Title I, Subtitle A
include the option of coverage of family members of the
individual.
(e) LIMITATION ON CARRIERS.—A carrier may not
require an employer under a group health plan to impose
through a waiting period for health coverage under a plan
or similarly require a limitation or condition on health cov-
erage or benefits based on—
(1) the health status of an individual,
(2) claims experience of an individual,
(3) receipt of health care by an individual,
(4) medical history of an individual,
(5) receipt of public subsidies by an individual,
or
(6) lack of evidence of insurability of an individ-
ual.
(f) CONSTRUCTION FOR MEWAS.—Nothing in this
section shall be construed as requiring a multiple employer
welfare arrangement that provides health coverage other
than through a carrier to meet the requirements of this
section.
SEC. 1002. GUARANTEED ISSUE BY CARRIERS.
(a) IN GENERAL.—Subject to subsections (b) and (c)
and section 1003, each carrier that offers health insurance
coverage in the individual/small group market in a fair rat-
ing area—
Title I, Subtitle A
(1) must accept every small employer in the
area that applies for such coverage during an enroll-
ment period provided under section 1005; and
(2) must accept for enrollment under such cov-
erage every qualifying individual (and family mem-
ber of such an individual) who applies for enrollment
during an enrollment period provided under section
1005 and may not place any restriction on the eligi-
bility of an individual to enroll so long as such indi-
vidual is a qualifying individual.
(b) SPECIAL RULES FOR MANAGED CARE ARRANGE-
MENTS.—In the case of coverage offered by a carrier or
under a group health plan that provides benefits through
a managed care arrangement in a fair rating area, the
carrier or plan—
(1) need not establish facilities for the delivery
of health care services throughout the area so long
as such facilities are located in a manner that does
not discriminate on the basis of health status of in-
dividuals residing in proximity to such facilities, and
(2) may deny such coverage in a fair rating
area to employers or individuals if the organization
demonstrates to the applicable regulatory authority
that—
Title I, Subtitle A
(A) it will not have the capacity to deliver
services adequately to enrollees of any addi-
tional groups or additional enrollees because of
its obligations to existing group contract hold-
ers and enrollees, and
(B) it is applying this paragraph uniformly
to all employers and individuals without regard
to the health status, claims experience, or dura-
tion of coverage of those employers and their
employees.
Coverage may be denied under paragraph (2) only if the
denial is applied during a consecutive period of at least
180 days.
(c) SPECIAL RULE FOR FINANCIAL CAPACITY LIM-
ITS.—In addition to the authority provided under sub-
section (b)(2), in the case of coverage offered by any car-
rier, the carrier may deny coverage to a small employer
or individual if the carrier demonstrates to the applicable
regulatory authority that—
(1) it does not have the financial reserves nec-
essary to underwrite additional coverage, and
(2) it is applying this subsection uniformly to
all employers and individuals without regard to the
health status, claims experience, or duration of cov-
erage of those employers and their employees.
Title I, Subtitle A
Coverage may be denied under this subsection only if the
denial is applied during a consecutive period of at least
180 days.
(d) TREATMENT OF CERTAIN MEWAS.—Subsection
(a) shall not apply to a carrier if the only coverage offered
by the carrier in the individual/small group market is
through one or more multiple employer welfare arrange-
ments. In the case of coverage offered by a carrier in the
individual/small group market through a multiple em-
ployer welfare arrangement and to which the previous sen-
tence does not apply, the requirements of subsection (a)
shall apply to the carrier and not to the arrangement.
SEC. 1003. GUARANTEED RENEWAL.
(a) LIMITATION ON TERMINATION BY CARRIERS.—
A carrier may not deny, cancel, or refuse to renew health
coverage of a qualifying individual or eligible employer
within a type of coverage option described in section
1903(14) except—
(1) on the basis of nonpayment of premiums,
(2) on the basis of fraud or misrepresentation,
or
(3) subject to subsection (b), in a fair rating
area because the carrier is ceasing to provide any
health insurance coverage in the individual/small
Title I, Subtitle A
group market within such type of coverage option in
the area.
(b) LIMITATIONS ON MARKET EXIT BY CARRIERS.—
(1) NOTICE, ETC.—Subsection (a)(3) shall not
apply to a carrier ceasing to provide health insur-
ance coverage unless—
(A) such termination of coverage takes ef-
fect at the end of a contract year, and
(B) the carrier provides notice of such ter-
mination to employers and individuals covered
at least 30 days before the date of an annual
open enrollment period established with respect
to the employer or individual under section
1005.
(2) LIMITATION ON REENTRY IN INDIVIDUAL/
SMALL GROUP MARKET.—If a carrier ceases to offer
or provide health insurance coverage in an area with
respect to the individual/small group market for a
type of coverage option, the insurer may not offer
health insurance coverage in the area in such market
within such type of coverage option until 5 years
after the date of the termination.
(c) RULE FOR MULTIEMPLOYER PLANS AND MUL-
TIPLE EMPLOYER HEALTH.—A multiemployer plan and
a multiple employer health plan may not cancel coverage
Title I, Subtitle A
or deny renewal of coverage under such a plan with re-
spect to an employer other than—
(1) for nonpayment of contributions,
(2) for fraud or other misrepresentation by the
employer, or
(3) because the plan is ceasing to provide any
coverage in a geographic area.
SEC. 1004. RESTRICTING PREEXISTING CONDITION EXCLU-
SIONS.
(a) IN GENERAL.—Except as provided in this section,
a carrier or group health plan providing health coverage
may not exclude health coverage with respect to services
related to treatment of a condition based on the fact that
the condition of an individual existed before the effective
date of coverage of the individual.
(b) LIMITED 6-MONTH EXCLUSION PERMITTED.—
(1) IN
GENERAL.—Subject to paragraph (2)
and subsections (c) through (e), a carrier or group
health plan providing health coverage may exclude
health coverage with respect to services related to
treatment of a condition of an individual based on
the fact that the condition existed before the effec-
tive date of coverage of the individual only if the pe-
riod of the exclusion does not exceed 6 months be-
ginning on the date of coverage.
Title I, Subtitle A
(2) CREDITING OF PREVIOUS COVERAGE.—
(A) IN
GENERAL.—A carrier or group
health plan providing health coverage shall pro-
vide that if a covered individual is in a period
of continuous coverage (as defined in subpara-
graph (C)) as of a date upon which coverage is
initiated or reinitiated, any period of exclusion
of coverage with respect to a preexisting condi-
tion (as defined in subparagraph (B)) for such
services or type of services shall be reduced by
1 month for each month in the period of contin-
uous coverage.
(B) PREEXISTING CONDITION DEFINED.—
In this paragraph, the term ‘‘preexisting condi-
tion’’ means, with respect to health coverage, a
condition which has been diagnosed or treated
during the 6-month period ending on the day
before the first date of such coverage (without
regard to any waiting period).
(C) PERIOD OF CONTINUOUS COVERAGE.—
In this part, the term ‘‘period of continuous
coverage’’ means the period beginning on the
date an individual has health coverage (or cov-
erage under a public plan providing medical
benefits) and ends on the date the individual
Title I, Subtitle A
does not have such coverage for a continuous
period of more than 3 months (or 6 months in
the case of an individual who loses coverage due
to involuntary termination of employment, other
than by reason of an employee’s gross mis-
conduct).
(c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—
Any exclusion of coverage under subsection (b)(1) shall
not apply if the exclusion relates to pregnancy.
(d) EXCLUSION NOT APPLICABLE TO NEWBORNS
AND ADOPTED CHILDREN.—
(1) NEWBORNS.—Any exclusion of coverage
under subsection (b)(1) shall not apply to a child
who is covered at the time of birth and remains in
a period of continuous coverage after such time.
(2) ADOPTED
CHILDREN.—Any exclusion of
coverage under subsection (b)(1) shall not apply (be-
ginning on the date of adoption) to an adopted child
who is covered at the time of adoption and remains
in a period of continuous coverage after such time.
(e) EXCLUSION NOT APPLICABLE TO INDIVIDUALS
ENROLLED OR ENROLLING DURING CERTAIN OPEN EN-
ROLLMENT PERIODS.—
(1) INDIVIDUALS
ENROLLING
DURING
PE-
RIOD.—In the case of an individual who enrolls and
Title I, Subtitle A
obtains coverage during an open enrollment period
described in section 1005(b), any exclusion of cov-
erage under subsection (b)(1) shall not apply so long
as the individual remains in a period of continuous
coverage.
