IB 
Union Calendar No. 78
108TH CONGRESS 
1ST SESSION 
H. R. 660
[Report No. 108–156] 
To amend title I of the Employee Retirement Income Security Act of 1974 
to improve access and choice for entrepreneurs with small businesses 
with respect to medical care for their employees. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 11, 2003
Mr. FLETCHER (for himself, Mr. SAM JOHNSON of Texas, Mr. DOOLEY of 
California, Ms. VELA´ZQUEZ, Mr. ACEVEDO-VILA´, Mr. ADERHOLT, Mr. 
AKIN, Mr. BACA, Mr. BALLENGER, Mr. BEAUPREZ, Mrs. BIGGERT, Mr. 
BOEHNER, Mr. BURGESS, Mr. CALVERT, Mrs. CAPITO, Mr. CARTER, 
Mrs. CHRISTENSEN, Mr. COLLINS, Mr. COSTELLO, Mr. CRAMER, Mr. 
CUNNINGHAM, Mrs. JO ANN DAVIS of Virginia, Mr. DEMINT, Mr. MARIO 
DIAZ-BALART of Florida, Mr. DUNCAN, Mr. EVERETT, Mr. FRANKS of 
Arizona, Mr. FOSSELLA, Mr. GILLMOR, Mr. GOODLATTE, Mr. GONZALEZ, 
Mr. GRAVES, Ms. GRANGER, Mr. GREENWOOD, Mr. GRIJALVA, Ms. 
HART, Mr. HASTERT, Mr. HERGER, Mr. HOUGHTON, Mr. ISAKSON, Mr. 
ISSA, Mr. JENKINS, Mr. JONES of North Carolina, Mr. KELLER, Mrs. 
KELLY, Mr. KENNEDY of Minnesota, Mr. KOLBE, Mr. LUCAS of Ken-
tucky, Mr. MANZULLO, Mr. MCHUGH, Mr. MCINNIS, Mr. MCKEON, Mrs. 
MUSGRAVE, Mrs. NORTHUP, Mr. PETERSON of Pennsylvania, Mr. PETRI, 
Mr. PLATTS, Mr. RADANOVICH, Mr. REHBERG, Mr. RYAN of Wisconsin, 
Mr. SCHROCK, Mr. SENSENBRENNER, Mr. SESSIONS, Mr. SHAYS, Mr. 
SHIMKUS, Mr. SIMMONS, Mr. SMITH of Texas, Mr. SOUDER, Mr. 
TANCREDO, Mr. TIAHRT, Mr. TOOMEY, Mr. UPTON, Mr. WELDON of 
Florida, Mr. WHITFIELD, Mr. WILSON of South Carolina, and Mr. 
WOLF) introduced the following bill; which was referred to the Committee 
on Education and the Workforce 
JUNE 16, 2003
Additional sponsors: Mr. HOSTETTLER, Mrs. NAPOLITANO, Mr. CRANE, Mr. 
CHOCOLA, Mr. FOLEY, Mr. ROGERS of Michigan, Mr. CARSON of Okla-
homa, Mr. COLE, Mr. ROGERS of Kentucky, Mr. WELLER, Mr. BART-
LETT of Maryland, Mr. KING of Iowa, Mr. SHUSTER, Mr. CASE, Ms. LO-
RETTA SANCHEZ of California, Ms. GINNY BROWN-WAITE of Florida, Mr. 
FALEOMAVAEGA, Mr. COX, Mrs. BLACKBURN, Mr. GINGREY, Mr. TIBERI, 
Mr. WELDON of Pennsylvania, Mr. BARRETT of South Carolina, Mr. 
GARY G. MILLER of California, Mr. DEAL of Georgia, Mrs. CUBIN, Mr. 
BONNER, Mr. MCINTYRE, Mr. LATHAM, Mr. BROWN of South Carolina, 
Mr. CANTOR, Mr. SHAW, Mr. KIRK, Mr. BURTON of Indiana, Mr. WICK-
ER, Mr. WYNN, Mr. HEFLEY, Mr. ROGERS of Alabama, Mr. ENGLISH, 
Mr. EHLERS, Mr. DAVIS of Tennessee, Mr. STEARNS, Mr. PICKERING, 
Mr. BURNS, Mr. MORAN of Virginia, Mr. SULLIVAN, Ms. HARRIS, Mr. 
