out the provisions of this section for each of fiscal years
2003 and 2004.
SEC. 103. FINDINGS; SEVERABILITY.
(a) FINDINGS RELATING
TO EXERCISE
OF COM-
MERCE CLAUSE AUTHORITY.—Congress finds the fol-
lowing in relation to the provisions of this title:
(1) Health insurance products are increasingly
provided through the Internet and the application of
multiple variations in State law impact the ability to
provide access to affordable health coverage to indi-
viduals and employees seeking employment in inter-
state commerce, thereby impeding such commerce.
(2) Health insurance coverage is commercial in
nature and is in and affects interstate commerce.
(3) Congress, however, intends to defer to
States, to the maximum extent practicable, in car-
rying out such requirements with respect to insurers
and health maintenance organizations that are sub-
ject to State regulation.
(b) SEVERABILITY.—If any provision of this title or
the application of such provision to any person or cir-
cumstance is held to be unconstitutional, the remainder
of this title and the application of the provisions of such
to any person or circumstance shall not be affected there-
by.
TITLE 
II—ASSISTANCE 
TO
STATES TO PROMOTE THE ES-
TABLISHMENT OF QUALIFIED
HIGH RISK POOLS
SEC. 201. FUNDING STATES TO PROMOTE QUALIFIED HIGH
RISK POOLS.
(a) IN GENERAL.—Title XXVII of the Public Health
Service Act is amended by inserting after section 2744 the
following new section:
‘‘SEC. 2745. PROMOTION OF QUALIFIED HIGH RISK POOLS.
‘‘(a) SEED GRANTS TO STATES.—The Secretary shall
provide from the funds appropriated under subsection
(d)(1) a grant of up to $1,000,000 to each State that has
not created a qualified high risk pool as of the date of
the enactment of this section for the State’s costs of cre-
ation and initial operation of such a pool.
‘‘(b) MATCHING
FUNDS
FOR
OPERATION
OF
POOLS.—
‘‘(1) IN GENERAL.—In the case of a State that
has established a qualified high risk pool that re-
stricts premiums charged under the pool to no more
than 200 percent of the premium for applicable
standard risk rates, that has been in operation for
at least 1 year, and that offers a choice of two or
more coverage options through the pool, from the
funds appropriated under subsection (c)(2) and al-
lotted to the State under paragraph (2), the Sec-
retary shall provide a grant for a percentage of the
losses incurred by the State risk pool in connection
with the operation of the pool as follows:
‘‘(A) 25 percent (multiplied by the poverty
adjustment factor) of the losses for risk pools
with premiums that exceed 150 percent, but are
less than 200 percent, of the premium for appli-
cable standard risk rates, but not to exceed an
aggregate amount under the grant of 50 cents
per capita based upon the State’s population.
‘‘(B) 50 percent (multiplied by the poverty
adjustment factor under paragraph (3)) of the
losses for risk pools with premiums which ex-
ceed 125 percent, but are less than 150 per-
cent, of the premium for applicable standard
risk rates, but not to exceed an aggregate
amount under the grant of 50 cents per capita
based upon the State’s population.
‘‘(C) 60 percent (multiplied by the poverty
adjustment factor) of the losses for risk pools
with premiums which do not exceed 125 percent
of the premium for applicable standard risk
rates, but not to exceed an aggregate amount
under the grant of $1 per capita based upon
the State’s population.
‘‘(2) ALLOTMENT.—The amounts appropriated
under subsection (d)(1)(B) for a fiscal year shall be
made available to the States in accordance with a
formula established by the Secretary that is based
upon the number of uninsured individuals in the
States and only to States that provide for matching
funds.
‘‘(3) POVERTY ADJUSTMENT FACTOR.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, subject to subparagraph (B), the
‘poverty adjustment factor’ for a State for a fis-
cal year is equal to the ratio of—
‘‘(i) the Federal medical assistance
percentage for that State for that fiscal
year (as determined under section 1905(b)
of the Social Security Act), to
‘‘(ii) the weighted average of the Fed-
eral medical assistance percentages for the
50 States and the District of Columbia for
that fiscal year.
‘‘(B) 
SPECIAL
RULE
FOR
SMALL
STATES.—The poverty adjustment factor shall
not be less than 1.0 for a State with a popu-
lation of under 2,000,000.
‘‘(4) CONSTRUCTION.—Nothing in this sub-
section shall be construed as preventing a State
from supplementing the funds made available under
this subsection for the support and operation of
qualified high risk pools.
‘‘(c) ASSISTANCE FOR LOW-INCOME INDIVIDUALS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a program of grants to States to enable States
to provide financial assistance to low-income individ-
uals who are receiving the health coverage tax credit
under section 35 of the Internal Revenue Code of
1986, who obtain coverage through enrollment in a
qualified high risk pool, and who, because of the in-
creased premium of coverage available through such
pool, would be otherwise unable to afford such cov-
erage.
‘‘(2) APPLICATION.—No grant may be made to
a State under this subsection except upon applica-
tion by the State to the Secretary. Such application
shall include a description of the individuals who
qualify for assistance and the amount of such assist-
ance.
‘‘(3) REQUIREMENTS.—A grant under this sub-
section may only be provided to a State if the State
provides the Secretary with satisfactory assurances
that—
‘‘(A) the State will provide for the expendi-
ture of State funds towards financial assistance
described in paragraph (1) an amount equal to
at least 10 percent of the amount of the grant;
and
‘‘(B) the funds under the grant will only
be used to reduce the premiums otherwise ap-
plicable to low-income individuals and will not
be diverted or otherwise transferred to the gen-
eral fund of the State.
