I
103D CONGRESS
2D SESSION
H. R. 5228
To reform the health insurance market, to promote the availability and
continuity of health coverage, to remove financial barriers to access,
to reform the medicaid program, to enhance health care quality, to
contain costs through market incentives and administrative reforms, to
provide incentives to purchase long-term care insurance, and for other
purposes.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 6, 1994
Mr. ROWLAND (for himself, Mr. COOPER, Mr. BILIRAKIS, Mr. GRANDY, Mr.
MCCURDY, Mr. GOSS, Mr. PARKER, Mr. HASTERT, Mr. STENHOLM, and
Mr. THOMAS of California) introduced the following bill; which was re-
ferred jointly to the Committees on Energy and Commerce, Ways and
Means, Education and Labor, the Judiciary, and Veterans’ Affairs
A BILL
To reform the health insurance market, to promote the avail-
ability and continuity of health coverage, to remove fi-
nancial barriers to access, to reform the medicaid pro-
gram, to enhance health care quality, to contain costs
through market incentives and administrative reforms,
to provide incentives to purchase long-term care insur-
ance, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF TITLES AND SUB-
TITLES.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Bipartisan Health Care Reform Act of 1994’’.
(b) TABLE OF TITLES AND SUBTITLES IN ACT.—The
following are the titles and subtitles contained in this Act:
TITLE I—ASSURING AVAILABILITY AND CONTINUITY OF
HEALTH COVERAGE
Subtitle A—Insurance Reforms
Subtitle B—Benefits
Subtitle C—Employer Responsibilities
Subtitle D—Standards and Certification; Enforcement; Preemption
Subtitle E—Multiple Employer Health Benefits Protections and Related Provi-
sions
Subtitle F—Definitions; General Provisions
TITLE II—REMOVAL OF FINANCIAL BARRIERS TO ACCESS
Subtitle A—Tax Deductibility for Individuals and Self-Employed
Subtitle B—Premium and Cost-Sharing Subsidy Program for Low-Income Indi-
viduals
TITLE III—MEDICAID REFORMS
Subtitle A—Treatment of Acute Care Benefits for AFDC and Non-cash Bene-
ficiaries
Subtitle B—Flexibility in Expenditures for Supplemental Benefits for AFDC
and Non-cash Beneficiaries
Subtitle C—Increased State Flexibility in Contracting for Coordinated Care
Subtitle D—Additional Medicaid Reforms
TITLE IV—ACCESS IMPROVEMENTS
Subtitle A—Expanding Access in Underserved Areas
Subtitle B—Improved Access in Rural Areas
Subtitle C—Academic Health Centers
Subtitle D—United States-Mexico Border Health Commission
TITLE V—HEALTH CARE QUALITY ENHANCEMENT
Subtitle A—Quality Assurance
Subtitle B—Primary Care Provider Education
TITLE VI—MARKET INCENTIVES TO CONTAINING COSTS
Subtitle A—Facilitating Establishment of Health Plan Purchasing Organization
(HPPOs)
Subtitle B—Preemption of State Benefit Mandates and Anti-Managed Care
Laws
Subtitle C—Malpractice Reform
Title I
Subtitle D—Administrative Simplification
Subtitle E—Fair Health Information Practices
Subtitle F—Antitrust
Subtitle G—Fraud and Abuse
Subtitle H—Billing for Laboratory Services
TITLE VII—MEDICARE
Subtitle A—Increased Beneficiary Choice; Improved Program Efficiency
Subtitle B—Savings
TITLE VIII—INCENTIVES TO PURCHASE LONG-TERM CARE
INSURANCE
Subtitle A—Establishment of Federal Standards for Long-term Care Insurance
Subtitle B—Tax Treatment of Long-term Care Insurance
TITLE IX—DEPARTMENT OF VETERANS AFFAIRS
TITLE X—MISCELLANEOUS SAVINGS PROVISIONS
Subtitle A—Automobile Insurance Coordination
Subtitle B—Prefunding Government Health Benefits Contributions
TITLE I—ASSURING
AVAILABILITY AND CONTINUITY
OF HEALTH COVERAGE
TABLE OF CONTENTS OF TITLE
Subtitle A—Insurance Reform
PART 1—GUARANTEED ACCESS TO HEALTH COVERAGE
Sec. 1001. Guaranteed offer by carriers.
Sec. 1002. Guaranteed issue by carriers.
Sec. 1003. Guaranteed renewal.
Sec. 1004. Restricting preexisting condition exclusions.
Sec. 1005. Enrollment periods.
Sec. 1006. Treatment of religious fraternal benefit societies.
PART 2—PROVISION OF BENEFITS
Sec. 1011. Standards for managed care arrangements.
Sec. 1012. Utilization review.
Sec. 1013. Requirements for arrangements with essential community providers.
Sec. 1014. Medical savings accounts.
PART 3—FAIR RATING PRACTICES
Sec. 1021. Use of fair rating practices.
Sec. 1022. Coordination with premium assistance certificate program.
Sec. 1023. Establishment of risk adjustment mechanisms.
Title I
PART 4—CONSUMER PROTECTIONS
Sec. 1031. Requirement for provision of information.
Sec. 1032. Prohibition of improper incentives.
Sec. 1033. Written policies and procedures respecting advance directives.
Subtitle B—Benefits
Sec. 1101. Qualified health coverage.
Sec. 1102. Standard coverage.
Sec. 1103. High-deductible coverage.
Sec. 1104. Actuarial valuation of benefits.
Sec. 1105. Limitation on offering supplemental benefits.
Sec. 1106. Family coverage option; supplemental coverage.
Sec. 1107. Level playing field for providers.
Subtitle C—Employer Responsibilities
Sec. 1201. Requiring employers to offer option of coverage.
Sec. 1202. Nondiscrimination under group health plans.
Sec. 1203. Effective dates.
Subtitle D—Standards and Certification; Enforcement;
Preemption; General Provisions
Sec. 1301. Establishment of standards.
Sec. 1302. Application of standards to carriers through States.
Sec. 1303. Application to group health plans.
Sec. 1304. Enforcement.
Sec. 1305. Limitation on self insurance for small employers.
Subtitle E—Multiple Employer Health Benefits Protections
and Related Provisions
PART 1—MULTIPLE EMPLOYER HEALTH BENEFITS PROTECTIONS
Sec. 1401. Limited exemption from certain restrictions on ERISA preemption
of State law for health plans maintained by multiple employers
subject to certain Federal standards.