FEENEY, Mr. SMITH of Michigan, Mr. THOMPSON of Mississippi, Mr. 
LAHOOD, Mr. MILLER of Florida, Mr. BONILLA, Mr. PITTS, Mr. ISRAEL, 
Mr. NETHERCUTT, Mr. THOMAS, Mr. TURNER of Texas, Mr. TAYLOR of 
North Carolina, Mr. CRENSHAW, Mr. LIPINSKI, Mr. DOOLITTLE, Mr. 
HENSARLING, Mr. DELAY, Mr. BRADY of Texas, Mr. BARTON of Texas, 
Mr. THORNBERRY, Mr. CULBERSON, Mr. PAUL, Mr. RENZI, Ms. ROS-
LEHTINEN, Mrs. BONO, Mr. HOBSON, Mr. HYDE, Mr. HULSHOF, Mr. 
ISTOOK, Mr. SHADEGG, Mr. CHABOT, Mrs. MYRICK, Mr. GIBBONS, Mr. 
JANKLOW, Mr. COOPER, Mr. PEARCE, Mr. BLUNT, Mr. BRADLEY of New 
Hampshire, Mr. TURNER of Ohio, Ms. PRYCE of Ohio, Mr. MICA, Mr. 
NEUGEBAUER, Mr. NEY, and Mr. GUTKNECHT
Deleted sponsors: Mr. BACA (added February 11, 2003; deleted April 7, 2003) 
Mrs. CHRISTENSEN (added February 11, 2003; deleted April 2, 2003), 
Mr. GRIJALVA (added February 11, 2003; deleted June 10, 2003), Mr. 
SOUDER (added February 11, 2003; deleted May 13, 2003), Ms. EDDIE 
BERNICE JOHNSON of Texas (added March 6, 2003; deleted June 11, 
2003), and Mr. PASTOR (added April 3, 2003; deleted June 10, 2003) 
JUNE 16, 2003 
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on February 11, 2003] 
A BILL 
To amend title I of the Employee Retirement Income Secu-
rity Act of 1974 to improve access and choice for entre-
preneurs with small businesses with respect to medical 
care for their employees.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Small Business Health Fairness Act of 2003’’. 
(b) TABLE OF CONTENTS.—The table of contents is as 
follows:
Sec. 1. Short title and table of contents. 
Sec. 2. Rules governing association health plans. 
‘‘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 cov-
erage. 
‘‘Sec. 807. Requirements for application and related requirements. 
‘‘Sec. 808. Notice requirements for voluntary termination. 
‘‘Sec. 809. Corrective actions and mandatory termination. 
‘‘Sec. 810. Trusteeship by the Secretary of insolvent association health plans 
providing health benefits in addition to health insurance 
coverage. 
‘‘Sec. 811. State assessment authority. 
‘‘Sec. 812. Definitions and rules of construction.
Sec. 3. Clarification of treatment of single employer arrangements. 
Sec. 4. Enforcement provisions relating to association health plans. 
Sec. 5. Cooperation between Federal and State authorities. 
Sec. 6. Effective date and transitional and other rules.
SEC. 2. RULES GOVERNING ASSOCIATION HEALTH PLANS. 
(a) IN GENERAL.—Subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 is amended 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 whose 
sponsor is (or is deemed under this part to be) described 
in subsection (b). 
‘‘(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 bona fide trade associa-
tion, a bona fide industry association (including a 
rural electric cooperative association or a rural tele-
phone cooperative association), a bona fide profes-
sional association, or a bona fide chamber of com-
merce (or similar bona fide business association, in-
cluding 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 ob-
taining or providing medical care; 
‘‘(2) is established as a permanent entity which 
receives the active support of its members and re-
quires for membership payment on a periodic basis of 
dues or payments necessary to maintain eligibility 
for membership in the sponsor; and 
‘‘(3) does not condition membership, such dues or 
payments, or coverage under the plan on the basis of 
health status-related factors with respect to the em-
ployees of its members (or affiliated members), or the 
dependents of such employees, and does not condition 
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), (2), and (3) shall 
be deemed to be a sponsor described in this subsection. 
‘‘SEC. 
802. 
CERTIFICATION 
OF 
ASSOCIATION 
HEALTH 
PLANS. 
‘‘(a) IN GENERAL.—The applicable authority shall 
prescribe by regulation a procedure under which, subject to 
subsection (b), the applicable authority shall certify associa-
tion health plans which apply for certification as meeting 
the requirements of this part. 