(2) INDIVIDUALS ENROLLED AT BEGINNING OF
PERIOD.—In the case of an individual who has
health coverage as of the first day of the initial open
enrollment period described in section 1005(b)(1),
any exclusion of coverage under subsection (b)(1)
shall not apply as of such date and so long as the
individual is in a period of continuous coverage.
(f) APPLICATION OF RULES BY CERTAIN HEALTH
MAINTENANCE ORGANIZATIONS.—A health maintenance
organization that provides health insurance coverage shall
not be considered as failing to meet the requirements of
section 1301 of the Public Health Service Act notwith-
standing that it provides for an exclusion of the coverage
based on a preexisting condition consistent with the provi-
sions of this part so long as such exclusion is applied con-
sistent with the provisions of this part.
SEC. 1005. ENROLLMENT PERIODS.
(a) IN GENERAL.—Each carrier and each group
health plan providing health coverage (and each health
plan purchasing organization under subtitle A of title V)
Title I, Subtitle A
in the individual/small group market shall permit qualify-
ing individuals and eligible employers to obtain health cov-
erage from the carrier or group health plan during each
enrollment period provided under this section.
(b) OPEN ENROLLMENT PERIODS FOR WHICH PRE-
EXISTING CONDITION EXCLUSIONS WAIVED.—
(1) INITIAL PERIOD.—There shall be an initial
open enrollment period, with respect to individuals
and employees who are residents of a State, during
the 60-day period beginning on January 1, 1997.
(2) INDIVIDUALS ELIGIBLE FOR SUBSIDIES.—
There shall be an individual open enrollment period
with respect to an individual at the time the individ-
ual first becomes eligible for any premium assistance
under part A of title XXI of the Social Security Act,
during the 60-day period beginning on the first date
the individual meets eligibility criteria within any
12-month period.
(3) COURT ORDERS.—If a court has ordered
that coverage be provided for a spouse or child of an
employee or individual under health coverage of the
employee or individual, there shall be an open enroll-
ment period during the 30-day period beginning on
the date of issuance of the court order.
Title I, Subtitle A
(4) ENROLLMENT OF NEWBORNS AND NEWLY
ADOPTED CHILDREN.—There shall be an open en-
rollment period with respect to a newborn child and
a newly adopted child during the 30-day period be-
ginning on the date of the birth or adoption of a
child, if family coverage is available as of such date.
(c) ANNUAL OPEN ENROLLMENT PERIODS
FOR
WHICH
PREEXISTING
CONDITION
EXCLUSIONS
MAY
APPLY.—
(1) IN GENERAL.—Each carrier and each group
health plan providing health coverage (and each
health plan purchasing organization under subtitle A
of title V) in the individual/small group market shall
provide for at least one annual open enrollment pe-
riod (of not less than 30 days) each year. Such pe-
riod shall be in addition to the open enrollment peri-
ods described in subsection (b).
(2) COORDINATION.—
(A) 
CARRIERS
IN
INDIVIDUAL/SMALL
GROUP MARKET.—Such annual open enrollment
periods with respect to carriers in the individ-
ual/small group market are subject to coordina-
tion by States.
Title I, Subtitle A
(d) OTHER
OPEN
ENROLLMENT
PERIODS
FOR
WHICH
PREEXISTING
CONDITION
EXCLUSIONS
MAY
APPLY.—
(1) TERMINATION OF RESIDENCE AREA.—For
each qualifying individual, at the time the individual
terminates residence in the service area of coverage
provided by a carrier to the individual, there shall be
an open enrollment period (of not less than 30 days)
during which the individual may enroll in health cov-
erage.
(2) FAMILY
OR
EMPLOYMENT
CHANGES.—In
the case of a qualifying individual who—
(A) through divorce or death of a family
member experiences a change in family com-
position, or
(B) experiences a change in employment
status (including a significant change in the
terms and conditions of employment or the
terms and conditions of employment of a
spouse),
there shall be an open enrollment period (of at least
30 days) in which the individual is permitted to
change the individual or family basis of coverage or
the health coverage in which the individual is en-
rolled. The circumstances under which such enroll-
Title I, Subtitle A
ment periods are required and the duration of such
periods shall be specified by the Secretary.
(3) ENROLLMENT DUE TO LOSS OF PREVIOUS
COVERAGE.—In the case of a qualifying individual
who—
(A) had health coverage at the time of an
individual’s enrollment period,
(B) stated at the time of such period that
having other health coverage was the reason for
declining enrollment, and
(C) lost the other health coverage as a re-
sult of the termination of the coverage, termi-
nation or reduction of employment, or other
reason, except termination at the option of the
individual,
there shall be an open enrollment period during the
30-day period beginning on the date of termination
of the other coverage.
(4) ENROLLMENT
AT
TIME
OF
MARRIAGE.—
There shall be an open enrollment period with re-
spect to the spouse of an individual (including chil-
dren of the spouse) during the 30-day period begin-
ning on the date of the marriage, if family coverage
is available as of such date.
Title I, Subtitle A
(5) NO EFFECT ON COBRA CONTINUATION BEN-
EFITS.—Nothing in this subsection shall be con-
strued as affecting rights of individuals to continu-
ation coverage under section 4980B of the Internal
Revenue Code of 1986, part 6 of subtitle B of title
I of the Employee Retirement Income Security Act
of 1974, or title XXII of the Public Health Service
Act.
(e) PERIOD OF COVERAGE.—
(1) IN GENERAL.—In the case of a qualifying
individual who enrolls under health coverage during
an open enrollment period under this section, cov-
erage shall begin on such date (not later than the
first day of the first month that begins at least 15
days after the date of enrollment) as the Secretary
shall specify, consistent with this subsection.
(2) COVERAGE OF FAMILY MEMBERS.—In the
case of an open enrollment period described in sub-
section (b)(3), (b)(4), or (d)(4), the Secretary shall
provide for coverage of family members to begin as
soon as possible on or after the date of the event
that gives rise to the special enrollment period (or,
in the case of birth or adoption, as of the date of
birth or adoption).
Title I, Subtitle A
PART 2—PROVISION OF BENEFITS
SEC. 1011. STANDARDS FOR MANAGED CARE ARRANGE-
MENTS.
(a) APPLICATION OF REQUIREMENTS.—Each group
health plan, and each carrier providing health insurance
coverage, that provides for health care through a managed
care arrangement (as defined in section 1903(11)(A))
shall comply with the applicable requirements of this sec-
tion.
(b) CONSUMER DISCLOSURE.—
(1) IN GENERAL.—The group health plan, or
carrier providing health insurance coverage, that
provides for health care shall assure that, before an
individual is enrolled with the plan or carrier, the in-
dividual is provided with information about the ar-
rangements between the entity providing for the
managed care arrangement and health care provid-
ers for the provision of covered benefits, including
the following:
(A) 
EMERGENCY
SERVICES.—Arrange-
ments for access to emergency care services in-
side and outside the provider network (includ-
ing designated trauma centers), including any
requirements for prior authorization.
Title I, Subtitle A
(B) SPECIALIZED TREATMENT.—Arrange-
ments for access to specialized treatment pro-
viders (such as centers of excellence).
(C) CHOICE OF PERSONAL PHYSICIAN.—
Ability of enrollees to choose (and change the
selection of) a personal physician from among
available participating physicians and change
that selection as appropriate.
(D) ESSENTIAL COMMUNITY PROVIDERS.—
Arrangements for access to essential community
providers, including disproportionate share hos-
pitals, sole community hospitals, medicare-de-
pendent, small rural hospitals, Federally quali-
fied health centers, rural health clinics, local
health departments, and children’s hospitals.
(2) DESIGNATION
OF
CENTERS
OF
EXCEL-
LENCE.—The Secretary shall establish a process for
the designation of facilities, including children’s hos-
pitals and other pediatric facilities, as centers of ex-
cellence for purposes of this subsection. A facility
may not be designated unless the facility is deter-
mined—
(A) to provide specialty care,
Title I, Subtitle A
(B) to deliver care for complex cases re-
quiring specialized treatment and for individ-
uals with chronic diseases, and
(C) to meet other requirements that may
be established by the Secretary relating to spe-
cialized education and training of health profes-
sionals, participation in peer-reviewed research,
or treatment of patients from outside the geo-
graphic area of the facility.
