I
103D CONGRESS
2D SESSION H.R. 3918
To guarantee individuals and families continued choice and control over their
doctors, hospitals, and health care services, to secure access to quality
health care for all, to ensure that health coverage is portable and renew-
able, to control medical cost inflation through market incentives and
tax reform, to reform medical malpractice litigation, and for other pur-
poses.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 28, 1994
Mr. SANTORUM (for himself, Mr. ARMEY, and Mr. DUNCAN) introduced the
following bill; which was referred jointly to the Committees on Energy
and Commerce, Ways and Means, Education and Labor, the Judiciary,
and Rules
A BILL
To guarantee individuals and families continued choice and
control over their doctors, hospitals, and health care serv-
ices, to secure access to quality health care for all, to
ensure that health coverage is portable and renewable,
to control medical cost inflation through market incen-
tives and tax reform, to reform medical malpractice liti-
gation, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS; DEFINI-
TIONS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Comprehensive Family Health Access and Savings Act’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title; definitions; table of contents.
TITLE I—PORTABLE AND PERMANENT PRIVATE HEALTH
INSURANCE
Subtitle A—Portability
Sec. 101. Amendments to COBRA.
Sec. 102. Penalty-free withdrawals from qualified retirement plans for COBRA
coverage.
Subtitle B—Permanence
Sec. 111. General renewability requirements.
Sec. 112. Individual health insurance plans.
Sec. 113. Group health plans.
Sec. 114. Failure of health plans to meet portability and permanence require-
ments.
TITLE II—EXPANSION OF HEALTH CARE CHOICES
Subtitle A—Employer-Provided Health Insurance
Sec. 201. Tax treatment of employer-provided health insurance.
Subtitle B—Medical Savings Accounts
Sec. 211. Individuals allowed deduction from gross income for cost of cata-
strophic health insurance plan.
Sec. 212. Medical savings accounts.
TITLE III—EQUAL TAX TREATMENT FOR HEALTH INSURANCE
OF SELF-EMPLOYED AND UNINSURED
Sec. 301. Equal exclusion from gross income of health insurance coverage costs.
TITLE IV—SMALL BUSINESS HEALTH INSURANCE POOLS
Sec. 401. Prohibition of restrictions on groups purchasing health insurance.
Sec. 402. Prohibition of State benefit mandates for group health plans.
Sec. 403. Prohibition of restrictions on managed care.
TITLE V—ASSISTANCE TO INDIVIDUALS WITH PREEXISTING
CONDITIONS IN PURCHASING HEALTH INSURANCE
Sec. 501. Preexisting condition insurance pool allotment program.
TITLE VI—ENCOURAGE RESPONSIBLE BEHAVIOR BY THE
FINANCIALLY CAPABLE
Sec. 601. One year window to purchase health insurance coverage.
Sec. 602. Prohibition of restrictions relating to the use of collection procedures.
TITLE VII—ASSISTANCE TO LOW-INCOME WORKERS TO
PURCHASE HEALTH INSURANCE
Sec. 701. Refundable catastrophic health insurance plan credit.
TITLE VIII—REWARD PREVENTIVE MEDICINE AND HEALTHY
LIFESTYLES
Sec. 801. Reward preventive medicine and healthy lifestyles.
TITLE IX—REFORM MEDICAID AND EXPAND CHOICES UNDER
MEDICARE
Subtitle A—Medicaid
Sec. 901. Cap on Federal payments made for medical assistance under the
medicaid program.
Sec. 902. Waivers for furnishing medical assistance under the medicaid pro-
gram.
Subtitle B—Medicare
Sec. 951. Individual election for type of coverage.
Sec. 952. Health care coverage under a private health care arrangement.
TITLE X—ENHANCED EFFICIENCY THROUGH PAPERWORK
REDUCTION
Sec. 1001. Federal paperwork reduction and efficiency requirements.
Sec. 1002. State paperwork reduction and efficiency requirements.
Sec. 1003. Standardized Forms Commission.
TITLE XI—MEANINGFUL MEDICAL LIABILITY REFORM
Sec. 1101. Applicability and preemption.
Sec. 1102. Statute of limitations.
Sec. 1103. Scope of liability.
Sec. 1104. Discovery; failure to make or cooperate in discovery.
Sec. 1105. Limitation on noneconomic damages.
Sec. 1106. Treatment of payments for future economic losses.
Sec. 1107. Treatment of costs and attorney’s fees.
Sec. 1108. Contribution and indemnification.
Sec. 1109. Collateral sources.
Sec. 1110. Damages relating to medical product liability claims.
Sec. 1111. Class actions.
Sec. 1112. Definitions.
Sec. 1113. Severability.
Sec. 1114. Effective date.
TITLE XII—ANTITRUST REFORMS
Sec. 1201. Establishment of limited exemption program for health care joint
ventures.
Sec. 1202. Issuance of health care certificates of public advantage.
Sec. 1203. Interagency Advisory Committee on Competition, Antitrust Policy,
and Health Care.
Sec. 1204. Definitions.
TITLE XIII—EXPENDITURE TARGETS FOR THE MEDICAID AND
MEDICARE PROGRAMS
Sec. 1301. Determination of expenditures under the medicaid and medicare
programs.
Sec. 1302. Delay of health insurance benefits due to excess expenditures.
(c) DEFINITIONS.—For purposes of this Act:
(1) EMPLOYER.—The term ‘‘employer’’ shall
have the meaning applicable under section 3(5) of
the Employee Retirement Income Security Act of
1974.
(2) GROUP HEALTH PLAN.—The term ‘‘group
health plan’’ has the meaning given such term by
section 5000(b)(1) of the Internal Revenue Code of
1986, but does not include any type of coverage ex-
cluded from the definition of a health insurance plan
under paragraph (2).
(3) HEALTH INSURANCE PLAN.—
(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘‘health insurance
plan’’ means any hospital or medical service
policy or certificate, hospital or medical service
plan contract, or health maintenance organiza-
tion group contract offered by an insurer.
(B) EXCEPTION.—Such term does not in-
clude any of the following—
(i) coverage only for accident, dental,
vision, disability income, or long-term care
insurance, or any combination thereof,
(ii) medicare supplemental health in-
surance,
(iii) coverage issued as a supplement
to liability insurance,
(iv) worker’s compensation or similar
insurance, or
(v) automobile medical-payment insur-
ance,
or any combination thereof.
(4) HEALTH
MAINTENANCE
ORGANIZATION.—
The term ‘‘health maintenance organization’’ in-
cludes a health insurance plan that offers to provide
health services on a prepaid, at-risk basis primarily
through a defined set of providers.
(5) INSURER.—The term ‘‘insurer’’ means a li-
censed insurance company, a prepaid hospital or
medical service plan, or a health maintenance orga-
nization offering such a plan to an employer, and in-
cludes a similar organization regulated under State
law for solvency.
(6) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(7) STATE.—The term ‘‘State’’ means each of
the several States of the United States, the District
of Columbia, the Commonwealth of Puerto Rico, the
United States Virgin Islands, Guam, American
Samoa, and the Commonwealth of the Northern
Mariana Islands.
TITLE I—PORTABLE AND PER-
MANENT 
PRIVATE 
HEALTH
INSURANCE
Subtitle A—Portability
SEC. 101. AMENDMENTS TO COBRA.
(a) LOWER COST COVERAGE OPTIONS.—Subpara-
graph (A) of section 4980B(f)(2) of the Internal Revenue
Code of 1986 (relating to continuation coverage require-
ments of group health plans) is amended to read as
follows:
‘‘(A) TYPE OF BENEFIT COVERAGE.—The
coverage must consist of coverage which, as of
the time the coverage is being provided—
‘‘(i) is identical to the coverage pro-
vided under the plan to similarly situated
beneficiaries under the plan with respect to
whom a qualifying event has not occurred,
‘‘(ii) is so identical, except such cov-
erage is offered with an annual $1,000 de-
ductible, and
‘‘(iii) is so identical, except such cov-
erage is offered with an annual $3,000 de-
ductible.
