108TH CONGRESS
2D SESSION
H. R. 4279
AN ACT
To amend the Internal Revenue Code of 1986 to
provide for the disposition of unused health bene-
fits in cafeteria plans and flexible spending ar-
rangements, to improve patient access to health
care services and provide improved medical care
by reducing the excessive burden the liability sys-
tem places on the health care delivery system,
and to amend title I of the Employee Retirement
Income Security Act of 1974 to improve access
and choice for entrepreneurs with small busi-
nesses with respect to medical care for their em-
ployees.
108TH CONGRESS
2D SESSION
H. R. 4279
AN ACT
To amend the Internal Revenue Code of 1986 to provide
for the disposition of unused health benefits in cafeteria
plans and flexible spending arrangements, to improve
patient access to health care services and provide im-
proved medical care by reducing the excessive burden
the liability system places on the health care delivery
system, and to amend title I of the Employee Retirement
Income Security Act of 1974 to improve access and
choice for entrepreneurs with small businesses with re-
spect 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. TABLE OF CONTENTS.
The table of contents for this Act is as follows:
Sec. 1. Table of contents.
Sec. 2. Disposition of unused health benefits in cafeteria plans and flexible
spending arrangements.
TITLE I—HELP EFFICIENT, ACCESSIBLE, LOW-COST, TIMELY
HEALTHCARE (HEALTH) ACT OF 2004
Sec. 1001. Short title.
Sec. 1002. Findings and purpose.
Sec. 1003. Encouraging speedy resolution of claims.
Sec. 1004. Compensating patient injury.
Sec. 1005. Maximizing patient recovery.
Sec. 1006. Additional health benefits.
Sec. 1007. Punitive damages.
Sec. 1008. Authorization of payment of future damages to claimants in health
care lawsuits.
Sec. 1009. Definitions.
Sec. 1010. Effect on other laws.
Sec. 1011. State flexibility and protection of States’ rights.
Sec. 1012. Applicability; effective date.
Sec. 1013. Sense of Congress.
TITLE II—SMALL BUSINESS HEALTH FAIRNESS ACT OF 2004
Sec. 2001. Short title.
Sec. 2002. Rules governing association health plans.
Sec. 2003. Clarification of treatment of single employer arrangements.
Sec. 2004. Enforcement provisions relating to association health plans.
Sec. 2005. Cooperation between Federal and State authorities.
Sec. 2006. Effective date and transitional and other rules.
SEC. 2. DISPOSITION OF UNUSED HEALTH BENEFITS IN
CAFETERIA PLANS AND FLEXIBLE SPENDING
ARRANGEMENTS.
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 (relating to cafeteria plans) is amended
by redesignating subsections (h) and (i) as subsections (i)
and (j), respectively, and by inserting after subsection (g)
the following:
‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH
BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this title,
a plan or other arrangement shall not fail to be
treated as a cafeteria plan solely because qualified
benefits under such plan include a health flexible
spending arrangement under which not more than
$500 of unused health benefits may be—
‘‘(A) carried forward to the succeeding
plan year of such health flexible spending ar-
rangement, or
‘‘(B) to the extent permitted by section
106(d), contributed by the employer to a health
savings account (as defined in section 223(d))
maintained for the benefit of the employee.
‘‘(2) HEALTH FLEXIBLE SPENDING ARRANGE-
MENT.—For purposes of this subsection, the term
‘health flexible spending arrangement’ means a flexi-
ble spending arrangement (as defined in section
106(c)) that is a qualified benefit and only permits
reimbursement for expenses for medical care (as de-
fined in section 213(d)(1), without regard to sub-
paragraphs (C) and (D) thereof).
‘‘(3) UNUSED
HEALTH
BENEFITS.—For pur-
poses of this subsection, with respect to an em-
ployee, the term ‘unused health benefits’ means the
excess of—
‘‘(A) the maximum amount of reimburse-
ment allowable to the employee for a plan year
under a health flexible spending arrangement,
over
‘‘(B) the actual amount of reimbursement
for such year under such arrangement.’’.
(b) EFFECTIVE DATE.—The amendments made by
subsection (a) shall apply to taxable years beginning after
December 31, 2003.
TITLE I—HELP EFFICIENT, AC-
CESSIBLE, LOW-COST, TIMELY
HEALTHCARE (HEALTH) ACT
OF 2004
SEC. 1001. SHORT TITLE.
This title may be cited as the ‘‘Help Efficient, Acces-
sible, Low-cost, Timely Healthcare (HEALTH) Act of
2004’’.
SEC. 1002. FINDINGS AND PURPOSE.
(a) FINDINGS.—
(1) EFFECT
ON
HEALTH
CARE
ACCESS
AND
COSTS.—Congress finds that our current civil justice
system is adversely affecting patient access to health
care services, better patient care, and cost-efficient
health care, in that the health care liability system
is a costly and ineffective mechanism for resolving
claims of health care liability and compensating in-
jured patients, and is a deterrent to the sharing of
information among health care professionals which
impedes efforts to improve patient safety and quality
of care.
(2) EFFECT
ON
INTERSTATE
COMMERCE.—
Congress finds that the health care and insurance
industries are industries affecting interstate com-
merce and the health care liability litigation systems
existing throughout the United States are activities
that affect interstate commerce by contributing to
the high costs of health care and premiums for
health care liability insurance purchased by health
care system providers.
(3) EFFECT
ON
FEDERAL
SPENDING.—Con-
gress finds that the health care liability litigation
systems existing throughout the United States have
a significant effect on the amount, distribution, and
use of Federal funds because of—
(A) the large number of individuals who
receive health care benefits under programs op-
erated or financed by the Federal Government;
(B) the large number of individuals who
benefit because of the exclusion from Federal
taxes of the amounts spent to provide them
with health insurance benefits; and
(C) the large number of health care pro-
viders who provide items or services for which
the Federal Government makes payments.
