‘‘(6) HEALTH STATUS-RELATED FACTOR.—The 
term ‘health status-related factor’ has the meaning 
provided in section 733(d)(2). 
‘‘(7) INDIVIDUAL MARKET.—
‘‘(A) IN GENERAL.—The term ‘individual 
market’ means the market for health insurance 
coverage offered to individuals other than in 
connection with a group health plan. 
‘‘(B) 
TREATMENT
OF
VERY
SMALL 
GROUPS.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), such term includes coverage offered in 
connection with a group health plan that 
has fewer than 2 participants as current 
employees or participants described in sec-
tion 732(d)(3) on the first day of the plan 
year. 
‘‘(ii) STATE
EXCEPTION.—Clause (i) 
shall not apply in the case of health insur-
ance coverage offered in a State if such 
State regulates the coverage described in 
such clause in the same manner and to the 
same extent as coverage in the small group 
market (as defined in section 2791(e)(5) of
100
the Public Health Service Act) is regulated 
by such State. 
‘‘(8) PARTICIPATING
EMPLOYER.—The term 
‘participating employer’ means, in connection with 
an association health plan, any employer, if any indi-
vidual who is an employee of such employer, a part-
ner in such employer, or a self-employed individual 
who is such employer (or any dependent, as defined 
under the terms of the plan, of such individual) is 
or was covered under such plan in connection with 
the status of such individual as such an employee, 
partner, or self-employed individual in relation to the 
plan. 
‘‘(9) APPLICABLE
STATE
AUTHORITY.—The 
term ‘applicable State authority’ means, with respect 
to a health insurance issuer in a State, the State in-
surance commissioner or official or officials des-
ignated by the State to enforce the requirements of 
title XXVII of the Public Health Service Act for the 
State involved with respect to such issuer. 
‘‘(10) QUALIFIED ACTUARY.—The term ‘quali-
fied actuary’ means an individual who is a member 
of the American Academy of Actuaries or meets 
such reasonable standards and qualifications as the
101
Secretary may provide by regulation through nego-
tiated rulemaking. 
‘‘(11) AFFILIATED MEMBER.—The term ‘affili-
ated member’ means, in connection with a sponsor—
‘‘(A) a person who is otherwise eligible to 
be a member of the sponsor but who elects an 
affiliated status with the sponsor, 
‘‘(B) in the case of a sponsor with mem-
bers which consist of associations, a person who 
is a member of any such association and elects 
an affiliated status with the sponsor, or 
‘‘(C) in the case of an association health 
plan in existence on the date of the enactment 
of the Small Business Access and Choice for 
Entrepreneurs Act of 2003, a person eligible to 
be a member of the sponsor or one of its mem-
ber associations. 
‘‘(12) LARGE EMPLOYER.—The term ‘large em-
ployer’ means, in connection with a group health 
plan with respect to a plan year, an employer who 
employed an average of at least 51 employees on 
business days during the preceding calendar year 
and who employs at least 2 employees on the first 
day of the plan year.
102
‘‘(13) SMALL EMPLOYER.—The term ‘small em-
ployer’ means, in connection with a group health 
plan with respect to a plan year, an employer who 
is not a large employer. 
‘‘(b) RULES OF CONSTRUCTION.—
‘‘(1) EMPLOYERS AND EMPLOYEES.—For pur-
poses of determining whether a plan, fund, or pro-
gram is an employee welfare benefit plan which is an 
association health plan, and for purposes of applying 
this title in connection with such plan, fund, or pro-
gram so determined to be such an employee welfare 
benefit plan—
‘‘(A) in the case of a partnership, the term 
‘employer’ (as defined in section (3)(5)) in-
cludes the partnership in relation to the part-
ners, and the term ‘employee’ (as defined in 
section (3)(6)) includes any partner in relation 
to the partnership; and 
‘‘(B) in the case of a self-employed indi-
vidual, the term ‘employer’ (as defined in sec-
tion 3(5)) and the term ‘employee’ (as defined 
in section 3(6)) shall include such individual. 