‘‘(d) FUNDING.—
‘‘(1) SEED
GRANTS
AND
OPERATIONS
SUP-
PORT.—Out of any money in the Treasury of the
United States not otherwise appropriated, there are
appropriated—
‘‘(A) such sums as may be required for fis-
cal year 2003 to carry out subsection (a); and
‘‘(B) $100,000,000 for each of fiscal years
2003 through 2007 to carry out subsection (b).
‘‘(2) LOW-INCOME ASSISTANCE.—There are au-
thorized to be appropriated $64,000,000 for each of
fiscal years 2003 and 2004 to carry out subsection
(c).
‘‘(3) AVAILABILITY
OF
APPROPRIATIONS.—
Funds appropriated under this subsection for a fis-
cal year shall remain available for obligation through
the end of the following fiscal year.
‘‘(4) NO ENTITLEMENT.—Nothing in this sec-
tion shall be construed as providing a State with an
entitlement to a grant under this section.
‘‘(e) DEFINITIONS.—For purposes of this section:
‘‘(1) QUALIFIED HIGH RISK POOL.—The term
‘qualified high risk pool’ means such a pool as de-
fined in section 2744(c)(2) but only if the pool—
‘‘(A) is open continuously;
‘‘(B) does not have any cap on enrollment;
‘‘(C) offers a choice of two or more cov-
erage options;
‘‘(D) is the State alternative mechanism
used by State under section 2744 of the Public
Health Service Act; and
‘‘(E) has a mechanism for continual fund-
ing (in addition to any funding provided under
this section).
‘‘(2) STATE.—The term ‘State’ means any of
the 50 States and the District of Columbia.’’.
(b) CONSTRUCTION.—Nothing in this section shall be
construed as affecting the ability of a State to use mecha-
nisms, described in sections 2741(c) and 2744 of the Pub-
lic Health Service Act, as an alternative to applying the
guaranteed availability provisions of section 2741(a) of
such Act.
TITLE 
III—CLARIFICATION 
OF
DEFINITION 
OF 
GROUP
HEALTH PLAN UNDER HIPAA
SEC. 301. CLARIFICATION OF DEFINITION OF GROUP
HEALTH PLAN UNDER HIPAA.
(a) AMENDMENT TO ERISA.—Section 733(a)(1) of
the Employee Retirement Income Security Act of 1974
(29 U.S.C. 1191b(a)(1)) is amended by adding at the end
the following new sentence: ‘‘Such term does not include
an arrangement maintained by a small employer (as de-
fined in section 712(c)(1)(B)) the sole effect of which is
to provide reimbursement to employees for the purchase
by such employees of health insurance coverage offered in
the individual market (as defined in section 2791(e)(1) of
the Public Health Service Act).’’.
(b) AMENDMENT TO PHSA.—Section 2791(a)(1) of
the Public Health Service Act (42 U.S.C. 300gg-91(a)(1))
is amended by adding at the end the following new sen-
tence: ‘‘Such term does not include an arrangement main-
tained by a small employer the sole effect of which is to
provide reimbursement to employees for the purchase by
such employees of health insurance coverage offered in the
individual market.’’.
(c) AMENDMENT TO IRC.—Section 9832(a) of the
Internal Revenue Code of 1986 (relating to definitions)
is amended by inserting before the period at the end the
following: ‘‘, except that such term does not include an
arrangement maintained by a small employer (as defined
in section 4980D(d)(2)(A)) the sole effect of which is to
provide reimbursement to employees for the purchase by
such employees of health insurance coverage offered in the
individual market (as defined in section 2791(e)(1) of the
Public Health Service Act)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to plan years beginning after the
date of the enactment of this Act.
TITLE IV—TAX PROVISIONS
SEC. 401. REFUNDABLE CREDIT FOR HEALTH COVERAGE.
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to refundable credits) is amended by redes-
ignating section 35 as section 36 and by inserting after
section 34 the following new section:
‘‘SEC. 35. HEALTH COVERAGE CREDIT.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to
the amount paid by the taxpayer during the taxable year
for qualified health coverage for the taxpayer and his
spouse and dependents.
‘‘(b) MONTHLY LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowed as a
credit under subsection (a) to the taxpayer for the
taxable year shall not exceed the sum of the monthly
limitations during such taxable year.
‘‘(2) MONTHLY
LIMITATION
DEFINED.—The
monthly limitation for any eligible month is the
amount equal to 1⁄12 of—
‘‘(A) $1,000 if, as of the first day of such
month, the taxpayer has self-only coverage
under qualified health coverage, and
‘‘(B) $2,000 if, as of the first day of such
month, the taxpayer has family coverage under
qualified health coverage.
‘‘(3) AMOUNT OF EMPLOYEE CONTRIBUTION.—
In the case of any calendar month for which the tax-
payer is eligible to participate in any subsidized
health plan maintained by any employer of the tax-
payer or of the spouse of the taxpayer, the amount
allowed as a credit under subsection (a) for such
month shall not exceed the amount paid by the tax-
payer for coverage under such plan for such month.
‘‘(4) CERTAIN
OTHER
COVERAGE.—Amounts
paid for coverage of an individual for any month
shall not be taken into account under subsection (a)
if, as of the first day of such month, such
individual—
‘‘(A) is eligible for health care benefits
under title XVIII of the Social Security Act (re-
lating to medicare),
‘‘(B) is covered under a medical care pro-
gram described in title XIX or XXI of the So-
cial Security Act (relating to medicaid and
State children’s health insurance program, re-
spectively),
‘‘(C) is eligible for health care benefits
under chapter 55 of title 10, United States
Code (relating to Armed Forces medical and
dental care),
‘‘(D) is covered under a medical care pro-
gram described in chapter 17 of title 38, United
States Code (relating to veterans’ hospital,
nursing home, domiciliary, and medical care),
or