ON AMEND-
MENT.—The Secretary of Health and Human Services
519
shall not consider the amendment made by subsection (a)
in making any exemptions and exceptions pursuant to sec-
tion 1861(v)(1)(L)(ii) of the Social Security Act (42
U.S.C. 1395x(v)(1)(L)(ii)).
SEC. 4712. INTERIM PAYMENTS FOR HOME HEALTH SERV-
ICES.
(a) 
REDUCTIONS
IN
COST
LIMITS.—Section
1861(v)(1)(L)(i) (42 U.S.C. 1395x(v)(1)(L)(i)) is amend-
ed—
(1) by moving the indentation of subclauses (I)
through (III) 2-ems to the left;
(2) in subclause (I), by inserting ‘‘of the mean
of the labor-related and nonlabor per visit costs for
freestanding home health agencies’’ before the
comma at the end;
(3) in subclause (II), by striking ‘‘, or’’ and in-
serting ‘‘of such mean,’’;
(4) in subclause (III)—
(A) by inserting ‘‘and before October 1,
1997,’’ after ‘‘July 1, 1987,’’, and
(B) by striking the comma at the end and
inserting ‘‘of such mean, or’’; and
(5) by striking the matter following subclause
(III) and inserting the following:
520
‘‘(IV) October 1, 1997, 105 percent of the me-
dian of the labor-related and nonlabor per visit costs
for freestanding home health agencies.’’.
(b) DELAY IN UPDATES.—Section 1861(v)(1)(L)(iii)
(42 U.S.C. 1395x(v)(1)(L)(iii)) is amended by inserting
‘‘, or on or after July 1, 1997, and before October 1,
1997’’ after ‘‘July 1, 1996’’.
(c) 
ADDITIONS
TO
COST
LIMITS.—Section
1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)), as amended by
section 4711(a), is amended by inserting adding at the
end the following new clauses:
‘‘(v) For services furnished by home health agencies
for cost reporting periods beginning on or after October
1, 1997, the Secretary shall provide for an interim system
of limits. Payment shall not exceed the costs determined
under the preceding provisions of this subparagraph or,
if lower, the product of—
‘‘(I) an agency-specific per beneficiary annual
limitation calculated based 75 percent on the reason-
able costs (including nonroutine medical supplies)
for the agency’s 12-month cost reporting period end-
ing during 1994, and based 25 percent on the stand-
ardized regional average of such costs for the agen-
cy’s region for cost reporting periods ending during
521
1994, such costs updated by the home health market
basket index; and
‘‘(II) the agency’s unduplicated census count of
patients (entitled to benefits under this title) for the
cost reporting period subject to the limitation.
‘‘(vi) For services furnished by home health agencies
for cost reporting periods beginning on or after October
1, 1997, the following rules apply:
‘‘(I) For new providers and those providers
without a 12-month cost reporting period ending in
calendar year 1994, the per beneficiary limitation
shall be equal to the median of these limits (or the
Secretary’s best estimates thereof) applied to other
home health agencies as determined by the Sec-
retary. A home health agency that has altered its
corporate structure or name shall not be considered
a new provider for this purpose.
‘‘(II) For beneficiaries who use services fur-
nished by more than one home health agency, the
per beneficiary limitations shall be prorated among
the agencies.’’.
(d) DEVELOPMENT
OF CASE MIX SYSTEM.—The
Secretary of Health and Human Services shall expand re-
search on a prospective payment system for home health
agencies under the medicare program that ties prospective
522
payments to a unit of service, including an intensive effort
to develop a reliable case mix adjuster that explains a sig-
nificant amount of the variances in costs.
(e) SUBMISSION OF DATA FOR CASE MIX SYSTEM.—
Effective for cost reporting periods beginning on or after
October 1, 1997, the Secretary of Health and Human
Services may require all home health agencies to submit
additional information that the Secretary considers nec-
essary for the development of a reliable case mix system.
SEC. 4713. CLARIFICATION OF PART-TIME OR INTERMIT-
TENT NURSING CARE.
(a) IN GENERAL.—Section 1861(m) (42 U.S.C.
1395x(m)) is amended by adding at the end the following:
‘‘For purposes of paragraphs (1) and (4), the term ‘part-
time or intermittent services’ means skilled nursing and
home health aide services furnished any number of days
per week as long as they are furnished (combined) less
than 8 hours each day and 28 or fewer hours each week
(or, subject to review on a case-by-case basis as to the
need for care, less than 8 hours each day and 35 or fewer
hours per week). For purposes of sections 1814(a)(2)(C)
and 1835(a)(2)(A), ‘intermittent’ means skilled nursing
care that is either provided or needed on fewer than 7
days each week, or less than 8 hours of each day for peri-
ods of 21 days or less (with extensions in exceptional cir-
523
cumstances when the need for additional care is finite and
predictable).’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to services furnished on or after Oc-
tober 1, 1997.
SEC. 4714. STUDY ON DEFINITION OF HOMEBOUND.
(a) STUDY.—The Secretary of Health and Human
Services shall conduct a study of the criteria that should
be applied, and the method of applying such criteria, in
the determination of whether an individual is homebound
for purposes of qualifying for receipt of benefits for home
health services under the medicare program. Such criteria
shall include the extent and circumstances under which
a person may be absent from the home but nonetheless
qualify.
(b) REPORT.—Not later than October 1, 1998, the
Secretary shall submit a report to the Congress on the
study conducted under subsection (a). The report shall in-
clude specific recommendations on such criteria and meth-
ods.
SEC. 4715. PAYMENT BASED ON LOCATION WHERE HOME
HEALTH SERVICE IS FURNISHED.
(a) CONDITIONS OF PARTICIPATION.—Section 1891
(42 U.S.C. 1395bbb) is amended by adding at the end
the following:
524
‘‘(g) PAYMENT ON BASIS OF LOCATION OF SERV-
ICE.—A home health agency shall submit claims for pay-
ment for home health services under this title only on the
basis of the geographic location at which the service is fur-
nished, as determined by the Secretary.’’.
(b) WAGE ADJUSTMENT.—Section 1861(v)(1)(L)(iii)
(42 U.S.C. 1395x(v)(1)(L)(iii)) is amended by striking
‘‘agency is located’’ and inserting ‘‘service is furnished’’.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to cost reporting periods beginning on
or after October 1, 1997.
SEC. 4716. NORMATIVE STANDARDS FOR HOME HEALTH
CLAIMS DENIALS,
(a) IN GENERAL.—Section 1862(a)(1) (42 U.S.C.
1395y(a)(1)), as amended by section 4103(c), is amend-
ed—
(1) by striking ‘‘and’’ at the end of subpara-
graph (G),
(2) by striking the semicolon at the end of sub-
paragraph (H) and inserting ‘‘, and’’, and
(3) by inserting after subparagraph (H) the fol-
lowing new subparagraph:
‘‘(I) the frequency and duration of home health
services which are in excess of normative guidelines
that the Secretary shall establish by regulation;’’.
525
(b) NOTIFICATION.—The Secretary of Health and
Human Services may establish a process for notifying a
physician in cases in which the number of home health
service visits furnished under the medicare program pur-
suant to a prescription or certification of the physician sig-
nificantly exceeds such threshold (or thresholds) as the
Secretary specifies. The Secretary may adjust such thresh-
old to reflect demonstrated differences in the need for
home health services among different beneficiaries.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after October
1, 1997.
SEC. 4717. NO HOME HEALTH BENEFITS BASED SOLELY ON
DRAWING BLOOD.
(a) IN
GENERAL.—Sections 1814(a)(2)(C) and
1835(a)(2)(A) 
(42 
U.S.C. 
1395f(a)(2)(C),
1395n(a)(2)(A)) are each amended by inserting ‘‘(other
than solely venipuncture for the purpose of obtaining a
blood sample)’’ after ‘‘skilled nursing care’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to home health services furnished
after the 6–month period beginning after the date of en-
actment of this Act.
526
SEC. 4718. MAKING PART B PRIMARY PAYOR FOR CERTAIN
HOME HEALTH SERVICES.
(a) IN
GENERAL.—Section 1833(d) (42 U.S.C.
1395l(d)) is amended—
(1) by striking ‘‘(d) No’’ and inserting ‘‘(d)(1)
Subject to paragraph (2), no’’, and
(2) by adding at the end the following new
paragraph:
‘‘(2) Payment shall be made under this part (rather
than under part A), for an individual entitled to benefits
under part A, for home health services, other than the first
100 visits of post-hospital home health services furnished
to an individual.’’.
(b) POST-HOSPITAL HOME HEALTH SERVICES.—
Section 1861 (42 U.S.C. 1395x) is amended by adding
at the end the following:
‘‘(ss) POST-HOSPITAL HOME HEALTH SERVICES.—
The term ‘post-hospital home health services’ means home
health services furnished to an individual under a plan of
treatment established when the individual was an inpa-
tient of a hospital or rural primary care hospital for not
less than 3 consecutive days before discharge, or during
a covered post-hospital extended care stay, if home health
services are initiated for the individual within 30 days
after discharge from the hospital, rural primary care hos-
pital or extended care facility.’’.
527
(c) PAYMENTS UNDER PART B.—Subparagraph (A)
of section 1833(a)(2) (42 U.S.C. 1395l(a)(2)) is amended
to read as follows:
‘‘(A) with respect to home health services
(other than a covered osteoporosis drug (as de-
fined in section 1861(kk)), and to items and
services described in section 1861(s)(10)(A),
the 
amounts 
determined 
under 
section
1861(v)(1)(L) or section 1893, or, if the serv-
ices are furnished by a public provider of serv-
ices, or by another provider which demonstrates
to the satisfaction of the Secretary that a sig-
nificant portion of its patients are low-income
(and requests that payment be made under this
provision), free of charge, or at nominal charges
to the public, the amount determined in accord-
ance with section 1814(b)(2);’’.
(d) PHASE-IN OF ADDITIONAL PART B COSTS IN
DETERMINATION OF PART B MONTHLY PREMIUM.—Sec-
tion 1839(a) (42 U.S.C. 1395r(a)) is amended—
(1) in paragraph (3) in last the sentence in-
serted by section 4631(a) of this title, by inserting
‘‘(except as provided in paragraph (5)(B))’’ before
the period, and
(2) by adding after paragraph (4) the following:
528
‘‘(5)(A) The Secretary shall, at the time of determin-
ing the monthly actuarial rate under paragraph (1) for
1998 through 2003, shall determine a transitional month-
ly actuarial rate for enrollees age 65 and over in the same
manner as such rate is determined under paragraph (1),
except that there shall be excluded from such determina-
tion an estimate of any benefits and administrative costs
attributable to home health services for which payment
would have been made under part A during the year but
for paragraph (2) of section 1833(d).
‘‘(B) The monthly premium for each individual en-
rolled under this part for each month for a year (beginning
with 1998 and ending with 2003) shall be equal to 50
percent of the monthly actuarial rate determined under
subparagraph (A) increased by the following proportion of
the difference between such premium and the monthly pre-
mium otherwise determined under paragraph (3) (without
regard to this paragraph):
‘‘(i) For a month in 1998, 1⁄7.
‘‘(ii) For a month in 1999, 2⁄7.
‘‘(iii) For a month in 2000, 3⁄7.
‘‘(iv) For a month in 2001, 4⁄7.
‘‘(v) For a month in 2002, 5⁄7.
‘‘(vi) For a month in 2003, 6⁄7.’’.
529
(e) MAINTAINING
APPEAL
RIGHTS
FOR
HOME
HEALTH SERVICES.—Section 1869(b)(2)(B) (42 U.S.C.
1395ff(b)(2)(B)) is amended by inserting ‘‘(or $100 in the
case of home health services)’’ after ‘‘$500’’.
(f) REPORT.—Not later than October 1, 1999, the
Secretary of Health and Human Services shall submit a
report to the Committees on Commerce and Ways and
Means of the House of Representatives and the Committee
on Finance of the Senate on the impact on home health
utilization and admissions to hospitals and skilled nursing
facilities of the amendment made by subsection (b). The
Secretary shall further reexamine and submit a report to
such Committees on this impact 1 year after the full im-
plementation of the prospective payment system for home
health services into the medicare program, effected under
the amendments made by section 4441.
(g) EFFECTIVE DATE.—The amendments made by
this section apply to services furnished on or after October
1, 1997.
530
CHAPTER 3—BABY BOOM GENERATION
MEDICARE COMMISSION
SEC. 4721. BIPARTISAN COMMISSION ON THE EFFECT OF
THE BABY BOOM GENERATION ON THE MEDI-
CARE PROGRAM.
(a) ESTABLISHMENT.—There is established a com-
mission to be known as the Bipartisan Commission on the
Effect of the Baby Boom Generation on the Medicare Pro-
gram (in this section referred to as the ‘‘Commission’’).
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall—
(A) examine the financial impact on the
medicare program of the significant increase in
the number of medicare eligible individuals
which will occur beginning approximately dur-
ing 2010 and lasting for approximately 25
years, and
(B) make specific recommendations to the
Congress respecting a comprehensive approach
to preserve the medicare program for the period
during which such individuals are eligible for
medicare.
(2) 
CONSIDERATIONS
IN
MAKING
REC-
OMMENDATIONS.—In making its recommendations,
the Commission shall consider the following:
531
(A) The amount and sources of Federal
funds to finance the medicare program, includ-
ing the potential use of innovative financing
methods.
(B) Methods used by other nations to re-
spond to comparable demographic patterns in
eligibility for health care benefits for elderly
and disabled individuals.
(C) Modifying age-based eligibility to cor-
respond to changes in age-based eligibility
under the OASDI program.
(D) Trends in employment-related health
care for retirees, including the use of medical
savings accounts and similar financing devices.
(E) The role medicare should play in ad-
dressing the needs of persons with chronic ill-
ness.
(c) MEMBERSHIP.—
(1) APPOINTMENT.—The Commission shall be
composed of 15 voting members as follows:
(A) The Majority Leader of the Senate
shall appoint, after consultation with the minor-
ity leader of the Senate, 6 members, of whom
not more than 4 may be of the same political
party.
532
(B) The Speaker of the House of Rep-
resentatives shall appoint, after consultation
with the minority leader of the House of Rep-
resentatives, 6 members, of whom not more
than 4 may be of the same political party.
(C) The 3 ex officio members of the Board
of Trustees of the Federal Hospital Insurance
Trust Fund and of the Federal Supplementary
Medical Insurance Trust Fund who are Cabinet
level officials.
(2) CHAIRMAN AND VICE CHAIRMAN.—As the
first item of business at the Commission’s first
meeting (described in paragraph (5)(B)), the Com-
mission shall elect a Chairman and Vice Chairman
from among its members. The individuals elected as
Chairman and Vice Chairman may not be of the
same political party and may not have been ap-
pointed to the Commission by the same appointing
authority.
(3) VACANCIES.—Any vacancy in the member-
ship of the Commission shall be filled in the manner
in which the original appointment was made and
shall not affect the power of the remaining members
to execute the duties of the Commission.
533
(4) QUORUM.—A quorum shall consist of 8
members of the Commission, except that 4 members
may conduct a hearing under subsection (f).
(5) MEETINGS.—
(A) The Commission shall meet at the call
of its Chairman or a majority of its members.
(B) The Commission shall hold its first
meeting not later than February 1, 1998.
(6) COMPENSATION AND REIMBURSEMENT OF
EXPENSES.—Members of the Commission are not
entitled to receive compensation for service on the
Commission. Members may be reimbursed for travel,
subsistence, and other necessary expenses incurred
in carrying out the duties of the Commission.
(d) ADVISORY PANEL.—
(1) IN GENERAL.—The Chairman, in consulta-
tion with the Vice Chairman, may establish a panel
(in this section referred to as the ‘‘Advisory Panel’’)
consisting of health care experts, consumers, provid-
ers, and others to advise and assist the members of
the Commission in carrying out the duties described
in subsection (b). The panel shall have only those
powers that the Chairman, in consultation with the
Vice Chairman, determines are necessary and appro-
534
priate to assist the Commission in carrying out such
duties.
(2) COMPENSATION.—Members of the Advisory
Panel are not entitled to receive compensation for
service on the Advisory Panel. Subject to the ap-
proval of the chairman of the Commission, members
may be reimbursed for travel, subsistence, and other
necessary expenses incurred in carrying out the du-
ties of the Advisory Panel.
(e) STAFF AND CONSULTANTS.—
(1) STAFF.—The Commission may appoint and
determine the compensation of such staff as may be
necessary to carry out the duties of the Commission.
Such appointments and compensation may be made
without regard to the provisions of title 5, United
States Code, that govern appointments in the com-
petitive services, and the provisions of chapter 51
and subchapter III of chapter 53 of such title that
relate to classifications and the General Schedule
pay rates.
(2) CONSULTANTS.—The Commission may pro-
cure such temporary and intermittent services of
consultants under section 3109(b) of title 5, United
States Code, as the Commission determines to be
necessary to carry out the duties of the Commission.
535
(f) POWERS.—
(1) HEARINGS
AND
OTHER
ACTIVITIES.—For
the purpose of carrying out its duties, the Commis-
sion may hold such hearings and undertake such
other activities as the Commission determines to be
necessary to carry out its duties.
(2) STUDIES BY GAO.—Upon the request of the
Commission, the Comptroller General shall conduct
such studies or investigations as the Commission de-
termines to be necessary to carry out its duties.
(3) COST
ESTIMATES
BY
CONGRESSIONAL
BUDGET OFFICE.—
(A) Upon the request of the Commission,
the Director of the Congressional Budget Office
shall provide to the Commission such cost esti-
mates as the Commission determines to be nec-
essary to carry out its duties.
(B) The Commission shall reimburse the
Director of the Congressional Budget Office for
expenses relating to the employment in the of-
fice of the Director of such additional staff as
may be necessary for the Director to comply
with requests by the Commission under sub-
paragraph (A).
536
(4) DETAIL OF FEDERAL EMPLOYEES.—Upon
the request of the Commission, the head of any Fed-
eral agency is authorized to detail, without reim-
bursement, any of the personnel of such agency to
the Commission to assist the Commission in carry-
ing out its duties. Any such detail shall not interrupt
or otherwise affect the civil service status or privi-
leges of the Federal employee.
(5) TECHNICAL
ASSISTANCE.—Upon the re-
quest of the Commission, the head of a Federal
agency shall provide such technical assistance to the
Commission as the Commission determines to be
necessary to carry out its duties.
(6) USE OF MAILS.—The Commission may use
the United States mails in the same manner and
under the same conditions as Federal agencies and
shall, for purposes of the frank, be considered a
commission of Congress as described in section 3215
of title 39, United States Code.
(7) OBTAINING
INFORMATION.—The Commis-
sion may secure directly from any Federal agency
information necessary to enable it to carry out its
duties, if the information may be disclosed under
section 552 of title 5, United States Code. Upon re-
quest of the Chairman of the Commission, the head
537
of such agency shall furnish such information to the
Commission.
(8) ADMINISTRATIVE
SUPPORT
SERVICES.—
Upon the request of the Commission, the Adminis-
trator of General Services shall provide to the Com-
mission on a reimbursable basis such administrative
support services as the Commission may request.
(9) PRINTING.—For purposes of costs relating
to printing and binding, including the cost of per-
sonnel detailed from the Government Printing Of-
fice, the Commission shall be deemed to be a com-
mittee of the Congress.
(g) REPORT.—Not later than May 1, 1999, the Com-
mission shall submit to Congress a report containing its
findings and recommendations regarding how to protect
and preserve the medicare program in a financially solvent
manner until 2030 (or, if later, throughout the period of
projected solvency of the Federal Old-Age and Survivors
Insurance Trust Fund). The report shall include detailed
recommendations for appropriate legislative initiatives re-
specting how to accomplish this objective.