‘‘(2) PLANS, FUNDS, AND PROGRAMS TREATED 
AS EMPLOYEE WELFARE BENEFIT PLANS.—In the 
case of any plan, fund, or program which was estab-
103
lished or is maintained for the purpose of providing 
medical care (through the purchase of insurance or 
otherwise) for employees (or their dependents) cov-
ered thereunder and which demonstrates to the Sec-
retary that all requirements for certification under 
this part would be met with respect to such plan, 
fund, or program if such plan, fund, or program 
were a group health plan, such plan, fund, or pro-
gram shall be treated for purposes of this title as an 
employee welfare benefit plan on and after the date 
of such demonstration.’’. 
(b) CONFORMING AMENDMENTS
TO PREEMPTION 
RULES.—
(1) Section 514(b)(6) of such Act (29 U.S.C. 
1144(b)(6)) is amended by adding at the end the 
following new subparagraph: 
‘‘(E) The preceding subparagraphs of this paragraph 
do not apply with respect to any State law in the case 
of an association health plan which is certified under part 
8.’’. 
(2) Section 514 of such Act (29 U.S.C. 1144) 
is amended—
(A) in subsection (b)(4), by striking ‘‘Sub-
section (a)’’ and inserting ‘‘Subsections (a) and 
(d)’’;
104
(B) in subsection (b)(5), by striking ‘‘sub-
section (a)’’ in subparagraph (A) and inserting 
‘‘subsection (a) of this section and subsections 
(a)(2)(B) and (b) of section 805’’, and by strik-
ing ‘‘subsection (a)’’ in subparagraph (B) and 
inserting ‘‘subsection (a) of this section or sub-
section (a)(2)(B) or (b) of section 805’’; 
(C) by redesignating subsection (d) as sub-
section (e); and 
(D) by inserting after subsection (c) the 
following new subsection: 
‘‘(d)(1) Except as provided in subsection (b)(4), the 
provisions of this title shall supersede any and all State 
laws insofar as they may now or hereafter preclude, or 
have the effect of precluding, a health insurance issuer 
from offering health insurance coverage in connection with 
an association health plan which is certified under part 
8. 
‘‘(2) Except as provided in paragraphs (4) and (5) 
of subsection (b) of this section—
‘‘(A) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan certified under part 8 to a partici-
pating employer operating in such State, the provi-
sions of this title shall supersede any and all laws
105
of such State insofar as they may preclude a health 
insurance issuer from offering health insurance cov-
erage of the same policy type to other employers op-
erating in the State which are eligible for coverage 
under such association health plan, whether or not 
such other employers are participating employers in 
such plan. 
‘‘(B) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan in a State and the filing, with the 
applicable State authority, of the policy form in con-
nection with such policy type is approved by such 
State authority, the provisions of this title shall su-
persede any and all laws of any other State in which 
health insurance coverage of such type is offered, in-
sofar as they may preclude, upon the filing in the 
same form and manner of such policy form with the 
applicable State authority in such other State, the 
approval of the filing in such other State. 
‘‘(3) For additional provisions relating to association 
health plans, see subsections (a)(2)(B) and (b) of section 
805. 
‘‘(4) For purposes of this subsection, the term ‘asso-
ciation health plan’ has the meaning provided in section 
801(a), and the terms ‘health insurance coverage’, ‘par-
106
ticipating employer’, and ‘health insurance issuer’ have 
the meanings provided such terms in section 811, respec-
tively.’’. 