‘‘PART 7—MULTIPLE EMPLOYER HEALTH PLANS
‘‘Sec. 701. Definitions.
‘‘Sec. 702. Certified multiple employer health plans relieved of certain re-
strictions on preemption of State law and treated as em-
ployee welfare benefit plans.
‘‘Sec. 703. Certification procedure.
‘‘Sec. 704. Eligibility requirements.
‘‘Sec. 705. Additional requirements applicable to certified multiple em-
ployer health plans.
‘‘Sec. 706. Disclosure to participating employers by arrangements provid-
ing medical care.
‘‘Sec. 707. Maintenance of reserves.
‘‘Sec. 708. Corrective actions.
‘‘Sec. 709. Expiration, suspension, or revocation of certification.
‘‘Sec. 710. Review of actions of the secretary.
‘‘Sec. 711. Small employer pooling arrangements.’’
Sec. 1402. Clarification of scope of preemption rules.
Title I, Subtitle A
Sec. 1403. Clarification of treatment of single employer arrangements.
Sec. 1404. Clarification of treatment of certain collectively bargained arrange-
ments.
Sec. 1405. Employee leasing health care arrangements.
Sec. 1406. Enforcement provisions relating to multiple employer welfare ar-
rangements and employee leasing health care arrangements.
Sec. 1407. Filing requirements for multiple employer welfare arrangements pro-
viding health benefits.
Sec. 1408. Cooperation between Federal and State authorities.
Sec. 1409. Effective date; transitional rules.
PART
2—SIMPLIFYING
FILING
OF
REPORTS
FOR
EMPLOYERS
COVERED
UNDER
MULTIPLE
EMPLOYER
WELFARE
ARRANGEMENTS
PROVIDING
FULLY INSURED COVERAGE CONSISTING OF MEDICAL CARE
Sec. 1411. Single annual filing for all participating employers.
Subtitle F—Definitions; General Provisions
PART 1—DEFINITIONS
Sec. 1901. General definitions.
Sec. 1902. Definitions relating to employment.
Sec. 1903. Definitions relating to health coverage, plans, and carriers.
Sec. 1904. Definitions relating to residence and immigration status.
Sec. 1905. Effective dates.
PART 2—REPORT AND RECOMMENDATIONS ON HEALTH COVERAGE AND
ACCESS
Sec. 1911. Objective of full access and coverage.
Sec. 1912. Report and recommendations on achievement of objective for health
coverage and access.
Subtitle A—Insurance Reform
PART 1—GUARANTEED ACCESS TO HEALTH
COVERAGE
SEC. 1001. GUARANTEED OFFER BY CARRIERS.
(a) IN GENERAL.—Each carrier that offers health in-
surance coverage in the individual/small group market in
a fair rating area (as defined in section 1903) shall make
available, to each qualifying individual (as defined in sec-
tion 1904(3)) or small employer (covered in such market)
in such fair rating area—
Title I, Subtitle A
(1) qualified standard coverage consistent with
section 1102, and
(2) subject to subsection (b), qualified high-de-
ductible coverage consistent with section 1103.
(b) HIGH-DEDUCTIBLE COVERAGE.—
(1) EXCEPTION
FOR
HEALTH
MAINTENANCE
ORGANIZATIONS.—The requirement of subsection
(a)(2) shall not apply with respect to health insur-
ance coverage that—
(A) is provided by a Federally qualified
health maintenance organization (as defined in
section 1301(a) of the Public Health Service
Act), or
(B) is not provided by such an organiza-
tion but is provided by an organization recog-
nized under State law as a health maintenance
organization or managed care organization or a
similar organization regulated under State law
for solvency.
(2) LIMITATION ON OFFER OF HIGH-DEDUCT-
IBLE COVERAGE.—Qualified high-deductible coverage
may not be made available by a carrier to a qualify-
ing individual (or to a small employer with respect
to an employee) unless the carrier also makes avail-
able qualified standard coverage that has identical
Title I, Subtitle A
benefits (other than the amount of the deductible)
and the individual or employee demonstrates to the
carrier that the individual or employee has available
assets (as defined by the Secretary) equal to at least
the deductible amount established under section
1104(b)(1) applicable to the high-deductible cov-
erage. A carrier may not make available to an indi-
vidual health coverage (other than coverage for sup-
plemental benefits) the actuarial value of which is
less than the actuarial value of qualified high-de-
ductible coverage, unless the individual has available
assets (as defined by the Secretary) equal to at least
the deductible amount of the coverage offered.
(3) OPTION TO OFFER MEDISAVE COVERAGE.—
The offer of high-deductible coverage under sub-
section (a)(2) may be accompanied by the contribu-
tion by an employer to a medical savings account (in
accordance with section 7705 of the Internal Reve-
nue Code of 1986).
(c) COVERAGE OF ENTIRE RATING AREA.—
(1) IN GENERAL.—With respect to each fair
rating area for which a carrier offers health insur-
ance coverage, the carrier shall provide for coverage
of benefits for items and services furnished through-
out the fair rating area.
Title I, Subtitle A
(2) SPECIAL
RULE
FOR
CARRIERS
OFFERING
COVERAGE IN MULTI-STATE METROPOLITAN STATIS-
TICAL AREAS.—In the case of a carrier that offers
qualified health insurance coverage in the individual/
small employer market in a portion of a State that
is located in an interstate metropolitan statistical
area, the carrier may not provide such coverage with
respect to an individual or employer in such metro-
politan statistical area unless the carrier also offers
such coverage in other portions of the area located
in other States.
(3) SPECIAL RULE FOR COVERAGE THROUGH
MANAGED CARE ARRANGEMENT.—In the case of cov-
erage offered by a carrier or under a group health
plan to the extent that it provides benefits through
a managed care arrangement in a fair rating area,
this subsection shall not be construed as requiring
the establishment of facilities throughout the area, if
the facilities are located consistent with section
1002(b)(1).
(d) FAMILY COVERAGE OPTION.—The offer of cov-
erage under this section with respect to an individual shall
include the option of coverage of family members of the
individual.
Title I, Subtitle A
(e) LIMITATION ON CARRIERS.—A carrier may not
require an employer under a group health plan to impose
through a waiting period for health coverage under a plan
or similarly require a limitation or condition on health cov-
erage or benefits based on—
(1) the health status of an individual,
(2) claims experience of an individual,
(3) receipt of health care by an individual,
(4) medical history of an individual,
(5) receipt of public subsidies by an individual,
or
(6) lack of evidence of insurability of an individ-
ual.