(c) PROVIDER DISCLOSURE AND DUE PROCESS RE-
LATING TO PROVIDER NETWORKS.—
(1) DISCLOSURE.—The entity providing for a
managed care arrangement under which health cov-
erage shall provide that before entering into a con-
tract with health care providers with respect to the
entity’s provider network, the provider is given infor-
mation concerning the terms and conditions of the
provider’s involvement with the network, including
the following:
(A) STANDARDS FOR SELECTION OF PRO-
VIDERS FOR NETWORK.—Information concern-
ing the standards (including criteria for quality,
efficiency, credentialing, and services) to be
used by the entity for contracting with health
Title I, Subtitle A
care providers with respect to the entity’s pro-
vider network.
(B) REVIEW PROCESS.—Information con-
cerning the process under which a provider may
request a review of the entity’s decision to ter-
minate or refuse to renew the provider’s partici-
pation agreement.
(2) WRITTEN NOTICE OF DENIALS.—The entity
providing for the managed care arrangement shall
provide written notice to the provider of any denial
of an application to participate in the provider net-
work.
(3) TERMINATION PROCESS.—
(A) IN GENERAL.—The entity may not ter-
minate or refuse to renew a participation agree-
ment with a provider in the entity’s provider
network unless the entity provides written noti-
fication to the provider of the entity’s decision
to terminate or refuse to renew the agreement.
The notification shall include a statement of the
reasons for the entity’s decision, consistent with
any standards described in paragraph (1)(A).
(B) TIMING OF NOTIFICATION.—The en-
tity shall provide the notification required under
subparagraph (A) at least 30 days prior to the
Title I, Subtitle A
effective date of the termination or expiration
of the agreement (whichever is applicable). The
previous sentence shall not apply if failure to
terminate the agreement prior to the deadline
would adversely affect the health or safety of
a covered individual.
(d) NO REFERRAL REQUIRED FOR OBSTETRICS AND
GYNECOLOGY.—A carrier or group health plan may not
require an individual to obtain a referral from a physician
in order to obtain covered items and services from a physi-
cian who specializes in obstetrics and gynecology.
(e) PREEMPTION OF STATE LAW RESTRICTIONS ON
MANAGED CARE ARRANGEMENTS.—
(1) LIMITATION
ON
RESTRICTIONS
ON
NET-
WORK PLANS.—Effective as of January 1, 1997—
(A) a State may not prohibit or limit a
carrier or group health plan providing health
coverage from including incentives for enrollees
to use the services of participating providers;
(B) a State may not prohibit or limit such
a carrier or plan from limiting coverage of serv-
ices to those provided by a participating pro-
vider;
(C) a State may not prohibit or limit the
negotiation of rates and forms of payments for
Title I, Subtitle A
providers by such a carrier or plan with respect
to health coverage;
(D) a State may not prohibit or limit such
a carrier or plan from limiting the number of
participating providers;
(E) a State may not prohibit or limit such
a carrier or plan from requiring that services be
provided (or authorized) by a practitioner se-
lected by the enrollee from a list of available
participating providers or, except as provided in
subsection 1011(d), from requiring enrollees to
obtain referral in order to have coverage for
treatment by a specialist or health institution;
and
(F) a State may not prohibit or limit the
corporate practice of medicine.
(2) DEFINITIONS.—In this subsection:
(A) MANAGED
CARE
COVERAGE.—The
term ‘‘managed care coverage’’ means health
coverage to the extent the coverage is provided
through a managed care arrangement (as de-
fined in section 1903(11)(A)) that meets the
applicable requirements of this section.
(B) PARTICIPATING PROVIDER.—The term
‘‘participating provider’’ means an entity or in-
Title I, Subtitle A
dividual which provides, sells, or leases health
care services as part of a provider network (as
defined in section 1903(11)(B)).
SEC. 1012. REPORT ON UTILIZATION REVIEW STANDARDS.
(a) STUDY.—The Secretary shall provide for a study
on the feasibility and appropriateness of—
(1) establishing standards for utilization review
programs, and
(2) prohibiting group health plans and carriers
providing health insurance coverage from denying
coverage of or payment for items and services on the
basis of a utilization review program unless the pro-
gram meets such standards.
(b) REPORT.—Not later than 18 months after the
date of the enactment of this Act, the Secretary shall sub-
mit to Congress a report on the study under subsection
(a). The Secretary shall include the report recommenda-
tions regarding the application of standards for utilization
review programs to group health plans and carriers pro-
viding health insurance coverage.
(c) PREEMPTION.—For provision preempting State
laws relating to utilization review, see section 6103.
Title I, Subtitle A
SEC. 1013. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Chapter 79 of the Internal Reve-
nue Code of 1986 is amended by adding at the end the
following new section:
‘‘SEC. 7705. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) GENERAL RULE.—For purposes of this title, the
term ‘medical savings account’ means a trust created or
organized in the United States for the exclusive benefit
of an individual or his beneficiaries, but only if the written
instrument creating the trust meets the following require-
ments:
‘‘(1) Except in the case of a rollover contribu-
tion described in subsection (d)(3), no contribution
will be accepted unless—
‘‘(A) it is in cash, and
‘‘(B) such individual is an eligible employee
for the period for which such contribution is
made.
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)), insurance company (as defined in sec-
tion 816), or such other person who demonstrates to
the satisfaction of the Secretary that the manner in
which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
Title I, Subtitle A
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance of the account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(b) ELIGIBLE EMPLOYEE.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘eligible em-
ployee’ means any employee who has high-deductible
coverage (as defined in section 1103 of the Health
Care Improvement Act of 1995) offered by the em-
ployer.
‘‘(2) EXCEPTION.—An employee shall be treat-
ed as not being an eligible employee for any calendar
year if, for any month during such year, it is reason-
ably expected that such employee—
‘‘(A) will have adjusted gross income that
is less than 100 percent of the income official
poverty line (as determined by the Director of
the Office of Management and Budget) for a
family of the size involved; or
‘‘(B) is an AFDC recipient or SSI recipi-
ent.
Title I, Subtitle A
‘‘(3) DEFINITIONS.—For purposes of paragraph
(2)—
‘‘(A) 
AFDC 
RECIPIENT.—The 
term
‘AFDC recipient’ means, for a month, an indi-
vidual who is receiving aid or assistance under
any plan of the State approved under title I, X,
XIV, or XVI, or part A or part E of title IV,
of the Social Security Act for the month.
‘‘(B) SSI RECIPIENT.—The term ‘SSI re-
cipient’ means, for a month, an individual—
‘‘(i) with respect to whom supple-
mental security income benefits are being
paid under title XVI of the Social Security
Act for the month,
‘‘(ii) who is receiving a supplementary
payment under section 1616 of such Act or
under section 212 of Public Law 93–66 for
the month,
‘‘(iii) who is receiving monthly bene-
fits under section 1619(a) of the Social Se-
curity Act (whether or not pursuant to sec-
tion 1616(c)(3) of such Act) for the
month, or
‘‘(iv) who is treated under section
1619(b) of the Social Security Act as re-
Title I, Subtitle A
ceiving supplemental security income bene-
fits in a month for purposes of title XIX
of such Act.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the account beneficiary of a
medical savings account shall be treated for
purposes of this title as the owner of such ac-
count and shall be subject to tax thereon in ac-
cordance with subpart E of part I of subchapter
J of this chapter (relating to grantors and oth-
ers treated as substantial owners).
‘‘(B) TREATMENT OF CAPITAL LOSSES.—
With respect to assets held in a medical savings
account, any capital loss for a taxable year
from the sale or exchange of such an asset shall
be allowed only to the extent of capital gains
from such assets for such taxable year. Any
capital loss which is disallowed under the pre-
ceding sentence shall be treated as a capital
loss from the sale or exchange of such an asset
in the next taxable year. For purposes of this
subparagraph, all medical savings accounts of
Title I, Subtitle A
the account beneficiary shall be treated as 1 ac-
count.
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the account beneficiary, such beneficiary
engages in any transaction prohibited by section
4975 with respect to the account, the account
shall cease to be a medical savings account as
of the first day of such taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, subsection (d) shall be applied
as if—
‘‘(i) there were a distribution on such
first day in an amount equal to the fair
market value (on such first day) of all as-
sets in the account (on such first day), and
‘‘(ii) no portion of such distribution
were used to pay qualified medical ex-
penses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the account ben-
Title I, Subtitle A
eficiary uses the account or any portion thereof as
security for a loan, the portion so used is treated as
distributed and not used to pay qualified medical ex-
penses.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
which is not used exclusively to pay the quali-
fied medical expenses of the account beneficiary
or of the spouse or dependents (as defined in
section 152) of such beneficiary shall be in-
cluded in the gross income of such beneficiary
to the extent such amount does not exceed the
excess of—
‘‘(i) the aggregate contributions to
such account which were not includible in
gross income by reason of section 106(2),
over
‘‘(ii) the aggregate prior payments or
distributions from such account which were
includible in gross income under this para-
graph.