If coverage under the plan is modified for any
group of similarly situated beneficiaries, the
coverage shall also be modified in the same
manner for all individuals who are qualified
beneficiaries under the plan pursuant to this
subsection in connection with such group.’’
(b) TERMINATION
OF COBRA COVERAGE AFTER
ELIGIBLE
FOR EMPLOYER-BASED COVERAGE
FOR 90
DAYS.—Clause (iv) of section 4980B(f)(2)(B) of the In-
ternal Revenue Code of 1986 (relating to period of cov-
erage) is amended—
(1) by striking ‘‘or’’ at the end of subclause (I),
(2) by redesignating subclause (II) as subclause
(III), and
(3) by inserting after subclause (I) the follow-
ing new subclause:
‘‘(II) eligible for such employer-
based coverage for more than 90 days,
or’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to qualifying events occurring after
the date of the enactment of this Act.
SEC. 102. PENALTY-FREE WITHDRAWALS FROM QUALIFIED
RETIREMENT PLANS FOR COBRA COVERAGE.
(a) IN GENERAL.—Subparagraph (A) of section
72(t)(2) of the Internal Revenue Code of 1986 (relating
to additional tax not to apply to certain distributions) is
amended—
(1) by striking ‘‘or’’ at the end of clauses (iv)
and (v),
(2) by striking the period at the end of clause
(vi) and inserting ‘‘, or’’, and
(3) by adding at the end the following new
clause:
‘‘(vii) made to an employee who is a
qualified beneficiary during the period of
continuation 
coverage 
under 
section
4980B(f).’’
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to distributions made after the
date of the enactment of this Act.
Subtitle B—Permanence
SEC. 111. GENERAL RENEWABILITY REQUIREMENTS.
(a) INSURERS.—
(1) IN GENERAL.—An insurer may not cancel
an individual health insurance plan or group health
plan or deny renewal of coverage under such a plan
other than—
(A) for nonpayment of premiums,
(B) for fraud or other misrepresentation
by the insured,
(C) for noncompliance with plan provi-
sions, or
(D) because the insurer is ceasing to pro-
vide any health insurance plan in a State, or,
in the case of a health maintenance organiza-
tion, in a geographic area.
(2) LIMITATION ON MARKET REENTRY.—If an
insurer terminates the offering of health insurance
plans or group health plans in an area, the insurer
may not offer such a plan in the area until 5 years
after the date of the termination.
(b) EMPLOYERS.—An employer may not cancel a
self-insured group health plan or deny renewal of coverage
under such a plan other than—
(1) for nonpayment of premiums,
(2) for fraud or other misrepresentation by the
insured,
(3) for noncompliance with plan provisions, or
(4) because the plan is ceasing to provide any
coverage in a geographic area.
(c) EFFECTIVE DATE.—The provisions of this section
shall apply to any plan on or after the date of the enact-
ment of this Act.
SEC. 112. INDIVIDUAL HEALTH INSURANCE PLANS.
(a) EXISTING PLANS.—With respect to any individ-
ual health insurance plan in effect on the date of the en-
actment of this Act, the insurer shall offer the insured
the option to purchase a new individual health insurance
described in subsection (b).
(b) NEW PLANS.—With respect to any individual
health insurance plan, the effective date of which with re-
spect to the insured occurs after the date of the enactment
of this Act, the insurer may not increase the premium for
such a plan based on the health of the insured.
SEC. 113. GROUP HEALTH PLANS.
(a) EXISTING PLANS.—With respect to any group
health plan (other than a self-insured group health plan)
in effect on the date of the enactment of this Act, the
insurer shall offer—
(1) any insured of such plan the option to pur-
chase upon leaving the group a new individual health
insurance plan, the premium of which shall be rated
based on actuarial data, may be based on any pre-
existing condition of the insured, and may be in-
creased based on the health of such insured, and
(2) the employer or group sponsor of such plan
the option to purchase a new group health plan de-
scribed in subsection (b).
(b) NEW PLANS.—With respect to any group health
plan (other than a self-insured group health plan), the ef-
fective date of which with respect to the employer or group
sponsor occurs after the date of the enactment of this Act,
the insurer—
(1) may not increase the premium for such a
plan based on the health of the group’s insured, and
(2) shall offer any insured of such plan the op-
tion to purchase upon leaving the group a new indi-
vidual health insurance plan, the premium of which
shall be rated based on actuarial data, may not be
based on any preexisting condition of the insured,
and may not be increased based on the health of
such insured.
(c) SELF-INSURED GROUP HEALTH PLANS.—With
respect to a self-insured group health plan—
(1) in effect on the date of the enactment of
this Act—
(A) subsection (a)(1) shall apply through 1
or more insurers contracted with by such plan,
and
(B) subsection (a)(2) shall not apply, and
(2) the effective date of which with respect to
the employer or group sponsor occurs after the date
of the enactment of this Act, subsection (b) shall
apply through 1 or more insurers contracted with by
such plan.
SEC. 114. FAILURE OF HEALTH PLANS TO MEET PORT-
ABILITY AND PERMANENCE REQUIREMENTS.
(a) DEDUCTION FOR INDIVIDUAL HEALTH INSUR-
ANCE PLANS.—Paragraph (1) of section 213(d) of the In-
ternal Revenue Code of 1986 (defining medical care) is
amended—
(1) by striking ‘‘or’’ at the end of subparagraph
(B), and
(2) by striking subparagraph (C) and inserting
the following new subparagraphs:
‘‘(C) for insurance—
‘‘(i) meeting the requirements of sec-
tion 112 of the Comprehensive Family
Health Access and Savings Act, and
‘‘(ii) covering medical care referred to
in subparagraphs (A) and (B), or
‘‘(D) as premiums under part B of title
XVIII of the Social Security Act, relating to
supplementary medical insurance for the aged.
(b) TAX EXCLUSIONS
FOR EMPLOYER-PROVIDED
HEALTH INSURANCE.—Section 106 of the Internal Reve-
nue Code of 1986 (relating to contributions by employer
to accident and health plans) is amended by striking ‘‘an
accident or health plan’’ and inserting ‘‘an accident or
health plan meeting the requirements of section 113 of
the Comprehensive Family Health Access and Savings
Act’’.
(c) BUSINESS EXPENSE DEDUCTION FOR HEALTH
INSURANCE.—Section 162 of the Internal Revenue Code
of 1986 (relating to trade or business expenses) is amend-
ed by redesignating subsection (o) as subsection (p) and
by inserting after subsection (n) the following new sub-
section:
‘‘(o) GROUP HEALTH PLANS.—The expenses paid or
incurred by an employer for a group health plan shall not
be allowed as a deduction under this section unless such
plan meets the requirements of section 113 of the Com-
prehensive Family Health Access and Savings Act.’’
(d) PAYROLL TAX EXCLUSION FOR EMPLOYER-PRO-
VIDED HEALTH INSURANCE.—Section 209(a)(2) of the
Social Security Act (42 U.S.C. 409(a)(2)) is amended by
inserting ‘‘or group health insurance’’ after ‘‘group-term
life insurance’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
TITLE II—EXPANSION OF
HEALTH CARE CHOICES
Subtitle A—Employer-Provided
Health Insurance
SEC. 
201. 
TAX 
TREATMENT 
OF 
EMPLOYER-PROVIDED
HEALTH INSURANCE.