SEC. 1002. GUARANTEED ISSUE BY CARRIERS.
(a) IN GENERAL.—Subject to subsections (b) and (c)
and section 1003, each carrier that offers health insurance
coverage in the individual/small group market in a fair rat-
ing area—
(1) must accept every small employer in the
area that applies for such coverage during an enroll-
ment period provided under section 1005; and
(2) must accept for enrollment under such cov-
erage every qualifying individual (and family mem-
ber of such an individual) who applies for enrollment
during an enrollment period provided under section
Title I, Subtitle A
1005 and may not place any restriction on the eligi-
bility of an individual to enroll so long as such indi-
vidual is a qualifying individual.
(b) SPECIAL RULES FOR MANAGED CARE ARRANGE-
MENTS.—In the case of coverage offered by a carrier or
under a group health plan that provides benefits through
a managed care arrangement in a fair rating area, the
carrier or plan—
(1) need not establish facilities for the delivery
of health care services throughout the area so long
as such facilities are located in a manner that does
not discriminate on the basis of health status of in-
dividuals residing in proximity to such facilities, and
(2) may deny such coverage in a fair rating
area to employers or individuals if the organization
demonstrates to the applicable regulatory authority
that—
(A) it will not have the capacity to deliver
services adequately to enrollees of any addi-
tional groups or additional enrollees because of
its obligations to existing group contract hold-
ers and enrollees, and
(B) it is applying this paragraph uniformly
to all employers and individuals without regard
to the health status, claims experience, or dura-
Title I, Subtitle A
tion of coverage of those employers and their
employees.
Coverage may be denied under paragraph (2) only if the
denial is applied during a consecutive period of at least
180 days.
(c) SPECIAL RULE FOR FINANCIAL CAPACITY LIM-
ITS.—In addition to the authority provided under sub-
section (b)(2), in the case of coverage offered by any car-
rier, the carrier may deny coverage to a small employer
or individual if the carrier demonstrates to the applicable
regulatory authority that—
(1) it does not have the financial reserves nec-
essary to underwrite additional coverage, and
(2) it is applying this subsection uniformly to
all employers and individuals without regard to the
health status, claims experience, or duration of cov-
erage of those employers and their employees.
Coverage may be denied under this subsection only if the
denial is applied during a consecutive period of at least
180 days.
SEC. 1003. GUARANTEED RENEWAL.
(a) LIMITATION ON TERMINATION BY CARRIERS.—
A carrier may not deny, cancel, or refuse to renew health
coverage of a qualifying individual or eligible employer
Title I, Subtitle A
within a type of coverage option described in section
1903(15) except—
(1) on the basis of nonpayment of premiums,
(2) on the basis of fraud or misrepresentation,
or
(3) subject to subsection (b), in a fair rating
area because the carrier is ceasing to provide any
health insurance coverage in the individual/small
group market within such type of coverage option in
the area.
(b) LIMITATIONS ON MARKET EXIT BY CARRIERS.—
(1) NOTICE, ETC.—Subsection (a)(3) shall not
apply to a carrier ceasing to provide health insur-
ance coverage unless—
(A) such termination of coverage takes ef-
fect at the end of a contract year, and
(B) the carrier provides notice of such ter-
mination to employers and individuals covered
at least 30 days before the date of an annual
open enrollment period established with respect
to the employer or individual under section
1005.
(2) LIMITATION ON REENTRY IN INDIVIDUAL/
SMALL GROUP MARKET.—If a carrier ceases to offer
or provide health insurance coverage in an area with
Title I, Subtitle A
respect to the individual/small group market for a
type of coverage option, the insurer may not offer
health insurance coverage in the area in such market
within such type of coverage option until 5 years
after the date of the termination.
(c) RULE FOR MULTIEMPLOYER PLANS AND CER-
TIFIED MULTIPLE EMPLOYER HEALTH.—A multiem-
ployer plan and a certified multiple employer health plan
may not cancel coverage or deny renewal of coverage
under such a plan with respect to an employer other
than—
(1) for nonpayment of contributions,
(2) for fraud or other misrepresentation by the
employer, or
(3) because the plan is ceasing to provide any
coverage in a geographic area.
SEC. 1004. RESTRICTING PREEXISTING CONDITION EXCLU-
SIONS.
(a) IN GENERAL.—Except as provided in this section,
a carrier or group health plan providing health coverage
may not exclude health coverage with respect to services
related to treatment of a condition based on the fact that
the condition of an individual existed before the effective
date of coverage of the individual.
(b) LIMITED 6-MONTH EXCLUSION PERMITTED.—
Title I, Subtitle A
(1) IN
GENERAL.—Subject to paragraph (2)
and subsections (c) through (e), a carrier or group
health plan providing health coverage may exclude
health coverage with respect to services related to
treatment of a condition of an individual based on
the fact that the condition existed before the effec-
tive date of coverage of the individual only if the pe-
riod of the exclusion does not exceed 6 months be-
ginning on the date of coverage.
(2) CREDITING OF PREVIOUS COVERAGE.—
(A) IN
GENERAL.—A carrier or group
health plan providing health coverage shall pro-
vide that if a covered individual is in a period
of continuous coverage (as defined in subpara-
graph (C)) as of a date upon which coverage is
initiated or reinitiated, any period of exclusion
of coverage with respect to a preexisting condi-
tion (as defined in subparagraph (B)) for such
services or type of services shall be reduced by
1 month for each month in the period of contin-
uous coverage.
(B) PREEXISTING CONDITION DEFINED.—
In this paragraph, the term ‘‘preexisting condi-
tion’’ means, with respect to health coverage, a
condition which has been diagnosed or treated
Title I, Subtitle A
during the 3-month period ending on the day
before the first date of such coverage (without
regard to any waiting period).
(C) PERIOD OF CONTINUOUS COVERAGE.—
In this part, the term ‘‘period of continuous
coverage’’ means the period beginning on the
date an individual has health coverage (or cov-
erage under a public plan providing medical
benefits) and ends on the date the individual
does not have such coverage for a continuous
period of more than 3 months (or 6 months in
the case of an individual who loses coverage due
to involuntary termination of employment, other
than by reason of an employee’s gross mis-
conduct).
(c) EXCLUSION NOT APPLICABLE TO PREGNANCY.—
Any exclusion of coverage under subsection (b)(1) shall
not apply if the exclusion relates to pregnancy.