Title I, Subtitle A
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all medical savings accounts of
the account beneficiary shall be treated as
1 account,
‘‘(ii) all payments and distributions
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
chapter 1 on the account beneficiary for any
taxable year in which there is a payment or dis-
tribution from a medical savings account of
such beneficiary which is includible in gross in-
come under paragraph (1) shall be increased by
100 percent of the amount which is so includ-
ible.
‘‘(B) EXCEPTION FOR DEATH.—Subpara-
graph (A) shall not apply if the payment or dis-
tribution is made after the account beneficiary
dies.
Title I, Subtitle A
‘‘(3) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribu-
tion if it meets the requirements of subparagraphs
(A) and (B).
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any amount paid or distributed
from a medical savings account to the account
beneficiary to the extent the amount received is
paid into a medical savings account for the ben-
efit of such beneficiary not later than the 60th
day after the day on which he receives the pay-
ment or distribution.
‘‘(B) LIMITATION.—This paragraph shall
not apply to any amount described in subpara-
graph (A) received by an individual from a
medical savings account if, at any time during
the 1-year period ending on the day of such re-
ceipt, such individual received any other amount
described in subparagraph (A) from a medical
savings account which was not includible in his
gross income because of the application of this
paragraph.
‘‘(4) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a medical savings ac-
Title I, Subtitle A
count for qualified medical expenses shall not be
treated as an expense paid for medical care to the
extent of the amount of such payment or distribu-
tion which is excludable from gross income solely by
reason of paragraph (1)(A).
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any expense
for medical care (as defined in section 213(d)); ex-
cept that such term shall not include any amount
paid for insurance.
‘‘(2) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual for whose
benefit the medical savings account is maintained.
‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)), insurance com-
pany (as defined in section 816), or another person
who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
the account will be consistent with the requirements
of this section, and
Title I, Subtitle A
‘‘(2) the custodial account would, except for the
fact that it is not a trust, constitute a medical sav-
ings account described in subsection (a).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
‘‘(g) REPORTS.—The trustee of a medical savings ac-
count shall keep such records and make such reports re-
garding such account to the Secretary and to the account
beneficiary with respect to contributions, distributions,
and such other matters as the Secretary may require
under regulations. The reports required by this subsection
shall be filed at such time and in such manner and fur-
nished to such individuals at such time and in such man-
ner as may be required by such regulations.’’
(b) INCOME AND EMPLOYMENT TAX TREATMENT OF
EMPLOYER CONTRIBUTIONS.—
(1) EMPLOYER
PAYMENTS
EXCLUDED
FROM
GROSS INCOME.—The text of section 106 of such
Code is amended to read as follows:
‘‘Gross income of an employee does not include—
‘‘(1) employer-provided coverage under an acci-
dent or health plan, and
Title I, Subtitle A
‘‘(2) employer contributions to any medical sav-
ings account (as defined in section 7705) of an eligi-
ble employee, but only to the extent that the amount
contributed does not exceed the excess of premium
for standard coverage over the premium for high-de-
ductible coverage (as such terms are defined in sec-
tion 1903 of the Health Care Improvement Act of
1995).’’
(2) EMPLOYER
PAYMENTS
EXCLUDED
FROM
EMPLOYMENT TAX BASE.—
(A) SOCIAL SECURITY TAXES.—
(i) Subsection (a) of section 3121 of
such Code is amended by striking ‘‘or’’ at
the end of paragraph (20), by striking the
period at the end of paragraph (21) and
inserting ‘‘; or’’, and by inserting after
paragraph (21) the following new para-
graph:
‘‘(22) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
(ii) Subsection (a) of section 209 of
the Social Security Act is amended by
Title I, Subtitle A
striking ‘‘or’’ at the end of paragraph (18),
by striking the period at the end of para-
graph (19) and inserting ‘‘; or’’, and by in-
serting after paragraph (19) the following
new paragraph:
‘‘(20) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2) of the Internal Revenue Code of 1986.’’
(B) RAILROAD
RETIREMENT
TAX.—Sub-
section (e) of section 3231 of such Code is
amended by adding at the end the following
new paragraph:
‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU-
TIONS.—The term ‘compensation’ shall not include
any payment made to or for the benefit of an em-
ployee if at the time of such payment it is reason-
able to believe that the employee will be able to ex-
clude such payment from income under section
106(2).’’
(C) UNEMPLOYMENT TAX.—Subsection (b)
of section 3306 of such Code is amended by
striking ‘‘or’’ at the end of paragraph (15), by
striking the period at the end of paragraph (16)
Title I, Subtitle A
and inserting ‘‘; or’’, and by inserting after
paragraph (16) the following new paragraph:
‘‘(17) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
(D) WITHHOLDING
TAX.—Subsection (a)
of section 3401 of such Code is amended by
striking ‘‘or’’ at the end of paragraph (19), by
striking the period at the end of paragraph (20)
and inserting ‘‘; or’’, and by inserting after
paragraph (20) the following new paragraph:
‘‘(21) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
(c) TECHNICAL AMENDMENTS.—
(1) TAX ON PROHIBITED TRANSACTIONS.—Sec-
tion 4975 of such Code (relating to prohibited trans-
actions) is amended—
(A) by adding at the end of subsection (c)
the following new paragraph:
Title I, Subtitle A
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
7705) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 7705(c)(2)(A) to such account.’’, and
(B) by inserting ‘‘or a medical savings ac-
count described in section 7705’’ in subsection
(e)(1) after ‘‘described in section 408(a)’’.
(2) FAILURE TO PROVIDE REPORTS ON MEDI-
CAL
SAVINGS
ACCOUNTS.—Section 6693 of such
Code (relating to failure to provide reports on indi-
vidual retirement account or annuities) is amend-
ed—
(A) by inserting ‘‘OR ON MEDICAL SAV-
INGS ACCOUNTS’’ after ‘‘ANNUITIES’’ in the
heading of such section, and
(B) by adding at the end of subsection (a)
the following: ‘‘The person required by section
7705(g) to file a report regarding a medical
savings account at the time and in the manner
Title I, Subtitle A
required by such section shall pay a penalty of
$50 for each failure unless it is shown that
such failure is due to reasonable cause.’’
(3) CLERICAL AMENDMENTS.—
(A) The table of sections for chapter 79 of
such Code is amended by adding at the end the
following:
‘‘Sec. 7705. Medical savings accounts.’’
(B) The table of sections for subchapter B
of chapter 68 of such Code is amended by in-
serting ‘‘or on medical savings accounts’’ after
‘‘annuities’’ in the item relating to section
6693.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
PART 3—FAIR RATING PRACTICES
SEC. 1021. USE OF FAIR RATING PRACTICES.
(a) USE OF FAIR RATING PRACTICES.—The pre-
mium rate established by a carrier for health insurance
coverage in the individual/small group market (including
the premium rate for coverage for a small employer
through a multiple employer welfare arrangement that is
fully-insured) may not vary except by the following:
Title I, Subtitle A
(1) AGE.—By age, based on classes of age es-
tablished by the Secretary, in consultation with the
NAIC, consistent with subsection (b).
(2) GEOGRAPHIC AREA.—By geographic area,
as identified by a State consistent with subsection
(c).
(3) FAMILY CLASS.—By family class, based on
the following 4 classes of family coverage: individual,
individual with one or more children, married couple
without a child, and married couple with one or
more children.
(4) BENEFIT
DESIGN.—By benefit design of
coverage, including by type of coverage, such as
standard coverage and high-deductible coverage, and
by type of coverage option (described in section
1903(14)) with respect to standard coverage.
(5) ADMINISTRATIVE
CATEGORIES.—By per-
mitted expense category, based on differences in ex-
penses among such categories, consistent with sub-
section (d).
The premiums shall be established for the different benefit
designs (including standard coverage and high-deductible
coverage) based on the actuarial value of the coverage for
the population of the individual/small group market in the
fair rating area, without regard to the distribution of such
Title I, Subtitle A
population among the types of coverage or type of cov-
erage options.
(b) LIMITATION ON VARIATION BY AGE.—
(1) IN GENERAL.—Any variation in premium
rates by age under subsection (a)(1) for age classes
of individuals under 65 years of age may not result
in the ratio of the highest age rate to the lowest age
rate exceeding the limiting ratio described in para-
graph (2).