(3) Section 514(b)(6)(A) of such Act (29 
U.S.C. 1144(b)(6)(A)) is amended—
(A) in clause (i)(II), by striking ‘‘and’’ at 
the end; 
(B) in clause (ii), by inserting ‘‘and which 
does not provide medical care (within the mean-
ing of section 733(a)(2)),’’ after ‘‘arrange-
ment,’’, and by striking ‘‘title.’’ and inserting 
‘‘title, and’’; and 
(C) by adding at the end the following new 
clause: 
‘‘(iii) subject to subparagraph (E), in the case 
of any other employee welfare benefit plan which is 
a multiple employer welfare arrangement and which 
provides medical care (within the meaning of section 
733(a)(2)), any law of any State which regulates in-
surance may apply.’’. 
(4) Section 514(e) of such Act (as redesignated 
by paragraph (2)(C)) is amended—
(A) by striking ‘‘Nothing’’ and inserting 
‘‘(1) Except as provided in paragraph (2), noth-
ing’’; and
107
(B) by adding at the end the following new 
paragraph: 
‘‘(2) Nothing in any other provision of law enacted 
on or after the date of the enactment of the Small Busi-
ness Access and Choice for Entrepreneurs Act of 2003 
shall be construed to alter, amend, modify, invalidate, im-
pair, or supersede any provision of this title, except by 
specific cross-reference to the affected section.’’. 
(c) PLAN SPONSOR.—Section 3(16)(B) of such Act 
(29 U.S.C. 102(16)(B)) is amended by adding at the end 
the following new sentence: ‘‘Such term also includes a 
person serving as the sponsor of an association health plan 
under part 8.’’. 
(d) DISCLOSURE OF SOLVENCY PROTECTIONS RE-
LATED TO SELF-INSURED AND FULLY INSURED OPTIONS 
UNDER ASSOCIATION HEALTH PLANS.—Section 102(b) 
of such Act (29 U.S.C. 102(b)) is amended by adding at 
the end the following: ‘‘An association health plan shall 
include in its summary plan description, in connection 
with each benefit option, a description of the form of sol-
vency or guarantee fund protection secured pursuant to 
this Act or applicable State law, if any.’’. 
(e) SAVINGS CLAUSE.—Section 731(c) of such Act is 
amended by inserting ‘‘or part 8’’ after ‘‘this part’’.
108
(f) REPORT TO THE CONGRESS REGARDING CERTIFI-
CATION
OF
SELF-INSURED
ASSOCIATION
HEALTH 
PLANS.—Not later than January 1, 2008, the Secretary 
of Labor shall report to the Committee on Education and 
the Workforce of the House of Representatives and the 
Committee on Health, Education, Labor, and Pensions of 
the Senate the effect association health plans have had, 
if any, on reducing the number of uninsured individuals. 
(g) CLERICAL AMENDMENT.—The table of contents 
in section 1 of the Employee Retirement Income Security 
Act of 1974 is amended by inserting after the item relat-
ing to section 734 the following new items:
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS 
‘‘Sec. 801. Association health plans. 
‘‘Sec. 802. Certification of association health plans. 
‘‘Sec. 803. Requirements relating to sponsors and boards of trustees. 
‘‘Sec. 804. Participation and coverage requirements. 
‘‘Sec. 805. Other requirements relating to plan documents, contribution rates, 
and benefit options. 
‘‘Sec. 806. Maintenance of reserves and provisions for solvency for plans pro-
viding health benefits in addition to health insurance coverage. 
‘‘Sec. 807. Requirements for application and related requirements. 
‘‘Sec. 808. Notice requirements for voluntary termination. 
‘‘Sec. 809. Corrective actions and mandatory termination. 
‘‘Sec. 810. Trusteeship by the Secretary of insolvent association health plans 
providing health benefits in addition to health insurance cov-
erage. 
‘‘Sec. 811. State assessment authority. 
‘‘Sec. 812. Special rules for church plans. 
‘‘Sec. 813. Definitions and rules of construction.’’.
110
if, after the application of clause (i), the number of 
individuals who are employees and former employees 
of any one participating employer and who are cov-
ered under the arrangement is greater than 75 per-
cent of the aggregate number of all individuals who 
are employees or former employees of participating 
employers and who are covered under the arrange-
ment;’’. 