(d) EXCLUSION NOT APPLICABLE TO NEWBORNS
AND ADOPTED CHILDREN.—
(1) NEWBORNS.—Any exclusion of coverage
under subsection (b)(1) shall not apply to a child
who is covered at the time of birth and remains in
a period of continuous coverage after such time.
Title I, Subtitle A
(2) ADOPTED
CHILDREN.—Any exclusion of
coverage under subsection (b)(1) shall not apply (be-
ginning on the date of adoption) to an adopted child
who is covered at the time of adoption and remains
in a period of continuous coverage after such time.
(e) EXCLUSION NOT APPLICABLE TO INDIVIDUALS
ENROLLED OR ENROLLING DURING CERTAIN OPEN EN-
ROLLMENT PERIODS.—
(1) INDIVIDUALS
ENROLLING
DURING
PE-
RIOD.—In the case of an individual who enrolls and
obtains coverage during an open enrollment period
described in section 1005(b), any exclusion of cov-
erage under subsection (b)(1) shall not apply so long
as the individual remains in a period of continuous
coverage.
(2) INDIVIDUALS ENROLLED AT BEGINNING OF
PERIOD.—In the case of an individual who has
health coverage as of the first day of the initial open
enrollment period described in section 1005(b)(1),
any exclusion of coverage under subsection (b)(1)
shall not apply as of such date and so long as the
individual is in a period of continuous coverage.
(f) APPLICATION OF RULES BY CERTAIN HEALTH
MAINTENANCE ORGANIZATIONS.—A health maintenance
organization that provides health insurance coverage shall
Title I, Subtitle A
not be considered as failing to meet the requirements of
section 1301 of the Public Health Service Act notwith-
standing that it provides for an exclusion of the coverage
based on a preexisting condition consistent with the provi-
sions of this part so long as such exclusion is applied con-
sistent with the provisions of this part.
SEC. 1005. ENROLLMENT PERIODS.
(a) IN GENERAL.—Each carrier and each group
health plan providing health coverage (and each health
plan purchasing organization under subtitle A of title V)
in the individual/small group market shall permit qualify-
ing individuals and eligible employers to obtain health cov-
erage from the carrier or group health plan during each
enrollment period provided under this section.
(b) OPEN ENROLLMENT PERIODS FOR WHICH PRE-
EXISTING CONDITION EXCLUSIONS WAIVED.—
(1) INITIAL PERIOD.—There shall be an initial
open enrollment period, with respect to individuals
and employees who are residents of a State, during
the 60-day period beginning on January 1, 1997.
(2) INDIVIDUALS ELIGIBLE FOR SUBSIDIES.—
There shall be an individual open enrollment period
with respect to an individual at the time the individ-
ual first becomes eligible for any premium assistance
under part A of title XXI of the Social Security Act,
Title I, Subtitle A
during the 60-day period beginning on the first date
the individual meets eligibility criteria within any
12-month period.
(3) COURT ORDERS.—If a court has ordered
that coverage be provided for a spouse or child of an
employee or individual under health coverage of the
employee or individual, there shall be an open enroll-
ment period during the 30-day period beginning on
the date of issuance of the court order.
(4) ENROLLMENT OF NEWBORNS AND NEWLY
ADOPTED CHILDREN.—There shall be an open en-
rollment period with respect to a newborn child and
a newly adopted child during the 30-day period be-
ginning on the date of the birth or adoption of a
child, if family coverage is available as of such date.
(c) ANNUAL OPEN ENROLLMENT PERIODS
FOR
WHICH
PREEXISTING
CONDITION
EXCLUSIONS
MAY
APPLY.—
(1) IN GENERAL.—Each carrier and each group
health plan providing health coverage (and each
health plan purchasing organization under subtitle A
of title V) in the individual/small group market shall
provide for at least one annual open enrollment pe-
riod (of not less than 30 days) each year. Such pe-
Title I, Subtitle A
riod shall be in addition to the open enrollment peri-
ods described in subsection (b).
(2) COORDINATION.—
(A) 
CARRIERS
IN
INDIVIDUAL/SMALL
GROUP MARKET.—Such annual open enrollment
periods with respect to carriers in the individ-
ual/small group market are subject to coordina-
tion by States.
(B) GROUP HEALTH PLANS.—Such annual
open enrollment periods with respect to any
group health plan are subject to coordination in
order to meet the requirement of section
1201(a)(2)(F).
(d) OTHER
OPEN
ENROLLMENT
PERIODS
FOR
WHICH
PREEXISTING
CONDITION
EXCLUSIONS
MAY
APPLY.—
(1) TERMINATION OF RESIDENCE AREA.—For
each qualifying individual, at the time the individual
terminates residence in the service area of coverage
provided by a carrier to the individual, there shall be
an open enrollment period (of not less than 30 days)
during which the individual may enroll in health cov-
erage.
(2) FAMILY
OR
EMPLOYMENT
CHANGES.—In
the case of a qualifying individual who—
Title I, Subtitle A
(A) through divorce or death of a family
member experiences a change in family com-
position, or
(B) experiences a change in employment
status (including a significant change in the
terms and conditions of employment or the
terms and conditions of employment of a
spouse),
there shall be an open enrollment period (of at least
30 days) in which the individual is permitted to
change the individual or family basis of coverage or
the health coverage in which the individual is en-
rolled. The circumstances under which such enroll-
ment periods are required and the duration of such
periods shall be specified by the Secretary.
(3) ENROLLMENT DUE TO LOSS OF PREVIOUS
COVERAGE.—In the case of a qualifying individual
who—
(A) had health coverage at the time of an
individual’s enrollment period,
(B) stated at the time of such period that
having other health coverage was the reason for
declining enrollment, and
(C) lost the other health coverage as a re-
sult of the termination of the coverage, termi-
Title I, Subtitle A
first day of the first month that begins at least 15
days after the date of enrollment) as the Secretary
shall specify, consistent with this subsection.
(2) COVERAGE OF FAMILY MEMBERS.—In the
case of an open enrollment period described in sub-
section (b)(3), (b)(4), or (d)(4), the Secretary shall
provide for coverage of family members to begin as
soon as possible on or after the date of the event
that gives rise to the special enrollment period (or,
in the case of birth or adoption, as of the date of
birth or adoption).
SEC. 1006. TREATMENT OF RELIGIOUS FRATERNAL BENE-
FIT SOCIETIES.