(b) PURPOSE.—It is the purpose of this Act to imple-
ment reasonable, comprehensive, and effective health care
liability reforms designed to—
(1) improve the availability of health care serv-
ices in cases in which health care liability actions
have been shown to be a factor in the decreased
availability of services;
(2) reduce the incidence of ‘‘defensive medi-
cine’’ and lower the cost of health care liability in-
surance, all of which contribute to the escalation of
health care costs;
(3) ensure that persons with meritorious health
care injury claims receive fair and adequate com-
pensation, including reasonable noneconomic dam-
ages;
(4) improve the fairness and cost-effectiveness
of our current health care liability system to resolve
disputes over, and provide compensation for, health
care liability by reducing uncertainty in the amount
of compensation provided to injured individuals; and
(5) provide an increased sharing of information
in the health care system which will reduce unin-
tended injury and improve patient care.
SEC. 
1003. 
ENCOURAGING 
SPEEDY 
RESOLUTION 
OF
CLAIMS.
The time for the commencement of a health care law-
suit shall be 3 years after the date of manifestation of
injury or 1 year after the claimant discovers, or through
the use of reasonable diligence should have discovered, the
injury, whichever occurs first. In no event shall the time
for commencement of a health care lawsuit exceed 3 years
after the date of manifestation of injury unless tolled for
any of the following—
(1) upon proof of fraud;
(2) intentional concealment; or
(3) the presence of a foreign body, which has no
therapeutic or diagnostic purpose or effect, in the
person of the injured person.
Actions by a minor shall be commenced within 3 years
from the date of the alleged manifestation of injury except
that actions by a minor under the full age of 6 years shall
be commenced within 3 years of manifestation of injury
or prior to the minor’s 8th birthday, whichever provides
a longer period. Such time limitation shall be tolled for
minors for any period during which a parent or guardian
and a health care provider or health care organization
have committed fraud or collusion in the failure to bring
an action on behalf of the injured minor.
SEC. 1004. COMPENSATING PATIENT INJURY.
(a) UNLIMITED AMOUNT OF DAMAGES FOR ACTUAL
ECONOMIC LOSSES IN HEALTH CARE LAWSUITS.—In any
health care lawsuit, nothing in this title shall limit a claim-
ant’s recovery of the full amount of the available economic
damages, notwithstanding the limitation in subsection (b).
(b) ADDITIONAL NONECONOMIC DAMAGES.—In any
health care lawsuit, the amount of noneconomic damages,
if available, may be as much as $250,000, regardless of
the number of parties against whom the action is brought
or the number of separate claims or actions brought with
respect to the same injury.
(c) NO DISCOUNT OF AWARD FOR NONECONOMIC
DAMAGES.—For purposes of applying the limitation in
subsection (b), future noneconomic damages shall not be
discounted to present value. The jury shall not be in-
formed about the maximum award for noneconomic dam-
ages. An award for noneconomic damages in excess of
$250,000 shall be reduced either before the entry of judg-
ment, or by amendment of the judgment after entry of
judgment, and such reduction shall be made before ac-
counting for any other reduction in damages required by
law. If separate awards are rendered for past and future
noneconomic damages and the combined awards exceed
$250,000, the future noneconomic damages shall be re-
duced first.
(d) FAIR SHARE RULE.—In any health care lawsuit,
each party shall be liable for that party’s several share
of any damages only and not for the share of any other
person. Each party shall be liable only for the amount of
damages allocated to such party in direct proportion to
such party’s percentage of responsibility. Whenever a
judgment of liability is rendered as to any party, a sepa-
rate judgment shall be rendered against each such party
for the amount allocated to such party. For purposes of
this section, the trier of fact shall determine the propor-
tion of responsibility of each party for the claimant’s
harm.
SEC. 1005. MAXIMIZING PATIENT RECOVERY.
(a) COURT SUPERVISION OF SHARE OF DAMAGES
ACTUALLY PAID TO CLAIMANTS.—In any health care law-
suit, the court shall supervise the arrangements for pay-
ment of damages to protect against conflicts of interest
that may have the effect of reducing the amount of dam-
ages awarded that are actually paid to claimants. In par-
ticular, in any health care lawsuit in which the attorney
for a party claims a financial stake in the outcome by vir-
tue of a contingent fee, the court shall have the power
to restrict the payment of a claimant’s damage recovery
to such attorney, and to redirect such damages to the
claimant based upon the interests of justice and principles
of equity. In no event shall the total of all contingent fees
for representing all claimants in a health care lawsuit ex-
ceed the following limits:
(1) 40 percent of the first $50,000 recovered by
the claimant(s).
(2) 331⁄3 percent of the next $50,000 recovered
by the claimant(s).
(3) 25 percent of the next $500,000 recovered
by the claimant(s).
(4) 15 percent of any amount by which the re-
covery by the claimant(s) is in excess of $600,000.
(b) APPLICABILITY.—The limitations in this section
shall apply whether the recovery is by judgment, settle-
ment, mediation, arbitration, or any other form of alter-
native dispute resolution. In a health care lawsuit involv-
ing a minor or incompetent person, a court retains the
authority to authorize or approve a fee that is less than
the maximum permitted under this section. The require-
ment for court supervision in the first two sentences of
subsection (a) applies only in civil actions.
SEC. 1006. ADDITIONAL HEALTH BENEFITS.