SEC. 404. CLARIFICATION OF TREATMENT OF CERTAIN 
COLLECTIVELY 
BARGAINED 
ARRANGE-
MENTS. 
(a) IN GENERAL.—Section 3(40)(A)(i) of the Em-
ployee Retirement Income Security Act of 1974 (29 
U.S.C. 1002(40)(A)(i)) is amended to read as follows: 
‘‘(i)(I) under or pursuant to one or more collec-
tive bargaining agreements which are reached pursu-
ant to collective bargaining described in section 8(d) 
of the National Labor Relations Act (29 U.S.C. 
158(d)) or paragraph Fourth of section 2 of the 
Railway Labor Act (45 U.S.C. 152, paragraph 
Fourth) or which are reached pursuant to labor-
management negotiations under similar provisions of 
State public employee relations laws, and (II) in ac-
cordance with subparagraphs (C), (D), and (E);’’.
111
(b) LIMITATIONS.—Section 3(40) of such Act (29 
U.S.C. 1002(40)) is amended by adding at the end the 
following new subparagraphs: 
‘‘(C) For purposes of subparagraph (A)(i)(II), a plan 
or other arrangement shall be treated as established or 
maintained in accordance with this subparagraph only if 
the following requirements are met: 
‘‘(i) The plan or other arrangement, and the 
employee organization or any other entity sponsoring 
the plan or other arrangement, do not—
‘‘(I) utilize the services of any licensed in-
surance agent or broker for soliciting or enroll-
ing employers or individuals as participating 
employers or covered individuals under the plan 
or other arrangement; or 
‘‘(II) pay any type of compensation to a 
person, other than a full time employee of the 
employee organization (or a member of the or-
ganization to the extent provided in regulations 
prescribed by the Secretary through negotiated 
rulemaking), that is related either to the volume 
or number of employers or individuals solicited 
or enrolled as participating employers or cov-
ered individuals under the plan or other ar-
rangement, or to the dollar amount or size of
112
the contributions made by participating employ-
ers or covered individuals to the plan or other 
arrangement; 
except to the extent that the services used by the 
plan, arrangement, organization, or other entity con-
sist solely of preparation of documents necessary for 
compliance with the reporting and disclosure re-
quirements of part 1 or administrative, investment, 
or consulting services unrelated to solicitation or en-
rollment of covered individuals. 
‘‘(ii) As of the end of the preceding plan year, 
the number of covered individuals under the plan or 
other arrangement who are neither—
‘‘(I) employed within a bargaining unit 
covered by any of the collective bargaining 
agreements with a participating employer (nor 
covered on the basis of an individual’s employ-
ment in such a bargaining unit); nor 
‘‘(II) present employees (or former employ-
ees who were covered while employed) of the 
sponsoring employee organization, of an em-
ployer who is or was a party to any of the col-
lective bargaining agreements, or of the plan or 
other arrangement or a related plan or arrange-
113
ment (nor covered on the basis of such present 
or former employment); 
does not exceed 15 percent of the total number of 
individuals who are covered under the plan or ar-
rangement and who are present or former employees 
who are or were covered under the plan or arrange-
ment pursuant to a collective bargaining agreement 
with a participating employer. The requirements of 
the preceding provisions of this clause shall be treat-
ed as satisfied if, as of the end of the preceding plan 
year, such covered individuals are comprised solely 
of individuals who were covered individuals under 
the plan or other arrangement as of the date of the 
enactment of the Small Business Access and Choice 
for Entrepreneurs Act of 2003 and, as of the end of 
the preceding plan year, the number of such covered 
individuals does not exceed 25 percent of the total 
number of present and former employees enrolled 
under the plan or other arrangement. 
‘‘(iii) The employee organization or other entity 
sponsoring the plan or other arrangement certifies 
to the Secretary each year, in a form and manner 
which shall be prescribed by the Secretary through 
negotiated rulemaking that the plan or other ar-
114
rangement meets the requirements of clauses (i) and 
(ii). 