(a) TAX EXCLUSIONS
FOR EMPLOYER-PROVIDED
HEALTH INSURANCE.—Section 106 of the Internal Reve-
nue Code of 1986 (relating to contributions by employer
to accident and health plans), as amended by section
115(b), is amended by striking ‘‘an accident or health plan
meeting the requirements of section 113 of the Com-
prehensive Family Health Access and Savings Act’’ and
inserting ‘‘a qualified health insurance package (as de-
fined in section 162(o)(2)), which meets the requirements
of section 113 of the Comprehensive Family Health Access
and Savings Act, to the extent the employer contribution
does not exceed the actual cost of such coverage’’.
(b) BUSINESS EXPENSE DEDUCTION FOR HEALTH
INSURANCE.—Subsection (o) of section 162 of the Inter-
nal Revenue Code of 1986 (relating to trade or business
expenses), as added by section 115(c), is amended to read
as follows:
‘‘(o) GROUP HEALTH PLANS.—
‘‘(1) IN GENERAL.—The expenses paid or in-
curred by an employer for a group health plan shall
not be allowed as a deduction under this section un-
less—
‘‘(A) such plan meets the requirements of
section 113 of the Comprehensive Family
Health Access and Savings Act,
‘‘(B) such plan is offered through a quali-
fied health insurance package, and
‘‘(C) such employer’s contribution per em-
ployee—
‘‘(i) for coverage described in subpara-
graph (B) or (C) of paragraph (2) is not
less than such contribution for coverage
described in paragraph (2)(A) (determined
either on an average cost or actual cost
basis as elected by the employer), and
‘‘(ii) for coverage described in para-
graph (2)(C) does not exceed such con-
tribution for coverage described in sub-
paragraph (A) or (B) of paragraph (2),
whichever is higher (as so determined).
‘‘(2) QUALIFIED
HEALTH
INSURANCE
PACK-
AGE.—For purposes of paragraph (1), the term
‘qualified health insurance package’ means an an-
nual option provided to each employee of the em-
ployer during a 2-month election period to select 1
of the following health insurance coverages for the
following calendar year:
‘‘(A) The health insurance coverage pro-
vided by the employer on the date of the enact-
ment of the Comprehensive Family Health Ac-
cess and Savings Act.
‘‘(B) Coverage in a health maintenance or-
ganization, managed care arrangement, or pre-
ferred provider organization.
‘‘(C) Medical savings account under section
220.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to any taxable year
beginning after the date of the enactment of this Act.
Subtitle B—Medical Savings
Accounts
SEC. 
211. 
INDIVIDUALS 
ALLOWED 
DEDUCTION 
FROM
GROSS INCOME FOR COST OF CATASTROPHIC
HEALTH INSURANCE PLAN.
(a) IN GENERAL.—Subsection (a) of section 62 of the
Internal Revenue Code of 1986 (defining adjusted gross
income) is amended—
(1) by striking the flush sentence immediately
following paragraph (14), and
(2) by inserting after paragraph (15) the fol-
lowing:
‘‘(16) MEDICAL EXPENSES ATTRIBUTABLE TO
CATASTROPHIC
HEALTH
INSURANCE
PLAN
COV-
ERAGE.—
‘‘(A) IN GENERAL.—The deduction allowed
by section 213 to the extent attributable to cov-
erage under a catastrophic health insurance
plan (as defined in section 220(c)(2)).
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to coverage of an individual who
has coverage described in section 220(c)(1)(B).
Nothing in this section shall permit the same item to be
deducted more than once.’’
(b) COORDINATION WITH DEDUCTION FOR OTHER
MEDICAL EXPENSES.—Subsection (a) of section 213 of
the Internal Revenue Code of 1986 (relating to medical,
dental, etc., expenses) is amended to read as follows:
‘‘(a) ALLOWANCE OF DEDUCTION.—There shall be
allowed as a deduction the expenses paid during the tax-
able year, not compensated by insurance or otherwise, for
medical care of the taxpayer, his spouse, or a dependent
(as defined in section 152) in an amount equal to the sum
of—
‘‘(1) the portion of such expenses attributable
to coverage under a catastrophic health insurance
plan (as defined in section 220(c)(2)), and
‘‘(2) the excess of such expenses (other than ex-
penses described in paragraph (1)) over 7.5 percent
of the adjusted gross income of the taxpayer.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 212. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 220 as section 221 and by insert-
ing after section 219 the following new section:
‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi-
ble individual, there shall be allowed as a deduction the
amounts paid in cash during the taxable year by or on
behalf of such individual to a medical savings account for
the benefit of such individual and (if any) such individual’s
spouse and dependents if such spouse and dependents are
eligible individuals.
‘‘(b) LIMITATIONS.—
‘‘(1) ONLY 1 ACCOUNT PER FAMILY.—Except as
provided in regulations prescribed by this Secretary,
no deduction shall be allowed under subsection (a)
for amounts paid to any medical savings account for
the benefit of an individual, such individual’s spouse,
or any dependent of such individual or spouse if
such individual, spouse, or dependent is a beneficiary
of any other medical savings account.
‘‘(2) DOLLAR LIMITATION.—The amount allow-
able as a deduction under subsection (a) for the tax-
able year shall not exceed $3,000, or such higher
amounts as may be specified in subparagraph
(c)(2)(C).
‘‘(c) DEFINITIONS.—For purposes of this section:
‘‘(1) ELIGIBLE INDIVIDUAL.—
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means any individual who is covered
under a catastrophic health insurance plan
throughout the calendar year in which or with
which the taxable year ends.
‘‘(B) LIMITATIONS.—Such term does not
include an individual who is 65 years of age or
older, unless the individual is covered under a
catastrophic health insurance plan that is a pri-
mary plan (within the meaning of section
1862(b)(2)(A) of the Social Security Act).
‘‘(2) 
CATASTROPHIC
HEALTH
INSURANCE
PLAN.—
‘‘(A) IN
GENERAL.—The term ‘cata-
strophic health insurance plan’ means a health
plan covering specified expenses incurred by an
individual for medical care (as defined in sub-
paragraph (B)) for such individual and the
spouse and dependents (as defined in section
152) of such individual only to the extent such
expenses covered by the plan for any calendar
year exceed $3,000 or such higher amounts as
may be specified by the plan.
‘‘(B) MEDICAL CARE.—The term ‘medical
care’ means—
‘‘(i) medical care as defined in section
213(d) (without regard to non-emergency
transportation under paragraph (1)(B) and
amounts described in paragraph (2)), and
‘‘(ii) services and care not less than
such services and care identified (but not
in the manner prescribed) in paragraphs
(1), (2), (3), (4)(A), (4)(B), (5), (17), and
(21) of section 1905(a).
‘‘(C) COST-OF-LIVING
ADJUSTMENT.—In
the case of any calendar year after 1995, the
dollar amount in subparagraph (A) and para-
graph (b)(2) shall be increased by an amount
equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such
calendar year.
If any increase under the preceding sentence is
not a multiple of $50, such increase shall be
rounded to the nearest multiple of $50.
‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of
this section:
‘‘(1) MEDICAL SAVINGS ACCOUNT DEFINED.—
‘‘(A) IN
GENERAL.—The term ‘medical
savings account’ means a trust created or orga-
nized in the United States exclusively for the
purpose of paying the medical expenses of the
beneficiaries of such trust, but only if the writ-
ten governing instrument creating the trust
meets the following requirements:
‘‘(i) Except in the case of a rollover
contribution described in subsection (e)(5),
no contribution will be accepted unless it is
in cash, and contributions will not be ac-
cepted in excess of the amount allowed as
a deduction under this section for the tax-
able year.
‘‘(ii) The trustee is a bank (as defined
in section 408(n)) or another person who
demonstrates to the satisfaction of the Sec-
retary that the manner in which such per-
son will administer the trust will be con-
sistent with the requirements of this
section.
‘‘(iii) No part of the trust assets will
be invested in life insurance contracts.
‘‘(iv) The assets of the trust will not
be commingled with other property except
in a common trust fund or common invest-
ment fund.