(a) IN GENERAL.—Sections 1001 and 1002 shall not
apply to any religious fraternal benefit society in existence
as of September 1993, which—
(1) bears the risk of providing insurance to its
members, and
(2) is an organization described in section
501(c)(8) of the Internal Revenue Code of 1986
which is exempt from taxation under section 501(a)
of such Code.
(b) DEFINITION.—In subsection (a), the term ‘‘fra-
ternal benefit society’’ includes any affiliate or wholly-
owned subsidiary of a fraternal benefit society, including
Title I, Subtitle A
a health maintenance organization insofar as it is utilized
directly or indirectly to provide managed care to members
of the society.
PART 2—PROVISION OF BENEFITS
SEC. 1011. STANDARDS FOR MANAGED CARE ARRANGE-
MENTS.
(a) APPLICATION OF REQUIREMENTS.—Each group
health plan, and each carrier providing health insurance
coverage, that provides for health care through a managed
care arrangement (as defined in section 1903(12)(A))
shall comply with the applicable requirements of this sec-
tion.
(b) SCOPE OF ARRANGEMENTS WITH PROVIDERS.—
(1) ACCESS TO CARE.—The entity providing for
a managed care arrangement with respect to health
coverage shall enter into such agreements with
health care providers (including primary and spe-
cialty providers, such as providers for children) or
have such other arrangements as may be necessary
to assure that covered individuals have reasonably
prompt access through the entity’s provider network
to all items and services contained in the package of
benefits for which coverage is provided (including ac-
cess to emergency services on a 24-hour basis where
medically necessary), in a manner that assures the
Title I, Subtitle A
continuity of the provision of such items and serv-
ices. Such access shall take into account the diverse
needs of enrollees and proximity to the workplaces
or residences of enrollees.
(2) ACCESS TO CENTERS OF EXCELLENCE.—
(A) IN
GENERAL.—The entity providing
for a managed care arrangement under health
coverage shall demonstrate that covered individ-
uals (including individuals with chronic dis-
eases) have access through the entity’s provider
network to specialized treatment expertise.
Such entity may demonstrate such access
through contracts with centers of excellence de-
scribed in subparagraph (B).
(B) DESIGNATION OF CENTERS OF EXCEL-
LENCE.—The Secretary shall establish a proc-
ess for the designation of facilities, including
children’s hospitals and other pediatric facili-
ties, as centers of excellence for purposes of this
paragraph. A facility may not be designated un-
less the facility is determined—
(i) to provide specialty care,
(ii) to deliver care for complex cases
requiring specialized treatment and for in-
dividuals with chronic diseases, and
Title I, Subtitle A
(iii) to meet other requirements that
may be established by the Secretary relat-
ing to specialized education and training of
health professionals, participation in peer-
reviewed research, or treatment of patients
from outside the geographic area of the fa-
cility.
(3) CHOICE OF PERSONAL PHYSICIAN.—The en-
tity providing for a managed care arrangement
under health coverage shall permit each enrollee to
choose a personal physician from among available
participating physicians and change that selection as
appropriate.
(c) PROVISION OF EMERGENCY CARE SERVICES.—
(1) IN GENERAL.—The entity providing for a
managed care arrangement under health coverage
must cover medically necessary emergency care serv-
ices provided to covered individuals (including trau-
ma services, such as those provided by designated
trauma centers), without regard to whether or not
the provider furnishing such services has a contrac-
tual (or other) arrangement with the entity to pro-
vide items or services to covered individuals and, in
the case of services furnished for the treatment of
an emergency medical condition (as defined in sec-
Title I, Subtitle A
tion 1867(e)(1) of the Social Security Act), without
regard to prior authorization.
(2) 
DESIGNATED
TRAUMA
CENTERS
DE-
FINED.—In paragraph (1), the term ‘‘designated
trauma center’’—
(A) has the meaning given such term in
section 1231 of the Public Health Service Act,
and
(B) includes (for years prior to 2001) a
trauma center that—
(i) is located in a State that has not
designated trauma centers under section
1213 of such Act, and
(ii) the Secretary finds it meets the
standards under such section to be a des-
ignated trauma center.
(d) DUE PROCESS STANDARDS RELATING TO PRO-
VIDER NETWORKS.—
(1) STANDARDS FOR SELECTION OF PROVIDERS
FOR NETWORK.—
(A) ESTABLISHMENT.—The entity provid-
ing for a managed care arrangement under
health coverage shall establish standards (in-
cluding 
criteria 
for 
quality, 
efficiency,
credentialing, and services) to be used by the
Title I, Subtitle A
entity for contracting with health care providers
with respect to the entity’s provider network.
Such standards shall be established in consulta-
tion with providers who are members of the net-
work, including providers who are members of
the advisory committee established under para-
graph (3)(D).
(B) DISTRIBUTION
OF
INFORMATION.—
Descriptive information regarding these stand-
ards and criteria shall be made available to en-
rollees, providers who are members of the net-
work, and prospective enrollees and prospective
participating providers, including notice of when
applications for participation will be accepted.
(C) NOTICE
OF
DENIALS.—The entity
shall provide written notice to the provider of
any denial of an application to participate in
the provider network.
(2) TERMINATION PROCESS.—
(A) IN GENERAL.—The entity may not ter-
minate or refuse to renew a participation agree-
ment with a provider in the entity’s provider
network unless the entity provides written noti-
fication to the provider of the entity’s decision
to terminate or refuse to renew the agreement.
Title I, Subtitle A
representing the provider to be present at the
provider’s review.
(C) REVIEW ADVISORY.—The findings and
conclusions of a review under this paragraph
may be advisory and non-binding.
(D) ADVISORY
COMMITTEE.—The entity
shall establish an advisory committee of partici-
pating physicians with whom it consults, on an
advisory basis, on the termination of physicians
who have been participating in the provider net-
work. In making recommendations to the en-
tity, such an advisory committee shall consider
such features of the physician’s practice, relat-
ing to case mix and age of patients, as may
lead the physician to have higher than expected
treatment costs for the patients of the physician
who are enrollees.
(4) CONSTRUCTION.—Nothing in this sub-
section shall be construed to affect any other provi-
sion of law that provides an appeals process or other
form of relief to a provider of health care services
or an entity providing for a managed care arrange-
ment.