(h) TERMINATION.—The Commission shall terminate
30 days after the date of submission of the report required
in subsection (g).
538
(i) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $1,500,000 to carry out
this section. 60 percent of such appropriation shall be pay-
able from the Federal Hospital Insurance Trust Fund,
and 40 percent of such appropriation shall be payable
from the Federal Supplementary Medical Insurance Trust
Fund under title XVIII of the Social Security Act (42
U.S.C. 1395i, 1395t).
CHAPTER 4—PROVISIONS RELATING TO
DIRECT GRADUATE MEDICAL EDUCATION
SEC. 4731. LIMITATION ON PAYMENT BASED ON NUMBER
OF RESIDENTS AND IMPLEMENTATION OF
ROLLING AVERAGE FTE COUNT.
Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is
amended by adding after subparagraph (E) the following:
‘‘(F) LIMITATION
ON
NUMBER
OF
RESI-
DENTS
FOR
CERTAIN
FISCAL
YEARS.—Such
rules shall provide that for purposes of a cost
reporting period beginning on or after October
1, 1997, the total number of full-time equiva-
lent residents before application of weighting
factors (as determined under this paragraph)
with respect to a hospital’s approved medical
residency training program may not exceed the
number of full-time equivalent residents with
539
respect to the hospital’s most recent cost re-
porting period ending on or before December
31, 1996.
‘‘(G) COUNTING INTERNS AND RESIDENTS
FOR FY 1998 AND SUBSEQUENT YEARS.—
‘‘(i) FY 1998.—For the hospital’s first
cost reporting period beginning during fis-
cal year 1998, subject to the limit de-
scribed in subparagraph (F), the total
number of full-time equivalent residents,
for determining the hospital’s graduate
medical education payment, shall equal the
average of the full-time equivalent resident
counts for the cost reporting period and
the preceding cost reporting period.
‘‘(ii) SUBSEQUENT YEARS.—For each
subsequent cost reporting period, subject
to the limit described in subparagraph (F),
the total number of full-time equivalent
residents, for determining the hospital’s
graduate medical education payment, shall
equal the average of the actual full-time
equivalent resident counts for the cost re-
porting period and preceding two cost re-
porting periods.
540
‘‘(iii) ADJUSTMENT FOR SHORT PERI-
ODS.—If a hospital’s cost reporting period
beginning on or after October 1, 1997, is
not equal to twelve months, the Secretary
shall make appropriate modifications to en-
sure that the average full-time equivalent
resident counts pursuant to clause (ii) are
based on the equivalent of full 12-month
cost reporting periods.
‘‘(iv) EXCLUSION
OF
RESIDENTS
IN
DENTISTRY.—Residents in an approved
medical residency training program in den-
tistry shall not be counted for purposes of
this 
subparagraph 
and 
subparagraph
(F).’’.
SEC. 4732. PHASED-IN LIMITATION ON HOSPITAL OVER-
HEAD AND SUPERVISORY PHYSICIAN COMPO-
NENT 
OF 
DIRECT 
MEDICAL 
EDUCATION
COSTS.
(a) IN GENERAL.—Section 1886(h)(3) (42 U.S.C.
1395ww(h)(3)) is amended—
(1) in subparagraph (B), by inserting ‘‘subject
to subparagraph (D),’’ after ‘‘subparagraph (A)’’,
and
(2) by adding at the end the following:
541
‘‘(D) PHASED-IN
LIMITATION
ON
HOS-
PITAL OVERHEAD AND SUPERVISORY PHYSICIAN
COMPONENT.—
‘‘(i) IN GENERAL.—In the case of a
hospital for which the overhead GME
amount (as defined in clause (ii)) for the
base period exceeds an amount equal to
the 75th percentile of the overhead GME
amounts in such period for all hospitals
(weighted to reflect the full-time equivalent
resident counts for all approved medical
residency training programs), subject to
clause (iv), the hospital’s approved FTE
resident amount (for periods beginning on
or after October 1, 1997) shall be reduced
from the amount otherwise applicable (as
previously reduced under this subpara-
graph) by an overhead reduction amount.
The overhead reduction amount is equal to
the lesser of—
‘‘(I) 20 percent of the reference
reduction amount (described in clause
(iii)) for the period, or
‘‘(II) 15 percent of the hospital’s
overhead GME amount for the period
542
(as otherwise determined before the
reduction provided under this sub-
paragraph for the period involved).
‘‘(ii) OVERHEAD GME AMOUNT.—For
purposes of this subparagraph, the term
‘overhead GME amount’ means, for a hos-
pital for a period, the product of—
‘‘(I) the percentage of the hos-
pital’s approved FTE resident amount
for the base period that is not attrib-
utable to resident salaries and fringe
benefits, and
‘‘(II) the hospital’s approved
FTE resident amount for the period
involved.
‘‘(iii) 
REFERENCE
REDUCTION
AMOUNT.—
‘‘(I) 
IN
GENERAL.—The 
ref-
erence reduction amount described in
this clause for a hospital for a cost re-
porting period is the base difference
(described in subclause (II)) updated,
in a compounded manner for each pe-
riod from the base period to the pe-
riod involved, by the update applied
543
for such period to the hospital’s ap-
proved FTE resident amount.
‘‘(II) BASE
DIFFERENCE.—The
base difference described in this sub-
clause for a hospital is the amount by
which the hospital’s overhead GME
amount in the base period exceeded
the 75th percentile of such amounts
(as described in clause (i)).
‘‘(iv) MAXIMUM REDUCTION TO 75TH
PERCENTILE.—In no case shall the reduc-
tion under this subparagraph effected for a
hospital for a period (below the amount
that would otherwise apply for the period
if this subparagraph did not apply for any
period) exceed the reference reduction
amount for the hospital for the period.
‘‘(v) BASE PERIOD.—For purposes of
this subparagraph, the term ‘base period’
means the cost reporting period beginning
in fiscal year 1984 or the period used to
establish the hospital’s approved FTE resi-
dent amount for hospitals that did not
have approved residency training programs
in fiscal year 1984.
544
‘‘(vi) RULES FOR HOSPITALS INITIAT-
ING
RESIDENCY
TRAINING
PROGRAMS.—
The Secretary shall establish rules for the
application of this subparagraph in the
case of a hospital that initiates medical
residency training programs during or
after the base period.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to per resident payment
amounts attributable to periods beginning on or after Oc-
tober 1, 1997.
SEC. 4733. PERMITTING PAYMENT TO NON-HOSPITAL PRO-
VIDERS.
(a) IN
GENERAL.— Section 1886 (42 U.S.C.
1395ww) is amended by adding at the end the following:
‘‘(k) PAYMENT TO NON-HOSPITAL PROVIDERS.—
‘‘(1) REPORT.—The Secretary shall submit to
Congress, not later than 18 months after the date
of the enactment of this subsection, a proposal for
payment to qualified non-hospital providers for their
direct costs of medical education, if those costs are
incurred in the operation of an approved medical
residency training program described in subsection
(h). Such proposal shall specify the amounts, form,
and manner in which such payments will be made
545
and the portion of such payments that will be made
from each of the trust funds under this title.
‘‘(2) EFFECTIVENESS.—Except as otherwise
provided in law, the Secretary may implement such
proposal for residency years beginning not earlier
than 6 months after the date of submittal of the re-
port under paragraph (1).
‘‘(3) QUALIFIED NON-HOSPITAL PROVIDERS.—
For purposes of this subsection, the term ‘qualified
non-hospital provider’ means—
‘‘(A) a Federally qualified health center, as
defined in section 1861(aa)(4);
‘‘(B) a rural health clinic, as defined in
section 1861(aa)(2); and
‘‘(C) such other providers (other than hos-
pitals) as the Secretary determines to be appro-
priate.’’.
(b) PROHIBITION ON DOUBLE PAYMENTS; BUDGET
NEUTRALITY ADJUSTMENT.—Section 1886(h)(3)(B) (42
U.S.C. 1395ww(h)(3)(B)) is amended by adding at the
end the following:
‘‘The Secretary shall reduce the aggregate ap-
proved amount to the extent payment is made
under subsection (k) for residents included in
the hospital’s count of full-time equivalent resi-
546
dents and, in the case of residents not included
in any such count, the Secretary shall provide
for such a reduction in aggregate approved
amounts under this subsection as will assure
that the application of subsection (k) does not
result in any increase in expenditures under
this title in excess of those that would have oc-
curred if subsection (k) were not applicable.’’.
SEC. 4734. INCENTIVE PAYMENTS UNDER PLANS FOR VOL-
UNTARY REDUCTION IN NUMBER OF RESI-
DENTS.
Section 1886(h) (42 U.S.C. 1395ww(h)) is further
amended by adding at the end the following new para-
graph:
‘‘(6) INCENTIVE PAYMENT UNDER PLANS FOR
VOLUNTARY
REDUCTION
IN
NUMBER
OF
RESI-
DENTS.—
‘‘(A) IN GENERAL.—In the case of a vol-
untary residency reduction plan for which an
application is approved under subparagraph
(B), the qualifying entity submitting the plan
shall be paid an applicable hold harmless per-
centage (as specified in subparagraph (E)) of
the sum of—
‘‘(i) amount (if any) by which—
547
‘‘(I) the amount of payment
which would have been made under
this subsection if there had been a 5
percent reduction in the number of
full-time equivalent residents in the
approved medical education training
programs of the qualifying entity as of
June 30, 1997, exceeds
‘‘(II) the amount of payment
which is made under this subsection,
taking into account the reduction in
such number effected under the re-
duction plan; and
‘‘(ii) the amount of the reduction in
payment under 1886(d)(5)(B) (for hos-
pitals participating in the qualifying entity)
that is attributable to the reduction in
number of residents effected under the
plan below 95 percent of the number of
full-time equivalent residents in such pro-
grams of such entity as of June 30, 1997.
‘‘(B) 
APPROVAL
OF
PLAN
APPLICA-
TIONS.—The Secretary may not approve the ap-
plication of an qualifying entity unless—
548
‘‘(i) the application is submitted in a
form and manner specified by the Sec-
retary and by not later than March 1,
2000,
‘‘(ii) the application provides for the
operation of a plan for the reduction in the
number of full-time equivalent residents in
the approved medical residency training
programs of the entity consistent with the
requirements of subparagraph (D);
‘‘(iii) the entity elects in the applica-
tion whether such reduction will occur
over—
‘‘(I) a period of not longer than
5 residency training years, or
‘‘(II) a period of 6 residency
training years,
except that a qualifying entity described in
subparagraph (C)(i)(III) may not make the
election described in subclause (II); and
‘‘(iv) the Secretary determines that
the application and the entity and such
plan meet such other requirements as the
Secretary specifies in regulations.
‘‘(C) QUALIFYING ENTITY.—
549
‘‘(i) IN
GENERAL.—For purposes of
this paragraph, any of the following may
be a qualifying entity:
‘‘(I) Individual hospitals operat-
ing one or more approved medical
residency training programs.
‘‘(II) Subject to clause (ii), two
or more hospitals that operate such
programs and apply for treatment
under this paragraph as a single
qualifying entity.
‘‘(III) Subject to clause (iii), a
qualifying consortium (as described in
section 4735 of the Balanced Budget
Act of 1997).
‘‘(ii) ADDITIONAL REQUIREMENT FOR
JOINT PROGRAMS.—In the case of an ap-
plication by a qualifying entity described in
clause (i)(II), the Secretary may not ap-
prove the application unless the application
represents that the qualifying entity ei-
ther—
‘‘(I) in the case of an entity that
meets the requirements of clause (v)
of subparagraph (D) will not reduce
550
the number of full-time equivalent
residents in primary care during the
period of the plan, or
‘‘(II) in the case of another en-
tity will not reduce the proportion of
its residents in primary care (to the
total number of residents) below such
proportion as in effect as of the appli-
cable time described in subparagraph
(D)(vi).
‘‘(iii) ADDITIONAL REQUIREMENT FOR
CONSORTIA.—In the case of an application
by a qualifying entity described in clause
(i)(III), the Secretary may not approve the
application unless the application rep-
resents that the qualifying entity will not
reduce the proportion of its residents in
primary care (to the total number of resi-
dents) below such proportion as in effect
as of the applicable time described in sub-
paragraph (D)(vi).
‘‘(D) RESIDENCY
REDUCTION
REQUIRE-
MENTS.—
‘‘(i) INDIVIDUAL
HOSPITAL
APPLI-
CANTS.—In the case of a qualifying entity
551
described in subparagraph (C)(i)(I), the
number of full-time equivalent residents in
all the approved medical residency training
programs operated by or through the en-
tity shall be reduced as follows:
‘‘(I) If base number of residents
exceeds 750 residents, by a number
equal to at least 20 percent of such
base number.
‘‘(II) Subject to subclause (IV),
if base number of residents exceeds
500, but is less than 750, residents,
by 150 residents.
‘‘(III) Subject to subclause (IV),
if base number of residents does not
exceed 500 residents, by a number
equal to at least 25 percent of such
base number.
‘‘(IV) In the case of a qualifying
entity which is described in clause (v)
and which elects treatment under this
subclause, by a number equal to at
least 20 percent of such base number.
‘‘(ii) JOINT APPLICANTS.—In the case
of a qualifying entity described in subpara-
552
graph (C)(i)(II), the number of full-time
equivalent residents in all the approved
medical residency training programs oper-
ated by or through the entity shall be re-
duced as follows:
‘‘(I) Subject to subclause (II), by
a number equal to at least 25 percent
of such base number.
‘‘(II) In the case of a qualifying
entity which is described in clause (v)
and which elects treatment under this
subclause, by a number equal to at
least 20 percent of such base number.
‘‘(iii) CONSORTIA.—In the case of a
qualifying entity described in subparagraph
(C)(i)(III), the number of full-time equiva-
lent residents in all the approved medical
residency training programs operated by or
through the entity shall be reduced by a
number equal to at least 20 percent of
such base number.
‘‘(iv) MANNER OF REDUCTION.—The
reductions specified under the preceding
provisions of this subparagraph for a quali-
fying entity shall be below the base number
553
of residents for that entity and shall be
fully effective not later than—
‘‘(I) the 5th residency training
year in which the application under
subparagraph (B) is effective, in the
case of an entity making the election
described in subparagraph (B)(iii)(I),
or
‘‘(II) the 6th such residency
training year, in the case of an entity
making the election described in sub-
paragraph (B)(iii)(II).
‘‘(v) ENTITIES PROVIDING ASSURANCE
OF MAINTENANCE OF PRIMARY CARE RESI-
DENTS.—An entity is described in this
clause if—
‘‘(I) the base number of residents
for the entity is less than 750;
‘‘(II) the number of full-time
equivalent residents in primary care
included in the base number of resi-
dents for the entity is at least 10 per-
cent of such base number; and
‘‘(III) the entity represents in its
application under subparagraph (B)
554
that there will be no reduction under
the plan in the number of full-time
equivalent residents in primary care.
If a qualifying entity fails to comply with
the representation described in subclause
(III), the entity shall be subject to repay-
ment of all amounts paid under this para-
graph, in accordance with procedures es-
tablished to carry out subparagraph (F).
‘‘(vi) BASE
NUMBER
OF
RESIDENTS
DEFINED.—For purposes of this para-
graph, the term ‘base number of residents’
means, with respect to a qualifying entity
operating 
approved 
medical 
residency
training programs, the number of full-time
equivalent residents in such programs (be-
fore application of weighting factors) of
the entity as of the most recent cost re-
porting period ending before June 30,
1997, or, if less, for any subsequent cost
reporting period that ends before the date
the entity makes application under this
paragraph.
‘‘(E) APPLICABLE HOLD HARMLESS PER-
CENTAGE.—
555
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), the ‘applicable hold
harmless percentage’ is the percentages
specified in clause (ii) or clause (iii), as
elected by the qualifying entity in the ap-
plication submitted under subparagraph
(B).
‘‘(ii) 5-YEAR
REDUCTION
PLAN.—In
the case of an entity making the election
described in subparagraph (B)(iii)(I), the
percentages specified in this clause are, for
the—
‘‘(I) first and second residency
training years in which the reduction
plan is in effect, 100 percent,
‘‘(II) third such year, 75 percent,
‘‘(III) fourth such year, 50 per-
cent, and
‘‘(IV) fifth such year, 25 percent.
‘‘(iii) 6-YEAR
REDUCTION
PLAN.—In
the case of an entity making the election
described in subparagraph (B)(iii)(II), the
percentages specified in this clause are, for
the—
556
‘‘(I) first residency training year
in which the reduction plan is in ef-
fect, 100 percent,
‘‘(II) second such year, 95 per-
cent,
‘‘(III) third such year, 85 per-
cent,
‘‘(IV) fourth such year, 70 per-
cent,
‘‘(V) fifth such year, 50 percent,
and
‘‘(VI) sixth such year, 25 per-
cent.
‘‘(F) PENALTY FOR INCREASE IN NUMBER
OF
RESIDENTS
IN
SUBSEQUENT
YEARS.—If
payments are made under this paragraph to a
qualifying entity, if the entity (or any hospital
operating as part of the entity) increases the
number of full-time equivalent residents above
the number of such residents permitted under
the reduction plan as of the completion of the
plan, then, as specified by the Secretary, the
entity is liable for repayment to the Secretary
of the total amounts paid under this paragraph
to the entity.
557
‘‘(G) TREATMENT
OF
ROTATING
RESI-
DENTS.—In applying this paragraph, the Sec-
retary shall establish rules regarding the count-
ing of residents who are assigned to institutions
the medical residency training programs in
which are not covered under approved applica-
tions under this paragraph.’’.
(b) RELATION TO DEMONSTRATION PROJECTS AND
AUTHORITY.—
(1) Section 1886(h)(6) of the Social Security
Act, added by subsection (a), shall not apply to any
residency training program with respect to which a
demonstration project described in paragraph (3)
has been approved by the Health Care Financing
Administration as of May 27, 1997. The Secretary
of Health and Human Services shall take such ac-
tions as may be necessary to assure that (in the
manner described in subparagraph (A) of such sec-
tion) in no case shall payments be made under such
a project with respect to the first 5 percent reduc-
tion in the base number of full-time equivalent resi-
dents otherwise used under the project.
(2) Effective May 27, 1997, the Secretary of
Health and Human Services is not authorized to ap-
prove any demonstration project described in para-
558
graph (3) for any residency training year beginning
before July 1, 2006.
(3) A demonstration project described in this
paragraph is a project that provides for additional
payments under title XVIII of the Social Security
Act in connection with reduction in the number of
residents in a medical residency training program.
(c) INTERIM, FINAL REGULATIONS.—In order to
carry out the amendment made by subsection (a) in a
timely manner, the Secretary of Health and Human Serv-
ices may first promulgate regulations, that take effect on
an interim basis, after notice and pending opportunity for
public comment, by not later than 6 months after the date
of the enactment of this Act.
SEC. 4735. DEMONSTRATION PROJECT ON USE OF CONSOR-
TIA.
(a) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the Sec-
retary) shall establish a demonstration project under
which, instead of making payments to teaching hospitals
pursuant to section 1886(h) of the Social Security Act,
the Secretary shall make payments under this section to
each consortium that meets the requirements of subsection
(b).
559
(b) QUALIFYING CONSORTIA.—For purposes of sub-
section (a), a consortium meets the requirements of this
subsection if the consortium is in compliance with the fol-
lowing:
(1) The consortium consists of an approved
medical residency training program in a teaching
hospital and one or more of the following entities:
(A) A school of allopathic medicine or os-
teopathic medicine.
(B) Another teaching hospital, which may
be a children’s hospital.
(C) Another approved medical residency
training program.
(D) A Federally qualified health center.
(E) A medical group practice.
(F) A managed care entity.
(G) An entity furnishing outpatient serv-
ices.