(2) LIMITING RATIO.—For purposes of para-
graph (1), the limiting ratio described in this para-
graph is—
(A) 4-to-1, for premiums for months in
1997,
(B) 3.67-to-1, for premiums for months in
1998,
(C) 3.33-to-1, for premiums for months in
1999, and
(D) 3-to-1, for premiums for months in
2000 and any succeeding year.
(3) SEPARATE AGE CLASSES FOR INDIVIDUALS
65 YEARS OF AGE OR OLDER.—The Secretary shall
establish one or more separate age classes for indi-
viduals 65 years of age or older.
Title I, Subtitle A
(4) PREEMPTION.—For preemption of State
laws relating to establishment of premium rates, see
section 5005.
(c) GEOGRAPHIC AREA VARIATIONS.—For purposes
of subsection (a)(2), a State—
(1) may not identify an area that divides a 3-
digit zip code, a county, or all portions of a metro-
politan statistical area,
(2) shall not permit premium rates for coverage
offered in a portion of an interstate metropolitan
statistical area to vary based on the State in which
the coverage is offered, and
(3) may, upon agreement with one or more ad-
jacent States, identify multi-state geographic areas
consistent with paragraphs (1) and (2).
(d) ADMINISTRATIVE VARIATIONS.—
(1) 
EXPENSE
CATEGORIES.—Expense 
cat-
egories shall be established under subsection (a)(5)
by a carrier in a manner that only reflects dif-
ferences based on marketing, commissions, and simi-
lar expenses. Such categories shall take into account
health plan purchasing organizations.
(2) LIMITATION
ON
VARIATIONS.—The vari-
ation provided among expense categories under sub-
section (a)(5) may not result in a premium for the
Title I, Subtitle A
highest expense category exceeding 120 percent of
the premium for the lowest expense category.
(e) PREMIUM RATING IN GROUP HEALTH PLANS.—
The premium rate established under a group health plan
for health insurance coverage may not vary within a bene-
fit design except by the factors described in subsection (a)
and subject to the limitation specified in subsection (b).
(f) ACTUARIAL CERTIFICATION.—Each carrier that
offers health insurance coverage in a State shall file annu-
ally with the State commissioner of insurance a written
statement by a member of the American Academy of Actu-
aries (or other individual acceptable to the commissioner)
that, based upon an examination by the individual which
includes a review of the appropriate records and of the
actuarial assumptions of the carrier and methods used by
the carrier in establishing premium rates for applicable
health insurance coverage—
(1) the carrier is in compliance with the appli-
cable provisions of this section, and
(2) the rating methods are actuarially sound.
Each such carrier shall retain a copy of such statement
for examination at its principal place of business.
(g) CONSTRUCTION.—The provisions of this section
shall apply to premium rates established by carriers for
multiple employer welfare arrangements that are fully-in-
Title I, Subtitle A
sured or for fully-insured coverage offered with respect to
individuals and small employers in the individual/small
group market. Such premium rates shall apply based on
the fair rating area in which the covered individual or em-
ployee resides to reflect the population in the individual/
small group market.
SEC. 1022. COORDINATION WITH PREMIUM ASSISTANCE
CERTIFICATE PROGRAM.
Each carrier or group health plan providing qualified
health coverage shall accept and apply (as a reduction
against premiums otherwise imposed) any premium cer-
tificate issued under a State premium assistance program
under part A of title XXI of the Social Security Act.
SEC. 1023. ESTABLISHMENT OF RISK ADJUSTMENT MECHA-
NISMS.
(a) ESTABLISHMENT OF STANDARDS.—
(1) DEVELOPMENT OF MODELS.—
(A) IN GENERAL.—The Secretary shall re-
quest the NAIC to develop, within 9 months
after the date of the enactment of this Act and
in consultation with the American Academy of
Actuaries, a model risk adjustment system com-
posed of one or more risk adjustment mecha-
nisms under which premiums applicable to
health insurance coverage in the individual/
Title I, Subtitle A
small group market and coverage under mul-
tiple employer welfare arrangements that are
fully insured (without regard to whether such
an arrangement is offered through an associa-
tion) would be adjusted to take into account
such factors as may be appropriate to predict
the future need and the efficient use of services
by covered individuals in the market. Such fac-
tors may include the age, gender, geographic
residence, health status, or other demographic
characteristics of individuals enrolled in such
plans and shall include consideration of enroll-
ment of a disproportionate share of individuals
who enroll during the initial open enrollment
period under section 1005(b)(1).
(B) 
PROMULGATION
AS
PROPOSED
RULE.—If the NAIC develops such model with-
in such period, the Secretary shall publish the
model as a proposed rule under section 553 of
title 5, United States Code. If the NAIC has
not developed such model within such period,
the Secretary shall publish (not later than 60
days after the end of such period) a proposed
rule that specifies a proposed model that pro-
vides for effective risk adjustment mechanisms.
Title I, Subtitle A
(2) RULE
MAKING
PROCESS.—The Secretary
shall provide for a period (described in section
553(c) of title 5, United States Code) of not less
than 30 days for public comment on a proposed rule
published under paragraph (1)(B). The Secretary
shall publish a final rule, by not later than January
1, 1996, that specifies risk adjustment mechanisms
that the Secretary finds are effective for purposes of
carrying out this section. Such rule shall include
models developed by the NAIC if the Secretary finds
that such models provide for effective risk adjust-
ment mechanisms.
(3) MODIFICATION.—The Secretary, at the re-
quest of the NAIC or otherwise, may by regulation
modify the model risk adjustment system established
under this subsection.
(b) IMPLEMENTATION OF RISK ADJUSTMENT SYS-
TEM.—Each State shall establish and maintain a risk ad-
justment system that conforms with the model established
under this section by not later than January 1, 1997. A
State may establish and maintain such a system jointly
with one or more other States.
Title I, Subtitle A
PART 4—CONSUMER PROTECTIONS
SEC. 1031. REQUIREMENT FOR PROVISION OF INFORMA-
TION.
(a) CARRIERS.—
(1) IN
GENERAL.—Each carrier that offers
health insurance coverage to small employers (or eli-
gible employees of small employers) or qualifying in-
dividuals must disclose to such prospective enrollees,
to brokers, and to health plan purchasing organiza-
tions the information that the Secretary may specify
relating to the performance of the carrier in provid-
ing such coverage and relating to differences be-
tween the coverage provided and the most similar
model benefit package established under section
1104(b)(2). If a carrier offers to individuals or em-
ployers coverage the actuarial value of which is more
than the actuarial value for high-deductible coverage
but less than such value for standard coverage, the
carrier must disclose to such employers or individ-
uals detailed information on how the coverage of-
fered compares to any standard and high-deductible
coverage offered by the carrier to such individuals
and employers.
(2) MARKETING MATERIAL.—Each carrier that
provides any health insurance coverage in a State
shall file with the State those marketing materials
Title I, Subtitle A
relating to the offer and sale of health insurance
coverage to be used for distribution before the mate-
rials are used. Such materials shall be in a uniform
format specified under the standards established
under section 1301.
(b) GROUP HEALTH PLANS.—Each group health
plan that provides health coverage must disclose to enroll-
ees and potential enrollees information, similar to the in-
formation described in subsection (a), relating to perform-
ance of the plan in providing such coverage and relating
to differences between the coverage provided and the most
similar model benefit package established under section
1104(b)(2).
(c) INFORMATION
RELATING
TO
RISK
ADJUST-
MENT.—Each carrier or group health plan providing cov-
erage in the individual/small group market (including mul-
tiple employer health plans that are fully insured, without
regard to whether such an arrangement or plan is offered
through an association) shall provide to the State such in-
formation as the State may require in order to carry out
section 1023 (relating to risk adjustment mechanisms).
SEC. 1032. PROHIBITION OF IMPROPER INCENTIVES.
(a) LIMITATION
ON FINANCIAL INCENTIVES.—No
carrier that provides health insurance coverage may vary
the commission or financial or other remuneration to a
Title I, Subtitle A
person based on the claims experience or health status of
individuals enrolled by or through the person.
(b) NONDISCRIMINATION
IN
AGENT
COMPENSA-
TION.—A carrier—
(1) may not vary or condition the compensation
provided to an agent or broker related to the sale or
renewal of health insurance coverage because of the
health status or claims experience of any individuals
enrolled with the carrier through the agent or
broker; and
(2) may not terminate, fail to renew, or limit its
contract or agreement of representation with an
agent or broker for any reason related to the health
status or claims experience of any individuals en-
rolled with the carrier through the agent or broker.