(e) NO REFERRAL REQUIRED FOR OBSTETRICS AND
GYNECOLOGY.—A carrier or group health plan may not
Title I, Subtitle A
require an individual to obtain a referral from a physician
in order to obtain covered items and services from a physi-
cian who specializes in obstetrics and gynecology.
SEC. 1012. UTILIZATION REVIEW.
(a) ESTABLISHMENT
OF
STANDARDS
BY
SEC-
RETARY.—The Secretary shall establish standards for uti-
lization review programs, consistent with subsection (c),
and shall periodically review and update such standards
to reflect changes in the delivery of health care services.
The Secretary shall establish such standards in consulta-
tion with appropriate parties.
(b) REQUIRING REVIEW TO MEET STANDARDS.—A
group health plan or carrier providing health insurance
coverage may not deny coverage of or payment for items
and services on the basis of a utilization review program
unless the program meets the standards established by the
Secretary under this section.
(c) REQUIREMENTS
FOR STANDARDS.—Under the
standards established under subsection (a)—
(1) individuals performing utilization review
may not receive financial compensation based upon
the number of denials of coverage;
(2) negative determinations of the medical ne-
cessity or appropriateness of services or the site at
Title I, Subtitle A
which services are furnished may be made only by
clinically qualified personnel;
(3) the utilization review program shall provide
for a process under which an enrollee or provider
may obtain timely review of a denial of coverage, in-
cluding upon request a review conducted by the med-
ical director of the carrier or plan or a physician
designated by the carrier or plan;
(4) utilization review shall be conducted in ac-
cordance with uniformly applied standards that are
based on currently available medical evidence; and
(5) providers shall participate in the develop-
ment of the utilization review program.
(d) PREEMPTION.—For provision preempting State
laws relating to utilization review, see section 6103.
SEC. 1013. REQUIREMENTS FOR ARRANGEMENTS WITH ES-
SENTIAL COMMUNITY PROVIDERS.
(a) REQUIREMENT.—
(1) IN GENERAL.—Subject to subsection (d),
each group health plan and each carrier providing
qualified health coverage to individuals residing in a
fair rating area (or service area in the case of a car-
rier that is a health maintenance organization) shall,
with respect to at least one essential community pro-
vider (as defined in subsection (c)) within each class
Title I, Subtitle A
of such a provider (as described in paragraph (2))
located within the area, enter into a written provider
participation agreement (described in subsection (b))
with the provider, unless all the providers in the
class have declined to enter into such a contract with
the plan or carrier.
(2) CLASS
DEFINED.—For purposes of the
paragraph (1), providers described in each para-
graph of subsection (c) shall constitute a separate
‘‘class’’ of providers.
(b) PARTICIPATION AGREEMENT.—A participation
agreement between a group health plan or carrier and an
essential community provider under this subsection shall
provide that the plan or carrier agrees to treat the pro-
vider in accordance with terms and conditions at least as
favorable as those that are applicable to other providers
with a participation agreement with the plan or carrier
with respect to the scope of services for which payment
is made by the plan or carrier to the provider.
(c) 
ESSENTIAL
COMMUNITY
PROVIDERS
DE-
SCRIBED.—In this section, an ‘‘essential community pro-
vider’’ means any of the following:
(1) CERTAIN
MEDICARE
DISPROPORTIONATE
SHARE HOSPITALS.—A hospital—
Title I, Subtitle A
(A) 
described 
in 
section
1886(d)(5)(F)(i)(II) of the Social Security Act;
(B) 
described 
in 
section
1886(d)(5)(F)(iv)(I) of such Act with a dis-
proportionate patient percentage (as defined in
section 1886(d)(5)(F)(vi) of such Act) greater
than 20.2; or
(C) that would be described in subpara-
graph (A) or (B) if the hospital were a sub-
section (d) hospital (as defined in section
1886(d)(1)(B) of such Act).
(2) SOLE COMMUNITY HOSPITALS.—A sole com-
munity 
hospital 
(as 
described 
in 
section
1886(d)(5)(D)(iii) of such Act).
(3) 
MEDICARE-DEPENDENT, 
SMALL
RURAL
HOSPITALS.—A medicare-dependent, small rural
hospital (as described in section 1886(d)(5)(G)(iii)
of such Act), or a hospital that would be a medicare-
dependent, small rural hospital if the hospital were
a subsection (d) hospital (as defined in section
1886(d)(1)(B) of such Act).
(4) FEDERALLY
QUALIFIED
HEALTH
CEN-
TERS.—A Federally qualified health center (as de-
fined in section 1861(aa)(4) of the Social Security
Act) or an entity that would be such a center but
Title I, Subtitle A
for its failure to meet the requirement described in
section 329(f)(2)(G)(i) of the Public Health Service
Act or the requirement described in section
330(e)(3)(G)(i) of such Act (relating to the composi-
tion of the entity’s governing board).
(5) RURAL HEALTH CLINICS.—A rural health
clinic (as defined in section 1861(aa)(2) of the So-
cial Security Act).
(6) LOCAL HEALTH DEPARTMENTS.—A health
department of a unit of State or local government
which provides health services directly to individuals.
(7) CERTAIN CHILDREN’S HOSPITALS.—A hos-
pital whose inpatients are predominantly individuals
under 18 years of age and that would be described
in subparagraph (A) or (B) of paragraph (1) if the
hospital were a subsection (d) hospital (as defined in
section 1886(d)(1)(B) of the Social Security Act)
with more than 100 beds.
(d) SUNSET.—The requirement of subsection (a)
shall not apply to health coverage provided after December
31, 1999.
SEC. 1014. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Chapter 79 of the Internal Reve-
nue Code of 1986 is amended by adding at the end the
following new section:
Title I, Subtitle A
‘‘SEC. 7705. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) GENERAL RULE.—For purposes of this title, the
term ‘medical savings account’ means a trust created or
organized in the United States for the exclusive benefit
of an individual or his beneficiaries, but only if the written
instrument creating the trust meets the following require-
ments:
‘‘(1) Except in the case of a rollover contribu-
tion described in subsection (d)(3), no contribution
will be accepted unless—
‘‘(A) it is in cash, and
‘‘(B) such individual is an eligible employee
for the period for which such contribution is
made.
‘‘(2) The trustee is a bank (as defined in sec-
tion 408(n)), insurance company (as defined in sec-
tion 816), or such other person who demonstrates to
the satisfaction of the Secretary that the manner in
which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance of the account is nonforfeitable.
Title I, Subtitle A
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(b) ELIGIBLE EMPLOYEE.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘eligible em-
ployee’ means any employee who has high-deductible
coverage (as defined in section 1103 of the Biparti-
san Health Care Reform Act of 1994) offered by the
employer.
‘‘(2) EXCEPTION.—An employee shall be treat-
ed as not being an eligible employee for any calendar
year if, for any month during such year, it is reason-
ably expected that such employee—
‘‘(A) will have adjusted gross income that
is less than 100 percent of the income official
poverty line (as determined by the Director of
the Office of Management and Budget) for a
family of the size involved; or
‘‘(B) is an AFDC recipient or SSI recipi-
ent.
‘‘(3) DEFINITIONS.—For purposes of paragraph
(2)—
‘‘(A) 
AFDC 
RECIPIENT.—The 
term
‘AFDC recipient’ means, for a month, an indi-
Title I, Subtitle A
vidual who is receiving aid or assistance under
any plan of the State approved under title I, X,
XIV, or XVI, or part A or part E of title IV,
of the Social Security Act for the month.
‘‘(B) SSI RECIPIENT.—The term ‘SSI re-
cipient’ means, for a month, an individual—
‘‘(i) with respect to whom supple-
mental security income benefits are being
paid under title XVI of the Social Security
Act for the month,
‘‘(ii) who is receiving a supplementary
payment under section 1616 of such Act or
under section 212 of Public Law 93–66 for
the month,
‘‘(iii) who is receiving monthly bene-
fits under section 1619(a) of the Social Se-
curity Act (whether or not pursuant to sec-
tion 1616(c)(3) of such Act) for the
month, or
‘‘(iv) who is treated under section
1619(b) of the Social Security Act as re-
ceiving supplemental security income bene-
fits in a month for purposes of title XIX
of such Act.
‘‘(c) TAX TREATMENT OF ACCOUNTS.—
Title I, Subtitle A
‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the account beneficiary of a
medical savings account shall be treated for
purposes of this title as the owner of such ac-
count and shall be subject to tax thereon in ac-
cordance with subpart E of part I of subchapter
J of this chapter (relating to grantors and oth-
ers treated as substantial owners).
‘‘(B) TREATMENT OF CAPITAL LOSSES.—
With respect to assets held in a medical savings
account, any capital loss for a taxable year
from the sale or exchange of such an asset shall
be allowed only to the extent of capital gains
from such assets for such taxable year. Any
capital loss which is disallowed under the pre-
ceding sentence shall be treated as a capital
loss from the sale or exchange of such an asset
in the next taxable year. For purposes of this
subparagraph, all medical savings accounts of
the account beneficiary shall be treated as 1 ac-
count.
‘‘(2) ACCOUNT TERMINATES IF INDIVIDUAL EN-
GAGES IN PROHIBITED TRANSACTION.—
Title I, Subtitle A
‘‘(A) IN GENERAL.—If, during any taxable
year of the account beneficiary, such beneficiary
engages in any transaction prohibited by section
4975 with respect to the account, the account
shall cease to be a medical savings account as
of the first day of such taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, subsection (d) shall be applied
as if—
‘‘(i) there were a distribution on such
first day in an amount equal to the fair
market value (on such first day) of all as-
sets in the account (on such first day), and
‘‘(ii) no portion of such distribution
were used to pay qualified medical ex-
penses.
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the account ben-
eficiary uses the account or any portion thereof as
security for a loan, the portion so used is treated as
distributed and not used to pay qualified medical ex-
penses.
Title I, Subtitle A
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
which is not used exclusively to pay the quali-
fied medical expenses of the account beneficiary
or of the spouse or dependents (as defined in
section 152) of such beneficiary shall be in-
cluded in the gross income of such beneficiary
to the extent such amount does not exceed the
excess of—
‘‘(i) the aggregate contributions to
such account which were not includible in
gross income by reason of section 106(2),
over
‘‘(ii) the aggregate prior payments or
distributions from such account which were
includible in gross income under this para-
graph.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all medical savings accounts of
the account beneficiary shall be treated as
1 account,
Title I, Subtitle A
‘‘(ii) all payments and distributions
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
chapter 1 on the account beneficiary for any
taxable year in which there is a payment or dis-
tribution from a medical savings account of
such beneficiary which is includible in gross in-
come under paragraph (1) shall be increased by
100 percent of the amount which is so includ-
ible.
‘‘(B) 
EXCEPTION
FOR
DISTRIBUTIONS
AFTER AGE 65.—Subparagraph (A) shall not
apply to any payment or distribution after the
date on which the account beneficiary attains
age 65.
‘‘(C) EXCEPTION
FOR
DISABILITY
OR
DEATH.—Subparagraph (A) shall not apply if
the payment or distribution is made after the
Title I, Subtitle A
account beneficiary becomes disabled within the
meaning of section 72(m)(7) or dies.
‘‘(3) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribu-
tion if it meets the requirements of subparagraphs
(A) and (B).
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any amount paid or distributed
from a medical savings account to the account
beneficiary to the extent the amount received is
paid into a medical savings account for the ben-
efit of such beneficiary not later than the 60th
day after the day on which he receives the pay-
ment or distribution.
‘‘(B) LIMITATION.—This paragraph shall
not apply to any amount described in subpara-
graph (A) received by an individual from a
medical savings account if, at any time during
the 1-year period ending on the day of such re-
ceipt, such individual received any other amount
described in subparagraph (A) from a medical
savings account which was not includible in his
gross income because of the application of this
paragraph.
Title I, Subtitle A
‘‘(4) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a medical savings ac-
count for qualified medical expenses shall not be
treated as an expense paid for medical care to the
extent of the amount of such payment or distribu-
tion which is excludable from gross income solely by
reason of paragraph (1)(A).
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means any expense
for medical care (as defined in section 213(d)); ex-
cept that such term shall not include any amount
paid for insurance.
‘‘(2) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual for whose
benefit the medical savings account is maintained.
‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of this
section, a custodial account shall be treated as a trust if—
‘‘(1) the assets of such account are held by a
bank (as defined in section 408(n)), insurance com-
pany (as defined in section 816), or another person
who demonstrates to the satisfaction of the Sec-
retary that the manner in which he will administer
Title I, Subtitle A
the account will be consistent with the requirements
of this section, and
‘‘(2) the custodial account would, except for the
fact that it is not a trust, constitute a medical sav-
ings account described in subsection (a).