(I) Such other entity as the Secretary de-
termines to be appropriate.
(2) The members of the consortium have agreed
to participate in the programs of graduate medical
education that are operated by the entities in the
consortium.
560
(3) With respect to the receipt by the consor-
tium of payments made pursuant to this section, the
members of the consortium have agreed on a method
for allocating the payments among the members.
(4) The consortium meets such additional re-
quirements as the Secretary may establish.
(c) AMOUNT AND SOURCE OF PAYMENT.—The total
of payments to a qualifying consortium for a fiscal year
pursuant to subsection (a) shall not exceed the amount
that would have been paid under section 1886(h) of the
Social Security Act for the teaching hospital (or hospitals)
in the consortium. Such payments shall be made in such
proportion from each of the trust funds established under
title XVIII of such Act as the Secretary specifies.
SEC. 4736. RECOMMENDATIONS ON LONG-TERM PAYMENT
POLICIES REGARDING FINANCING TEACHING
HOSPITALS AND GRADUATE MEDICAL EDU-
CATION.
(a) IN GENERAL.—The Medicare Payment Advisory
Commission (established under section 1805 of the Social
Security Act and in this section referred to as the ‘‘Com-
mission’’) shall examine and develop recommendations on
whether and to what extent medicare payment policies and
other Federal policies regarding teaching hospitals and
graduate medical education should be reformed. Such rec-
561
ommendations shall include recommendations regarding
each of the following:
(1) The financing of graduate medical edu-
cation, including consideration of alternative broad-
based sources of funding for such education and
models for the distribution of payments under any
all-payer financing mechanism.
(2) The financing of teaching hospitals, includ-
ing consideration of the difficulties encountered by
such hospitals as competition among health care en-
tities increases. Matters considered under this para-
graph shall include consideration of the effects on
teaching hospitals of the method of financing used
for the MedicarePlus program under part C of title
XVIII of the Social Security Act.
(3) Possible methodologies for making pay-
ments for graduate medical education and the selec-
tion of entities to receive such payments. Matters
considered under this paragraph shall include—
(A) issues regarding children’s hospitals
and approved medical residency training pro-
grams in pediatrics, and
(B) whether and to what extent payments
are being made (or should be made) for train-
ing in the various nonphysician health profes-
562
sions, including social workers and psycholo-
gists.
(4) Federal policies regarding international
medical graduates.
(5) The dependence of schools of medicine on
service-generated income.
(6) Whether and to what extent the needs of
the United States regarding the supply of physi-
cians, in the aggregate and in different specialties,
will change during the 10-year period beginning on
October 1, 1997, and whether and to what extent
any such changes will have significant financial ef-
fects on teaching hospitals.
(7) Methods for promoting an appropriate num-
ber, mix, and geographical distribution of health
professionals.
(c) CONSULTATION.—In conducting the study under
subsection (a), the Commission shall consult with the
Council on Graduate Medical Education and individuals
with expertise in the area of graduate medical education,
including—
(1) deans from allopathic and osteopathic
schools of medicine;
(2) chief executive officers (or equivalent ad-
ministrative heads) from academic health centers,
563
integrated health care systems, approved medical
residency training programs, and teaching hospitals
that sponsor approved medical residency training
programs;
(3) chairs of departments or divisions from
allopathic and osteopathic schools of medicine,
schools of dentistry, and approved medical residency
training programs in oral surgery;
(4) individuals with leadership experience from
representative fields of non-physician health profes-
sionals;
(5) individuals with substantial experience in
the study of issues regarding the composition of the
health care workforce of the United States; and
(6) individuals with expertise on the financing
of health care.
(d) REPORT.—Not later than 2 years after the date
of the enactment of this Act, the Commission shall submit
to the Congress a report providing its recommendations
under this section and the reasons and justifications for
such recommendations.
564
SEC. 4737. MEDICARE SPECIAL REIMBURSEMENT RULE
FOR CERTAIN COMBINED RESIDENCY PRO-
GRAMS.
(a) IN GENERAL.—Section 1886(h)(5)(G) (42 U.S.C.
1395ww(h)(5)(G)) is amended—
(1) in clause (i), by striking ‘‘and (iii)’’ and in-
serting ‘‘, (iii), and (iv)’’; and
(2) by adding at the end the following:
‘‘(iv) SPECIAL
RULE
FOR
CERTAIN
COMBINED RESIDENCY PROGRAMS.—(I) In
the case of a resident enrolled in a com-
bined medical residency training program
in which all of the individual programs
(that are combined) are for training a pri-
mary care resident (as defined in subpara-
graph (H)), the period of board eligibility
shall be the minimum number of years of
formal training required to satisfy the re-
quirements for initial board eligibility in
the longest of the individual programs plus
one additional year.
‘‘(II) A resident enrolled in a com-
bined medical residency training program
that includes an obstetrics and gynecology
program shall qualify for the period of
board eligibility under subclause (I) if the
565
other programs such resident combines
with such obstetrics and gynecology pro-
gram are for training a primary care resi-
dent.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) apply to combined medical residency pro-
grams for residency years beginning on or after July 1,
1998.
CHAPTER 5—OTHER PROVISIONS
SEC. 4741. CENTERS OF EXCELLENCE.
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1888 the following:
‘‘CENTERS OF EXCELLENCE
‘‘SEC. 1889. (a) IN GENERAL.—The Secretary shall
use a competitive process to contract with specific hos-
pitals or other entities for furnishing services related to
surgical procedures, and for furnishing services (unrelated
to surgical procedures) to hospital inpatients that the Sec-
retary determines to be appropriate. The services may in-
clude any services covered under this title that the Sec-
retary determines to be appropriate, including post-hos-
pital services.
‘‘(b) QUALITY STANDARDS.—
‘‘(1) IN
GENERAL.—Only entities that meet
quality standards established by the Secretary shall
be eligible to contract under this section. Contract-
566
ing entities shall implement a quality improvement
plan approved by the Secretary.
‘‘(2) PARTICIPATION
DECISION
BASED
ON
QUALITY.—Subject to subsection (c), the Secretary
shall consider quality as the primary factor in select-
ing hospitals or other entities to enter into contracts
under this section.
‘‘(c) PAYMENT.—Payment under this section shall be
made on the basis of negotiated all-inclusive rates. The
amount of payment made by the Secretary to an entity
under this title for services covered under a contract shall
not exceed the aggregate amount of the payments that the
Secretary would have otherwise made for the services.
‘‘(d) CONTRACT PERIOD.—A contract period shall be
3 years (subject to renewal), so long as the entity contin-
ues to meet quality and other contractual standards.
‘‘(e) INCENTIVES FOR USE OF CENTERS.—Entities
under a contract under this section may furnish additional
services (at no cost to an individual entitled to benefits
under this title) or waive cost-sharing, subject to the ap-
proval of the Secretary.
‘‘(f) LIMIT ON NUMBER OF CENTERS.—The Sec-
retary shall limit the number of centers in a geographic
area to the number needed to meet projected demand for
contracted services.’’.
567
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) applies to services furnished on or after Oc-
tober 1, 1997.
SEC. 4742. MEDICARE PART B SPECIAL ENROLLMENT PE-
RIOD AND WAIVER OF PART B LATE ENROLL-
MENT 
PENALTY 
AND 
MEDIGAP 
SPECIAL
OPEN ENROLLMENT PERIOD FOR CERTAIN
MILITARY RETIREES AND DEPENDENTS.
(a) MEDICARE PART B SPECIAL ENROLLMENT PE-
RIOD; WAIVER OF PART B PENALTY FOR LATE ENROLL-
MENT.—
(1) IN GENERAL.—In the case of any eligible
individual (as defined in subsection (c)), the Sec-
retary of Health and Human Services shall provide
for a special enrollment period during which the in-
dividual may enroll under part B of title XVIII of
the Social Security Act. Such period shall be for a
period of 6 months and shall begin with the first
month that begins at least 45 days after the date of
the enactment of this Act.
(2) COVERAGE PERIOD.—In the case of an eli-
gible individual who enrolls during the special enroll-
ment period provided under paragraph (1), the cov-
erage period under part B of title XVIII of the So-
cial Security Act shall begin on the first day of the
568
month following the month in which the individual
enrolls.
(3) WAIVER
OF
PART
B
LATE
ENROLLMENT
PENALTY.—In the case of an eligible individual who
enrolls during the special enrollment period provided
under paragraph (1), there shall be no increase pur-
suant to section 1839(b) of the Social Security Act
in the monthly premium under part B of title XVIII
of such Act.
(b) MEDIGAP SPECIAL OPEN ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of law, an is-
suer of a medicare supplemental policy (as defined in sec-
tion 1882(g) of the Social Security Act)—
(1) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy that
has a benefit package classified as ‘‘A’’, ‘‘B’’, ‘‘C’’,
or ‘‘F’’ under the standards established under sec-
tion 1882(p)(2) of the Social Security Act (42
U.S.C. 1395rr(p)(2)); and
(2) may not discriminate in the pricing of the
policy on the basis of the individual’s health status,
medical condition (including both physical and men-
tal illnesses), claims experience, receipt of health
care, medical history, genetic information, evidence
569
of insurability (including conditions arising out of
acts of domestic violence), or disability;
in the case of an eligible individual who seeks to enroll
(and is enrolled) during the 6-month period described in
subsection (a)(1).
(c) ELIGIBLE INDIVIDUAL DEFINED.—In this sec-
tion, the term ‘‘eligible individual’’ means an individual—
(1) who, as of the date of the enactment of this
Act, has attained 65 years of age and was eligible
to enroll under part B of title XVIII of the Social
Security Act, and
(2) who at the time the individual first satisfied
paragraph (1) or (2) of section 1836 of the Social
Security Act—
(A) was a covered beneficiary (as defined
in section 1072(5) of title 10, United States
Code), and
(B) did not elect to enroll (or to be deemed
enrolled) under section 1837 of the Social Secu-
rity Act during the individual’s initial enroll-
ment period.
The Secretary of Health and Human Services shall con-
sult with the Secretary of Defense in the identification of
eligible individuals.
570
SEC. 4743. COMPETITIVE BIDDING FOR CERTAIN ITEMS
AND SERVICES.
(a) ESTABLISHMENT
OF
DEMONSTRATION.—Not
later than 1 year after the date of the enactment of this
Act, the Secretary of Health and Human Services shall
establish and operate over a 2-year period a demonstration
project in 2 geographic regions selected by the Secretary
under which (notwithstanding any provision of title XVIII
of the Social Security Act to the contrary) the amount
of payment made under the medicare program for a se-
lected item or service furnished in the region shall be equal
to the price determined pursuant to a competitive bidding
process which meets the requirements of subsection (b).
(b) REQUIREMENTS
FOR COMPETITIVE BIDDING
PROCESS.—The competitive bidding process used under
the demonstration project under this section shall meet
such requirements as the Secretary may impose to ensure
the cost-effective delivery to medicare beneficiaries in the
project region of items and services of high quality.
(c) DETERMINATION OF SELECTED ITEMS OR SERV-
ICES.—The Secretary shall select items and services to be
subject to the demonstration project under this section if
the Secretary determines that the use of competitive bid-
ding with respect to the item or service under the project
will be appropriate and cost-effective. In determining the
items or services to be selected, the Secretary shall consult
571
with an advisory taskforce which includes representatives
of providers and suppliers of items and services (including
small business providers and suppliers) in each geographic
region in which the project will be effective.
Subtitle I—Medical Liability
Reform
CHAPTER 1—GENERAL PROVISIONS
SEC. 4801. FEDERAL REFORM OF HEALTH CARE LIABILITY
ACTIONS.
(a) APPLICABILITY.—This subtitle governs any
health care liability action brought in any State or Federal
court, except that this subtitle shall not apply to an action
for damages arising from a vaccine-related injury or death
to the extent that title XXI of the Public Health Service
Act applies to the action.
(b) PREEMPTION.—This subtitle shall preempt any
State or applicable Federal law to the extent such law is
inconsistent with the limitations contained in this subtitle.
This subtitle shall not preempt any State or applicable
Federal law that provides for defenses or places limita-
tions on a person’s liability in addition to those contained
in this subtitle or otherwise imposes greater restrictions
than those provided in this subtitle.
572
(c) EFFECT ON SOVEREIGN IMMUNITY AND CHOICE
OF LAW OR VENUE.—Nothing in subsection (b) shall be
construed to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
(2) waive or affect any defense of sovereign im-
munity asserted by the United States;
(3) affect the applicability of any provision of
chapter 97 of title 28, United States Code;
(4) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation; or
(5) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground of inconvenient
forum.
(d) AMOUNT
IN CONTROVERSY.—In an action to
which this subtitle applies and which is brought under sec-
tion 1332 of title 28, United States Code, the amount of
noneconomic damages or punitive damages, and attorneys’
fees or costs, shall not be included in determining whether
the matter in controversy exceeds the sum or value of
$50,000.
573
(e) FEDERAL COURT JURISDICTION NOT ESTAB-
LISHED ON FEDERAL QUESTION GROUNDS.—Nothing in
this subtitle shall be construed to establish any jurisdiction
in the district courts of the United States over health care
liability actions on the basis of section 1331 or 1337 of
title 28, United States Code.
SEC. 4802. DEFINITIONS.
As used in this subtitle:
(1) ACTUAL DAMAGES.—The term ‘‘actual dam-
ages’’ means damages awarded to pay for economic
loss.
(2) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM; ADR.—The term ‘‘alternative dispute resolution
system’’ or ‘‘ADR’’ means a system established
under Federal or State law that provides for the res-
olution of health care liability claims in a manner
other than through health care liability actions.
(3) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings a health care liability action
and any person on whose behalf such an action is
brought. If such action is brought through or on be-
half of an estate, the term includes the claimant’s
decedent. If such action is brought through or on be-
half of a minor or incompetent, the term includes
the claimant’s legal guardian.
574
(4) CLEAR AND CONVINCING EVIDENCE.—The
term ‘‘clear and convincing evidence’’ is that meas-
ure or degree of proof that will produce in the mind
of the trier of fact a firm belief or conviction as to
the truth of the allegations sought to be established,
except that such measure or degree of proof is more
than that required under preponderance of the evi-
dence but less than that required for proof beyond
a reasonable doubt.
(5) COLLATERAL
SOURCE
PAYMENTS.—The
term ‘‘collateral source payments’’ means any
amount paid or reasonably likely to be paid in the
future to or on behalf of a claimant, or any service,
product, or other benefit provided or reasonably like-
ly to be provided in the future to or on behalf of a
claimant, as a result of an injury or wrongful death,
pursuant to—
(A) any State or Federal health, sickness,
income-disability, accident or workers’ com-
pensation Act;
(B) any health, sickness, income-disability,
or accident insurance that provides health bene-
fits or income-disability coverage;
(C) any contract or agreement of any
group, organization, partnership, or corporation
575
to provide, pay for, or reimburse the cost of
medical, hospital, dental, or income disability
benefits; and
(D) any other publicly or privately funded
program.
(6) DEVICE.—The term ‘‘device’’ has the same
meaning given such term in section 201(h) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C.
321(h)).
(7) DRUG.—The term ‘‘drug’’ has the same
meaning given such term in section 201(g)(1) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C.
321(g)(1)).
(8) ECONOMIC
LOSS.—The term ‘‘economic
loss’’ means any pecuniary loss resulting from harm
(including the loss of earnings or other benefits re-
lated to employment, medical expense loss, replace-
ment services loss, loss due to death, burial costs,
and loss of business or employment opportunities),
to the extent recovery for such loss is allowed under
applicable State or Federal law.
(9) HARM.—The term ‘‘harm’’ means—
(A) any physical injury, illness, or death of
the claimant, or
576
(B) any mental anguish or emotional in-
jury to the claimant caused by or causing the
claimant physical injury or illness.
(10) HEALTH
CARE
LIABILITY
ACTION.—The
term ‘‘health care liability action’’ means a civil ac-
tion brought in a State or Federal court against a
health care provider, an entity which is obligated to
provide or pay for health benefits under any health
plan (including any person or entity acting under a
contract or arrangement to provide or administer
any health benefit), or the manufacturer, distributor,
supplier, marketer, promoter, or seller of a medical
product, in which the claimant alleges a health care
liability claim.
(11) HEALTH
CARE
LIABILITY
CLAIM.—The
term ‘‘health care liability claim’’ means a claim in
which the claimant alleges that harm was caused by
the provision of (or the failure to provide) health
care services or the use of a medical product, re-
gardless of the theory of liability on which the claim
is based.
(12) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any individual, organi-
zation, or institution that is engaged in the delivery
of health care services in a State and that is re-
577
quired by the laws or regulations of the State to be
licensed or certified by the State to engage in the
delivery of such services in the State.
(13) MANUFACTURER.—The term ‘‘manufac-
turer’’ means—
(A) any person who is engaged in a busi-
ness to produce, create, make, or construct any
product (or component part of a product) and
who (i) designs or formulates the product (or
component part of the product), or (ii) has en-
gaged another person to design or formulate
the product (or component part of the product);
(B) a product seller, but only with respect
to those aspects of a product (or component
part of a product) which are created or affected
when, before placing the product in the stream
of commerce, the product seller produces, cre-
ates, makes or constructs and designs, or for-
mulates, or has engaged another person to de-
sign or formulate, an aspect of the product (or
component part of the product) made by an-
other person; or
(C) any product seller not described in
subparagraph (B) which holds itself out as a
manufacturer to the user of the product.
578
(14) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages paid to an
individual for pain and suffering, inconvenience,
emotional distress, mental anguish, loss of society
and companionship, injury to reputation, humilia-
tion, and other subjective, nonpecuniary losses.
(15) PERSON.—The term ‘‘person’’ means any
individual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity, including any governmental entity.
(16) PRODUCT SELLER.—
(A) IN GENERAL.—The term ‘‘product sell-
er’’ means a person who in the course of a busi-
ness conducted for that purpose—
(i) sells, distributes, rents, leases, pre-
pares, blends, packages, labels, or other-
wise is involved in placing a product in the
stream of commerce; or
(ii) installs, repairs, refurbishes, re-
conditions, or maintains the harm-causing
aspect of the product.
(B) EXCLUSION.—The term ‘‘product sell-
er’’ does not include—
(i) a seller or lessor of real property;
579
(ii) a provider of professional services
in any case in which the sale or use of a
product is incidental to the transaction and
the essence of the transaction is the fur-
nishing of judgment, skill, or services; or
(iii) any person who—
(I) acts in only a financial capac-
ity with respect to the sale of a prod-
uct; or
(II) leases a product under a
lease arrangement in which the lessor
does not initially select the leased
product and does not during the lease
term ordinarily control the daily oper-
ations and maintenance of the prod-
uct.
(17) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means damages awarded against any per-
son not to compensate for actual injury suffered, but
to punish or deter such person or others from en-
gaging in similar behavior in the future.
(18) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
580
lands, the Trust Territories of the Pacific Islands,
and any other territory or possession of the United
States or any political subdivision of any of the fore-
going.
SEC. 4803. EFFECTIVE DATE.
This subtitle will apply to any health care liability ac-
tion brought in a Federal or State court and to any health
care liability claim subject to an alternative dispute resolu-
tion system, that is initiated on or after the date of enact-
ment of this subtitle.
CHAPTER 2—UNIFORM STANDARDS FOR
HEALTH CARE LIABILITY ACTIONS
SEC. 4811. STATUTE OF LIMITATIONS.
(a) GENERAL RULE.—Except as provided in sub-
section (b), a health care liability action may be filed not
later than 2 years after the date on which the claimant
discovered or, in the exercise of reasonable care, should
have discovered—
(1) the harm that is the subject of the action;
and
(2) the cause of the harm.
(b) EXCEPTION.—A person with a legal disability (as
determined under applicable law) may file a health care
liability action not later than 2 years after the date on
which the person ceases to have the legal disability.