(c) PROHIBITION OF TIE-IN ARRANGEMENTS.—No
carrier that offers health insurance coverage may require
the purchase of any other insurance or product as a condi-
tion for the purchase of such coverage.
SEC. 1033. WRITTEN POLICIES AND PROCEDURES RESPECT-
ING ADVANCE DIRECTIVES.
A carrier and a group health plan offering health cov-
erage shall meet the requirements of section 1866(f) of
the Social Security Act (relating to maintaining written
policies and procedures respecting advance directives), in-
Title I, Subtitle B
sofar as such requirements would apply to the carrier or
plan if the carrier or plan were an eligible organization.
Subtitle B—Benefits
SEC. 1101. QUALIFIED HEALTH COVERAGE.
In this Act, the term ‘‘qualified health coverage’’
means health coverage that—
(1) provides—
(A) standard coverage consistent with sec-
tion 1102(a); or
(B) high-deductible coverage consistent
with section 1103; and
(2) meets other requirements of subtitle A ap-
plicable to the coverage and the carrier or group
health plan providing the coverage.
SEC. 1102. STANDARD COVERAGE.
(a) IN GENERAL.—Health insurance coverage is con-
sidered to provide standard coverage consistent with this
subsection and for preventive benefits under subsection
(b)(4) if—
(1) benefits under such coverage are provided
within at least each of the required categories of
benefits described in paragraph (1) of subsection (b)
and consistent with such subsection;
(2) the actuarial value of the benefits meets the
requirements of subsection (c); and
Title I, Subtitle B
(3) the benefits comply with the minimum re-
quirements specified in subsection (d).
(b) REQUIRED CATEGORIES
OF COVERED BENE-
FITS.—
(1) IN
GENERAL.—The categories of covered
benefits described in this paragraph are the types of
benefits specified in each of subparagraphs (A), (B),
(C), (D), (E), and (F) of paragraph (1), and sub-
paragraphs (E) and (F) of paragraph (2), of section
8904(a) of title 5, United States Code (relating to
types of benefits required to be in health insurance
offered to Federal employees).
(2) COVERAGE OF TREATMENTS IN APPROVED
RESEARCH TRIALS.—
(A) IN GENERAL.—Coverage of the routine
medical costs (as defined in subparagraph (B))
associated with the delivery of treatments shall
be considered to be medically appropriate if the
treatment is part of an approved research trial
(as defined in subparagraph (C)).
(B) ROUTINE MEDICAL COSTS DEFINED.—
In subparagraph (A), the term ‘‘routine medical
costs’’ means the cost of health services re-
quired to provide treatment according to the de-
sign of the trial, except those costs normally
Title I, Subtitle B
paid for by other funding sources (as defined by
the Secretary). Such costs do not include the
cost of the investigational agent, devices or pro-
cedures themselves, the costs of any nonhealth
services that might be required for a person to
receive the treatment, or the costs of managing
the research.
(C) APPROVED
RESEARCH
TRIAL
DE-
FINED.—In subparagraph (A), the term ‘‘ap-
proved research trial’’ means a trial—
(i) conducted for the primary purpose
of determining the safety, effectiveness, ef-
ficacy, or health outcomes of a treatment,
compared with the best available alter-
native treatment, and
(ii) approved by the Secretary.
A trial is deemed to be approved under clause
(ii) if it is approved by the National Institutes
of Health, the Food and Drug Administration
(through an investigational new drug exemp-
tion), the Department of Veterans Affairs, or
by a qualified nongovernmental research entity
(as identified in guidelines issued by one or
more of the National Institutes of Health).
Title I, Subtitle B
(3) COVERAGE
OF
OFF-LABEL
USE.—An off-
label use for a drug that has been found to be safe
and effective under section 505 of the Federal Food,
Drug, and Cosmetic Act shall be covered if the medi-
cal indication for which it is used is listed in one of
the following 3 compendia: the American Hospital
Formulary Service-Drug Information, the American
Medical Association Drug Evaluations, and the
United States Pharmacopeia-Drug Information.
(4) PREVENTIVE BENEFITS.—The following are
preventive benefits that shall be covered without any
deductibles, copayment, coinsurance, or other cost-
sharing:
(A) NEWBORN, WELL-BABY
AND
WELL-
CHILD
CARE.—Newborn care, well-baby care,
and well-child care for individuals under 19
years of age, including routine physical exami-
nations, routine immunizations, and routine
tests, as specified by the Secretary based on the
schedule recommended by the American Acad-
emy of Pediatricians.
(B) 
MAMMOGRAMS.—Routine 
screening
mammograms (including their interpretation),
limited to 1 mammogram for a woman who is
at least 35 (but less than 40) years of age, 1
Title I, Subtitle B
mammogram every 2 years for a woman who is
at least 40 (but less than 50) years of age, and
1 mammogram every year for a woman who is
at least 50 years of age.
(C) SCREENING PAP SMEARS AND PELVIC
EXAMS.—Screening pap smears and pelvic
exams for women over 17 years of age, limited
to 1 each year.
(D) COLORECTAL SCREENING.—Colorectal
screening for individuals over 18 years of age at
high risk, consisting of 1 fecal occult blood
screening 
test 
every 
year, 
screening
sigmoidoscopy every 5 years, and 1 screening
colonoscopy every 4 years.
(E) SCREENING
TUBERCULIN
TESTS.—
Screening tuberculin tests annually for individ-
uals at risk of contracting tuberculosis.
(F) PRENATAL CARE.—Prenatal care.
(G) ADULT IMMUNIZATIONS.—Routine im-
munizations for an individual over 17 years of
age (including booster immunizations against
tetanus and diphtheria, but limited to 1 such
immunization every 10 years).
(H) PROSTATE
CANCER
SCREENING.—
Routine cancer screening for a man who is at
Title I, Subtitle B
least 40 years of age through a prostate specific
antigen test, limited to 1 test each year.
(c) STANDARD ACTUARIAL VALUE.—
(1) IN GENERAL.—The actuarial value of the
benefits under standard coverage in a fair rating
area meets the requirements of this subsection if
such value is equivalent to the standard actuarial
value described in paragraph (2) for the area. The
actuarial value of benefits under standard coverage
shall be determined using the adjustment under
paragraph (3) for a standardized population and set
of standardized utilization and cost factors.
(2) 
STANDARD
ACTUARIAL
VALUE
DE-
SCRIBED.—The standard actuarial value described
in this paragraph for coverage in a geographic area
is the actuarial value of benchmark coverage during
1994 in such area. Such actuarial value shall be de-
termined using the adjustment under paragraph (3)
for a standardized population and set of standard-
ized utilization and cost factors and updated annu-
ally in accordance with section 1104(a).
(3) ADJUSTMENTS FOR STANDARDIZED POPU-
LATION, STANDARDIZED
UTILIZATION
AND
COST
FACTORS, AND GEOGRAPHIC AREA.—The adjustment
under this paragraph—
Title I, Subtitle B
(A) for a standardized population shall be
made by not taking into account individuals 65
years of age or older, employees of the United
States Postal Service, retirees, and annuitants;
and
(B)(i) except as provided in clause (ii), for
a geographic area shall be made in a manner
that reflects the ratio of the actuarial value of
benchmark coverage in such geographic area
(as adjusted under subparagraph (A)) to such
actuarial value for such benchmark coverage for
the United States as a whole, taking into ac-
count standardized actuarial utilization and
cost factors, and
(ii) in the case of a group health plan oper-
ating in more than one geographic area, the
ratio described in clause (i) shall be determined
in accordance with regulations promulgated by
the Secretary.
At the election of a group health plan under sub-
paragraph (B)(ii), the ratio under such subpara-
graph shall be 1.
(d) MINIMUM
REQUIREMENTS
WITHIN
A
CAT-
EGORY.—Benefits offered in any standard coverage within
any category of benefits shall be not less than the narrow-
Title I, Subtitle B
est scope and shortest duration of benefits within that cat-
egory in any of the approved health benefits plans offered
under chapter 89 of title 5, United States Code (relating
to Federal Employees Health Benefits Program) in 1994.
Benefits offered in the standard plan within the category
of preventive services shall not require payment of cost-
sharing for covered items and services.
(e) NO COVERAGE OF SPECIFIC TREATMENT, PRO-
CEDURES, OR CLASSES REQUIRED.—Nothing in this sec-
tion (or section 1103) may be construed to require the
coverage of any specific procedure or treatment or class
of service in health coverage under this Act or through
regulation.
(f) CONSTRUCTION.—Nothing in this section (or sec-
tion 1103) shall be construed as requiring coverage to in-
clude benefits for items and services that are not medically
necessary or appropriate.
SEC. 1103. HIGH-DEDUCTIBLE COVERAGE.
Health insurance coverage is considered to provide
high-deductible coverage consistent with this section if—
(1) benefits under such coverage comply with—
(A) the requirements described in section
1102(b) (relating to required categories of cov-
ered benefits), and
Title I, Subtitle B
(B) the requirements described in section
1102(d) (relating to minimum requirements
within a category);
(2) the deductible amount is the amount estab-
lished under section 1104(b)(1);
(3) benefits under the coverage in any year
(other than preventive benefits described in section
1102(b)(4)) are covered only to the extent expenses
incurred for items and services included in the cov-
erage for the year exceed the deductible amount
specified in paragraph (2); and
(4) the actuarial value of the coverage (as de-
termined 
under 
rules 
consistent 
with 
section
1102(c)) is equivalent to 80 percent of the actuarial
value established under such section for standard
coverage.
SEC. 1104. ACTUARIAL VALUATION OF BENEFITS.
(a) IN GENERAL.—The Secretary, in consultation
with the NAIC and the American Academy of Actuaries,
shall establish (and may from time to time modify) proce-
dures by which health insurance benefits are valued for
purposes of this subtitle.
(b) DEDUCTIBLE; MODEL BENEFIT PACKAGES.—
The Secretary, in consultation with the NAIC and the
American Academy of Actuaries, shall establish—
Title I, Subtitle B
(1) the deductible amount for high-deductible
coverage for the purposes of section 1103(2) such
that the actuarial value of high-deductible coverage
described in section 1103 is 20 percent less than the
actuarial value of standard coverage described in
section 1102(a); and
(2) model benefit packages that may be treated,
for purposes of this title, as meeting the require-
ments for standard or high-deductible coverage
under sections 1102(a) and 1103, respectively, and
which shall include model cost sharing arrangements
for fee-for-service options, managed care options,
and point-of-service options.
SEC. 1105. LIMITATION ON OFFERING SUPPLEMENTAL BEN-
EFITS.
A carrier or group health plan offering qualified
health coverage may offer coverage of items and services
only in addition to the qualified standard coverage offered
(whether in the form of coverage of additional items and
services or a reduction in cost sharing) and only if—
(1) such supplemental coverage is offered and
priced separately from the standard coverage offered
and is only made available to individuals who obtain
qualified standard coverage through the carrier or
plan;
Title I, Subtitle B
(2) the purchase of the qualified health cov-
erage is not conditioned upon the purchase of such
supplemental coverage; and
(3) in the case of supplemental coverage that
consists of a reduction in the cost-sharing otherwise
applicable, the premium for the supplemental cov-
erage takes into account any expected increase in
utilization of items and services included in the
qualified health coverage resulting from obtaining
the supplemental coverage.
SEC. 1106. FAMILY COVERAGE OPTION; SUPPLEMENTAL
COVERAGE.
(a) FAMILY COVERAGE OPTION.—Each carrier and
group health plan that offers health insurance coverage
shall provide for an option under which children under 26
years of age (without regard to whether they are full-time
students or disabled) will be treated (with respect to fam-
ily coverage) as family members. The carrier or plan may
impose an additional premium for such option.
(b) CONSTRUCTION.—Nothing in this title shall be
construed as limiting the benefits that may be offered as
part of a group health plan or health insurance coverage.
SEC. 1107. LEVEL PLAYING FIELD FOR PROVIDERS.
(a) IN GENERAL.—Nothing in this subtitle may be
construed to require or prohibit the use of a particular
Title I, Subtitle C
class of provider, among the providers that are legally au-
thorized to provide such treatment.
(b) COVERAGE OF CERTAIN OTHER PROVIDERS.—
(1) IN GENERAL.—For purposes of this sub-
title, benefits under standard coverage shall include
the following:
(A) Coverage provided at an individual’s
home by a Christian Science practitioner or
Christian Science nurse.
(B) Coverage provided in a Christian
Science Sanitorium (as defined in section
1861(y) of the Social Security Act), including
coverage provided by a Christian Science practi-
tioner.
(2) QUALIFICATIONS OF PROVIDERS.—A Chris-
tian Science practitioner or Christian Science nurse
is qualified for purposes of paragraph (1) if the
practitioner or nurse is listed as such a practitioner
or nurse by the First Church of Christ, Scientist, in
Boston, Massachusetts.
Subtitle C—Standards and Certifi-
cation; Enforcement; Preemp-
tion; General Provisions
SEC. 1201. ESTABLISHMENT OF STANDARDS.
(a) ROLE OF NAIC.—
Title I, Subtitle C
(1) IN GENERAL.—The Secretary shall request
the NAIC to develop, within 9 months after the date
of the enactment of this Act, model regulations that
specify standards with respect to the requirements of
this subtitle as applicable to carriers and health in-
surance coverage.
(2) REVIEW OF STANDARDS.—If the NAIC de-
velops recommended regulations specifying such
standards within such period, the Secretary shall re-
view the standards. Such review shall be completed
within 60 days after the date the regulations are de-
veloped. Unless the Secretary determines within
such period that the standards do not meet the re-
quirements, such standards shall serve as the stand-
ards under this subtitle, with such amendments as
the Secretary deems necessary.
(b) CONTINGENCY.—If the NAIC does not develop
such model regulations within such period or the Secretary
determines that such regulations do not specify standards
that meet the requirements described in subsection (a),
the Secretary shall specify, within 15 months after the
date of the enactment of this Act, standards to carry out
those requirements.
Title I, Subtitle C
SEC. 1202. APPLICATION OF STANDARDS TO CARRIERS
THROUGH STATES.
(a) APPLICATION OF STANDARDS.—
(1) IN GENERAL.—Each State shall submit to
the Secretary, by the deadline specified in paragraph
(2), a report on steps the State is taking to imple-
ment and enforce the standards established under
section 1201 with respect to carriers and health in-
surance coverage offered or renewed not later than
such deadline.
(2) DEADLINE
FOR
REPORT.—The deadline
under this paragraph is 1 year after the date the
standards are established under section 1201.
(b) FEDERAL ROLE.—
(1) NOTICE OF DEFICIENCY.—If the Secretary
determines that a State has failed to submit a report
by the deadline specified under subsection (a)(2) or
finds that the State has not implemented and pro-
vided adequate enforcement of the standards estab-
lished under section 1201, the Secretary shall notify
the State and provide the State a period of 60 days
in which to submit such report or to implement and
enforce such standards.
(2) IMPLEMENTATION OF ALTERNATIVE.—
(A) IN GENERAL.—If, after such 60-day
period, the Secretary finds that such a failure
Title I, Subtitle C
has not been corrected, the Secretary shall pro-
vide for such mechanism for the implementation
and enforcement of such standards in the State
as the Secretary determines to be appropriate.
(B) EFFECTIVE PERIOD.—Such implemen-
tation and enforcement shall take effect with
respect to carriers, and health insurance cov-
erage offered or renewed, on or after 3 months
after the date of the Secretary’s finding under
subparagraph (A), and until the date the Sec-
retary finds that such a failure has been cor-
rected.
SEC. 1203. APPLICATION TO GROUP HEALTH PLANS.
(a) IN GENERAL.—Subject to subsection (b), sections
1201 and 1202 shall apply to group health plans providing
health coverage in the same manner as they apply to car-
riers providing health insurance coverage.
(b) SUBSTITUTION OF REFERENCES.—For purposes
of subsection (a), any reference in section 1201 or 1202
to—
(1) a State or the Secretary of Health and
Human Services is deemed a reference to the Sec-
retary of Labor, and
Title I, Subtitle C
(2) a carrier or health insurance coverage is
deemed a reference to a group health plan and
health coverage, respectively.
SEC. 1204. ENFORCEMENT.
(a) ENFORCEMENT BY DEPARTMENT OF LABOR FOR
EMPLOYERS AND GROUP HEALTH PLANS.—
(1) IN GENERAL.—For purposes of part 5 of
subtitle B of title I of the Employee Retirement In-
come Security Act of 1974, the provisions of this
title insofar as they relate to group health plans or
employers shall be deemed to be provisions of title
I of such Act irrespective of exclusions under section
4(b) of such Act.
(2) REGULATORY AUTHORITY.—With respect to
the regulatory authority of the Secretary of Labor
under this subtitle pursuant to paragraph (1), sec-
tion 505 of the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1135) shall apply.
(b) ENFORCEMENT
BY
EXCISE
TAX
FOR
CAR-
RIERS.—
(1) IN GENERAL.—Chapter 43 of the Internal
Revenue Code of 1986 (relating to qualified pension
plans, etc.) is amended by adding at the end thereof
the following new section:
Title I, Subtitle C
‘‘SEC. 4980C. FAILURE OF CARRIER TO COMPLY WITH
HEALTH INSURANCE STANDARDS.
‘‘(a) IMPOSITION OF TAX.—
‘‘(1) IN GENERAL.—There is hereby imposed a
tax on the failure of a carrier to comply with the re-
quirements applicable to the carrier under parts 1
through 4 of subtitle A and subtitle B of title I of
the Health Care Improvement Act of 1995.
‘‘(2) EXCEPTION.—Paragraph (1) shall not
apply to a failure by a carrier in a State if the Sec-
retary of Health and Human Services determines
that the State has in effect a regulatory enforcement
mechanism that provides adequate sanctions with re-
spect to such a failure by such a carrier.
‘‘(b) AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
the amount of the tax imposed by subsection (a)
shall be $100 for each day during which such failure
persists for each individual to which such failure re-
lates. A rule similar to the rule of section
4980B(b)(3) shall apply for purposes of this section.
‘‘(2) LIMITATION.—The amount of the tax im-
posed by subsection (a) for a carrier with respect to
health insurance coverage shall not exceed 25 per-
cent of the amounts received for such coverage dur-
ing the period such failure persists.
Title I, Subtitle C
‘‘(c) LIABILITY FOR TAX.—The tax imposed by this
section shall be paid by the carrier.
‘‘(d) EXCEPTIONS.—
‘‘(1) CORRECTIONS WITHIN 30 DAYS.—No tax
shall be imposed by subsection (a) by reason of any
failure if—
‘‘(A) such failure was due to reasonable
cause and not to willful neglect, and
‘‘(B) such failure is corrected within the
30-day period beginning on the earliest date the
carrier knew, or exercising reasonable diligence
would have known, that such failure existed.
‘‘(2) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that payment of such tax would be excessive relative
to the failure involved.
‘‘(e) DEFINITIONS.—For purposes of this section, the
terms ‘health insurance coverage’ and ‘carrier’ have the
respective meanings given such terms in section 1903 of
the Health Care Improvement Act of 1995.’’
Title I, Subtitle D
(2) CLERICAL AMENDMENT.—The table of sec-
tions for chapter 43 of such Code is amended by
adding at the end thereof the following new item:
‘‘Sec. 4980C. Failure of carrier to comply with health insurance
standards.’’
SEC. 1205. LIMITATION ON SELF INSURANCE FOR SMALL
EMPLOYERS.
A single employer plan (as defined in section
3(40)(B) of the Employee Retirement Income Security
Act of 1974) may not offer health coverage other than
through a carrier unless the plan has at least 100 eligible
employees.
Subtitle D—Definitions; General
Provisions
SEC. 1901. GENERAL DEFINITIONS.
For purposes of this Act:
(1) APPLICABLE
REGULATORY
AUTHORITY.—
The term ‘‘applicable regulatory authority’’ means,
with respect to a carrier operating in a State—
(A) the State insurance commissioner, or
(B) the Secretary, in the case described in
section 1202(b)(2).
(2) FAMILY MEMBER.—
(A) IN GENERAL.—Individuals are consid-
ered to be members of a family if—
(i) they are married, or
Title I, Subtitle D
(ii) they have a legal parent-to-child
relationship (whether by natural birth or
adoption), if the child is—
(I) under 19 years of age,
(II) under 25 years of age and a
full-time student, or
(III) an unmarried dependent re-
gardless of age who is incapable of
self-support because of mental or
physical disability which existed before
age 22.
(B) SPECIAL RULES.—Family members—
(i) include an adopted child and a rec-
ognized natural child;
(ii) include a stepchild or foster child
with respect to an individual but only if
the child lives with the individual in a reg-
ular parent-child relationship; and
(iii) include such other children as the
Secretary may specify, but shall not in-
clude an emancipated minor.
(3) PRISONER.—The term ‘‘prisoner’’ means,
as specified by the Secretary, an individual during a
period of imprisonment under Federal, State, or
local authority after conviction as an adult.
Title I, Subtitle D
(4) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(5) STATE.—The term ‘‘State’’ means the 50
States, the District of Columbia, Puerto Rico, the
Virgin Islands, Guam, American Samoa, and the
Northern Mariana Islands.
SEC. 1902. DEFINITIONS RELATING TO EMPLOYMENT.
(a) APPLICATION OF ERISA DEFINITIONS.—Except
as otherwise provided in this Act, terms used in this Act
shall have the meanings applicable to such terms under
section 3 of the Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1002).
(b) ADDITIONAL DEFINITIONS.—For purposes of this
title:
(1) COUNTABLE EMPLOYEE.—The term ‘‘count-
able employee’’ means, with respect to an employer
for a month, any employee other than an employee
whose normal work week is less than 10 hours.
(2) LARGE EMPLOYER.—The term ‘‘large em-
ployer’’ means an employer that is not a small em-
ployer (as defined in paragraph (4)).
(3) QUALIFYING EMPLOYEE.—
(A) IN GENERAL.—The term ‘‘qualifying
employee’’ means, with respect to an employer
for a month, any employee other than—
Title I, Subtitle D
(i) a part-time, seasonal, or temporary
employee (as defined in subparagraph
(B)); or
(ii) an employee who is a child de-
scribed in section 1901(2)(A)(ii).
(B) PART-TIME, 
SEASONAL, 
OR
TEM-
PORARY EMPLOYEE DEFINED.—For purposes of
subparagraph (A), the term ‘‘part-time, sea-
sonal, or temporary employee’’ means any of
the following employees with respect to a
month:
(i) CERTAIN
PART-TIME
EMPLOY-
EES.—Any employee whose normal work
week is reasonably expected as of the first
day of such month to be less than 20
hours.
(ii) SEASONAL
OR
TEMPORARY
EM-
PLOYEES.—Any employee who is not rea-
sonably expected as of the first day of such
month to be employed by the employer for
a period of 120 consecutive days during
any 365-day period that includes such first
day.
(iii) DELAY FOR CERTAIN PART-TIME
EMPLOYEES.—Any employee whose normal
Title I, Subtitle D
work week is reasonably expected as of the
first day of such month to be at least 20
hours, but less than 35 hours, and the nor-
mal work week of the employee during the
preceding 3 months was less than 20
hours.
(4) SMALL EMPLOYER.—The term ‘‘small em-
ployer’’ means, with respect to a calendar year, an
employer that normally employs more than 1 but
less than 100 countable employees on a typical busi-
ness day. For the purposes of this paragraph, the
term ‘‘employee’’ includes a self-employed individual.
For purposes of determining if an employer is a
small employer, rules similar to the rules of sub-
section (b) and (c) of section 414 of the Internal
Revenue Code of 1986 shall apply.
SEC. 1903. DEFINITIONS RELATING TO HEALTH COVERAGE,
PLANS, AND CARRIERS.
Except as otherwise provided, for purposes of this
Act:
(1) 
BENCHMARK
COVERAGE.—The 
term
‘‘benchmark coverage’’ means the standard option of
the Blue Cross-Blue Shield plan offered under the
Federal Employees Health Benefits Program under
Title I, Subtitle D
chapter 89 of title 5, United States Code, as in ef-
fect during 1994.
(2) CARRIER.—The term ‘‘carrier’’ means a li-
censed insurance company, an entity offering pre-
paid hospital or medical services, and a health main-
tenance organization, and includes a similar organi-
zation regulated under State law for solvency.
(3) CLASS OF FAMILY COVERAGE.—The term
‘‘class of family coverage’’ means the 4 classes de-
scribed in section 1021(a)(3).
(4) FAIR RATING AREA.—The term ‘‘fair rating
area’’ means a geographic area identified by a State
for purposes of section 1021(a)(2).
(5) GROUP HEALTH PLAN.—The term ‘‘group
health plan’’ means an employee welfare benefit plan
providing medical care (as defined in section 213(d)
of the Internal Revenue Code of 1986) to partici-
pants or beneficiaries directly or through insurance,
reimbursement, or otherwise, but does not include
any type of coverage excluded from the definition of
a health insurance coverage under paragraph (7)(B).
(6) HEALTH
COVERAGE.—The term ‘‘health
coverage’’ means health insurance coverage provided
by a carrier or medical care provided under a group
health plan.