‘‘(b) STANDARDS.—Under the procedure prescribed 
pursuant to subsection (a), in the case of an association 
health plan that provides at least one benefit option which 
does not consist of health insurance coverage, the applicable 
authority shall certify such plan as meeting the require-
ments of this part only if the applicable authority is satis-
fied that the applicable requirements of this part are met 
(or, upon the date on which the plan is to commence oper-
ations, 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 appli-
cable requirements of this part, effective on the date of cer-
tification (or, if later, on the date on which the plan is 
to commence operations). 
‘‘(d) REQUIREMENTS
FOR
CONTINUED
CERTIFI-
CATION.—The applicable authority may provide by regula-
tion for continued certification of association health plans 
under this part. 
‘‘(e) CLASS CERTIFICATION
FOR FULLY INSURED 
PLANS.—The applicable authority shall establish a class 
certification procedure for association health plans under 
which all benefits consist of health insurance coverage. 
Under such procedure, the applicable authority shall pro-
vide for the granting of certification 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).
‘‘(f) CERTIFICATION OF SELF-INSURED ASSOCIATION 
HEALTH PLANS.—An association health plan which offers 
one or more benefit options which do not consist of health 
insurance coverage may be certified under this part only 
if such plan consists of any of the following: 
‘‘(1) a plan which offered such coverage on the 
date of the enactment of the Small Business Health 
Fairness Act of 2003, 
‘‘(2) a plan under which the sponsor does not re-
strict membership to one or more trades and busi-
nesses or industries and whose eligible participating 
employers represent a broad cross-section of trades 
and businesses or industries, or 
‘‘(3) a plan whose eligible participating employ-
ers represent one or more trades or businesses, or one 
or more industries, consisting of any of the following: 
agriculture; equipment and automobile dealerships; 
barbering and cosmetology; certified public account-
ing practices; child care; construction; dance, theat-
rical and orchestra productions; disinfecting and pest 
control; financial services; fishing; foodservice estab-
lishments; hospitals; labor organizations; logging; 
manufacturing (metals); mining; medical and dental 
practices; medical laboratories; professional consulting 
services; sanitary services; transportation (local and
freight); warehousing; wholesaling/distributing; or 
any other trade or business or industry which has 
been indicated as having average or above-average 
risk or health claims experience by reason of State 
rate filings, denials of coverage, proposed premium 
rate levels, or other means demonstrated by such plan 
in accordance with regulations. 
‘‘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 the 
sponsor has met (or is deemed under this part to have met) 
the requirements of section 801(b) for a continuous period 
of not less than 3 years ending with the date of the applica-
tion for certification under this part. 
‘‘(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 trustees 
which has complete fiscal control over the plan and 
which is responsible for all operations of the plan. 
‘‘(2) RULES OF OPERATION AND FINANCIAL CON-
TROLS.—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 terms of 
the plan and to meet all requirements of this title ap-
plicable to the plan.
‘‘(3) RULES GOVERNING RELATIONSHIP TO PAR-
TICIPATING EMPLOYERS AND TO CONTRACTORS.—
‘‘(A) BOARD MEMBERSHIP.—
‘‘(i) IN GENERAL.—Except as provided 
in clauses (ii) and (iii), the members of the 
board of trustees are individuals selected 
from individuals who are the owners, offi-
cers, directors, or employees of the partici-
pating employers or who are partners in the 
participating employers and actively par-
ticipate in the business. 
‘‘(ii) LIMITATION.—
‘‘(I) GENERAL RULE.—Except as 
provided in subclauses (II) and (III), 
no such member is an owner, officer, 
director, or employee of, or partner in, 
a contract administrator or other serv-
ice provider to the plan. 
‘‘(II) LIMITED
EXCEPTION
FOR 
PROVIDERS
OF
SERVICES
SOLELY
ON 
BEHALF OF THE SPONSOR.—Officers or 
employees of a sponsor which is a serv-
ice provider (other than a contract ad-
ministrator) to the plan may be mem-
bers of the board if they constitute not 
more than 25 percent of the member-
ship of the board and they do not pro-
vide 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 pro-
viders of medical care, subclause (I) 
shall not apply in the case of any serv-
ice provider described in subclause (I) 
who is a provider of medical care 
under the plan. 