‘‘(D) For purposes of subparagraph (A)(i)(II), a plan 
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) all of the benefits provided under the plan 
or arrangement consist of health insurance coverage; 
or 
‘‘(ii)(I) the plan or arrangement is a multiem-
ployer plan; and 
‘‘(II) the requirements of clause (B) of the pro-
viso to clause (5) of section 302(c) of the Labor 
Management Relations Act, 1947 (29 U.S.C. 
186(c)) are met with respect to such plan or other 
arrangement. 
‘‘(E) For purposes of subparagraph (A)(i)(II), a plan 
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) the plan or arrangement is in effect as of 
the date of the enactment of the Small Business Ac-
cess and Choice for Entrepreneurs Act of 2003; or 
‘‘(ii) the employee organization or other entity 
sponsoring the plan or arrangement—
‘‘(I) has been in existence for at least 3 
years; or
115
‘‘(II) demonstrates to the satisfaction of 
the Secretary that the requirements of subpara-
graphs (C) and (D) are met with respect to the 
plan or other arrangement.’’. 
(c) CONFORMING AMENDMENTS TO DEFINITIONS OF 
PARTICIPANT AND BENEFICIARY.—Section 3(7) of such 
Act (29 U.S.C. 1002(7)) is amended by adding at the end 
the following new sentence: ‘‘Such term includes an indi-
vidual who is a covered individual described in paragraph 
(40)(C)(ii).’’. 
SEC. 405. ENFORCEMENT PROVISIONS. 
(a) CRIMINAL PENALTIES FOR CERTAIN WILLFUL 
MISREPRESENTATIONS.—Section 501 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1131) 
is amended— 
(1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(b) Any person who willfully falsely represents, to 
any employee, any employee’s beneficiary, any employer, 
the Secretary, or any State, a plan or other arrangement 
established or maintained for the purpose of offering or 
providing any benefit described in section 3(1) to employ-
ees or their beneficiaries as—
116
‘‘(1) being an association health plan which has 
been certified under part 8; 
‘‘(2) having been established or maintained 
under or pursuant to one or more collective bar-
gaining agreements which are reached pursuant to 
collective bargaining described in section 8(d) of the 
National Labor Relations Act (29 U.S.C. 158(d)) or 
paragraph Fourth of section 2 of the Railway Labor 
Act (45 U.S.C. 152, paragraph Fourth) or which are 
reached pursuant to labor-management negotiations 
under similar provisions of State public employee re-
lations laws; or
‘‘(3) being a plan or arrangement with respect 
to which the requirements of subparagraph (C), (D), 
or (E) of section 3(40) are met; 
shall, upon conviction, be imprisoned not more than 5 
years, be fined under title 18, United States Code, or 
both.’’. 
(b) CEASE ACTIVITIES ORDERS.—Section 502 of 
such Act (29 U.S.C. 1132) is amended by adding at the 
end the following new subsection: 
‘‘(n)(1) Subject to paragraph (2), upon application 
by the Secretary showing the operation, promotion, or 
marketing of an association health plan (or similar ar-
117
rangement providing benefits consisting of medical care 
(as defined in section 733(a)(2))) that—
‘‘(A) is not certified under part 8, is subject 
under section 514(b)(6) to the insurance laws of any 
State in which the plan or arrangement offers or 
provides benefits, and is not licensed, registered, or 
otherwise approved under the insurance laws of such 
State; or 
‘‘(B) is an association health plan certified 
under part 8 and is not operating in accordance with 
the requirements under part 8 for such certification, 
a district court of the United States shall enter an order 
requiring that the plan or arrangement cease activities. 
‘‘(2) Paragraph (1) shall not apply in the case of an 
association health plan or other arrangement if the plan 
or arrangement shows that—
‘‘(A) all benefits under it referred to in para-
graph (1) consist of health insurance coverage; and 
‘‘(B) with respect to each State in which the 
plan or arrangement offers or provides benefits, the 
plan or arrangement is operating in accordance with 
applicable State laws that are not superseded under 
section 514. 