581
(c) TRANSITIONAL PROVISION RELATING TO EXTEN-
SION OF PERIOD FOR BRINGING CERTAIN ACTIONS.—If
any provision of subsection (a) or (b) shortens the period
during which a health care liability action could be other-
wise brought pursuant to another provision of law, the
claimant may, notwithstanding subsections (a) and (b),
bring the health care liability action not later than 2 years
after the date of enactment of this Act.
SEC. 4812. CALCULATION AND PAYMENT OF DAMAGES.
(a) TREATMENT OF NONECONOMIC DAMAGES.—
(1) LIMITATION ON NONECONOMIC DAMAGES.—
The total amount of noneconomic damages that may
be awarded to a claimant for harm which is the sub-
ject of a health care liability action may not exceed
$250,000, regardless of the number of parties
against whom the action is brought or the number
of actions brought with respect to the injury.
(2) FAIR SHARE RULE FOR NONECONOMIC DAM-
AGES.—
(A) GENERAL RULE.—In a health care li-
ability action, the liability of each defendant for
noneconomic damages shall be several only and
shall not be joint.
(B) AMOUNT OF LIABILITY.—
582
(i) IN
GENERAL.—Each defendant
shall be liable only for the amount of non-
economic damages attributable to the de-
fendant in direct proportion to the percent-
age of responsibility of the defendant (de-
termined in accordance with paragraph
(2)) for the harm to the claimant with re-
spect to which the defendant is liable. The
court shall render a separate judgment
against each defendant in an amount de-
termined pursuant to the preceding sen-
tence.
(ii) PERCENTAGE
OF
RESPONSIBIL-
ITY.—For purposes of determining the
amount of noneconomic damages attrib-
utable to a defendant under this section,
the trier of fact shall determine the per-
centage of responsibility of each person re-
sponsible for the claimant’s harm, whether
or not such person is a party to the action.
(b) TREATMENT OF PUNITIVE DAMAGES.—
(1) GENERAL RULE.—Punitive damages may,
to the extent permitted by applicable law, be award-
ed in a health care liability action against a defend-
ant if the claimant establishes by clear and convinc-
583
ing evidence that the harm suffered was result of
conduct manifesting a conscious, flagrant indiffer-
ence to the rights or safety of others.
(2) 
REQUIRED
PROPORTIONALITY.—The
amount of punitive damages that may be awarded in
a health care liability action shall not exceed 3 times
the amount of damages awarded to the claimant for
economic loss, or $250,000, whichever is greater.
This subsection shall be applied by the court, and
application of this subsection shall not be disclosed
to the jury.
(c) BIFURCATION AT REQUEST OF ANY PARTY.—
(1) IN GENERAL.—At the request of any party
the trier of fact in any action that is subject to this
section shall consider in a separate proceeding, held
subsequent to the determination of the amount of
compensatory damages, whether punitive damages
are to be awarded for the harm that is the subject
of the action and the amount of the award.
(2) INADMISSIBILITY OF EVIDENCE RELATIVE
ONLY TO A CLAIM OF PUNITIVE DAMAGES IN A PRO-
CEEDING CONCERNING COMPENSATORY DAMAGES.—
If any party requests a separate proceeding under
paragraph (1), in a proceeding to determine whether
the claimant may be awarded compensatory dam-
584
ages, any evidence, argument, or contention that is
relevant only to the claim of punitive damages, as
determined by applicable law, shall be inadmissible.
(d) DRUGS AND DEVICES.—
(1)(A) Punitive damages shall not be awarded
against a manufacturer or product seller of a drug
or device which caused the claimant’s harm where—
(i) such drug or device was subject to pre-
market approval by the Food and Drug Admin-
istration with respect to the safety of the for-
mulation or performance of the aspect of such
drug or device which caused the claimant’s
harm or the adequacy of the packaging or label-
ing of such drug or device, and such drug or
device was approved by the Food and Drug Ad-
ministration; or
(ii) the drug or device is generally recog-
nized as safe and effective pursuant to condi-
tions established by the Food and Drug Admin-
istration and applicable regulations, including
packaging and labeling regulations.
(B) Subparagraph (A) shall not apply in any
case in which the defendant, before or after pre-
market approval of a drug or device—
585
(i) intentionally and wrongfully withheld
from or misrepresented to the Food and Drug
Administration information concerning such
drug or device required to be submitted under
the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 301 et seq.) or section 351 of the Public
Health Service Act (42 U.S.C. 262) that is ma-
terial and relevant to the harm suffered by the
claimant, or
(ii) made an illegal payment to an official
or employee of the Food and Drug Administra-
tion for the purpose of securing or maintaining
approval of such drug or device.
(2) PACKAGING.—In a health care liability ac-
tion which is alleged to relate to the adequacy of the
packaging (or labeling relating to such packaging) of
a drug which is required to have tamper-resistant
packaging under regulations of the Secretary of
Health and Human Services (including labeling reg-
ulations related to such packaging), the manufac-
turer of the drug shall not be held liable for punitive
damages unless the drug is found by the court by
clear and convincing evidence to be substantially out
of compliance with such regulations.
(e) PERIODIC PAYMENTS FOR FUTURE LOSSES.—
586
(1) GENERAL RULE.—In any health care liabil-
ity action in which the damages awarded for future
economic and noneconomic loss exceed $50,000, a
person shall not be required to pay such damages in
a single, lump-sum payment, but shall be permitted
to make such payments periodically based on when
the damages are found likely to occur, with the
amount and schedule of such payments determined
by the court.
(2) FINALITY OF JUDGMENT.—The judgment
of the court awarding periodic payments under this
subsection may not, in the absence of fraud, be re-
opened at any time to contest, amend, or modify the
schedule or amount of the payments.
(3) 
LUMP-SUM
SETTLEMENTS.—This 
sub-
section shall not be construed to preclude a settle-
ment providing for a single, lump-sum payment.
(f) TREATMENT
OF COLLATERAL SOURCE PAY-
MENTS.—
(1) INTRODUCTION
INTO
EVIDENCE.—In any
health care liability action, any defendant may intro-
duce evidence of collateral source payments. If a de-
fendant elects to introduce such evidence, the claim-
ant may introduce evidence of any amount paid or
contributed or reasonably likely to be paid or con-
587
tributed in the future by or on behalf of the claim-
ant to secure the right to such collateral source pay-
ments.
(2) NO SUBROGATION.—No provider of collat-
eral source payments shall recover any amount
against the claimant or receive any lien or credit
against the claimant’s recovery or be equitably or le-
gally subrogated the right of the claimant in a
health care liability action. This subsection shall
apply to an action that is settled as well as an action
that is resolved by a fact finder.
SEC. 4813. ALTERNATIVE DISPUTE RESOLUTION.
Any ADR used to resolve a health care liability action
or claim shall contain provisions relating to statute of limi-
tations, non-economic damages, joint and several liability,
punitive damages, collateral source rule, and periodic pay-
ments which are identical to the provisions relating to
such matters in this subtitle.
588
TITLE V—COMMITTEE ON EDU-
CATION 
AND 
THE
WORKFORCE
Subtitle A—TANF Block Grant
SEC. 5001. WELFARE-TO-WORK GRANTS.
(a) GRANTS TO STATES.—Section 403(a) of the So-
cial Security Act (42 U.S.C. 603(a)) is amended by adding
at the end the following:
‘‘(5) WELFARE-TO-WORK GRANTS.—
‘‘(A) FORMULA GRANTS.—
‘‘(i) ENTITLEMENT.—A State shall be
entitled to receive from the Secretary a
grant for each fiscal year specified in sub-
paragraph (H) of this paragraph for which
the State is a welfare-to-work State, in an
amount that does not exceed the lesser
of—
‘‘(I) 2 times the total of the ex-
penditures by the State (excluding
qualified State expenditures (as de-
fined in section 409(a)(7)(B)(i)) and
expenditures 
described 
in 
section
409(a)(7)(B)(iv)) during the fiscal
year 
for 
activities 
described 
in
589
subpargraph (C)(i) of this paragraph;
or
‘‘(II) the allotment of the State
under clause (iii) of this subparagraph
for the fiscal year.
‘‘(ii) WELFARE-TO-WORK
STATE.—A
State shall be considered a welfare-to-work
State for a fiscal year for purposes of this
subparagraph if the Secretary, after con-
sultation (and the sharing of any plan or
amendment thereto submitted under this
clause) with the Secretary of Health and
Human Services and the Secretary of
Housing and Urban Development, deter-
mines that the State meets the following
requirements:
‘‘(I) The State has submitted to
the Secretary (in the form of an ad-
dendum to the State plan submitted
under section 402) a plan which—
‘‘(aa) describes how, consist-
ent with this subparagraph, the
State will use any funds provided
under this subparagraph during
the fiscal year;
590
‘‘(bb) specifies the formula
to be used pursuant to clause (vi)
to distribute funds in the State,
and describes the process by
which the formula was developed;
and
‘‘(cc) contains evidence that
the plan was developed through a
collaborative process that, at a
minimum, 
included 
sub-State
areas.
‘‘(II) The State has provided the
Secretary with an estimate of the
amount that the State intends to ex-
pend during the fiscal year (excluding
expenditures 
described 
in 
section
409(a)(7)(B)(iv)) for activities de-
scribed in subparagraph (C)(i) of this
paragraph.
‘‘(III) The State has agreed to
negotiate in good faith with the Sec-
retary of Health and Human Services
with respect to the substance of any
evaluation under section 413(j), and
591
to cooperate with the conduct of any
such evaluation.
‘‘(IV) The State is an eligible
State for the fiscal year.
‘‘(iii) ALLOTMENTS TO WELFARE-TO-
WORK STATES.—The allotment of a wel-
fare-to-work State for a fiscal year shall be
the available amount for the fiscal year
multiplied by the State percentage for the
fiscal year.
‘‘(iv) AVAILABLE AMOUNT.—As used
in clause (iii), the term ‘available amount’
means, for a fiscal year, 95 percent of—
‘‘(I) the amount specified in sub-
paragraph (H) for the fiscal year;
minus
‘‘(II) the total of the amounts re-
served pursuant to subparagraphs (F)
and (G) for the fiscal year.
‘‘(v) STATE
PERCENTAGE.—As
used in clause (iii), the term ‘State
percentage’ means, with respect to a
fiscal year, 1⁄2 of the sum of—
‘‘(aa) the percentage rep-
resented by the number of indi-
592
viduals in the State whose in-
come is less than the poverty line
divided by the number of such in-
dividuals in the United States;
and
‘‘(bb) the percentage rep-
resented by the number of indi-
viduals who are adult recipients
of assistance under the State
program funded under this part
divided by the number of individ-
uals in the United States who are
adult recipients of assistance
under any State program funded
under this part.
‘‘(vi) DISTRIBUTION OF FUNDS WITH-
IN STATES.—
‘‘(I) IN
GENERAL.—A State to
which a grant is made under this sub-
paragraph shall distribute not less
than 85 percent of the grant funds
among the service delivery areas in
the State, in accordance with a for-
mula which—
593
‘‘(aa) 
determines 
the
amount to be distributed for the
benefit of a service delivery area
in proportion to the number (if
any) by which the number of in-
dividuals residing in the service
delivery area with an income that
is less than the poverty line ex-
ceeds 5 percent of the population
of the service delivery area, rel-
ative to such number for the
other service delivery areas in the
State, and accords a weight of
not less than 50 percent to this
factor;
‘‘(bb) may determine the
amount to be distributed for the
benefit of a service delivery area
in proportion to the number of
adults residing in the service de-
livery area who are recipients of
assistance under the State pro-
gram funded under this part
(whether in effect before or after
the amendments made by section
594
103(a) of the Personal Respon-
sibility and Work Opportunity
Reconciliation Act first applied to
the State) for at least 30 months
(whether or not consecutive) rel-
ative to the number of such
adults residing in the other serv-
ice delivery areas in the State;
and
‘‘(cc) may determine the
amount to be distributed for the
benefit of a service delivery area
in proportion to the number of
unemployed individuals residing
in the service delivery area rel-
ative to the number of such indi-
viduals residing in the other serv-
ice delivery areas in the State.
‘‘(II) SPECIAL
RULE.—Notwith-
standing subclause (I), if the formula
used pursuant to subclause (I) would
result in the distribution of less than
$100,000 during a fiscal year for the
benefit of a service delivery area, then
in lieu of distributing such sum in ac-
595
cordance with the formula, such sum
shall be available for distribution
under subclause (III) during the fiscal
year.
‘‘(III) PROJECTS TO HELP LONG-
TERM
RECIPIENTS
OF
ASSISTANCE
INTO THE WORK FORCE.—The Gov-
ernor of a State to which a grant is
made under this subparagraph may
distribute not more than 15 percent of
the grant funds (plus any amount re-
quired to be distributed under this
subclause by reason of subclause (II))
to projects that appear likely to help
long-term 
recipients 
of 
assistance
under the State program funded
under this part (whether in effect be-
fore or after the amendments made by
section 103(a) of the Personal Re-
sponsibility and Work Opportunity
Reconciliation Act first applied to the
State) enter the work force.
‘‘(vii) ADMINISTRATION.—
‘‘(I) 
IN
GENERAL.—A 
grant
made under this subparagraph to a
596
State shall be administered by the
State agency that is administering, or
supervising the administration of, the
State program funded under this part,
or by another State agency designated
by the Governor of the State.
‘‘(II) SPENDING BY PRIVATE IN-
DUSTRY
COUNCILS.—The private in-
dustry council for a service delivery
area shall have sole authority, in co-
ordination with the chief elected offi-
cial (as described in section 103(c) of
the Job Training Partnership Act) of
the service delivery area, to expend
the amounts provided for a service de-
livery 
area 
under 
subparagraph
(vi)(I).
‘‘(B) DEMONSTRATION PROJECTS.—
‘‘(i) IN GENERAL.—The Secretary, in
consultation with the Secretary of Health
and Human Services and the Secretary of
Housing and Urban Development, shall
make grants in accordance with this sub-
paragraph among eligible applicants based
on the likelihood that the applicant can
597
successfully make long-term placements of
individuals into the work force.
‘‘(ii) ELIGIBLE APPLICANTS.—As used
in clause (i), the term ‘eligible applicant’
means a private industry council or a polit-
ical subdivision of a State.
‘‘(iii) DETERMINATION
OF
GRANT
AMOUNT.—In determining the amount of a
grant to be made under this subparagraph
for a demonstration project proposed by an
applicant, the Secretary shall provide the
applicant with an amount sufficient to en-
sure that the project has a reasonable op-
portunity to be successful, taking into ac-
count the number of long-term recipients
of assistance under a State program fund-
ed under this part, the level of unemploy-
ment, the job opportunities and job
growth, the poverty rate, and such other
factors as the Secretary deems appro-
priate, in the area to be served by the
project.
‘‘(iv) FUNDING.—For grants under
this subparagraph for each fiscal year
specified in subparagraph (H), there shall
598
be available to the Secretary an amount
equal to the sum of—
‘‘(I) 5 percent of—
‘‘(aa) the amount specified
in subparagraph (H) for the fis-
cal year; minus
‘‘(bb) 
the 
total 
of 
the
amounts reserved pursuant to
subparagraphs (F) and (G) for
the fiscal year;
‘‘(II) any amount available for
grants under this paragraph for the
immediately preceding fiscal year that
has not been obligated;
‘‘(III) any amount reserved pur-
suant to subparagraph (F) for the im-
mediately preceding fiscal year that
has not been obligated; and
‘‘(IV) any available amount (as
defined in subparagraph (A)(iv)) for
the immediately preceding fiscal year
that has not been obligated by a State
or sub-State entity.
‘‘(C) LIMITATIONS ON USE OF FUNDS.—
599
‘‘(i) ALLOWABLE ACTIVITIES.—An en-
tity to which funds are provided under this
paragraph may use the funds to move into
the work force recipients of assistance
under the program funded under this part
of the State in which the entity is located,
by means of any of the following:
‘‘(I) Job creation through public
or private sector employment wage
subsidies.
‘‘(II) On-the-job training.
‘‘(III) Contracts with job place-
ment companies or public job place-
ment programs.
‘‘(IV) Job vouchers.
‘‘(V) Job retention or support
services if such services are not other-
wise available.
‘‘(ii) REQUIRED BENEFICIARIES.—An
entity that operates a project with funds
provided under this paragraph shall expend
at least 90 percent of all funds provided to
the project for the benefit of recipients of
assistance under the program funded
under this part of the State in which the
600
entity is located who meet the require-
ments of any of the following subclauses:
‘‘(I) The individual has received
assistance under the State program
funded under this part (whether in ef-
fect before or after the amendments
made by section 103 of the Personal
Responsibility and Work Opportunity
Reconciliation Act of 1996 first apply
to the State) for at least 30 months
(whether or not consecutive).
‘‘(II) At least 2 of the following
apply to the recipient:
‘‘(aa) The individual has not
completed secondary school or
obtained a certificate of general
equivalency, and has low skills in
reading and mathematics.
‘‘(bb) The individual re-
quires substance abuse treatment
for employment.
‘‘(cc) The individual has a
poor work history.
601
The Secretary shall prescribe such
regulations as may be necessary to in-
terpret this subclause.
‘‘(III) Within 12 months, the in-
dividual will become ineligible for as-
sistance under the State program
funded under this part by reason of a
durational limit on such assistance,
without regard to any exemption pro-
vided 
pursuant 
to 
section
408(a)(7)(C) that may apply to the
individual.
‘‘(iii) LIMITATION ON APPLICABILITY
OF
SECTION
404.—The rules of section
404, other than subsections (b), (f), and
(h) of section 404, shall not apply to a
grant made under this paragraph.
‘‘(iv) PROHIBITION
AGAINST
PROVI-
SION OF SERVICES BY PRIVATE INDUSTRY
COUNCIL.—A private industry council may
not directly provide services using funds
provided under this paragraph.
‘‘(v) PROHIBITION
AGAINST
USE
OF
GRANT
FUNDS
FOR
ANY
OTHER
FUND
MATCHING
REQUIREMENT.—An entity to
602
which funds are provided under this para-
graph shall not use any part of the funds
to fulfill any obligation of any State, politi-
cal subdivision, or private industry council
to contribute funds under other Federal
law.
‘‘(vi) 
DEADLINE
FOR
EXPENDI-
TURE.—An entity to which funds are pro-
vided under this paragraph shall remit to
the Secretary any part of the funds that
are not expended within 3 years after the
date the funds are so provided.
‘‘(D) INDIVIDUALS
WITH
INCOME
LESS
THAN THE POVERTY LINE.—For purposes of
this paragraph, the number of individuals with
an income that is less than the poverty line
shall be determined based on the methodology
used by the Bureau of the Census to produce
and publish intercensal poverty data for 1993
for States and counties.
‘‘(E) DEFINITIONS.—As used in this para-
graph:
‘‘(i) PRIVATE INDUSTRY COUNCIL.—
The term ‘private industry council’ means,
with respect to a service delivery area, the
603
private industry council (or successor en-
tity) established for the service delivery
area pursuant to the Job Training Part-
nership Act.
‘‘(ii) SECRETARY.—The term ‘Sec-
retary’ means the Secretary of Labor, ex-
cept as otherwise expressly provided.
‘‘(iii) SERVICE DELIVERY AREA.—The
term ‘service delivery area’ shall have the
meaning given such term for purposes of
the Job Training Partnership Act (or suc-
cessor area).
‘‘(F) FUNDING
FOR
INDIAN
TRIBES.—1
percent of the amount specified in subpara-
graph (H) for each fiscal year shall be reserved
for grants to Indian tribes under section
412(a)(3).
‘‘(G) EVALUATIONS.—0.5 percent of the
amount specified in subparagraph (H) for each
fiscal year shall be reserved for use by the Sec-
retary of Health and Human Services to carry
out section 413(j).
