I
106TH CONGRESS
2D SESSION
H. R. 5184
To amend the Internal Revenue Code of 1986 to provide tax incentives
to encourage small business health plans, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 14, 2000
Mr. MOORE (for himself, Mr. STENHOLM, Mr. BERRY, Mr. TANNER, Mr.
MINGE, Mr. SANDLIN, Mr. PHELPS, Mrs. TAUSCHER, Mr. SISISKY, Mr.
HOLDEN, Mr. TAYLOR of Mississippi, Ms. DANNER, Ms. SANCHEZ, Mr.
THOMPSON of California, Mr. BOYD, and Mr. LUCAS of Kentucky) intro-
duced the following bill; which was referred to the Committee on Ways
and Means, and in addition to the Committee on Commerce, for a period
to be subsequently determined by the Speaker, in each case for consider-
ation of such provisions as fall within the jurisdiction of the committee
concerned
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax incentives to encourage small business health plans,
and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Small Business Health
Insurance Expansion Act of 2000’’.
SEC. 2. DEDUCTION FOR 100 PERCENT OF HEALTH INSUR-
ANCE COSTS OF SELF-EMPLOYED INDIVID-
UALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed
as a deduction under this section an amount equal
to 100 percent of the amount paid during the tax-
able year for insurance which constitutes medical
care for the taxpayer and the taxpayer’s spouse and
dependents.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2000.
SEC. 3. CREDIT FOR HEALTH INSURANCE EXPENSES OF
SMALL BUSINESSES.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to business-related credits) is amended by
adding at the end the following:
‘‘SEC. 45D. SMALL BUSINESS HEALTH INSURANCE EX-
PENSES.
‘‘(a) GENERAL RULE.—For purposes of section 38,
in the case of a small employer, the health insurance credit
determined under this section for the taxable year is an
amount equal to the applicable percentage of the expenses
paid by the taxpayer during the taxable year for health
insurance coverage for such year provided under a new
health plan for employees of such employer.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
subsection (a), the applicable percentage is—
‘‘(1) in the case of insurance purchased as a
member of a qualified health benefit purchasing coa-
lition (as defined in section 9841), 30 percent, and
‘‘(2) in the case of insurance not described in
paragraph (1), 20 percent.
‘‘(c) LIMITATIONS.—
‘‘(1) PER
EMPLOYEE
DOLLAR
LIMITATION.—
The amount of expenses taken into account under
subsection (a) with respect to any employee for any
taxable year shall not exceed—
‘‘(A) $2,000 in the case of self-only cov-
erage, and
‘‘(B) $5,000 in the case of family coverage.
In the case of an employee who is covered by a new
health plan of the employer for only a portion of
such taxable year, the limitation under the preceding
sentence shall be an amount which bears the same
ratio to such limitation (determined without regard
to this sentence) as such portion bears to the entire
taxable year.
‘‘(2) PERIOD OF COVERAGE.—Expenses may be
taken into account under subsection (a) only with
respect to coverage for the 4-year period beginning
on the date the employer establishes a new health
plan.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) HEALTH
INSURANCE
COVERAGE.—The
term ‘health insurance coverage’ has the meaning
given such term by section 9832(b)(1).
‘‘(2) NEW HEALTH PLAN.—
‘‘(A) IN GENERAL.—The term ‘new health
plan’ means any arrangement of the employer
which provides health insurance coverage to em-
ployees if—
‘‘(i) such employer (and any prede-
cessor employer) did not establish or main-
tain such arrangement (or any similar ar-
rangement) at any time during the 2 tax-
able years ending prior to the taxable year
in which the credit under this section is
first allowed, and
‘‘(ii) 
such 
arrangement 
provides
health insurance coverage to at least 70
percent of the qualified employees of such
employer.
‘‘(B) QUALIFIED EMPLOYEE.—
‘‘(i) IN GENERAL.—The term ‘quali-
fied employee’ means any employee of an
employer if the annual rate of such em-
ployee’s compensation (as defined in sec-
tion 414(s)) exceeds $10,000.
‘‘(ii) TREATMENT
OF
CERTAIN
EM-
PLOYEES.—The term ‘employee’ shall in-
clude a leased employee within the mean-
ing of section 414(n).
‘‘(3) SMALL EMPLOYER.—The term ‘small em-
ployer’ has the meaning given to such term by sec-
tion 4980D(d)(2); except that only qualified employ-
ees shall be taken into account.