‘‘(3) The court may grant such additional equitable 
relief, including any relief available under this title, as it
118
deems necessary to protect the interests of the public and 
of persons having claims for benefits against the plan.’’. 
(c) RESPONSIBILITY
FOR CLAIMS PROCEDURE.—
Section 503 of such Act (29 U.S.C. 1133) is amended—
(1) by inserting ‘‘(a) IN GENERAL.—’’ after 
‘‘SEC. 503.’’; and 
(2) by adding at the end the following new sub-
section: 
‘‘(b) ASSOCIATION HEALTH PLANS.—The terms of 
each association health plan which is or has been certified 
under part 8 shall require the board of trustees or the 
named fiduciary (as applicable) to ensure that the require-
ments of this section are met in connection with claims 
filed under the plan.’’. 
SEC. 406. COOPERATION BETWEEN FEDERAL AND STATE 
AUTHORITIES. 
Section 506 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1136) is amended by adding 
at the end the following new subsection: 
‘‘(d) RESPONSIBILITY OF STATES WITH RESPECT TO 
ASSOCIATION HEALTH PLANS.—
‘‘(1) AGREEMENTS
WITH
STATES.—A State 
may enter into an agreement with the Secretary for 
delegation to the State of some or all of—
119
‘‘(A) the Secretary’s authority under sec-
tions 502 and 504 to enforce the requirements 
for certification under part 8; 
‘‘(B) the Secretary’s authority to certify 
association health plans under part 8 in accord-
ance with regulations of the Secretary applica-
ble to certification under part 8; or 
‘‘(C) any combination of the Secretary’s 
authority authorized to be delegated under sub-
paragraphs (A) and (B). 
‘‘(2) DELEGATIONS.—Any department, agency, 
or instrumentality of a State to which authority is 
delegated pursuant to an agreement entered into 
under this paragraph may, if authorized under State 
law and to the extent consistent with such agree-
ment, exercise the powers of the Secretary under 
this title which relate to such authority. 
‘‘(3) RECOGNITION
OF
PRIMARY
DOMICILE 
STATE.—In entering into any agreement with a 
State under subparagraph (A), the Secretary shall 
ensure that, as a result of such agreement and all 
other agreements entered into under subparagraph 
(A), only one State will be recognized, with respect 
to any particular association health plan, as the 
State to which all authority has been delegated pur-
120
suant to such agreements in connection with such 
plan. In carrying out this paragraph, the Secretary 
shall take into account the places of residence of the 
participants and beneficiaries under the plan and the 
State in which the trust is maintained.’’. 
SEC. 407. EFFECTIVE DATE AND TRANSITIONAL AND 
OTHER RULES. 
(a) EFFECTIVE DATE.—The amendments made by 
sections 101, 104, and 105 shall take effect on January 
1, 2005. The amendments made by sections 102 and 103 
shall take effect on the date of the enactment of this Act. 
The Secretary of Labor shall first issue all regulations 
necessary to carry out the amendments made by this sub-
title before January 1, 2005. Such regulations shall be 
issued through negotiated rulemaking. 
(b) EXCEPTION.—Section 801(a)(2) of the Employee 
Retirement Income Security Act of 1974 (added by section 
101) does not apply in connection with an association 
health plan (certified under part 8 of subtitle B of title 
I of such Act) existing on the date of the enactment of 
this Act, if no benefits provided thereunder as of the date 
of the enactment of this Act consist of health insurance 
coverage (as defined in section 733(b)(1) of such Act). 