In any health care lawsuit involving injury or wrong-
ful death, any party may introduce evidence of collateral
source benefits. If a party elects to introduce such evi-
dence, any opposing party may introduce evidence of any
amount paid or contributed or reasonably likely to be paid
or contributed in the future by or on behalf of the oppos-
ing party to secure the right to such collateral source bene-
fits. No provider of collateral source benefits shall recover
any amount against the claimant or receive any lien or
credit against the claimant’s recovery or be equitably or
legally subrogated to the right of the claimant in a health
care lawsuit involving injury or wrongful death. This sec-
tion shall apply to any health care lawsuit that is settled
as well as a health care lawsuit that is resolved by a fact
finder. This section shall not apply to section 1862(b) (42
U.S.C. 1395y(b)) or section 1902(a)(25) (42 U.S.C.
1396a(a)(25)) of the Social Security Act.
SEC. 1007. PUNITIVE DAMAGES.
(a) IN GENERAL.—Punitive damages may, if other-
wise permitted by applicable State or Federal law, be
awarded against any person in a health care lawsuit only
if it is proven by clear and convincing evidence that such
person acted with malicious intent to injure the claimant,
or that such person deliberately failed to avoid unneces-
sary injury that such person knew the claimant was sub-
stantially certain to suffer. In any health care lawsuit
where no judgment for compensatory damages is rendered
against such person, no punitive damages may be awarded
with respect to the claim in such lawsuit. No demand for
punitive damages shall be included in a health care lawsuit
as initially filed. A court may allow a claimant to file an
amended pleading for punitive damages only upon a mo-
tion by the claimant and after a finding by the court, upon
review of supporting and opposing affidavits or after a
hearing, after weighing the evidence, that the claimant has
established by a substantial probability that the claimant
will prevail on the claim for punitive damages. At the re-
quest of any party in a health care lawsuit, the trier of
fact shall consider in a separate proceeding—
(1) whether punitive damages are to be award-
ed and the amount of such award; and
(2) the amount of punitive damages following a
determination of punitive liability.
If a separate proceeding is requested, evidence relevant
only to the claim for punitive damages, as determined by
applicable State law, shall be inadmissible in any pro-
ceeding to determine whether compensatory damages are
to be awarded.
(b) DETERMINING AMOUNT
OF PUNITIVE DAM-
AGES.—
(1) FACTORS
CONSIDERED.—In determining
the amount of punitive damages, if awarded, in a
health care lawsuit, the trier of fact shall consider
only the following—
(A) the severity of the harm caused by the
conduct of such party;
(B) the duration of the conduct or any
concealment of it by such party;
(C) the profitability of the conduct to such
party;
(D) the number of products sold or med-
ical procedures rendered for compensation, as
the case may be, by such party, of the kind
causing the harm complained of by the claim-
ant;
(E) any criminal penalties imposed on such
party, as a result of the conduct complained of
by the claimant; and
(F) the amount of any civil fines assessed
against such party as a result of the conduct
complained of by the claimant.
(2) MAXIMUM AWARD.—The amount of punitive
damages, if awarded, in a health care lawsuit may
be as much as $250,000 or as much as two times
the amount of economic damages awarded, which-
ever is greater. The jury shall not be informed of
this limitation.
(c) NO PUNITIVE DAMAGES FOR PRODUCTS THAT
COMPLY WITH FDA STANDARDS.—
(1) IN GENERAL.—
(A) No punitive damages may be awarded
against the manufacturer or distributor of a
medical product, or a supplier of any compo-
nent or raw material of such medical product,
based on a claim that such product caused the
claimant’s harm where—
(i)(I) such medical product was sub-
ject to premarket approval, clearance, or li-
censure by the Food and Drug Administra-
tion with respect to the safety of the for-
mulation or performance of the aspect of
such medical product which caused the
claimant’s harm or the adequacy of the
packaging or labeling of such medical
product; and
(II) such medical product was so ap-
proved, cleared, or licensed; or
(ii) such medical product is generally
recognized among qualified experts as safe
and effective pursuant to conditions estab-
lished by the Food and Drug Administra-
tion and applicable Food and Drug Admin-
istration regulations, including without
limitation those related to packaging and
labeling, unless the Food and Drug Admin-
istration has determined that such medical
product was not manufactured or distrib-
uted in substantial compliance with appli-
cable Food and Drug Administration stat-
utes and regulations.
(B) RULE OF CONSTRUCTION.—Subpara-
graph (A) may not be construed as establishing
the obligation of the Food and Drug Adminis-
tration to demonstrate affirmatively that a
manufacturer, distributor, or supplier referred
to in such subparagraph meets any of the con-
ditions described in such subparagraph.
(2) LIABILITY OF HEALTH CARE PROVIDERS.—
A health care provider who prescribes, or who dis-
penses pursuant to a prescription, a medical product
approved, licensed, or cleared by the Food and Drug
Administration shall not be named as a party to a
product liability lawsuit involving such product and
shall not be liable to a claimant in a class action
lawsuit against the manufacturer, distributor, or
seller of such product. Nothing in this paragraph
prevents a court from consolidating cases involving
health care providers and cases involving products li-
ability claims against the manufacturer, distributor,
or product seller of such medical product.
(3) PACKAGING.—In a health care lawsuit for
harm which is alleged to relate to the adequacy of
the packaging or labeling of a drug which is required
to have tamper-resistant packaging under regula-
tions of the Secretary of Health and Human Serv-
ices (including labeling regulations related to such
packaging), the manufacturer or product seller of
the drug shall not be held liable for punitive dam-
ages unless such packaging or labeling is found by
the trier of fact by clear and convincing evidence to
be substantially out of compliance with such regula-
tions.
(4) EXCEPTION.—Paragraph (1) shall not
apply in any health care lawsuit in which—
(A) a person, before or after premarket ap-
proval, clearance, or licensure of such medical
product, knowingly misrepresented to or with-
held from the Food and Drug Administration
information that is required to be submitted
under the Federal Food, Drug, and Cosmetic
Act (21 U.S.C. 301 et seq.) or section 351 of
the Public Health Service Act (42 U.S.C. 262)
that is material and is causally related to the
harm which the claimant allegedly suffered; or
(B) a person made an illegal payment to
an official of the Food and Drug Administra-
tion for the purpose of either securing or main-
taining approval, clearance, or licensure of such
medical product.