‘‘(e) SPECIAL RULES.—
‘‘(1) CERTAIN RULES MADE APPLICABLE.—For
purposes of this section, rules similar to the rules of
section 52 shall apply.
‘‘(2) AMOUNTS
PAID
UNDER
SALARY
REDUC-
TION ARRANGEMENTS.—No amount paid or incurred
pursuant to a salary reduction arrangement shall be
taken into account under subsection (a).
‘‘(f) TERMINATION.—This section shall not apply to
expenses paid or incurred by an employer with respect to
any arrangement established on or after January 1,
2009.’’.
(b) CREDIT TO BE PART OF GENERAL BUSINESS
CREDIT.—Section 38(b) of such Code (relating to current
year business credit) is amended by striking ‘‘plus’’ at the
end of paragraph (11), by striking the period at the end
of paragraph (12) and inserting ‘‘, plus’’, and by adding
at the end the following:
‘‘(13) in the case of a small employer (as de-
fined in section 45D(d)(3)), the health insurance
credit determined under section 45D(a).’’
(c) NO CARRYBACKS.—Subsection (d) of section 39
of such Code (relating to carryback and carryforward of
unused credits) is amended by adding at the end the fol-
lowing:
‘‘(9) NO CARRYBACK OF SECTION 45D CREDIT
BEFORE EFFECTIVE DATE.—No portion of the un-
used business credit for any taxable year which is
attributable to the employee health insurance ex-
penses credit determined under section 45D may be
carried back to a taxable year ending before the date
of the enactment of section 45D.’’
(d) DENIAL OF DOUBLE BENEFIT.—Section 280C of
such Code is amended by adding at the end the following
new subsection:
‘‘(d) CREDIT FOR SMALL BUSINESS HEALTH INSUR-
ANCE EXPENSES.—
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed for that portion of the expenses (otherwise al-
lowable as a deduction) taken into account in deter-
mining the credit under section 45D for the taxable
year which is equal to the amount of the credit de-
termined for such taxable year under section
45D(a).
‘‘(2) CONTROLLED
GROUPS.—Persons treated
as a single employer under subsection (a) or (b) of
section 52 shall be treated as 1 person for purposes
of this section.’’
(e) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
of such Code is amended by adding at the end the fol-
lowing:
‘‘Sec. 45D. Small business health insurance expenses.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2000, for ar-
rangements established after the date of the enactment
of this Act.
SEC. 4. CERTAIN GRANTS BY PRIVATE FOUNDATIONS TO
QUALIFIED HEALTH BENEFIT PURCHASING
COALITIONS.
(a) IN GENERAL.—Section 4942 of the Internal Rev-
enue Code of 1986 (relating to taxes on failure to dis-
tribute income) is amended by adding at the end the fol-
lowing:
‘‘(k) CERTAIN QUALIFIED HEALTH BENEFIT PUR-
CHASING COALITION DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(g), sections 170, 501, 507, 509, and 2522, and this
chapter, a qualified health benefit purchasing coali-
tion distribution by a private foundation shall be
considered to be a distribution for a charitable pur-
pose.
‘‘(2) 
QUALIFIED
HEALTH
BENEFIT
PUR-
CHASING COALITION DISTRIBUTION.—For purposes
of paragraph (1)—
‘‘(A) IN
GENERAL.—The term ‘qualified
health benefit purchasing coalition distribution’
means any amount paid or incurred by a pri-
vate foundation to or on behalf of a qualified
health benefit purchasing coalition (as defined
in section 9841) for purposes of payment or re-
imbursement of amounts paid or incurred in
connection with the establishment and mainte-
nance of such coalition.
‘‘(B) EXCLUSIONS.—Such term shall not
include any amount used by a qualified health
benefit purchasing coalition (as so defined)—
‘‘(i) for the purchase of real property,
‘‘(ii) as payment to, or for the benefit
of, members (or employees or affiliates of
such members) of such coalition, or
‘‘(iii) for any expense paid or incurred
more than 48 months after the date of es-
tablishment of such coalition.
‘‘(3) TERMINATION.—This subsection shall not
apply—
‘‘(A) to qualified health benefit purchasing
coalition distributions paid or incurred after
December 31, 2008, and
‘‘(B) with respect to start-up costs of a co-
alition which are paid or incurred after Decem-
ber 31, 2010.’’.