(c) TREATMENT
OF CERTAIN EXISTING HEALTH 
BENEFITS PROGRAMS.—
121
(1) IN GENERAL.—In any case in which, as of 
the date of the enactment of this Act, an arrange-
ment is maintained in a State for the purpose of 
providing benefits consisting of medical care for the 
employees and beneficiaries of its participating em-
ployers, at least 200 participating employers make 
contributions to such arrangement, such arrange-
ment has been in existence for at least 10 years, and 
such arrangement is licensed under the laws of one 
or more States to provide such benefits to its par-
ticipating employers, upon the filing with the appli-
cable authority (as defined in section 813(a)(5) of 
the Employee Retirement Income Security Act of 
1974 (as amended by this Act)) by the arrangement 
of an application for certification of the arrangement 
under part 8 of subtitle B of title I of such Act—
(A) such arrangement shall be deemed to 
be a group health plan for purposes of title I 
of such Act; 
(B) the requirements of sections 801(a)(1) 
and 803(a)(1) of the Employee Retirement In-
come Security Act of 1974 shall be deemed met 
with respect to such arrangement; 
(C) the requirements of section 803(b) of 
such Act shall be deemed met, if the arrange-
122
ment is operated by a board of directors 
which—
(i) is elected by the participating em-
ployers, with each employer having one 
vote; and 
(ii) has complete fiscal control over 
the arrangement and which is responsible 
for all operations of the arrangement; 
(D) the requirements of section 804(a) of 
such Act shall be deemed met with respect to 
such arrangement; and 
(E) the arrangement may be certified by 
any applicable authority with respect to its op-
erations in any State only if it operates in such 
State on the date of certification. 
The provisions of this subsection shall cease to apply 
with respect to any such arrangement at such time 
after the date of the enactment of this Act as the 
applicable requirements of this subsection are not 
met with respect to such arrangement. 
(2) DEFINITIONS.—For purposes of this sub-
section, the terms ‘‘group health plan’’, ‘‘medical 
care’’, and ‘‘participating employer’’ shall have the 
meanings provided in section 813 of the Employee 
Retirement Income Security Act of 1974, except
123
that the reference in paragraph (7) of such section 
to an ‘‘association health plan’’ shall be deemed a 
reference to an arrangement referred to in this sub-
section. 
TITLE V—IMPROVEMENT TO AC-
CESS 
AND 
CHOICE 
OF 
HEALTH CARE
SEC. 501. REFUNDABLE CREDIT FOR HEALTH INSURANCE 
COSTS. 
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to refundable credits) is amended by redes-
ignating section 36 as section 37 and by inserting after 
section 35 the following new section: 
‘‘SEC. 36. HEALTH INSURANCE COSTS. 
‘‘(a) IN GENERAL.—In the case of an individual, 
there shall be allowed as a credit against the tax imposed 
by this subtitle an amount equal to the amount paid dur-
ing the taxable year for qualified health insurance for cov-
erage of the taxpayer, his spouse, and dependents. 
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—The amount allowed 
as a credit under subsection (a) to the taxpayer 
for the taxable year shall not exceed the sum of
124
the monthly limitations for months during such 
taxable year. 
‘‘(B) MONTHLY LIMITATION.—The month-
ly limitation for any month is the amount equal 
to 1⁄12 of the lesser of—
‘‘(i) the product of $1,000 multiplied 
by the number of individuals taken into ac-
count under subsection (a) who are covered 
under qualified health insurance as of the 
first day of such month, or 
‘‘(ii) $3,000.
‘‘(2) EMPLOYER SUBSIDIZED COVERAGE.—Sub-
section (a) shall not apply to amounts paid for cov-
erage of any individual for any month for which 
such individual participates in any subsidized health 
plan maintained by any employer of the taxpayer or 
of the spouse of the taxpayer. The rule of the last 
sentence of section 162(l)(2)(B) shall apply for pur-
poses of the preceding sentence. 