‘‘(v) The interest of an individual in
the balance in his account is nonforfeit-
able.
‘‘(vi) Under regulations prescribed by
the Secretary, rules similar to the rules of
section 401(a)(9) shall apply to the dis-
tribution of the entire interest of bene-
ficiaries of such trust.
‘‘(B) TREATMENT
OF
COMPARABLE
AC-
COUNTS
HELD
BY
INSURANCE
COMPANIES.—
For purposes of this section, an account held by
an insurance company in the United States
shall be treated as a medical savings account
(and such company shall be treated as a bank)
if—
‘‘(i) such account is part of a health
insurance plan that includes a catastrophic
health insurance plan (as defined in sub-
section (c)(2)),
‘‘(ii) such account is exclusively for
the purpose of paying the medical expenses
of the beneficiaries of such account who
are covered under such catastrophic health
insurance plan, and
‘‘(iii) the written instrument govern-
ing the account meets the requirements of
clauses (i), (v), and (vi) of subparagraph
(A).
‘‘(2) MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘medical ex-
penses’ means, with respect to an individual,
amounts paid or incurred by such individual for
medical care for such individual, the spouse of
such individual, and any dependent (as defined
in section 152) of such individual, but only to
the extent such amounts—
‘‘(i) are not compensated for by insur-
ance or otherwise, and
‘‘(ii) are counted towards a deductible
under the terms of such individual’s cata-
strophic health insurance plan.
‘‘(B) HEALTH PLAN COVERAGE MAY NOT
BE
PURCHASED
FROM
ACCOUNT.—Such term
shall not include any amount paid for coverage
under a health plan.
‘‘(3) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A contribution shall be deemed to be made
on the last day of the preceding taxable year if the
contribution is made on account of such taxable year
and is made not later than the time prescribed by
law for filing the return for such taxable year (not
including extensions thereof).
‘‘(e) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2), (3), and (5), any amount paid or distrib-
uted out of a medical savings account shall be in-
cluded in the gross income of the individual for
whose benefit such account was established.
‘‘(2) EXCEPTION
FOR
MEDICAL
AND
LONG
TERM CARE EXPENSES.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply if such amount paid or distributed is
used exclusively to pay—
‘‘(i) the medical expenses of such indi-
vidual, or
‘‘(ii) except as provided in subpara-
graph (B), the expenses for long term care
services of the type identified in section
1931(e)(3) of the Social Security Act for
the individual.
‘‘(B) NONQUALIFIED
PAYMENTS
OR
DIS-
TRIBUTIONS
FOR
LONG
TERM
EXPENSES.—
Paragraph (1) shall apply to any portion of a
payment or distribution for expenses for long
term care services equal to the amount by
which, after such payment or distribution—
‘‘(i) the amount of the deductible
under the catastrophic health insurance
plan covering the individual, exceeds
‘‘(ii) the aggregate balance of all med-
ical savings accounts established for the
benefit of the individual.
For purposes of this paragraph, any payment or dis-
tribution for medical expenses shall be considered to
have been made before any other payment or dis-
tribution.
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
amount allowable as a deduction under subsection
(a) if—
‘‘(A) such distribution is received by the
individual on or before the last day prescribed
by law (including extensions of time) for filing
such individual’s return for such taxable year,
and
‘‘(B) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (B) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(4) PENALTY FOR DISTRIBUTIONS NOT USED
FOR MEDICAL EXPENSES WHICH LEAVE AN AMOUNT
LESS
THAN
THE
CATASTROPHIC
DEDUCTIBLE
IN
THE ACCOUNT.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is a payment or distribution from a medical
savings account which is includible in gross in-
come under paragraph (1) shall be increased by
10 percent with respect to the penalty portion
of such payment or distribution.
‘‘(B) PENALTY PORTION.—For purposes of
subparagraph (A), the penalty portion of any
payment or distribution is equal to the amount
by which, after such payment or distribution—
‘‘(i) the amount of the deductible
under the catastrophic health insurance
plan covering the individual, exceeds
‘‘(ii) the aggregate balance of all med-
ical savings accounts established for the
benefit of the individual.
For purposes of this paragraph, any payment or dis-
tribution for medical expenses shall be considered to
have been made before any other payment or dis-
tribution.
‘‘(5) ROLLOVERS.—Paragraph (1) shall not
apply to any amount paid or distributed out of a
medical savings account to the individual for whose
benefit the account is maintained if the entire
amount received (including money and any other
property) is paid into another medical savings ac-
count for the benefit of such individual not later
than the 60th day after the day on which he received
the payment or distribution.
‘‘(f) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION FROM TAX.—Any medical sav-
ings account is exempt from taxation under this sub-
title unless such account has ceased to be a medical
savings account by reason of paragraph (2) or (3).
Notwithstanding the preceding sentence, any such
account shall be subject to the taxes imposed by sec-
tion 511 (relating to imposition of tax on unrelated
business income of charitable, etc. organizations).
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit the
medical savings account was established, such
individual engages in any transaction prohibited
by section 4975 with respect to the account, the
account ceases to be a medical savings account
as of the first day of that taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, paragraph (1) of subsection
(e) shall be applied as if there were a distribu-
tion on such first day in an amount equal to
the fair market value (on such first day) of all
assets in the account (on such first day) and no
portion of such distribution were used to pay
medical expenses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a medical savings account was estab-
lished uses the account or any portion thereof as se-
curity for a loan, the portion so used is treated as
distributed to that individual and not used to pay
medical expenses.
‘‘(g) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)) or another per-
son who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
the account will be consistent with the requirements
of this section, and
‘‘(2) the custodial account would, except for the
fact that it is not a trust, constitute a medical sav-
ings account described in subsection (d).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
‘‘(h) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the individual for whose benefit the
account is maintained with respect to contributions, dis-
tributions, and such other matters as the Secretary may
require under regulations. The reports required by this
subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such
manner as may be required by those regulations.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a)
of section 62 of the Internal Revenue Code of 1986 (defin-
ing adjusted gross income), as amended by section 211,
is amended by inserting after paragraph (16) the following
new paragraph:
‘‘(17) MEDICAL SAVINGS ACCOUNTS.—The de-
duction allowed by section 220.’’
(c) DISTRIBUTIONS FROM MEDICAL SAVINGS AC-
COUNTS NOT ALLOWED AS MEDICAL EXPENSE DEDUC-
TION.—Section 213 of the Internal Revenue Code of 1986
(relating to medical, dental, etc., expenses) is amended by
adding at the end the following new subsection:
‘‘(g) COORDINATION WITH MEDICAL SAVINGS AC-
COUNTS.—The amount otherwise taken into account
under subsection (a) as expenses paid for medical care
shall be reduced by the amount (if any) of the distribu-
tions from any medical savings account of the taxpayer
during the taxable year which is not includible in gross
income by reason of being used for medical care.’’
(d) EXCLUSION OF EMPLOYER CONTRIBUTIONS TO
MEDICAL
SAVINGS
ACCOUNTS
FROM
EMPLOYMENT
TAXES.—
(1) SOCIAL SECURITY TAXES.—
(A) Subsection (a) of section 3121 of the
Internal Revenue Code of 1986 (defining
wages) is amended by striking ‘‘or’’ at the end
of paragraph (20), by striking the period at the
end of paragraph (21) and inserting ‘‘; or’’, and
by inserting after paragraph (21) the following
new paragraph:
‘‘(22) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
(B) Subsection (a) of section 209 of the
Social Security Act is amended by striking ‘‘or’’
at the end of paragraph (17), by striking the
period at the end of paragraph (18) and insert-
ing ‘‘; or’’, and by inserting after paragraph
(18) the following new paragraph:
‘‘(19) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220 of the Internal Revenue Code of
1986.’’