(b) QUALIFIED HEALTH BENEFIT PURCHASING CO-
ALITION.—
(1) IN GENERAL.—Chapter 100 of such Code
(relating to group health plan requirements) is
amended by adding at the end the following new
subchapter:
‘‘Subchapter D—Qualified Health Benefit
Purchasing Coalition
‘‘Sec.
9841.
Qualified health benefit purchasing coalition.
‘‘SEC. 9841. QUALIFIED HEALTH BENEFIT PURCHASING CO-
ALITION.
‘‘(a) IN GENERAL.—A qualified health benefit pur-
chasing coalition is a private not-for-profit corporation
which—
‘‘(1) sells health insurance through State li-
censed health insurance issuers in the State in which
the employers to which such coalition is providing
insurance are located, and
‘‘(2) establishes to the Secretary, under State
certification procedures or other procedures as the
Secretary may provide by regulation, that such coali-
tion meets the requirements of this section.
‘‘(b) BOARD OF DIRECTORS.—
‘‘(1) IN GENERAL.—Each purchasing coalition
under this section shall be governed by a Board of
Directors.
‘‘(2) ELECTION.—The Secretary shall establish
procedures governing election of such Board.
‘‘(3) MEMBERSHIP.—The Board of Directors
shall—
‘‘(A) be composed of representatives of the
members of the coalition, in equal number, in-
cluding small employers and employee rep-
resentatives of such employers, but
‘‘(B) not include other interested parties,
such as service providers, health insurers, or in-
surance agents or brokers which may have a
conflict of interest with the purposes of the coa-
lition.
‘‘(c) MEMBERSHIP OF COALITION.—
‘‘(1) IN
GENERAL.—A purchasing coalition
shall accept all small employers residing within the
area served by the coalition as members if such em-
ployers request such membership.
‘‘(2) OTHER MEMBERS.—The coalition, at the
discretion of its Board of Directors, may be open to
individuals and large employers.
‘‘(3) VOTING.—Members of a purchasing coali-
tion shall have voting rights consistent with the rules
established by the State.
‘‘(d) DUTIES OF PURCHASING COALITIONS.—Each
purchasing coalition shall—
‘‘(1) enter into agreements with small employ-
ers (and, at the discretion of its Board, with individ-
uals and other employers) to provide health insur-
ance benefits to employees and retirees of such em-
ployers,
‘‘(2) where feasible, enter into agreements with
3 or more unaffiliated, qualified licensed health
plans, to offer benefits to members,
‘‘(3) offer to members at least 1 open enroll-
ment period of at least 30 days per calendar year,
‘‘(4) serve a significant geographical area and
market to all eligible members in that area, and
‘‘(5) carry out other functions provided for
under this section.
‘‘(e) LIMITATION ON ACTIVITIES.—A purchasing coa-
lition shall not—
‘‘(1) perform any activity (including certifi-
cation or enforcement) relating to compliance or li-
censing of health plans,
‘‘(2) assume insurance or financial risk in rela-
tion to any health plan, or
‘‘(3) perform other activities identified by the
State as being inconsistent with the performance of
its duties under this section.
‘‘(f) ADDITIONAL REQUIREMENTS FOR PURCHASING
COALITIONS.—As provided by the Secretary in regula-
tions, a purchasing coalition shall be subject to require-
ments similar to the requirements of a group health plan
under this chapter.
‘‘(g) RELATION TO OTHER LAWS.—
‘‘(1) 
PREEMPTION
OF
STATE
FICTITIOUS
GROUP LAWS.—Requirements (commonly referred to
as fictitious group laws) relating to grouping and
similar requirements for health insurance coverage
are preempted to the extent such requirements im-
pede the establishment and operation of qualified
health benefit purchasing coalitions.
‘‘(2) ALLOWING
SAVINGS
TO
BE
PASSED
THROUGH.—Any State law that prohibits health in-
surance issuers from reducing premiums on health
insurance coverage sold through a qualified health
benefit purchasing coalition to reflect administrative
savings is preempted. This paragraph shall not be
construed to preempt State laws that impose restric-
tions on premiums based on health status, claims
history, industry, age, gender, or other underwriting
factors.
‘‘(3) NO WAIVER OF HIPAA REQUIREMENTS.—
Nothing in this section shall be construed to change
the obligation of health insurance issuers to comply
with the requirements of title XXVII of the Public
Health Service Act with respect to health insurance
coverage offered to small employers in the small
group market through a qualified health benefit pur-
chasing coalition.