SEC. 1008. AUTHORIZATION OF PAYMENT OF FUTURE DAM-
AGES TO CLAIMANTS IN HEALTH CARE LAW-
SUITS.
(a) IN GENERAL.—In any health care lawsuit, if an
award of future damages, without reduction to present
value, equaling or exceeding $50,000 is made against a
party with sufficient insurance or other assets to fund a
periodic payment of such a judgment, the court shall, at
the request of any party, enter a judgment ordering that
the future damages be paid by periodic payments. In any
health care lawsuit, the court may be guided by the Uni-
form Periodic Payment of Judgments Act promulgated by
the National Conference of Commissioners on Uniform
State Laws.
(b) APPLICABILITY.—This section applies to all ac-
tions that have not been first set for trial or retrial before
the effective date of this title.
SEC. 1009. DEFINITIONS.
In this title:
(1) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM; ADR.—The term ‘‘alternative dispute resolution
system’’ or ‘‘ADR’’ means a system that provides
for the resolution of health care lawsuits in a man-
ner other than through a civil action brought in a
State or Federal court.
(2) CLAIMANT.—The term ‘‘claimant’’ means
any person who brings a health care lawsuit, includ-
ing a person who asserts or claims a right to legal
or equitable contribution, indemnity or subrogation,
arising out of a health care liability claim or action,
and any person on whose behalf such a claim is as-
serted or such an action is brought, whether de-
ceased, incompetent, or a minor.
(3) COLLATERAL
SOURCE
BENEFITS.—The
term ‘‘collateral source benefits’’ means any amount
paid or reasonably likely to be paid in the future to
or on behalf of the claimant, or any service, product
or other benefit provided or reasonably likely to be
provided in the future to or on behalf of the claim-
ant, as a result of the injury or wrongful death, pur-
suant to—
(A) any State or Federal health, sickness,
income-disability, accident, or workers’ com-
pensation law;
(B) any health, sickness, income-disability,
or accident insurance that provides health bene-
fits or income-disability coverage;
(C) any contract or agreement of any
group, organization, partnership, or corporation
to provide, pay for, or reimburse the cost of
medical, hospital, dental, or income disability
benefits; and
(D) any other publicly or privately funded
program.
(4) 
COMPENSATORY
DAMAGES.—The 
term
‘‘compensatory 
damages’’ 
means 
objectively
verifiable monetary losses incurred as a result of the
provision of, use of, or payment for (or failure to
provide, use, or pay for) health care services or med-
ical products, such as past and future medical ex-
penses, loss of past and future earnings, cost of ob-
taining domestic services, loss of employment, and
loss of business or employment opportunities, dam-
ages for physical and emotional pain, suffering, in-
convenience, physical impairment, mental anguish,
disfigurement, loss of enjoyment of life, loss of soci-
ety and companionship, loss of consortium (other
than loss of domestic service), hedonic damages, in-
jury to reputation, and all other nonpecuniary losses
of any kind or nature. The term ‘‘compensatory
damages’’ includes economic damages and non-
economic damages, as such terms are defined in this
section.
(5) CONTINGENT FEE.—The term ‘‘contingent
fee’’ includes all compensation to any person or per-
sons which is payable only if a recovery is effected
on behalf of one or more claimants.
(6) ECONOMIC DAMAGES.—The term ‘‘economic
damages’’ means objectively verifiable monetary
losses incurred as a result of the provision of, use
of, or payment for (or failure to provide, use, or pay
for) health care services or medical products, such as
past and future medical expenses, loss of past and
future earnings, cost of obtaining domestic services,
loss of employment, and loss of business or employ-
ment opportunities.
(7) 
HEALTH
CARE
LAWSUIT.—The 
term
‘‘health care lawsuit’’ means any health care liability
claim concerning the provision of health care goods
or services or any medical product affecting inter-
state commerce, or any health care liability action
concerning the provision of health care goods or
services or any medical product affecting interstate
commerce, brought in a State or Federal court or
pursuant to an alternative dispute resolution system,
against a health care provider, a health care organi-
zation, or the manufacturer, distributor, supplier,
marketer, promoter, or seller of a medical product,
regardless of the theory of liability on which the
claim is based, or the number of claimants, plain-
tiffs, defendants, or other parties, or the number of
claims or causes of action, in which the claimant al-
leges a health care liability claim. Such term does
not include a claim or action which is based on
criminal liability; which seeks civil fines or penalties
paid to Federal, State, or local government; or which
is grounded in antitrust.
(8) HEALTH
CARE
LIABILITY
ACTION.—The
term ‘‘health care liability action’’ means a civil ac-
tion brought in a State or Federal Court or pursu-
ant to an alternative dispute resolution system,
against a health care provider, a health care organi-
zation, or the manufacturer, distributor, supplier,
marketer, promoter, or seller of a medical product,
regardless of the theory of liability on which the
claim is based, or the number of plaintiffs, defend-
ants, or other parties, or the number of causes of ac-
tion, in which the claimant alleges a health care li-
ability claim.
(9) HEALTH
CARE
LIABILITY
CLAIM.—The
term ‘‘health care liability claim’’ means a demand
by any person, whether or not pursuant to ADR,
against a health care provider, health care organiza-
tion, or the manufacturer, distributor, supplier, mar-
keter, promoter, or seller of a medical product, in-
cluding, but not limited to, third-party claims, cross-
claims, counter-claims, or contribution claims, which
are based upon the provision of, use of, or payment
for (or the failure to provide, use, or pay for) health
care services or medical products, regardless of the
theory of liability on which the claim is based, or the
number of plaintiffs, defendants, or other parties, or
the number of causes of action.