‘‘(iii) CERTAIN
PLANS
EXCLUDED.—
Clause (i) shall not apply to an association 
health plan which is in existence on the 
date of the enactment of the Small Business 
Health Fairness Act of 2003. 
‘‘(B) SOLE AUTHORITY.—The board has sole 
authority under the plan to approve applications 
for participation in the plan and to contract
with a service provider to administer the day-to-
day affairs of the plan. 
‘‘(c) TREATMENT OF FRANCHISE NETWORKS.—In the 
case of a group health plan which is established and main-
tained by a franchiser for a franchise network consisting 
of its franchisees—
‘‘(1) the requirements of subsection (a) and sec-
tion 801(a) shall be deemed met if such requirements 
would otherwise be met if the franchiser were deemed 
to be the sponsor referred to in section 801(b), such 
network were deemed to be an association 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. 
The Secretary may by regulation define for purposes of this 
subsection the terms ‘franchiser’, ‘franchise network’, and 
‘franchisee’.
‘‘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—
‘‘(1) each participating employer must be—
‘‘(A) a member of the sponsor, 
‘‘(B) the sponsor, or 
‘‘(C) an affiliated member of the sponsor 
with respect to which the requirements of sub-
section (b) are met, 
except that, in the case of a sponsor which is a profes-
sional association or other individual-based associa-
tion, if at least one of the officers, directors, or em-
ployees of an employer, or at least one of the individ-
uals who are partners in an employer and who ac-
tively participates in the business, is a member or 
such an affiliated member of the sponsor, partici-
pating 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 EMPLOY-
EES.—In the case of an association health plan in existence 
on the date of the enactment of the Small Business Health
Fairness Act of 2003, an affiliated member of the sponsor 
of the plan may be offered coverage under the plan as a 
participating employer only if—
‘‘(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 employees who 
would otherwise be eligible to participate in such as-
sociation 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 cov-
erage in the individual market for any employee not covered 
under the plan which is similar to the coverage contempora-
neously provided to employees of the employer under the 
plan, if such exclusion of the employee from coverage under
the plan is based on a health status-related factor with re-
spect 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 EM-
PLOYERS AND EMPLOYEES ELIGIBLE TO PARTICIPATE.—
The requirements of this subsection are met with respect to 
an association health plan if—
‘‘(1) under the terms of the plan, all employers 
meeting the preceding requirements of this section are 
eligible to qualify as participating employers for all 
geographically available coverage options, unless, in 
the case of any such employer, participation or con-
tribution requirements of the type referred to in sec-
tion 2711 of the Public Health Service Act are not 
met; 
‘‘(2) upon request, any employer eligible to par-
ticipate is furnished information regarding all cov-
erage options available under the plan; and 
‘‘(3) the applicable requirements of sections 701, 
702, and 703 are met with respect to the plan. 
‘‘SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOC-
UMENTS, CONTRIBUTION RATES, AND BEN-
EFIT 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 INSTRUMENTS.—
The instruments governing the plan include a written
instrument, meeting the requirements of an instru-
ment 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 capac-
ity of a plan administrator (referred to in sec-
tion 3(16)(A)); 
‘‘(B) provides that the sponsor of the plan 
is to serve as plan sponsor (referred to in section 
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 partici-
pating small employer do not vary on the basis 
of any health status-related factor in relation to 
employees of such employer or their beneficiaries 
and do not vary on the basis of the type of busi-
ness or industry in which such employer is en-
gaged. 
‘‘(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 con-
nection with an association health plan, from—
‘‘(i) setting contribution rates based on 
the claims experience of the plan; or 
‘‘(ii) varying contribution rates for 
small employers in a State to the extent 
that such rates could vary using the same 
methodology employed in such State for reg-
ulating premium rates in the small group 
market with respect to health insurance cov-
erage offered in connection with bona fide 
associations (within the meaning of section 
2791(d)(3) of the Public Health Service 
Act), 
subject to the requirements of section 702(b) re-
lating to contribution rates. 
‘‘(3) FLOOR FOR NUMBER OF COVERED INDIVID-
UALS
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 be-
ginning of the plan year not fewer than 1,000 partici-
pants and beneficiaries. 
‘‘(4) MARKETING REQUIREMENTS.—
‘‘(A) IN
GENERAL.—If a benefit option 
which consists of health insurance coverage is of-