‘‘(H) FUNDING.—The amount specified in
this subparagraph is $1,500,000,000 for each
of fiscal years 1998 and 1999.
604
‘‘(H) FUNDING.—The amount specified in
this subparagraph is—
‘‘(i) $750,000,000 for fiscal year
1998;
‘‘(ii) $1,250,000,000 for fiscal year
1999; and
‘‘(iii) $1,000,000,000 for fiscal year
2000.
‘‘(I) BUDGET SCORING.—Notwithstanding
section 457(b)(2) of the Balanced Budget and
Emergency Deficit Control Act of 1985, the
baseline shall assume that no grant shall be
made under this paragraph or under section
412(a)(3) after fiscal year 2001.’’.
(b) GRANTS TO TERRITORIES.—Section 1108(a) of
such Act (42 U.S.C. 1308(a)) is amended by inserting
‘‘(except section 403(a)(5))’’ after ‘‘title IV’’.
(c) GRANTS TO INDIAN TRIBES.—Section 412(a) of
such Act (42 U.S.C. 612(a)) is amended by adding at the
end the following:
‘‘(3) WELFARE-TO-WORK GRANTS.—
‘‘(A) IN
GENERAL.—The Secretary shall
make a grant in accordance with this paragraph
to an Indian tribe for each fiscal year specified
in section 403(a)(5)(H) for which the Indian
605
tribe is a welfare-to-work tribe, in such amount
as the Secretary deems appropriate, subject to
subparagraph (B) of this paragraph.
‘‘(B) WELFARE-TO-WORK TRIBE.—An In-
dian tribe shall be considered a welfare-to-work
tribe for a fiscal year for purposes of this para-
graph if the Indian tribe meets the following re-
quirements:
‘‘(i) The Indian tribe has submitted to
the Secretary (in the form of an addendum
to the tribal family assistance plan, if any,
of the Indian tribe) a plan which describes
how, consistent with section 403(a)(5), the
Indian tribe will use any funds provided
under this paragraph during the fiscal
year.
‘‘(ii) The Indian tribe has provided
the Secretary with an estimate of the
amount that the Indian tribe intends to ex-
pend during the fiscal year (excluding trib-
al 
expenditures 
described 
in 
section
409(a)(7)(B)(iv)) for activities described in
section 403(a)(5)(C)(i).
‘‘(iii) The Indian tribe has agreed to
negotiate in good faith with the Secretary
607
‘‘(1) shall, in consultation with the Secretary of
Labor, develop a plan to evaluate how grants made
under sections 403(a)(5) and 412(a)(3) have been
used; and
‘‘(2) may evaluate the use of such grants by
such grantees as the Secretary deems appropriate, in
accordance with an agreement entered into with the
grantees after good-faith negotiations.’’.
SEC. 5002. CLARIFICATION OF LIMITATION ON NUMBER OF
PERSONS WHO MAY BE TREATED AS EN-
GAGED IN WORK BY REASON OF PARTICIPA-
TION IN EDUCATIONAL ACTIVITIES.
(a) IN GENERAL.—Section 407(c)(2)(D) of the Social
Security Act (42 U.S.C. 607(c)(2)(D)) is amended to read
as follows:
‘‘(D) LIMITATION
ON
NUMBER
OF
PER-
SONS WHO MAY BE TREATED AS ENGAGED IN
WORK BY REASON OF PARTICIPATION IN EDU-
CATIONAL ACTIVITIES.—For purposes of deter-
mining monthly participation rates under para-
graphs (1)(B)(i) and (2)(B) of subsection (b),
not more than 20 percent of the number of in-
dividuals in all families and in 2-parent fami-
lies, respectively, in a State who are treated as
engaged in work for a month may consist of in-
608
dividuals who are determined to be engaged in
work for the month by reason of participation
in vocational educational training, or deemed to
be engaged in work for the month by reason of
subparagraph (C) of this paragraph.’’.
(b) RETROACTIVITY.—The amendment made by sub-
section (a) of this section shall take effect as if included
in the enactment of section 103(a) of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996.
SEC. 5003. PENALTY FOR FAILURE OF STATE TO REDUCE
ASSISTANCE 
FOR 
RECIPIENTS 
REFUSING
WITHOUT GOOD CAUSE TO WORK.
(a) IN GENERAL.—Section 409(a) of the Social Secu-
rity Act (42 U.S.C. 609(a)) is amended by adding at the
end the following:
‘‘(13) PENALTY FOR FAILURE TO REDUCE AS-
SISTANCE
FOR
RECIPIENTS
REFUSING
WITHOUT
GOOD CAUSE TO WORK.—
‘‘(A) IN GENERAL.—If the Secretary deter-
mines that a State to which a grant is made
under section 403 in a fiscal year has violated
section 407(e) during the fiscal year, the Sec-
retary shall reduce the grant payable to the
State under section 403(a)(1) for the imme-
609
diately succeeding fiscal year by an amount
equal to not less than 1 percent and not more
than 5 percent of the State family assistance
grant.
‘‘(B) PENALTY
BASED
ON
SEVERITY
OF
FAILURE.—The Secretary shall impose reduc-
tions under subparagraph (A) with respect to a
fiscal year based on the degree of noncompli-
ance.’’.
(b) RETROACTIVITY.—The amendment made by sub-
section (a) of this section shall take effect as if included
in the enactment of section 103(a) of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996.
SEC. 5004. RULES GOVERNING EXPENDITURE OF FUNDS
FOR WORK EXPERIENCE AND COMMUNITY
SERVICE PROGRAMS.
(a) IN GENERAL.—Section 407 of the Social Security
Act (42 U.S.C. 607) is amended by adding at the end the
following:
‘‘(j) RULES GOVERNING EXPENDITURE OF FUNDS
FOR WORK EXPERIENCE AND COMMUNITY SERVICE PRO-
GRAMS.—
‘‘(1) IN GENERAL.—To the extent that a State
to which a grant is made under section 403(a)(5) or
610
any other provision of section 403 uses the grant to
establish or operate a work experience or community
service program, the State may establish and oper-
ate the program in accordance with this subsection.
‘‘(2) PURPOSE.—The purpose of a work experi-
ence or community experience program is to provide
experience or training for individuals not able to ob-
tain employment in order to assist them to move to
regular employment. Such a program shall be de-
signed to improve the employability of participants
through actual work experience to enable individuals
participating in the program to move promptly into
regular public or private employment. Such a pro-
gram shall not place individuals in private, for-profit
entities.
‘‘(3) LIMITATION ON PROJECTS THAT MAY BE
UNDERTAKEN.—A work experience or community
service program shall be limited to projects which
serve a useful public purpose in fields such as
health, social service, environmental protection, edu-
cation, urban and rural development and redevelop-
ment, welfare, recreation, public facilities, public
safety, and day care, and other purposes identified
by the State.
611
‘‘(4) MAXIMUM HOURS OF PARTICIPATION PER
MONTH.—A State that elects to establish a work ex-
perience or community service program shall operate
the program so that each participant participates in
the program with the maximum number of hours
that any such individual may be required to partici-
pate in any month being a number equal to—
‘‘(A)(i) the amount of assistance provided
during the month to the family of which the in-
dividual is a member under the State program
funded under this part; plus
‘‘(ii) the dollar value equivalent of any ben-
efits provided during the month to the house-
hold of which the individual is a member under
the food stamp program under the Food Stamp
Act of 1977; minus
‘‘(iii) any amount collected by the State as
child support with respect to the family that is
retained by the State; divided by
‘‘(B) the greater of the Federal minimum
wage or the applicable State minimum wage.
‘‘(5) MAXIMUM HOURS OF PARTICIPATION PER
WEEK.—A State that elects to establish a work ex-
perience or community service program may not re-
quire any participant in any such program to par-
612
ticipate in any such program for a combined total of
more than 40 hours per week.
‘‘(6) RULE
OF
INTERPRETATION.—This sub-
section shall not be construed as authorizing the
provision of assistance under a State program fund-
ed under this part as compensation for work per-
formed, nor shall a participant be entitled to a sal-
ary or to any other work or training expense pro-
vided under any other provision of law by reason of
participation in a work experience or community
service program described in this subsection.’’.
(b) RETROACTIVITY.—The amendment made by sub-
section (a) of this section shall take effect as if included
in the enactment of section 103(a) of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996.
SEC. 5005. STATE OPTION TO TAKE ACCOUNT OF CERTAIN
WORK ACTIVITIES OF RECIPIENTS WITH SUF-
FICIENT PARTICIPATION IN WORK EXPERI-
ENCE OR COMMUNITY SERVICE PROGRAMS.
(a) IN GENERAL.—Section 407(c) of the Social Secu-
rity Act (42 U.S.C. 607(c)) is amended by adding at the
end the following:
‘‘(3) STATE OPTION TO TAKE ACCOUNT OF CER-
TAIN WORK ACTIVITIES OF RECIPIENTS WITH SUFFI-
613
CIENT
PARTICIPATION
IN
WORK
EXPERIENCE
OR
COMMUNITY SERVICE PROGRAMS.—Notwithstanding
paragraphs (1) and (2) of this subsection and sub-
section (d)(8), for purposes of determining monthly
participation rates under paragraphs (1)(B)(i) and
(2)(B) of subsection (b), an individual who, during
a month, has participated in a work experience or
community service program operated in accordance
with subsection (j), for the maximum number of
hours that the individual may be required to partici-
pate in such a program during the month shall be
treated as engaged in work for the month if, during
the month, the individual has participated in any
other work activity for a number of hours that is not
less than the number of hours required by sub-
section (c)(1) for the month minus such maximum
number of hours.’’.
(b) RETROACTIVITY.—The amendment made by sub-
section (a) of this section shall take effect as if included
in the enactment of section 103(a) of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996.
SEC. 5006. WORKER PROTECTIONS.
Section 407(f) of the Social Security Act (42 U.S.C.
607(f)) is amended to read as follows:
614
‘‘(f) WORKER PROTECTIONS.—
‘‘(1) NONDISPLACEMENT
IN
WORK
ACTIVI-
TIES.—
‘‘(A) GENERAL PROHIBITION.—Subject to
this paragraph, an adult in a family receiving
assistance under a State program funded under
this part attributable to funds provided by the
Federal Government may fill a vacant employ-
ment position in order to engage in a work ac-
tivity.
‘‘(B) PROHIBITION AGAINST VIOLATION OF
CONTRACTS.—A work activity shall not violate
an existing contract for services or collective
bargaining agreement.
‘‘(C) OTHER
PROHIBITIONS.—An adult
participant in a work activity shall not be em-
ployed or assigned—
‘‘(i) when any other individual is on
layoff from the same or any substantially
equivalent job; or
‘‘(ii) if the employer has terminated
the employment of any regular employee or
otherwise caused an involuntary reduction
if its workforce with the intention of filling
615
the vacancy so created with the partici-
pant.
‘‘(2) HEALTH AND SAFETY.—Health and safety
standards established under Federal and State law
otherwise applicable to working conditions of em-
ployees shall be equally applicable to working condi-
tions of participants engaged in a work activity.
‘‘(3) NONDISCRIMINATION.—In addition to the
protections provided under the provisions of law
specified in section 408(c), an individual may not be
discriminated against with respect to participation in
work activities by reason of gender.
‘‘(4) GRIEVANCE PROCEDURE.—
‘‘(A) IN GENERAL.—Each State to which a
grant is made under section 403 shall establish
and maintain a procedure for grievances or
complaints from employees alleging violations of
paragraph (1) and participants in work activi-
ties alleging violations of paragraph (1), (2), or
(3).
‘‘(B) HEARING.—The procedure shall in-
clude an opportunity for a hearing.
‘‘(C) REMEDIES.—The procedure shall in-
clude remedies for violation of paragraph (1),
(2), or (3), which may include—
616
‘‘(i) prohibition against placement of a
participant with an employer that has vio-
lated paragraph (1), (2), or (3);
‘‘(ii) where applicable, reinstatement
of an employee, payment of lost wages and
benefits, and reestablishment of other rel-
evant terms, conditions and privileges of
employment; and
‘‘(iii) where appropriate, other equi-
table relief.
‘‘(5) 
NONPREEMPTION
OF
STATE
NON-
DISPLACEMENT LAWS.—The provisions of this sub-
section relating to nondisplacement of employees
shall not be construed to preempt any provision of
State law relating to nondisplacement of employees
that affords greater protections to employees than is
afforded by such provisions of this subsection.’’.
Subtitle B—Higher Education
Programs
SEC. 5101. MANAGEMENT AND RECOVERY OF RESERVES.
(a) AMENDMENT.—Section 422 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1072) is amended by add-
ing after subsection (g) the following new subsection:
‘‘(h) RECALL OF RESERVES; LIMITATIONS ON USE
OF RESERVE FUNDS AND ASSETS.—(1) Notwithstanding
617
any other provision of law, the Secretary shall, except as
otherwise 
provided 
in 
this 
subsection, 
recall
$1,000,000,000 from the reserve funds held by guaranty
agencies on September 1, 2002.
‘‘(2) Funds recalled by the Secretary under this sub-
section shall be deposited in the Treasury.
‘‘(3) The Secretary shall require each guaranty agen-
cy to return reserve funds under paragraph (1) based on
such agency’s required share of recalled reserve funds held
by guaranty agencies as of September 30, 1996. For pur-
poses of this paragraph, a guaranty agency’s required
share of recalled reserve funds shall be determined as fol-
lows:
‘‘(A) The Secretary shall compute each agency’s
reserve ratio by dividing (i) the amount held in such
agency’s reserve funds as of September 30, 1996
(but reflecting later accounting or auditing adjust-
ments approved by the Secretary), by (ii) the origi-
nal principal amount of all loans for which such
agency has an outstanding insurance obligation as of
such date.
‘‘(B) If the reserve ratio of any agency as com-
puted under subparagraph (A) exceeds 2.0 percent,
the agency’s required share shall include so much of
618
the amounts held in such agency’s reserve fund as
exceed a reserve ratio of 2.0 percent.
‘‘(C) If any additional amount is required to be
recalled under paragraph (1) (after deducting the
total of the required shares calculated under sub-
paragraph (B)), the agencies’ required shares shall
include additional amounts—
‘‘(i) determined by imposing on each such
agency an equal percentage reduction in the
amount of each agency’s reserve fund remain-
ing after deduction of the amount recalled
under subparagraph (B); and
‘‘(ii) the total of which equals the addi-
tional amount that is required to be recalled
under paragraph (1) (after deducting the total
of the required shares calculated under sub-
paragraph (B)).
‘‘(4) Within 90 days after the beginning of each of
fiscal years 1998 through 2002, each guaranty agency
shall transfer a portion of each agency’s required share
determined under paragraph (3) to a restricted account
established by the guaranty agency that is of a type se-
lected by the guaranty agency with the approval of the
Secretary. Funds transferred to such restricted accounts
shall be invested in obligations issued or guaranteed by
619
the United States or in other similarly low-risk securities.
A guaranty agency shall not use the funds in such a re-
stricted account for any purpose without the express writ-
ten permission of the Secretary, except that a guaranty
agency may use the earnings from such restricted account
to assist in meeting the agency’s operational expenses
under this part. In each of fiscal years 1998 through
2002, each agency shall transfer its required share to such
restricted account in 5 equal annual installments, except
that—
‘‘(A) a guarantee agency that has a reserve
ratio (as computed under subparagraph (3)(A))
equal to or less than 1.10 percent may transfer its
required share to such account in 4 equal install-
ments beginning in fiscal year 1999; and
‘‘(B) a guarantee agency may transfer such re-
quired share to such account in accordance with
such other payment schedules as are approved by
the Secretary.
‘‘(5) If, on September 1, 2002, the total amount in
the restricted accounts described in paragraph (4) is less
than the amount the Secretary is required to recall under
paragraph (1), the Secretary may require the return of
the amount of the shortage from other reserve funds held
620
by guaranty agencies under procedures established by the
Secretary.
‘‘(6) The Secretary may take such reasonable meas-
ures, and require such information, as may be necessary
to ensure that guaranty agencies comply with the require-
ments of this subsection. Notwithstanding any other provi-
sion of this part, if the Secretary determines that a guar-
anty agency is not in compliance with the requirements
of this subsection, such agency may not receive any other
funds under this part until the Secretary determines that
such agency is in compliance.
‘‘(7) The Secretary shall not have any authority to
direct a guaranty agency to return reserve funds under
subsection (g)(1)(A) during the period from the date of
enactment of this subsection through September 30, 2002,
and any reserve funds otherwise returned under sub-
section (g)(1) during such period shall be treated as
amounts recalled under this subsection and shall not be
available under subsection (g)(4).
‘‘(8) For purposes of this subsection, the term ‘re-
serve funds’ when used with respect to a guaranty agen-
cy—
‘‘(A) includes any cash reserve funds held by
the guaranty agency, or held by, or under the con-
trol of, any other entity; and
621
‘‘(B) does not include buildings, equipment, or
other nonliquid assets.’’.
(b) 
CONFORMING
AMENDMENT.—Section
428(c)(9)(A) of the Higher Education Act of 1965 (20
U.S.C. 1078(c)(9)(A)) is amended—
(1) in the first sentence, by striking ‘‘for the
fiscal year of the agency that begins in 1993’’; and
(2) by striking the third sentence.
SEC. 5102. REPEAL OF DIRECT LOAN ORIGINATION FEES TO
INSTITUTIONS OF HIGHER EDUCATION.
Section 452 of the Higher Education Act of 1965 (20
U.S.C. 1087b) is amended—
(1) by striking subsection (b); and
(2) by redesignating subsections (c) and (d) as
subsections (b) and (c), respectively.
SEC. 5103. FUNDS FOR ADMINISTRATIVE EXPENSES.
Subsection (a) of section 458 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1087h(a)) is amended to
read as follows:
‘‘(a) IN GENERAL.—(1) Each fiscal year, there shall
be available to the Secretary from funds not otherwise ap-
propriated, funds to be obligated for—
‘‘(A) administrative costs under this part and
part B, including the costs of the direct student loan
programs under this part, and
622
‘‘(B) administrative cost allowances payable to
guaranty agencies under part B and calculated in
accordance with paragraph (2),
not to exceed (from such funds not otherwise appro-
priated) $532,000,000 in fiscal year 1998, $610,000,000
in fiscal year 1999, $705,000,000 in fiscal year 2000,
$750,000,000 in fiscal year 2001, and $750,000,000 in
fiscal year 2002. Administrative cost allowances under
subparagraph (B) of this paragraph shall be paid quar-
terly and used in accordance with section 428(f). The Sec-
retary may carry over funds available under this section
to a subsequent fiscal year.
‘‘(2) Administrative cost allowances payable to guar-
anty agencies under paragraph (1)(B) shall be calculated
on the basis of 0.85 percent of the total principal amount
of loans upon which insurance is issued on or after the
date of enactment of the Balanced Budget Act of 1997,
except that such allowances shall not exceed—
‘‘(A) $170,000,000 for each of the fiscal years
1998 and 1999; or
‘‘(B) $150,000,000 for each of the fiscal years
2000, 2001, and 2002.’’.
623
SEC. 5104. SECRETARY’S EQUITABLE SHARE OF COLLEC-
TIONS 
ON 
CONSOLIDATED 
DEFAULTED
LOANS.