(10) HEALTH CARE ORGANIZATION.—The term
‘‘health care organization’’ means any person or en-
tity which is obligated to provide or pay for health
benefits under any health plan, including any person
or entity acting under a contract or arrangement
with a health care organization to provide or admin-
ister any health benefit.
(11) HEALTH
CARE
PROVIDER.—The term
‘‘health care provider’’ means any person or entity
required by State or Federal laws or regulations to
be licensed, registered, or certified to provide health
care services, and being either so licensed, reg-
istered, or certified, or exempted from such require-
ment by other statute or regulation.
(12) HEALTH CARE GOODS OR SERVICES.—The
term ‘‘health care goods or services’’ means any
goods or services provided by a health care organiza-
tion, provider, or by any individual working under
the supervision of a health care provider, that relates
to the diagnosis, prevention, or treatment of any
human disease or impairment, or the assessment or
care of the health of human beings.
(13) MALICIOUS
INTENT
TO
INJURE.—The
term ‘‘malicious intent to injure’’ means inten-
tionally causing or attempting to cause physical in-
jury other than providing health care goods or serv-
ices.
(14) MEDICAL PRODUCT.—The term ‘‘medical
product’’ means a drug, device, or biological product
intended for humans, and the terms ‘‘drug’’, ‘‘de-
vice’’, and ‘‘biological product’’ have the meanings
given such terms in sections 201(g)(1) and 201(h)
of the Federal Food, Drug and Cosmetic Act (21
U.S.C. 321) and section 351(a) of the Public Health
Service Act (42 U.S.C. 262(a)), respectively, includ-
ing any component or raw material used therein, but
excluding health care services.
(15) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages for phys-
ical and emotional pain, suffering, inconvenience,
physical impairment, mental anguish, disfigurement,
loss of enjoyment of life, loss of society and compan-
ionship, loss of consortium (other than loss of do-
mestic service), hedonic damages, injury to reputa-
tion, and all other nonpecuniary losses of any kind
or nature.
(16) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means damages awarded, for the purpose
of punishment or deterrence, and not solely for com-
pensatory purposes, against a health care provider,
health care organization, or a manufacturer, dis-
tributor, or supplier of a medical product. Punitive
damages are neither economic nor noneconomic
damages.
(17) RECOVERY.—The term ‘‘recovery’’ means
the net sum recovered after deducting any disburse-
ments or costs incurred in connection with prosecu-
tion or settlement of the claim, including all costs
paid or advanced by any person. Costs of health care
incurred by the plaintiff and the attorneys’ office
overhead costs or charges for legal services are not
deductible disbursements or costs for such purpose.
(18) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
lands, the Trust Territory of the Pacific Islands, and
any other territory or possession of the United
States, or any political subdivision thereof.
SEC. 1010. EFFECT ON OTHER LAWS.
(a) VACCINE INJURY.—
(1) To the extent that title XXI of the Public
Health Service Act establishes a Federal rule of law
applicable to a civil action brought for a vaccine-re-
lated injury or death—
(A) this title does not affect the application
of the rule of law to such an action; and
(B) any rule of law prescribed by this title
in conflict with a rule of law of such title XXI
shall not apply to such action.
(2) If there is an aspect of a civil action
brought for a vaccine-related injury or death to
which a Federal rule of law under title XXI of the
Public Health Service Act does not apply, then this
title or otherwise applicable law (as determined
under this title) will apply to such aspect of such ac-
tion.
(b) OTHER FEDERAL LAW.—Except as provided in
this section, nothing in this title shall be deemed to affect
any defense available to a defendant in a health care law-
suit or action under any other provision of Federal law.
SEC. 1011. STATE FLEXIBILITY AND PROTECTION OF
STATES’ RIGHTS.
(a) HEALTH CARE LAWSUITS.—The provisions gov-
erning health care lawsuits set forth in this title preempt,
subject to subsections (b) and (c), State law to the extent
that State law prevents the application of any provisions
of law established by or under this title. The provisions
governing health care lawsuits set forth in this title super-
sede chapter 171 of title 28, United States Code, to the
extent that such chapter—
(1) provides for a greater amount of damages
or contingent fees, a longer period in which a health
care lawsuit may be commenced, or a reduced appli-
cability or scope of periodic payment of future dam-
ages, than provided in this title; or
(2) prohibits the introduction of evidence re-
garding collateral source benefits, or mandates or
permits subrogation or a lien on collateral source
benefits.
(b) PROTECTION OF STATES’ RIGHTS AND OTHER
LAWS.—(1) Any issue that is not governed by any provi-
sion of law established by or under this title (including
State standards of negligence) shall be governed by other-
wise applicable State or Federal law.
(2) This title shall not preempt or supersede any
State or Federal law that imposes greater procedural or
substantive protections for health care providers and
health care organizations from liability, loss, or damages
than those provided by this title or create a cause of ac-
tion.
(c) STATE FLEXIBILITY.—No provision of this title
shall be construed to preempt—
(1) any State law (whether effective before, on,
or after the date of the enactment of this title) that
specifies a particular monetary amount of compen-
satory or punitive damages (or the total amount of
damages) that may be awarded in a health care law-
suit, regardless of whether such monetary amount is
greater or lesser than is provided for under this title,
notwithstanding section 4(a); or
(2) any defense available to a party in a health
care lawsuit under any other provision of State or
Federal law.
SEC. 1012. APPLICABILITY; EFFECTIVE DATE.