(2) RAILROAD RETIREMENT TAX.—Subsection
(e) of section 3231 of such Code (defining com-
pensation) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(10) EMPLOYER CONTRIBUTIONS TO MEDICAL
SAVINGS ACCOUNTS.—The term ‘compensation’ shall
not include any payment made to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
(3) UNEMPLOYMENT TAX.—Subsection (b) of
section 3306 of such Code (defining wages) is
amended by striking ‘‘or’’ at the end of paragraph
(15), by striking the period at the end of paragraph
(16) and inserting ‘‘; or’’, and by inserting after
paragraph (16) the following new paragraph:
‘‘(17) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
(4) WITHHOLDING TAX.—Subsection (a) of sec-
tion 3401 of such Code (defining wages) is amended
by striking ‘‘or’’ at the end of paragraph (19), by
striking the period at the end of paragraph (20) and
inserting ‘‘; or’’, and by inserting after paragraph
(20) the following new paragraph:
‘‘(21) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding deduction is allowable
under section 220.’’
(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of the Internal Revenue Code of 1986 (relating to tax on
excess contributions to individual retirement accounts, cer-
tain section 403(b) contracts, and certain individual re-
tirement annuities) is amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 220(d)),’’,
(3) by striking ‘‘or’’ at the end of paragraph
(1) of subsection (a), and
(4) by adding at the end the following new sub-
section:
‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account (within the meaning of section
220(d)), the term ‘excess contributions’ means the amount
by which the amount contributed for the taxable year to
the account exceeds the amount excludable from gross in-
come under section 220 for such taxable year. For pur-
poses of this subsection, any contribution which is distrib-
uted out of the medical savings account in a distribution
to which section 220(e)(3) applies shall be treated as an
amount not contributed.’’
(f) TAX ON PROHIBITED TRANSACTIONS.—Section
4975 of the Internal Revenue Code of 1986 (relating to
prohibited transactions) is amended—
(1) by adding at the end of subsection (c) the
following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
220(d)) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 220(f)(2)(A) to such account.’’, and
(2) by inserting ‘‘or a medical savings account
described in section 220(d)’’ in subsection (e)(1)
after ‘‘described in section 408(a)’’.
(g) FAILURE TO PROVIDE REPORTS ON MEDICAL
SAVINGS ACCOUNTS.—Section 6693 of the Internal Reve-
nue Code of 1986 (relating to failure to provide reports
on individual retirement account or annuities) is amend-
ed—
(1) by inserting ‘‘OR ON MEDICAL SAVINGS
ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of
such section, and
(2) by adding at the end of subsection (a) the
following: ‘‘The person required by section 220(h) to
file a report regarding a medical savings account at
the time and in the manner required by such section
shall pay a penalty of $50 for each failure unless it
is shown that such failure is due to reasonable
cause.’’
(h) CLERICAL AMENDMENTS.—
(1) The table of sections for part VII of sub-
chapter B of chapter 1 of the Internal Revenue Code
of 1986 is amended by striking the last item and in-
serting the following:
‘‘Sec. 220. Medical savings accounts.
‘‘Sec. 221. Cross reference.’’
(2) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following:
‘‘Sec. 4973. Tax on excess contributions to individual retirement
accounts, medical savings accounts, certain 403(b)
contracts, and certain individual retirement annu-
ities.’’
(3) The table of sections for subchapter B of
chapter 68 of such Code is amended by inserting ‘‘or
on medical savings accounts’’ after ‘‘annuities’’ in
the item relating to section 6693.
(i) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
TITLE III—EQUAL TAX TREAT-
MENT FOR HEALTH INSUR-
ANCE 
OF 
SELF-EMPLOYED
AND UNINSURED.
SEC. 301. EQUAL EXCLUSION FROM GROSS INCOME OF
HEALTH INSURANCE COVERAGE COSTS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by inserting after section 106 the following new section:
‘‘SEC. 106A. CERTAIN HEALTH INSURANCE COVERAGE
COSTS.
‘‘(a) IN GENERAL.—Gross income does not include
the applicable percentage of so much of—
‘‘(1) the amounts paid by the taxpayer for cov-
erage under a health insurance plan (as defined in
section 1(3) of the Comprehensive Family Health
Access and Savings Act), plus
‘‘(2) the contributions made by such taxpayer
to a medical savings account under section 220,
during the taxable year as do not exceed the national per
employee average of employer-provided contributions ex-
cluded under section 106 for the preceding taxable year.
‘‘(b) EXCLUSION NOT ALLOWED TO INDIVIDUALS
ELIGIBLE FOR EMPLOYER-SUBSIDIZED COVERAGE.—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to any individual—
‘‘(A) who is eligible to participate in any
subsidized health plan maintained by an em-
ployer of such individual or the spouse of such
individual, or
‘‘(B) who is (or whose spouse is) a member
of a subsidized class of employees of an em-
ployer.
‘‘(2) SUBSIDIZED
CLASS.—For purposes of
paragraph (1), an individual is a member of a sub-
sidized class of employees of an employer if, at any
time during the 3 calendar years ending with or
within the taxable year, any member of such class
was eligible to participate in any subsidized health
plan maintained by such employer.
‘‘(3) SPECIAL RULES.—
‘‘(A) CONTROLLED GROUPS.—All persons
treated as a single employer under subsection
(a) or (b) of section 52 or subsection (m) or (o)
of section 414 shall be treated as a single em-
ployer for purposes of paragraph (2).
‘‘(B) CLASSES.—Classes of employees shall
be determined under regulations prescribed by
the Secretary based on such factors as the Sec-
retary determines appropriate to carry out the
purposes of this subsection.
‘‘(c) APPLICABLE PERCENTAGE.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the term ‘applicable percentage’ means—
‘‘(A) 33 percent for any taxable year be-
ginning in 1996 or, if later, the alternate year,
‘‘(B) 46 percent for any taxable year be-
ginning in 1997 or, if later, the alternate year,
‘‘(C) 60 percent for any taxable year be-
ginning in 1998 or, if later, the alternate year,
‘‘(D) 73 percent for any taxable year be-
ginning in 1999 or, if later, the alternate year,
‘‘(E) 86 percent for any taxable year be-
ginning in 2000 or, if later, the alternate year,
and
‘‘(F) 100 percent for taxable years begin-
ning with 2001 or, if later, the alternate year.
‘‘(2) ALTERNATE YEAR.—For purposes of para-
graph (1), the term ‘alternate year’ means any tax-
able year other than the taxable year described the
applicable subparagraph of paragraph (1) as deter-
mined under section 1302 of the Comprehensive
Family Health Access and Savings Act.
‘‘(d) 
COORDINATION
WITH
DEDUCTIONS.—No
amount excluded from the gross income of the taxpayer
for any taxable year under this section shall be taken into
account for purposes of determining the allowable deduc-
tion for such year under sections 162(l), 213, and 220.
‘‘(e) COORDINATION WITH HEALTH CARE EXPENSES
CREDIT.—The amount otherwise taken into account
under subsection (a) as expenses paid for medical care
shall be reduced by the amount (if any) of the amount
taken into account under section 34A for the taxable
year.’’
(b) EXCLUSION OF CERTAIN HEALTH INSURANCE
COVERAGE COSTS FROM EMPLOYMENT TAXES.—
(1) SOCIAL SECURITY TAXES.—
(A) Subsection (a) of section 3121 of the
Internal Revenue Code of 1986 (defining
wages), as amended by section 212(d), is
amended by striking ‘‘or’’ at the end of para-
graph (21), by striking the period at the end of
paragraph (22) and inserting ‘‘; or’’, and by in-
serting after paragraph (22) the following new
paragraph:
‘‘(23) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding exclusion is allowable
under section 106A.’’
(B) Subsection (a) of section 209 of the
Social Security Act, as amended by section
212(d), is amended by striking ‘‘or’’ at the end
of paragraph (18), by striking the period at the
end of paragraph (19) and inserting ‘‘; or’’, and
by inserting after paragraph (19) the following
new paragraph:
‘‘(20) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding exclusion is allowable
under section 106A of the Internal Revenue Code of
1986.’’