For purposes of this title, in the case of a custodial ac-
count treated as a trust by reason of the preceding sen-
tence, the custodian of such account shall be treated as
the trustee thereof.
‘‘(g) REPORTS.—The trustee of a medical savings ac-
count shall keep such records and make such reports re-
garding such account to the Secretary and to the account
beneficiary with respect to contributions, distributions,
and such other matters as the Secretary may require
under regulations. The reports required by this subsection
shall be filed at such time and in such manner and fur-
nished to such individuals at such time and in such man-
ner as may be required by such regulations.’’
(b) INCOME AND EMPLOYMENT TAX TREATMENT OF
EMPLOYER CONTRIBUTIONS.—
(1) EMPLOYER
PAYMENTS
EXCLUDED
FROM
GROSS INCOME.—The text of section 106 of such
Code is amended to read as follows:
‘‘Gross income of an employee does not include—
Title I, Subtitle A
‘‘(1) employer-provided coverage under an acci-
dent or health plan, and
‘‘(2) employer contributions to any medical sav-
ings account (as defined in section 7705) of an eligi-
ble employee, but only to the extent that the amount
contributed does not exceed the excess of premium
for standard coverage over the premium for high-de-
ductible coverage (as such terms are defined in sec-
tion 1903 of the Bipartisan Health Care Reform Act
of 1994).’’
(2) EMPLOYER
PAYMENTS
EXCLUDED
FROM
EMPLOYMENT TAX BASE.—
(A) SOCIAL SECURITY TAXES.—
(i) Subsection (a) of section 3121 of
such Code is amended by striking ‘‘or’’ at
the end of paragraph (20), by striking the
period at the end of paragraph (21) and
inserting ‘‘; or’’, and by inserting after
paragraph (21) the following new para-
graph:
‘‘(22) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
Title I, Subtitle A
(ii) Subsection (a) of section 209 of
the Social Security Act is amended by
striking ‘‘or’’ at the end of paragraph (18),
by striking the period at the end of para-
graph (19) and inserting ‘‘; or’’, and by in-
serting after paragraph (19) the following
new paragraph:
‘‘(20) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2) of the Internal Revenue Code of 1986.’’
(B) RAILROAD
RETIREMENT
TAX.—Sub-
section (e) of section 3231 of such Code is
amended by adding at the end the following
new paragraph:
‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU-
TIONS.—The term ‘compensation’ shall not include
any payment made to or for the benefit of an em-
ployee if at the time of such payment it is reason-
able to believe that the employee will be able to ex-
clude such payment from income under section
106(2).’’
(C) UNEMPLOYMENT TAX.—Subsection (b)
of section 3306 of such Code is amended by
Title I, Subtitle A
striking ‘‘or’’ at the end of paragraph (15), by
striking the period at the end of paragraph (16)
and inserting ‘‘; or’’, and by inserting after
paragraph (16) the following new paragraph:
‘‘(17) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
(D) WITHHOLDING
TAX.—Subsection (a)
of section 3401 of such Code is amended by
striking ‘‘or’’ at the end of paragraph (19), by
striking the period at the end of paragraph (20)
and inserting ‘‘; or’’, and by inserting after
paragraph (20) the following new paragraph:
‘‘(21) any payment made to or for the benefit
of an employee if at the time of such payment it is
reasonable to believe that the employee will be able
to exclude such payment from income under section
106(2).’’
(c) TECHNICAL AMENDMENTS.—
(1) TAX ON PROHIBITED TRANSACTIONS.—Sec-
tion 4975 of such Code (relating to prohibited trans-
actions) is amended—
Title I, Subtitle A
(A) by adding at the end of subsection (c)
the following new paragraph:
‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account (within the meaning of section
7705) is established shall be exempt from the tax
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect
to such transaction, the account ceases to be a medi-
cal savings account by reason of the application of
section 7705(c)(2)(A) to such account.’’, and
(B) by inserting ‘‘or a medical savings ac-
count described in section 7705’’ in subsection
(e)(1) after ‘‘described in section 408(a)’’.
(2) FAILURE TO PROVIDE REPORTS ON MEDI-
CAL
SAVINGS
ACCOUNTS.—Section 6693 of such
Code (relating to failure to provide reports on indi-
vidual retirement account or annuities) is amend-
ed—
(A) by inserting ‘‘OR ON MEDICAL SAV-
INGS ACCOUNTS’’ after ‘‘ANNUITIES’’ in the
heading of such section, and
(B) by adding at the end of subsection (a)
the following: ‘‘The person required by section
Title I, Subtitle A
7705(g) to file a report regarding a medical
savings account at the time and in the manner
required by such section shall pay a penalty of
$50 for each failure unless it is shown that
such failure is due to reasonable cause.’’
(3) CLERICAL AMENDMENTS.—
(A) The table of sections for chapter 79 of
such Code is amended by adding at the end the
following:
‘‘Sec. 7705. Medical savings accounts.’’
(B) The table of sections for subchapter B
of chapter 68 of such Code is amended by in-
serting ‘‘or on medical savings accounts’’ after
‘‘annuities’’ in the item relating to section
6693.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
PART 3—FAIR RATING PRACTICES
SEC. 1021. USE OF FAIR RATING PRACTICES.
(a) USE OF FAIR RATING PRACTICES.—The pre-
mium rate established by a carrier for health insurance
coverage in the individual/small group market (including
the premium rate for coverage for a small employer
through a multiple employer welfare arrangement that is
fully-insured) may not vary except by the following:
Title I, Subtitle A
(1) AGE.—By age, based on classes of age es-
tablished by the Secretary, in consultation with the
NAIC, consistent with subsection (b).
(2) GEOGRAPHIC AREA.—By geographic area,
as identified by a State consistent with subsection
(c).
(3) FAMILY CLASS.—By family class, based on
the following 4 classes of family coverage: individual,
individual with one or more children, married couple
without a child, and married couple with one or
more children.
(4) BENEFIT
DESIGN.—By benefit design of
coverage, including by type of coverage, such as
standard coverage and high-deductible coverage, and
by type of coverage option (described in section
1903(15)) with respect to standard coverage.
(5) ADMINISTRATIVE
CATEGORIES.—By per-
mitted expense category, based on differences in ex-
penses among such categories, consistent with sub-
section (d).
The premiums shall be established for the different benefit
designs (including standard coverage and high-deductible
coverage) based on the actuarial value of the coverage for
the population of the individual/small group market in the
fair rating area, without regard to the distribution of such