This title shall apply to any health care lawsuit
brought in a Federal or State court, or subject to an alter-
native dispute resolution system, that is initiated on or
after the date of the enactment of this title, except that
any health care lawsuit arising from an injury occurring
prior to the date of the enactment of this title shall be
governed by the applicable statute of limitations provisions
in effect at the time the injury occurred.
SEC. 1013. SENSE OF CONGRESS.
It is the sense of Congress that a health insurer
should be liable for damages for harm caused when it
makes a decision as to what care is medically necessary
and appropriate.
TITLE II—SMALL BUSINESS
HEALTH FAIRNESS ACT OF 2004
SEC. 2001. SHORT TITLE.
This title may be cited as the ‘‘Small Business Health
Fairness Act of 2004’’.
SEC. 2002. RULES GOVERNING ASSOCIATION HEALTH
PLANS.
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding after part 7 the following new part:
‘‘PART 8—RULES GOVERNING ASSOCIATION
HEALTH PLANS
‘‘SEC. 801. ASSOCIATION HEALTH PLANS.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘association health plan’ means a group health plan
whose sponsor is (or is deemed under this part to be) de-
scribed 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
obtaining 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 employees of its members (or affiliated mem-
bers), 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 sub-
section.
‘‘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 as-
sociation 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 applica-
ble authority shall certify such plan as meeting the re-
quirements of this part only if the applicable authority is
satisfied that the applicable requirements of this part are
met (or, upon the date on which the plan is to commence
operations, will be met) with respect to the plan.
‘‘(c) REQUIREMENTS APPLICABLE
TO CERTIFIED
PLANS.—An association health plan with respect to which
certification under this part is in effect shall meet the ap-
plicable requirements of this part, effective on the date
of certification (or, if later, on the date on which the plan
is to commence operations).
‘‘(d) REQUIREMENTS
FOR
CONTINUED
CERTIFI-
CATION.—The 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 connec-
tion with plans in such class and payment of the pre-
scribed 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 2004,
‘‘(2) a plan under which the sponsor does not
restrict 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 fol-
lowing: agriculture; equipment and automobile deal-
erships; barbering and cosmetology; certified public
accounting practices; child care; construction; dance,
theatrical and orchestra productions; disinfecting
and 
pest 
control; 
financial 
services; 
fishing;
foodservice establishments; hospitals; labor organiza-
tions; logging; manufacturing (metals); mining; med-
ical and dental practices; medical laboratories; pro-
fessional consulting services; sanitary services; trans-
portation (local and freight); warehousing; whole-
saling/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, pro-
posed premium rate levels, or other means dem-
onstrated by such plan in accordance with regula-
tions.
‘‘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 application 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 trust-
ees which has complete fiscal control over the plan
and which is responsible for all operations of the
plan.
‘‘(2) RULES
OF
OPERATION
AND
FINANCIAL
CONTROLS.—The board of trustees has in effect
rules of operation and financial controls, based on a
3-year plan of operation, adequate to carry out the
terms of the plan and to meet all requirements of
this title applicable to the plan.
‘‘(3) RULES
GOVERNING
RELATIONSHIP
TO
PARTICIPATING
EMPLOYERS
AND
TO
CONTRAC-
TORS.—
‘‘(A) BOARD MEMBERSHIP.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clauses (ii) and (iii), the members
of the board of trustees are individuals se-
lected from individuals who are the owners,
officers, directors, or employees of the par-
ticipating employers or who are partners in
the participating employers and actively
participate 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
service 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
service provider (other than a contract
administrator) to the plan may be
members of the board if they con-
stitute not more than 25 percent of
the membership of the board and they
do not provide services to the plan
other than on behalf of the sponsor.
‘‘(III) 
TREATMENT
OF
PRO-
VIDERS
OF
MEDICAL
CARE.—In the
case of a sponsor which is an associa-
tion whose membership consists pri-
marily of providers of medical care,
subclause (I) shall not apply in the
case of any service 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 Busi-
ness Health Fairness Act of 2004.
‘‘(B) SOLE
AUTHORITY.—The board has
sole authority under the plan to approve appli-
cations for participation in the plan and to con-
tract 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
maintained by a franchiser for a franchise network con-
sisting of its franchisees—
‘‘(1) the requirements of subsection (a) and sec-
tion 801(a) shall be deemed met if such require-
ments would otherwise be met if the franchiser were
deemed to be the sponsor referred to in section
801(b), such network were deemed to be an associa-
tion described in section 801(b), and each franchisee
were deemed to be a member (of the association and
the sponsor) referred to in section 801(b); and
‘‘(2) the requirements of section 804(a)(1) shall
be deemed met.
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 pro-
fessional association or other individual-based asso-
ciation, if at least one of the officers, directors, or
employees of an employer, or at least one of the in-
dividuals who are partners in an employer and who
actively 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 EM-
PLOYEES.—In the case of an association health plan in
existence on the date of the enactment of the Small Busi-
ness Health Fairness Act of 2004, 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 employ-
ees who would otherwise be eligible to participate in
such association health plan.
‘‘(c) INDIVIDUAL MARKET UNAFFECTED.—The re-
quirements of this subsection are met with respect to an
association health plan if, under the terms of the plan,
no participating employer may provide health insurance
coverage in the individual market for any employee not
covered under the plan which is similar to the coverage
contemporaneously provided to employees of the employer
under the plan, if such exclusion of the employee from cov-
erage under the plan is based on a health status-related
factor with respect to the employee and such employee
would, but for such exclusion on such basis, be eligible
for coverage under the plan.