Section 428(c)(6)(A) of the Higher Education Act of
1965 (20 U.S.C. 1078(c)(6)(A)) is amended—
(1) in the matter preceding clause (i), by strik-
ing ‘‘made by the borrower’’ and inserting ‘‘made by
or on behalf of the borrower, including payments
made to discharge loans made under this title to ob-
tain a consolidation loan pursuant to this part or
part D,’’; and
(2) in clause (ii), by striking ‘‘(ii) an amount
equal to 27 percent of such payments (subject to
subparagraph (D) of this paragraph) for costs relat-
ed’’ and inserting the following:
‘‘(ii) an amount equal to 27 percent of such
payments for covered costs, except that the amount
determined under this clause for such covered costs
shall be (I) 18.5 percent of such payments for de-
faulted loans consolidated pursuant to this part or
part D on or after July 1, 1997; and (II) 18.5 per-
cent of such payments for defaulted loans consoli-
dated pursuant to this part or part D on or after
the date of enactment of the Higher Education
Amendments of 1992 with respect to any guaranty
agency that has, after such date, made deductions
624
from such payments under this clause (ii) in an
amount equal to 18.5 percent of such payments.
For purposes of clause (ii) of this subparagraph, the term
‘covered costs’ means costs related’’.
SEC. 5105. EXTENSION OF STUDENT AID PROGRAMS.
Title IV of the Higher Education Act of 1965 (20
U.S.C. 1070 et seq.) is amended—
(1) in section 424(a), by striking ‘‘1998.’’ and
‘‘2002.’’ and inserting ‘‘2002.’’ and ‘‘2006.’’, respec-
tively;
(2) in section 428(a)(5), by striking ‘‘1998,’’
and ‘‘2002.’’ and inserting ‘‘2002,’’ and ‘‘2006.’’, re-
spectively; and
(3) in section 428C(e), by striking ‘‘1998.’’ and
inserting ‘‘2002.’’.
Subtitle C—Repeal of Smith-
Hughes Vocational Education Act
SEC. 5201. REPEAL OF SMITH-HUGHES VOCATIONAL EDU-
CATION ACT.
The Act of February 23, 1917 (39 Stat. 929; 20
U.S.C. 11) (commonly known as the ‘‘Smith-Hughes Vo-
cational Education Act’’) is repealed.
625
Subtitle 
D—Expansion 
of 
Port-
ability and Health Insurance
Coverage
SEC. 5301. SHORT TITLE OF SUBTITLE.
This subtitle may be cited as the ‘‘Expansion of Port-
ability and Health Insurance Coverage Act of 1997’’.
SEC. 5302. RULES GOVERNING ASSOCIATION HEALTH
PLANS.
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding after part 7 the following new part:
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH
PLANS
‘‘SEC. 801. ASSOCIATION HEALTH PLANS.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘association health plan’ means a group health
plan—
‘‘(1) whose sponsor is (or is deemed under this
part to be) described in subsection (b), and
‘‘(2) under which at least one option of health
insurance coverage offered by a health insurance is-
suer (which may include, among other options, man-
aged care options, point of service options, and pre-
ferred provider options) is provided to participants
and beneficiaries.
626
‘‘(b) SPONSORSHIP.—The sponsor of a group health
plan is described in this subsection if such sponsor—
‘‘(1) is organized and maintained in good faith,
with a constitution and bylaws specifically stating its
purpose and providing for periodic meetings on at
least an annual basis, as a trade association, an in-
dustry association (including a rural electric cooper-
ative association or a rural telephone cooperative as-
sociation), a professional association, or a chamber
of commerce (or similar business group, including a
corporation or similar organization that operates on
a cooperative basis (within the meaning of section
1381 of the Internal Revenue Code of 1986)), for
substantial purposes other than that of obtaining or
providing medical care,
‘‘(2) is established as a permanent entity which
receives the active support of its members and col-
lects from its members on a periodic basis dues or
payments necessary to maintain eligibility for mem-
bership in the sponsor, and
‘‘(3) does not condition such dues or payments
or coverage under the plan on the basis of health
status-related factors with respect to the employees
of its members (or affiliated members), or the de-
pendents of such employees, and does not condition
627
such dues or payments on the basis of group health
plan participation.
Any sponsor consisting of an association of entities which
meet the requirements of paragraphs (1) and (2) shall be
deemed to be a sponsor described in this subsection.
‘‘SEC. 
802. 
CERTIFICATION 
OF 
ASSOCIATION 
HEALTH
PLANS.
‘‘(a) IN GENERAL.—The Secretary shall prescribe by
regulation a procedure under which, subject to subsection
(b), the Secretary shall certify association health plans
which apply for certification as meeting the requirements
of this part.
‘‘(b) STANDARDS.—Under the procedure prescribed
pursuant to subsection (a), the Secretary shall certify an
association health plan as meeting the requirements of
this part only if the Secretary is satisfied that—
‘‘(1) such certification—
‘‘(A) is administratively feasible,
‘‘(B) is not adverse to the interests of the
individuals covered under the plan, and
‘‘(C) is protective of the rights and benefits
of the individuals covered under the plan, and
‘‘(2) the applicable requirements of this part
are met (or, upon the date on which the plan is to
628
commence operations, will be met) with respect to
the plan.
‘‘(c) REQUIREMENTS APPLICABLE
TO CERTIFIED
PLANS.—An association health plan with respect to which
certification under this part is in effect shall meet the ap-
plicable requirements of this part, effective on the date
of certification (or, if later, on the date on which the plan
is to commence operations).
‘‘(d) REQUIREMENTS
FOR
CONTINUED
CERTIFI-
CATION.—The Secretary may provide by regulation for
continued certification under this part, including require-
ments relating to any commencement, by an association
health plan which has been certified under this part, of
a benefit option which does not consist of health insurance
coverage.
‘‘(e) CLASS CERTIFICATION
FOR FULLY–INSURED
PLANS.—The Secretary shall establish a class certification
procedure for association health plans under which all ben-
efits consist of health insurance coverage. Under such pro-
cedure, the Secretary shall provide for the granting of cer-
tification under this part to the plans in each class of such
association health plans upon appropriate filing under
such procedure in connection with plans in such class and
payment of the prescribed fee under section 807(a).
629
‘‘SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND
BOARDS OF TRUSTEES.
‘‘(a) SPONSOR.—The requirements of this subsection
are met with respect to an association health plan if—
‘‘(1) the sponsor (together with its immediate
predecessor, if any) has met (or is deemed under
this part to have met) for a continuous period of not
less than 3 years ending with the date of the appli-
cation for certification under this part, the require-
ments of paragraphs (1) and (2) of section 801(b),
and
‘‘(2) the sponsor meets (or is deemed under this
part to meet) the requirements of section 801(b)(3).
‘‘(b) BOARD OF TRUSTEES.—The requirements of
this subsection are met with respect to an association
health plan if the following requirements are met:
‘‘(1) FISCAL CONTROL.—The plan is operated,
pursuant to a trust agreement, by a board of trust-
ees which has complete fiscal control over the plan
and which is responsible for all operations of the
plan.
‘‘(2) RULES
OF
OPERATION
AND
FINANCIAL
CONTROLS.—The board of trustees has in effect
rules of operation and financial controls, based on a
3-year plan of operation, adequate to carry out the
630
terms of the plan and to meet all requirements of
this title applicable to the plan.
‘‘(3) RULES
GOVERNING
RELATIONSHIP
TO
PARTICIPATING
EMPLOYERS
AND
TO
CONTRAC-
TORS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the members of the board of
trustees are individuals selected from individ-
uals who are the owners, officers, directors, or
employees of the participating employers or who
are partners in the participating employers and
actively participate in the business.
‘‘(B) LIMITATION.—
‘‘(i) GENERAL RULE.—Except as pro-
vided in clauses (ii) and (iii), no such
member is an owner, officer, director, or
employee of, or partner in, a contract ad-
ministrator or other service provider to the
plan.
‘‘(ii) LIMITED EXCEPTION FOR PRO-
VIDERS OF SERVICES SOLELY ON BEHALF
OF THE SPONSOR.—Officers or employees
of a sponsor which is a service provider
(other than a contract administrator) to
the plan may be members of the board if
631
they constitute not more than 25 percent
of the membership of the board and they
do not provide services to the plan other
than on behalf of the sponsor.
‘‘(iii) TREATMENT OF PROVIDERS OF
MEDICAL CARE.—In the case of a sponsor
which is an association whose membership
consists primarily of providers of medical
care, clause (i) shall not apply in the case
of any service provider described in sub-
paragraph (A) who is a provider of medical
care under the plan.
‘‘(C) SOLE
AUTHORITY.—The board has
sole authority to approve applications for par-
ticipation in the plan and to contract with a
service provider to administer the day-to-day af-
fairs of the plan.
‘‘(c) TREATMENT OF FRANCHISE NETWORKS.—In
the case of a group health plan which is established and
maintained by a franchiser for a franchise network con-
sisting of its franchisees—
‘‘(1) the requirements of subsection (a) and sec-
tion 801(a)(1) shall be deemed met if such require-
ments would otherwise be met if the franchiser were
deemed to be the sponsor referred to in section
632
801(b), such network were deemed to be an associa-
tion described in section 801(b), and each franchisee
were deemed to be a member (of the association and
the sponsor) referred to in section 801(b), and
‘‘(2) the requirements of section 804(a)(1) shall
be deemed met.
‘‘(d) CERTAIN COLLECTIVELY BARGAINED PLANS.—
‘‘(1) IN
GENERAL.—In the case of a group
health plan described in paragraph (2)—
‘‘(A) the requirements of subsection (a)
and section 801(a)(1) shall be deemed met,
‘‘(B) the joint board of trustees shall be
deemed a board of trustees with respect to
which the requirements of subsection (b) are
met, and
‘‘(C) the requirements of section 804 shall
be deemed met.
‘‘(2) REQUIREMENTS.—A group health plan is
described in this paragraph if—
‘‘(A) the plan is a multiemployer plan,
‘‘(B) the plan is in existence on April 1,
1997, and would be described in section
3(40)(A)(i) but solely for the failure to meet
the requirements of section 3(40)(C)(ii) or (to
the extent provided in regulations of the Sec-
633
retary) solely for the failure to meet the re-
quirements of subparagraph (D) of section
3(40), or
‘‘(C)(i) the plan is in existence on April 1,
1997, has been in existence as of such date for
at least 3 years, meets the requirements of
paragraphs (2) and (3) of section 801(b), and
would be described in section 3(40)(A)(i) but
solely for the failure to meet the requirements
of subparagraph (C)(i) or (C)(ii), and
‘‘(ii) individuals who are members of the
plan sponsor—
‘‘(I) participate by elections in the or-
ganizational governance of the plan spon-
sor,
‘‘(II) are eligible for appointment as
trustee of the plan or for participation in
the appointment of trustees of the plan,
and
‘‘(III) if covered under the plan, have
full rights under the plan of a participant
in an employee welfare benefit plan.
‘‘(e) CERTAIN PLANS NOT MEETING SINGLE EM-
PLOYER REQUIREMENT.—
634
‘‘(1) IN GENERAL.—In any case in which the
majority of the employees covered under a group
health plan are employees of a single employer
(within the meaning of clauses (i) and (ii) of section
3(40)(B)), if all other employees covered under the
plan are employed by employers who are related to
such single employer—
‘‘(A) the requirements of subsection (a)
and section 801(a)(1) shall not apply if such
single employer is the sponsor of the plan, and
‘‘(B) the requirements of subsection (b)
shall be deemed met if the board of trustees is
the named fiduciary in connection with the
plan.
‘‘(2) RELATED EMPLOYERS.—For purposes of
paragraph (1), employers are ‘related’ if there is
among all such employers a common ownership in-
terest or a substantial commonality of business oper-
ations based on common suppliers or customers.
‘‘SEC. 804. PARTICIPATION AND COVERAGE REQUIRE-
MENTS.
‘‘(a) COVERED EMPLOYERS AND INDIVIDUALS.—The
requirements of this subsection are met with respect to
an association health plan if, under the terms of the
plan—
635
‘‘(1) all participating employers must be mem-
bers or affiliated members of the sponsor, except
that, in the case of a sponsor which is a professional
association or other individual-based association, if
at least one of the officers, directors, or employees
of an employer, or at least one of the individuals
who are partners in an employer and who actively
participates in the business, is a member or affili-
ated member of the sponsor, participating employers
may also include such employer, and
‘‘(2) all individuals commencing coverage under
the plan after certification under this part must
be—
‘‘(A) active or retired owners (including
self-employed individuals), officers, directors, or
employees of, or partners in, participating em-
ployers, or
‘‘(B) the beneficiaries of individuals de-
scribed in subparagraph (A).
‘‘(b) COVERAGE OF PREVIOUSLY UNINSURED EM-
PLOYEES.—The requirements of this subsection are met
with respect to an association health plan if, under the
terms of the plan, no affiliated member of the sponsor may
be offered coverage under the plan as a participating em-
ployer unless—
636
‘‘(1) the affiliated member was an affiliated
member on the date of certification under this part,
or
‘‘(2) during the 12-month period preceding the
date of the offering of such coverage, the affiliated
member has not maintained or contributed to a
group health plan with respect to any of its employ-
ees who would otherwise be eligible to participate in
such association health plan.
‘‘(c) INDIVIDUAL MARKET UNAFFECTED.—The re-
quirements of this subsection are met with respect to an
association health plan if, under the terms of the plan,
no participating employer may provide health insurance
coverage in the individual market for any employee not
covered under the plan which is similar to the coverage
contemporaneously provided to employees of the employer
under the plan, if such exclusion of the employee from cov-
erage under the plan is based on a health status-related
factor with respect to the employee and such employee
would, but for such exclusion on such basis, be eligible
for coverage under the plan.
‘‘(d) PROHIBITION
OF DISCRIMINATION AGAINST
EMPLOYERS
AND EMPLOYEES ELIGIBLE
TO PARTICI-
PATE.—The requirements of this subsection are met with
respect to an association health plan if—
637
‘‘(1) under the terms of the plan, no employer
meeting the preceding requirements of this section is
excluded as a participating employer, unless—
‘‘(A) participation or contribution require-
ments of the type referred to in section 2711 of
the Public Health Service Act are not met with
respect to the excluded employer, or
‘‘(B) the excluded employer does not sat-
isfy a required minimum level of employment
uniformly applicable to participating employers,
‘‘(2) the applicable requirements of sections
701, 702, and 703 are met with respect to the plan,
and
‘‘(3) applicable benefit options under the plan
are actively marketed to all eligible participating em-
ployers.
‘‘SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN
DOCUMENTS, CONTRIBUTION RATES, AND
BENEFIT OPTIONS.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if the
following requirements are met:
‘‘(1) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the plan in-
clude a written instrument, meeting the require-
638
ments of an instrument required under section
402(a)(1), which—
‘‘(A) provides that the board of trustees
serves as the named fiduciary required for plans
under section 402(a)(1) and serves in the ca-
pacity of a plan administrator (referred to in
section 3(16)(A)),
‘‘(B) provides that the sponsor of the plan
is to serve as plan sponsor (referred to in sec-
tion 3(16)(B)), and
‘‘(C) incorporates the requirements of sec-
tion 806.
‘‘(2) CONTRIBUTION
RATES
MUST
BE
NON-
DISCRIMINATORY.—
‘‘(A) The contribution rates for any par-
ticipating employer do not vary significantly on
the basis of the claims experience of such em-
ployer and do not vary on the basis of the type
of business or industry in which such employer
is engaged.
‘‘(B) Nothing in this title or any other pro-
vision of law shall be construed to preclude an
association health plan, or a health insurance
issuer offering health insurance coverage in
connection with an association health plan,
639
from setting contribution rates based on the
claims experience of the plan, to the extent con-
tribution rates under the plan meet the require-
ments of section 702(b).
‘‘(3) FLOOR FOR NUMBER OF COVERED INDI-
VIDUALS
WITH
RESPECT
TO
CERTAIN
PLANS.—If
any benefit option under the plan does not consist
of health insurance coverage, the plan has as of the
beginning of the plan year not fewer than 1,000 par-
ticipants and beneficiaries.
‘‘(4) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the Secretary may prescribe
by regulation as necessary to carry out the purposes
of this part.
‘‘(b) ABILITY OF ASSOCIATION HEALTH PLANS TO
DESIGN BENEFIT OPTIONS.—Nothing in this part or any
provision of State law (as defined in section 514(c)(1))
shall be construed to preclude an association health plan,
or a health insurance issuer offering health insurance cov-
erage in connection with an association health plan, from
exercising its sole discretion in selecting the specific items
and services consisting of medical care to be included as
benefits under such plan or coverage, except in the case
of any law to the extent that it (1) prohibits an exclusion
of a specific disease from such coverage, or (2) is not pre-
640
empted under section 731(a)(1) with respect to matters
governed by section 711 or 712.
‘‘SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS
FOR 
SOLVENCY 
FOR 
PLANS 
PROVIDING
HEALTH BENEFITS IN ADDITION TO HEALTH
INSURANCE COVERAGE.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if—
‘‘(1) the benefits under the plan consist solely
of health insurance coverage, or
‘‘(2) if the plan provides any additional benefit
options which do not consist of health insurance cov-
erage, the plan—
‘‘(A) establishes and maintains reserves
with respect to such additional benefit options,
in amounts recommended by the qualified actu-
ary, consisting of—
‘‘(i) a reserve sufficient for unearned
contributions,
‘‘(ii) a reserve sufficient for benefit li-
abilities which have been incurred, which
have not been satisfied, and for which risk
of loss has not yet been transferred, and
for expected administrative costs with re-
spect to such benefit liabilities,
641
‘‘(iii) a reserve sufficient for any other
obligations of the plan, and
‘‘(iv) a reserve sufficient for a margin
of error and other fluctuations, taking into
account the specific circumstances of the
plan,
and
‘‘(B) establishes and maintains aggregate
excess/stop loss insurance and solvency indem-
nification, with respect to such additional bene-
fit options for which risk of loss has not yet
been transferred, as follows:
‘‘(i) The plan shall secure aggregate
excess/stop loss insurance for the plan with
an attachment point which is not greater
than 125 percent of expected gross annual
claims. The Secretary may by regulation
provide for upward adjustments in the
amount of such percentage in specified cir-
cumstances in which the plan specifically
provides for and maintains reserves in ex-
cess of the amounts required under sub-
paragraph (A).
‘‘(ii) The plan shall secure a means of
indemnification for any claims which the
642
plan is unable to satisfy by reason of a ter-
mination pursuant to section 809(b) (relat-
ing to mandatory termination).
Any regulations prescribed by the Secretary pursuant to
paragraph (2)(B)(i) may allow for such adjustments in the
required levels of excess/stop loss insurance as the quali-
fied actuary may recommend, taking into account the spe-
cific circumstances of the plan.
‘‘(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS
RESERVES.—The requirements of this subsection are met
if the plan establishes and maintains surplus in an amount
at least equal to the excess of—
‘‘(1) the greater of—
‘‘(A) 25 percent of expected incurred
claims and expenses for the plan year, or
‘‘(B) $400,000,
over
‘‘(2) the amount required under subsection
(a)(2)(A)(ii).
‘‘(c) ADDITIONAL REQUIREMENTS.—In the case of
any association health plan described in subsection (a)(2),
the Secretary may provide such additional requirements
relating to reserves and excess/stop loss insurance as the
Secretary considers appropriate. Such requirements may
643
be provided, by regulation or otherwise, with respect to
any such plan or any class of such plans.
‘‘(d) ADJUSTMENTS FOR EXCESS/STOP LOSS INSUR-
ANCE.—The Secretary may provide for adjustments to the
levels of reserves otherwise required under subsections (a)
and (b) with respect to any plan or class of plans to take
into account excess/stop loss insurance provided with re-
spect to such plan or plans.