(2) RAILROAD RETIREMENT TAX.—Subsection
(e) of section 3231 of such Code (defining com-
pensation), as amended by section 212(d), is amend-
ed by adding at the end the following new para-
graph:
‘‘(11) EMPLOYER CONTRIBUTIONS TO MEDICAL
SAVINGS ACCOUNTS.—The term ‘compensation’ shall
not include any payment made to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding exclusion is allowable
under section 106A.’’
(3) UNEMPLOYMENT TAX.—Subsection (b) of
section 3306 of such Code (defining wages), as
amended by section 212(d), is amended by striking
‘‘or’’ at the end of paragraph (16), by striking the
period at the end of paragraph (17) and inserting ‘‘;
or’’, and by inserting after paragraph (17) the fol-
lowing new paragraph:
‘‘(18) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding exclusion is allowable
under section 106A.’’
(4) WITHHOLDING TAX.—Subsection (a) of sec-
tion 3401 of such Code (defining wages), as amend-
ed by section 212(d), is amended by striking ‘‘or’’ at
the end of paragraph (20), by striking the period at
the end of paragraph (21) and inserting ‘‘; or’’, and
by inserting after paragraph (21) the following new
paragraph:
‘‘(22) remuneration paid to or on behalf of an
employee if (and to the extent that) at the time of
payment of such remuneration it is reasonable to be-
lieve that a corresponding exclusion is allowable
under section 106A.’’
(c) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter B of chapter 1 of the Internal
Revenue Code of 1986 is amended by inserting after the
item relating to section 106 the following:
‘‘Sec. 106A. Certain health insurance coverage costs.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
TITLE IV—SMALL BUSINESS
HEALTH INSURANCE POOLS
SEC. 401. PROHIBITION OF RESTRICTIONS ON GROUPS
PURCHASING HEALTH INSURANCE.
(a) IN GENERAL.—No provision of State or local law
shall apply that prohibits 2 or more employers or groups
from obtaining coverage under a multiple employer health
plan.
(b) MULTIPLE EMPLOYER HEALTH PLAN.—For pur-
poses of subsection (a), the term ‘‘multiple employer
health plan’’ means a multiple employer welfare arrange-
ment (as defined in section 3(40) of the Employee Retire-
ment Income Security Act of 1974).
SEC. 402. PROHIBITION OF STATE BENEFIT MANDATES FOR
GROUP HEALTH PLANS.
In the case of a group health plan, no provision of
State or local law shall apply that requires the coverage
of 1 or more specific benefits, services, or categories of
health care, or services of any class or type of provider
of health care.
SEC. 403. PROHIBITION OF RESTRICTIONS ON MANAGED
CARE.
(a) PREEMPTION OF STATE LAW PROVISIONS.—Sub-
ject to subsection (c), the following provisions of State law
are preempted and may not be enforced:
(1) RESTRICTIONS ON REIMBURSEMENT RATES
OR
SELECTIVE
CONTRACTING.—Any law that re-
stricts the ability of a group health plan to negotiate
reimbursement rates with providers or to contract
selectively with 1 provider or a limited number of
providers.
(2) RESTRICTIONS
ON
DIFFERENTIAL
FINAN-
CIAL INCENTIVES.—Any law that limits the financial
incentives that a group health plan may require a
beneficiary to pay when a non-plan provider is used
on a non-emergency basis.
(3) RESTRICTIONS
ON
UTILIZATION
REVIEW
METHODS.—Any law that—
(A) prohibits utilization review of any or
all treatments and conditions,
(B) requires that such review be made (i)
by a resident of the State in which the treat-
ment is to be offered or by an individual li-
censed in such State, or (ii) by a physician in
any particular specialty or with any board cer-
tified specialty of the same medical specialty as
the provider whose services are being reviewed,
(C) requires the use of specified standards
of health care practice in such reviews or re-
quires the disclosure of the specific criteria used
in such reviews,
(D) requires payments to providers for the
expenses of responding to utilization review re-
quests, or
(E) imposes liability for delays in perform-
ing such review.
Nothing in subparagraph (B) shall be construed as
prohibiting a State from (i) requiring a licensed phy-
sician or other health care professional be available
at some time in the review or appeal process, or (ii)
requiring that any decision in an appeal from such
a review be made by a licensed physician.
(b) GAO STUDY.—
(1) IN GENERAL.—The Comptroller General of
the United States shall conduct a study of the regu-
latory and legal impediments at the Federal, State,
and local levels of government that restrict the abil-
ity of small businesses and other organizations to
group together voluntarily to allow their employees
or members to pool their health insurance purchases.
(2) REPORT.—By not later than 2 years after
the date of the enactment of this Act, the Comptrol-
ler General shall submit a report to Congress on the
study conducted under paragraph (1) and shall in-
clude in the report such recommendations (including
whether the provisions of subsection (a) should be
extended) as may be appropriate.
(c) SUNSET.—Unless otherwise provided, subsection
(a) shall not apply 5 years after the date of the enactment
of this Act.
TITLE V—ASSISTANCE TO INDI-
VIDUALS WITH PREEXISTING
CONDITIONS IN PURCHASING
HEALTH INSURANCE
SEC. 501. PREEXISTING CONDITION INSURANCE POOL AL-
LOTMENT PROGRAM.
(a) DEFINITIONS.—As used in this section:
(1) 
CATASTROPHIC
HEALTH
INSURANCE
PLAN.—The term ‘‘catastrophic health insurance
plan’’ has the meaning given such term by section
220(c)(2) of the Internal Revenue Code of 1986 (de-
termined without regard to subparagraph (B)(i)).
(2) PREEXISTING CONDITION.—The term ‘‘pre-
existing condition’’ means, with respect to coverage
under a health insurance plan, a condition that has
been diagnosed or treated during the 6-month period
ending on the day before the first date of such cov-
erage (without regard to any waiting period).
(3) 
PROGRAM
ADMINISTRATOR.—The 
term
‘‘program administrator’’ means the entity respon-
sible for the administration of the program estab-
lished under subsection (e)(2).
(b) ESTABLISHMENT.—The Secretary shall establish
and administer a program to provide allotments to States
to enable such States to operate State-wide insurance risk
pools to provide health insurance coverage to individuals
with preexisting conditions.
(c) ALLOTMENTS TO STATES.—The Secretary shall
allot to a State under this section for each fiscal year an
amount equal to the State expected loss amount for such
fiscal year as determined under subsection (e)(3)(B)(v).
(d) APPLICATION.—To be eligible to receive an allot-
ment for a fiscal year under this section, a State shall
prepare and submit an application to the Secretary at
such time, in such manner, and containing such informa-
tion as the Secretary may by rule require. Such applica-
tion shall include an assurance by the State that all ad-
ministrative costs of the insurance pool program shall be
borne by the State from resources other than such allot-
ment.
(e) STATE PROGRAM.—
(1) USE
OF
FUNDS.—The State shall use
amounts received under this section to provide pre-
with preexisting conditions. Such profile shall
consider—
(i) the number of individuals who may
be eligible for premium assistance under
the State program for the fiscal year in-
volved;
(ii) the estimated cost of providing
medical services for the eligible individuals
for the fiscal year involved;
(iii) the estimated amount of pre-
miums to be paid by such eligible individ-
uals for the fiscal year involved;
(iv) the estimated amount by which
the medical service costs will exceed the
premiums received for the fiscal year in-
volved;
(v) the estimated amount of Federal
assistance needed under this section to
cover the losses estimated under clause
(iv); and
(vi) any other information determined
appropriate by the State.