‘‘(d) PROHIBITION
OF DISCRIMINATION AGAINST
EMPLOYERS
AND EMPLOYEES ELIGIBLE
TO PARTICI-
PATE.—The requirements of this subsection are met with
respect to an association health plan if—
‘‘(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
contribution requirements of the type referred to in
section 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
DOCUMENTS, CONTRIBUTION RATES, AND
BENEFIT OPTIONS.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if the
following requirements are met:
‘‘(1) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the plan in-
clude a written instrument, meeting the require-
ments of an instrument required under section
402(a)(1), which—
‘‘(A) provides that the board of trustees
serves as the named fiduciary required for plans
under section 402(a)(1) and serves in the ca-
pacity of a plan administrator (referred to in
section 3(16)(A));
‘‘(B) provides that the sponsor of the plan
is to serve as plan sponsor (referred to in sec-
tion 3(16)(B)); and
‘‘(C) incorporates the requirements of sec-
tion 806.
‘‘(2) CONTRIBUTION
RATES
MUST
BE
NON-
DISCRIMINATORY.—
‘‘(A) The contribution rates for any par-
ticipating small employer do not vary on the
basis of any health status-related factor in rela-
tion to employees of such employer or their
beneficiaries and do not vary on the basis of the
type of business or industry in which such em-
ployer is engaged.
‘‘(B) Nothing in this title or any other pro-
vision of law shall be construed to preclude an
association health plan, or a health insurance
issuer offering health insurance coverage in
connection with an association health plan,
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
regulating premium rates in the small
group market with respect to health insur-
ance coverage 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)
relating to contribution rates.
‘‘(3) FLOOR FOR NUMBER OF COVERED INDI-
VIDUALS
WITH
RESPECT
TO
CERTAIN
PLANS.—If
any benefit option under the plan does not consist
of health insurance coverage, the plan has as of the
beginning of the plan year not fewer than 1,000 par-
ticipants and beneficiaries.
‘‘(4) MARKETING REQUIREMENTS.—
‘‘(A) IN
GENERAL.—If a benefit option
which consists of health insurance coverage is
offered under the plan, State-licensed insurance
agents shall be used to distribute to small em-
ployers coverage which does not consist of
health insurance coverage in a manner com-
parable to the manner in which such agents are
used to distribute health insurance coverage.
‘‘(B) 
STATE-LICENSED
INSURANCE
AGENTS.—For purposes of subparagraph (A),
the term ‘State-licensed insurance agents’
means one or more agents who are licensed in
a State and are subject to the laws of such
State relating to licensure, qualification, test-
ing, examination, and continuing education of
persons authorized to offer, sell, or solicit
health insurance coverage in such State.
‘‘(5) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the applicable authority deter-
mines are necessary to carry out the purposes of this
part, which shall be prescribed by the applicable au-
thority by regulation.
‘‘(b) ABILITY OF ASSOCIATION HEALTH PLANS TO
DESIGN BENEFIT OPTIONS.—Subject to section 514(d),
nothing in this part or any provision of State law (as de-
fined in section 514(c)(1)) shall be construed to preclude
an association health plan, or a health insurance issuer
offering health insurance coverage in connection with an
association health plan, from exercising its sole discretion
in selecting the specific items and services consisting of
medical care to be included as benefits under such plan
or coverage, except (subject to section 514) in the case
of (1) any law to the extent that it is not preempted under
section 731(a)(1) with respect to matters governed by sec-
tion 711, 712, or 713, or (2) any law of the State with
which filing and approval of a policy type offered by the
plan was initially obtained to the extent that such law pro-
hibits an exclusion of a specific disease from such cov-
erage.
‘‘SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS
FOR 
SOLVENCY 
FOR 
PLANS 
PROVIDING
HEALTH BENEFITS IN ADDITION TO HEALTH
INSURANCE COVERAGE.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if—
‘‘(1) the benefits under the plan consist solely
of health insurance coverage; or
‘‘(2) if the plan provides any additional benefit
options which do not consist of health insurance cov-
erage, the plan—
‘‘(A) establishes and maintains reserves
with respect to such additional benefit options,
in amounts recommended by the qualified actu-
ary, consisting of—
‘‘(i) a reserve sufficient for unearned
contributions;
‘‘(ii) a reserve sufficient for benefit li-
abilities which have been incurred, which
have not been satisfied, and for which risk
of loss has not yet been transferred, and
for expected administrative costs with re-
spect to such benefit liabilities;
‘‘(iii) a reserve sufficient for any other
obligations of the plan; and
‘‘(iv) a reserve sufficient for a margin
of error and other fluctuations, taking into
account the specific circumstances of the
plan; and
‘‘(B) establishes and maintains aggregate
and specific excess /stop loss insurance and sol-
vency indemnification, with respect to such ad-
ditional benefit options for which risk of loss
has not yet been transferred, as follows:
‘‘(i) The plan shall secure aggregate
excess /stop loss insurance for the plan
with an attachment point which is not
greater than 125 percent of expected gross
annual claims. The applicable authority
may by regulation provide for upward ad-
justments in the amount of such percent-
age in specified circumstances in which the
plan specifically provides for and maintains
reserves in excess of the amounts required
under subparagraph (A).
‘‘(ii) The plan shall secure specific ex-
cess /stop loss insurance for the plan with
an attachment point which is at least equal
to an amount recommended by the plan’s
qualified actuary. The applicable authority
may by regulation provide for adjustments
in the amount of such insurance in speci-
fied circumstances in which the plan spe-
cifically provides for and maintains re-
serves in excess of the amounts required
under subparagraph (A).
‘‘(iii) The plan shall secure indem-
nification insurance for any claims which
the plan is unable to satisfy by reason of
a plan termination.
Any person issuing to a plan insurance described in clause
(i), (ii), or (iii) of subparagraph (B) shall notify the Sec-
retary of any failure of premium payment meriting can-
cellation of the policy prior to undertaking such a cancella-
tion. Any regulations prescribed by the applicable author-
ity pursuant to clause (i) or (ii) of subparagraph (B) may
allow for such adjustments in the required levels of excess
/stop loss insurance as the qualified actuary may rec-
ommend, taking into account the specific circumstances
of the plan.