‘‘(e) ALTERNATIVE MEANS OF COMPLIANCE.—The
Secretary may permit an association health plan described
in subsection (a)(2) to substitute, for all or part of the
requirements of this section, such security, guarantee,
hold-harmless arrangement, or other financial arrange-
ment as the Secretary determines to be adequate to enable
the plan to fully meet all its financial obligations on a
timely basis and is otherwise no less protective of the in-
terests of participants and beneficiaries than the require-
ments for which it is substituted. The Secretary may take
into account, for purposes of this subsection, evidence pro-
vided by the plan or sponsor which demonstrates an as-
sumption of liability with respect to the plan. Such evi-
dence may be in the form of a contract of indemnification,
lien, bonding, insurance, letter of credit, recourse under
applicable terms of the plan in the form of assessments
644
of participating employers, security, or other financial ar-
rangement.
‘‘(f) EXCESS/STOP LOSS INSURANCE.—For purposes
of this section, the term ‘excess/stop loss insurance’
means, in connection with an association health plan, a
contract under which an insurer (meeting such minimum
standards as may be prescribed in regulations of the Sec-
retary) provides for payment to the plan with respect to
claims under the plan in excess of an amount or amounts
specified in such contract.
‘‘SEC. 807. REQUIREMENTS FOR APPLICATION AND RELAT-
ED REQUIREMENTS.
‘‘(a) FILING FEE.—Under the procedure prescribed
pursuant to section 802(a), an association health plan
shall pay to the Secretary at the time of filing an applica-
tion for certification under this part a filing fee in the
amount of $5,000, which shall be available, to the extent
provided in appropriation Acts, to the Secretary for the
sole purpose of administering the certification procedures
applicable with respect to association health plans.
‘‘(b) INFORMATION TO BE INCLUDED IN APPLICA-
TION FOR CERTIFICATION.—An application for certifi-
cation under this part meets the requirements of this sec-
tion only if it includes, in a manner and form prescribed
645
in regulations of the Secretary, at least the following infor-
mation:
‘‘(1) IDENTIFYING INFORMATION.—The names
and addresses of—
‘‘(A) the sponsor, and
‘‘(B) the members of the board of trustees
of the plan.
‘‘(2) STATES IN WHICH PLAN INTENDS TO DO
BUSINESS.—The States in which participants and
beneficiaries under the plan are to be located and
the number of them expected to be located in each
such State.
‘‘(3) BONDING REQUIREMENTS.—Evidence pro-
vided by the board of trustees that the bonding re-
quirements of section 412 will be met as of the date
of the application or (if later) commencement of op-
erations.
‘‘(4) PLAN DOCUMENTS.—A copy of the docu-
ments governing the plan (including any bylaws and
trust agreements), the summary plan description,
and other material describing the benefits that will
be provided to participants and beneficiaries under
the plan.
‘‘(5) AGREEMENTS
WITH
SERVICE
PROVID-
ERS.—A copy of any agreements between the plan
646
and contract administrators and other service pro-
viders.
‘‘(6) FUNDING REPORT.—In the case of asso-
ciation health plans providing benefits options in ad-
dition to health insurance coverage, a report setting
forth information with respect to such additional
benefit options determined as of a date within the
120-day period ending with the date of the applica-
tion, including the following:
‘‘(A) RESERVES.—A statement, certified
by the board of trustees of the plan, and a
statement of actuarial opinion, signed by a
qualified actuary, that all applicable require-
ments of section 806 are or will be met in ac-
cordance with regulations which the Secretary
shall prescribe.
‘‘(B) 
ADEQUACY
OF
CONTRIBUTION
RATES.—A statement of actuarial opinion,
signed by a qualified actuary, which sets forth
a description of the extent to which contribution
rates are adequate to provide for the payment
of all obligations and the maintenance of re-
quired reserves under the plan for the 12-
month period beginning with such date within
such 120-day period, taking into account the
647
expected coverage and experience of the plan. If
the contribution rates are not fully adequate,
the statement of actuarial opinion shall indicate
the extent to which the rates are inadequate
and the changes needed to ensure adequacy.
‘‘(C) CURRENT AND PROJECTED VALUE OF
ASSETS AND LIABILITIES.—A statement of ac-
tuarial opinion signed by a qualified actuary,
which sets forth the current value of the assets
and liabilities accumulated under the plan and
a projection of the assets, liabilities, income,
and expenses of the plan for the 12-month pe-
riod referred to in subparagraph (B). The in-
come statement shall identify separately the
plan’s administrative expenses and claims.
‘‘(D) 
COSTS
OF
COVERAGE
TO
BE
CHARGED
AND
OTHER
EXPENSES.—A state-
ment of the costs of coverage to be charged, in-
cluding an itemization of amounts for adminis-
tration, reserves, and other expenses associated
with the operation of the plan.
‘‘(E) OTHER
INFORMATION.—Any other
information which may be prescribed in regula-
tions of the Secretary as necessary to carry out
the purposes of this part.
648
‘‘(c) FILING
NOTICE
OF
CERTIFICATION
WITH
STATES.—A certification granted under this part to an
association health plan shall not be effective unless written
notice of such certification is filed with the applicable
State authority of each State in which at least 25 percent
of the participants and beneficiaries under the plan are
located. For purposes of this subsection, an individual
shall be considered to be located in the State in which a
known address of such individual is located or in which
such individual is employed.
‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case
of any association health plan certified under this part,
descriptions of material changes in any information which
was required to be submitted with the application for the
certification under this part shall be filed in such form
and manner as shall be prescribed in regulations of the
Secretary. The Secretary may require by regulation prior
notice of material changes with respect to specified mat-
ters which might serve as the basis for suspension or rev-
ocation of the certification.
‘‘(e) REPORTING REQUIREMENTS FOR CERTAIN AS-
SOCIATION HEALTH PLANS.—An association health plan
certified under this part which provides benefit options in
addition to health insurance coverage for such plan year
shall meet the requirements of section 103 by filing an
649
annual report under such section which shall include infor-
mation described in subsection (b)(6) with respect to the
plan year and, notwithstanding section 104(a)(1)(A), shall
be filed not later than 90 days after the close of the plan
year (or on such later date as may be prescribed by the
Secretary).
‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The
board of trustees of each association health plan which
provides benefits options in addition to health insurance
coverage and which is applying for certification under this
part or is certified under this part shall engage, on behalf
of all participants and beneficiaries, a qualified actuary
who shall be responsible for the preparation of the mate-
rials comprising information necessary to be submitted by
a qualified actuary under this part. The qualified actuary
shall utilize such assumptions and techniques as are nec-
essary to enable such actuary to form an opinion as to
whether the contents of the matters reported under this
part—
‘‘(1) are in the aggregate reasonably related to
the experience of the plan and to reasonable expecta-
tions, and
‘‘(2) represent such actuary’s best estimate of
anticipated experience under the plan.
650
The opinion by the qualified actuary shall be made with
respect to, and shall be made a part of, the annual report.
‘‘SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TER-
MINATION.
‘‘Except as provided in section 809(b), an association
health plan which is or has been certified under this part
may terminate (upon or at any time after cessation of ac-
cruals in benefit liabilities) only if the board of trustees—
‘‘(1) not less than 60 days before the proposed
termination date, provides to the participants and
beneficiaries a written notice of intent to terminate
stating that such termination is intended and the
proposed termination date,
‘‘(2) develops a plan for winding up the affairs
of the plan in connection with such termination in
a manner which will result in timely payment of all
benefits for which the plan is obligated, and
‘‘(3) submits such plan in writing to the Sec-
retary.
Actions required under this section shall be taken in such
form and manner as may be prescribed in regulations of
the Secretary.
651
‘‘SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMI-
NATION.
‘‘(a) ACTIONS
TO
AVOID
DEPLETION
OF
RE-
SERVES.—An association health plan which is certified
under this part and which provides benefits other than
health insurance coverage shall continue to meet the re-
quirements of section 806, irrespective of whether such
certification continues in effect. The board of trustees of
such plan shall determine quarterly whether the require-
ments of section 806 are met. In any case in which the
board determines that there is reason to believe that there
is or will be a failure to meet such requirements, or the
Secretary makes such a determination and so notifies the
board, the board shall immediately notify the qualified ac-
tuary engaged by the plan, and such actuary shall, not
later than the end of the next following month, make such
recommendations to the board for corrective action as the
actuary determines necessary to ensure compliance with
section 806. Not later than 30 days after receiving from
the actuary recommendations for corrective actions, the
board shall notify the Secretary (in such form and manner
as the Secretary may prescribe by regulation) of such rec-
ommendations of the actuary for corrective action, to-
gether with a description of the actions (if any) that the
board has taken or plans to take in response to such rec-
ommendations. The board shall thereafter report to the
652
Secretary, in such form and frequency as the Secretary
may specify to the board, regarding corrective action taken
by the board until the requirements of section 806 are
met.
‘‘(b) MANDATORY TERMINATION.—In any case in
which—
‘‘(1) the Secretary has been notified under sub-
section (a) of a failure of an association health plan
which is or has been certified under this part and
is described in section 806(a)(2) to meet the require-
ments of section 806 and has not been notified by
the board of trustees of the plan that corrective ac-
tion has restored compliance with such require-
ments, and
‘‘(2) the Secretary determines that there is a
reasonable expectation that the plan will continue to
fail to meet the requirements of section 806,
the board of trustees of the plan shall, at the direction
of the Secretary, terminate the plan and, in the course
of the termination, take such actions as the Secretary may
require, including satisfying any claims referred to in sec-
tion 806(a)(2)(B)(ii) and recovering for the plan any li-
ability under subsection (a)(2)(B)(ii) or (e) of section 806,
as necessary to ensure that the affairs of the plan will
be, to the maximum extent possible, wound up in a man-
653
ner which will result in timely provision of all benefits for
which the plan is obligated.
‘‘SEC. 810. SPECIAL RULES FOR CHURCH PLANS.
‘‘(a) ELECTION
FOR CHURCH PLANS.—Notwith-
standing section 4(b)(2), if a church, a convention or asso-
ciation of churches, or an organization described in section
3(33)(C)(i) maintains a church plan which is a group
health plan (as defined in section 733(a)(1)), and such
church, convention, association, or organization makes an
election with respect to such plan under this subsection
(in such form and manner as the Secretary may by regula-
tion prescribe), then the provisions of this section shall
apply to such plan, with respect to benefits provided under
such plan consisting of medical care, as if section 4(b)(2)
did not contain an exclusion for church plans. Nothing in
this paragraph shall be construed to render any other sec-
tion of this title applicable to church plans, except to the
extent that such other section is incorporated by reference
in this section.
‘‘(b) EFFECT OF ELECTION.—
‘‘(1) PREEMPTION OF STATE INSURANCE LAWS
REGULATING COVERED CHURCH PLANS.—Subject to
paragraphs (2) and (3), this section shall supersede
any and all State laws which regulate insurance in-
sofar as they may now or hereafter regulate church
654
plans to which this section applies or trusts estab-
lished under such church plans.
‘‘(2) GENERAL STATE INSURANCE REGULATION
UNAFFECTED.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) and paragraph (3), nothing
in this section shall be construed to exempt or
relieve any person from any provision of State
law which regulates insurance.
‘‘(B) CHURCH PLANS NOT TO BE DEEMED
INSURANCE COMPANIES OR INSURERS.—Neither
a church plan to which this section applies, nor
any trust established under such a church plan,
shall be deemed to be an insurance company or
other insurer or to be engaged in the business
of insurance for purposes of any State law pur-
porting to regulate insurance companies or in-
surance contracts.
‘‘(3) PREEMPTION
OF
CERTAIN
STATE
LAWS
RELATING
TO
PREMIUM
RATE
REGULATION
AND
BENEFIT MANDATES.—The provisions of subsections
(a)(2)(B) and (b) of section 805 shall apply with re-
spect to a church plan to which this section applies
in the same manner and to the same extent as such
655
provisions apply with respect to association health
plans.
‘‘(4) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) STATE LAW.—The term ‘State law’
includes all laws, decisions, rules, regulations,
or other State action having the effect of law,
of any State. A law of the United States appli-
cable only to the District of Columbia shall be
treated as a State law rather than a law of the
United States.
‘‘(B) STATE.—The term ‘State’ includes a
State, any political subdivision thereof, or any
agency or instrumentality of either, which
purports to regulate, directly or indirectly, the
terms and conditions of church plans covered by
this section.
‘‘(c) 
REQUIREMENTS
FOR
COVERED
CHURCH
PLANS.—
‘‘(1) FIDUCIARY RULES AND EXCLUSIVE PUR-
POSE.—A fiduciary shall discharge his duties with
respect to a church plan to which this section ap-
plies—
‘‘(A) for the exclusive purpose of:
656
‘‘(i) providing benefits to participants
and their beneficiaries; and
‘‘(ii) defraying reasonable expenses of
administering the plan;
‘‘(B) with the care, skill, prudence and dili-
gence under the circumstances then prevailing
that a prudent man acting in a like capacity
and familiar with such matters would use in the
conduct of an enterprise of a like character and
with like aims; and
‘‘(C) in accordance with the documents
and instruments governing the plan.
The requirements of this paragraph shall not be
treated as not satisfied solely because the plan as-
sets are commingled with other church assets, to the
extent that such plan assets are separately ac-
counted for.
‘‘(2) CLAIMS PROCEDURE.—In accordance with
regulations of the Secretary, every church plan to
which this section applies shall—
‘‘(A) provide adequate notice in writing to
any participant or beneficiary whose claim for
benefits under the plan has been denied, setting
forth the specific reasons for such denial, writ-
657
ten in a manner calculated to be understood by
the participant;
‘‘(B) afford a reasonable opportunity to
any participant whose claim for benefits has
been denied for a full and fair review by the ap-
propriate fiduciary of the decision denying the
claim; and
‘‘(C) provide a written statement to each
participant describing the procedures estab-
lished pursuant to this paragraph.
‘‘(3) ANNUAL
STATEMENTS.—In accordance
with regulations of the Secretary, every church plan
to which this section applies shall file with the Sec-
retary an annual statement—
‘‘(A) stating the names and addresses of
the plan and of the church, convention, or asso-
ciation maintaining the plan (and its principal
place of business);
‘‘(B) certifying that it is a church plan to
which this section applies and that it complies
with the requirements of paragraphs (1) and
(2);
‘‘(C) identifying the States in which par-
ticipants and beneficiaries under the plan are or
658
likely will be located during the 1-year period
covered by the statement; and
‘‘(D) containing a copy of a statement of
actuarial opinion signed by a qualified actuary
that the plan maintains capital, reserves, insur-
ance, other financial arrangements, or any com-
bination thereof adequate to enable the plan to
fully meet all of its financial obligations on a
timely basis.
‘‘(4) DISCLOSURE.—At the time that the an-
nual statement is filed by a church plan with the
Secretary pursuant to paragraph (3), a copy of such
statement shall be made available by the Secretary
to the State insurance commissioner (or similar offi-
cial) of any State. The name of each church plan
and sponsoring organization filing an annual state-
ment in compliance with paragraph (3) shall be pub-
lished annually in the Federal Register.
‘‘(c) ENFORCEMENT.—The Secretary may enforce
the provisions of this section in a manner consistent with
section 502, to the extent applicable with respect to ac-
tions under section 502(a)(5), and with section 3(33)(D),
except that, other than for the purpose of seeking a tem-
porary restraining order, a civil action may be brought
with respect to the plan’s failure to meet any requirement
659
of this section only if the plan fails to correct its failure
within the correction period described in section 3(33)(D).
The other provisions of part 5 (except sections 501(a),
503, 512, 514, and 515) shall apply with respect to the
enforcement and administration of this section.
‘‘(d) DEFINITIONS AND OTHER RULES.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, any term used in this section
which is defined in any provision of this title shall
have the definition provided such term by such pro-
vision.
‘‘(2) SEMINARY STUDENTS.—Seminary students
who are enrolled in an institution of higher learning
described in section 3(33)(C)(iv) and who are treat-
ed as participants under the terms of a church plan
to which this section applies shall be deemed to be
employees as defined in section 3(6) if the number
of such students constitutes an insignificant portion
of the total number of individuals who are treated
as participants under the terms of the plan.
‘‘SEC. 811. DEFINITIONS AND RULES OF CONSTRUCTION.
‘‘(a) DEFINITIONS.—For purposes of this part—
660
‘‘(1) GROUP HEALTH PLAN.—The term ‘group
health plan’ has the meaning provided in section
733(a)(1).
‘‘(2) MEDICAL CARE.—The term ‘medical care’
has the meaning provided in section 733(a)(2).
‘‘(3) HEALTH
INSURANCE
COVERAGE.—The
term ‘health insurance coverage’ has the meaning
provided in section 733(b)(1).
‘‘(4) HEALTH INSURANCE ISSUER.—The term
‘health insurance issuer’ has the meaning provided
in section 733(b)(2).
‘‘(5) HEALTH STATUS-RELATED FACTOR.—The
term ‘health status-related factor’ has the meaning
provided in section 733(d)(2).
‘‘(6) INDIVIDUAL MARKET.—
‘‘(A) IN GENERAL.—The term ‘individual
market’ means the market for health insurance
coverage offered to individuals other than in
connection with a group health plan.
‘‘(B) 
TREATMENT
OF
VERY
SMALL
GROUPS.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), such term includes coverage offered in
connection with a group health plan that
has fewer than 2 participants as current
661
employees or participants described in sec-
tion 732(d)(3) on the first day of the plan
year.
‘‘(ii) STATE
EXCEPTION.—Clause (i)
shall not apply in the case of health insur-
ance coverage offered in a State if such
State regulates the coverage described in
such clause in the same manner and to the
same extent as coverage in the small group
market (as defined in section 2791(e)(5) of
the Public Health Service Act) is regulated
by such State.
‘‘(7) PARTICIPATING
EMPLOYER.—The term
‘participating employer’ means, in connection with
an association health plan, any employer, if any indi-
vidual who is an employee of such employer, a part-
ner in such employer, or a self-employed individual
who is such employer (or any dependent, as defined
under the terms of the plan, of such individual) is
or was covered under such plan in connection with
the status of such individual as such an employee,
partner, or self-employed individual in relation to the
plan.
‘‘(8) APPLICABLE
STATE
AUTHORITY.—The
term ‘applicable State authority’ means, with respect
662
to a health insurance issuer in a State, the State in-
surance commissioner or official or officials des-
ignated by the State to enforce the requirements of
title XXVII of the Public Health Service Act for the
State involved with respect to such issuer.
‘‘(9) QUALIFIED
ACTUARY.—The term ‘quali-
fied actuary’ means an individual who is a member
of the American Academy of Actuaries or meets
such reasonable standards and qualifications as the
Secretary may provide by regulation.
‘‘(10) AFFILIATED MEMBER.—The term ‘affili-
ated member’ means, in connection with a sponsor,
a person eligible to be a member of the sponsor or,
in the case of a sponsor with member associations,
a person who is a member, or is eligible to be a
member, of a member association.
‘‘(b) RULES OF CONSTRUCTION.—
‘‘(1) EMPLOYERS AND EMPLOYEES.—For pur-
poses of determining whether a plan, fund, or pro-
gram is an employee welfare benefit plan which is an
association health plan, and for purposes of applying
this title in connection with such plan, fund, or pro-
gram so determined to be such an employee welfare
benefit plan—
663
‘‘(A) in the case of a partnership, the term
‘employer’ (as defined in section (3)(5)) in-
cludes the partnership in relation to the part-
ners, and the term ‘employee’ (as defined in
section (3)(6)) includes any partner in relation
to the partnership, and
‘‘(B) in the case of a self-employed individ-
ual, the term ‘employer’ (as defined in section
3(5)) and the term ‘employee’ (as defined in
section 3(6)) shall include such individual.
‘‘(2) PLANS, FUNDS, AND PROGRAMS TREATED
AS EMPLOYEE WELFARE BENEFIT PLANS.—In the
case of any plan, fund, or program which was estab-
lished or is maintained for the purpose of providing
medical care (through the purchase of insurance or
otherwise) for employees (or their dependents) cov-
ered thereunder and which demonstrates to the Sec-
retary that all requirements for certification under
this part would be met with respect to such plan,
fund, or program if such plan, fund, or program
were a group health plan, such plan, fund, or pro-
gram shall be treated for purposes of this title as an
employee welfare benefit plan on and after the date
of such demonstration.’’.
664
(b) CONFORMING AMENDMENTS
TO PREEMPTION
RULES.—
(1) Section 514(b)(6) of such Act (29 U.S.C.
1144(b)(6)) is amended by adding at the end the
following new subparagraph:
‘‘(E) The preceding subparagraphs of this paragraph
do not apply with respect to any State law in the case
of an association health plan which is certified under part
8.’’.
(2) Section 514 of such Act (29 U.S.C. 1144)
is amended—
(A) in subsection (b)(4), by striking ‘‘Sub-
section (a)’’ and inserting ‘‘Subsections (a) and
(d)’’;
(B) in subsection (b)(5), by striking ‘‘sub-
section (a)’’ in subparagraph (A) and inserting
‘‘subsection (a) of this section and subsections
(a)(2)(B) and (b) of section 805’’, and by strik-
ing ‘‘subsection (a)’’ in subparagraph (B) and
inserting ‘‘subsection (a) of this section or sub-
section (a)(2)(B) or (b) of section 805’’;
(C) by redesignating subsection (d) as sub-
section (e); and
(D) by inserting after subsection (c) the
following new subsection:
665
‘‘(d)(1) Except as provided in subsection (b)(4), the
provisions of this title shall supersede any and all State
laws insofar as they may now or hereafter preclude a
health insurance issuer from offering health insurance cov-
erage in connection with an association health plan which
is certified under part 8.
‘‘(2) Except as provided in paragraphs (4) and (5)
of subsection (b) of this section—
‘‘(A) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan certified under part 8 to a partici-
pating employer operating in such State, the provi-
sions of this title shall supersede any and all laws
of such State insofar as they may preclude a health
insurance issuer from offering health insurance cov-
erage of the same policy type to other employers op-
erating in the State which are eligible for coverage
under such association health plan, whether or not
such other employers are participating employers in
such plan.
‘‘(B) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan in a State and the filing, with the
applicable State authority, of the policy form in con-
nection with such policy type is approved by such
666
State authority, the provisions of this title shall su-
persede any and all laws of any other State in which
health insurance coverage of such type is offered, in-
sofar as they may preclude, upon the filing in the
same form and manner of such policy form with the
applicable State authority in such other State, the
approval of the filing in such other State.
‘‘(3) For additional provisions relating to association
health plans, see subsections (a)(2)(B) and (b) of section
805.
‘‘(4) For purposes of this subsection, the term ‘asso-
ciation health plan’ has the meaning provided in section
801(a), and the terms ‘health insurance coverage’, ‘par-
ticipating employer’, and ‘health insurance issuer’ have
the meanings provided such terms in section 811, respec-
tively.’’.
(3) Section 514(b)(6)(A) of such Act (29
U.S.C. 1144(b)(6)(A)) is amended—
(A) in clause (i)(II), by striking ‘‘and’’ at
the end;
(B) in clause (ii), by inserting ‘‘and which
does not provide medical care (within the mean-
ing of section 733(a)(2)),’’ after ‘‘arrange-
ment,’’, and by striking ‘‘title.’’ and inserting
‘‘title, and’’; and
667
(C) by adding at the end the following new
clause:
‘‘(iii) subject to subparagraph (E), in the case
of any other employee welfare benefit plan which is
a multiple employer welfare arrangement and which
provides medical care (within the meaning of section
733(a)(2)), any law of any State which regulates in-
surance may apply.’’.
(c) PLAN SPONSOR.—Section 3(16)(B) of such Act
(29 U.S.C. 102(16)(B)) is amended by adding at the end
the following new sentence: ‘‘Such term also includes a
person serving as the sponsor of an association health plan
under part 8.’’.
(d) SAVINGS CLAUSE.—Section 731(c) of such Act
is amended by inserting ‘‘or part 8’’ after ‘‘this part’’.
(e) CLERICAL AMENDMENT.—The table of contents
in section 1 of the Employee Retirement Income Security
Act of 1974 is amended by inserting after the item relat-
ing to section 734 the following new items:
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS
‘‘Sec. 801. Association health plans.
‘‘Sec. 802. Certification of association health plans.
‘‘Sec. 803. Requirements relating to sponsors and boards of trustees.
‘‘Sec. 804. Participation and coverage requirements.
‘‘Sec. 805. Other requirements relating to plan documents, contribution rates,
and benefit options.
‘‘Sec. 806. Maintenance of reserves and provisions for solvency for plans pro-
viding health benefits in addition to health insurance coverage.
‘‘Sec. 807. Requirements for application and related requirements.
‘‘Sec. 808. Notice requirements for voluntary termination.
‘‘Sec. 809. Corrective actions and mandatory termination.
668
‘‘Sec. 810. Special rules for church plans.
‘‘Sec. 811. Definitions and rules of construction.’’.
SEC. 5303. CLARIFICATION OF TREATMENT OF SINGLE EM-
PLOYER ARRANGEMENTS.
Section 3(40)(B) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(40)(B)) is amend-
ed—
(1) in clause (i), by inserting ‘‘for any plan year
of any such plan, or any fiscal year of any such
other arrangement;’’ after ‘‘single employer’’, and by
inserting ‘‘during such year or at any time during
the preceding 1-year period’’ after ‘‘control group’’;
(2) in clause (iii)—
(A) by striking ‘‘common control shall not
be based on an interest of less than 25 percent’’
and inserting ‘‘an interest of greater than 25
percent may not be required as the minimum
interest necessary for common control’’; and
(B) by striking ‘‘similar to’’ and inserting
‘‘consistent and coextensive with’’;
(3) by redesignating clauses (iv) and (v) as
clauses (v) and (vi), respectively; and
(4) by inserting after clause (iii) the following
new clause:
‘‘(iv) in determining, after the application of
clause (i), whether benefits are provided to employ-
669
ees of two or more employers, the arrangement shall
be treated as having only 1 participating employer
if, after the application of clause (i), the number of
individuals who are employees and former employees
of any one participating employer and who are cov-
ered under the arrangement is greater than 75 per-
cent of the aggregate number of all individuals who
are employees or former employees of participating
employers and who are covered under the arrange-
ment,’’.
SEC. 5304. CLARIFICATION OF TREATMENT OF CERTAIN
COLLECTIVELY 
BARGAINED 
ARRANGE-
MENTS.
(a) IN GENERAL.—Section 3(40)(A)(i) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1002(40)(A)(i)) is amended to read as follows:
‘‘(i)(I) under or pursuant to one or more collec-
tive bargaining agreements which are reached pursu-
ant to collective bargaining described in section 8(d)
of the National Labor Relations Act (29 U.S.C.
158(d)) or paragraph Fourth of section 2 of the
Railway Labor Act (45 U.S.C. 152, paragraph
Fourth) or which are reached pursuant to labor-
management negotiations under similar provisions of
670
State public employee relations laws, and (II) in ac-
cordance with subparagraphs (C), (D), and (E),’’.
(b) LIMITATIONS.—Section 3(40) of such Act (29
U.S.C. 1002(40)) is amended by adding at the end the
following new subparagraphs:
‘‘(C) For purposes of subparagraph (A)(i)(II), a plan
or other arrangement shall be treated as established or
maintained in accordance with this subparagraph only if
the following requirements are met:
‘‘(i) The plan or other arrangement, and the
employee organization or any other entity sponsoring
the plan or other arrangement, do not—
‘‘(I) utilize the services of any licensed in-
surance agent or broker for soliciting or enroll-
ing employers or individuals as participating
employers or covered individuals under the plan
or other arrangement; or
‘‘(II) pay a commission or any other type
of compensation to a person, other than a full
time employee of the employee organization (or
a member of the organization to the extent pro-
vided in regulations of the Secretary), that is
related either to the volume or number of em-
ployers or individuals solicited or enrolled as
participating employers or covered individuals
671
under the plan or other arrangement, or to the
dollar amount or size of the contributions made
by participating employers or covered individ-
uals to the plan or other arrangement;
except to the extent that the services used by the
plan, arrangement, organization, or other entity con-
sist solely of preparation of documents necessary for
compliance with the reporting and disclosure re-
quirements of part 1 or administrative, investment,
or consulting services unrelated to solicitation or en-
rollment of covered individuals.
‘‘(ii) As of the end of the preceding plan year,
the number of covered individuals under the plan or
other arrangement who are identified to the plan or
arrangement and who are neither—
‘‘(I) employed within a bargaining unit
covered by any of the collective bargaining
agreements with a participating employer (nor
covered on the basis of an individual’s employ-
ment in such a bargaining unit); nor
‘‘(II) present employees (or former employ-
ees who were covered while employed) of the
sponsoring employee organization, of an em-
ployer who is or was a party to any of the col-
lective bargaining agreements, or of the plan or
672
other arrangement or a related plan or arrange-
ment (nor covered on the basis of such present
or former employment);
does not exceed 15 percent of the total number of
individuals who are covered under the plan or ar-
rangement and who are present or former employees
who are or were covered under the plan or arrange-
ment pursuant to a collective bargaining agreement
with a participating employer. The requirements of
the preceding provisions of this clause shall be treat-
ed as satisfied if, as of the end of the preceding plan
year, such covered individuals are comprised solely
of individuals who were covered individuals under
the plan or other arrangement as of the date of the
enactment of the Expansion of Portability and
Health Insurance Coverage Act of 1997 and, as of
the end of the preceding plan year, the number of
such covered individuals does not exceed 25 percent
of the total number of present and former employees
enrolled under the plan or other arrangement.
‘‘(iii) The employee organization or other entity
sponsoring the plan or other arrangement certifies
to the Secretary each year, in a form and manner
which shall be prescribed in regulations of the Sec-
673
retary that the plan or other arrangement meets the
requirements of clauses (i) and (ii).
‘‘(D) For purposes of subparagraph (A)(i)(II), a plan
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) all of the benefits provided under the plan
or arrangement consist of health insurance coverage;
or
‘‘(ii)(I) the plan or arrangement is a multiem-
ployer plan; and
‘‘(II) the requirements of clause (B) of the pro-
viso to clause (5) of section 302(c) of the Labor
Management Relations Act, 1947 (29 U.S.C.
186(c)) are met with respect to such plan or other
arrangement.
‘‘(E) For purposes of subparagraph (A)(i)(II), a plan
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) the plan or arrangement is in effect as of
the date of the enactment of the Expansion of Port-
ability and Health Insurance Coverage Act of 1997,
or
‘‘(ii) the employee organization or other entity
sponsoring the plan or arrangement—
674
‘‘(I) has been in existence for at least 3
years or is affiliated with another employee or-
ganization which has been in existence for at
least 3 years, or
‘‘(II) demonstrates to the satisfaction of
the Secretary that the requirements of subpara-
graphs (C) and (D) are met with respect to the
plan or other arrangement.’’.
(c) CONFORMING AMENDMENTS TO DEFINITIONS OF
PARTICIPANT AND BENEFICIARY.—Section 3(7) of such
Act (29 U.S.C. 1002(7)) is amended by adding at the end
the following new sentence: ‘‘Such term includes an indi-
vidual who is a covered individual described in paragraph
(40)(C)(ii).’’.
SEC. 5305. ENFORCEMENT PROVISIONS RELATING TO ASSO-
CIATION HEALTH PLANS.
(a) CRIMINAL PENALTIES FOR CERTAIN WILLFUL
MISREPRESENTATIONS.—Section 501 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1131)
is amended—
(1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and
(2) by adding at the end the following new sub-
section:
‘‘(b) Any person who, either willfully or with willful
blindness, falsely represents, to any employee, any employ-
675
ee’s beneficiary, any employer, the Secretary, or any State,
a plan or other arrangement established or maintained for
the purpose of offering or providing any benefit described
in section 3(1) to employees or their beneficiaries as—
‘‘(1) being an association health plan which has
been certified under part 8;
‘‘(2) having been established or maintained
under or pursuant to one or more collective bargain-
ing agreements which are reached pursuant to col-
lective bargaining described in section 8(d) of the
National Labor Relations Act (29 U.S.C. 158(d)) or
paragraph Fourth of section 2 of the Railway Labor
Act (45 U.S.C. 152, paragraph Fourth) or which are
reached pursuant to labor-management negotiations
under similar provisions of State public employee re-
lations laws; or
‘‘(3) being a plan or arrangement with respect
to which the requirements of subparagraph (C), (D),
or (E) of section 3(40) are met;
shall, upon conviction, be imprisoned not more than five
years, be fined under title 18, United States Code, or
both.’’.
(b) CEASE ACTIVITIES ORDERS.—Section 502 of
such Act (29 U.S.C. 1132) is amended by adding at the
end the following new subsection:
677
applicable State laws that are not superseded under
section 514.
‘‘(3) The court may grant such additional equitable
relief, including any relief available under this title, as it
deems necessary to protect the interests of the public and
of persons having claims for benefits against the plan.’’.
(c) RESPONSIBILITY
FOR CLAIMS PROCEDURE.—
Section 503 of such Act (29 U.S.C. 1133) is amended by
adding at the end (after and below paragraph (2)) the fol-
lowing new sentence:
‘‘The terms of each association health plan which is or
has been certified under part 8 shall require the board
of trustees or the named fiduciary (as applicable) to en-
sure that the requirements of this section are met in con-
nection with claims filed under the plan.’’.
SEC. 5306. COOPERATION BETWEEN FEDERAL AND STATE
AUTHORITIES.
Section 506 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1136) is amended by adding
at the end the following new subsection:
‘‘(c) RESPONSIBILITY OF STATES WITH RESPECT TO
ASSOCIATION HEALTH PLANS.—
‘‘(1) AGREEMENTS
WITH
STATES.—A State
may enter into an agreement with the Secretary for
delegation to the State of some or all of the Sec-
678
retary’s authority under sections 502 and 504 to en-
force the requirements for certification under part 8.
The Secretary shall enter into the agreement if the
Secretary determines that the delegation provided
for therein would not result in a lower level or qual-
ity of enforcement of the provisions of this title.
‘‘(2) DELEGATIONS.—Any department, agency,
or instrumentality of a State to which authority is
delegated pursuant to an agreement entered into
under this paragraph may, if authorized under State
law and to the extent consistent with such agree-
ment, exercise the powers of the Secretary under
this title which relate to such authority.
‘‘(3) RECOGNITION
OF
PRIMARY
DOMICILE
STATE.—In entering into any agreement with a
State under subparagraph (A), the Secretary shall
ensure that, as a result of such agreement and all
other agreements entered into under subparagraph
(A), only one State will be recognized, with respect
to any particular association health plan, as the pri-
mary domicile State to which authority has been del-
egated pursuant to such agreements.’’.
SEC. 5307. EFFECTIVE DATE AND TRANSITIONAL RULES.
(a) EFFECTIVE DATE.—The amendments made by
sections 5302, 5305, and 5306 shall take effect on Janu-
679
ary 1, 1999. The amendments made by sections 5303 and
5304 shall take effect on the date of the enactment of
this Act. The Secretary of Labor shall issue all regulations
necessary to carry out the amendments made by this Act
before January 1, 1999.
(b) EXCEPTION.—Section 801(a)(2) of the Employee
Retirement Income Security Act of 1974 (added by section
5302) does not apply with respect to group health plans
(as defined in section 733(a)(1) of such Act) existing on
April 1, 1997, which do not provide health insurance cov-
erage (as defined in section 733(b)(1) of such Act) on such
date.
TITLE VI—COMMITTEE ON GOV-
ERNMENT 
REFORM 
AND
OVERSIGHT
Subtitle A—Postal Service
SEC. 6001. REPEAL OF AUTHORIZATION OF TRANSITIONAL
APPROPRIATIONS FOR THE UNITED STATES
POSTAL SERVICE.
(a) REPEAL.—
(1) IN
GENERAL.—Section 2004 of title 39,
United States Code, is repealed.
(2) TECHNICAL
AND
CONFORMING
AMEND-
MENTS.—
680
(A) The table of sections for chapter 20 of
such title is amended by repealing the item re-
lating to section 2004.
(B) Section 2003(e)(2) of such title is
amended by striking ‘‘sections 2401 and 2004’’
each place it appears and inserting ‘‘section
2401’’.
(b) CLARIFICATION THAT LIABILITIES FORMERLY
PAID PURSUANT TO SECTION 2004 REMAIN LIABILITIES
PAYABLE BY THE POSTAL SERVICE.—Section 2003 of
title 39, United States Code, is amended by adding at the
end the following:
‘‘(h) Liabilities of the former Post Office Department
to the Employees’ Compensation Fund (appropriations for
which were authorized by former section 2004, as in effect
before the effective date of this subsection) shall be liabil-
ities of the Postal Service payable out of the Fund.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—This section and the amend-
ments made by this section shall take effect on the
date of the enactment of this Act or October 1,
1997, whichever is later.
(2) PROVISIONS RELATING TO PAYMENTS FOR
FISCAL YEAR 1998.—
681
(A) AMOUNTS
NOT
YET
PAID.—No pay-
ment may be made to the Postal Service Fund,
on or after the date of the enactment of this
Act, pursuant to any appropriation for fiscal
year 1998 authorized by section 2004 of title
39, United States Code (as in effect before the
effective date of this section).
(B) AMOUNTS PAID.—If any payment to
the Postal Service Fund is or has been made
pursuant to an appropriation for fiscal year
1998 authorized by such section 2004, then, an
amount equal to the amount of such payment
shall be paid from such Fund into the Treasury
as miscellaneous receipts before October 1,
1998.
Subtitle B—Civil Service
SEC. 6101. CONTRIBUTIONS UNDER THE CIVIL SERVICE RE-
TIREMENT SYSTEM.
(a) INDIVIDUAL CONTRIBUTIONS.—
(1) IN GENERAL.—Subsection (c) of sec-
tion 8334 of title 5, United States Code, is
amended to read as follows:
‘‘(c) Each employee or Member credited with civilian
service after July 31, 1920, for which retirement deduc-
tions or deposits have not been made, may deposit with
682
interest an amount equal to the following percentages of
his basic pay received for that service:
‘‘Per-
centage
of basic
pay
Service period
Employee ...................................................
2.50 .....
August 1, 1920, to
June 30, 1926.
3.50 .....
July 1, 1926, to June
30, 1942.
5 ..........
July 1, 1942, to June
30, 1948.
6 ..........
July 1, 1948, to Octo-
ber 31, 1956.
6.50 .....
November 1, 1956, to
December 31, 1969.
7 ..........
January 1, 1970, to De-
cember 31, 1998.
7.25 .....
January 1, 1999, to De-
cember 31, 1999.
7.40 .....
January 1, 2000, to De-
cember 31, 2000.
7.50 .....
January 1, 2001, to De-
cember 31, 2002.
7 ..........
After December 31,
2002.
Member or employee for Congressional
employee service .....................................
2.50 .....
August 1, 1920, to
June 30, 1926.
3.50 .....
July 1, 1926, to June
30, 1942.
5 ..........
July 1, 1942, to June
30, 1948.
6 ..........
July 1, 1948, to Octo-
ber 31, 1956.
6.50 .....
November 1, 1956, to
December 31, 1969.
7.50 .....
January 1, 1970, to De-
cember 31, 1998.
7.75 .....
January 1, 1999, to De-
cember 31, 1999.
7.90 .....
January 1, 2000, to De-
cember 31, 2000.
8 ..........
January 1, 2001, to De-
cember 31, 2002.
7.50 .....
After December 31,
2002.
Member for Member service ......................
2.50 .....
August 1, 1920, to
June 30, 1926.
3.50 .....
July 1, 1926, to June
30, 1942.