(4) PROVISION OF PREMIUM ASSISTANCE.—
(A) ELIGIBILITY.—To be eligible to receive
premium assistance under a State program
under this section, an individual shall be deter-
mined by the program administrator—
(i) to have a preexisting condition;
(ii) to be charged under a catastrophic
health insurance plan, a premium which
exceeds 150 percent of the average pre-
mium paid for catastrophic health insur-
ance plans (considering residence, age and
gender);
(iii) not to have any avoidable health
conditions, including medical conditions re-
lated to smoking, alcohol abuse, drug
abuse, and other activities harmful to
health, which are the sole reason for the
excess described in clause (ii); and
(iv) not to be described in section 601.
(B) AMOUNT.—An individual determined
to be eligible under subparagraph (A) shall re-
ceive premium assistance under this section in
an amount that equals the amount by which the
premium paid by such individual for a cata-
strophic health insurance plan exceeds the
greater of—
(i) 150 percent of the average pre-
mium paid for catastrophic health insur-
ance plans (considering residence, age and
gender), or
(ii) 7.5 percent of the individual or
family adjusted gross income of the indi-
vidual,
but only to the extent such excess is not attrib-
utable to any avoidable health conditions, in-
cluding medical conditions related to smoking,
alcohol abuse, drug abuse, and other activities
harmful to health.
(f) PAYMENTS.—
(1) IN GENERAL.—The Secretary shall pay to
each State for which an application has been ap-
proved under this section for each fiscal year an
amount not to exceed its allotment under subsection
(c) to be expended by the State in accordance with
the terms of the application for the fiscal year for
which the allotment is to be made.
(2) METHOD
OF
PAYMENTS.—The Secretary
may make payments to a State in installments, and
in advance or, by way of reimbursement, with nec-
essary adjustments due to overpayments or under-
payments, as the Secretary may determine appro-
priate.
(3) STATE
SPENDING
OF
PAYMENTS.—Pay-
ments to a State from the allotment under sub-
section (c) for any fiscal year must be expended by
the State in that fiscal year or in the succeeding fis-
cal year.
(g) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated such sums as may be
necessary to carry out this section.
(h) EFFECTIVE DATE.—
(1) IN GENERAL.—The provisions of this title
shall apply with respect to payments made to indi-
viduals in calendar years beginning with 1996 or, if
later, with the alternate year.
(2) ALTERNATE YEAR.—For purposes of para-
graph (1), the term ‘‘alternate year’’ means any cal-
endar year other than 1996 as determined under
section 1302 of the Comprehensive Family Health
Access and Savings Act.
TITLE VI—ENCOURAGE RESPON-
SIBLE BEHAVIOR BY THE FI-
NANCIALLY CAPABLE
SEC. 601. ONE YEAR WINDOW TO PURCHASE HEALTH IN-
SURANCE COVERAGE.
Any individual with family income exceeding 200 per-
cent of the income official poverty line (as determined
under section 34A of the Internal Revenue Code of 1986),
or who is eligible for a partial or full credit to purchase
a catastrophic health insurance plan under such section,
but who fails to purchase coverage under a health insur-
ance plan providing coverage at least equal to such a cata-
strophic health insurance plan within 1 year of the date
of the enactment of this Act, shall not be eligible for the
insurance pool program under title V of this Act.
SEC. 602. PROHIBITION OF RESTRICTIONS RELATING TO
THE USE OF COLLECTION PROCEDURES.
No provision of Federal, State, or local law shall
apply that prohibits the use of any statutory procedure
for the collection of unpaid debts for medical expenses in-
curred by individuals described in section 601.
TITLE VII—ASSISTANCE TO LOW-
INCOME WORKERS TO PUR-
CHASE HEALTH CARE INSUR-
ANCE
SEC. 701. REFUNDABLE CATASTROPHIC HEALTH INSUR-
ANCE PLAN CREDIT.
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to refundable personal credits) is amended
by inserting after section 34 the following new section:
‘‘SEC. 34A. CATASTROPHIC HEALTH INSURANCE PLAN PRE-
MIUMS.
‘‘(a) ALLOWANCE
OF CREDIT.—In the case of a
qualified individual, there shall be allowed as a credit
against the tax imposed by this subtitle for the taxable
year an amount equal to the applicable percentage of the
premiums for a catastrophic health insurance plan paid
by such individual during the taxable year.
‘‘(b) QUALIFIED INDIVIDUALS.—For purposes of this
section:
‘‘(1) IN GENERAL.—The term ‘qualified individ-
ual’ means the taxpayer, the spouse of the taxpayer,
and each dependent of the taxpayer (as defined in
section 152) who is enrolled in a catastrophic health
insurance plan.
‘‘(2) FEDERALLY COVERED INDIVIDUALS.—The
term ‘qualified individual’ does not include any indi-
vidual whose medical care is covered under titles
XIX and XVIII of the Social Security Act.
‘‘(3) SPECIAL RULE IN THE CASE OF CHILD OF
DIVORCED PARENTS, ETC.—Any child to whom sec-
tion 152(e) applies shall be treated as a dependent
of both parents.
‘‘(4) MARRIAGE RULES.—The determination of
whether an individual is married at any time during
the taxable year shall be made in accordance with
the provisions of section 6013(d) (relating to deter-
mination of status as husband and wife).
‘‘(c) APPLICABLE PERCENTAGE.—For purposes of
subsection (a), the applicable percentage for any taxable
year is 100 percent reduced (but not below zero percent)
by 1 percentage point for each 1 percentage point (or por-
tion thereof) the qualified individual’s family income ex-
ceeds 100 percent of the income official poverty line (as
defined by the Office of Management and Budget, and re-
vised annually in accordance with section 673(2) of the
Omnibus Budget Reconciliation Act of 1981) applicable
to a family of the size involved.
‘‘(d) CATASTROPHIC HEALTH INSURANCE PLAN.—
For purposes of this section, the term ‘catastrophic health
insurance plan’ means a health plan covering specified ex-
penses incurred by an individual for medical care (as de-
fined in section 220(c)(2)(B)(ii)) for such individual and
the spouse and dependents (as so defined) of such individ-
ual only to the extent such expenses covered by the plan
for any calendar year exceed the greater of—
‘‘(1) 20 percent of the adjusted gross income of
such individual for such year, or
‘‘(2) $3,000.
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section:
‘‘(1) DETERMINATIONS OF INCOME.—
‘‘(A) IN
GENERAL.—The term ‘income’
means adjusted gross income (as defined in sec-
tion 62(a))—
‘‘(i) determined without regard to sec-
tions 135, 162(l), 911, 931, and 933; and
‘‘(ii) increased by—
‘‘(I) the amount of interest re-
ceived or accrued which is exempt
from tax, plus
‘‘(II) the amount of social secu-
rity benefits (described in section
86(d)) which is not includible in gross
income under section 86.
‘‘(B) FAMILY INCOME.—The term ‘family
income’ means, with respect to a family, the
sum of the income for all members of the fam-
ily, not including the income of a dependent
child with respect to which no return is re-
quired.
‘‘(C) FAMILY SIZE.—The family size to be
applied under this section, with respect to fam-
ily income, is the number of individuals in-
cluded in the family for purposes of coverage
under a catastrophic health insurance plan.
‘‘(2) COORDINATION WITH ADVANCE PAYMENT
AND MINIMUM TAX.—Rules similar to the rules of
subsections (g) and (h) of section 32 shall apply to
any credit to which this section applies.
‘‘(f) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.