‘‘(h) DEFINITION OF SMALL EMPLOYER.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘small employer’
means, with respect to any calendar year, any em-
ployer if such employer employed an average of at
least 2 and not more than 50 qualified employees on
business days during either of the 2 preceding cal-
endar years. For purposes of the preceding sentence,
a preceding calendar year may be taken into account
only if the employer was in existence throughout
such year.
‘‘(2) EMPLOYERS NOT IN EXISTENCE IN PRE-
CEDING YEAR.—In the case of an employer which
was not in existence throughout the 1st preceding
calendar year, the determination under paragraph
(1) shall be based on the average number of quali-
fied employees that it is reasonably expected such
employer will employ on business days in the current
calendar year.’’.
(2) CONFORMING AMENDMENT.—The table of
subchapters for chapter 100 of such Code is amend-
ed by adding at the end the following item:
‘‘Subchapter D.
Qualified health benefit purchasing coalition.’’.
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2000.
SEC. 5. STATE GRANT PROGRAM FOR MARKET INNOVA-
TION.
(a) IN GENERAL.—The Secretary of Health and
Human Services (in this section referred to as the ‘‘Sec-
retary’’) shall establish a program (in this section referred
to as the ‘‘program’’) to award demonstration grants
under this section to States to allow States to demonstrate
the effectiveness of innovative ways to increase access to
health insurance through market reforms and other inno-
vative means. Such innovative means may include (and are
not limited to) any of the following:
(1) Alternative group purchasing or pooling ar-
rangements, such as a purchasing cooperatives for
small businesses, reinsurance pools, or high risk
pools.
(2) Individual or small group market reforms.
(3) Consumer education and outreach.
(4) Subsidies to individuals, employers, or both,
in obtaining health insurance.
(b) SCOPE; DURATION.—The program shall be lim-
ited to not more than 10 States and to a total period of
5 years, beginning on the date the first demonstration
grant is made.
(c) CONDITIONS FOR DEMONSTRATION GRANTS.—
(1) IN GENERAL.—The Secretary may not pro-
vide for a demonstration grant to a State under the
program unless the Secretary finds that under the
proposed demonstration grant—
(A) the State will provide for demonstrated
increase of access for some portion of the exist-
ing uninsured population through a market in-
novation (other than merely through a financial
expansion of a program initiated before the
date of the enactment of this Act);
(B) the State will comply with applicable
Federal laws;
(C) the State will not discriminate among
participants on the basis of any health status-
related factor (as defined in section 2791(d)(9)
of the Public Health Service Act), except to the
extent a State wishes to focus on populations
that otherwise would not obtain health insur-
ance because of such factors; and
(D) the State will provide for such evalua-
tion, in coordination with the evaluation re-
quired under subsection (d), as the Secretary
may specify.
(2) APPLICATION.—The Secretary shall not
provide a demonstration grant under the program to
a State unless—
(A) the State submits to the Secretary
such an application, in such a form and man-
ner, as the Secretary specifies;
(B) the application includes information
regarding how the demonstration grant will ad-
dress issues such as governance, targeted popu-
lation, expected cost, and the continuation after
the completion of the demonstration grant pe-
riod; and
(B) the Secretary determines that the
demonstration grant will be used consistent
with this section.
(3) FOCUS.—A demonstration grant proposal
under section need not cover all uninsured individ-
uals in a State or all health care benefits with re-
spect to such individuals.
(d) EVALUATION.—The Secretary shall enter into a
contract with an appropriate entity outside the Depart-
ment of Health and Human Services to conduct an overall
evaluation of the program at the end of the program pe-
riod. Such evaluation shall include an analysis of improve-
ments in access, costs, quality of care, or choice of cov-
erage, under different demonstration grants.
(e) OPTION TO PROVIDE FOR INITIAL PLANNING
GRANTS.—Notwithstanding the previous provisions of this
section, under the program the Secretary may provide for
a portion of the amounts appropriated under subsection
(f) (not to exceed $5,000,000) to be made available to any
State for initial planning grants to permit States to de-
velop demonstration grant proposals under the previous
provisions of this section.
(f) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated $100,000,000 for each
fiscal year to carry out this section. Amounts appropriated
under this subsection shall remain available until ex-
pended.
(g) STATE DEFINED.—For purposes of this section,
the term ‘‘State’’ has the meaning given such term for
purposes of title XIX of the Social Security Act.
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