‘‘(c) QUALIFIED HEALTH INSURANCE.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified health 
insurance’ means insurance which constitutes med-
ical care if—
125
‘‘(A) there is an annual deductible which is 
not more than the highest deductible permitted 
under—
‘‘(i) section 220(c)(2)(A)(i) in the 
case of self-only coverage, or 
‘‘(ii) section 220(c)(2)(A)(ii) in the 
case of family coverage, 
‘‘(B) the annual out-of-pocket expenses re-
quired to be paid (other than for premiums) for 
covered benefits does not exceed the amounts 
specified in section 220(c)(2)(A)(iii), 
‘‘(C) there is no exclusion from, or limita-
tion on, coverage for any preexisting medical 
condition of any applicant who, on the date the 
application is made, has been continuously in-
sured during the 1-year period ending on the 
date of the application under—
‘‘(i) qualified health insurance (deter-
mined without regard to this subpara-
graph), or 
‘‘(ii) a program described in—
‘‘(I) title XVIII or XIX of the 
Social Security Act, 
‘‘(II) chapter 55 of title 10, 
United States Code,
126
‘‘(III) chapter 17 of title 38, 
United States Code, 
‘‘(IV) chapter 89 of title 5, 
United States Code, or 
‘‘(V) the Indian Health Care Im-
provement Act, and 
‘‘(D) in the case of each applicant who has 
not been continuously so insured during the 1-
year period ending on the date the application 
is made, the exclusion from, or limitation on, 
coverage for any preexisting medical condition 
does not extend beyond the period after such 
date equal to the lesser of—
‘‘(i) the number of months imme-
diately prior to such date during which the 
individual was not so insured since the ill-
ness or condition in question was first di-
agnosed, or 
‘‘(ii) 1 year. 
‘‘(2) EXCLUSION
OF
CERTAIN
PLANS.—Such 
term does not include—
‘‘(A) insurance if substantially all of its 
coverage is coverage described in section 
220(c)(1)(B),
127
‘‘(B) insurance under a program described 
in paragraph (1)(C)(ii). 
‘‘(3) TRANSITION RULE FOR 2003.—In the case 
of applications made during 2003, the requirements 
of subparagraphs (C) and (D) of paragraph (1) are 
met only if the insurance does not exclude from cov-
erage, or limit coverage for, any preexisting medical 
condition of any applicant. 
‘‘(d) SPECIAL RULES.—
‘‘(1) COORDINATION
WITH
MEDICAL
DEDUC-
TION, ETC.—Any amount paid by a taxpayer for in-
surance to which subsection (a) applies shall not be 
taken into account in computing the amount allow-
able to the taxpayer as a credit under section 35 or 
as a deduction under section 162(l) or 213(a). 
‘‘(2) DENIAL OF CREDIT TO DEPENDENTS.—No 
credit shall be allowed under this section to any indi-
vidual with respect to whom a deduction under sec-
tion 151 is allowable to another taxpayer for a tax-
able year beginning in the calendar year in which 
such individual’s taxable year begins. 
‘‘(3) MARRIED COUPLES MUST FILE JOINT RE-
TURN.—
‘‘(A) IN
GENERAL.—If the taxpayer is 
married at the close of the taxable year, the
128
credit shall be allowed under subsection (a) only 
if the taxpayer and his spouse file a joint return 
for the taxable year. 
‘‘(B) MARITAL STATUS; CERTAIN MARRIED 
INDIVIDUALS LIVING APART.—Rules similar to 
the rules of paragraphs (3) and (4) of section 
21(e) shall apply for purposes of this para-
graph. 
‘‘(4) VERIFICATION
OF
COVERAGE, ETC.—No 
credit shall be allowed under this section to any indi-
vidual unless such individual’s coverage under quali-
fied health insurance, and the amount paid for such 
coverage, are verified in such manner as the Sec-
retary may prescribe. 
‘‘(5) COST-OF-LIVING
ADJUSTMENT.—In the 
case of any taxable year beginning in a calendar 
year after 2003, each dollar amount contained in 
subsection (b)(1)(B) shall be increased by an 
amount equal to—
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins by sub-
stituting ‘calendar year 2002’ for ‘calendar year 
1992’ in subparagraph (B) thereof.