‘‘(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS
RESERVES.—In the case of any association health plan de-
scribed in subsection (a)(2), the requirements of this sub-
section are met if the plan establishes and maintains sur-
plus in an amount at least equal to—
‘‘(1) $500,000, or
‘‘(2) such greater amount (but not greater than
$2,000,000) as may be set forth in regulations pre-
scribed by the applicable authority, considering the
level of aggregate and specific excess /stop loss in-
surance provided with respect to such plan and other
factors related to solvency risk, such as the plan’s
projected levels of participation or claims, the nature
of the plan’s liabilities, and the types of assets avail-
able to assure that such liabilities are met.
‘‘(c) ADDITIONAL REQUIREMENTS.—In the case of
any association health plan described in subsection (a)(2),
the applicable authority may provide such additional re-
quirements relating to reserves, excess /stop loss insur-
ance, and indemnification insurance as the applicable au-
thority considers appropriate. Such requirements may be
provided by regulation with respect to any such plan or
any class of such plans.
‘‘(d) ADJUSTMENTS FOR EXCESS /STOP LOSS INSUR-
ANCE.—The applicable authority may provide for adjust-
ments to the levels of reserves otherwise required under
subsections (a) and (b) with respect to any plan or class
of plans to take into account excess /stop loss insurance
provided with respect to such plan or plans.
‘‘(e) ALTERNATIVE MEANS OF COMPLIANCE.—The
applicable authority may permit an association health plan
described in subsection (a)(2) to substitute, for all or part
of the requirements of this section (except subsection
(a)(2)(B)(iii)), such security, guarantee, hold-harmless ar-
rangement, or other financial arrangement as the applica-
ble authority determines to be adequate to enable the plan
to fully meet all its financial obligations on a timely basis
and is otherwise no less protective of the interests of par-
ticipants and beneficiaries than the requirements for
which it is substituted. The applicable authority may take
into account, for purposes of this subsection, evidence pro-
vided by the plan or sponsor which demonstrates an as-
sumption of liability with respect to the plan. Such evi-
dence may be in the form of a contract of indemnification,
lien, bonding, insurance, letter of credit, recourse under
applicable terms of the plan in the form of assessments
of participating employers, security, or other financial ar-
rangement.
‘‘(f) MEASURES TO ENSURE CONTINUED PAYMENT
OF BENEFITS BY CERTAIN PLANS IN DISTRESS.—
‘‘(1) PAYMENTS BY CERTAIN PLANS TO ASSO-
CIATION HEALTH PLAN FUND.—
‘‘(A) IN GENERAL.—In the case of an as-
sociation health plan described in subsection
(a)(2), the requirements of this subsection are
met if the plan makes payments into the Asso-
ciation Health Plan Fund under this subpara-
graph when they are due. Such payments shall
consist of annual payments in the amount of
$5,000, and, in addition to such annual pay-
ments, such supplemental payments as the Sec-
retary may determine to be necessary under
paragraph (2). Payments under this paragraph
are payable to the Fund at the time determined
by the Secretary. Initial payments are due in
advance of certification under this part. Pay-
ments shall continue to accrue until a plan’s as-
sets are distributed pursuant to a termination
procedure.
‘‘(B) PENALTIES FOR FAILURE TO MAKE
PAYMENTS.—If any payment is not made by a
plan when it is due, a late payment charge of
not more than 100 percent of the payment
which was not timely paid shall be payable by
the plan to the Fund.
‘‘(C) CONTINUED
DUTY
OF
THE
SEC-
RETARY.—The Secretary shall not cease to
carry out the provisions of paragraph (2) on ac-
count of the failure of a plan to pay any pay-
ment when due.
‘‘(2) PAYMENTS BY SECRETARY TO CONTINUE
EXCESS /STOP LOSS INSURANCE COVERAGE AND IN-
DEMNIFICATION
INSURANCE
COVERAGE
FOR
CER-
TAIN PLANS.—In any case in which the applicable
authority determines that there is, or that there is
reason to believe that there will be: (A) a failure to
take necessary corrective actions under section
809(a) with respect to an association health plan de-
scribed in subsection (a)(2); or (B) a termination of
such a plan under section 809(b) or 810(b)(8) (and,
if the applicable authority is not the Secretary, cer-
tifies such determination to the Secretary), the Sec-
retary shall determine the amounts necessary to
make payments to an insurer (designated by the
Secretary) to maintain in force excess /stop loss in-
surance coverage or indemnification insurance cov-
erage for such plan, if the Secretary determines that
there is a reasonable expectation that, without such
payments, claims would not be satisfied by reason of
termination of such coverage. The Secretary shall, to
the extent provided in advance in appropriation
Acts, pay such amounts so determined to the insurer
designated by the Secretary.
‘‘(3) ASSOCIATION HEALTH PLAN FUND.—
‘‘(A) IN GENERAL.—There is established
on the books of the Treasury a fund to be
known as the ‘Association Health Plan Fund’.
The Fund shall be available for making pay-
ments pursuant to paragraph (2). The Fund
shall be credited with payments received pursu-
ant to paragraph (1)(A), penalties received pur-
suant to paragraph (1)(B); and earnings on in-
vestments of amounts of the Fund under sub-
paragraph (B).
‘‘(B) INVESTMENT.—Whenever the Sec-
retary determines that the moneys of the fund
are in excess of current needs, the Secretary
may request the investment of such amounts as
the Secretary determines advisable by the Sec-
retary of the Treasury in obligations issued or
guaranteed by the United States.
‘‘(g) EXCESS /STOP LOSS INSURANCE.—For pur-
poses of this section: