579
quired by the laws or regulations of the State to be
licensed or certified by the State to engage in the
delivery of such services in the State.
(13) MANUFACTURER.—The term ‘‘manufac-
turer’’ means—
(A) any person who is engaged in a busi-
ness to produce, create, make, or construct any
product (or component part of a product) and
who (i) designs or formulates the product (or
component part of the product), or (ii) has en-
gaged another person to design or formulate
the product (or component part of the product);
(B) a product seller, but only with respect
to those aspects of a product (or component
part of a product) which are created or affected
when, before placing the product in the stream
of commerce, the product seller produces, cre-
ates, makes or constructs and designs, or for-
mulates, or has engaged another person to de-
sign or formulate, an aspect of the product (or
component part of the product) made by an-
other person; or
(C) any product seller not described in
subparagraph (B) which holds itself out as a
manufacturer to the user of the product.
580
(14) 
NONECONOMIC
DAMAGES.—The 
term
‘‘noneconomic damages’’ means damages paid to an
individual for pain and suffering, inconvenience,
emotional distress, mental anguish, loss of society
and companionship, injury to reputation, humilia-
tion, and other subjective, nonpecuniary losses.
(15) PERSON.—The term ‘‘person’’ means any
individual, corporation, company, association, firm,
partnership, society, joint stock company, or any
other entity, including any governmental entity.
(16) PRODUCT SELLER.—
(A) IN GENERAL.—The term ‘‘product sell-
er’’ means a person who in the course of a busi-
ness conducted for that purpose—
(i) sells, distributes, rents, leases, pre-
pares, blends, packages, labels, or other-
wise is involved in placing a product in the
stream of commerce; or
(ii) installs, repairs, refurbishes, re-
conditions, or maintains the harm-causing
aspect of the product.
(B) EXCLUSION.—The term ‘‘product sell-
er’’ does not include—
(i) a seller or lessor of real property;
581
(ii) a provider of professional services
in any case in which the sale or use of a
product is incidental to the transaction and
the essence of the transaction is the fur-
nishing of judgment, skill, or services; or
(iii) any person who—
(I) acts in only a financial capac-
ity with respect to the sale of a prod-
uct; or
(II) leases a product under a
lease arrangement in which the lessor
does not initially select the leased
product and does not during the lease
term ordinarily control the daily oper-
ations and maintenance of the prod-
uct.
(17) PUNITIVE DAMAGES.—The term ‘‘punitive
damages’’ means damages awarded against any per-
son not to compensate for actual injury suffered, but
to punish or deter such person or others from en-
gaging in similar behavior in the future.
(18) STATE.—The term ‘‘State’’ means each of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, the Northern Mariana Is-
582
lands, the Trust Territories of the Pacific Islands,
and any other territory or possession of the United
States or any political subdivision of any of the fore-
going.
SEC. 4803. EFFECTIVE DATE.
This subtitle will apply to any health care liability ac-
tion brought in a Federal or State court and to any health
care liability claim subject to an alternative dispute resolu-
tion system, that is initiated on or after the date of enact-
ment of this subtitle.
CHAPTER 2—UNIFORM STANDARDS FOR
HEALTH CARE LIABILITY ACTIONS
SEC. 4811. STATUTE OF LIMITATIONS.
(a) GENERAL RULE.—Except as provided in sub-
section (b), a health care liability action may be filed not
later than 2 years after the date on which the claimant
discovered or, in the exercise of reasonable care, should
have discovered—
(1) the harm that is the subject of the action;
and
(2) the cause of the harm.
(b) EXCEPTION.—A person with a legal disability (as
determined under applicable law) may file a health care
liability action not later than 2 years after the date on
which the person ceases to have the legal disability.
583
(c) TRANSITIONAL PROVISION RELATING TO EXTEN-
SION OF PERIOD FOR BRINGING CERTAIN ACTIONS.—If
any provision of subsection (a) or (b) shortens the period
during which a health care liability action could be other-
wise brought pursuant to another provision of law, the
claimant may, notwithstanding subsections (a) and (b),
bring the health care liability action not later than 2 years
after the date of enactment of this Act.
SEC. 4812. CALCULATION AND PAYMENT OF DAMAGES.
(a) TREATMENT OF NONECONOMIC DAMAGES.—
(1) LIMITATION ON NONECONOMIC DAMAGES.—
The total amount of noneconomic damages that may
be awarded to a claimant for harm which is the sub-
ject of a health care liability action may not exceed
$250,000, regardless of the number of parties
against whom the action is brought or the number
of actions brought with respect to the injury.
(2) FAIR SHARE RULE FOR NONECONOMIC DAM-
AGES.—
(A) GENERAL RULE.—In a health care li-
ability action, the liability of each defendant for
noneconomic damages shall be several only and
shall not be joint.
(B) AMOUNT OF LIABILITY.—
584
(i) IN
GENERAL.—Each defendant
shall be liable only for the amount of non-
economic damages attributable to the de-
fendant in direct proportion to the percent-
age of responsibility of the defendant (de-
termined in accordance with paragraph
(2)) for the harm to the claimant with re-
spect to which the defendant is liable. The
court shall render a separate judgment
against each defendant in an amount de-
termined pursuant to the preceding sen-
tence.
(ii) PERCENTAGE
OF
RESPONSIBIL-
ITY.—For purposes of determining the
amount of noneconomic damages attrib-
utable to a defendant under this section,
the trier of fact shall determine the per-
centage of responsibility of each person re-
sponsible for the claimant’s harm, whether
or not such person is a party to the action.
(b) TREATMENT OF PUNITIVE DAMAGES.—
(1) GENERAL RULE.—Punitive damages may,
to the extent permitted by applicable law, be award-
ed in a health care liability action against a defend-
ant if the claimant establishes by clear and convinc-
585
ing evidence that the harm suffered was result of
conduct manifesting a conscious, flagrant indiffer-
ence to the rights or safety of others.
(2) 
REQUIRED
PROPORTIONALITY.—The
amount of punitive damages that may be awarded in
a health care liability action shall not exceed 3 times
the amount of damages awarded to the claimant for
economic loss, or $250,000, whichever is greater.
This subsection shall be applied by the court, and
application of this subsection shall not be disclosed
to the jury.
(c) BIFURCATION AT REQUEST OF ANY PARTY.—
(1) IN GENERAL.—At the request of any party
the trier of fact in any action that is subject to this
section shall consider in a separate proceeding, held
subsequent to the determination of the amount of
compensatory damages, whether punitive damages
are to be awarded for the harm that is the subject
of the action and the amount of the award.
(2) INADMISSIBILITY OF EVIDENCE RELATIVE
ONLY TO A CLAIM OF PUNITIVE DAMAGES IN A PRO-
CEEDING CONCERNING COMPENSATORY DAMAGES.—
If any party requests a separate proceeding under
paragraph (1), in a proceeding to determine whether
the claimant may be awarded compensatory dam-
586
ages, any evidence, argument, or contention that is
relevant only to the claim of punitive damages, as
determined by applicable law, shall be inadmissible.
(d) DRUGS AND DEVICES.—
(1)(A) Punitive damages shall not be awarded
against a manufacturer or product seller of a drug
or device which caused the claimant’s harm where—
(i) such drug or device was subject to pre-
market approval by the Food and Drug Admin-
istration with respect to the safety of the for-
mulation or performance of the aspect of such
drug or device which caused the claimant’s
harm or the adequacy of the packaging or label-
ing of such drug or device, and such drug or
device was approved by the Food and Drug Ad-
ministration; or
(ii) the drug or device is generally recog-
nized as safe and effective pursuant to condi-
tions established by the Food and Drug Admin-
istration and applicable regulations, including
packaging and labeling regulations.
(B) Subparagraph (A) shall not apply in any
case in which the defendant, before or after pre-
market approval of a drug or device—
587
(i) intentionally and wrongfully withheld
from or misrepresented to the Food and Drug
Administration information concerning such
drug or device required to be submitted under
the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 301 et seq.) or section 351 of the Public
Health Service Act (42 U.S.C. 262) that is ma-
terial and relevant to the harm suffered by the
claimant, or
(ii) made an illegal payment to an official
or employee of the Food and Drug Administra-
tion for the purpose of securing or maintaining
approval of such drug or device.
(2) PACKAGING.—In a health care liability ac-
tion which is alleged to relate to the adequacy of the
packaging (or labeling relating to such packaging) of
a drug which is required to have tamper-resistant
packaging under regulations of the Secretary of
Health and Human Services (including labeling reg-
ulations related to such packaging), the manufac-
turer of the drug shall not be held liable for punitive
damages unless the drug is found by the court by
clear and convincing evidence to be substantially out
of compliance with such regulations.
(e) PERIODIC PAYMENTS FOR FUTURE LOSSES.—
588
(1) GENERAL RULE.—In any health care liabil-
ity action in which the damages awarded for future
economic and noneconomic loss exceed $50,000, a
person shall not be required to pay such damages in
a single, lump-sum payment, but shall be permitted
to make such payments periodically based on when
the damages are found likely to occur, with the
amount and schedule of such payments determined
by the court.
(2) FINALITY OF JUDGMENT.—The judgment
of the court awarding periodic payments under this
subsection may not, in the absence of fraud, be re-
opened at any time to contest, amend, or modify the
schedule or amount of the payments.
(3) 
LUMP-SUM
SETTLEMENTS.—This 
sub-
section shall not be construed to preclude a settle-
ment providing for a single, lump-sum payment.
(f) TREATMENT
OF COLLATERAL SOURCE PAY-
MENTS.—
(1) INTRODUCTION
INTO
EVIDENCE.—In any
health care liability action, any defendant may intro-
duce evidence of collateral source payments. If a de-
fendant elects to introduce such evidence, the claim-
ant may introduce evidence of any amount paid or
contributed or reasonably likely to be paid or con-
589
tributed in the future by or on behalf of the claim-
ant to secure the right to such collateral source pay-
ments.
(2) NO SUBROGATION.—No provider of collat-
eral source payments shall recover any amount
against the claimant or receive any lien or credit
against the claimant’s recovery or be equitably or le-
gally subrogated the right of the claimant in a
health care liability action. This subsection shall
apply to an action that is settled as well as an action
that is resolved by a fact finder.
SEC. 4813. ALTERNATIVE DISPUTE RESOLUTION.
Any ADR used to resolve a health care liability action
or claim shall contain provisions relating to statute of limi-
tations, non-economic damages, joint and several liability,
punitive damages, collateral source rule, and periodic pay-
ments which are identical to the provisions relating to
such matters in this subtitle.
590
TITLE V—COMMITTEE ON EDU-
CATION 
AND 
THE
WORKFORCE
Subtitle A—TANF Block Grant
SEC. 5001. WELFARE-TO-WORK GRANTS.
(a) GRANTS TO STATES.—Section 403(a) of the So-
cial Security Act (42 U.S.C. 603(a)) is amended by adding
at the end the following:
‘‘(5) WELFARE-TO-WORK GRANTS.—
‘‘(A) FORMULA GRANTS.—
‘‘(i) ENTITLEMENT.—A State shall be
entitled to receive from the Secretary a
grant for each fiscal year specified in sub-
paragraph (H) of this paragraph for which
the State is a welfare-to-work State, in an
amount that does not exceed the lesser
of—
‘‘(I) 2 times the total of the ex-
penditures by the State (excluding
qualified State expenditures (as de-
fined in section 409(a)(7)(B)(i)) and
expenditures 
described 
in 
section
409(a)(7)(B)(iv)) during the fiscal
year 
for 
activities 
described 
in
591
subpargraph (C)(i) of this paragraph;
or
‘‘(II) the allotment of the State
under clause (iii) of this subparagraph
for the fiscal year.
‘‘(ii) WELFARE-TO-WORK
STATE.—A
State shall be considered a welfare-to-work
State for a fiscal year for purposes of this
subparagraph if the Secretary, after con-
sultation (and the sharing of any plan or
amendment thereto submitted under this
clause) with the Secretary of Health and
Human Services and the Secretary of
Housing and Urban Development, deter-
mines that the State meets the following
requirements:
‘‘(I) The State has submitted to
the Secretary (in the form of an ad-
dendum to the State plan submitted
under section 402) a plan which—
‘‘(aa) describes how, consist-
ent with this subparagraph, the
State will use any funds provided
under this subparagraph during
the fiscal year;
592
‘‘(bb) specifies the formula
to be used pursuant to clause (vi)
to distribute funds in the State,
and describes the process by
which the formula was developed;
and
‘‘(cc) contains evidence that
the plan was developed through a
collaborative process that, at a
minimum, 
included 
sub-State
areas.
‘‘(II) The State has provided the
Secretary with an estimate of the
amount that the State intends to ex-
pend during the fiscal year (excluding
expenditures 
described 
in 
section
409(a)(7)(B)(iv)) for activities de-
scribed in subparagraph (C)(i) of this
paragraph.
‘‘(III) The State has agreed to
negotiate in good faith with the Sec-
retary of Health and Human Services
with respect to the substance of any
evaluation under section 413(j), and
593
to cooperate with the conduct of any
such evaluation.
‘‘(IV) The State is an eligible
State for the fiscal year.
‘‘(iii) ALLOTMENTS TO WELFARE-TO-
WORK STATES.—The allotment of a wel-
fare-to-work State for a fiscal year shall be
the available amount for the fiscal year
multiplied by the State percentage for the
fiscal year.
‘‘(iv) AVAILABLE AMOUNT.—As used
in clause (iii), the term ‘available amount’
means, for a fiscal year, 95 percent of—
‘‘(I) the amount specified in sub-
paragraph (H) for the fiscal year;
minus
‘‘(II) the total of the amounts re-
served pursuant to subparagraphs (F)
and (G) for the fiscal year.
‘‘(v) STATE
PERCENTAGE.—As
used in clause (iii), the term ‘State
percentage’ means, with respect to a
fiscal year, 1⁄2 of the sum of—
‘‘(aa) the percentage rep-
resented by the number of indi-
594
viduals in the State whose in-
come is less than the poverty line
divided by the number of such in-
dividuals in the United States;
and
‘‘(bb) the percentage rep-
resented by the number of indi-
viduals who are adult recipients
of assistance under the State
program funded under this part
divided by the number of individ-
uals in the United States who are
adult recipients of assistance
under any State program funded
under this part.
‘‘(vi) DISTRIBUTION OF FUNDS WITH-
IN STATES.—
‘‘(I) IN
GENERAL.—A State to
which a grant is made under this sub-
paragraph shall distribute not less
than 85 percent of the grant funds
among the service delivery areas in
the State, in accordance with a for-
mula which—
595
‘‘(aa) 
determines 
the
amount to be distributed for the
benefit of a service delivery area
in proportion to the number (if
any) by which the number of in-
dividuals residing in the service
delivery area with an income that
is less than the poverty line ex-
ceeds 5 percent of the population
of the service delivery area, rel-
ative to such number for the
other service delivery areas in the
State, and accords a weight of
not less than 50 percent to this
factor;
‘‘(bb) may determine the
amount to be distributed for the
benefit of a service delivery area
in proportion to the number of
adults residing in the service de-
livery area who are recipients of
assistance under the State pro-
gram funded under this part
(whether in effect before or after
the amendments made by section
596
103(a) of the Personal Respon-
sibility and Work Opportunity
Reconciliation Act first applied to
the State) for at least 30 months
(whether or not consecutive) rel-
ative to the number of such
adults residing in the other serv-
ice delivery areas in the State;
and
‘‘(cc) may determine the
amount to be distributed for the
benefit of a service delivery area
in proportion to the number of
unemployed individuals residing
in the service delivery area rel-
ative to the number of such indi-
viduals residing in the other serv-
ice delivery areas in the State.
‘‘(II) SPECIAL
RULE.—Notwith-
standing subclause (I), if the formula
used pursuant to subclause (I) would
result in the distribution of less than
$100,000 during a fiscal year for the
benefit of a service delivery area, then
in lieu of distributing such sum in ac-
597
cordance with the formula, such sum
shall be available for distribution
under subclause (III) during the fiscal
year.
‘‘(III) PROJECTS TO HELP LONG-
TERM
RECIPIENTS
OF
ASSISTANCE
INTO THE WORK FORCE.—The Gov-
ernor of a State to which a grant is
made under this subparagraph may
distribute not more than 15 percent of
the grant funds (plus any amount re-
quired to be distributed under this
subclause by reason of subclause (II))
to projects that appear likely to help
long-term 
recipients 
of 
assistance
under the State program funded
under this part (whether in effect be-
fore or after the amendments made by
section 103(a) of the Personal Re-
sponsibility and Work Opportunity
Reconciliation Act first applied to the
State) enter the work force.
‘‘(vii) ADMINISTRATION.—
‘‘(I) 
IN
GENERAL.—A 
grant
made under this subparagraph to a
598
State shall be administered by the
State agency that is administering, or
supervising the administration of, the
State program funded under this part,
or by another State agency designated
by the Governor of the State.
‘‘(II) SPENDING BY PRIVATE IN-
DUSTRY
COUNCILS.—The private in-
dustry council for a service delivery
area shall have sole authority, in co-
ordination with the chief elected offi-
cial (as described in section 103(c) of
the Job Training Partnership Act) of
the service delivery area, to expend
the amounts provided for a service de-
livery 
area 
under 
subparagraph
(vi)(I).
‘‘(B) DEMONSTRATION PROJECTS.—
‘‘(i) IN GENERAL.—The Secretary, in
consultation with the Secretary of Health
and Human Services and the Secretary of
Housing and Urban Development, shall
make grants in accordance with this sub-
paragraph among eligible applicants based
on the likelihood that the applicant can
599
successfully make long-term placements of
individuals into the work force.
‘‘(ii) ELIGIBLE APPLICANTS.—As used
in clause (i), the term ‘eligible applicant’
means a private industry council or a polit-
ical subdivision of a State.
‘‘(iii) DETERMINATION
OF
GRANT
AMOUNT.—In determining the amount of a
grant to be made under this subparagraph
for a demonstration project proposed by an
applicant, the Secretary shall provide the
applicant with an amount sufficient to en-
sure that the project has a reasonable op-
portunity to be successful, taking into ac-
count the number of long-term recipients
of assistance under a State program fund-
ed under this part, the level of unemploy-
ment, the job opportunities and job
growth, the poverty rate, and such other
factors as the Secretary deems appro-
priate, in the area to be served by the
project.
‘‘(iv) FUNDING.—For grants under
this subparagraph for each fiscal year
specified in subparagraph (H), there shall
600
be available to the Secretary an amount
equal to the sum of—
‘‘(I) 5 percent of—
‘‘(aa) the amount specified
in subparagraph (H) for the fis-
cal year; minus
‘‘(bb) 
the 
total 
of 
the
amounts reserved pursuant to
subparagraphs (F) and (G) for
the fiscal year;
‘‘(II) any amount available for
grants under this paragraph for the
immediately preceding fiscal year that
has not been obligated;
‘‘(III) any amount reserved pur-
suant to subparagraph (F) for the im-
mediately preceding fiscal year that
has not been obligated; and
‘‘(IV) any available amount (as
defined in subparagraph (A)(iv)) for
the immediately preceding fiscal year
that has not been obligated by a State
or sub-State entity.
601
Amounts made available pursuant to this
clause are authorized to remain available
until the end of fiscal year 2001.
‘‘(C) LIMITATIONS ON USE OF FUNDS.—
‘‘(i) ALLOWABLE ACTIVITIES.—An en-
tity to which funds are provided under this
paragraph may use the funds to move into
the work force recipients of assistance
under the program funded under this part
of the State in which the entity is located,
by means of any of the following:
‘‘(I) Job creation through public
or private sector employment wage
subsidies.
‘‘(II) On-the-job training.
‘‘(III) Contracts with job place-
ment companies or public job place-
ment programs.
‘‘(IV) Job vouchers.
‘‘(V) Job retention or support
services if such services are not other-
wise available.
‘‘(ii) REQUIRED BENEFICIARIES.—An
entity that operates a project with funds
provided under this paragraph shall expend
602
at least 90 percent of all funds provided to
the project for the benefit of recipients of
assistance under the program funded
under this part of the State in which the
entity is located who meet the require-
ments of any of the following subclauses:
‘‘(I) The individual has received
assistance under the State program
funded under this part (whether in ef-
fect before or after the amendments
made by section 103 of the Personal
Responsibility and Work Opportunity
Reconciliation Act of 1996 first apply
to the State) for at least 30 months
(whether or not consecutive).
‘‘(II) At least 2 of the following
apply to the recipient:
‘‘(aa) The individual has not
completed secondary school or
obtained a certificate of general
equivalency, and has low skills in
reading and mathematics.
‘‘(bb) The individual re-
quires substance abuse treatment
for employment.
603
‘‘(cc) The individual has a
poor work history.
The Secretary shall prescribe such
regulations as may be necessary to in-
terpret this subclause.
‘‘(III) Within 12 months, the in-
dividual will become ineligible for as-
sistance under the State program
funded under this part by reason of a
durational limit on such assistance,
without regard to any exemption pro-
vided 
pursuant 
to 
section
408(a)(7)(C) that may apply to the
individual.
‘‘(iii) LIMITATION ON APPLICABILITY
OF
SECTION
404.—The rules of section
404, other than subsections (b), (f), and
(h) of section 404, shall not apply to a
grant made under this paragraph.
‘‘(iv) PROHIBITION
AGAINST
PROVI-
SION OF SERVICES BY PRIVATE INDUSTRY
COUNCIL.—A private industry council may
not directly provide services using funds
provided under this paragraph.
604
‘‘(v) PROHIBITION
AGAINST
USE
OF
GRANT
FUNDS
FOR
ANY
OTHER
FUND
MATCHING
REQUIREMENT.—An entity to
which funds are provided under this para-
graph shall not use any part of the funds
to fulfill any obligation of any State, politi-
cal subdivision, or private industry council
to contribute funds under other Federal
law.
‘‘(vi) 
DEADLINE
FOR
EXPENDI-
TURE.—An entity to which funds are pro-
vided under this paragraph shall remit to
the Secretary any part of the funds that
are not expended within 3 years after the
date the funds are so provided.
‘‘(D) INDIVIDUALS
WITH
INCOME
LESS
THAN THE POVERTY LINE.—For purposes of
this paragraph, the number of individuals with
an income that is less than the poverty line
shall be determined based on the methodology
used by the Bureau of the Census to produce
and publish intercensal poverty data for 1993
for States and counties.
‘‘(E) DEFINITIONS.—As used in this para-
graph:
605
‘‘(i) PRIVATE INDUSTRY COUNCIL.—
The term ‘private industry council’ means,
with respect to a service delivery area, the
private industry council (or successor en-
tity) established for the service delivery
area pursuant to the Job Training Part-
nership Act.
‘‘(ii) SECRETARY.—The term ‘Sec-
retary’ means the Secretary of Labor, ex-
cept as otherwise expressly provided.
‘‘(iii) SERVICE DELIVERY AREA.—The
term ‘service delivery area’ shall have the
meaning given such term for purposes of
the Job Training Partnership Act (or suc-
cessor area).
‘‘(F) FUNDING
FOR
INDIAN
TRIBES.—1
percent of the amount specified in subpara-
graph (H) for each fiscal year shall be reserved
for grants to Indian tribes under section
412(a)(3).
‘‘(G) EVALUATIONS.—0.5 percent of the
amount specified in subparagraph (H) for each
fiscal year shall be reserved for use by the Sec-
retary of Health and Human Services to carry
out section 413(j).
606
‘‘(H) FUNDING.—The amount specified in
this subparagraph is—
‘‘(i) $750,000,000 for fiscal year
1998;
‘‘(ii) $1,250,000,000 for fiscal year
1999; and
‘‘(iii) $1,000,000,000 for fiscal year
2000.
‘‘(I) BUDGET SCORING.—Notwithstanding
section 457(b)(2) of the Balanced Budget and
Emergency Deficit Control Act of 1985, the
baseline shall assume that no grant shall be
made under this paragraph or under section
412(a)(3) after fiscal year 2001.’’.
(b) GRANTS TO TERRITORIES.—Section 1108(a) of
such Act (42 U.S.C. 1308(a)) is amended by inserting
‘‘(except section 403(a)(5))’’ after ‘‘title IV’’.
(c) GRANTS TO INDIAN TRIBES.—Section 412(a) of
such Act (42 U.S.C. 612(a)) is amended by adding at the
end the following:
‘‘(3) WELFARE-TO-WORK GRANTS.—
‘‘(A) IN
GENERAL.—The Secretary shall
make a grant in accordance with this paragraph
to an Indian tribe for each fiscal year specified
in section 403(a)(5)(H) for which the Indian
607
tribe is a welfare-to-work tribe, in such amount
as the Secretary deems appropriate, subject to
subparagraph (B) of this paragraph.
‘‘(B) WELFARE-TO-WORK TRIBE.—An In-
dian tribe shall be considered a welfare-to-work
tribe for a fiscal year for purposes of this para-
graph if the Indian tribe meets the following re-
quirements:
‘‘(i) The Indian tribe has submitted to
the Secretary (in the form of an addendum
to the tribal family assistance plan, if any,
of the Indian tribe) a plan which describes
how, consistent with section 403(a)(5), the
Indian tribe will use any funds provided
under this paragraph during the fiscal
year.
‘‘(ii) The Indian tribe has provided
the Secretary with an estimate of the
amount that the Indian tribe intends to ex-
pend during the fiscal year (excluding trib-
al 
expenditures 
described 
in 
section
409(a)(7)(B)(iv)) for activities described in
section 403(a)(5)(C)(i).
‘‘(iii) The Indian tribe has agreed to
negotiate in good faith with the Secretary
608
of Health and Human Services with re-
spect to the substance of any evaluation
under section 413(j), and to cooperate with
the conduct of any such evaluation.
‘‘(C) LIMITATIONS ON USE OF FUNDS.—
Section 403(a)(5)(C) shall apply to funds pro-
vided to Indian tribes under this paragraph in
the same manner in which such section applies
to funds provided under section 403(a)(5).’’.
(d) FUNDS RECEIVED FROM GRANTS TO BE DIS-
REGARDED IN APPLYING DURATIONAL LIMIT ON ASSIST-
ANCE.—Section 408(a)(7) of such Act (42 U.S.C.
608(a)(7)) is amended by adding at the end the following:
‘‘(G) INAPPLICABILITY
TO
WELFARE-TO-
WORK GRANTS AND ASSISTANCE.—For purposes
of subparagraph (A) of this paragraph, a grant
made under section 403(a)(5) shall not be con-
sidered a grant made under section 403, and
assistance from funds provided under section
403(a)(5) shall not be considered assistance.’’.
(e) EVALUATIONS.—Section 413 of such Act (42
U.S.C. 613) is amended by adding at the end the follow-
ing:
‘‘(j) EVALUATION
OF
WELFARE-TO-WORK
PRO-
GRAMS.—The Secretary—
609
‘‘(1) shall, in consultation with the Secretary of
Labor, develop a plan to evaluate how grants made
under sections 403(a)(5) and 412(a)(3) have been
used; and
‘‘(2) may evaluate the use of such grants by
such grantees as the Secretary deems appropriate, in
accordance with an agreement entered into with the
grantees after good-faith negotiations.’’.
SEC. 5002. NONDISPLACEMENT.
Section 407(f) of the Social Security Act (42 U.S.C.
607(f)) is amended to read as follows:
‘‘(f) NONDISPLACEMENT IN WORK ACTIVITIES.—
‘‘(1) PROHIBITIONS.—
‘‘(A) GENERAL PROHIBITION.—A partici-
pant in a work activity pursuant to section
403(a)(5) or this section shall not displace (in-
cluding a partial displacement, such as a reduc-
tion in the hours of nonovertime work, wages,
or employment benefits) any individual who, as
of the date of the participation, is an employee.
‘‘(B) PROHIBITION
ON
IMPAIRMENT
OF
CONTRACTS.—A work activity shall not impair
an existing contract for services or collective
bargaining agreement, and a work activity that
would be inconsistent with the terms of a collec-
610
tive bargaining agreement shall not be under-
taken without the written concurrence of the
labor organization and employer concerned.
‘‘(C) OTHER
PROHIBITIONS.—A partici-
pant in a work activity shall not be employed in
a job—
‘‘(i) when any other individual is on
layoff from the same or any substantially
equivalent job;
‘‘(ii) when the employer has termi-
nated the employment of any regular em-
ployee or otherwise reduced the workforce
of the employer with the intention of filling
the vacancy so created with the partici-
pant; or
‘‘(iii) which is created in a pro-
motional line that will infringe in any way
upon the promotional opportunities of em-
ployed individuals.
‘‘(2) HEALTH AND SAFETY.—Health and safety
standards established under Federal and State law
otherwise applicable to working conditions of em-
ployees shall be equally applicable to working condi-
tions of participants engaged in a work activity. To
the extent that a State workers’ compensation law
611
applies, workers’ compensation shall be provided to
participants on the same basis as the compensation
is provided to other individuals in the State in simi-
lar employment.
‘‘(3) NONDISCRIMINATION.—In addition to the
protections provided under the provisions of law
specified in section 408(c), an individual may not be
discriminated against with respect to participation in
work activities by reason of gender.
‘‘(4) GRIEVANCE PROCEDURE.—
‘‘(A) IN GENERAL.—Each State to which a
grant is made under section 403 shall establish
and maintain a procedure for grievances or
complaints alleging violations of paragraph (1),
(2), or (3) from participants and other inter-
ested or affected parties. The procedure shall
include an opportunity for a hearing and be
completed within 60 days after the grievance or
complaint is filed.
‘‘(B) INVESTIGATION.—
‘‘(i) IN GENERAL.—The Secretary of
Labor shall investigate an allegation of a
violation of paragraph (1), (2), or (3) if—
‘‘(I) a decision relating to the
violation is not reached within 60
612
days after the date of the filing of the
grievance or complaint, and either
party appeals to the Secretary of
Labor; or
‘‘(II) a decision relating to the
violation is reached within the 60-day
period, and the party to which the de-
cision is adverse appeals the decision
to the Secretary of Labor.
‘‘(ii) ADDITIONAL
REQUIREMENT.—
The Secretary of Labor shall make a final
determination relating to an appeal made
under clause (i) no later than 120 days
after receiving the appeal.
‘‘(C) REMEDIES.—Remedies for violation
of paragraph (1), (2), or (3) shall be limited
to—
‘‘(i) suspension or termination of pay-
ments under section 403;
‘‘(ii) prohibition of placement of a
participant with an employer that has vio-
lated paragraph (1), (2), or (3);
‘‘(iii) where applicable, reinstatement
of an employee, payment of lost wages and
benefits, and reestablishment of other rel-
613
evant terms, conditions and privileges of
employment; and
‘‘(iv) where appropriate, other equi-
table relief.’’.
SEC. 5003. CLARIFICATION OF LIMITATION ON NUMBER OF
PERSONS WHO MAY BE TREATED AS EN-
GAGED IN WORK BY REASON OF PARTICIPA-
TION IN EDUCATIONAL ACTIVITIES.
(a) IN GENERAL.—Section 407(c)(2)(D) of the Social
Security Act (42 U.S.C. 607(c)(2)(D)) is amended to read
as follows:
‘‘(D) LIMITATION
ON
NUMBER
OF
PER-
SONS WHO MAY BE TREATED AS ENGAGED IN
WORK BY REASON OF PARTICIPATION IN EDU-
CATIONAL ACTIVITIES.—For purposes of deter-
mining monthly participation rates under para-
graphs (1)(B)(i) and (2)(B) of subsection (b),
not more than 20 percent of the number of in-
dividuals in all families and in 2-parent fami-
lies, respectively, in a State who are treated as
engaged in work for a month may consist of in-
dividuals who are determined to be engaged in
work for the month by reason of participation
in vocational educational training, or deemed to
614
be engaged in work for the month by reason of
subparagraph (C) of this paragraph.’’.
(b) RETROACTIVITY.—The amendment made by sub-
section (a) of this section shall take effect as if included
in the enactment of section 103(a) of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996.
SEC. 5004. COMPENSATION; MAXIMUM REQUIRED HOURS
OF WORK ACTIVITIES.
(a) IN GENERAL.—Section 407 of the Social Security
Act (42 U.S.C. 607) is amended by adding at the end the
following:
‘‘(j) COMPENSATION.—A State to which a grant is
made under section 403 may not require a recipient of
assistance under the State program funded under this
part to participate in a work activity described in para-
graph (1), (2), or (3) of subsection (d) unless the recipient
is compensated at the same rates, including periodic in-
creases, as trainees or employees who are similarly situ-
ated in similar occupations by the same employer and who
have similar training, experience and skills, and such rates
shall be in accordance with applicable law.
‘‘(k) LIMITATION
ON NUMBER
OF HOURS PER
MONTH THAT A RECIPIENT OF ASSISTANCE MAY BE RE-
QUIRED TO PARTICIPATE IN ON-THE-JOB TRAINING, AND
615
WITH
A PUBLIC AGENCY
OR NONPROFIT ORGANIZA-
TION.—
‘‘(1) IN GENERAL.—A State to which a grant
is made under section 403 may not require a recipi-
ent of assistance under the State program funded
under this part to be assigned to on-the-job training,
and to a work experience or community service posi-
tion with a public agency or nonprofit organization
during a month for more than the allowable number
of hours determined for the month under paragraph
(2).
‘‘(2) ALLOWABLE NUMBER OF HOURS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the allowable number of hours deter-
mined for a month under this paragraph is—
‘‘(i) the value of the includible bene-
fits provided by the State to the recipient
during the month; divided by
‘‘(ii) the minimum wage rate in effect
during the month under section 6 of the
Fair Labor Standards Act of 1938.
‘‘(B) STATE OPTION TO TAKE ACCOUNT OF
CERTAIN WORK ACTIVITIES.—
‘‘(i) IN
GENERAL.—In determining
the allowable number of hours for a month
616
for a sufficiently employed recipient, the
State may subtract from the allowable
number of hours calculated under subpara-
graph (A) the number of hours during the
month for which the recipient participates
in a work activity described in paragraph
(6), (8), (9), or (11) of subsection (d).
‘‘(ii) SUFFICIENTLY
EMPLOYED
RE-
CIPIENT.—As used in clause (i), the term
‘sufficiently employed recipient’ means,
with respect to a month, a recipient who is
employed during the month for a number
of hours that is not less than—
‘‘(I) the sum of the dollar value
of any assistance provided to the re-
cipient during the month under the
State program funded under this part,
and the dollar value equivalent of any
benefits provided to the recipient dur-
ing the month under the food stamp
program under the Food Stamp Act
of 1977; divided by
‘‘(II) the minimum wage rate in
effect during the month under section
617
6 of the Fair Labor Standards Act of
1938.
‘‘(3) DEFINITION OF VALUE OF THE INCLUD-
IBLE BENEFITS.—As used in paragraph (2)(A), the
term ‘value of the includible benefits’ means, with
respect to a recipient—
‘‘(A) the dollar value of any assistance
under the State program funded under this
part;
‘‘(B) the dollar value equivalent of any
benefits under the food stamp program under
the Food Stamp Act of 1977;
‘‘(C) at the option of the State, the dollar
value of benefits under the State plan approved
under title XIX, as determined in accordance
with paragraph (4);
‘‘(D) at the option of the State, the dollar
value of child care assistance; and
‘‘(E) at the option of the State, the dollar
value of housing benefits.
‘‘(4) VALUATION OF MEDICAID BENEFITS.—An-
nually, the Secretary shall publish a table that speci-
fies the dollar value of the insurance coverage pro-
vided under title XIX to a family of each size, which
618
may take account of geographical variations or other
factors identified by the Secretary.
‘‘(5) TREATMENT OF RECIPIENTS ASSIGNED TO
CERTAIN
POSITIONS
WITH
A
PUBLIC
AGENCY
OR
NONPROFIT ORGANIZATION.—A recipient of assist-
ance under a State program funded under this part
who is engaged in work experience or community
service with a public agency or nonprofit organiza-
tion shall not be considered an employee of the pub-
lic agency or the nonprofit organization.’’.
(b) RETROACTIVITY.—The amendment made by sub-
section (a) of this section shall take effect as if included
in the enactment of section 103(a) of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996.
SEC. 5005. PENALTY FOR FAILURE OF STATE TO REDUCE
ASSISTANCE 
FOR 
RECIPIENTS 
REFUSING
WITHOUT GOOD CAUSE TO WORK.
(a) IN GENERAL.—Section 409(a) of the Social Secu-
rity Act (42 U.S.C. 609(a)) is amended by adding at the
end the following:
‘‘(13) PENALTY FOR FAILURE TO REDUCE AS-
SISTANCE
FOR
RECIPIENTS
REFUSING
WITHOUT
GOOD CAUSE TO WORK.—
619
‘‘(A) IN GENERAL.—If the Secretary deter-
mines that a State to which a grant is made
under section 403 in a fiscal year has violated
section 407(e) during the fiscal year, the Sec-
retary shall reduce the grant payable to the
State under section 403(a)(1) for the imme-
diately succeeding fiscal year by an amount
equal to not less than 1 percent and not more
than 5 percent of the State family assistance
grant.
‘‘(B) PENALTY
BASED
ON
SEVERITY
OF
FAILURE.—The Secretary shall impose reduc-
tions under subparagraph (A) with respect to a
fiscal year based on the degree of noncompli-
ance.’’.
(b) RETROACTIVITY.—The amendment made by sub-
section (a) of this section shall take effect as if included
in the enactment of section 103(a) of the Personal Re-
sponsibility and Work Opportunity Reconciliation Act of
1996.
620
Subtitle B—Higher Education
Programs
SEC. 5101. MANAGEMENT AND RECOVERY OF RESERVES.
(a) AMENDMENT.—Section 422 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1072) is amended by add-
ing after subsection (g) the following new subsection:
‘‘(h) RECALL OF RESERVES; LIMITATIONS ON USE
OF RESERVE FUNDS AND ASSETS.—(1) Notwithstanding
any other provision of law, the Secretary shall, except as
otherwise 
provided 
in 
this 
subsection, 
recall
$1,000,000,000 from the reserve funds held by guaranty
agencies on September 1, 2002.
‘‘(2) Funds recalled by the Secretary under this sub-
section shall be deposited in the Treasury.
‘‘(3) The Secretary shall require each guaranty agen-
cy to return reserve funds under paragraph (1) based on
such agency’s required share of recalled reserve funds held
by guaranty agencies as of September 30, 1996. For pur-
poses of this paragraph, a guaranty agency’s required
share of recalled reserve funds shall be determined as fol-
lows:
‘‘(A) The Secretary shall compute each agency’s
reserve ratio by dividing (i) the amount held in such
agency’s reserve funds as of September 30, 1996
(but reflecting later accounting or auditing adjust-
621
ments approved by the Secretary), by (ii) the origi-
nal principal amount of all loans for which such
agency has an outstanding insurance obligation as of
such date.
‘‘(B) If the reserve ratio of any agency as com-
puted under subparagraph (A) exceeds 2.0 percent,
the agency’s required share shall include so much of
the amounts held in such agency’s reserve fund as
exceed a reserve ratio of 2.0 percent.
‘‘(C) If any additional amount is required to be
recalled under paragraph (1) (after deducting the
total of the required shares calculated under sub-
paragraph (B)), the agencies’ required shares shall
include additional amounts—
‘‘(i) determined by imposing on each such
agency an equal percentage reduction in the
amount of each agency’s reserve fund remain-
ing after deduction of the amount recalled
under subparagraph (B); and
‘‘(ii) the total of which equals the addi-
tional amount that is required to be recalled
under paragraph (1) (after deducting the total
of the required shares calculated under sub-
paragraph (B)).
622
‘‘(4) Within 90 days after the beginning of each of
fiscal years 1998 through 2002, each guaranty agency
shall transfer a portion of each agency’s required share
determined under paragraph (3) to a restricted account
established by the guaranty agency that is of a type se-
lected by the guaranty agency with the approval of the
Secretary. Funds transferred to such restricted accounts
shall be invested in obligations issued or guaranteed by
the United States or in other similarly low-risk securities.
A guaranty agency shall not use the funds in such a re-
stricted account for any purpose without the express writ-
ten permission of the Secretary, except that a guaranty
agency may use the earnings from such restricted account
to assist in meeting the agency’s operational expenses
under this part. In each of fiscal years 1998 through
2002, each agency shall transfer its required share to such
restricted account in 5 equal annual installments, except
that—
‘‘(A) a guarantee agency that has a reserve
ratio (as computed under subparagraph (3)(A))
equal to or less than 1.10 percent may transfer its
required share to such account in 4 equal install-
ments beginning in fiscal year 1999; and
‘‘(B) a guarantee agency may transfer such re-
quired share to such account in accordance with
623
such other payment schedules as are approved by
the Secretary.
‘‘(5) If, on September 1, 2002, the total amount in
the restricted accounts described in paragraph (4) is less
than the amount the Secretary is required to recall under
paragraph (1), the Secretary may require the return of
the amount of the shortage from other reserve funds held
by guaranty agencies under procedures established by the
Secretary.
‘‘(6) The Secretary may take such reasonable meas-
ures, and require such information, as may be necessary
to ensure that guaranty agencies comply with the require-
ments of this subsection. Notwithstanding any other provi-
sion of this part, if the Secretary determines that a guar-
anty agency is not in compliance with the requirements
of this subsection, such agency may not receive any other
funds under this part until the Secretary determines that
such agency is in compliance.
‘‘(7) The Secretary shall not have any authority to
direct a guaranty agency to return reserve funds under
subsection (g)(1)(A) during the period from the date of
enactment of this subsection through September 30, 2002,
and any reserve funds otherwise returned under sub-
section (g)(1) during such period shall be treated as
624
amounts recalled under this subsection and shall not be
available under subsection (g)(4).
‘‘(8) For purposes of this subsection, the term ‘re-
serve funds’ when used with respect to a guaranty agen-
cy—
‘‘(A) includes any cash reserve funds held by
the guaranty agency, or held by, or under the con-
trol of, any other entity; and
‘‘(B) does not include buildings, equipment, or
other nonliquid assets.’’.
(b) 
CONFORMING
AMENDMENT.—Section
428(c)(9)(A) of the Higher Education Act of 1965 (20
U.S.C. 1078(c)(9)(A)) is amended—
(1) in the first sentence, by striking ‘‘for the
fiscal year of the agency that begins in 1993’’; and
(2) by striking the third sentence.
SEC. 5102. REPEAL OF DIRECT LOAN ORIGINATION FEES TO
INSTITUTIONS OF HIGHER EDUCATION.
Section 452 of the Higher Education Act of 1965 (20
U.S.C. 1087b) is amended—
(1) by striking subsection (b); and
(2) by redesignating subsections (c) and (d) as
subsections (b) and (c), respectively.
625
SEC. 5103. FUNDS FOR ADMINISTRATIVE EXPENSES.
Subsection (a) of section 458 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1087h(a)) is amended to
read as follows:
‘‘(a) IN GENERAL.—(1) Each fiscal year, there shall
be available to the Secretary from funds not otherwise ap-
propriated, funds to be obligated for—
‘‘(A) administrative costs under this part and
part B, including the costs of the direct student loan
programs under this part, and
‘‘(B) administrative cost allowances payable to
guaranty agencies under part B and calculated in
accordance with paragraph (2),
not to exceed (from such funds not otherwise appro-
priated) $532,000,000 in fiscal year 1998, $610,000,000
in fiscal year 1999, $705,000,000 in fiscal year 2000,
$750,000,000 in fiscal year 2001, and $750,000,000 in
fiscal year 2002. Administrative cost allowances under
subparagraph (B) of this paragraph shall be paid quar-
terly and used in accordance with section 428(f). The Sec-
retary may carry over funds available under this section
to a subsequent fiscal year.
‘‘(2) Administrative cost allowances payable to guar-
anty agencies under paragraph (1)(B) shall be calculated
on the basis of 0.85 percent of the total principal amount
of loans upon which insurance is issued on or after the
626
date of enactment of the Balanced Budget Act of 1997,
except that such allowances shall not exceed—
‘‘(A) $170,000,000 for each of the fiscal years
1998 and 1999; or
‘‘(B) $150,000,000 for each of the fiscal years
2000, 2001, and 2002.’’.
SEC. 5104. SECRETARY’S EQUITABLE SHARE OF COLLEC-
TIONS 
ON 
CONSOLIDATED 
DEFAULTED
LOANS.
Section 428(c)(6)(A) of the Higher Education Act of
1965 (20 U.S.C. 1078(c)(6)(A)) is amended—
(1) in the matter preceding clause (i), by strik-
ing ‘‘made by the borrower’’ and inserting ‘‘made by
or on behalf of the borrower, including payments
made to discharge loans made under this title to ob-
tain a consolidation loan pursuant to this part or
part D,’’; and
(2) in clause (ii), by striking ‘‘(ii) an amount
equal to 27 percent of such payments (subject to
subparagraph (D) of this paragraph) for costs relat-
ed’’ and inserting the following:
‘‘(ii) an amount equal to 27 percent of such
payments for covered costs, except that the amount
determined under this clause for such covered costs
shall be (I) 18.5 percent of such payments for de-
627
faulted loans consolidated pursuant to this part or
part D on or after July 1, 1997; and (II) 18.5 per-
cent of such payments for defaulted loans consoli-
dated pursuant to this part or part D on or after
the date of enactment of the Higher Education
Amendments of 1992 with respect to any guaranty
agency that has, after such date, made deductions
from such payments under this clause (ii) in an
amount equal to 18.5 percent of such payments.
For purposes of clause (ii) of this subparagraph, the term
‘covered costs’ means costs related’’.
SEC. 5105. EXTENSION OF STUDENT AID PROGRAMS.
Title IV of the Higher Education Act of 1965 (20
U.S.C. 1070 et seq.) is amended—
(1) in section 424(a), by striking ‘‘1998.’’ and
‘‘2002.’’ and inserting ‘‘2002.’’ and ‘‘2006.’’, respec-
tively;
(2) in section 428(a)(5), by striking ‘‘1998,’’
and ‘‘2002.’’ and inserting ‘‘2002,’’ and ‘‘2006.’’, re-
spectively; and
(3) in section 428C(e), by striking ‘‘1998.’’ and
inserting ‘‘2002.’’.
628
Subtitle C—Repeal of Smith-
Hughes Vocational Education Act
SEC. 5201. REPEAL OF SMITH-HUGHES VOCATIONAL EDU-
CATION ACT.
The Act of February 23, 1917 (39 Stat. 929; 20
U.S.C. 11) (commonly known as the ‘‘Smith-Hughes Vo-
cational Education Act’’) is repealed.
Subtitle 
D—Expansion 
of 
Port-
ability and Health Insurance
Coverage
SEC. 5301. SHORT TITLE OF SUBTITLE.
This subtitle may be cited as the ‘‘Expansion of Port-
ability and Health Insurance Coverage Act of 1997’’.
SEC. 5302. RULES GOVERNING ASSOCIATION HEALTH
PLANS.
(a) IN GENERAL.—Subtitle B of title I of the Em-
ployee Retirement Income Security Act of 1974 is amend-
ed by adding after part 7 the following new part:
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH
PLANS
‘‘SEC. 801. ASSOCIATION HEALTH PLANS.
‘‘(a) IN GENERAL.—For purposes of this part, the
term ‘association health plan’ means a group health
plan—
629
‘‘(1) whose sponsor is (or is deemed under this
part to be) described in subsection (b), and
‘‘(2) under which at least one option of health
insurance coverage offered by a health insurance is-
suer (which may include, among other options, man-
aged care options, point of service options, and pre-
ferred provider options) is provided to participants
and beneficiaries.
‘‘(b) SPONSORSHIP.—The sponsor of a group health
plan is described in this subsection if such sponsor—
‘‘(1) is organized and maintained in good faith,
with a constitution and bylaws specifically stating its
purpose and providing for periodic meetings on at
least an annual basis, as a trade association, an in-
dustry association (including a rural electric cooper-
ative association or a rural telephone cooperative as-
sociation), a professional association, or a chamber
of commerce (or similar business group, including a
corporation or similar organization that operates on
a cooperative basis (within the meaning of section
1381 of the Internal Revenue Code of 1986)), for
substantial purposes other than that of obtaining or
providing medical care,
‘‘(2) is established as a permanent entity which
receives the active support of its members and col-
630
lects from its members on a periodic basis dues or
payments necessary to maintain eligibility for mem-
bership in the sponsor, and
‘‘(3) does not condition such dues or payments
or coverage under the plan on the basis of health
status-related factors with respect to the employees
of its members (or affiliated members), or the de-
pendents of such employees, and does not condition
such dues or payments on the basis of group health
plan participation.
Any sponsor consisting of an association of entities which
meet the requirements of paragraphs (1) and (2) shall be
deemed to be a sponsor described in this subsection.
‘‘SEC. 
802. 
CERTIFICATION 
OF 
ASSOCIATION 
HEALTH
PLANS.
‘‘(a) IN GENERAL.—The Secretary shall prescribe by
regulation a procedure under which, subject to subsection
(b), the Secretary shall certify association health plans
which apply for certification as meeting the requirements
of this part.
‘‘(b) STANDARDS.—Under the procedure prescribed
pursuant to subsection (a), the Secretary shall certify an
association health plan as meeting the requirements of
this part only if the Secretary is satisfied that—
‘‘(1) such certification—
631
‘‘(A) is administratively feasible,
‘‘(B) is not adverse to the interests of the
individuals covered under the plan, and
‘‘(C) is protective of the rights and benefits
of the individuals covered under the plan, and
‘‘(2) the applicable requirements of this part
are met (or, upon the date on which the plan is to
commence operations, will be met) with respect to
the plan.
‘‘(c) REQUIREMENTS APPLICABLE
TO CERTIFIED
PLANS.—An association health plan with respect to which
certification under this part is in effect shall meet the ap-
plicable requirements of this part, effective on the date
of certification (or, if later, on the date on which the plan
is to commence operations).
‘‘(d) REQUIREMENTS
FOR
CONTINUED
CERTIFI-
CATION.—The Secretary may provide by regulation for
continued certification under this part, including require-
ments relating to any commencement, by an association
health plan which has been certified under this part, of
a benefit option which does not consist of health insurance
coverage.
‘‘(e) CLASS CERTIFICATION
FOR FULLY–INSURED
PLANS.—The Secretary shall establish a class certification
procedure for association health plans under which all ben-
632
efits consist of health insurance coverage. Under such pro-
cedure, the Secretary shall provide for the granting of cer-
tification under this part to the plans in each class of such
association health plans upon appropriate filing under
such procedure in connection with plans in such class and
payment of the prescribed fee under section 807(a).
‘‘SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND
BOARDS OF TRUSTEES.
‘‘(a) SPONSOR.—The requirements of this subsection
are met with respect to an association health plan if—
‘‘(1) the sponsor (together with its immediate
predecessor, if any) has met (or is deemed under
this part to have met) for a continuous period of not
less than 3 years ending with the date of the appli-
cation for certification under this part, the require-
ments of paragraphs (1) and (2) of section 801(b),
and
‘‘(2) the sponsor meets (or is deemed under this
part to meet) the requirements of section 801(b)(3).
‘‘(b) BOARD OF TRUSTEES.—The requirements of
this subsection are met with respect to an association
health plan if the following requirements are met:
‘‘(1) FISCAL CONTROL.—The plan is operated,
pursuant to a trust agreement, by a board of trust-
ees which has complete fiscal control over the plan
633
and which is responsible for all operations of the
plan.
‘‘(2) RULES
OF
OPERATION
AND
FINANCIAL
CONTROLS.—The board of trustees has in effect
rules of operation and financial controls, based on a
3-year plan of operation, adequate to carry out the
terms of the plan and to meet all requirements of
this title applicable to the plan.
‘‘(3) RULES
GOVERNING
RELATIONSHIP
TO
PARTICIPATING
EMPLOYERS
AND
TO
CONTRAC-
TORS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the members of the board of
trustees are individuals selected from individ-
uals who are the owners, officers, directors, or
employees of the participating employers or who
are partners in the participating employers and
actively participate in the business.
‘‘(B) LIMITATION.—
‘‘(i) GENERAL RULE.—Except as pro-
vided in clauses (ii) and (iii), no such
member is an owner, officer, director, or
employee of, or partner in, a contract ad-
ministrator or other service provider to the
plan.
634
‘‘(ii) LIMITED EXCEPTION FOR PRO-
VIDERS OF SERVICES SOLELY ON BEHALF
OF THE SPONSOR.—Officers or employees
of a sponsor which is a service provider
(other than a contract administrator) to
the plan may be members of the board if
they constitute not more than 25 percent
of the membership of the board and they
do not provide services to the plan other
than on behalf of the sponsor.
‘‘(iii) TREATMENT OF PROVIDERS OF
MEDICAL CARE.—In the case of a sponsor
which is an association whose membership
consists primarily of providers of medical
care, clause (i) shall not apply in the case
of any service provider described in sub-
paragraph (A) who is a provider of medical
care under the plan.
‘‘(C) SOLE
AUTHORITY.—The board has
sole authority to approve applications for par-
ticipation in the plan and to contract with a
service provider to administer the day-to-day af-
fairs of the plan.
‘‘(c) TREATMENT OF FRANCHISE NETWORKS.—In
the case of a group health plan which is established and
635
maintained by a franchiser for a franchise network con-
sisting of its franchisees—
‘‘(1) the requirements of subsection (a) and sec-
tion 801(a)(1) shall be deemed met if such require-
ments would otherwise be met if the franchiser were
deemed to be the sponsor referred to in section
801(b), such network were deemed to be an associa-
tion described in section 801(b), and each franchisee
were deemed to be a member (of the association and
the sponsor) referred to in section 801(b), and
‘‘(2) the requirements of section 804(a)(1) shall
be deemed met.
‘‘(d) CERTAIN COLLECTIVELY BARGAINED PLANS.—
‘‘(1) IN
GENERAL.—In the case of a group
health plan described in paragraph (2)—
‘‘(A) the requirements of subsection (a)
and section 801(a)(1) shall be deemed met,
‘‘(B) the joint board of trustees shall be
deemed a board of trustees with respect to
which the requirements of subsection (b) are
met, and
‘‘(C) the requirements of section 804 shall
be deemed met.
‘‘(2) REQUIREMENTS.—A group health plan is
described in this paragraph if—
636
‘‘(A) the plan is a multiemployer plan,
‘‘(B) the plan is in existence on April 1,
1997, and would be described in section
3(40)(A)(i) but solely for the failure to meet
the requirements of section 3(40)(C)(ii) or (to
the extent provided in regulations of the Sec-
retary) solely for the failure to meet the re-
quirements of subparagraph (D) of section
3(40), or
‘‘(C)(i) the plan is in existence on April 1,
1997, has been in existence as of such date for
at least 3 years, meets the requirements of
paragraphs (2) and (3) of section 801(b), and
would be described in section 3(40)(A)(i) but
solely for the failure to meet the requirements
of subparagraph (C)(i) or (C)(ii), and
‘‘(ii) individuals who are members of the
plan sponsor—
‘‘(I) participate by elections in the or-
ganizational governance of the plan spon-
sor,
‘‘(II) are eligible for appointment as
trustee of the plan or for participation in
the appointment of trustees of the plan,
and
637
‘‘(III) if covered under the plan, have
full rights under the plan of a participant
in an employee welfare benefit plan.
‘‘(e) CERTAIN PLANS NOT MEETING SINGLE EM-
PLOYER REQUIREMENT.—
‘‘(1) IN GENERAL.—In any case in which the
majority of the employees covered under a group
health plan are employees of a single employer
(within the meaning of clauses (i) and (ii) of section
3(40)(B)), if all other employees covered under the
plan are employed by employers who are related to
such single employer—
‘‘(A) the requirements of subsection (a)
and section 801(a)(1) shall not apply if such
single employer is the sponsor of the plan, and
‘‘(B) the requirements of subsection (b)
shall be deemed met if the board of trustees is
the named fiduciary in connection with the
plan.
‘‘(2) RELATED EMPLOYERS.—For purposes of
paragraph (1), employers are ‘related’ if there is
among all such employers a common ownership in-
terest or a substantial commonality of business oper-
ations based on common suppliers or customers.
638
‘‘SEC. 804. PARTICIPATION AND COVERAGE REQUIRE-
MENTS.
‘‘(a) COVERED EMPLOYERS AND INDIVIDUALS.—The
requirements of this subsection are met with respect to
an association health plan if, under the terms of the
plan—
‘‘(1) all participating employers must be mem-
bers or affiliated members of the sponsor, except
that, in the case of a sponsor which is a professional
association or other individual-based association, if
at least one of the officers, directors, or employees
of an employer, or at least one of the individuals
who are partners in an employer and who actively
participates in the business, is a member or affili-
ated member of the sponsor, participating employers
may also include such employer, and
‘‘(2) all individuals commencing coverage under
the plan after certification under this part must
be—
‘‘(A) active or retired owners (including
self-employed individuals), officers, directors, or
employees of, or partners in, participating em-
ployers, or
‘‘(B) the beneficiaries of individuals de-
scribed in subparagraph (A).
639
‘‘(b) COVERAGE OF PREVIOUSLY UNINSURED EM-
PLOYEES.—The requirements of this subsection are met
with respect to an association health plan if, under the
terms of the plan, no affiliated member of the sponsor may
be offered coverage under the plan as a participating em-
ployer unless—
‘‘(1) the affiliated member was an affiliated
member on the date of certification under this part,
or
‘‘(2) during the 12-month period preceding the
date of the offering of such coverage, the affiliated
member has not maintained or contributed to a
group health plan with respect to any of its employ-
ees who would otherwise be eligible to participate in
such association health plan.
‘‘(c) INDIVIDUAL MARKET UNAFFECTED.—The re-
quirements of this subsection are met with respect to an
association health plan if, under the terms of the plan,
no participating employer may provide health insurance
coverage in the individual market for any employee not
covered under the plan which is similar to the coverage
contemporaneously provided to employees of the employer
under the plan, if such exclusion of the employee from cov-
erage under the plan is based on a health status-related
factor with respect to the employee and such employee
640
would, but for such exclusion on such basis, be eligible
for coverage under the plan.
‘‘(d) PROHIBITION
OF DISCRIMINATION AGAINST
EMPLOYERS
AND EMPLOYEES ELIGIBLE
TO PARTICI-
PATE.—The requirements of this subsection are met with
respect to an association health plan if—
‘‘(1) under the terms of the plan, no employer
meeting the preceding requirements of this section is
excluded as a participating employer, unless—
‘‘(A) participation or contribution require-
ments of the type referred to in section 2711 of
the Public Health Service Act are not met with
respect to the excluded employer, or
‘‘(B) the excluded employer does not sat-
isfy a required minimum level of employment
uniformly applicable to participating employers,
‘‘(2) the applicable requirements of sections
701, 702, and 703 are met with respect to the plan,
and
‘‘(3) applicable benefit options under the plan
are actively marketed to all eligible participating em-
ployers.
641
‘‘SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN
DOCUMENTS, CONTRIBUTION RATES, AND
BENEFIT OPTIONS.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if the
following requirements are met:
‘‘(1) 
CONTENTS
OF
GOVERNING
INSTRU-
MENTS.—The instruments governing the plan in-
clude a written instrument, meeting the require-
ments of an instrument required under section
402(a)(1), which—
‘‘(A) provides that the board of trustees
serves as the named fiduciary required for plans
under section 402(a)(1) and serves in the ca-
pacity of a plan administrator (referred to in
section 3(16)(A)),
‘‘(B) provides that the sponsor of the plan
is to serve as plan sponsor (referred to in sec-
tion 3(16)(B)), and
‘‘(C) incorporates the requirements of sec-
tion 806.
‘‘(2) CONTRIBUTION
RATES
MUST
BE
NON-
DISCRIMINATORY.—
‘‘(A) The contribution rates for any par-
ticipating employer do not vary significantly on
the basis of the claims experience of such em-
642
ployer and do not vary on the basis of the type
of business or industry in which such employer
is engaged.
‘‘(B) Nothing in this title or any other pro-
vision of law shall be construed to preclude an
association health plan, or a health insurance
issuer offering health insurance coverage in
connection with an association health plan,
from setting contribution rates based on the
claims experience of the plan, to the extent con-
tribution rates under the plan meet the require-
ments of section 702(b).
‘‘(3) FLOOR FOR NUMBER OF COVERED INDI-
VIDUALS
WITH
RESPECT
TO
CERTAIN
PLANS.—If
any benefit option under the plan does not consist
of health insurance coverage, the plan has as of the
beginning of the plan year not fewer than 1,000 par-
ticipants and beneficiaries.
‘‘(4) 
REGULATORY
REQUIREMENTS.—Such
other requirements as the Secretary may prescribe
by regulation as necessary to carry out the purposes
of this part.
‘‘(b) ABILITY OF ASSOCIATION HEALTH PLANS TO
DESIGN BENEFIT OPTIONS.—Nothing in this part or any
provision of State law (as defined in section 514(c)(1))
643
shall be construed to preclude an association health plan,
or a health insurance issuer offering health insurance cov-
erage in connection with an association health plan, from
exercising its sole discretion in selecting the specific items
and services consisting of medical care to be included as
benefits under such plan or coverage, except in the case
of any law to the extent that it (1) prohibits an exclusion
of a specific disease from such coverage, or (2) is not pre-
empted under section 731(a)(1) with respect to matters
governed by section 711 or 712.
‘‘SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS
FOR 
SOLVENCY 
FOR 
PLANS 
PROVIDING
HEALTH BENEFITS IN ADDITION TO HEALTH
INSURANCE COVERAGE.
‘‘(a) IN GENERAL.—The requirements of this section
are met with respect to an association health plan if—
‘‘(1) the benefits under the plan consist solely
of health insurance coverage, or
‘‘(2) if the plan provides any additional benefit
options which do not consist of health insurance cov-
erage, the plan—
‘‘(A) establishes and maintains reserves
with respect to such additional benefit options,
in amounts recommended by the qualified actu-
ary, consisting of—
644
‘‘(i) a reserve sufficient for unearned
contributions,
‘‘(ii) a reserve sufficient for benefit li-
abilities which have been incurred, which
have not been satisfied, and for which risk
of loss has not yet been transferred, and
for expected administrative costs with re-
spect to such benefit liabilities,
‘‘(iii) a reserve sufficient for any other
obligations of the plan, and
‘‘(iv) a reserve sufficient for a margin
of error and other fluctuations, taking into
account the specific circumstances of the
plan,
and
‘‘(B) establishes and maintains aggregate
excess/stop loss insurance and solvency indem-
nification, with respect to such additional bene-
fit options for which risk of loss has not yet
been transferred, as follows:
‘‘(i) The plan shall secure aggregate
excess/stop loss insurance for the plan with
an attachment point which is not greater
than 125 percent of expected gross annual
claims. The Secretary may by regulation
645
provide for upward adjustments in the
amount of such percentage in specified cir-
cumstances in which the plan specifically
provides for and maintains reserves in ex-
cess of the amounts required under sub-
paragraph (A).
‘‘(ii) The plan shall secure a means of
indemnification for any claims which the
plan is unable to satisfy by reason of a ter-
mination pursuant to section 809(b) (relat-
ing to mandatory termination).
Any regulations prescribed by the Secretary pursuant to
paragraph (2)(B)(i) may allow for such adjustments in the
required levels of excess/stop loss insurance as the quali-
fied actuary may recommend, taking into account the spe-
cific circumstances of the plan.
‘‘(b) MINIMUM SURPLUS IN ADDITION TO CLAIMS
RESERVES.—The requirements of this subsection are met
if the plan establishes and maintains surplus in an amount
at least equal to the excess of—
‘‘(1) the greater of—
‘‘(A) 25 percent of expected incurred
claims and expenses for the plan year, or
‘‘(B) $400,000,
over
646
‘‘(2) the amount required under subsection
(a)(2)(A)(ii).
‘‘(c) ADDITIONAL REQUIREMENTS.—In the case of
any association health plan described in subsection (a)(2),
the Secretary may provide such additional requirements
relating to reserves and excess/stop loss insurance as the
Secretary considers appropriate. Such requirements may
be provided, by regulation or otherwise, with respect to
any such plan or any class of such plans.
‘‘(d) ADJUSTMENTS FOR EXCESS/STOP LOSS INSUR-
ANCE.—The Secretary may provide for adjustments to the
levels of reserves otherwise required under subsections (a)
and (b) with respect to any plan or class of plans to take
into account excess/stop loss insurance provided with re-
spect to such plan or plans.
‘‘(e) ALTERNATIVE MEANS OF COMPLIANCE.—The
Secretary may permit an association health plan described
in subsection (a)(2) to substitute, for all or part of the
requirements of this section, such security, guarantee,
hold-harmless arrangement, or other financial arrange-
ment as the Secretary determines to be adequate to enable
the plan to fully meet all its financial obligations on a
timely basis and is otherwise no less protective of the in-
terests of participants and beneficiaries than the require-
ments for which it is substituted. The Secretary may take
647
into account, for purposes of this subsection, evidence pro-
vided by the plan or sponsor which demonstrates an as-
sumption of liability with respect to the plan. Such evi-
dence may be in the form of a contract of indemnification,
lien, bonding, insurance, letter of credit, recourse under
applicable terms of the plan in the form of assessments
of participating employers, security, or other financial ar-
rangement.
‘‘(f) EXCESS/STOP LOSS INSURANCE.—For purposes
of this section, the term ‘excess/stop loss insurance’
means, in connection with an association health plan, a
contract under which an insurer (meeting such minimum
standards as may be prescribed in regulations of the Sec-
retary) provides for payment to the plan with respect to
claims under the plan in excess of an amount or amounts
specified in such contract.
‘‘SEC. 807. REQUIREMENTS FOR APPLICATION AND RELAT-
ED REQUIREMENTS.
‘‘(a) FILING FEE.—Under the procedure prescribed
pursuant to section 802(a), an association health plan
shall pay to the Secretary at the time of filing an applica-
tion for certification under this part a filing fee in the
amount of $5,000, which shall be available, to the extent
provided in appropriation Acts, to the Secretary for the
648
sole purpose of administering the certification procedures
applicable with respect to association health plans.
‘‘(b) INFORMATION TO BE INCLUDED IN APPLICA-
TION FOR CERTIFICATION.—An application for certifi-
cation under this part meets the requirements of this sec-
tion only if it includes, in a manner and form prescribed
in regulations of the Secretary, at least the following infor-
mation:
‘‘(1) IDENTIFYING INFORMATION.—The names
and addresses of—
‘‘(A) the sponsor, and
‘‘(B) the members of the board of trustees
of the plan.
‘‘(2) STATES IN WHICH PLAN INTENDS TO DO
BUSINESS.—The States in which participants and
beneficiaries under the plan are to be located and
the number of them expected to be located in each
such State.
‘‘(3) BONDING REQUIREMENTS.—Evidence pro-
vided by the board of trustees that the bonding re-
quirements of section 412 will be met as of the date
of the application or (if later) commencement of op-
erations.
‘‘(4) PLAN DOCUMENTS.—A copy of the docu-
ments governing the plan (including any bylaws and
649
trust agreements), the summary plan description,
and other material describing the benefits that will
be provided to participants and beneficiaries under
the plan.
‘‘(5) AGREEMENTS
WITH
SERVICE
PROVID-
ERS.—A copy of any agreements between the plan
and contract administrators and other service pro-
viders.
‘‘(6) FUNDING REPORT.—In the case of asso-
ciation health plans providing benefits options in ad-
dition to health insurance coverage, a report setting
forth information with respect to such additional
benefit options determined as of a date within the
120-day period ending with the date of the applica-
tion, including the following:
‘‘(A) RESERVES.—A statement, certified
by the board of trustees of the plan, and a
statement of actuarial opinion, signed by a
qualified actuary, that all applicable require-
ments of section 806 are or will be met in ac-
cordance with regulations which the Secretary
shall prescribe.
‘‘(B) 
ADEQUACY
OF
CONTRIBUTION
RATES.—A statement of actuarial opinion,
signed by a qualified actuary, which sets forth
650
a description of the extent to which contribution
rates are adequate to provide for the payment
of all obligations and the maintenance of re-
quired reserves under the plan for the 12-
month period beginning with such date within
such 120-day period, taking into account the
expected coverage and experience of the plan. If
the contribution rates are not fully adequate,
the statement of actuarial opinion shall indicate
the extent to which the rates are inadequate
and the changes needed to ensure adequacy.
‘‘(C) CURRENT AND PROJECTED VALUE OF
ASSETS AND LIABILITIES.—A statement of ac-
tuarial opinion signed by a qualified actuary,
which sets forth the current value of the assets
and liabilities accumulated under the plan and
a projection of the assets, liabilities, income,
and expenses of the plan for the 12-month pe-
riod referred to in subparagraph (B). The in-
come statement shall identify separately the
plan’s administrative expenses and claims.
‘‘(D) 
COSTS
OF
COVERAGE
TO
BE
CHARGED
AND
OTHER
EXPENSES.—A state-
ment of the costs of coverage to be charged, in-
cluding an itemization of amounts for adminis-
651
tration, reserves, and other expenses associated
with the operation of the plan.
‘‘(E) OTHER
INFORMATION.—Any other
information which may be prescribed in regula-
tions of the Secretary as necessary to carry out
the purposes of this part.
‘‘(c) FILING
NOTICE
OF
CERTIFICATION
WITH
STATES.—A certification granted under this part to an
association health plan shall not be effective unless written
notice of such certification is filed with the applicable
State authority of each State in which at least 25 percent
of the participants and beneficiaries under the plan are
located. For purposes of this subsection, an individual
shall be considered to be located in the State in which a
known address of such individual is located or in which
such individual is employed.
‘‘(d) NOTICE OF MATERIAL CHANGES.—In the case
of any association health plan certified under this part,
descriptions of material changes in any information which
was required to be submitted with the application for the
certification under this part shall be filed in such form
and manner as shall be prescribed in regulations of the
Secretary. The Secretary may require by regulation prior
notice of material changes with respect to specified mat-
652
ters which might serve as the basis for suspension or rev-
ocation of the certification.
‘‘(e) REPORTING REQUIREMENTS FOR CERTAIN AS-
SOCIATION HEALTH PLANS.—An association health plan
certified under this part which provides benefit options in
addition to health insurance coverage for such plan year
shall meet the requirements of section 103 by filing an
annual report under such section which shall include infor-
mation described in subsection (b)(6) with respect to the
plan year and, notwithstanding section 104(a)(1)(A), shall
be filed not later than 90 days after the close of the plan
year (or on such later date as may be prescribed by the
Secretary).
‘‘(f) ENGAGEMENT OF QUALIFIED ACTUARY.—The
board of trustees of each association health plan which
provides benefits options in addition to health insurance
coverage and which is applying for certification under this
part or is certified under this part shall engage, on behalf
of all participants and beneficiaries, a qualified actuary
who shall be responsible for the preparation of the mate-
rials comprising information necessary to be submitted by
a qualified actuary under this part. The qualified actuary
shall utilize such assumptions and techniques as are nec-
essary to enable such actuary to form an opinion as to
653
whether the contents of the matters reported under this
part—
‘‘(1) are in the aggregate reasonably related to
the experience of the plan and to reasonable expecta-
tions, and
‘‘(2) represent such actuary’s best estimate of
anticipated experience under the plan.
The opinion by the qualified actuary shall be made with
respect to, and shall be made a part of, the annual report.
‘‘SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TER-
MINATION.
‘‘Except as provided in section 809(b), an association
health plan which is or has been certified under this part
may terminate (upon or at any time after cessation of ac-
cruals in benefit liabilities) only if the board of trustees—
‘‘(1) not less than 60 days before the proposed
termination date, provides to the participants and
beneficiaries a written notice of intent to terminate
stating that such termination is intended and the
proposed termination date,
‘‘(2) develops a plan for winding up the affairs
of the plan in connection with such termination in
a manner which will result in timely payment of all
benefits for which the plan is obligated, and
654
‘‘(3) submits such plan in writing to the Sec-
retary.
Actions required under this section shall be taken in such
form and manner as may be prescribed in regulations of
the Secretary.
‘‘SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMI-
NATION.
‘‘(a) ACTIONS
TO
AVOID
DEPLETION
OF
RE-
SERVES.—An association health plan which is certified
under this part and which provides benefits other than
health insurance coverage shall continue to meet the re-
quirements of section 806, irrespective of whether such
certification continues in effect. The board of trustees of
such plan shall determine quarterly whether the require-
ments of section 806 are met. In any case in which the
board determines that there is reason to believe that there
is or will be a failure to meet such requirements, or the
Secretary makes such a determination and so notifies the
board, the board shall immediately notify the qualified ac-
tuary engaged by the plan, and such actuary shall, not
later than the end of the next following month, make such
recommendations to the board for corrective action as the
actuary determines necessary to ensure compliance with
section 806. Not later than 30 days after receiving from
the actuary recommendations for corrective actions, the
655
board shall notify the Secretary (in such form and manner
as the Secretary may prescribe by regulation) of such rec-
ommendations of the actuary for corrective action, to-
gether with a description of the actions (if any) that the
board has taken or plans to take in response to such rec-
ommendations. The board shall thereafter report to the
Secretary, in such form and frequency as the Secretary
may specify to the board, regarding corrective action taken
by the board until the requirements of section 806 are
met.
‘‘(b) MANDATORY TERMINATION.—In any case in
which—
‘‘(1) the Secretary has been notified under sub-
section (a) of a failure of an association health plan
which is or has been certified under this part and
is described in section 806(a)(2) to meet the require-
ments of section 806 and has not been notified by
the board of trustees of the plan that corrective ac-
tion has restored compliance with such require-
ments, and
‘‘(2) the Secretary determines that there is a
reasonable expectation that the plan will continue to
fail to meet the requirements of section 806,
the board of trustees of the plan shall, at the direction
of the Secretary, terminate the plan and, in the course
656
of the termination, take such actions as the Secretary may
require, including satisfying any claims referred to in sec-
tion 806(a)(2)(B)(ii) and recovering for the plan any li-
ability under subsection (a)(2)(B)(ii) or (e) of section 806,
as necessary to ensure that the affairs of the plan will
be, to the maximum extent possible, wound up in a man-
ner which will result in timely provision of all benefits for
which the plan is obligated.
‘‘(c) GUARANTEE FUND.—In any case in which
claims against an association health plan terminated
under subsection (b) remain outstanding after all actions
required under subsection (b) have been undertaken in
connection with the termination, the Secretary shall assess
all ongoing association health plans which are or have been
certified under this part and are described in section
806(a)(2) in an amount—
‘‘(1) expressed as a uniform percentage of
claims paid by such plans per year for coverage,
other than health insurance coverage, commencing
with the last plan year ending before the date of the
termination, and
‘‘(2) equal, in the aggregate, to the total
amount of such outstanding claims,
except that any such assessment shall not exceed 2 percent
per year. The Secretary shall promptly pay such outstand-
657
ing claims with the amounts assessed pursuant to this
subsection. The Secretary shall deposit and hold such as-
sessments in a guarantee fund which shall be established
by the Secretary for payment of such claims until such
payment of such claims has been completed. The Secretary
may invest amounts of the fund in such obligations as the
Secretary considers appropriate.
‘‘SEC. 810. SPECIAL RULES FOR CHURCH PLANS.
‘‘(a) ELECTION
FOR CHURCH PLANS.—Notwith-
standing section 4(b)(2), if a church, a convention or asso-
ciation of churches, or an organization described in section
3(33)(C)(i) maintains a church plan which is a group
health plan (as defined in section 733(a)(1)), and such
church, convention, association, or organization makes an
election with respect to such plan under this subsection
(in such form and manner as the Secretary may by regula-
tion prescribe), then the provisions of this section shall
apply to such plan, with respect to benefits provided under
such plan consisting of medical care, as if section 4(b)(2)
did not contain an exclusion for church plans. Nothing in
this paragraph shall be construed to render any other sec-
tion of this title applicable to church plans, except to the
extent that such other section is incorporated by reference
in this section.
‘‘(b) EFFECT OF ELECTION.—
658
‘‘(1) PREEMPTION OF STATE INSURANCE LAWS
REGULATING COVERED CHURCH PLANS.—Subject to
paragraphs (2) and (3), this section shall supersede
any and all State laws which regulate insurance in-
sofar as they may now or hereafter regulate church
plans to which this section applies or trusts estab-
lished under such church plans.
‘‘(2) GENERAL STATE INSURANCE REGULATION
UNAFFECTED.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B) and paragraph (3), nothing
in this section shall be construed to exempt or
relieve any person from any provision of State
law which regulates insurance.
‘‘(B) CHURCH PLANS NOT TO BE DEEMED
INSURANCE COMPANIES OR INSURERS.—Neither
a church plan to which this section applies, nor
any trust established under such a church plan,
shall be deemed to be an insurance company or
other insurer or to be engaged in the business
of insurance for purposes of any State law pur-
porting to regulate insurance companies or in-
surance contracts.
‘‘(3) PREEMPTION
OF
CERTAIN
STATE
LAWS
RELATING
TO
PREMIUM
RATE
REGULATION
AND
659
BENEFIT MANDATES.—The provisions of subsections
(a)(2)(B) and (b) of section 805 shall apply with re-
spect to a church plan to which this section applies
in the same manner and to the same extent as such
provisions apply with respect to association health
plans.
‘‘(4) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) STATE LAW.—The term ‘State law’
includes all laws, decisions, rules, regulations,
or other State action having the effect of law,
of any State. A law of the United States appli-
cable only to the District of Columbia shall be
treated as a State law rather than a law of the
United States.
‘‘(B) STATE.—The term ‘State’ includes a
State, any political subdivision thereof, or any
agency or instrumentality of either, which
purports to regulate, directly or indirectly, the
terms and conditions of church plans covered by
this section.
‘‘(c) 
REQUIREMENTS
FOR
COVERED
CHURCH
PLANS.—
‘‘(1) FIDUCIARY RULES AND EXCLUSIVE PUR-
POSE.—A fiduciary shall discharge his duties with
660
respect to a church plan to which this section ap-
plies—
‘‘(A) for the exclusive purpose of:
‘‘(i) providing benefits to participants
and their beneficiaries; and
‘‘(ii) defraying reasonable expenses of
administering the plan;
‘‘(B) with the care, skill, prudence and dili-
gence under the circumstances then prevailing
that a prudent man acting in a like capacity
and familiar with such matters would use in the
conduct of an enterprise of a like character and
with like aims; and
‘‘(C) in accordance with the documents
and instruments governing the plan.
The requirements of this paragraph shall not be
treated as not satisfied solely because the plan as-
sets are commingled with other church assets, to the
extent that such plan assets are separately ac-
counted for.
‘‘(2) CLAIMS PROCEDURE.—In accordance with
regulations of the Secretary, every church plan to
which this section applies shall—
‘‘(A) provide adequate notice in writing to
any participant or beneficiary whose claim for
661
benefits under the plan has been denied, setting
forth the specific reasons for such denial, writ-
ten in a manner calculated to be understood by
the participant;
‘‘(B) afford a reasonable opportunity to
any participant whose claim for benefits has
been denied for a full and fair review by the ap-
propriate fiduciary of the decision denying the
claim; and
‘‘(C) provide a written statement to each
participant describing the procedures estab-
lished pursuant to this paragraph.
‘‘(3) ANNUAL
STATEMENTS.—In accordance
with regulations of the Secretary, every church plan
to which this section applies shall file with the Sec-
retary an annual statement—
‘‘(A) stating the names and addresses of
the plan and of the church, convention, or asso-
ciation maintaining the plan (and its principal
place of business);
‘‘(B) certifying that it is a church plan to
which this section applies and that it complies
with the requirements of paragraphs (1) and
(2);
662
‘‘(C) identifying the States in which par-
ticipants and beneficiaries under the plan are or
likely will be located during the 1-year period
covered by the statement; and
‘‘(D) containing a copy of a statement of
actuarial opinion signed by a qualified actuary
that the plan maintains capital, reserves, insur-
ance, other financial arrangements, or any com-
bination thereof adequate to enable the plan to
fully meet all of its financial obligations on a
timely basis.
‘‘(4) DISCLOSURE.—At the time that the an-
nual statement is filed by a church plan with the
Secretary pursuant to paragraph (3), a copy of such
statement shall be made available by the Secretary
to the State insurance commissioner (or similar offi-
cial) of any State. The name of each church plan
and sponsoring organization filing an annual state-
ment in compliance with paragraph (3) shall be pub-
lished annually in the Federal Register.
‘‘(c) ENFORCEMENT.—The Secretary may enforce
the provisions of this section in a manner consistent with
section 502, to the extent applicable with respect to ac-
tions under section 502(a)(5), and with section 3(33)(D),
except that, other than for the purpose of seeking a tem-
663
porary restraining order, a civil action may be brought
with respect to the plan’s failure to meet any requirement
of this section only if the plan fails to correct its failure
within the correction period described in section 3(33)(D).
The other provisions of part 5 (except sections 501(a),
503, 512, 514, and 515) shall apply with respect to the
enforcement and administration of this section.
‘‘(d) DEFINITIONS AND OTHER RULES.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, any term used in this section
which is defined in any provision of this title shall
have the definition provided such term by such pro-
vision.
‘‘(2) SEMINARY STUDENTS.—Seminary students
who are enrolled in an institution of higher learning
described in section 3(33)(C)(iv) and who are treat-
ed as participants under the terms of a church plan
to which this section applies shall be deemed to be
employees as defined in section 3(6) if the number
of such students constitutes an insignificant portion
of the total number of individuals who are treated
as participants under the terms of the plan.
‘‘SEC. 811. DEFINITIONS AND RULES OF CONSTRUCTION.
‘‘(a) DEFINITIONS.—For purposes of this part—
664
‘‘(1) GROUP HEALTH PLAN.—The term ‘group
health plan’ has the meaning provided in section
733(a)(1).
‘‘(2) MEDICAL CARE.—The term ‘medical care’
has the meaning provided in section 733(a)(2).
‘‘(3) HEALTH
INSURANCE
COVERAGE.—The
term ‘health insurance coverage’ has the meaning
provided in section 733(b)(1).
‘‘(4) HEALTH INSURANCE ISSUER.—The term
‘health insurance issuer’ has the meaning provided
in section 733(b)(2).
‘‘(5) HEALTH STATUS-RELATED FACTOR.—The
term ‘health status-related factor’ has the meaning
provided in section 733(d)(2).
‘‘(6) INDIVIDUAL MARKET.—
‘‘(A) IN GENERAL.—The term ‘individual
market’ means the market for health insurance
coverage offered to individuals other than in
connection with a group health plan.
‘‘(B) 
TREATMENT
OF
VERY
SMALL
GROUPS.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), such term includes coverage offered in
connection with a group health plan that
has fewer than 2 participants as current
665
employees or participants described in sec-
tion 732(d)(3) on the first day of the plan
year.
‘‘(ii) STATE
EXCEPTION.—Clause (i)
shall not apply in the case of health insur-
ance coverage offered in a State if such
State regulates the coverage described in
such clause in the same manner and to the
same extent as coverage in the small group
market (as defined in section 2791(e)(5) of
the Public Health Service Act) is regulated
by such State.
‘‘(7) PARTICIPATING
EMPLOYER.—The term
‘participating employer’ means, in connection with
an association health plan, any employer, if any indi-
vidual who is an employee of such employer, a part-
ner in such employer, or a self-employed individual
who is such employer (or any dependent, as defined
under the terms of the plan, of such individual) is
or was covered under such plan in connection with
the status of such individual as such an employee,
partner, or self-employed individual in relation to the
plan.
‘‘(8) APPLICABLE
STATE
AUTHORITY.—The
term ‘applicable State authority’ means, with respect
666
to a health insurance issuer in a State, the State in-
surance commissioner or official or officials des-
ignated by the State to enforce the requirements of
title XXVII of the Public Health Service Act for the
State involved with respect to such issuer.
‘‘(9) QUALIFIED
ACTUARY.—The term ‘quali-
fied actuary’ means an individual who is a member
of the American Academy of Actuaries or meets
such reasonable standards and qualifications as the
Secretary may provide by regulation.
‘‘(10) AFFILIATED MEMBER.—The term ‘affili-
ated member’ means, in connection with a sponsor,
a person eligible to be a member of the sponsor or,
in the case of a sponsor with member associations,
a person who is a member, or is eligible to be a
member, of a member association.
‘‘(b) RULES OF CONSTRUCTION.—
‘‘(1) EMPLOYERS AND EMPLOYEES.—For pur-
poses of determining whether a plan, fund, or pro-
gram is an employee welfare benefit plan which is an
association health plan, and for purposes of applying
this title in connection with such plan, fund, or pro-
gram so determined to be such an employee welfare
benefit plan—
667
‘‘(A) in the case of a partnership, the term
‘employer’ (as defined in section (3)(5)) in-
cludes the partnership in relation to the part-
ners, and the term ‘employee’ (as defined in
section (3)(6)) includes any partner in relation
to the partnership, and
‘‘(B) in the case of a self-employed individ-
ual, the term ‘employer’ (as defined in section
3(5)) and the term ‘employee’ (as defined in
section 3(6)) shall include such individual.
‘‘(2) PLANS, FUNDS, AND PROGRAMS TREATED
AS EMPLOYEE WELFARE BENEFIT PLANS.—In the
case of any plan, fund, or program which was estab-
lished or is maintained for the purpose of providing
medical care (through the purchase of insurance or
otherwise) for employees (or their dependents) cov-
ered thereunder and which demonstrates to the Sec-
retary that all requirements for certification under
this part would be met with respect to such plan,
fund, or program if such plan, fund, or program
were a group health plan, such plan, fund, or pro-
gram shall be treated for purposes of this title as an
employee welfare benefit plan on and after the date
of such demonstration.’’.
668
(b) CONFORMING AMENDMENTS
TO PREEMPTION
RULES.—
(1) Section 514(b)(6) of such Act (29 U.S.C.
1144(b)(6)) is amended by adding at the end the
following new subparagraph:
‘‘(E) The preceding subparagraphs of this paragraph
do not apply with respect to any State law in the case
of an association health plan which is certified under part
8.’’.
(2) Section 514 of such Act (29 U.S.C. 1144)
is amended—
(A) in subsection (b)(4), by striking ‘‘Sub-
section (a)’’ and inserting ‘‘Subsections (a) and
(d)’’;
(B) in subsection (b)(5), by striking ‘‘sub-
section (a)’’ in subparagraph (A) and inserting
‘‘subsection (a) of this section and subsections
(a)(2)(B) and (b) of section 805’’, and by strik-
ing ‘‘subsection (a)’’ in subparagraph (B) and
inserting ‘‘subsection (a) of this section or sub-
section (a)(2)(B) or (b) of section 805’’;
(C) by redesignating subsection (d) as sub-
section (e); and
(D) by inserting after subsection (c) the
following new subsection:
669
‘‘(d)(1) Except as provided in subsection (b)(4), the
provisions of this title shall supersede any and all State
laws insofar as they may now or hereafter preclude a
health insurance issuer from offering health insurance cov-
erage in connection with an association health plan which
is certified under part 8.
‘‘(2) Except as provided in paragraphs (4) and (5)
of subsection (b) of this section—
‘‘(A) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan certified under part 8 to a partici-
pating employer operating in such State, the provi-
sions of this title shall supersede any and all laws
of such State insofar as they may preclude a health
insurance issuer from offering health insurance cov-
erage of the same policy type to other employers op-
erating in the State which are eligible for coverage
under such association health plan, whether or not
such other employers are participating employers in
such plan.
‘‘(B) In any case in which health insurance cov-
erage of any policy type is offered under an associa-
tion health plan in a State and the filing, with the
applicable State authority, of the policy form in con-
nection with such policy type is approved by such
670
State authority, the provisions of this title shall su-
persede any and all laws of any other State in which
health insurance coverage of such type is offered, in-
sofar as they may preclude, upon the filing in the
same form and manner of such policy form with the
applicable State authority in such other State, the
approval of the filing in such other State.
‘‘(3) For additional provisions relating to association
health plans, see subsections (a)(2)(B) and (b) of section
805.
‘‘(4) For purposes of this subsection, the term ‘asso-
ciation health plan’ has the meaning provided in section
801(a), and the terms ‘health insurance coverage’, ‘par-
ticipating employer’, and ‘health insurance issuer’ have
the meanings provided such terms in section 811, respec-
tively.’’.
(3) Section 514(b)(6)(A) of such Act (29
U.S.C. 1144(b)(6)(A)) is amended—
(A) in clause (i)(II), by striking ‘‘and’’ at
the end;
(B) in clause (ii), by inserting ‘‘and which
does not provide medical care (within the mean-
ing of section 733(a)(2)),’’ after ‘‘arrange-
ment,’’, and by striking ‘‘title.’’ and inserting
‘‘title, and’’; and
671
(C) by adding at the end the following new
clause:
‘‘(iii) subject to subparagraph (E), in the case
of any other employee welfare benefit plan which is
a multiple employer welfare arrangement and which
provides medical care (within the meaning of section
733(a)(2)), any law of any State which regulates in-
surance may apply.’’.
(c) PLAN SPONSOR.—Section 3(16)(B) of such Act
(29 U.S.C. 102(16)(B)) is amended by adding at the end
the following new sentence: ‘‘Such term also includes a
person serving as the sponsor of an association health plan
under part 8.’’.
(d) SAVINGS CLAUSE.—Section 731(c) of such Act
is amended by inserting ‘‘or part 8’’ after ‘‘this part’’.
(e) CLERICAL AMENDMENT.—The table of contents
in section 1 of the Employee Retirement Income Security
Act of 1974 is amended by inserting after the item relat-
ing to section 734 the following new items:
‘‘PART 8—RULES GOVERNING ASSOCIATION HEALTH PLANS
‘‘Sec. 801. Association health plans.
‘‘Sec. 802. Certification of association health plans.
‘‘Sec. 803. Requirements relating to sponsors and boards of trustees.
‘‘Sec. 804. Participation and coverage requirements.
‘‘Sec. 805. Other requirements relating to plan documents, contribution rates,
and benefit options.
‘‘Sec. 806. Maintenance of reserves and provisions for solvency for plans pro-
viding health benefits in addition to health insurance coverage.
‘‘Sec. 807. Requirements for application and related requirements.
‘‘Sec. 808. Notice requirements for voluntary termination.
‘‘Sec. 809. Corrective actions and mandatory termination.
672
‘‘Sec. 810. Special rules for church plans.
‘‘Sec. 811. Definitions and rules of construction.’’
SEC. 5303. CLARIFICATION OF TREATMENT OF SINGLE EM-
PLOYER ARRANGEMENTS.
Section 3(40)(B) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1002(40)(B)) is amend-
ed—
(1) in clause (i), by inserting ‘‘for any plan year
of any such plan, or any fiscal year of any such
other arrangement;’’ after ‘‘single employer’’, and by
inserting ‘‘during such year or at any time during
the preceding 1-year period’’ after ‘‘control group’’;
(2) in clause (iii)—
(A) by striking ‘‘common control shall not
be based on an interest of less than 25 percent’’
and inserting ‘‘an interest of greater than 25
percent may not be required as the minimum
interest necessary for common control’’; and
(B) by striking ‘‘similar to’’ and inserting
‘‘consistent and coextensive with’’;
(3) by redesignating clauses (iv) and (v) as
clauses (v) and (vi), respectively; and
(4) by inserting after clause (iii) the following
new clause:
‘‘(iv) in determining, after the application of
clause (i), whether benefits are provided to employ-
673
ees of two or more employers, the arrangement shall
be treated as having only 1 participating employer
if, after the application of clause (i), the number of
individuals who are employees and former employees
of any one participating employer and who are cov-
ered under the arrangement is greater than 75 per-
cent of the aggregate number of all individuals who
are employees or former employees of participating
employers and who are covered under the arrange-
ment,’’.
SEC. 5304. CLARIFICATION OF TREATMENT OF CERTAIN
COLLECTIVELY 
BARGAINED 
ARRANGE-
MENTS.
(a) IN GENERAL.—Section 3(40)(A)(i) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1002(40)(A)(i)) is amended to read as follows:
‘‘(i)(I) under or pursuant to one or more collec-
tive bargaining agreements which are reached pursu-
ant to collective bargaining described in section 8(d)
of the National Labor Relations Act (29 U.S.C.
158(d)) or paragraph Fourth of section 2 of the
Railway Labor Act (45 U.S.C. 152, paragraph
Fourth) or which are reached pursuant to labor-
management negotiations under similar provisions of
674
State public employee relations laws, and (II) in ac-
cordance with subparagraphs (C), (D), and (E),’’.
(b) LIMITATIONS.—Section 3(40) of such Act (29
U.S.C. 1002(40)) is amended by adding at the end the
following new subparagraphs:
‘‘(C) For purposes of subparagraph (A)(i)(II), a plan
or other arrangement shall be treated as established or
maintained in accordance with this subparagraph only if
the following requirements are met:
‘‘(i) The plan or other arrangement, and the
employee organization or any other entity sponsoring
the plan or other arrangement, do not—
‘‘(I) utilize the services of any licensed in-
surance agent or broker for soliciting or enroll-
ing employers or individuals as participating
employers or covered individuals under the plan
or other arrangement; or
‘‘(II) pay a commission or any other type
of compensation to a person, other than a full
time employee of the employee organization (or
a member of the organization to the extent pro-
vided in regulations of the Secretary), that is
related either to the volume or number of em-
ployers or individuals solicited or enrolled as
participating employers or covered individuals
675
under the plan or other arrangement, or to the
dollar amount or size of the contributions made
by participating employers or covered individ-
uals to the plan or other arrangement;
except to the extent that the services used by the
plan, arrangement, organization, or other entity con-
sist solely of preparation of documents necessary for
compliance with the reporting and disclosure re-
quirements of part 1 or administrative, investment,
or consulting services unrelated to solicitation or en-
rollment of covered individuals.
‘‘(ii) As of the end of the preceding plan year,
the number of covered individuals under the plan or
other arrangement who are identified to the plan or
arrangement and who are neither—
‘‘(I) employed within a bargaining unit
covered by any of the collective bargaining
agreements with a participating employer (nor
covered on the basis of an individual’s employ-
ment in such a bargaining unit); nor
‘‘(II) present employees (or former employ-
ees who were covered while employed) of the
sponsoring employee organization, of an em-
ployer who is or was a party to any of the col-
lective bargaining agreements, or of the plan or
676
other arrangement or a related plan or arrange-
ment (nor covered on the basis of such present
or former employment);
does not exceed 15 percent of the total number of
individuals who are covered under the plan or ar-
rangement and who are present or former employees
who are or were covered under the plan or arrange-
ment pursuant to a collective bargaining agreement
with a participating employer. The requirements of
the preceding provisions of this clause shall be treat-
ed as satisfied if, as of the end of the preceding plan
year, such covered individuals are comprised solely
of individuals who were covered individuals under
the plan or other arrangement as of the date of the
enactment of the Expansion of Portability and
Health Insurance Coverage Act of 1997 and, as of
the end of the preceding plan year, the number of
such covered individuals does not exceed 25 percent
of the total number of present and former employees
enrolled under the plan or other arrangement.
‘‘(iii) The employee organization or other entity
sponsoring the plan or other arrangement certifies
to the Secretary each year, in a form and manner
which shall be prescribed in regulations of the Sec-
677
retary that the plan or other arrangement meets the
requirements of clauses (i) and (ii).
‘‘(D) For purposes of subparagraph (A)(i)(II), a plan
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) all of the benefits provided under the plan
or arrangement consist of health insurance coverage;
or
‘‘(ii)(I) the plan or arrangement is a multiem-
ployer plan; and
‘‘(II) the requirements of clause (B) of the pro-
viso to clause (5) of section 302(c) of the Labor
Management Relations Act, 1947 (29 U.S.C.
186(c)) are met with respect to such plan or other
arrangement.
‘‘(E) For purposes of subparagraph (A)(i)(II), a plan
or arrangement shall be treated as established or main-
tained in accordance with this subparagraph only if—
‘‘(i) the plan or arrangement is in effect as of
the date of the enactment of the Expansion of Port-
ability and Health Insurance Coverage Act of 1997,
or
‘‘(ii) the employee organization or other entity
sponsoring the plan or arrangement—
678
‘‘(I) has been in existence for at least 3
years or is affiliated with another employee or-
ganization which has been in existence for at
least 3 years, or
‘‘(II) demonstrates to the satisfaction of
the Secretary that the requirements of subpara-
graphs (C) and (D) are met with respect to the
plan or other arrangement.’’.
(c) CONFORMING AMENDMENTS TO DEFINITIONS OF
PARTICIPANT AND BENEFICIARY.—Section 3(7) of such
Act (29 U.S.C. 1002(7)) is amended by adding at the end
the following new sentence: ‘‘Such term includes an indi-
vidual who is a covered individual described in paragraph
(40)(C)(ii).’’.
SEC. 5305. ENFORCEMENT PROVISIONS RELATING TO ASSO-
CIATION HEALTH PLANS.
(a) CRIMINAL PENALTIES FOR CERTAIN WILLFUL
MISREPRESENTATIONS.—Section 501 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1131)
is amended—
(1) by inserting ‘‘(a)’’ after ‘‘SEC. 501.’’; and
(2) by adding at the end the following new sub-
section:
‘‘(b) Any person who, either willfully or with willful
blindness, falsely represents, to any employee, any employ-
679
ee’s beneficiary, any employer, the Secretary, or any State,
a plan or other arrangement established or maintained for
the purpose of offering or providing any benefit described
in section 3(1) to employees or their beneficiaries as—
‘‘(1) being an association health plan which has
been certified under part 8;
‘‘(2) having been established or maintained
under or pursuant to one or more collective bargain-
ing agreements which are reached pursuant to col-
lective bargaining described in section 8(d) of the
National Labor Relations Act (29 U.S.C. 158(d)) or
paragraph Fourth of section 2 of the Railway Labor
Act (45 U.S.C. 152, paragraph Fourth) or which are
reached pursuant to labor-management negotiations
under similar provisions of State public employee re-
lations laws; or
‘‘(3) being a plan or arrangement with respect
to which the requirements of subparagraph (C), (D),
or (E) of section 3(40) are met;
shall, upon conviction, be imprisoned not more than five
years, be fined under title 18, United States Code, or
both.’’.
(b) CEASE ACTIVITIES ORDERS.—Section 502 of
such Act (29 U.S.C. 1132) is amended by adding at the
end the following new subsection:
680
‘‘(n)(1) Subject to paragraph (2), upon application
by the Secretary showing the operation, promotion, or
marketing of an association health plan (or similar ar-
rangement providing benefits consisting of medical care
(as defined in section 733(a)(2))) that—
‘‘(A) is not certified under part 8, is subject
under section 514(b)(6) to the insurance laws of any
State in which the plan or arrangement offers or
provides benefits, and is not licensed, registered, or
otherwise approved under the insurance laws of such
State; or
‘‘(B) is an association health plan certified
under part 8 and is not operating in accordance with
the requirements under part 8 for such certification,
a district court of the United States shall enter an order
requiring that the plan or arrangement cease activities.
‘‘(2) Paragraph (1) shall not apply in the case of an
association health plan or other arrangement if the plan
or arrangement shows that—
‘‘(A) all benefits under it referred to in para-
graph (1) consist of health insurance coverage; and
‘‘(B) with respect to each State in which the
plan or arrangement offers or provides benefits, the
plan or arrangement is operating in accordance with
681
applicable State laws that are not superseded under
section 514.
‘‘(3) The court may grant such additional equitable
relief, including any relief available under this title, as it
deems necessary to protect the interests of the public and
of persons having claims for benefits against the plan.’’.
(c) RESPONSIBILITY
FOR CLAIMS PROCEDURE.—
Section 503 of such Act (29 U.S.C. 1133) is amended by
adding at the end (after and below paragraph (2)) the fol-
lowing new sentence:
‘‘The terms of each association health plan which is or
has been certified under part 8 shall require the board
of trustees or the named fiduciary (as applicable) to en-
sure that the requirements of this section are met in con-
nection with claims filed under the plan.’’.
SEC. 5306. COOPERATION BETWEEN FEDERAL AND STATE
AUTHORITIES.
Section 506 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1136) is amended by adding
at the end the following new subsection:
‘‘(c) RESPONSIBILITY OF STATES WITH RESPECT TO
ASSOCIATION HEALTH PLANS.—
‘‘(1) AGREEMENTS
WITH
STATES.—A State
may enter into an agreement with the Secretary for
delegation to the State of some or all of the Sec-
682
retary’s authority under sections 502 and 504 to en-
force the requirements for certification under part 8.
The Secretary shall enter into the agreement if the
Secretary determines that the delegation provided
for therein would not result in a lower level or qual-
ity of enforcement of the provisions of this title.
‘‘(2) DELEGATIONS.—Any department, agency,
or instrumentality of a State to which authority is
delegated pursuant to an agreement entered into
under this paragraph may, if authorized under State
law and to the extent consistent with such agree-
ment, exercise the powers of the Secretary under
this title which relate to such authority.
‘‘(3) RECOGNITION
OF
PRIMARY
DOMICILE
STATE.—In entering into any agreement with a
State under subparagraph (A), the Secretary shall
ensure that, as a result of such agreement and all
other agreements entered into under subparagraph
(A), only one State will be recognized, with respect
to any particular association health plan, as the pri-
mary domicile State to which authority has been del-
egated pursuant to such agreements.’’.
SEC. 5307. EFFECTIVE DATE AND TRANSITIONAL RULES.
(a) EFFECTIVE DATE.—The amendments made by
sections 5302, 5305, and 5306 shall take effect on Janu-
683
ary 1, 1999. The amendments made by sections 5303 and
5304 shall take effect on the date of the enactment of
this Act. The Secretary of Labor shall issue all regulations
necessary to carry out the amendments made by this Act
before January 1, 1999.
(b) EXCEPTION.—Section 801(a)(2) of the Employee
Retirement Income Security Act of 1974 (added by section
5302) does not apply with respect to group health plans
(as defined in section 733(a)(1) of such Act) existing on
April 1, 1997, which do not provide health insurance cov-
erage (as defined in section 733(b)(1) of such Act) on such
date.
TITLE VI—COMMITTEE ON GOV-
ERNMENT 
REFORM 
AND
OVERSIGHT
Subtitle A—Postal Service
SEC. 6001. REPEAL OF AUTHORIZATION OF TRANSITIONAL
APPROPRIATIONS FOR THE UNITED STATES
POSTAL SERVICE.
(a) REPEAL.—
(1) IN
GENERAL.—Section 2004 of title 39,
United States Code, is repealed.
(2) TECHNICAL
AND
CONFORMING
AMEND-
MENTS.—
692
(1) IN
GENERAL.—Section 8334 of title 5,
United States Code, is amended by adding at the
end the following:
‘‘(m)(1) This subsection shall govern for purposes of
determining the amount to be contributed under the sec-
ond sentence of subsection (a)(1) with respect to any serv-
ice—
‘‘(A) which is performed after September 30,
1997, and before January 1, 2003; and
‘‘(B) as to which a contribution under such sen-
tence would otherwise be payable.
‘‘(2) The amount of the contribution required under
the second sentence of subsection (a)(1) with respect to
any service described in paragraph (1) shall (instead of
the amount which would otherwise apply under such sen-
tence) be equal to the amount of basic pay received for
such service by the employee or Member involved, multi-
plied by the percentage under paragraph (3).
‘‘(3)(A) The percentage under this paragraph is, with
respect to any service, equal to the sum of—
‘‘(i) the percentage which would have been ap-
plicable under subsection (c), with respect to such
service, if it had been performed in fiscal year 1997,
plus
705
[HVAC Reconciliation]
(b) OUTPATIENT MEDICATIONS.—Section 1722A(c)
of title 38, United States Code, is amended by striking
out ‘‘September 30, 1998’’ and inserting in lieu thereof
‘‘September 30, 2002’’.
SEC. 8012. MEDICAL CARE COST RECOVERY FOR NON-SERV-
ICE-CONNECTED DISABILITIES OF SERVICE-
CONNECTED VETERANS.
Section 1729(a)(2)(E) of title 38, United States
Code, is amended by striking out ‘‘before October 1,
1998,’’ and inserting ‘‘before October 1, 2002,’’.
SEC. 8013. DEPARTMENT OF VETERANS AFFAIRS MEDICAL-
CARE RECEIPTS.
(a) ALLOCATION OF RECEIPTS.—(1) Chapter 17 of
title 38, United States Code, is amended by inserting after
section 1729 the following new section:
‘‘§ 1729A. Department of Veterans Affairs Medical
Care Collections Fund
‘‘(a) There is in the Treasury a fund to be known
as the Department of Veterans Affairs Medical Care Col-
lections Fund.
‘‘(b) Amounts recovered or collected after September
30, 1997, under any of the following provisions of law
shall be deposited in the fund:
‘‘(1) Section 1710(f) of this title.
‘‘(2) Section 1710(g) of this title.
762
[HVAC Reconciliation]
SEC. 9102. REPEAL OF MAINTENANCE OF EFFORT RE-
QUIREMENTS 
APPLICABLE 
TO 
OPTIONAL
STATE PROGRAMS FOR SUPPLEMENTATION
OF SSI BENEFITS.
Section 1618 of the Social Security Act (42 U.S.C.
1382g) is repealed.
SEC. 9103. FEES FOR FEDERAL ADMINISTRATION OF STATE
SUPPLEMENTARY PAYMENTS.
(a) FEE SCHEDULE.—
(1) OPTIONAL
STATE
SUPPLEMENTARY
PAY-
MENTS.—
(A) IN GENERAL.—Section 1616(d)(2)(B)
of 
the 
Social 
Security 
Act 
(42 
U.S.C.
1382e(d)(2)(B)) is amended—
(i) by striking ‘‘and’’ at the end of
clause (iii); and
(ii) by striking clause (iv) and insert-
ing the following:
‘‘(iv) for fiscal year 1997, $5.00;
‘‘(v) for fiscal year 1998, $6.20;
‘‘(vi) for fiscal year 1999, $7.60;
‘‘(vii) for fiscal year 2000, $7.80;
‘‘(viii) for fiscal year 2001, $8.10;
‘‘(ix) for fiscal year 2002, $8.50; and
‘‘(x) for fiscal year 2003 and each succeeding
fiscal year—