‘‘(g) APPLICATION OF SECTION.—
‘‘(1) IN
GENERAL.—This section shall apply
with respect to—
‘‘(A) any individual with a filing status de-
scribed in subsection (a), (b), or (d) of section
1 and whose family income is less than 100 per-
cent of the income official poverty line (as de-
fined by the Office of Management and Budget,
and revised annually in accordance with section
673(2) of the Omnibus Budget Reconciliation
Act of 1981) applicable to a family of the size
involved, in any taxable year beginning with
1997 or, if later, the alternate year,
‘‘(B) any individual with a filing status de-
scribed in subsection (c) of section 1 and whose
family income is less than 100 percent of such
income official poverty line, in any taxable year
beginning with 1998 or, if later, the alternate
year,
‘‘(C) any individual with a filing status de-
scribed in subsection (a), (b), or (d) of section
1 and whose family income is equal to or ex-
ceeds 100 percent of such income official pov-
erty line, but only to the extent of 33 percent
of the credit allowable under this section, in any
taxable year beginning with 1999 or, if later,
the alternate year, and
‘‘(D) any individual with a filing status de-
scribed in subsection (a), (b), (c), or (d) of sec-
tion 1 and whose family income is equal to or
exceeds 100 percent of such income official pov-
erty line, in any taxable year beginning with
2000 or, if later, the alternate year.
‘‘(2) ALTERNATE YEAR.—For purposes of para-
graph (1), the term ‘alternate year’ means any tax-
able year other than the taxable year described the
applicable subparagraph of paragraph (1) as deter-
mined under section 1302 of the Comprehensive
Family Health Access and Savings Act.
(b) ADVANCE PAYMENT OF CREDIT.—Chapter 25 of
the Internal Revenue Code of 1986 (relating to general
provisions relating to employment taxes) is amended by
inserting after section 3507 the following new section:
‘‘SEC. 
3507A. 
ADVANCE 
PAYMENT 
OF 
CATASTROPHIC
HEALTH INSURANCE PLAN PREMIUMS CRED-
IT.
‘‘(a) GENERAL RULE.—Except as otherwise provided
in this section, every employer making payment of wages
with respect to whom a catastrophic health insurance plan
eligibility certificate is in effect shall, at the time of paying
such wages, make an additional payment equal to such
employee’s catastrophic health insurance plan advance
amount.
‘‘(b) CATASTROPHIC HEALTH INSURANCE PLAN ELI-
GIBILITY CERTIFICATE.—For purposes of this title, a cat-
astrophic health insurance plan eligibility certificate is a
statement furnished by an employee to the employer
which—
‘‘(1) certifies that the employee will be eligible
to receive the credit provided by section 34A for the
taxable year,
‘‘(2) certifies that the employee does not have
a catastrophic health insurance plan eligibility cer-
tificate in effect for the calendar year with respect
to the payment of wages by another employer,
‘‘(3) states whether or not the employee’s
spouse has a catastrophic health insurance plan eli-
gibility certificate in effect, and
‘‘(4) estimates the amount of premiums for a
catastrophic health insurance plan (as defined in
section 34A(d)) for the calendar year.
For purposes of this section, a certificate shall be treated
as being in effect with respect to a spouse if such a certifi-
cate will be in effect on the first status determination date
following the date on which the employee furnishes the
statement in question.
‘‘(c) CATASTROPHIC HEALTH INSURANCE PLAN AD-
VANCE AMOUNT.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘catastrophic health insurance plan advance
amount’ means, with respect to any payroll period,
the amount determined—
‘‘(A) on the basis of the employee’s wages
from the employer for such period,
‘‘(B) on the basis of the employee’s esti-
mated premiums for a catastrophic health in-
surance plan (as so defined) included in the cat-
astrophic health insurance plan eligibility cer-
tificate, and
‘‘(C) in accordance with tables provided by
the Secretary.
‘‘(2) ADVANCE AMOUNT TABLES.—The tables
referred to in paragraph (1)(C) shall be similar in
form to the tables prescribed under section 3402
and, to the maximum extent feasible, shall be coordi-
nated with such tables and the tables prescribed
under section 3507(c).
‘‘(d) OTHER RULES.—For purposes of this section,
rules similar to the rules of subsections (d) and (e) of sec-
tion 3507 shall apply.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’
(c) CREDIT AMOUNT NOT ALLOWED AS MEDICAL
EXPENSE DEDUCTION.—Section 213 of the Internal Rev-
enue Code of 1986 (relating to medical, dental, etc., ex-
penses), as amended by section 212(c), is amended by
adding at the end the following new subsection:
‘‘(h) COORDINATION WITH CATASTROPHIC HEALTH
INSURANCE PLAN PREMIUMS CREDIT.—The amount oth-
erwise taken into account under subsection (a) as expenses
paid for medical care shall be reduced by the amount (if
any) of the amount taken into account under section 34A
for the taxable year.’’
(d) CLERICAL AMENDMENTS.—
(1) The table of sections for subpart A of part
IV of subchapter A of chapter 1 of the Internal Rev-
enue Code of 1986 is amended by inserting after the
item relating to section 34 the following new item:
‘‘Sec. 34A. Catastrophic health insurance plan premiums.’’
(2) The table of sections for chapter 25 of such
Code is amended by adding after the item relating
to section 3507 the following new item:
‘‘Sec. 3507A. Advance payment of catastrophic health insurance
plan premiums credit.’’
SEC. 702. PROHIBITION OF RESTRICTIONS RELATING TO
THE USE OF COLLECTION PROCEDURES.
No provision of Federal, State, or local law shall
apply that prohibits the use of any statutory procedure
for the collection of unpaid debts for medical expenses in-
curred by individuals who are eligible for the credit al-
lowed under section 34A of the Internal Revenue Code of
1986, but who fail to claim such credit.
TITLE 
VIII—REWARD 
PREVEN-
TIVE 
MEDICINE 
AND
HEALTHY LIFESTYLES
SEC. 801. REWARD PREVENTIVE MEDICINE AND HEALTHY
LIFESTYLES.
In the case of any health insurance plan, no provision
of State or local law shall apply that restricts the reduc-
tion of premiums or the allowance of incentives with re-
spect to such plans for individuals who pursue healthy life-
styles.
TITLE 
IX—REFORM 
MEDICAID
AND 
EXPAND 
CHOICES
UNDER MEDICARE
Subtitle A—Medicaid
SEC. 901. CAP ON FEDERAL PAYMENTS MADE FOR MEDI-
CAL ASSISTANCE UNDER THE MEDICAID PRO-
GRAM.
(a) IN GENERAL.—Title XIX (42 U.S.C. 1396 et
seq.) is amended by redesignating section 1931 as section
1932 and by inserting after section 1930 the following new
section:
‘‘CAP ON FEDERAL PAYMENT MADE FOR MEDICAL
ASSISTANCE
‘‘SEC. 1931. (a) ANNUAL FEDERAL CAP.—For pur-
poses of furnishing medical assistance to eligible individ-
uals, the Secretary shall pay to a State for a fiscal year
under section 1903 an amount that does not exceed the
State total funding amount determined under subsection
(b).
‘‘(b) STATE TOTAL FUNDING AMOUNT.—
‘‘(1) IN
GENERAL.—A State’s total funding
amount for a fiscal year is an amount equal to the
sum of—
‘‘(A) the State’s acute care funding
amount for the fiscal year determined under
subsection (c); and
‘‘(B) the State’s long-term care funding
amount for the fiscal year determined under
subsection (d).
‘‘(2) ESTIMATIONS OF AND ADJUSTMENTS TO
STATE
TOTAL
FUNDING
AMOUNT.—The Secretary
shall—
‘‘(A) establish a process for estimating the
State total funding amount under this sub-
section at the beginning of each fiscal year and
adjusting such amount during such fiscal year;
and
‘‘(B) notify each State of the estimations
and adjustments referred to in subparagraph
(A).
‘‘(c) STATE ACUTE CARE FUNDING AMOUNT.—
‘‘(1) IN GENERAL.—A State’s acute care fund-
ing amount for a fiscal year is an amount equal to
the product of—
‘‘(A) the per capita acute care funding
amount determined under paragraph (2) for the
State for such fiscal year, multiplied by